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TMI Blog2024 (12) TMI 1413X X X X Extracts X X X X X X X X Extracts X X X X ..... the erstwhile incremental Export Promotion Scheme. developed by the officers of DRI that various companies had overvalued their exports of CD ROMS with the intention of fraudulently obtaining excess DEBP/DEEC Credits, which were subsequently utilized for duty free import thereby causing loss of the Customs Duty. Based on the said intelligence, investigations were initiated into the exports of CD ROMS and goods exported by respondents and other exporters. The Investigations revealed that exports had been overvalued to claim undue export benefits. 1.2 Based on the above intelligence, a consignment of 250 Gold bars (250 pieces of gold bars of 1Kg. each) imported by M/s AEL under Air Way Bill and Bill of Entry, without payment of duty claiming exemption under Notification No. 53/2003-Cus, dated 01.04.2003 against the DFCE License dated 08.01.2008 issued by DGFT was detained on 19.02.2010, for further investigation. On request of M/s AEL, Commissioner of Customs, Ahmedabad ordered for provisional release of seized goods. 1.3 In 2003-04 DGFT introduced a scheme titled 'Incremental Export Promotion Scheme" for the benefit of the Star Trading House/ Status Holders. As per this scheme, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hed Diamonds ['CPD for Short] exported by M/s AEL. The investigation conducted revealed that M/s. AEL had during the year 2003-2004 imported CPD from various overseas buyers and exported the same in the same form as CPD, which cannot be counted towards incremental export benefits provided under DFCE scheme. As per Note 1 inserted after sub-paragraphs (vii) in para 3.7.2.1 under Chapter 3, vide Notification No. 28/(RE2003)/2002-2007 dated 28.01.2004, the re-export of imported goods shall not be taken into account for the purpose of calculating the value of exports. As per the revenue, it is revealed from the investigation conducted, statements recorded and scrutiny of documents submitted by M/s AEL that they have imported CPD from various overseas suppliers under Bond and exported the same set of CPD in the same form from the private bonded premises. 1.5 The above investigation culminated into the issuance of show cause notice dated 19.12.2012 and demanding customs duty under Section 28 of the Customs Act, 1962 along with interest. The said Show Cause Notices also proposed to confiscation of goods and impose Penalties under the Act and proposed to enforce Bank Guarantee. In adjudic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... review the order F.No. 08/F-3/04/AM13/ECA dtd. 26.07.2023 passed by the Additional Director General of Foreign Trade, Ahmedabad, under the provisions of Section 16 of the Foreign Trade (Development and Regulation) Act, 1992. The said proposal of DRI/Customs department is pending at the level of DGFT, HQ., New Delhi. Therefore he prayed to adjourn the proceedings in the matter till the Review Order is passed by the Director General of Foreign Trade, HQ., New Delhi in the interest of natural justice. 3. Shri Hardik Modh, Learned Counsel appearing on behalf of the respondents submits that the present show cause notice refers to the earlier show cause notice dated 30.03.2007 which alleged circular trading of CPD and the present show cause notice refers and relies on the same investigations based on which the earlier show cause notice dated 30.03.2007 was issued. The allegations of circular trading have been set aside and transactions were held to be genuine by the CESTAT by its decision CC Vs. Samir Vora-2015(330)ELT 609, duly affirmed by Hon'ble Supreme Court by dismissing the revenue's appeal reported in Commissioner Vs. Adani Enterprises Ltd. -2016(342)ELT A50(SC) and further, rev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lleged that M/s PNJ Trading, Hong Kong and M/s Little Hearts Creations, Hong Kong were either controlled by M/s AEL or were acting at the behest of M/s AEL. The word "interrelationship' has been judicially interpreted and means 'mutuality of interest'. The expression 'mutuality of interest' is found to Section 14 of the said Act, which contains the expression "interest in the business of each other". In the present case, no mutuality of interest is proved by the mere fact of buying and selling of goods and therefore, the fact that the overseas company sold CPD to AEL or other bought CPD in its transactions with AEL and others does not establish any form or kind of "interrelationship'. Further, there is no common shareholding or directors or any other factors which shall establish control of any form or degree by AEL over the overseas companies and the department has failed to establish that M/s AEL had the right to appoint majority of the directors or to control the management or policy decisions exercisable by a person or persons acting individually or in concert, directly or indirectly, including by virtue of their shareholding or management rights or shareholders agreement or vo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s AEL imported gold & silver Bars in terms of DFCE Scrips issued to them under the Exim Policy RE 2003 for status holders scheme (under para 3.7.2.1 (VI) of Exim Policy RE 2003) on incremental exports under various products groups. Further in terms of para 3 (b)of DGFT's Policy Circular No. 27(RE-2005)/2004-2009 dtd. 05.10.2005 with respect to Gems and Jewellery sector falling under Miscellaneous products group, import permissibility is allowed under chapter 4A of the Policy /procedures Vol.1, for the sector. Accordingly, respondent has rightly imported Gold & Silver Bars under the miscellaneous product group in conformity with the Exim Policy. In such case, since both items which has been exported as well as imported fall under the same "product group', the test of broad nexus as provided in para 3.4.5 of the Handbook of Procedures (HBP) has been satisfied. 3.11 He also submits that DGFT, Policy interpretation Committee (PIC) in its Minutes of Meeting No. 01/AM 11 dated 30.04.2010 specifically clarified that while utilizing the benefit under the scheme, inputs that have nexus with the product group are permitted. 3.12 He also argued that DFCE Scrips has not been cancelled by Lic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cessed and sorted CPD for subsequent period i.e. during 2004-05 to 2005-06 under Target Plus Scheme. We find that the allegations and charges levelled under the said show cause notice dated 30.03.2007 as well as in the present disputed show cause notice dtd.19.12.2012 are similar in nature. The adjudication order passed in respect of the SCN dated 30.03.2008 was carried in Appeal to the CESTAT and decided in respondent's favour vide Final order No. A/2733-2744/2015-WZB/CB dated 26.08.2015 by holding that there was neither any mis-declaration of value /product nor there was circular trading. The CESTAT inter-alia held that all the transaction of Cut and Polished Diamonds (CPD) were genuine and there was no circular trading. The CESTAT in the said matter observed as under :- "17. We have considered the lengthy arguments made by both sides and gone through the detailed written submissions filed by them. We have also perused the record and find that essentially the issues raised are questions of fact which we need to decide based on voluminous documents which each side has taken us through. We therefore first frame the issues for our decision. The issues framed are as under : (I) W ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess of actual assortment. Assortment would therefore include sieving, boiling and segregation. The process of sieving on a sieve, which is a round apparatus which consists of perforated metal sheet of various sizes. The process of sieving for an average lot would normally take around 30 minutes. However, according to my experience, in the bonded warehouse activity, only about 25% consignments were put for sieving. The rest of the consignments did not go through this process at all. The process of boiling involves boiling of the diamonds in a small glass like see through beaker (machine) which operates on electricity. The diamonds are normally boiled for about 20 minutes to remove dust/impurities. Again according to my experience of bonded warehouse, only 50% consignments were subjected to boiling. After the process of sieving and boiling, if at all done, the next process was assortment, i.e., segregating the diamonds on purity basis. (vii) Lot wise assorting of received consignments of CPD in the respective bonded warehouses of the aforesaid companies/firms by way of boiling for cleaning, sieving for separating diamonds size wise, size wise weighment of diamonds using weigh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rrying out any process except sieving, boiling and segregation." E. On this issue of whether processing at all was carried out or not, Kamaraj Bodal, who reported to Lumesh Sanghavi in his statement dated 30-1-2006 stated as under : "Qn. 7 : Who used to physically receive the diamonds and what activities were carried out in the office of M/s. Adani Exports Ltd. after receiving the diamonds? Ans. 7 : I used to physically receive the diamonds brought by our Security Agency and I used make an entry of the same in bond register. Shri Lumesh Sanghavi used to bring assorters along with him and they used to assort the diamonds by sieving and boiling. They used to segregate the diamonds as per quality and they used to pack the same for exports. I have never participated in said assorting of diamonds. As per the instructions of Shri Lumesh Sanghavi, I used to prepare export invoices by typing the same on the computer installed in our office and I used to fax the same to our CHA and the Security Agency who used to transport the same from our office to Custom Office." F. To the same effect is also the statement of Kaushal Pandya recorded on 6-2-2006 and the relevant portion reads as u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... involved in the activities of import and export of diamonds from bonded warehouse. After careful consideration we find that there is no manner of doubt that processes such as sieving, boiling and sorting were carried out by the Indian companies in the bonded warehouse. It is therefore not possible to hold no process at all was carried out by the Indian companies in the bonded warehouse. 18.1 This takes us to the next question as to whether processes of boiling, sieving and sorting carried out in the bonded warehouse resulted in value addition of 5% or more in the years 2004-05 and 2005-06. These percentages of value addition flow from provisions of Para 4A.18 of FTP which was amended in 2005-06 to increase the value addition from 5% to 10%. Para 4A.18 as it stood in 2004-05 reads as under : "4A.18 Private/Public Bonded Warehouses may be set up in SEZ/DTA for import and re-export of cut and Polished diamonds, cut & polished coloured gemstones, uncut & unset precious & semi-precious stones, Import & re-export of cut & polished diamonds & cut & polished coloured gemstones will be subject to achievement of minimum value addition of 5%" 18.2 Save and except increase in the percen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... public bonded warehouses set up under paragraph 8.13 of the Exim Policy. However, the activities of mixing, sieving, assortment and cleaning would be restricted to individual consignment only and mixing of different consignments for the purpose of carrying out the activities of assortment, sieving and cleaning shall not be permitted." 18.4 Besides, we find that the Commissioner has not relied upon any evidence to show that minimum value addition of 5% or more cannot be achieved by such processes. The show cause notice also does not refer to any evidence on this point. The question whether these simple processes can result in value addition of 5% or more is a matter of fact. If the Commissioner wants to read such a condition in para 4A.18, even though the same does not exist on the literal reading thereof, the burden lies on the department/Commissioner to lead evidence to show that these simple processes cannot result in achieving the value addition as required under para 4A.18, even if one were to presume that para 4A.18 has an inbuilt condition of achieving value addition out of processing activity in the bonded warehouse. Both sides agree and therefore, we take note, that value ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the course of international trade. There is no dispute about the CIF value declared by the Indian companies in the bills of entry. Rather such CIF value has been adopted by the Commissioner, to be the correct FOB value. We shall deal with this aspect later in detail when dealing with circular trading. Value addition is a concept under the Foreign Trade Policy (FTP). The formula for determining value addition is given in para 4A.6 of the FTP for 2004-09 which is reproduced herein : "4A.6 The value addition for the purpose of gem and jewellery sector shall be as per paragraph 4A.2.1 of Handbook (Vol. 1) V.A. (A - B) x 100, where = B V.A. = Value Addition A = FOB value of the export realised/FOR value of supply received. B = The Value of inputs such as gold/silver/platinum content in the export product plus the admissible wastage along with the value of the other items such as gemstone, etc. 'Value' for this purpose includes both imported as well as domestically procured inputs. Wherever gold has been obtained on loan basis, the va ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eds in foreign exchange have been fully realised. There is also no evidence on record as required under Section 14, to show that the price of such or like goods for delivery at the time and place of exportation is lower. On the other hand the appellant companies have shown that the contemporaneous imports are at comparable prices, something which the Commissioner does not accept, because according to the Commissioner "in case of diamonds, it is not possible to have evidence of identical or similar goods since each lot of diamonds varies from the other and valuation of diamonds, which is based on carat, colour, cut and clarity cannot be compared." May be the Commissioner is right. But that be so, we have no option but to go with the examination reports recorded at the time of assessment of the export consignments on the shipping bill, on the basis of which let export orders were passed by the proper officer of Customs under Section 51 of the Act, in each case. A few photocopies of the duplicate copy of the shipping bills have been produced before us. We have also perused the record of cross-examination of 5 Customs Officers, who examined the goods. All of them have unambiguously sta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... toms authorities under the provisions of FTP to which we have already adverted. We therefore find that the sole ground of the Commissioner to reject the FOB value, is that the value addition of 5% or more cannot be achieved only by carrying out simple processes, is not sustainable. We therefore, hold that the FOB value declared is correct. 18.10 On the question of valuation, the Commissioner also records that evidences disclosed in the show cause notice, there is an allegation that the FOB value declared is not genuine on account of control by AEL over all the overseas parties involved in the transactions as buyers or sellers of diamonds. Having recorded this objection, the Commissioner does not give any categorical finding thereon but instead treads into the question of circular trading. We however prefer to deal with this issue in the context of valuation and circular trading as the department has also heavily relied upon the allegations in the show cause notice on the inter relationship between AEL and other Indian companies as well as AEL and overseas entities. 18.11 We shall first deal with the relationship between AEL and Indian companies. There is no definition either in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Global Pte Ltd. has also signed all contracts as Director of M/s. Gudami International and Mr. Chang Chung Ling - a Director of Gudami is shareholder/Director of M/s. Adani Global Mauritius and Adani Global Pte Ltd., Singapore; (e) Rajendra Prasad Nair, Manoj Chandrasekharan Nair and Sudhkar Kannadiga who are Managers/Partners/Directors of Gold Star FZE, Shine Jewellery and Queen Jewellery, all UAE entities, respectively are employees of Adani Global FZE, while Vinod Shantilal Shah who is Director of Adani Global FZE and GA International is the brother in law of the Chairman and Managing Director of AEL. 18.13 The fact that some of the overseas entities were started around time of introduction of TPS or closed business simultaneously with closure of TPS does not establish these entities in Singapore and Hongkong were controlled by AEL. We find that out of 45 overseas entities, six have started business between September and December, 2004 and two of them in May and August, 2005. Again out of 45 overseas entities, only 4 closed down and that too, between September and November, 2005 which is well before the deletion of diamonds from TPS on 20-2-2006 or the closure of TPS on 31-3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... namely; GA International and Gudami International, Singapore are part of the list of alleged related parties, but the total exports to them in 2004-05 constitutes only about 22.45% which means that the remaining 77.55% of exports at or about the same price has been made to independent buyers. In 2005-06, exports to independent buyers is about 28.21% assuming all the buyers in Singapore are related. We have arrived at this finding based on the information given on page 46 of the show cause notice. As long as price of exports to independent parties in respect of whom there is no allegation of relationship is available, the same would apply to all other exports including those made to related persons. This is notwithstanding the fact that the department has failed to discharge the onus of proving relationship between AEL and overseas entities, as concluded above. 18.15 We have noted that Lumesh Sanghavi has in his statement said that the diamonds were over-invoiced. This statement by itself does not prove the case of the department. There are many reasons for the same. He himself admitted that he examined only a few consignments when the sorters were absent. Besides the price was de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the proceedings could not have been commenced under Section 112 was not accepted. The Bonds in the present case were for the warehousing under Section 58 of the Act. These Bonds have been cancelled by the Bond Officer. In any case we have held the declared value to be correct. Hence, the question of confiscation does not arise at all. 18.19 The issue involved in the judgment in Euresian Equipment and Chemicals Ltd. and Others v. CC, 1980 (6) E.L.T. 38 (Cal.) does not arise for consideration in the facts of the instant case, as it is not the claim of the appellants that liability if any is wiped out or extinguished with the exportation of goods. 18.20 In CC v. D. Bhoormull, 1983 (13) E.L.T. 1546 (S.C.), the Hon'ble Apex Court held that a case need not be proved with a mathematical precision in the context of smuggled goods seized from the shop where the claimant sought to justify the purchase with the help of documents which were not found to be credible. The Apex Court observed that - "30. It cannot be disputed that in proceedings for imposing penalties under clause (8) of Section 167, to which Section 178A does not apply, the burden of proving that the goods are smuggled go ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imported and exported. On examination of the invoices relating to import as well as export of cut and polished diamonds it is seen that each consignment consists of various lots of different descriptions, weight, value and quality. It is not the case of the department that all the lots referred to at pages 81 to 83 have been imported under one invoice. We have found each invoice to cover number of lots ranging from 8 to 23 in number. Identifying one or two lots from a consignment consisting of 8 to 23 different lots being the same which have been allegedly circulated more than once is a method which is unknown to law. The subject matter of assessment is a consignment as a whole. The Bill of entry under Section 46 or the shipping bill under Section 50 contains a declaration of the goods covered by the total quantity and value of the goods supported by the invoice, which covers the totality of all the lots constituting the consignment. Singling out one or two lots from a consignments to say that the same set of diamonds have been traded again and again is a misnomer. The Commissioner also admits in the impugned order that the value of each diamond varies on account of non-comparabil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imported from Dubai the next day keeping in mind the locational difference in three countries and the time involved in transporting the goods from India to Singapore or Hong Kong and from there to Dubai and Dubai to India, suggesting thereby the whole theory of circular trading is bogus and impossible. We find no answers to this point in the contentions raised by the department. 19.4 To prove circular trading show cause notice also relies upon the statement of Lumesh Sanghavi. In his statement dated 28-2-2006, he has admitted to circular trading in relation to documents shown to him in respect of imports and exports by and to the Indian companies in July, 2005 as recorded on pages 4 to 6 of the said statement. To the same effect, he has also admitted to lots of diamonds being imported and exported over and over again in the transaction which were shown to him and recorded by him on pages 4 to 8 of his statement dated 3-1-2007. We have already dealt with the aspect of retraction of the statements of Lumesh Sanghavi. We have also gone through the record of cross-examination of Lumesh Sanghavi which has been set out by the Commissioner in extenso. We find that when confronting with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... overtible. 19.5 The third piece of evidence referred to in the show cause notice, to support the allegation of circular trading are the 3 charts reproduced on Pages 86 to 88. These charts have been recovered from the desktop (computer) of Vipul Desai who in his statement dated 19-2-2007 said that these were prepared by Sudhakar Nair, Junior Assistant in the Banking department. No statement of Sudhakar Nair has been recorded. We have however, independently considered these charts without the benefit of the statement of the author thereof. We find that the Chart by themselves do not prove circular trading. AEL has explained these charts to depict the business plan and a pattern of transactions. This in fact appears to be so, these charts appeared to be graphic representation of information which have been tabulated by DRI in the show cause notice covering the names and identities of overseas entities and the classification of overseas entities into buyer and seller as can be seen from pages 40, 41 and 45 to 48 of the show cause notice. The Indian companies have also not disputed the fact that they were importing cut and polished diamonds from some of the overseas entities and expor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts filed before the Commissioner. The Commissioner could have caused necessary inquiry through DRI or otherwise to ascertain the genuineness of the said MOU. After all, as an adjudicating authority, the Commissioner must undertake fact finding especially when it is not as if AEL had adverted to business relationship with Daboul for the first time in its reply to show cause notice. We cannot help but noticing that the reply disclosing the MOU with Daboul was filed on 29-10-2007 and the adjudication order has been passed after more than 5 years, which gave ample opportunity to inquire into the genuineness of the said MOU. 21. The most significant material relied upon in the show cause notice are the number of e-mails sent mainly by Ms. Mary and others. Some of the e-mails have been extracted in the show cause notice, as for instance at pages 59 to 64, again from pages 67 to 69 and thereafter from 70 to 79. All the e-mails have been compiled in Annexure-M to the show cause notice. Although these e-mails have been relied upon in the show cause notice to support the allegation of control of overseas entities by AEL, in view of the overlapping submissions made by ld. Special Counsel o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ul, AGFZE and Gudami may nominate a common person to act as a representative of all the parties who is acceptable to all the parties." For want of better explanation from the department, we have no option but to accept that the reason why Ms. Mary Joseph wrote e-mails was because of the understanding recorded in the said MOU. 21.1 We have independently gone through the set of e-mails which have been extracted in the show cause notice on the pages referred to above. We observe as under : (a) The e-mails pertains to large number of transaction like iron ore exports and coal transactions apart from the transactions of cut and polished diamonds; (b) The e-mails referred to transactions with parties other than the 45 overseas entities, as for example, Aramex International Exchange, Radya Baqer Trading LLC, Navy Impex LLC and White Monitor General Trading LLC to name a few. (c) The e-mails provide no explanation on the transfer of funds from one overseas entity to another. In many cases where there is no reference to corresponding invoice related to either import or export of cut and polished diamonds which are the subject matter of the present case. For instance against Sr. No ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as the CIF value of all the consignments of imported diamonds has been accepted to be true and correct value, meaning thereby each consignment is a fresh and a new transaction, independent of each other and not of the same goods repeatedly circulated. We do see force in this argument. We find the stand of the department in the show cause notice to be self-contradictory. If the same lot is circulated into India a number of times, it is only rational to take the CIF value only once for the same lot to support the allegation of circular trading. By not doing so, and by accepting the CIF value of each individual consignments of imported diamonds, the department has admitted each consignment to be different from the other, and not of the same goods, thereby militating against their own case of circular trading. The Indian companies contend and rightly so, that the implications of acceptance of CIF value means each time a new consignment has been imported unrelated to any other in the past or future, duly corroborated by remittance of foreign exchange through banks or authorised dealers equal to the value of the goods received in India. Correspondingly in relation to exports, receipt of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing of LC or availing buyers credit. We are unable to find any such allegation about these actions being in breach of the law in the show cause notice or any finding to this effect in the impugned order. Besides, the payment of commission would be relevant for calculating the value addition if and when the pending applications for grant of duty free scrip under TPS is taken up by the competent authority. 23. Issue No. IV Having held that the declared FOB value is correct, we set aside the confiscation of the exports goods under Section 113(i) of the Act, consequently, we also set aside the penalties imposed by the Commissioner in the impugned order under Section 114 of the Act. 23.1 Before parting, on behalf of some of the individuals on whom the penalties have been imposed it has been submitted that penalties have been mechanically imposed without ascertaining the role played by each of them. It was submitted that the penalty on Rajesh Adani has been imposed simply because he is Managing Director. Lumesh Sanghavi, who was in day to day in charge of the bonded warehouses into and from where all transaction of import and export took place, has not implicated Rajesh Adani. Sami ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... DGFT, Ahmedabad after considering the facts of the case and evidences on record vide Order dated 26.07.2023 dropped the preceding initiated vide SCN dated 08.10.2021. By the said order of Licence issuing authority it was confirmed that the respondent has not obtained the DFCE Licenses fraudulently. 4.4 We also find that in the present matter the department's appeal does not allege that the licences had been cancelled by the DGFT in the instant case. Clearly, the facts are on record that the DGFT has not cancelled the DFCE Licence issued to the respondent and same were valid in the eyes of law. The DGFT has still not cancelled or modified the DFCE licences already granted. So it is clear that DGFT does not agree with the contention of the department. We are unable to agree with the allegation of the revenue that the exports have been misdeclared and DFCE licenses have been sought for and obtained fraudulently and imports have been made using invalid DFCE licenses. We find that the Hon'ble Bombay High Court in the case of Pradip Polyfils Pvt. Ltd. 2004 (173) E.L.T. 3 (Bom.) considered the scope of jurisdiction of the customs authorities to question the validity of DEPB licences and ..... X X X X Extracts X X X X X X X X Extracts X X X X
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