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Issues: (i) Whether exemption under section 26 of the Special Economic Zones Act, 2005 and the consequential demand of duty could be denied on the allegation that the imported jewellery was mis-declared as old or outdated jewellery and diverted to the domestic market; (ii) whether the allegations of clandestine removal, confiscation of goods and imposition of penalties were sustainable in the absence of corroborative evidence and in view of the objections to reliance on statements and private records; (iii) whether the show cause notices and investigation undertaken by DRI were without jurisdiction.
Issue (i): Whether exemption under section 26 of the Special Economic Zones Act, 2005 and the consequential demand of duty could be denied on the allegation that the imported jewellery was mis-declared as old or outdated jewellery and diverted to the domestic market.
Analysis: The imported goods had been permitted by the SEZ authorities for melting, remaking and re-export. The customs assessments of the bills of entry had been regularly completed at the time of import, and there was no evidence of any collusion with the assessing officers. The departmental jewellery appraiser's report, at highest, indicated that the jewellery appeared new, but did not establish that it was outside the permitted category of old, idle or outdated jewellery. On these facts, the allegation of mis-declaration was held to be presumptive and unsupported by cogent evidence.
Conclusion: The denial of exemption and the consequent duty demand were held unsustainable and were set aside, in favour of the assessee.
Issue (ii): Whether the allegations of clandestine removal, confiscation of goods and imposition of penalties were sustainable in the absence of corroborative evidence and in view of the objections to reliance on statements and private records.
Analysis: The material relied upon by the department consisted mainly of statements, fax messages, parallel invoices and private notings. The adjudicating authority's reliance on section 139 of the Customs Act, 1962 was held misplaced because the provision applies to prosecution evidence before a court and not to adjudication proceedings before a quasi-judicial authority. The witnesses whose statements were relied upon were not made available for cross-examination, rendering the evidentiary basis infirm in the light of section 138B of the Customs Act, 1962 and the principles of natural justice. Once these materials were excluded, no independent and reliable evidence remained to prove clandestine diversion or export under false description.
Conclusion: The findings of clandestine removal, confiscation and penalties were held unsustainable and were set aside, in favour of the assessee.
Issue (iii): Whether the show cause notices and investigation undertaken by DRI were without jurisdiction.
Analysis: The notices had been issued by DRI officers prior to the subsequent notification conferring inspection, search and seizure powers in SEZ matters. Applying the law laid down on the meaning of "proper officer", the Tribunal held that the officer issuing the notices was not competent to exercise the power under section 28 of the Customs Act, 1962. The investigation, search and seizure proceedings conducted before the 05.08.2016 notification were therefore treated as lacking jurisdiction.
Conclusion: The show cause notices and the adjudication founded on them were held to be without jurisdiction and liable to be set aside, in favour of the assessee.
Final Conclusion: The appeals succeeded. The duty demand, confiscation, penalty and appropriations were set aside, and the appellants were granted consequential relief, including return of the confiscated goods and amounts.
Ratio Decidendi: In SEZ adjudication, exemption and duty demand cannot be sustained on mere suspicion of mis-declaration or clandestine removal when the import and export clearances were assessed by customs, the department's evidence is uncorroborated, statements are not proved in accordance with law, and the notice itself is issued by an officer lacking jurisdiction as a proper officer.
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