2003 (11) TMI 493 - AT - Customs

Re-export of cut and polished diamonds - Stock taking - Demand - Limitation - Suppression - Redemption fine and penalty

Issues Involved:
1. Correlation of imported and exported diamonds.
2. Maintenance and reliability of registers.
3. Application of Ministry of Finance's Circular No. 40/2000-Cus.
4. Invocation of extended period for duty demand.
5. Imposition of penalties and confiscation.

Issue-wise Detailed Analysis:

1. Correlation of Imported and Exported Diamonds:
The primary issue was whether the diamonds intended for export matched those imported under specific bills of entry. The appellant, a jewelry manufacturer, presented a shipping bill for re-exporting diamonds, claiming they were the same as those imported duty-free. However, upon examination, discrepancies were found. The average number of pieces per carat in the export consignment did not match the imported diamonds. Specifically, the export consignment contained diamonds with 85-86 pieces per carat, whereas the import documents stated 150 pieces per carat. This discrepancy led to the conclusion that the diamonds under export were not the same as those imported. Additionally, further scrutiny revealed that the appellant failed to account for 43 carats of diamonds imported under Bill of Entry No. 132/96, thus supporting the department's contention of unaccounted diamonds.

2. Maintenance and Reliability of Registers:
The appellant argued that the registers maintained were defective due to a strike in the unit, and thus, should not be relied upon. However, the stock-taking and scrutiny of records indicated that the unit had no physical stock of diamonds, and the registers showed discrepancies in the quantities of diamonds imported and exported. The Commissioner found that the appellant's records did not support their claims, and the stock-taking results, which were not disputed by the appellant, confirmed the shortage of diamonds.

3. Application of Ministry of Finance's Circular No. 40/2000-Cus:
The appellant contended that the department's attempt to correlate imported and exported diamonds without considering the instructions in Circular No. 40/2000-Cus was misplaced. The circular stated that only the caratage needed to be accounted for, not the number of pieces. However, this circular was introduced in 2000, after the events in question. The department's verification was based on the appellant's declaration that the diamonds being re-exported were the same as those imported duty-free. The examination revealed that this was not the case, thus justifying the department's actions.

4. Invocation of Extended Period for Duty Demand:
The appellant argued against the invocation of the extended period for demanding duty on the unaccounted diamonds, claiming there was no suppression on their part. However, the detailed stock-taking and the misdeclaration in the shipping bill indicated suppression. The facts would not have come to light without the department's investigation. Therefore, the extended period for duty demand was deemed justified.

5. Imposition of Penalties and Confiscation:
The Commissioner imposed a penalty equal to the duty amount on the appellant under Section 114A of the Customs Act and determined a redemption fine for the export consignment, which was allowed to be exported provisionally. Additionally, penalties were imposed on the appellant and its Chairman under Section 114(i) of the Customs Act. The appellate tribunal reduced the penalty under Section 114A to Rs. 20 lakhs, reduced the redemption fine to Rs. 5 lakhs, and set aside the penalty on the Chairman, considering his lack of involvement in day-to-day operations. The penalty on the appellant under Section 114(i) was reduced to Rs. 50,000/-. The duty demand was confirmed.

Conclusion:
The appeal was partly allowed, with modifications to the penalties and fines imposed by the Commissioner. The tribunal upheld the findings regarding the discrepancies in the diamonds and the invocation of the extended period for duty demand.

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