2005 (10) TMI 161 - AT - Customs

Summary

Issues Involved:
1. Mis-declaration of value in export consignments of diamonds.
2. Shortage of gold during stock verification.
3. Liability for confiscation and penalties under the Customs Act, 1962.

Detailed Analysis:

1. Mis-declaration of Value in Export Consignments of Diamonds:

The appellants filed nine shipping bills for exporting cut and polished diamonds, which were imported from New Jersey and re-exported after a claimed value addition of 6%. The Revenue contended that the diamonds were in the same form as imported, with only the packaging changed, and the 6% value addition was fabricated to show export earnings. Investigations revealed that the diamonds were imported and re-exported to related companies in New Jersey, owned by the Managing Director's brother, without any genuine value addition. The Commissioner concluded that the value addition was falsely declared to meet EXIM Policy requirements, and thus, the diamonds were liable for confiscation under Section 111(d) of the Customs Act, 1962.

However, the Tribunal found that the declared value addition due to sorting and repacking was plausible and supported by evidence. It noted that diamond transactions often involve close family business dealings and that the 6% value addition was reasonable given the 5% norm accepted under the EXIM Policy. Therefore, the Tribunal did not uphold the confiscation under Section 111(d) and found no misdeclaration warranting action under Section 113(i) of the Customs Act.

2. Shortage of Gold during Stock Verification:

A physical shortage of 2732.73 grams of gold was detected during stock verification. The appellants admitted the shortage, attributing it to manufacturing losses or pilferage, and agreed to pay the duty. The Commissioner confirmed the duty demand and held the shortage as a violation of Notification No. 177/94-Cus and EXIM Policy, making the gold liable for confiscation under Sections 111(d) and 111(o) of the Customs Act, 1962.

The Tribunal noted that the appellants had submitted evidence of processing losses and test reports indicating the presence of gold in dust/mud accumulated in the premises. The Tribunal found merit in the appellants' claim that gold loss in jewellery manufacturing should be accounted for and remitted the issue of duty liability on gold back for de novo determination, considering these submissions.

3. Liability for Confiscation and Penalties:

The Commissioner ordered the confiscation of the diamonds and imposed penalties of Rs. 10 lakhs on the company and Rs. 5 lakhs on the Managing Director under Sections 112(a) and 114(i) of the Customs Act, 1962. The Tribunal, however, found no basis for these penalties, given the findings on the value addition and gold shortage issues. It also noted that the appellants had paid the duty on gold before the issuance of the Show Cause Notice, referencing the decision in CCE v. M/s. Machino Montell (I) Ltd., which precludes penalties in such circumstances.

Conclusion:

The Tribunal allowed the appeal of the Managing Director in full, and partially allowed the company's appeal by setting aside the penalties and liability for confiscation of diamonds. The issue of duty liability on gold was remitted back for de novo determination, keeping the issue of time bar open for reconsideration. The appeals were disposed of accordingly.