2022 (2) TMI 468 - AT - Customs

Jurisdiction - jurisdiction of proper officer to issue SCN - Export Oriented Unit Scheme - clandestine removal of the imported jewellery - entire case set up by the Revenue alleging clandestine removal of the imported jewellery is based on statements of various persons, who were neither offered for cross-examination, nor examined in the adjudication proceedings - Section 138B of the Customs Act - fax message sent by overseas supplier do not corroborate with the corresponding shipping bill - Cancelled parallel devices - denial of exemption under Section 26 of the Special Economic Zone Act - amount of duty exempted can be recovered under Section 24 of the Act or not? - penalties. HELD THAT - The denial of exemption is primarily based on the allegations that the appellant s firm have imported brand new gold jewellery by declaring the same as old /outdated gold jewellery and have clandestinely diverted the same to local market and thereafter have re-exported Indian made gold jewellery manufactured by the appellant or by third parties.Thus, the appellant have failed to fulfil their export obligation as required under the scheme of the Special Economic Zone. The allegation of Revenue that the appellant has mis-declared the import consignments inasmuch as they have imported fully finished or high-end gold jewellery which did not require any further processing and have mis-declared the same as old/ outdated gold jewellery. Such allegation is based on the report of the Departmental jewellery appraiser, who in his report have stated that, the jewellery under import which were seized pursuant to inspection on 06.02.2009, appears to be new jewellery. On the basis of this report, Revenue concluded that brand new jewellery was imported under the guise of old/ outdated jewellery and thereafter such jewellery was diverted in the local market - the appellant s firm was evidently authorized to import old/ outdated jewellery or damaged jewellery for melting and re-making into finished product for export. Such outdated jewellery or out of fashion jewellery may also appear at times to be new - Once this is so, it is difficult to understand how the report of jewellery appraiser supports the allegation of mis-declaration. The report of jewellery appraiser nowhere states that the jewellery was not outdated, but it states that the jewellery was appearing as new. Thus, all that glitters is gold. Thus, the report of jewellery appraiser does not advance or support the allegations of Revenue. It is admitted case on facts that during the period in question, the proper Officer of Customs / Special Economic Zone regularly assessed the Bills of Entry filed by these appellants and on finding the same to be tallying with the declaration made in the Bill of Entry allowed the import, each and every time. Never before any mis-declaration was found. There is no allegation by Revenue that these appellants were in collusion with such proper Officer of the Customs / Special Economic Zone. Once this is so then the allegations in the case set up by Revenue regarding mis-declaration in the import consignments is clearly presumptive and not based on any cogent evidence - the Bills of Entry were duly assessed by the proper Officer of Customs in accordance with law and such order of assessment have not been reviewed or challenged by the Revenue. Clandestine removal of imported jewellery to the local market - HELD THAT - The Adjudicating Authority have erred in presuming the contents of fax message, parallel invoices and the notings in private records, as reliable by applying the provision of Section 139 of the Customs Act - such fax message cannot be relied upon against these appellants, when the person who sent these fax messages and the contents thereof, are not established by the Revenue. The fax machine was also being used by other / neighbours, as stated in the statement of the Director of M/s Shakti Jewellers. Parallel invoices - HELD THAT - The show cause notice alleges only two sets of export invoices, as parallel invoices. In respect of these, the explanation given by the appellant s firm is that the two invoices were initially prepared and thereafter subsequently cancelled, due to necessary correction. First set of invoice shows export of 27,888 gm of jewellery instead of 28000 gm whereas the second set of invoice shows export of 27,254.60 gm of jewellery instead of 27000 gm Even if the allegation of parallel invoices is accepted, on one occasion the appellant firm can be said to be guilty of exporting less quantity and on the other occasion excess quantity, which leads us to nowhere, as export was duty free - such excess quantity is nominal and an invoice may be revised for clerical errors, which does not invite any adverse inference, unless there are other supporting reasons for the same. This nominal shortage and/ excess in export of goods, which is only on two occasions cannot form the basis for the charge of clandestine removal of 27,888.50 gm and 22,254 gm of gold jewellery in the domestic market. There is virtually no evidence in support of the charge of clandestine removal, and in absence of any cogent evidence on record, we hold that the charge of clandestine removal cannot be sustained. Revenue has also not produced the person before the Adjudicating Authority for examination and consequent cross-examination, whose statements have been relied upon in support of the allegations by Revenue, for cross-examination. Therefore all such statements cannot be read as evidence against the appellant, being in violation of the provisions of Section 138B of the Customs Act. The Adjudicating Authority have not stated any of the exception as provided in Section 138B, for not examining the witnesses of Revenue - the charge of clandestine removal is a serious charge and the same cannot be upheld merely on the basis of assumption and presumption. Penalties - HELD THAT - Once the allegation of mis-declaration, clandestine clearance, denial of exemption under Section 26 being set aside and decided in favour of the appellants, the imposition of penalties against these appellants also cannot be sustained. Accordingly, we set aside all the penalties imposed on the appellants. Confiscation of gold jewellery from the shared factory premises and the residence of Shri Ajit Singh - HELD THAT - It cannot be said or held that such goods were removed from the Custom area or warehouse without the permission of the proper Officer. Further, these two consignments were seized even before the said consignment could have been opened by the appellant, and hence there was no occasion for the appellant not to observe the conditions of exemption, i.e., export of manufactured jewellery after processing/ remaking. Therefore, both the clauses (j) and (o) of Section 111 are not attracted in the facts of the present case - Once the charge of clandestine clearance of imported jewellery has been held to be not sustainable, then confiscation on this ground can also not be sustained. Therefore, the confiscation of 24,746 gm and 822.17gm of gold jewellery is set aside. Lack of jurisdiction on the part of Custom Officers including the Officers of DRI to issue SCN - HELD THAT - In the present case, it is the officer of DRI, who has issued the show cause notice demanding duty and penalty under Section 28 of the Customs Act, which power can be exercised only by the proper Officer . Once the Additional Directorate General of DRI is not a proper Officer , there are no hesitation to hold that the show cause notice itself is wholly without jurisdiction, and any demand based on such show cause notice(s) cannot be sustained. The show cause notices which have been adjudicated in the impugned order-in-original for the purpose of demand of duty and consequential confiscation of goods are wholly without jurisdiction. Accordingly, the impugned order is fit to be set aside on this score alone. Appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Alleged violation of the Customs Act and the Special Economic Zone (SEZ) Act.
2. Confiscation of gold jewelry and penalties imposed.
3. Alleged mis-declaration and undervaluation in the import of gold jewelry.
4. Alleged clandestine removal of imported jewelry to the domestic market.
5. Jurisdiction of the Directorate of Revenue Intelligence (DRI) to issue show cause notices and conduct investigations.

Issue-wise Detailed Analysis:

1. Alleged Violation of the Customs Act and SEZ Act:
The appellants, a partnership firm and its partner, were accused of violating the Customs Act and SEZ Act by allegedly mis-declaring and undervaluing imported gold jewelry and diverting it to the domestic market without fulfilling export obligations. The firm was authorized to import outdated/old/idle gold jewelry for melting and remaking into finished products for export. The approval allowed the import of not only old jewelry but also outdated or out-of-fashion jewelry, which might appear new.

2. Confiscation of Gold Jewelry and Penalties Imposed:
Gold jewelry weighing 24,746 grams and 822.17 grams was seized from the factory premises and the residence of the partner, respectively. The jewelry was confiscated, and penalties were imposed based on the allegations of mis-declaration and clandestine removal. The Tribunal set aside the confiscation and penalties, stating that the imported consignments were cleared by the proper Officer of Customs and there was no evidence of clandestine removal or non-observance of exemption conditions.

3. Alleged Mis-declaration and Undervaluation in Import:
The Revenue alleged that the appellants imported brand new gold jewelry by declaring it as old/outdated jewelry and clandestinely diverted it to the local market. This allegation was based on the report of a jewelry appraiser who stated that the imported jewelry appeared new. However, the Tribunal found that the appellants were authorized to import outdated jewelry, which might appear new, and the report of the jewelry appraiser did not support the allegation of mis-declaration.

4. Alleged Clandestine Removal of Imported Jewelry:
The Revenue's case of clandestine removal was based on statements of various persons and some private records, which were not corroborated by any material evidence. The Tribunal noted that the movement of goods from SEZ to the domestic market required authorization and there was no evidence of connivance with Customs officers. The Tribunal found the allegations to be presumptive and not supported by any cogent evidence.

5. Jurisdiction of DRI to Issue Show Cause Notices and Conduct Investigations:
The Tribunal held that the DRI officers did not have the jurisdiction to issue show cause notices or conduct investigations before the issuance of Notification No. 2666 dated 05.08.2016, which conferred such powers on them. The Tribunal relied on the Supreme Court ruling in Canon India Pvt. Limited vs. Commissioner of Customs, which held that the notification appointing DRI officers as proper officers was invalid. Consequently, the show cause notices and the subsequent adjudication were deemed without jurisdiction.

Conclusion:
The Tribunal set aside the impugned orders, holding that the allegations of mis-declaration and clandestine removal were not substantiated by evidence, and the DRI officers lacked jurisdiction to issue show cause notices and conduct investigations. The appeals were allowed with consequential benefits, including the return of confiscated gold jewelry.