1. M/s. V.R. Gems, 201, North Broak Street, Dr. M. Mahimtura Marg, 3rd Floor, Vishram Building, Bombay--400004 and M/s. Shah & Co. 32, Sir Hari Ram Goenka Street, Calcutta-700007 had filed two revision applications being aggrieved from a consolidated order No. 378-79 of 1980 dt. 17th May, 1980 passed by the Central Board of Excise & Customs, New Delhi to the Special Secretary, Govt. of India, Ministry of Finance, Deptt. of Revenue, New Delhi. After the coming into existence of the Tribunal both the revision applications stand transferred under Section 131B of the Customs Act, 1962 to the Tribunal and are being disposed of as an appeal. Since both the appellants are against the same order of Additional Collector of Customs and were also disposed by a consolidated order by the Central Board of Excise & Customs, New Delhi, these are disposed of by this common order.
2. Briefly the facts of the case are that an intelligence was collected to the effect that contraband diamonds were being transported to Bombay in insured letters and were received by certain persons of Burrabazar area. In pursuance to the intelligence, several insured letters, despatched from Bombay to Calcutta, were detained in Kalakar Street Post Office. Two such insured letters No. 298 of 17th February, 1976 and 683 of 19th February, 1976 despatched by M/s. V.R. Gems of Bombay, addressed to M/s. Shah & Co. of 32 Sir Hariram Goenka Street, Calcutta were also detained. Intimation letters sent to the addressee at Calcutta, M/s. Shah & Co. and the said letters were received back by the postal authority being undelivered. As per report dt. 21st February, 1976 of the delivery clerk, there was no such firm in existence under the name and style of M/s. Shah & Co. 32, Sir Hariram Goenka St., Calcutta, and nobody came forward to claim the said insured letters. On the basis of the said intelligence reports, the said insured letters were opened on the strength of search authorisation as it was suspected that the said insured letters contained contraband goods. As a result of examination in the presence of the Post Master, Kalakar Street Post Office and two independent witnesses, diamonds weighing 60.15 carats were recovered. The said diamonds were seized on the reasonable belief that those were smuggled and liable to confiscation under the Customs Act, 1962 duly listed in a search list, along with the two insured covers being No. R. 298 of Bombay G.P.O. and 683 of Malabar Hills P.O. A copy of the search list duly signed by Search Officer and independent witnesses were handed over to the Sub-Post Master of Kalakar St. Post Office under receipt. Shri S.K.Guha, Sub-Post Master of the Kalakar Street Post Office had stated in his voluntary statement that as per office records, there was no such firm in existence under the name and style of M/s. Shah & Co., 32, Sir Hariram Goenka Street, Calcutta and there was no registration made in the Post Office by the said firm. On 24th February, 1976, one Shri Virendra Shah submitted a letter enclosing two Photostat copies of approval memos dt. 17th February, 1976 and 19th February, 1976 and claimed that the subject diamonds were of Indian origin and prayed for early release of the said goods. He had also stated that he had gone to Kalakar Street Post Office on 23rd February, 1976 with a letter of authority to collect the said letters. He did not file any evidence before the lower authority. On 3Cth March, 1976, Shri Virendra Kumar Shah, appeared before the Customs Officer in response to summon issued under Section 108 of the Customs Act, 1962 and in a voluntary statement stated that he was the elder son of Shri Dayalal K. Shah, proprietor of M/s. Shah & Co. 32, Sir Hariram Goenka St. Calcutta who had gone to Bombay for treatment of his mother on 2nd February, 1976 and did not return till that date. His father had authorised him vide the authorisation letter dt. 2nd February, 1976 to look after all the works related to M/s. Shah & Co. He had also stated that the firm M/s. Shah & Co. was a registered firm. Shri Rajendra Dayalal Shah, partner of M/s.
V.R. Gems in a voluntary statement dated 27th April, 1976 before the Customs Officer stated that he had started the firm in partnership with his elder brother Shri Virendra D. Shah, with the help of his father, who used to come to Bombay often and purchased diamonds etc. and used to sell in the local market or to the parties of Bombay and all the books of accounts were maintained by his father. He had admitted that he had sent the despatched diamonds weighing 31.20 carats of polished diamonds @ Rs. 1650/-per carats to M/s. Shah & Co. at Calcutta vide postal receipt No. 298 dt. 17th February, 1976 and 29.00 carats of polished diamonds to M/s. Shah & Co., Calcutta vide postal receipt No.683 dt. 19th February, 1976 on approval basis on the strength of a verbal order of his father, who was the proprietor of M/s. Shah & Co.
He had further stated that the diamonds were purchased from various paities of local market and he was not able to corelate the diamonds despatched by him with the purchased diamonds. In support of his claim, he had submitted the Photostat copies of the purchase vouchers and particulars of the entire stock account. He had also stated that his elder brother i.e. Shri Virendra Shah was doing brokery business in diamonds in Calcutta and also looked after the business of his father M/s. Shah & Co. during his absence and further stated that his father was at Bombay for his treatment.
3. Show Cause Notices were issued to the appellants M/s. V.R. Gems, Bombay and M/s. Shah & Co., Calcutta. M/s. Shah & Co., Calcutta submitted a reply dt. 31st August, 1976 and had contended that the mention made in para No. 1 was with a view to prejudice the mind of adjudicating officer and the remarks made by the postal authority were motivated and with some ulterior motive. The diamonds in question were despatched by M/s. V.R. Gems, Bombay on approval basis and were validly acquired by them. It was also contended that the said diamonds were originally imported legally as rough diamonds and thereafter the said rough diamonds were cut and polished in India. Those are sold either as unassorted diamonds or as assorted diamonds according to size or quality, according to the choice of the purchaser and as such, it is not possible to identify the diamonds despatched to them with the lot of diamonds purchased by the said M/s. V.R. Gems. The diamonds are sold from the stock and not from a particular lot and that it was the procedure and practice in every trade unless the goods bear some specific trade mark or number to identify themselves. The precious stones despatched by the said firm to them on 2nd May, 1975 were entered in the stock account of M/s. V.R. Gems on 12th May, 1975. The mode of despatch of diamonds was not shown in the stock account and only the purchase and sale and mode of payments were shown in the stock account which was the general practice in all the trade. It was claimed that the diamonds in question were sent on approval basis and against firm's order and were subject to the approval of Shri Virendra D. Shah who was looking after the business in absence of the proprietor of M/s.
Shah & Co. M/s. Shah & Co. had requested to drop the proceedings and release the diamonds. M/s. V.R. Gems, Bombay submitted their explanation dt. 30th August, 1976 where he had contended that they were innocent and they had not committed any offence and enquiry was conducted by the officers of the Bombay Customs to whom they produced all their accounts and purchase documents showing their legal acquisition of the said diamonds which they have sent to M/s. Shah & Co. Calcutta. They had furnished the Photostat copies of all their accounts relating to purchase and sale of diamonds. They had been purchasing rough diamonds and cut and polished diamonds from different parties. Shri Rajendra Shah in his statement dated 27th April, 1976 before the Customs Officer at Bombay had clearly mentioned that they could not make out particular purchase against any of the lot sent to M/s. Shah & Co. out of their ten purchases and on 24th February.1976 Shri Virendra Shah had submitted a letter along with Photostat copy of approval memo dated 17th February, 1976 and 9th February, 1976 in respect of the seized diamonds. He had produced the letter of authority before the Post Master of Kalakar Street Post Office in presence of Customs Officer at the time of seizure but the Post Master did not accept the said letter of authority. The allegation made that the goods were smuggled was not at all correct and they had duly entered the said sale in their stock book on 12th May, 1975 after M/s, Shah & Co. had approved the said diamonds. Entries were made in the stock after final approval and not before, according to the general trade practice. The mode of despatch of diamonds was not noted against the sale in the stock register and that was not done by any trader. The learned Additional Collector did not accept the contention of the party and had confiscated the seized diamonds weighing 60.15 carats valued at Rs. 93,561/- absolutely under Section 111(d) of the Customs Act, 1962 and had also imposed a penalty of Rs. 10,000/-each under Section 112 of the Customs Act, 1962 on M/s. V.R. Gems, Bombay and M/s. Shah & Co., Calcutta respectively.
4. Being aggrieved from the aforesaid order, the appellants had filed an appeal before the Central Board of Excise & Customs and the Hon'ble Board had held that the onus under Section 123 of the Customs Act, 1962 was not discharged by the appellants and it cannot be accepted that the diamonds were not contraband. The Hon'ble Board had accordingly confirmed the order passed by the Additional Collector confiscating the diamonds and imposing penalty on them. Being aggrieved from the aforesaid order, both the appellants have come in appeal before this Court.
5. Shri S.K. Roy, Bar-at-law has appeared on behalf of the appellants.
He has reiterated the facts and has contended that the goods in question namely diamonds were seized on a general information.
Presumption under Section 123 of the Customs Act, 1962, would arise only in the cases where it is shown that the Customs Officer seizing the goods, had at the time of actual seizure, a reasonable belief in his mind that the goods he was seizing, were smuggled. As such, the real requirement of the provisions under Section 123 is not a mere belief which is subjective, but a 'reasonable belief is a belief which should be supported by reasons. Accordingly, he has contended that the department cannot invoke the provisions of Section 123 of the Customs Act, 1962 in the instant case. In this context, the learned authorised representative has relied on Order No. 183 dt. 6th May, 1977 passed by the Additional Collector of Customs Calcutta copy of which has been submitted and is placed at page 31 of the paper book. It has been argued that the principle enunciated by him, has already been accepted by the learned Additional Collector in a similar matter in the order cited by him. Continuing his arguments, Shri Roy, the learned authorised representative, has pleaded that the appellants were able to produce the stock register and letters, letters from various organisations and other evidence in the form of invoice etc. to show that they were acquiring diamonds through legal means. It may be true that this particular lot which is despatched to M/s. Shah & Co. could not be allocated to a particular lot purchased by them, but on the basis of the theory of preponderance of probability, the department should have came to the conclusion that the goods are not from smuggled stock Particularly keeping in view that the burden cast on the appellants is quite heavy and preponderance of probability would point out that the case is in the appellant's favour. In this context, Shri s.k. Roy referred to the decision of Supreme Court reported in AIR 1962 in the matter of V.D. Jhingan v. State of Uttar Pradesh wherein the Hon'ble Supreme Court had held that- the burden of proof lying upon the accused under Section 4(1) of the Prevention of Corruption Act will be satisfied if he establishes his case by a preponderance of probability as is done by a party in civil proceedings. It is not necessary that he should establish his case by the test of proof beyond a reasonable doubt.Collector of Customs, Madras v. D.Bhoormull. He has laid special emphasis on paragraphs 30 and 31 of the said judgment. It was contended that though the said judgment was in respect of Section 178A of the erstwhile Sea Customs Act, but that would not make any material difference because present Section 123 of the Customs Act, 1962 is an exact replica of the erstwhile Section 178A of the Sea Customs Act. It was further contended that if it is held that the provisions of Section 123 is not available to the department because of the irregularities already pointed out by him, he pleaded that in such a situation, the initial onus to prove that the goods have been imported unauthorised, lies with the department and the department has not been able to discharge the said onus. According to him stock position of the Bombay firm was duly checked by the Bombay Customs authorities, and was found to be correct. He has referred to the extracts from the stock registered by M/s. V.R. Gems, Bombay, who was the supplier of diamonds to M/s. Shah & Co., Calcutta which are at pages 45-50 of the Paper Book. He has also referred to the Photostat copies of purchase bills of diamonds appearing at pages 35 and 44 of the paper book. He has also referred to the correspondence between M/s.
V.R. Gems, Bombay as well as M/s. Shah & Co., Calcutta appearing at pages 58-59 of the Paper Book. He has submitted that the diamonds were acquired by the appellants legally and are not smuggled ones. He has also submitted that the report of Bombay Customs has not been supplied to the appellants. The learned authorised representative has referred to Order No. 44 passed by the said Additional Collector of Customs which is at page 16 of the Paper Book. He has also referred to Order No. 183 dt. 9th April, 1977 passed by the Additional Collector of Customs, appearing at pages 31 and 34 of the Paper Book, where the learned Additional Collector had referred to seizure of 36.05 carats of diamonds valued at Rs. 38,220/-. He has pleaded that the facts are similar. He has laid special emphasis on the last para of the said judgment which is at page 33 of the Paper Book. He has pleaded that the diamonds were legally acquired by M/s. V.R. Gems. He has referred to a letter dt. 26th March, 1976 to M/s. G.R. Gems, appearing at page 60 of the Paper Book, which contains the details of the rough diamonds which were sold by the former to the latter. He has again referred to pages 17 and 32 of the Paper Book. He has pleaded that Order No. 44 dt. 3rd November, 1976 and Order No. 183 dt. 6th May, 1977 are exactly the same. He has pleaded that in Order No. 183 dt. 6th May, 1977 passed by the Additional Collector of Customs, the learned Additional Collector has observed that Section 123 is not applicable and had admitted that the initial onus was on the revenue. He has pleaded that the Bombay firm had sent the diamonds to the Calcutta concern on approval basis and so the diamonds were duly approved by the Calcutta firm. He has referred to pages 13 and 14 of the Paper Book which is Board's Order and has laid special emphasis on line No. 12 of para No. 3 of the said order. He has stated that in this Order, it is stated that: The Board, however, observes that the despatch of diamonds in that case was to a different party, and the letter dated 17.2.1976 from M/s. V.R. Gems to Shri K.M. Shah clearly indicated that the diamonds were sent on approval basis. The fact of despatch of diamonds was entered in the records of M/s. G.R. Gems. Thus, though the diamonds in that case could not be connected with any particular receipt it could be accepted that these pertained to the stock to which these were connected and these were sent on approval basis.
He has pleaded that these lines of the Hon'ble Board's order clearly show that the Hon'ble Board had accepted the factum of the transaction of the appellant. The learned Barrister has referred to a letter from G.R. Gems to M/s. Shah & Co. which is at page 70 of the Paper Book and as per this letter, the diamonds were duly approved. (This letter is in Gujarati and no English translation is furnished by the appellant.) The learned authorised representative has pleaded that Section 123 of the Customs Act, 1962 is not applicable to the appellant and even if it is applicable, the appellant had duly discharged its onus. He has requested this Court for the release of the confiscated diamonds and has also pleaded for the cancellation of penalties of Rs. 10,000/- each levied on both the appellants viz. M/s. V.R. Gems and M/s. Shah & Co.
6. In reply Shri A.K. Chatterjee, the learned Junior Departmental Representative has referred to the show cause notice dated 16th August, 1976 appearing at page .VI of the Paper Book. In this context, he has relied on the statement of Shri Rajrendra D. Shah appearing at page 81 of the Paper Book. He has pointed out that this fact had already been brought to the petitioner's notice in the show cause notice itself and has relied on page 3 of the show cause notice. He has also pointed out that the scrutiny of the various documents produced reveals various inconsistencies namely: (a) Shri Virendra Shah, though claimed on 24.2.1976 that he was authorised by his father to look after the affairs of M/s. Shah & Co. he submitted the letter of authority only on 30.3.1976.
(b) No entry in the stock account book appears to have been made in (he stock account of M/s. V.R: Gems about the precious stones despatched by (he said firm to M/s. Shah & Co. on 2.5.1975.
(c) That entries in sales column of the stock account of M/s. V.R. Gems show that all sales were accompanied with bills i.e. five orders and no entry in respect of mode of despatch was noted against them.
(d) The Photostat copies submitted as "approval letters" have not been worded as such but shows only the weight of diamonds, rate thereof and a request for acknowledging the receipts of the goods.
(e) The despatch of diamonds were on "approval basis" when Shri Dayalal K. Shah was present in Bombay is unusual.
(f) Inability to identify the lot despatched with lots purchased at Bombay.
In respect of the counsel's submission that the Additional Collector has already accepted the position that the accounts maintained by M/s.
V.R. Gems, Bombay have been checked by the Customs and that it is not possible to identify (lie diamonds in the absence of any markings on them yet it is possible to allocate the diamonds to certain entries maintained by M/s. V.R. Gems at Bombay. He has argued that the Additional Collector has never accepted that the seized diamonds could be allocated to the stocks and accounts maintained by M/s. V.R. Gems, Bombay. In this context, he has relied on the order-in-original issued in this regard appearing at page 20, top paragraph of the Paper Book, wherein it is clearly established that the Additional Collector finally held that M/s. V.R. Gems Bombay were unable to identify the lots despatched by them with any one particular lot puschased by them at Bombay from ten various firms. In respect of the submission that the seized diamonds were obtained from assorting out of the ten lots it is submitted by the learned J.D.R. that Additional Collector has already held that no record of assortment is available nor were produced by the parties to enable the department to understand as to how many pieces weighing how many carats were taken from each lot to make up the despatched lot. Further, it has been claimed that as per practice, only after the diamonds sent on approval basis arc approved, the transaction is entered in the stock register. But it appears that the consignments sent on 17.2.1976 and 19.2.1976 were entered in the stock book of M/s.
G.R. Gems though these consignments were claimed to have been sent on approval basis. No satisfactory explanation has been offered for this serious contradiction. The contradiction appears important in the context that the supplier is a company managed by two sons of the purchaser at Calcutta. He has also referred to stock register submitted by the party and explained that the entries in the stock register show that they were despatched against a bill and the mode of payment is recorded. It is unusual to see that only two consignments which are the subject matter of seizure have been entered into the stock register though the sale was not completed. In the circumstances, it is reasonable to presume that the entries in the stock register, have been made after the facts of the seizure were known to the petitioner, because enquiry by the Bombay Customs has been effected much after the date of seizure.
7. It was also submitted by the learned J.D.R. that the Additional Collector might have released diamonds in the past, vide Order No. 183 dt. 6th May, 1977, but each order is independent and no reliance can be placed on that particular order which could be erroneous in law. In fact, the Board has accepted the same proposition vide its order appearing at page 14 of the Paper Book. It was also submitted that the letter dt. 17.2.76 and 19.2.1976 did not mention anywhere that the diamonds were despatched on approval basis.
8. He has finally argued that the two judgments, which are relied upon by the petitioners, in fact, help the department and not the petitioner. He has referred to one of the judgments which are relied on by the appellant, in the case of Collector of Customs, Bombay v. V.D.Bhoonmill reported in AIR 1974 859 and has pleaded that the Hon'ble Supreme Court had held that on the basis of preponderance of probability, if a presumption is raised *x x x x x x to a conclusion that the goods are from smuggled Stock x x x x x x x x had also relied on another Supreme Court judgment in the matter of State of Maharashtra v. Natwarlal Damodardas Soni reported in 1980 Cen Cus 85D. The learned J.D.R. has laid special emphasis on para No. 17 of the said judgment.
Shri Chatterjee, the learned J.D.R. has pleaded that the appeal filed by the appellant, should be dismissed.
9. In reply Shri Roy, the learned Barrister has stated that there is no allegation that the seized diamonds are not the diamonds from the stock of the appellant and also there is no allegation that the diamonds are smuggled goods. He has pleaded for the acceptance of the appeal.
10. After hearing both the sides and going through the facts and circumstances of the case, we would like to observe that there is merit in the arguments of the learned banister that presumption under Section 123 of the Customs Act, 1962 would arise only in cases where it is shown that the Customs Officer seizing the goods, had at the time of actual seizure, a reasonable belief in his mind that the goods he was seizing, were smuggled. However, in the instant case the Revenue authorities acted on an information and diamonds were intercepted on the basis of that information. When general information actually leads to the seizure of goods (diamond), the fact in the information is confirmed and the onus of proof could reasonably be passed on to the persons from whom the diamonds were seized and the persons who claimed the ownership thereof. There would be "reasonable belief" and not mere suspicion in such cases. Section 123 of the Customs Act, 1962 is reproduced as under: 123. Burden of proof in certain cases-Where any goods to which this section applies are seized under this Act in the reasonable belief that they are smuggled goods, the burden of proving that they are not smuggled goods shall be- (a) in a case where such seizure is made from the possession of any person- (ii) if any person, other than the person from whose possession the goods were seized, claims to be the owner thereof, also on such other person ; (b) in any other case, on the person, if any, who claims to be the owner of the goods so seized.
(2) This section shall apply to gold, diamonds, manufactures of gold or diamonds, watches, and any other class of goods which the Central Government may by notification in the official Gazette specify.
A simple reading of Section 123 of the Customs Act, 1962 shows that it applies only to certain goods described in Sub-section (2) which are, or could be, easily smuggled. This section applies only to those goods of the specified kind which have been seized under the act and in the reasonable belief that they are smuggled goods. The Order No. 183 dated 6th May, 1977 passed by the Additional Collector of Customs, referred to by the appellants, does not help the appellants. In the absence of corelation of seized diamonds with a particular purchase lot of diamonds, we are not inclined to accept the argument of the learned barrister that the diamonds are not smuggled ones. The appellants have not been able to discharge the onus. The facts and circumstances of the case very well lead to the inference that the seized diamonds were smuggled diamonds and the revenue authorities could have reasonable belief on its basis. Accordingly, the onus under Section 123 of the Customs Act, 1962 was not discharged by the appellant and it cannot be accepted that the diamonds were not contraband. The judgments cited by the learned barrister do not help him. In this judgment in the case of V.D. Jhingan v. Stale of Uttar Pradesh it was held that the burden of proof lying upon the accused under Section 4(1) of the Prevention of Corruption Act will be satisfied if he establishes his case by a preponderance of probability as is done by a party in civil proceedings. It is not necessary that he should establish his case by the test of proof beyond a reasonable doubt. In the instant case, the appellants have failed to establish their case by preponderance of probability as is done by a party in civil proceedings. The Hon'ble Supreme Court in the case of Collector of Customs Madras v. D. Bhoormull On the principle underlying Section 106 of the Evidence Act, the burden to establish those facts is cast on the persons concerned; and if he fails to establish or explain those facts, an adverse inference of facts may arise against him, which coupled with the presumptive evidence adduced by the prosecution or the Department would rebut the initial presumption of innocence in favour of that person, and in the result prove him guilty. However, this does not mean that the special or peculiar knowledge of the person proceeded against will relieve the prosecution or the Department altogether of the burden of producing some evidence in respect of that fact in issue. It will only alleviate that burden to discharge which very slight evidence may suffice.
These fundamental principles, shorn of technicalities, apply only in a broad and pragmatic way to proceedings under Section 167(8) of the Act. The broad effect of the application of the basic principle underlying Section 106, Evidence Act to cases under Section 167(8) of the Act, is that the Department would be deemed to have discharged its burden if it adduces only so much evidence, circumstantial or direct, as is sufficient to raise a presumption in its favour with regard to the existence of the facts sought to be proved.
12. The appellant has not been able to corelate the identity of the diamonds, seized from insured letters with the stock position which appears at page 45 to 50 of the Paper Book. The price of a diamond depends on its weight, size and quality. The arguments of the appellant that these diamonds were sent to M/s. Shah & Co. on approval basis, does not help him. It is an after-thought. In the absence of corelation of the seized diamonds with the purchase bills, we hold that these were smuggled goods.
13. In the instant case, the seized items are diamonds and as per provision of Sub-section (2) of Section 123 of the Customs Act, 1962, even initial onus of proof is on the appellant and the appellant has not been able to discharge the same. Accordingly, we uphold the order passed by the Central Board of Excise & Customs. However, to meet the ends of justice, we reduce the penalty from Rs. 10,000/- each to Rs. 5,000/- (Rupees five thousand only) each. Except for this modification, the appeal is rejected.