2023 (2) TMI 104 - AT - Customs

Clandestine Removal - 997.09 carats of diamonds and 98.34 carats of diamonds - processing loss - whether allegation of substitution of diamonds was established through the evidence? - HELD THAT - On perusal of the Order-in-Original particularly para 11.2.1, wherein the original authority has held that the diamonds did not have marking and serial number unlike products namely, Televisions, Motor Vehicles etc. and therefore, it is not possible to identify whether diamonds available in the stock were same as imported. The same argument also applies to the goods which were seized under reasonable belief that they were substituted. Applying the observation by the original authority that it is not possible to identify diamonds whether the same are imported or substituted, we come to a conclusion that the seizure of diamonds under the allegation that they were substituted, was on a erroneous belief that they were substituted as such a belief cannot be established for the same reason which is given by the original authority. There are no merit in the seizure of 1095.43 carats of diamonds and subsequent proceedings in respect of the same including confiscation, imposition of redemption fine, demand of differential customs duty and imposition of penalty on the appellants - Insofar as shortage of 89.15 carats of diamonds is concerned, the same is argued to be treated as processing loss. The prosecution has failed to establish any clandestine removal of the same and could identify the person to whom the same were allegedly sold or transferred. In view of the failure of the prosecution to establish any clandestine removal of 89.15 carats of diamonds, it is held to be processing loss and since the same are not taken out of SEEPZ, i.e. out of Bond customs duty cannot be demanded on the same. Appeal allowed.

Summary

Issues:
- Identification of substituted diamonds
- Confiscation and redemption of seized goods
- Demand of customs duty on diamonds
- Imposition of penalties
- Processing loss of diamonds

Identification of Substituted Diamonds:
The case involves appeals arising from an Order-in-Original passed by the Commissioner of Customs regarding the alleged substitution of diamonds by the appellants. The Tribunal had previously remanded the matter for de novo adjudication to verify the correlation between imported diamonds and exported jewelry. The appellants had submitted evidence, but the original authority did not accept it due to lack of attestation. The Tribunal found this reasoning flawed, as the Department could have verified the records themselves. The matter was remanded again for re-testing the seized diamonds and verifying import details. The final order dated 19.05.2017 directed the original authority to verify submissions from departmental records, but records were unavailable. The Tribunal set aside the impugned order, concluding that the seizure of diamonds as substituted was based on an erroneous belief, as it was not possible to identify whether the diamonds were imported or substituted. The Tribunal held the confiscated diamonds to be processing loss, not subject to customs duty.

Confiscation and Redemption of Seized Goods:
The impugned order confiscated 997.09 carats and 98.34 carats of diamonds, allowing redemption on payment of fines. Additionally, goods seized at the SEEPZ gate were confiscated, redeemable on payment of a fine. The demand for customs duty on diamonds and capital goods was confirmed, with penalties imposed on all appellants. The Tribunal found no merit in the seizure of diamonds, as the prosecution failed to establish clandestine removal, holding the shortage of 89.15 carats as processing loss not subject to customs duty. Consequently, the impugned order was set aside, and all appeals were allowed.

Demand of Customs Duty on Diamonds:
The demand for customs duty on 1184.61 carats of diamonds and capital goods was confirmed in the impugned order. The appellants had imported and exported diamonds, with a shortage claimed as processing loss. The Tribunal found the prosecution failed to prove clandestine removal of diamonds, leading to the conclusion that the shortage was processing loss, not subject to customs duty. The impugned order was set aside, and all appeals were allowed.

Imposition of Penalties:
Penalties were imposed on all appellants in the impugned order. However, the Tribunal set aside the order, finding no merit in the seizure of diamonds and concluding that the shortage of diamonds was processing loss, not subject to customs duty. As a result, the penalties imposed were also set aside, and all appeals were allowed.

This detailed analysis of the judgment addresses the issues of identification of substituted diamonds, confiscation and redemption of seized goods, demand of customs duty on diamonds, imposition of penalties, and processing loss of diamonds comprehensively, providing a thorough understanding of the legal proceedings and the Tribunal's decision.