Pranav B Prem

The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Ahmedabad, has directed the Customs Department to pay the market value of seized gold jewellery to a passenger, Pradipbhai Sevantilal Shah, after finding that the authorities had disposed of the gold without following due process while the matter was still under litigation. The Bench comprising Dr. Ajaya Krishna Vishvesha (Judicial Member) held that the Customs Department is accountable for improper disposal of seized property during the pendency of legal proceedings. The Tribunal emphasized that government agencies, while holding seized assets, act as bailees and are legally obligated to preserve and safeguard such property until the conclusion of all proceedings.

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Background

The appellant, Pradipbhai Sevantilal Shah, arrived at Ahmedabad International Airport from Dubai on March 26, 2018. Officers of the Directorate of Revenue Intelligence (DRI) intercepted him after he crossed the green channel. Upon search, officials recovered gold jewellery weighing 937.8 grams, including gold kadas and chains valued at ₹29.86 lakh (market value) and ₹26.28 lakh (tariff value). The jewellery was seized for non-declaration and later absolutely confiscated under Sections 111(d), (i), (l), and (m) of the Customs Act, 1962, by an order dated December 31, 2018, passed by the Additional Commissioner of Customs, Ahmedabad. A penalty of ₹2.62 lakh was also imposed under Sections 112(a) and 112(b) of the Act.

After the Commissioner (Appeals) upheld the order, the appellant filed a Revision Application under Section 129DD of the Act. The Revisional Authority — the Principal Commissioner and ex-officio Additional Secretary to the Government of India — by order dated August 24, 2022, set aside the absolute confiscation and allowed redemption of the gold on payment of a redemption fine of ₹4.25 lakh, while upholding the penalty.

Disposal of Gold Without Due Process

Before the appellant could redeem the jewellery, the Customs Department had already sent the seized gold to the Government Mint on January 16, 2020, without any notice to the appellant or the appellate authority. Subsequently, in December 2022, the Department issued a refund cheque of ₹21.17 lakh, after deducting redemption fine, penalty, warehouse charges, and customs duty.

The appellant challenged this computation, arguing that the refund amount was wrongly based on the gold’s tariff value on the date it was melted (₹40,986 per 10 grams in January 2020), instead of the market value prevailing at the time of refund (₹52,670 per 10 grams in December 2022). He claimed that this improper valuation caused him a financial loss and sought payment of the full market value along with interest.

Appellant’s Contentions

The appellant contended that the Customs authorities failed to comply with Section 110(1B) of the Customs Act, 1962, which requires that before disposing of seized goods, an inventory be prepared and an application made to a magistrate for certification. No such procedure was followed in this case. He further argued that as per CBEC Instruction No. 711/4/2006-Cus (AS) dated 14 February 2006, the department must issue a notice to the owner before disposing of confiscated goods if legal remedies are pending. The disposal of gold during the pendency of litigation, without notice, violated the principles of fairness, transparency, and natural justice.

The appellant relied on several judicial precedents, including:

• Laila Mehmudi v. Additional Commissioner of Customs (2024) 387 ELT 651 (Bom), where the Bombay High Court held that even if the department has power to dispose of seized gold, it must do so transparently and fairly.

• Satish Mehta and Dhanishtha Gold v. Commissioner of Customs, Ahmedabad (2022) 11 TMI 62 (CESTAT Ahmedabad), where the Tribunal ruled that disposing of goods while appeals are pending amounts to a gross violation of natural justice.

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He also argued that since the gold was no longer available for redemption, no redemption fine should have been deducted, as the fine was imposed on the premise that the confiscated gold would be returned.

Department’s Stand

The Department maintained that deductions made from the refund were in accordance with Instruction No. 22/2022-Customs dated 6 September 2022, and that the adjudicating authority had correctly calculated the amount in compliance with Section 125(2) of the Customs Act, 1962 and the Revisional Authority’s order.

Tribunal’s Observations

After examining the records, the Tribunal found that the Customs Department failed to act in accordance with the prescribed procedure. It observed that the officers had sent the seized gold to the Mint without informing either the appellant or the appellate forum, despite knowing that the matter was sub judice.

Citing the Delhi High Court’s ruling in Gor Sharian v. Commissioner of Customs (2025), the Bench held that where confiscated gold has been improperly disposed of, the department is bound to refund the full market value prevailing on the date of payment and that no duty is deductible once the penalty and redemption fine have been paid. Dr. Vishvesha remarked: “It was not proper on the part of the department to have sent the gold seized from the appellant to the Mint without informing him.”  He also referred to Kailash Ribbon Factory Ltd. v. Commissioner of Customs and Central Excise, New Delhi (2002) and Spring RPG India Ltd. (2002) 140 ELT 73 (Delhi), where courts emphasized that auctioning or disposing of seized goods without notice or court permission during the pendency of appeals constitutes a serious procedural lapse.

Setting aside the order of the Commissioner (Appeals), the Tribunal held that the appellant was entitled to receive the market value of gold as on the date the refund cheque was handed over, after adjusting the redemption fine, penalty, warehouse charges, and applicable duty. The Bench directed the Customs Department to pay this amount to the appellant. However, it upheld the deduction of the ₹4.25 lakh redemption fine, noting that since the appellant sought relief under the Revisional Authority’s order permitting redemption, he was also bound by its conditions.

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The Tribunal concluded: “The appeal is allowed. The Revenue shall pay the market value of gold to the appellant as it was effective on the date when the cheque of refund amount was handed over to him, after adjustment of redemption fine, penalty, warehouse charges, and applicable duty.”

Appearance

Shri Hardik Modh, Advocate for the Appellant
Smt Sunita Menon, Superintendent (AR) for the Respondent

Cause Title: Pradipbhai Sevantilal Shah Versus Commissioner Of Customs-Customs Ahmedabad

Case No: Customs Appeal No. 10636 Of 2024

Coram: Dr. Ajaya Krishna Vishvesha (Judicial Member)