Fully mechanised jewellery manufacture defeats customs duty demand, extended limitation, and penalties under the replenishment scheme.

Duty-free gold supplied under the replenishment scheme was treated as eligible where the exported jewellery was found to be manufactured through a fully mechanised process, with 2.05% value addition accepted by reference to the applicable policy framework and earlier mechanised-process precedent. On the disclosed shipping bills and provisional invoices, the note states that suppression or intent to evade duty was not established, so the extended limitation period could not be invoked. Because the substantive duty demand failed and the value-addition allegation was not sustained, penalties on the nominated agency, exporter, and partner were also set aside, with the order annulled in full.

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Issues: (i) whether the demand of customs duty on duty-free gold supplied under the replenishment scheme was sustainable when the jewellery was found to have been manufactured through a fully mechanised process attracting only 2.05% value addition; (ii) whether the demand could be sustained by invoking the extended period of limitation; and (iii) whether the penalties imposed on the nominated agency, the exporter, and its partner were maintainable.

Issue (i): whether the demand of customs duty on duty-free gold supplied under the replenishment scheme was sustainable when the jewellery was found to have been manufactured through a fully mechanised process attracting only 2.05% value addition.

Analysis: The exemption for duty-free import of gold under the replenishment scheme was available subject to compliance with the Foreign Trade Policy and Handbook of Procedures. The decisive question was whether the exported jewellery was manufactured by a fully mechanised process, because that determined the applicable minimum value addition. The same job worker, the same machinery, and the same job charges had already been considered in the Diamond India line of cases, where the manufacturing process was treated as fully mechanised and 2% value addition was held sufficient. Applying that reasoning, the exported jewellery in the present case was treated as having been manufactured through a fully mechanised system.

Conclusion: The customs duty demand was not sustainable and was set aside.

Issue (ii): whether the demand could be sustained by invoking the extended period of limitation.

Analysis: The shipping bills and provisional invoices disclosed the relevant particulars, including quantity, value, making charges, and declared value addition. On those facts, suppression of material information or intent to evade duty was not established.

Conclusion: Invocation of the extended period of limitation was held unsustainable.

Issue (iii): whether the penalties imposed on the nominated agency, the exporter, and its partner were maintainable.

Analysis: Since the substantive duty demand failed and the value-addition allegation was not accepted, the foundation for penalties also disappeared. The statement of the job worker was not relied upon for penalty purposes, particularly when the job worker was not made a party and cross-examination was not allowed.

Conclusion: The penalties imposed under the Customs Act, 1962 were set aside.

Final Conclusion: The impugned order was annulled in its entirety and all the appeals succeeded with consequential relief as admissible in law.

Ratio Decidendi: Where the exported goods are found to have been manufactured through a fully mechanised process, the applicable value-addition threshold is determined accordingly, and duty demand, limitation-based invocation, and penalties cannot be sustained in the absence of suppression or other proved contravention.

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