2006 (12) TMI 26 - AT - Customs

Supreme Court emphasizes verification of diamond accounts, upholds duty demand, penalties, and confiscation

The Supreme Court remanded the case involving shortages and excesses of diamonds, emphasizing the need to verify the correctness of accounts maintained by ... EXIM – Alleged that appellant has shortage of 73739.00 ct of diamond and excess unaccounted stock 10631.39 cts and accordingly duty demanded and penalty were imposed on him – After considering the fact authority allow the appeal Issues Involved:1. Shortages and Excesses of Diamonds2. Maintenance of Records3. High Value Diamonds4. Broken Diamonds5. Duty Demand and Penalty6. Confiscation of Diamonds7. Imposition of Penalty on IndividualsDetailed Analysis:1. Shortages and Excesses of Diamonds:The appellants, a unit located in Santacruz Electronics Export Processing Zone, engaged in the manufacture of diamond-studded jewelry for 100% exports, were found to have discrepancies in their stock of diamonds. During stock-taking from 1-2-2000 to 3-2-2000, it was discovered that the appellants were not maintaining prescribed records properly, resulting in detected shortages and excesses. Specifically, the appellants imported 1894.51 cts. of diamonds but exported 29931.61 cts., indicating an excess of 28037.10 cts. and a shortage of 73739.00 cts. The Tribunal initially set aside the order due to incorrect co-relation methods, but the Supreme Court remanded the matter, emphasizing the need to verify the correctness of accounts maintained by the appellants.2. Maintenance of Records:The appellants were accused of improper maintenance of records contrary to Notification No. 177/94-Cus. and the Exim policy, 1997-2002. The Tribunal found that the records were incomplete, showing only total stock received and exported without bill of entry or shipping bill details. The Supreme Court directed that verification should test the correctness of the accounts maintained, not just compliance with specific paragraphs of the Exim policy.3. High Value Diamonds:The appellants produced 27 pieces of high-value diamonds weighing 31.54 cts. after the stock-taking was completed. The Tribunal initially held that these should be included in the stock, but the Supreme Court remanded the issue for further verification. Upon re-evaluation, it was found that 23 pieces tallied with the bills of entry and certificates, and thus were included in the stock, while the remaining 4 pieces were held as unaccounted diamonds.4. Broken Diamonds:The appellants also produced 1607.03 cts. of broken diamonds after the initial stock-taking. The Tribunal allowed their inclusion in the stock, and this finding was not disturbed by the Supreme Court. Therefore, the broken diamonds were included in the final stock calculation.5. Duty Demand and Penalty:The duty demand of Rs. 12,54,80,309/- was initially confirmed by the Commissioner. The Tribunal, following the Supreme Court's remand, re-evaluated the shortages and confirmed a duty demand of Rs. 12,31,86,708/-. The Supreme Court directed that the penalty should be equivalent to the duty evaded. Accordingly, a penalty of Rs. 12,31,86,708/- was confirmed.6. Confiscation of Diamonds:The show cause notice proposed the confiscation of 73730 cts. of diamonds, including high-value and broken diamonds. The Tribunal upheld the confiscation of 10631.39 cts. of unaccounted diamonds and the diamonds exported without proof of licit import, weighing 63078.35 cts. The Tribunal allowed the appellants to redeem the confiscated goods on payment of a redemption fine of Rs. 43 Lakhs under Section 125 of the Customs Act.7. Imposition of Penalty on Individuals:The Commissioner imposed penalties on individual partners of the appellants. However, the Tribunal found that sufficient penalties had already been imposed on the firm and set aside the penalties on the individual partners, allowing their appeals.Conclusion:The Tribunal, following the Supreme Court's directives, confirmed the duty demand and equivalent penalty, upheld the confiscation of unaccounted diamonds, and allowed the inclusion of high-value and broken diamonds in the stock. The penalties on individual partners were set aside, and the appeals were disposed of accordingly.