2012 (12) TMI 161 - HC - Customs

Import of diamond without payment of duty - shortage of 72095.55 Carats of diamonds - value addition - Notification No. 177/94-Cus., dated 21-10-1994 - maintenance of proper account of import, consumption, utilization of the imported diamonds - redemption fine initially CESTAT decided the case in favor of assessee but decided the appeal against the assessee after remanding the matter back to the CESTAT by the Apex Court - Held that - No documents supporting the import of the above diamonds - Respondents found a shortage of cut and polished diamonds on stock taking as well as excess of cut and polished diamonds - Respondent have been able to establish the illicit procurement of cut and polished diamonds by the Appellant - in favour of revenue

Summary

Issues Involved:
1. Confirmation of demand of duty and penalty by CESTAT.
2. Ordering confiscation of diamonds and imposing a redemption fine.
3. Conclusion that certain diamonds are liable for confiscation.

Issue-wise Detailed Analysis:

1. Confirmation of Demand of Duty and Penalty by CESTAT:
The CESTAT confirmed a demand of duty amounting to Rs. 12,31,86,708/- and imposed an equivalent penalty under Section 114A of the Customs Act, 1962. This decision was based on a shortage of 72,095.55 carats of diamonds, which were imported without payment of duty under Notification No. 177/94-Cus. The shortage was determined after accounting for high-value and broken diamonds. The Tribunal found that the appellant did not maintain proper records of import, consumption, and utilization of diamonds, leading to the demand and penalty.

2. Ordering Confiscation of Diamonds and Imposing a Redemption Fine:
The CESTAT upheld the confiscation of 10,631.39 carats of diamonds, offering an option to redeem them on payment of a redemption fine of Rs. 43 lakhs under Section 125 of the Customs Act. These diamonds were found in the appellant's possession without supporting documents for their licit import. Additionally, the Tribunal upheld the confiscation of 63,078.35 carats of diamonds that were exported as part of studded jewelry without proof of their licit import. The Tribunal's decision was based on the interpretation of Notification No. 177/94-Cus., Export-Import Policy 1997-2002, and the Handbook of Procedure 1997-2002.

3. Conclusion that Certain Diamonds are Liable for Confiscation:
The Tribunal concluded that 63,078.35 carats of diamonds were liable for confiscation because they were exported without proof of licit import. This conclusion was reached after the Tribunal found that the appellant's records were incomplete and did not allow for proper verification of value addition required under Paragraph 8.29 of the Export-Import Policy. The Tribunal emphasized that the reconciliation of diamonds had to be done both quantity-wise and value-wise, which the appellant failed to achieve.

Additional Points:

- Supreme Court's Directions: The Supreme Court had remanded the case to CESTAT with directions to verify the appellant's records and reconcile the stock of diamonds. The Supreme Court emphasized that the verification should not only be for compliance with Paragraphs 8.34, 8.35, and 8.78B of the Handbook of Procedures but also to test the correctness of the accounts maintained by the appellant.

- Appellant's Arguments: The appellant argued that it was impossible to correlate imported diamonds with exported diamonds due to the nature of the diamond industry. They also contended that the value addition statement filed at the time of export was an average figure and not exact. The appellant maintained that they had complied with Paragraph 8.78B of the Handbook of Procedures, which does not require consignment-wise correlation of imports and exports.

- Respondent's Arguments: The respondent argued that the appellant failed to maintain proper accounts as required under Notification No. 177/94-Cus. and the Export-Import Policy. They contended that the value addition statement provided by the appellant at the time of export should be binding and that the appellant's records were inadequate for verifying the value addition on imported diamonds.

- Court's Conclusion: The High Court upheld the CESTAT's decision, agreeing that the appellant did not maintain proper records and failed to reconcile the stock of diamonds both quantity-wise and value-wise. The court also rejected the appellant's argument that the value addition and NFEP (Net Foreign Exchange Earning as a percentage of exports) are synonymous, affirming that value addition must be achieved in respect of each consignment of imported diamonds.

Final Judgment:
The High Court affirmed the CESTAT's order dated 21-12-2006, answering the substantial questions of law in the affirmative against the appellant and in favor of the respondent. The court also granted a stay of the judgment for eight weeks upon the appellant's request.