TaxTMI 
TaxTMI 
2003 (2) TMI 284
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....ted, exported, etc. in certain formats are notified by the jurisdictional Customs authorities by Public Notices, all the raw materials imported are assessed by the customs authorities and export shipments are also so assessed. These two units were visited by the officers of Customs for stock taking on 31-1-2000. The Managing Partners were not present. Initially, the store rooms were sealed. Inventories were completed in 2/3 days. Inventory sheets were prepared and copies were given to the appellants. At a later date, Shri Suresh Mehta, Partner produced some high value diamonds and broken diamonds before the Customs authorities. Detailed investigations took place and as a result thereof, show cause notices were issued to the appellants alleging as under :- M/s. B.V. Star : It had imported 10 kgs of gold and 1351.04 cts. of diamonds in the year 1997 and had effected 5 exports leaving a balance stock of 8604.5 gms. Of gold valued at Rs. 34,66,889 (cif) and 844.16 cts of diamonds valued at Rs. 28,19,934 (cif). During the course of stock taking the unit failed to produce the above said stock of gold and diamonds to the officers. S/Shri Suresh Mehta, Ramesh Iyer, Sandip Sawant and Har....
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....eir statement recorded under Section 108 of Customs Act, 1962 have confirmed that there is no separate demarcation in respect of the installation of the machines for both the units. This fact has been admitted by Shri Suresh Mehta in his letter dated 17-4-2000 wherein he has explained that though M/s. B.V. Jewels and M/s. B.V. Star are different legal entities they operate as one unit being family concerns. Such operations are not permitted under the EXIM Policy or the Customs Notification. For inter-unit transfer of capital goods the unit has to obtain permission from the Development Commissioner under Para 9.16(b) of the EXIM Policy. Thereafter, the unit has to obtain permission from the Asstt. Commissioner in accordance with Para 7(i) of Notification 177/94-Cus., dated 21-10-1994. In this case both the transferee and transferor units have not obtained any permission from the Development Commissioner nor the Asstt. Commissioner of Customs. Further the claim of operating as one unit is also not acceptable as the Hand-book of Procedures vide Para 9.37(x) which deals with merger of two or more units have to take specific permission from the Development Commissioner, the powers of wh....
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.... Rs. 2,57,90,900/-. 32/155/3 2. M/s. B.V. Jewels :- The Customs officers went to the unit on 31-1-2000 for stock taking and the responsible persons available in the unit informed them that entire stock of precious goods i.e. gold and diamonds are kept in the safe because the manufacturing process for the date was over. In view of this, the officers sealed the safe for detailed inventory of the goods on the next day. On the next day, after the stock taking was over, the 3861.65 cts. of diamonds produced by Shri Suresh Mehta from his personal cupboard were taken into accounts. During the course of stock taking it was found that the unit was not maintaining proper accounts to show the exports of diamonds effected against their procurement i.e. import or DTA. Hence, while conducting the stock taking, the unit was asked to prepare statement of import and export of diamonds in the jewellery for the period 1998-99 and 1999-2000 rate wise and the same was prepared by them and submitted to Customs on 4-2-2000. Detailed scrutiny of these statements revealed that in respect of many type of diamonds, the unit had exported a quantity which were not legally imported by them. A glaring....
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....because of the fact that it is the unit who were declaring the import value of the diamonds as well as the related import documents of these diamonds in the value addition sheets submitted along with the Shipping Bills. The jewellery in the export consignments was checked by the Appraiser and after satisfying themselves in respect of the value that has been declared by the unit, the jewellery was permitted to be exported and therefore the diamonds which were exported in the jewellery were having value as declared by the unit. Shri Suresh Mehta was specifically asked to explain the statement compiled by the department during the course of recording of the statement. He was also asked to do the same in the meeting held by Commissioner of Customs, along with his Chartered Accountant Shri Kersi Lal Kaka and in spite of oral and written promises that he would be furnishing the reconciled statement explaining the position, he has failed to do so and come up with the argument that they are not required to do so as per the statute. Shri Suresh Mehta has cited example of import of diamonds of $ 50 per ct. which can have value of $ 35 to $ 65 after segregation. This argument also appears to ....
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.... diamonds, Shri Suresh Mehta furnished 27 pieces of diamonds out of which 23 were with certificates. A detailed scrutiny of imports and exports of diamonds valued over 1000 dollars were therefore carried out and the details are as per Annexure VI to the show cause notice. The scrutiny has revealed that M/s. B.V. Jewels had imported 118 pieces of diamonds weighing 86.7 cts. of which they had exported only 4 pieces weighing 4.75 cts. leaving a balance of 81.95 cts. The scrutiny also revealed that they had imported diamonds valued above US $ 3000 per carat vide 3 Bills of Entry i.e. 3809 dt. 22-1-99, 2602, dt. 12-10-98 and 2601, dt. 12-10-98. Scrutiny of the invoices relating to these imports revealed that only in invoice No. 264 dated 29-9-98 relating to B/E No. 2602, dated 12-10-1998 they had imported 7 diamonds with certificates issued by Gemological Institute of America, copy of which were produced by the unit for verification and the same was found to be in order. However, these diamonds were neither found to be exported nor in stock. None of the other invoices bear any certificate numbers. Shri Suresh Mehta vide letter dated 25-4-2000 claimed that the 23 diamonds he produced on ....
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....stock of 2763.33 cts. of diamonds as on 31-3-1998 and taking into account of all the imports and exports from this date to the date of stock taking including the two exports effected on 5-2-2000, the total quantity of diamonds which should be in the stock of M/s. B.V. Jewels worked out to 21775.6 cts. thereby a shortage of stock 865.85 cts. of diamonds by weight is revealed. Even though the stock taking was carried out on 1st and 2nd Feb., 2000, the exports of 5-2-2000 are taken into the stock because the two export consignments were released during 2-2-2000 and 7-2-2000 when the diamonds were re-weighed and re-valued. However, as detailed in para v above and in Annexure VIII to the Show Cause Notice the quantity of stock of diamonds as per the books of accounts in the unit of M/s. B.V. Jewels should have been 84853.96 cts. (i.e. total import of 130688.67 cts. - accounted exports of 45834.71 cts.) against which they were found to be in possession of only 11123.96 cts. of diamonds which could be co-related to the import documents. From this physical stock of 21755.35 cts. of diamonds, 10631.39 cts. of diamonds valued at US $ 938899.09 equivalent to Rs. 40372667/- (at an average exch....
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....s also they have suppressed the fact of unauthorised disposal of the capital goods valued at Rs. 58,34,698 on which Customs Duty of Rs. 39,31,813 was foregone at the time of its clearance, the details of which are as per Annexure VI to the Show Cause Notice. In view of this, this is a fit case for invoking proviso clause of Section 28 of Customs Act, 1962 for demanding total Customs duty. The above said findings of shortage of diamonds constitute gross violation of the provision of Notification No. 177/94-Cus., dated 21-10-1994. The revelation of the fact that 737730 cts. of diamonds are found short indicate that these diamonds were removed from the unit and SEEPZ which is a Customs Area. The above said finding of shortage also indicates that the unit was not maintaining proper records of imported goods as prescribed under the said Notification. Same is the case of capital goods imported by M/s. B.V. Jewels which were found missing from the unit which is in violation of Notification 196/87-Cus., dated 5-5-87. Therefore the said 737370 cts. of diamonds valued at Rs. 26,29,54,490/- and the capital goods valued at Rs. 58,34,698 are liable for confiscation under Section 111(o) and 111(....
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.... Act, 1962. By virtue of the aforesaid acts of omission/commission by M/s. B.V. Jewels and its partners appeared to have rendered the said diamonds exported liable for confiscation and therefore thereby rendered themselves liable for penalty under Sec. 114(i) of Customs Act, 1962. The said loose diamonds and diamonds studded in semi-finished jewellery under seizure appeared to be liable for confiscation under Section 119 of Customs Act, 1962. Further as stated earlier, M/s. B.V. Jewels have been found to export jewellery with diamonds which were not, legally procured by them. M/s. B.V. Jewels in their various representations have requested for release of these seized diamonds for export and therefore these unaccounted diamonds appeared to have been brought into SEEPZ, a Customs Area, unauthorisedly for exports and therefore are liable for confiscation under Section 113(d) of Customs Act, 1962. Broken diamonds valued USD 16073 equivalent to Rs. 6,91,139/-appeared to be liable for confiscation under Section 119 of Customs Act, 1962. Further the said broken diamonds are considered as accumulated during manufacturing process since Notification 177/94-Cus. do not permit any wastage of d....
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.... M/s. B.V. Star found installed in the premises of M/s. B.V. Jewels which are under seizure totally valued at Rs. 1,06,37,742/- shall not be held liable for confiscation under Section 111(d) and 111(o) of Customs Act, 1962. (e) The 23 high value diamonds totally valued at Rs. 39,63,288 shall not be confiscated under Section 111(d), 111(j), 111(l), 111(m) and 111(o) of the Customs Act, 1962. (f) The broken diamonds valued at Rs. 6,91,139/- shall not be confiscated under Sections 111(o) and 119 of Customs Act, 1962. (g) The unaccounted diamonds and diamonds studded in semi-finished gold jewellery valued at Rs. 4,03,72,667/- along with the 6423.32 gms of gold in .995 purity (the gold content of semi finished jewellery containing diamonds which could not be separated) valued at Rs. 26,81,7367- under seizure shall not be confiscated under Sections 119 and 113(d) of Customs Act, 1962. (h) The unaccounted diamonds exported during 1998-99 and 1999-2000 (till 5-2-2000) totally valued at Rs. 27,00,76,393 as detailed earlier shall not be held liable for confiscation under Section ....
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.... of Customs Act, 1962, I allow to redeem the seized goods on payment of redemption fine of Rs. 70,000/- either to be used in the Zone or to be taken outside on payment of duty which has been confirmed under para (a) above ; I order confiscation of diamonds and diamonds studded in semi-finished gold jewellery valued at Rs. 4,03,72,667/- along with the inseparable gold weighing 6423.32 gms in .995 purity valued at Rs. 26,81,736/- under seizure under Secs. 113(d) and 129(2) of Customs Act, 1962. However, in exercise of powers vested upon me under Sec. 125 of Customs Act, 1962, I allow to redeem the seized goods on payment of redemption fine of Rs. 43,00,000/- to be used in the Zone; I hold that the unaccounted diamonds exported during 1998-99 and 1999-2000 (till 5-2-2000) totally valued at Rs. 27,00,76,393/- liable for confiscation under Sections 113(d) and 113(i) of Customs Act, 1962. However, these are not available for confiscation; I impose penalty of Rs. 5,00,00,000/- on M/s. B.V. Jewels under Sec. 112(a) and Sec. 114(i) of Customs Act, 1962; I impose a penalty of Rs. 10,00,000/- each on Shri Suresh Mehta and Shri Suken Mehta ; I impose penalty of Rs. 2,00,000/- each on S/Smt. Sa....
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....e of 73730 cts., of diamonds is not supported by the provisions of the relevant Exemption Notification or EXIM Policy. One to one co-relation consignment wise was never adopted by the Revenue for accounting imported diamonds. We have seen from order No. Commr/YG/19/2001(AP) dated 2-3-2001 passed by Commissioner of Customs, Airport in respect of M/s. Mahalaxmi Gems that same consignment was valued differently by 3 Trade panels and the variation between the declared and ascertained value was up to 200%. For example, diamonds at S.No. 3 was declared at $ 21 per ct., the first Panel ascertained the value at $ 60 per ct.; the second Panel at $ 30-33 and the 3rd Panel ascertained the value as $ 20-21 per ct. Therefore, we see force in the submission that whenever a diamond is valued, different people will give different values and the variation may be very large and that is why the value of diamonds declared in the Value Addition Statements can never be the same as declared in the B/Es and declaration of B/E number in the Value Addition Statement is based only on approximation. Since no method of co-relation or accounting of imported diamonds was specifically provided in the Exemption No....
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....nd released to the Setting department. The packets so received will have the details of diamond weight and the rate fixed by assorters. The assorter at no point of time has access to the import documents. The rate fixed by them are by their experience and the market trend. Hence, there will be a fluctuation in the rate specified by them. Diamond being natural product, the rates fixed by two persons will never be similar. The packets issued to Setting department contains the weight and rate per carat specified in the bag through which the movement of jewellery is tracked up till the end of the process. The bag finally reaches the Quality Control Department and after passing the Quality Control Department, the final chart for export is prepared by the Quality Control Department which indicates the description of the piece, quantity of gold, diamond pcs. weight and rate. The Export Department which receives the same issues the B/E number for the import of raw material based upon the nearest available price quoted by the Diamond Department and the products are taken along with the documents for export to the Customs Department. The diamonds after mixing and sorting cannot be co-related....
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.... capital goods were installed or used within the said Zone, the Notification does not permit the demand of Customs duty which therefore cannot sustain. Even in respect of Notification No. 177/94-Cus. Condition 4 of para 1 requires the importer to execute a Bond to bring the said goods to his unit and to be used within the said Zone. Since the appellants had brought the goods into their unit and goods are being used in the same zone, even the latter Notification does not permit demand of Customs duty so long as the goods remain within the said Zone and are used for the purpose of exports. 14. Shortage of 73730 cts. of diamonds valued at Rs. 26,29,54,490/- :- This shortage has been worked out by co-relation of imported diamonds and exported diamonds with reference to individual consignments and tallying each rate at which diamonds were imported with the rate indicated in the Value Addition statements. These shortages have arisen only because of wrong methods of co-relation as explained earlier and are only imaginary shortages. In physical terms, the shortage/excess by weight of diamonds is insignificant. This fact stands compounded by the faulty documentation of the search. T....
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....e premises or the persons working in the unit are under the control of the appellants - page 143, para IX. We find that the stock taking has commenced on 31-1-2000 and the first inventory sheets were prepared and then re-valuation was done on 7-2-2000 which was part of stock taking as admittedly no stock taking was prepared on 7-2-2000 or thereafter. The entire SEEPZ is a Customs bonded area which is under the joint control of the Customs and Development Commissioner and exit or entry of vehicles and persons is restricted through the main Gate and subject to Security check. It is not the case of the department that Shri Suresh Mehta brought the broken diamonds from outside. In fact, all the physical stock available was only produced by the employees of the appellants or the partner of the appellants, commencing from 1-2-2000. Therefore, the reason given by the Commissioner for not accepting to take this stock into account is not justified. The Commissioner further states that the quantity of diamonds broken during the manufacturing process was only 107.57 cts. and if this is added to the earlier stock the actual quantity should come to 750.31 cts. The appellants had explained that ....
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....iscation is not justified because supplier issues the invoice and the certificates are issued by another agency and the supplier in all cases may not endorse the certificate numbers on the invoices and packing list. When the details of certificates and invoices tally, there is no ground for alleging that the high value diamonds are illegally imported and not pertaining to the said B/E. Further, in respect of some diamonds where the clarity does not tally, there are different standards for indicating the clarity as seen from grading given in U.K. Scandinavian Nomenclature, Gemmological Institute of America, GIIBJO. For example, VS is the standard adopted in UK whereas VSI and VS2 are adopted by Gemmological Institute of America and therefore, it is not correct to say that the clarity does not tally. For the above reasons, we set aside the confiscation of 23 pcs. of high value diamonds. Seizure of 86.76 cts. of $ 1000 per ct. The appellants have exported 9.38 cts. of diamonds vide shipping bill No. 9720, 10814, 15098, 16588, 17758, 6880 and also sold diamonds of 41.68 cts. to MMTC vide invoice No. 219, 228, 330, 353, 372. Certain goods were returned and the submissions made is only r....
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....ion is totally misplaced as it applies only to goods which are prohibited for export. Since the diamond jewellery is not prohibited for exports, the confiscation ordered under Section 113(d) is not sustainable and we set aside the same. 19. Unaccounted diamonds exported during 1998-99, 1999-2000:- The quantity of unaccounted diamonds exported has been arrived at in Annexure XI at pages 72-109 of Vol. 2 which gives the total quantity as 65841.68 cts. of diamonds. Only jewellery studded with diamonds is exported and the department considers this as export of diamonds because co-relation has been done with reference to each shipping bill and B/E and this method is not correct as set out earlier. Therefore, there is no unaccounted stock of diamonds and hence the question of confiscation does not arise. Accordingly, we set aside the confiscation. 20. Since neither demand of duty is sustainable nor confiscation of any of the seized goods or unaccounted diamonds legitimately exported is sustainable for the reasons given above, we set aside imposition of penalty on the appellant and its partners. B.V. Star : The total demand of duty confirmed is Rs. 2,57,90,900/- on acco....
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.... of B.V. Jewels or B.V. Stars. Copy of stock taking report made on 30-5-2001 by the Air Intelligence Unit was submitted to demonstrate that this is the way stock taking takes place and also to demonstrate that by taking the stock of both the units, the officers did not find any abnormal shortage or excess and no action was taken against the unit. Though the stock taking pertains to a period subsequent to issue of show cause notice, since both the units are located in Customs bonded area and there is no allegation that the appellants have brought in any diamonds/gold within the SEEPZ area or taken out anything outside the SEEPZ area with intention to tally the stock, taking was conducted by Air Intelligence Unit Systematically, and they found everything in order. We hold that this goes to prove the bona fides of the appellants. 2. Demand of Rs. 11,84,372/- on 844.16 cts. of diamonds : It has heen already explained that while taking stock both the stock of M/s. B.V. Jewels and M/s. B.V. Star are mixed, and in reply to show cause notice at paras 26-27, pages 220 and 221, Vol. 1, stock position of both the units of diamonds are considered with physical records. There would be s....
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....of Notification 177/94-Cus. requires the importer to execute a bond in such form binding himself to bring such goods into his unit and use them within the Zone for the purpose specified in the Notification. Thus, the appellants had brought the said goods into their units and used the same within the same Zone for the purpose of export. Further it is required that the importer has to satisfy the Development Commissioner of the Zone that the goods so imported have been used for the purpose specified in the Notification. In this case, there is no objection raised by Development Commissioner regarding use of machinery. It is not the case of the department that the capital goods imported by B.V. Star are missing but the machinery is found lying at Plot No. 55 (page 119 of Vol. 3) The machinery has been listed as found installed in the premises of B.V. Jewels though the appellants claim that it has been installed in the premises of B.V. Stars, as orally permitted by Development Commissioner after the appellants had written to the Development Commissioner for making changes (page 152 of Vol. 3 letter dated 9-1-95). Further, the condition of Notification 177/94 gets violated only if the go....
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....rly as 1997 since the appellant had replied to CRA objection in 1997. Notification 196/87-Cus requires the importer to pay duty on demand under xiv(b)(i) on consumable goods i.e. other than capital goods if not used in connection with the manufacture of jewellery within the said Zone. Since the goods have been used in the said Zone and there is no condition that the goods should be used by the same unit, there is no violation of condition of Notification and thus the demand on this account is not justified. 25. Confiscation of capital goods valued at Rs. 1,06,37,742/- : The Commissioner has confiscated these goods under Sections 111(d), (j) and (o). Section 111(d) is not applicable as the goods have been imported legitimately by the appellants in SEEPZ, Section 111(j) will not be applicable as the machinery has not been shifted without the permission of the proper officer as there is no shifting or transfer. (These goods were lying in the premises of Plot No. 55 and they were not removed and use of the machinery by M/s. B.V. Jewels was for the purpose of manufacture of jewellery). Further Section 111 (o) will not apply as none of the post-importation conditions have been vi....