Trading & circulation of fake branded gold bars are ramping up not only in Indian bullion markets but also all over the world. Gold bars having fake markings of major branded refineries are quite prevalent in the bullion markets. That from purity to markings; from shape to size; from finishing to colour, these replica gold bars have decoded all the essential features of the gold bars which are manufacturing & transported from the reputed international refineries namely Valcambi SA, Rand, PAMP SA & Perth Mint etc.
As per reuters reports, these fake branded gold bars are inducted into global markets to lauder smuggled or illegal gold. Apart from the above, it is claimed that these fake branded gold bars are high in demand in global market & sells in higher price as compare to the locally manufactured gold. Over the past few years, continuous efforts are being made by the Department of Customs & police officials to curb the trading & circulation of these fake branded gold bars. Recently, a number of duplicate gold bar stamping machines & fake bars were allegedly seized at Zaveri bazaar, Mumbai.
Although, trading in fake branded gold bars does not ipso-facto attracts provisions of Customs Act, 1962, there are provisions under Indian Penal Code & other benevolent acts to restrict such type of practices. However, whenever customs officials seized these fake branded gold bars, most of the times the person having in possession of these gold bars fails to provide any material or evidence in support of licit possession of these gold bars which creates a suspicion or initial presumption in the minds of preventive officers that these fake branded gold bars are smuggled gold bars which are en-routed into a country illegally without paying any duty.
That on the basis of foreign markings which are embossed on the said gold bars & purity test check result which often matches with the purity of the authentic international branded gold bars i.e. 99.5 % or 99.9 %, the preventive officers initially form an opinion or reason to believe that these gold bars are smuggled gold bars. Further in Indian bullion markets, the local traders often sells or purchases gold bars or jewellery articles without any proper invoice or bill to avoid payment of GST & for many other reasons. Furthermore, most of the traders also do not maintain proper books of accounts related to their daily sales & purchases & this is one of the main reason that they fails to provide any cogent proof or explanation regarding source & licit possession of such gold.
It is pertinent to mention that gold bars having foreign marks & matching purity does not ipso-facto proves that the bars are of foreign origin. As said, fake branded bars are quite prevalent in markets which are being manufactured & prepared by the local melter & assayers with the help of fake foreign marking stamping machines. As wearing a foreign clothes does not make someone a foreigner as such, having foreign markings on the gold bars & matching purity does not always confers that the bars are of foreign origin. However, failure to provide any document in support of licit possession of such gold bars often leads to initiation of proceedings under Customs Act, 1962 & makes the owner or acquirer liable under the act.
In this article, we will analyze various provisions of Customs Act, 1962 with case laws whether the foreign markings & matching purity are the conclusive evidence to determine origin of the gold bars Vis-a-vis Smuggled gold? Further, we will also discuss about the different procedures & SOPs followed by the Department (Customs) while dealing with fake branded gold bars or coins. Furthermore, we will also critically analyze “whether trading & circulation of fake branded gold bars actually violates the provisions of Customs Act, 1962 or not?”
Burden Of Proof Upon The Owner Or Acquirer:
Section 123 of the Customs Act, 1962 talks about burden of proof in certain cases. That in terms of Section 123, when goods are seized upon a reasonable belief that same are smuggled goods then the onus to prove that the seized goods are not smuggled, is upon the person from whose possession said goods were seized or upon the person who claims to be the owner of such goods.
In light of aforesaid provision, the person who claims to be the owner or having in possession of the seized gold require to show material evidence in support of licit possession of the seized gold. If the owner or acquirer of the seized gold fails to produce any documents relating to source of gold from where he get the seized gold or any document in support of his ownership like bills or invoices etc., then the adjudicating authority can initiate confiscation & penalty proceedings.
Burden Of Proof Upon The Department (Custom):
That the chapter XIII (Search, Seizure & Arrest) of the Customs Act, 1962 also casts initial burden upon the preventive officers before conducting Search, Seizure & Arrests procedure. The word “Reason To Believe” mentioned under Sections 101, 104, 105 & 110 of the customs Act makes it obligatory for the preventive officer to discharge it’s initial burden of proof before carrying out search, seizure & Arrest.
That section 101(1) of the Customs Act, 1962 empowers any officers authorized by the Principle commissioner or Commissioner Of Customs to search any person if he has reason to believe that said person has secreted any goods mentioned under subsection (2) or any related documents which are liable to be confiscated under the Act. Further, sub-section (2) of Section 101 specifies certain goods which are liable for confiscation under the Customs Act. In terms of sub-section (2), goods such as gold, diamonds & watches etc. are falls under the category of goods which shall be confiscated under the Act.
Further, section 104 of the said Act empowers any officers authorized by the Principle Commissioner or Commissioner Of Customs to arrest any person, if he has ‘reason to believe’ that said person has committed an offence which is punishable u/s 132/ 133/135/135A/136 of the Customs Act, 1962. It is pertinent to note that smuggling of gold is a punishable offence u/s 135 of the said Act.
Further, section 105 of the said Act empowers Assistant or Deputy Commissioner of Customs or any appropriate officer appointed by him to search any premises, if he has ‘reason to believe’ that any goods which are liable for confiscation or any documents which are relevant to carry out any proceedings under the Act, are secreted in that premises.
Furthermore, section 110 of the said Act empowers any proper officer of the customs to seize any goods, if has ‘reason to believe’ that such goods are liable for confiscation under the act.
In the light of above, it is very much clear that initial onus is upon the preventive officers to prove that Search, Seizure & Arrests have been done as per the provisions mentioned under chapter VIII of the Customs Act, 1962. To prove that the Search, Seizure & Arrests were made as per the law, the preventive officers firstly has to prove that he was legally authorized to carry out such search, Seizure & Arrest & there was a reasonable believe that the gold were smuggled.
That until & unless the preventive officer discharges said initial burden of proof in respect of his Search, Seizure & Arrest, the provisions of section 123 of the Customs Act which casts burden upon the owner or acquirer of the seized gold, shall not be applicable. In other words, it can be said that in order to shift burden upon the owner or acquirer of the seized gold, it is the obligation of the preventive officers to prove that search was conducted validly & gold was seized as per the provisions mentioned under chapter VIII of the Customs Act, 1962. That Hon’ble High Court Of Gujarat in case titled “Union Of India Vs. Abdulkadar Abdulgani Hasmani has held that:
“Section 123 of the Act shifts the burden on the accused to prove that the goods are not smuggled goods only when the goods are seized under the Act in the reasonable belief that they are smuggled goods. In view of this, it is clear that the reasonable must be of the officer who seized the articles and who is authorised to seize.”
SOPs Adopted By Department (Custom) During Search, Seizure & Arrest
That upon receiving any information or on the basis of any personal knowledge, the officers authorized under section 101 & 105 of the Customs Act, 1962 may search a person or premises when he has a reason to believe that smuggled gold are secreted by that person or confined to any secret place.
That during the search if the officer in charge found any gold bar or coin which he believed to be smuggled & other related material, then he shall prepare a detailed inventory wherein details such as weight, markings, quantity etc. are recorded. Further, the officer-in charge may also call any approved appraiser to verify the weight of the gold & to test the purity of the gold. Further, the appraiser shall also evaluate the value of the said gold. It is pertinent to mention that it is obligatory for the officer-in-charge to prepare a panchnama while seizing the recovered gold u/s 110 of the Customs Act.
Further, the officer is also empower to arrest the owner or the person who is in possession of the said gold as the gold smuggling is a punishable office u/s 135 of the Customs Act, 1962 & smuggled gold is liable for confiscation u/s 111 of the said act. Furthermore, u/s section 107 of the Customs Act a special power has been given to the preventive officer to examine persons during the course of any enquiry in connection with the smuggled goods. Similar, power has been given u/s 108 which empowers any gazetted officer of the customs to summon any person to give evidence & produce documents. As such, the preventive officers may record any confessional statement or call for any document, if he feels it’s necessary for the inquiry/investigation.
Post (Search, Seizure & Arrest) Procedure:
That Chapter XIV of the Customs Act, 1962 deals with confiscation of Goods And Conveyances And Imposition Of Penalties. That after seizing the gold bars or coins, the Adjudicating Authority may issue show cause notice u/s 124 of the Customs Act & ask the person from whom the seized gold recovered to furnish explanation why the seized gold shall not be treated as smuggled gold. If the adjudicating authority does not satisfy with the reply/response furnished by the owner or acquirer then the can initiate confiscation & penalty proceedings against the said persons.
Critical Analysis
Now, the question arises “whether the foreign marking & matching purity i.e. 99.5% or 99.9% & failure to produce relevant documents in support of licit possession of the fake branded gold bars are sufficient to prove that the gold bars are smuggled not locally manufactured gold?
Law On Foreign Markings:
It is submitted that each gold bar or coin manufactured & transported from the international refineries carries distinct mark which makes them distinguishable in the world market. That the mark or logo embossed on the gold bar or coin may definitely give an insight about the origin of the gold bar, but, same cannot be treated as a definite proof of evidence as duplication of markings have been rampant worldwide. As discussed above, how trading & circulation of fake branded gold bars happening in world bullion market, as such, it would be unwise to jump into any conclusion about the origin of any seized gold bar or coin on the basis of it’s markings.
It is pertinent to mention that law related to foreign markings has already been decided by Privy Council in case titled “Comptroller of Customs v. Western Electric Co. Ltd., 1966 AC 367, wherein it was held that:
“mere markings could not be taken as proof of the fact of the foreign origin of the goods as such marking and labels would be hearsay evidence.”
That aforesaid observation put forth by the Privy Council, were also relied by the Hon’ble High Court of Gujarat in case titled “Assistant Collector Customs & Ors. Vs. Mukbujusein Ibrahim Pirjada” & Hon’ble High Court of Kerala in case titled “Assistant Collector Of Customs Vs. Pratap Rao Salit & Ors.
Necessity of Purity Test Check:
It is submitted that the preventive officers also rely upon the purity of the seized gold bars or coins in order to prove his case. It is pertinent to note that international reputed refineries such as Valcambi SA, Rand, PAMP SA & Perth Mint etc. manufactures gold bars or coins of 99.5% or 99.9% purity. Furthermore, in each gold bar or coin, percentage of purity is generally embossed on it. In case, after testing the purity if any gold bar or coin found to have lesser purity than what is mentioned in the said gold bar or coin then it is believed that said bar or coin has been counterfeited & not authentic ones.
For e.g.: (i) Suppose a preventive officer has seized a gold bar having foreign mark “Valcambi SA”. That in case after testing the said gold bar if it’s purity found to be lesser than 99.5% then it is supposed to be believed that said gold is not a genuine product of Valcambi SA Refinery but a fake branded gold bar which is being manufactured locally. (ii) Suppose a preventive officer has seized a gold bar having foreign mark “Valcambi SA” & purity of the seized bar marked or embossed on the said gold bar as 99.9 or 999, but after testing the said gold bar if it shows that bar is of lesser purity then also it would be believed that gold bar is not a genuine product of said refinery.
In view of above, it is quite clear that purity test of the seized gold bar is very important for the preventive officers to build or form it’s reason to believe in smuggled gold cases. Further, the preventive officers use these types test results as a corroborative evidence in order to prove the fact that the seized gold is of foreign origin. However, matching purity i.e. 99.5% or 99.9%, ipso facto does not confers any conclusive evidence about the origin of the gold bar because gold bars or coins with purity 99.5% or 99.9% are also being manufactured by Indian Refineries & local melter assayers in India. That after the abolition of Gold Control Act, 1968, there is no restriction in manufacturing or trading in 24 karat gold jewellery or gold bars or coins etc. Therefore, it will be unwise to draw any conclusion about the origin of the seized gold even if it is found that said gold is of 99.5% or 99.9% purity.
It is very imperative to mention herein that there are different methods which are uses to determine the purity of the gold such as: hand or touch stone method, XRF lab test & Fire assay method etc. Hand or touch stone method is an outdated method & margin of error is quite more than XRF Lab test or fire method. XRF method is most preferable method in today’s world because it gives more accurate results. But, it has been noticed that dept. approved appraiser even now adopting aforesaid outdated “Touch Stone Method” in order to determine the purity of the seized gold & department also fully relying upon it’s results. That Hon’ble High Court Of Kerala in case titled “Assistant Collector Vs. Ismail had held that:
“The touch stone method is not a fool proof method to establish the purity of gold.”
Therefore, it shall be the obligation on the preventive officers or dept. of Customs to adopt latest or more beneficial method in order to test the purity of the seized gold bars.
Unexplained Source of Seized Gold:
As discussed above, the burden is upon the owner or person from whom gold bar were recovered to prove the source & documents evidencing licit possession of the said gold. But, as we aware that many traders in Indian bullion market the local traders often sells or purchases gold bars or jewellery articles without any proper invoice or bill. Further, most of the traders also do not maintain proper books of accounts related to their daily sales & purchases. In these cases, it would be very difficult for these traders or purchasers to prove the source of the seized gold. But, failure to produce documents in support of licit possession does not ipso facto proves that said gold are smuggled. These types of traders shall be booked for evasion of any direct & indirect taxes and/or under Indian Penal Code for dealing in fake branded gold bars, but, provisions of Customs Act is unwarranted in these types of scenarios. That Hon’ble Bombay High Court in case titled “Union Of India Vs Imtiaz Iqbal Poothiwala (Civil Appeal No. 15/2007) has held that:
“smuggling as defined under Section 2 (39) of the Act, is an act or omission which will render goods liable to confiscation under Sections 111 of the Act for import and 113 of the Act for exports. On reading of Sections 111 and 113 of the Act, not keeping proper books of accounts or not being registered with the Income Tax and/or Sales Tax Authorities, is not an omission which renders the good liable for confiscation i.e. smuggled goods.”
In light of above analysis, it can be said that foreign marking & matching purity i.e. 99.5% or 99.9% & failure to produce relevant documents in support of licit possession of the fake branded gold bars are not the standing tests to determine the origin of the seized gold bars. Furthermore, foreign markings & matching purity are not only distinguishable features pertaining to identification of foreign branded gold bars. There are other factors which needed to be looked upon in order to verify the origin of the said gold bars. That Hon’ble High Court in Abdulkadar Abdulgani Hasmani (Supra) had discussed about the necessity of experts opinion in regards to the identification of the foreign goods. In this judgment, the High Court while referring to a judgment passed by division bench had observed that in order make an accused liable u/s Section 135 of the Act, it is obligatory for the Prosecution to satisfy the court that the ‘yarn’ is of foreign make or origin. The Division Bench had refused to rely upon the luster & finishing of the ‘yarn’ in order to treat it as smuggled goods in absence of any expert evidence.
In that judgment, the Hon’ble High Court clarifies that in the lack of expert report/opinion, it would not be appropriable for the preventive officers to form a reason to believe that the gold is of foreign origin & the initial onus of the preventive officers shall not be shifted at the time of seizing until & unless, the said officer strictly proves that he has ample knowledge/experience about identification of the foreign branded gold. . One shall not get confused between appraisement report & expert report. It is imperative to note that often in appraisement report only the purity, weight & markings etc. are mentioned which are not substantial material to determine the true origin of the gold bars as discussed above.
It is very crucial to note that each gold bar or coin have some distinct features & only an expert can distinguish it from others. Furthermore, each gold bar carries distinct serial identification number which are embossed on the said bars. This serial identification numbers are just like serial numbers mentioned in currencies & it helps to trace the authenticity & source/origin of the gold bars. On the basis of said serial numbers, the respective refineries can ascertain about the authenticity of the said bars. Therefore, it must be a foremost responsibility of the preventive officers to seek a report from the respective refineries whose markings are embossed in the seized gold bars about it’s authenticity before shifting the burden upon the owner or person from which said gold were recovered to prove it’s source/origin.
Conclusion:
That our legislature have enacted different acts & statutes & there are specific purposes/objectives behind those enactments. The Customs Act, 1962 was enacted in order to regularize import & export & to check illegal import & exports or smuggling etc. As discussed above, trading & circulation of fake branded gold bars may attracts penal consequences mentioned under different provisions of law but same does not falls under the ambit of Customs Act, 1962. As such, it shall be the duty of the preventive officers (Customs) to conduct proper enquiry & investigation & take on record all the possible & relevant materials before initiating any proceedings.
Further, it is duty of the Department (Customs) to introduced mandatory SOPs which creates strict obligations upon the preventive officers to follow the mechanisms in order to trace/verify actual origin of the seized gold before shifting onus upon the owner or acquirer u/s 123 of the Customs Act, 1962. Furthermore, it shall be the duty of the adjudicating authority which itself a fact finding authority to take on record all necessary facts before initiating confiscation & penalty proceedings. It must be the endeavor of the adjudicating to collect the relevant material before passing any coercive order. Otherwise, it will be detrimental to the Principle of the Rule Of Law which says “no one would be punished for the offence which he/she has not committed”.
Written by-
R. Madhav Bera
An Advocate practising in Supreme Court, High Court & various District Courts & Tribunals etc. at Delhi
E-Mail: madhavbera@gmail.com
Disclaimer: The opinions expressed in this article are those of the author and do not reflect the opinions of Law Trend and Rabhyaa Foundation. Information contained in this article is collected by the Author. NeitherLaw Trend nor its Editor guarantees the accuracy or completeness of any information published herein and neither Law Trend nor it’s Editor/authors shall be responsible for any errors, omissions, or claims for damages, including exemplary damages, arising out of use, inability to use, or with regard to the accuracy or sufficiency of the information contained in this Article.
