TaxTMI 
TaxTMI 
2012 (12) TMI 161
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....CESTAT was right in ordering confiscation of 10,631.39 carats of diamond and imposing a redemption fine of Rs. 43 lakhs? (c) Whether in the facts and circumstances of the case, the CESTAT was correct in concluding that 63,078.35 carats of diamonds are liable for confiscation? 2. The CESTAT by its impugned Order dated 21-12-2006 held that there was a shortage of 72095.55 Carats of diamonds (after taking into account/giving credit to the explained High Value Diamonds and Broken Diamonds) which had been imported without payment of duty by availing of Not. No. 177/94-Cus., dated 21-10-1994. This resulted in upholding the demand of duty of customs to the extent of Rs. 12,31,86,708/-. Further an equivalent penalty of Rs. 12,31,86,708/- under Section 114A of the said Act was also imposed upon the Appellant. The impugned Order also upheld the confiscation of 10631.39 Carats of diamonds with an option to redeem the same on payment of Rs. 43/- lakhs as redemption fine under Section 125 of the said Act. This was on account of the fact as the diamonds were found in the possession of the Appellant but not supported by any documents of its licit import. The imp....
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....ck and some 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. 26,81,736/- under seizure shall not be confiscated under Section 119 and 113(d) of said Act; (vii) The unaccounted diamonds exported during 1998-99 and 1999-2000 (till 5-2-2000) totally valued at Rs. 27,00,76,393/- (63078.35 Cts) shall not be held liable for confiscation under Section 113(d) and 113(i) of said Act; and (viii) Penalty shall not be imposed under Section 112(a) and (b) and 114(i) of said Act; (c) During the course of stock taking it was noticed that the Appellant was not maintaining proper records/accounts in respect of the receipts and consumption of diamonds of different types and value either imported or procured from DTA to be used in discharging its Export obligations. This shortage of diamonds was worked out on the basis of the stock which should have been available with the Appellant being total quantity imported by the appellant and compared the same with physical stock available ....
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....he Government of India and with effect from 1-4-2000 paragraph 8.78B was introduced in the Handbook of Procedures 1997-2002 clarifying that for the purposes of monitoring the performance of a Gem and Jewellery Unit at no point of time, the unit shall be required to co-relate every export consignment with the corresponding import consignment. Consequently, there is no shortage of diamonds of 7370 carats and/or excesses as of certain verities of diamond as alleged. In view of the aforesaid reply, the Appellant requested that the show cause notice be dropped. (d) On 15-6-2001, the Respondent after considering the Appellant's submissions held that there was a breach of Notification No. 177/94-Cus., dated 21-10-1994 and the provisions of the Export Import Policy 1997-2002 and Handbook of Procedures-1997-2002 and passed an order confirming the show cause Notice by holding that there was a shortage of 7370 Carats of diamond leading to a demand of Rs. 12,54,80,309/- being the duty not paid on import of these diamonds, besides imposing an equivalent penalty under Section 114A of the said Act and holding that the 7370 Carats of diamond are liable for confiscation; 23 high valu....
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....re arrived at on the basis of the co-relation of imported and exported diamonds with reference to individual consignment and tallying each rate of imported diamonds with the rate indicated in the Value Addition Statement. The CESTAT held that in physical terms the shortage/excess by weight of diamonds is insignificant. Consequently, not only the demand in respect of shortage was set aside but also its confiscation and confiscation of the seized diamonds and unaccounted diamonds legitimately exported were also held to be not sustainable. Consequently, the penalties imposed were also set aside. (f) Being aggrieved by the order dated 14-2-2003 [2003 (155) E.L.T. 559 (Tri.-Mumbai)] of the CESTAT, the Respondent preferred an appeal before the Apex Court. On 14-9-2004 [2004 (172) E.L.T. 3 (S.C.)], the Supreme Court allowed the appeal of the Respondent by way of remand. The Supreme Court after referring to Paragraphs 8.34, 8.35 and 8.78B of the Hand Book of Procedure 1997-2002 gave the following directions : "29. The Departmental authorities have adopted the view that the working out of the details are to be done in terms of Paras 8.34 and 8.35 and Not in the ....
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....e suppression, if any, and the duty payable. The quantum of penalty would be equal to the sum of duty leviable in terms of confirmation of Commissioner's order as done by us supra. The penalty to that extent stands confirmed. The balance of penalty, if any, would depend upon re-examination by CEGAT as directed supra. 33. Respondents also urged before us that the demands raised were clearly barred by limitation and though the plea of limitation was specifically raised the same was not considered by the Commissioner and since the CEGAT accepted the plea of the respondents on merits it did not refer to that plea. 34. We find that reference was made by departmental authorities to the proviso appended to sub-section (2) of Section 28 of the Act No plea about its non-applicability was taken in the grounds of appeal before the CEGAT and though it was vehemently urged that the point was specifically taken before the Tribunal, we find no mention thereof in the CEGAT's order. The matter can be looked at from another angle. If, in reality, the CEGAT found that the action taken by the departmental authorities was beyond the period of limitation, it could have disposed of the ap....
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....ecame necessary. However, the CESTAT has observed that even in terms of Paragraph 8.78B of the Hand Book of Procedures 1997-2002, the total quantity of a particular variety (value wise) has to be undertaken and not the total quantity of different qualities put together as there cannot be any matching between the export of one variety of diamonds with that of another variety even though the quantity may be identical as the difference between diamonds of identical weight could be high. No such exercise has been done by the Appellant. The CESTAT has also observed that once the shortages have to be determined bill of entry and shipping bill wise there is no dispute between the Appellant and the Respondent about the working out of the demand that the shortage of diamonds and after taking into account the 23 Carats of High value diamonds and the Broken diamonds the shortage works out to 72,095.55 Carats and the duty demandable is Rs. 12,31,86,708/- equivalent penalty under Section 114A of the said Act was also upheld. However, the confiscation of 10631.39 Carats did not have any document in support to establish their licit import and the same are liable for confiscation. However, an opti....
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....the said goods or the gem and jewellery manufactured or packaged in the unit or the waste arising out of such production or packaging in the manner as may be prescribed in the Export-Import Policy and in this Notification; (5) the importer shall maintain a proper account of import, consumption and utilization of the said goods and of the exports made by him, and shall submit such account periodically to the Assistant Commissioner of Customs; (6) the importer satisfies the Development Commissioner of the Zone that the goods so imported have been used for the purposes specified in the Notification or for any other purposes specified in Export-Import Policy; (7) .... ....." Export Import Policy 1997-2002 Value Addition 8.17 The value addition will be calculated with reference to the value of gold/silver/platinum content including admissible wastage. The minimum value addition shall be : S. No. Item of Export Minimum Value addition (a) Studded gold/platinum/silver jewellery and articles ther....
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....me of export of jewellery, the shipping bill and the invoice presented to the customs authorities shall contain the description of the item, its purity, weight of gold/silver/platinum content, wastage claimed thereon, total weight of gold/silver/platinum content plus wastage claimed and its equivalent quantity in terms of 0.995/0.999 fineness for gold/silver/Platinum and/in terms of 0.9999 fineness for platinum and its value, fob value of exports and value addition achieved. If the purity of gold/silver/platinum used is the same in respect of all or some of the items made out from each of these metals for export, the exporter may give the total weight of gold/silver/platinum and other details of such similar items which are of the same purity. In case of studded items, the shipping bill shall also contain the description, weight and value of the precious/semi-precious stones/diamonds/pearls used in manufacture, and the weight/value of any other precious metal used for alloying the gold/silver. Conditions of Exports 8.35 The exports shall be allowed by the customs authorities provided the endorsement made on the shipping bill and the invoice are correct and the value addi....
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....pose of monitoring, in case of gems and jewellery units at the time of scrutiny at any point of time, the unit shall be able to account for, by way of fulfillment of export obligation and realization of prescribed NFEP, the entire quantity of imports as might have been made by the units. The exporter shall also account for the total quantity of imports by way of total quantity of exports and the balance stocks including broken diamonds and other gemstones.   However, at no point of time, the unit shall be required to co-relate every export consignment with the corresponding import consignment. 5. The Appellant submit that the impugned order of CESTAT dated 21-12-2006 is perverse inasmuch as it has mis-interpreted the relevant provisions of the Export Import Policy-1997-2002, Handbook of Procedures 1997-2002 and the Notification No. 177/94-Cus., dated 21-10-1994 to infer that the Appellant has failed to explain and reconcile the stock in its hand with those imported and those used in the export of studded jewellery and also reached its aforesaid conclusion ignoring the evidence led by the appellants as directed by the Apex Court. In support of the above co....
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....g it impossible to keep a track of the costs of each imported diamond with regard to the Bill of entry under which it was imported. The aforesaid fact was made known to the Respondents at the time of search itself by the statement of its partner one Suresh Mehta. (c) Without prejudice to the above it was submitted that the Appellants were functioning within SEEPZ and the accounts and records were maintained by them in terms of Public Notice issued by the Respondent and over seen by its officers and in particular Daily Receipt Register as well as Finished Product Register which were countersigned by them. At no point of time did the officers of the Respondent inform the Appellant that records are not being properly maintained. Consequently it is not open to the Respondents to now contend that the records are not properly maintained. Further it is a fact that all the times that activities of the appellants were supervised and controlled by the Customs department. In view of the above, in the absence of any corroborative evidence of illegal removal and/or procurement of diamonds it is not open to the department to claim that there has been substitution and/o....
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....are not notified goods under Section 123 of the said Act and the onus is on the Respondent to establish that the diamonds have been Illicitly imported.   In view of the above submissions it was urged on behalf of the Appellant that in terms of Supreme Court order dated 14-9-2004 they have been able to explain/reconcile imported diamonds and diamonds exported in studded jewellery save and except to the marginal amount 165.40 carats being in excess and 1473 carats being short. 6. As against the above, the learned counsel Mr. Advait Sethana for the Revenue submits that there is no perversity in the impugned order of the Tribunal dated 21-12-2006 and the finding of fact arrived at by the Tribunal should not be interfered by this Court. In particular, it was contended by the Counsel for the Revenue as under : (a) In terms of Notification No. 177/94, dated 21-10-1994 the Appellant was allowed to import cut and polished diamonds without payment of duty subject to the condition that imported goods would be used in compliance with the terms of the Notification and the provisions of the Export-Im....
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....any view of the matter in terms of Paragraph 8.34 and 8.35 of the Handbook of Procedures-1997-2002 it was the obligation of the exporter to satisfy the value addition requirement in respect of the imported diamonds at the time they were exported as part of studded jewellery. (d) Paragraph 8.78B of the Handbook of Procedures 1997-2002 will not be applicable for the present proceedings which cover the period ending on 5-2-2000 as Para 8.78B came into Handbook only with effect from 1-4-2000 and cannot have retrospective effect. Alternatively it was submitted that Paragraph 8.78B applies only for the purpose of computing NFEP and not value addition which is required to be achieved in respect of each export consignment as required in terms of Paragraph 8.29 and 8.17 of the Import Export Policy 1997-2002. In any case it is submitted that even in terms of Paragraph 8.78B of the Handbook of Procedures the reconciliation has to be done both quantity wise as well as value wise. This is so as each type of diamond and/or Diamonds of particular value would be a distinct and different class of diamonds. Further the requirement of tracing the imported diamond is important as the du....
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....cut and polished diamonds in carats being imported. The Appellants in terms of the Notification also executes a bond in favour of the Assistant Commissioner of Customs undertaking to use the goods in the manufacture of jewellery for exports out of India and also undertakes to follow the procedure under the export import policy and in the Notification. Further, one of the conditions of the import under the aforesaid Notification is that the Appellant will maintain proper account of the import, consumption and utilization of the cut and polished diamonds and the exports made of the final products. The Export Import Policy 1997-2002 in Paragraph 8.29 thereof provides that an exporter like an Appellant would be required to achieve a value addition of 5% on the imported diamonds over and above the value addition prescribed for studded jewellery. Consequently, at the time of exporting studded jewellery and while filing the shipping bill, the Appellant is required to file a Value Addition Statement to satisfy the authorities of compliance with Notification No. 177/94 read with Paragraph 8.29 of the Export Import Policy 1997-2002 in accordance with Paragraph 8.34 and 8.35 of the Hand Book ....
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....he exported diamonds with the bill of entry under which it was imported. In fact, it is the appellant's case that in view of impossibility of correlating the diamonds exported with the bill of entry under which it was imported, the Government had at the instance of the appellants' association introduced Paragraph 8.78B to the Hand Book of Procedures with effect from 1-4-2000 clarifying that at no point of time will the unit be required to co-relate every export consignment with the corresponding import consignment. Therefore, it is the case of the Appellant that in terms of Paragraph 8.78B of the Hand book of Procedures all that they are required to do is to have the quantity wise reconciliation of the imported diamonds with those exported and those in stock have to be done and not value wise reconciliation bearing in mind the peculiar nature of the diamond industry. Further they also contend that this is also the directions of the Apex Court in its order dated 14-9-2004. 9. Bearing in mind the aforesaid basic dispute between the Appellant and the Respondent, we now consider the impugned Order dated 21-12-2006 [2007 (210) E.L.T. 245 (Tri.-Mumbai)] passed by CESTAT. The pres....
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....anded to it for fresh disposal. The impugned Order has properly understood the directions of the Apex Court, particularly, if we bear in mind that the Supreme Court has observed that Regulation 9 and 10 of the Manufacture and Other Operations in Warehousing Regulations, 1996 throws beacon light in regard to production of accounts to satisfy due compliance. Further the Supreme Court has even in para 29 of its order, on which reliance is heavily placed by the Appellant, has not directed the application of Paragraph 8.78B per se but only in line with Paragraph 8.78B of the Handbook of Procedures 1997-2002. Notwithstanding the above, the Respondent contend that Paragraph 8.78 B of the Handbook of Procedure 1997-2002 will not be applicable, as it came into force only with effect from 1-4-2000 and cannot have retrospective effect. As has been noted above. Paragraph 8.78B of the Hand Book of Procedures 1997-2002 was introduced consequent of a representation made by Gems and Jewellery Association of which the Appellant is a member. Therefore, paragraph 8.78B of the Handbook of Procedures 1997-2002 is clearly clarificatory in nature. Further, it also provides that at no point of time, a uni....
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....uld have enormous difference in its value due to its intrinsic nature. Each diamond would be distinct from the other diamonds not on the basis of its weight but on the basis of its value. Consequently Para 8.78B when it requires reconciliation to be done of the quantity of imports with the quantity of exports and the balance stock, it would itself require a value wise classification for the purposes of reconciliation. This interpretation is further strengthened by the fact that when the appellant imported the cut and polished diamonds it availed of the benefit of Notification No. 177/1994-Cus., dated 21-10-1994 which exempted duty which would have been payable on the basis of the value of the diamonds and not on the basis of the weight of the diamonds. The diamonds are chargeable to duty on an ad valorem basis. Further, in terms of Paragraph 8.29 of the Export Import Policy-1997-2002 the appellant is required to achieve value addition of 5% over the value of cut and polished diamonds which were imported over and above the value addition prescribed for studded jewellery in Para 8.17 of the Export Import Policy -1997-2002. Further, this value addition has to be in respect of each dia....
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....cit procurement of diamonds is based solely on incorrect particulars given in value addition statement furnished by them along with shipping bills at the time of the export of the studded jewellery. The value addition statement filed at the time of exporting studded jewellery indicated not only the cost of the imported diamonds but also value addition met thereon and the corresponding bill of entry under which the cut and polished diamonds were originally imported. Whenever, the bill of entry was not found in support of the imported diamonds, it was concluded by the Respondent that the same was illegally procured and whenever the same corresponded, credit was given to the Appellant for the same. It is the case of the Appellant that the value addition statement did not declare the exact price of the imported diamonds, in view of the nature of its business, the value addition statement declared an estimated/average cost of the diamonds used in the export of studded jewellery. Further in the absence of any corroborative evidence it is not correct to allege that there has been clandestine removal of the diamonds as they are situated in customs area and under surveillance of the Respond....
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....of stock taking itself. In support reliance was placed upon the statement of its partner one Suresh Mehta made on 8-2-2000 under Section 108 of the said Act to the officers of the Respondent. This submission does not seem to be supported by the statement made by its partner (Suresh Mehta) and employee (Sandip Savant) to the Respondent at the time of stock taking . It would be best to reproduce the relevant parts of the statements made under Section 108 of the said Act. Relevant part of the Statement of Sursh Mehta made on 8-2-2000 is as under : "Q.7 In the above process, how you will be able to show that goods imported under particular bill of entry have been utilized fully and exported? Ans. Every export of jewellery came under certain price of diamonds and we know at the time of assessment from which bill of entry these packets are removed which are noted down during assortment and are deducted at the time of bill of entry. Q.8 In that case, will you be able to know whether a stock of particular bill of entry is exhausted or not? Ans. Unlike any other produced where there are stamping or marking are done to show their identity until this product is....
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....e. However, no such additional evidence was produced at the time of hearing and therefore, the Appellant's contention that such requirement is impossible of performance as is evidenced by the fact that it is not carried out by any other unit in the same industry was not proved by them. During the course of the hearing before us the Advocate for the Appellant did draw our attention to response received on enquiries made under the Right to Information Act about the proceedings commenced against other Gem and Jewellery units with regard to the value indicated in the value addition statement. However, the aforesaid evidence was not produced before the CESTAT and therefore, it would be improper for us to refer to it and/or to make any comments on the same, particularly in view of the fact that the information under Right to Information Act was received by the appellant on 16-10-2006 and was very much available before the hearing concluded before CESTAT on 7-11-2006 and the impugned order was passed on 21-12-2006, yet the Appellant chose not to rely upon the same during the hearing before CESTAT. Further unless one knows the complete facts with regard to the other units it would not be f....
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.... the same as provided for NFEP in Para 9.5 and 9.29 of the Export Import Policy 1997-2002 and therefore the words are synonymous. Therefore the computation of value addition has to be done not for each export, consignment wise, as sought to be done by the Respondents. In regard to a specific query from the bench whether an earlier Policy could be used to interpret the current policy, the Counsel replied in the affirmative and in support of the same relied upon the decision of the Apex Court in the matter of Raj Parkash Chemicals Limited and Another v. Union of India and Others reported in 1987 (30) E.L.T. 45 (S.C.) wherein he relied upon the observation of the Court to the effect........... "There was a change in the nomenclature of the Headings of different lists, but the change effected was merely by way of clarification in order to promote a clearer comprehension among foreign countries of India's import Policy. It was a change essentially in nomenclature......" 14. The above observations have to be read in the context of in which they were made, in that case Diamond Exporters had been denied Export House certificates under Import policy 1978-79 which entitled them to....
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....unity to the Appellant to explain the same before CESTAT. This condition of maintaining proper account is not only found in the notification but is also requirement of Paragraph 9.11 of the Hand Book of Procedures 1997-2002. Further the requirement of maintaining proper account of the imported diamonds also became necessary in view of Para 9.10(d) of the Hand Book of Procedures 1997-2002 which stipulates that the imported diamonds are to be utilized within a period of two years from the date of import, otherwise the same will become dutiable. The Learned Counsel for the Respondent urged that maintaining of account/record of the imported diamonds supported by the relevant bill of entry is of particular significance in case of diamond industry as exemption is granted to the imported diamonds from duty which has been worked out at the ad volaram basis depending upon the value of the diamonds. In these circumstances, we find that it was imperative for the Appellant to maintain a proper account and record, both quantity wise and value wise of the imported diamonds. For maintaining the records the appellants did comply with the prescribed form of the public notice issued by the Responden....
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....ed 21-10-1994. Further during the course of the hearing, the Learned Senior Counsel for the Appellant filed an affidavit dated 25-4-2012 to which was annexed the letter from the office of the Development Commissioner, certifying that the Appellant has achieved an overall value addition for the years 1988-89 to 1999-2000. This submission ignores the fact that under condition No. 4 of the Notification the Appellant had undertaken to the Respondent to comply with the conditions of the Notification and on that basis the exemption was granted to the Appellant. Therefore in terms of condition in clause 4 of the Notification No. 177/94 the Respondent had independent right to ensure the compliance of the above Notification under which exemption from payment of customs duty was claimed by the Appellant. So far the certificate dated 25-4-2012 from the office of the Development Commissioner which was produced before us is concerned, it must be noted that the issue here is not of overall value addition, but value addition of 5% in respect of the imported diamonds. The certificate issued by the Development Commissioner does not indicate that the value addition in respect of cut and polished dia....
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....peculiar knowledge of the person proceeded against will not relieve the Department altogether of the burden of producing some evidence in respect of that fact in issue. It will only alleviate that burden, to discharge which very slight evidence will suffice. (6) .... (9) ...." Therefore the aforesaid tests have been met by the Respondent and the onus of discharging the burden was shifted on the Appellant in the present facts. Therefore, though the burden to explain the shortage and/or excess was not shifted the onus to prove was shifted from the Respondent to the Appellants and they have been unable to discharge the onus. This shifting of onus of proof was after the Respondents had prima facie established certain excess and shortage of diamonds in the hands of the Appellant [See the decision of this Court in the matter of Phoenix Mills reported in 2004 (168) E.L.T. 310 (Bom.)]. Therefore in the present facts, even though Section 123 of the said Act is not applicable, yet the Respondent have been able to establish the illicit procurement of cut and polished diamonds by the Appellant and the Order of CESTAT cannot be found fault with. 18. The Appellant also....