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TMI Blog2012 (12) TMI 161X X X X Extracts X X X X X X X X Extracts X X X X ..... . - This is an appeal under Section 130 of the Customs Act, 1962 (hereinafter referred to as the said Act) from the order dated 21-12-2006 [2007 (210) E.L.T. 245 (Tri.-Mumbai).] of the Customs Excise and Service Tax Appellate Tribunal (hereinafter referred to as CESTAT ). This appeal was admitted on 14-8-2007 [2010 (249) E.L.T. A109 (Bom.)] on the following substantial questions of law : (a) Whether in the facts and circumstances of the case, the CESTAT was correct in confirming the demand of duty of Rs. 12,31,06,700/- and a penalty of an equivalent amount? (b) Whether in the facts and circumstances of the case, the CESTAT was right in ordering confiscation of 10,631.39 carats of diamond and imposing a redemption fine of Rs. 43 lakhs? (c) Whether in the facts and circumstances of the case, the CESTAT was correct in concluding that 63,078.35 carats of diamonds are liable for confiscation? 2. The CESTAT by its impugned Order dated 21-12-2006 held that there was a shortage of 72095.55 Carats of diamonds (after taking into account/giving credit to the explained High Value Diamonds and Broken Diamonds) which had been imported without payment of duty by availing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... j) and 111(o) of the said Act; (iv) 23 high value diamonds totally valued at Rs. 39,63,286 shall not be confiscated under Section 111(d), 111(j), 111(l), 111(m) and 111(o) of the said Act as there was no evidence available of its legal import; (v) The broken diamonds valued at Rs. 6,91,139 shall not be confiscated under Section 111(o) and 119 of Customs Act, 1962; (vi) The 10631.39 Carats of unaccounted diamonds some found in stock and some studded in semi finished gold jewellery valued at Rs. 4,03,72,667/- along with the 6423.32 gms. of gold in .995 purity (the gold content of semi finished jewellery containing diamonds which could not be separated) valued at Rs. 26,81,736/- under seizure shall not be confiscated under Section 119 and 113(d) of said Act; (vii) The unaccounted diamonds exported during 1998-99 and 1999-2000 (till 5-2-2000) totally valued at Rs. 27,00,76,393/- (63078.35 Cts) shall not be held liable for confiscation under Section 113(d) and 113(i) of said Act; and (viii) Penalty shall not be imposed under Section 112(a) and (b) and 114(i) of said Act; (c) During the course of stock taking it was noticed that the Appellant was not maintain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e in keeping each consignment of imported diamonds separately as required under the Import Export Policy, a representation was made by the Gem and Jewellery Export Promotion Council on 16-12-1999 to the Government of India as they were finding it impossible to keep a record of each imported consignment of diamonds with regard to the bill of entry under which the same was imported. This was accepted by the Government of India and with effect from 1-4-2000 paragraph 8.78B was introduced in the Handbook of Procedures 1997-2002 clarifying that for the purposes of monitoring the performance of a Gem and Jewellery Unit at no point of time, the unit shall be required to co-relate every export consignment with the corresponding import consignment. Consequently, there is no shortage of diamonds of 7370 carats and/or excesses as of certain verities of diamond as alleged. In view of the aforesaid reply, the Appellant requested that the show cause notice be dropped. (d) On 15-6-2001, the Respondent after considering the Appellant s submissions held that there was a breach of Notification No. 177/94-Cus., dated 21-10-1994 and the provisions of the Export Import Policy 1997-2002 and Handbook ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No. 177/94-Cus., dated 21-10-1994. (e) Being aggrieved by the order of the Respondent dated 15-6-2001 the Appellant preferred an appeal to CESTAT. The CESTAT by its order dated 14-2-2003 allowed the Appellant s appeal. The CESTAT held that there is no shortage of diamonds as confirmed by the order of the Respondent, particularly, in view of the fact that the shortages were arrived at on the basis of the co-relation of imported and exported diamonds with reference to individual consignment and tallying each rate of imported diamonds with the rate indicated in the Value Addition Statement. The CESTAT held that in physical terms the shortage/excess by weight of diamonds is insignificant. Consequently, not only the demand in respect of shortage was set aside but also its confiscation and confiscation of the seized diamonds and unaccounted diamonds legitimately exported were also held to be not sustainable. Consequently, the penalties imposed were also set aside. (f) Being aggrieved by the order dated 14-2-2003 [2003 (155) E.L.T. 559 (Tri.-Mumbai)] of the CESTAT, the Respondent preferred an appeal before the Apex Court. On 14-9-2004 [2004 (172) E.L.T. 3 (S.C.)], the Supreme C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to work out the details and find out whether there is any excess or shortage as alleged by the departmental authorities. If after considering the explanation of the respondent-assessees and that of the departmental authorities already on record it finds that the plea of the concerned assessees, is without substance it shall work out the suppression, if any, and the duty payable. The quantum of penalty would be equal to the sum of duty leviable in terms of confirmation of Commissioner s order as done by us supra. The penalty to that extent stands confirmed. The balance of penalty, if any, would depend upon re-examination by CEGAT as directed supra. 33. Respondents also urged before us that the demands raised were clearly barred by limitation and though the plea of limitation was specifically raised the same was not considered by the Commissioner and since the CEGAT accepted the plea of the respondents on merits it did not refer to that plea. 34. We find that reference was made by departmental authorities to the proviso appended to sub-section (2) of Section 28 of the Act No plea about its non-applicability was taken in the grounds of appeal before the CEGAT and though it was v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 21-12-2006 of CESTAT. Even this statement does not reconcile all the stock. This itself according to CESTAT is proof of the fact that the accounts were not maintained properly. Therefore the necessity of correlating the diamonds with the bills of entry and shipping bills to determine the value of the stock became necessary. However, the CESTAT has observed that even in terms of Paragraph 8.78B of the Hand Book of Procedures 1997-2002, the total quantity of a particular variety (value wise) has to be undertaken and not the total quantity of different qualities put together as there cannot be any matching between the export of one variety of diamonds with that of another variety even though the quantity may be identical as the difference between diamonds of identical weight could be high. No such exercise has been done by the Appellant. The CESTAT has also observed that once the shortages have to be determined bill of entry and shipping bill wise there is no dispute between the Appellant and the Respondent about the working out of the demand that the shortage of diamonds and after taking into account the 23 Carats of High value diamonds and the Broken diamonds the shortage works out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lf to- (i) bring the said goods into his unit and use them within the Zone for the purposes specified in this Notification; (ii) dispose of the said goods or the gem and jewellery manufactured or packaged in the unit or the waste arising out of such production or packaging in the manner as may be prescribed in the Export-Import Policy and in this Notification; (5) the importer shall maintain a proper account of import, consumption and utilization of the said goods and of the exports made by him, and shall submit such account periodically to the Assistant Commissioner of Customs; (6) the importer satisfies the Development Commissioner of the Zone that the goods so imported have been used for the purposes specified in the Notification or for any other purposes specified in Export-Import Policy; (7) .... .. Export Import Policy 1997-2002 Value Addition 8.17 The value addition will be calculated with reference to the value of gold/silver/platinum content including admissible wastage. The minimum value addition shall be : S. No. Item of Export Minimum Value addition (a) Studded gold/pl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oice 8.34 At the time of export of jewellery, the shipping bill and the invoice presented to the customs authorities shall contain the description of the item, its purity, weight of gold/silver/platinum content, wastage claimed thereon, total weight of gold/silver/platinum content plus wastage claimed and its equivalent quantity in terms of 0.995/0.999 fineness for gold/silver/Platinum and/in terms of 0.9999 fineness for platinum and its value, fob value of exports and value addition achieved. If the purity of gold/silver/platinum used is the same in respect of all or some of the items made out from each of these metals for export, the exporter may give the total weight of gold/silver/platinum and other details of such similar items which are of the same purity. In case of studded items, the shipping bill shall also contain the description, weight and value of the precious/semi-precious stones/diamonds/pearls used in manufacture, and the weight/value of any other precious metal used for alloying the gold/silver. Conditions of Exports 8.35 The exports shall be allowed by the customs authorities provided the endorsement made on the shipping bill and the invoice are correct and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all be able to account for, by way of fulfillment of export obligation and realization of prescribed NFEP, the entire quantity of imports as might have been made by the units. The exporter shall also account for the total quantity of imports by way of total quantity of exports and the balance stocks including broken diamonds and other gemstones. However, at no point of time, the unit shall be required to co-relate every export consignment with the corresponding import consignment. 5. The Appellant submit that the impugned order of CESTAT dated 21-12-2006 is perverse inasmuch as it has mis-interpreted the relevant provisions of the Export Import Policy-1997-2002, Handbook of Procedures 1997-2002 and the Notification No. 177/94-Cus., dated 21-10-1994 to infer that the Appellant has failed to explain and reconcile the stock in its hand with those imported and those used in the export of studded jewellery and also reached its aforesaid conclusion ignoring the evidence led by the appellants as directed by the Apex Court. In support of the above contention, the Learned Senior Counsel Mr. Sreedharan, submitted as under : (a) In terms of the Supreme Court order dated 14-9-2004 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ondents at the time of search itself by the statement of its partner one Suresh Mehta. (c) Without prejudice to the above it was submitted that the Appellants were functioning within SEEPZ and the accounts and records were maintained by them in terms of Public Notice issued by the Respondent and over seen by its officers and in particular Daily Receipt Register as well as Finished Product Register which were countersigned by them. At no point of time did the officers of the Respondent inform the Appellant that records are not being properly maintained. Consequently it is not open to the Respondents to now contend that the records are not properly maintained. Further it is a fact that all the times that activities of the appellants were supervised and controlled by the Customs department. In view of the above, in the absence of any corroborative evidence of illegal removal and/or procurement of diamonds it is not open to the department to claim that there has been substitution and/or shortages of the diamonds from that which were imported by the Appellant. (d) Further the fact that Paragraph 8.34 and 8.35 of the Hand book of Procedures-1997-2002 were impossible of perform ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 14-9-2004 they have been able to explain/reconcile imported diamonds and diamonds exported in studded jewellery save and except to the marginal amount 165.40 carats being in excess and 1473 carats being short. 6. As against the above, the learned counsel Mr. Advait Sethana for the Revenue submits that there is no perversity in the impugned order of the Tribunal dated 21-12-2006 and the finding of fact arrived at by the Tribunal should not be interfered by this Court. In particular, it was contended by the Counsel for the Revenue as under : (a) In terms of Notification No. 177/94, dated 21-10-1994 the Appellant was allowed to import cut and polished diamonds without payment of duty subject to the condition that imported goods would be used in compliance with the terms of the Notification and the provisions of the Export-Import Policy. In terms of the condition of the above Notification as provided in clause 5 thereof, the importer is obliged to maintain proper account of imports, consumption and utilization of the imported goods in the exports made. In this case it was submitted the Appellant has admittedly failed to keep proper account of the imported goods and therefore in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich cover the period ending on 5-2-2000 as Para 8.78B came into Handbook only with effect from 1-4-2000 and cannot have retrospective effect. Alternatively it was submitted that Paragraph 8.78B applies only for the purpose of computing NFEP and not value addition which is required to be achieved in respect of each export consignment as required in terms of Paragraph 8.29 and 8.17 of the Import Export Policy 1997-2002. In any case it is submitted that even in terms of Paragraph 8.78B of the Handbook of Procedures the reconciliation has to be done both quantity wise as well as value wise. This is so as each type of diamond and/or Diamonds of particular value would be a distinct and different class of diamonds. Further the requirement of tracing the imported diamond is important as the duty forgone at the time of import can be known only from the date and value at which the diamonds were imported. (e) The Appellant has failed to explain the shortages and excess of diamonds and the reconciliation statement being Exhibit-A to the impugned order as only done quantity wise and not value wise. Consequently, reconciliation statement furnished by the appellant being Exhibit A does not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mption and utilization of the cut and polished diamonds and the exports made of the final products. The Export Import Policy 1997-2002 in Paragraph 8.29 thereof provides that an exporter like an Appellant would be required to achieve a value addition of 5% on the imported diamonds over and above the value addition prescribed for studded jewellery. Consequently, at the time of exporting studded jewellery and while filing the shipping bill, the Appellant is required to file a Value Addition Statement to satisfy the authorities of compliance with Notification No. 177/94 read with Paragraph 8.29 of the Export Import Policy 1997-2002 in accordance with Paragraph 8.34 and 8.35 of the Hand Book of Procedures 1997-2002. This value addition statement inter alia indicates the value addition achieved in respect of the imported cut and polished diamonds as also in respect of studded jewellery which are being exported. The export is allowed only if value addition achieved on the imported cut and polished diamonds is not less than 5% as prescribed in the policy over and above the 15% value addition on studded gold jewellery as provided in Paragraph 8.17 of Export Import Policy 1997-2002. In the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsignment. Therefore, it is the case of the Appellant that in terms of Paragraph 8.78B of the Hand book of Procedures all that they are required to do is to have the quantity wise reconciliation of the imported diamonds with those exported and those in stock have to be done and not value wise reconciliation bearing in mind the peculiar nature of the diamond industry. Further they also contend that this is also the directions of the Apex Court in its order dated 14-9-2004. 9. Bearing in mind the aforesaid basic dispute between the Appellant and the Respondent, we now consider the impugned Order dated 21-12-2006 [2007 (210) E.L.T. 245 (Tri.-Mumbai)] passed by CESTAT. The present proceedings were remanded to CESTAT by the Apex Court after setting aside an earlier Order dated 14-2-2003 [2003 (155) E.L.T. 589 (Tri.-Mumbai)] of CESTAT which had allowed the appeal of the Appellant herein. However while remanding the present matter to CESTAT it had inter alia permitted the Appellant to produce its original record before the CESTAT so as to explain excess/shortage as alleged by the Respondent. The Apex Court while remanding the matter drew attention to Regulation 9 and 10 of the Manufact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 78B per se but only in line with Paragraph 8.78B of the Handbook of Procedures 1997-2002. Notwithstanding the above, the Respondent contend that Paragraph 8.78 B of the Handbook of Procedure 1997-2002 will not be applicable, as it came into force only with effect from 1-4-2000 and cannot have retrospective effect. As has been noted above. Paragraph 8.78B of the Hand Book of Procedures 1997-2002 was introduced consequent of a representation made by Gems and Jewellery Association of which the Appellant is a member. Therefore, paragraph 8.78B of the Handbook of Procedures 1997-2002 is clearly clarificatory in nature. Further, it also provides that at no point of time, a unit shall be required to correlate each export consignment with the corresponding import consignment. Further as observed by this Court in the matter of Apar Industries reported in 323 ITR Page 411 that an amendment which is intended to remove an ambiguity must necessarily be regarded as clarificatory and consequently be given a retrospective effect. In this case Paragraph 8.78B of the Handbook of Procedures 1997-2002 would be effective from the date of commencement of the relevant policy i.e. 1-4-1997. According to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d polished diamonds it availed of the benefit of Notification No. 177/1994-Cus., dated 21-10-1994 which exempted duty which would have been payable on the basis of the value of the diamonds and not on the basis of the weight of the diamonds. The diamonds are chargeable to duty on an ad valorem basis. Further, in terms of Paragraph 8.29 of the Export Import Policy-1997-2002 the appellant is required to achieve value addition of 5% over the value of cut and polished diamonds which were imported over and above the value addition prescribed for studded jewellery in Para 8.17 of the Export Import Policy -1997-2002. Further, this value addition has to be in respect of each diamond which has been imported and not on the basis of over all imports and exports as is evident from Paragraph 9.35 of the Hand Book of Procedures 1997-2002 which clearly provides that the exports would be allowed by the Customs Authorities only when the value addition achieved in respect of the imported goods is not below the minimum prescribed in the policy. The value addition is not based on the weight of the diamonds but on the value of the imported diamonds. This again establishes the fact that the Appellant is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he imported diamonds, it was concluded by the Respondent that the same was illegally procured and whenever the same corresponded, credit was given to the Appellant for the same. It is the case of the Appellant that the value addition statement did not declare the exact price of the imported diamonds, in view of the nature of its business, the value addition statement declared an estimated/average cost of the diamonds used in the export of studded jewellery. Further in the absence of any corroborative evidence it is not correct to allege that there has been clandestine removal of the diamonds as they are situated in customs area and under surveillance of the Respondent. Further, the nature of the Appellant s business make it impossible for them to co-relate the exported diamonds with the imported diamonds. In view of peculiar nature of the diamond industry, where diamonds were imported at a particular rate for an aggregate weight i.e. carats. However, these carats consist of a number of individual stones each of which has a different value. Consequently, as a result of assorting and/or re-assorting repeatedly, it was impossible to keep a track of the cost of each imported diamonds w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8-2-2000 is as under : Q.7 In the above process, how you will be able to show that goods imported under particular bill of entry have been utilized fully and exported? Ans. Every export of jewellery came under certain price of diamonds and we know at the time of assessment from which bill of entry these packets are removed which are noted down during assortment and are deducted at the time of bill of entry. Q.8 In that case, will you be able to know whether a stock of particular bill of entry is exhausted or not? Ans. Unlike any other produced where there are stamping or marking are done to show their identity until this product is work out is not possible to do on diamond at the time of manufacturing. Even though in absence of such marking it is the eye of an expert of a diamond can deduct what type of diamond price it is having. In your question as and when we assort for a particular type of diamond we always take care as far as possible similar diamonds are assorted from the mix lots of diamonds which come from under different bill of entry. Hence after mixing and assorting diamonds from such mix lots it humanly impossible that what is the balance of diamond in a parti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tatement. However, the aforesaid evidence was not produced before the CESTAT and therefore, it would be improper for us to refer to it and/or to make any comments on the same, particularly in view of the fact that the information under Right to Information Act was received by the appellant on 16-10-2006 and was very much available before the hearing concluded before CESTAT on 7-11-2006 and the impugned order was passed on 21-12-2006, yet the Appellant chose not to rely upon the same during the hearing before CESTAT. Further unless one knows the complete facts with regard to the other units it would not be fair to reach any conclusion with regard to them. In any case the only information obtained is that stock taking was done in respect of only one unit out of 32 units in SEEPZ. One must bear in mind that the entire proceedings against the Appellant commenced on gathering of Intelligence. It is further pertinent to note that the Appellant has availed of an exemption Notification and consequently imported the diamonds without payment of duty subject to various conditions including the condition of value addition of 5% of the cost of imported diamonds. In these circumstances, if they ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in 1987 (30) E.L.T. 45 (S.C.) wherein he relied upon the observation of the Court to the effect .. There was a change in the nomenclature of the Headings of different lists, but the change effected was merely by way of clarification in order to promote a clearer comprehension among foreign countries of India s import Policy. It was a change essentially in nomenclature 14. The above observations have to be read in the context of in which they were made, in that case Diamond Exporters had been denied Export House certificates under Import policy 1978-79 which entitled them to get Addl. Licences for import. The Diamond exporters filed writ petitions and by the time the matter was decided in their favour and Addl. Licneces granted, the Import Policy had undergone a change and the issue was what could be imported by the Petitioner viz. what was permitted under the current policy or that permitted under the earlier policy of 1978-79. It was in the above context that these observations were made and the Apex Court was concerned with both the earlier policy and the policy as existing at the time of import, unlike in this case. The Apex Court also observed in the above case that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccount/record of the imported diamonds supported by the relevant bill of entry is of particular significance in case of diamond industry as exemption is granted to the imported diamonds from duty which has been worked out at the ad volaram basis depending upon the value of the diamonds. In these circumstances, we find that it was imperative for the Appellant to maintain a proper account and record, both quantity wise and value wise of the imported diamonds. For maintaining the records the appellants did comply with the prescribed form of the public notice issued by the Respondent. However, the record did not indicate value wise classification of goods. This is particularly important in case of diamonds value and weight would make it distinct and different from diamonds of different value and weight. The maintaining of recordes (sic) Therefore it is clear that the Appellant had not maintained the records of all diamonds of identical weight and value separately, to satisfy the proper maintaining of account/records of the Diamonds. In the alternative, it was submitted by the Appellant that its records and in particular two Registers had been over seen by officers of Respondents coun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 77/94 the Respondent had independent right to ensure the compliance of the above Notification under which exemption from payment of customs duty was claimed by the Appellant. So far the certificate dated 25-4-2012 from the office of the Development Commissioner which was produced before us is concerned, it must be noted that the issue here is not of overall value addition, but value addition of 5% in respect of the imported diamonds. The certificate issued by the Development Commissioner does not indicate that the value addition in respect of cut and polished diamonds of 5% as prescribed in the EXIM policy has been achieved by the Appellant. Consequently, the certificate of the Development Commissioner dated 25-4-2012 is of no avail. Therefore the Respondents have jurisdiction to issue the present notice and demand duty which was forgone at the time when the cut and polished diamonds were imported by the Appellant claiming benefit of Notification No. 177/94-Cus., dated 21-10-1994. 17. It was next contended by the Appellants that the confiscation of 10631.39 carats and 63088.35 carats of diamonds is only on the basis that the same could not be co-related to any of the bill of entr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was after the Respondents had prima facie established certain excess and shortage of diamonds in the hands of the Appellant [See the decision of this Court in the matter of Phoenix Mills reported in 2004 (168) E.L.T. 310 (Bom.)]. Therefore in the present facts, even though Section 123 of the said Act is not applicable, yet the Respondent have been able to establish the illicit procurement of cut and polished diamonds by the Appellant and the Order of CESTAT cannot be found fault with. 18. The Appellant also submitted that the CESTAT erred in not giving credit for 4 High Value diamonds while computing the shortages of cut and polished at 72,095.55 Carats. We find that CESTAT has given credit of 23 High Value Diamonds as they were duly supported by documents. The 4 High Value diamonds for which credit was not given were not supported by import documents. This finding of fact is not perverse and is based on the appreciation of evidence led before CESTAT. 19. In the result we uphold the impugned Order dated 21-12-2006 passed by CESTAT. The Question Nos. (a), (b) and (c) referred to hereinabove on which the appeal was admitted are answered in the affirmative against the Appellant an ..... 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