Commissioner of Customs,
Mumbai Vs. M/S B.V. Jewels & Ors  Insc 541 (14 September 2004)
S.N. Variava & Arijit Pasayat Arijit Pasayat,J.
Customs authorities question correctness of the judgment rendered by the
Customs Excise and Gold (Control) Appellate Tribunal, West Regional Bench at
Mumbai (hereinafter referred to as the 'CEGAT') setting aside the order passed
by the Commissioner of Customs (Airport) confirming demand of duty and penalty.
Background facts in a nutshell are as follows:
Show cause notice was issued to the respondents alleging shortage of gold
and diamonds, capital goods and unauthorized usage of capital goods. It is to
be noted that the show cause notice was issued on the basis of certain
intelligence gathered regarding infraction of various provisions of the Customs
Act, 1962 (in short the 'Act') and Customs Rules, 1966 (in short the 'Rules'),
the EXIM policy and violation of conditions of certain Notifications on the
basis of which the respondents had availed benefits. The purported action was
in terms of Sections 111(d), 111(j), 111(l), 111(o), 111(m), 112 (a), 112(b),
113(d), 113(i), 114(i) and 114(A) of the Act. The premises of the respondents
M/s. B.V. Jewels and M/s B.V. Star were searched. Both the units were situated
at plot No.55 of Santacruz Electronics Export Processing Zone (in short
'SEEPZ'), Andheri East, Mumbai. Officers of Customs visited the unit on
31.1.2000, recorded statements of the Accounts Manager and stock taking was
done. Verification continued for several days. Partner Suresh Mehta joined the
verification on 3.2.2000. After completing verification it was found that there
was large scale evasion of duty, shortage of stocks of certain items while
excess stock was found in respect of some other items. Additionally, it was
found that there was shortage of capital goods and unauthorized usage of
The unaccounted diamonds, and capital goods were seized and show cause
notice was issued granting opportunity to the respondents to have their say in
the matter. The Commissioner considered the show cause reply and after
considering the materials brought on record by departmental authorities and the
reply furnished by the respondents, passed the order to the following effect:
(1) The demand of duty of Rs.2,57,90,900/- under the proviso to Section
28(2) of the Act on M/s B.V. Star was confirmed. A similar amount was imposed
as penalty under Section 114(A) of the Act.
(2) 8604.5 gms. of gold and 844.16 cts. of diamonds valued at Rs.62,86,823/-
and capital goods of Rs.58,58,696/- were held to be liable for confiscation
under Sections 111(d), 111(j), 111(o) of the Act.
(3) Confiscation of capital goods under seizure valued at Rs.1,06,37,742/-
found in the premises of M/s B.V. Jewels along with motors, hand pieces and
carbon brushes valued at Rs.36,70,765/- under the aforesaid provisions were
directed to be confiscated. However, M/s B.V. Star was given an option to clear
the goods on demand of fine of Rs.15,00,000/- in lieu of confiscation in terms
of Section 125(1) of the Act. It was clarified that the fine in lieu of
confiscation was to be in addition to any duty payable in respect of such goods
as prescribed under Section 125(2) of the Act.
(4) Penalty of Rs.12,00,000/- was imposed on M/s B.V. Star under Section
(5) The demand of duty of Rs.12,94,12,122/- under the proviso to Section 28
(2) of the Act on M/s B.V. Jewels was confirmed. Similar amount was imposed as
penalty in terms of Section 114(A) of the Act.
(6) It was held that 73730 cts. of diamonds valued at Rs.26,29,54,490/- and
capital goods found missing valued at Rs.58,54,698/- were liable for
confiscation under Sections 111(d), 111(j) and 111(o) of the Act. It was
noticed that these items were not available for confiscation. 23 pieces of high
value diamonds valued at Rs.39,63,286/- under the aforesaid provisions were
directed for confiscation.
(7) Broken diamonds valued at Rs.6,91,139/- under Sections 111(o) and 119 of
the Act was also directed for confiscation. The redemption of seized goods on
payment of fine of Rs.70,000/- was allowed.
(8) Confiscation of diamonds and diamond studded in semi- finished gold
jewellery valued at Rs.4,03,72,667/- along with inseparable gold weighing
6423.32 gms. valued at Rs.26,81,736/- were directed to be confiscated.
Redemption fine of Rs.43,00,000/- was fixed. Unaccounted diamonds valued at
Rs.27,00,76,393/- was held to be liable for confiscation but it was observed
that these were not available for confiscation.
(9) Penalty of Rs.5 crores was imposed on M/s B.V. Jewels under Section
112(a) and 114(i) of the Act.
(10) Penalty of Rs.10,00,000/- was imposed each on Mr. Suresh Mehta and Mr.
(11) Penalty of Rs.2,00,000/- was imposed on Mrs. Saroj Mehta, Mrs. Sapna
Mehta, Shivani Mehta, Mr. B.V. Shah, Mr.
Rajesh B. Shah and Mr. Bharat S. Shah.
(12) Penalty of Rs.1,00,000/- was imposed on Mr. Vijay Shah.
The order of the Commissioner was questioned in appeal before CEGAT which by
the impugned judgment set aside the same holding that the accusations were not
established. The shortage or excess as claimed were not substantiated and
various departmental notifications were not properly construed by the
The order of the CEGAT is challenged in these appeals.
Learned senior counsel appearing for the appellant submitted that the show
cause notice elaborately detailed the various infractions. The Commissioner
analysed the materials collected in the background of the show cause reply
furnished by the respondents and came to hold that the accusations were
established. Accordingly, the directions as noted above were given.
Unfortunately, the CEGAT did not examine the materials in their proper
perspective. By abrupt conclusions without any material to support them and/or
without indicating reasons the conclusions of the Commissioner were nullified.
The judgment which is the result of perfunctory manner of disposal by the CEGAT
needs to be set aside and the order of the Commissioner deserves to be
Learned counsel for the respondents on the other hand submitted that the
Commissioner had not analysed the show cause reply, had acted on mere surmises
and conjectures without keeping in view the applicable provisions and the
notifications and had confirmed the demands proposed in terms of the show cause
According to him, the CEGAT had analysed the issues in great detail and
arrived at the correct conclusions.
The various infractions for which duty and/or penalty were imposed which
were highlighted by the Customs Authorities are essentially as follows:
In respect of M/s B.V. Star the allegations and levies were as follows:
(1) Levy of duty on gold shortage of 8604.5 gms. valued at Rs.34,66,889/-.
The duty component is Rs.23,65,652/-.
(2) Duty on shortage of 844.16 cts. of diamonds valued at Rs.26,92,014/-,
the duty component on which was Rs.11,84,372/-.
(3) Duty levied on missing capital goods which were imported duty free the
value of which was Rs.2,22,48,876/-. This essentially related to three items
i.e. (i) duty on capital goods valued at Rs.1,06,37,742/- which were imported
by M/s B.V. Star were found to be in illegal possession and usage of M/s B.V.
Jewels; (ii) capital goods valued at Rs.58,58,696/- which were not found in the
unit; and (iii) un-installed motors, hand pieces and brushes valued at
Rs.36,70,675/- for violation of the notification No.196/87.
(4) Penalty of Rs.12 lakhs imposed under Section 112(a) of the Act.
So far as issues relating to M/s B.V. Jewels are concerned, they are as
(1) Duty on shortage of 73730 cts. of diamonds valued at Rs.
26,29,54,490/-, the duty on which payable was Rs.12,54,80,309/-.
(2) Broken diamonds of 1607.3 carats valued at Rs.6,91,139/-.
(3) Confiscation of high value diamonds valued at Rs.39,63,286/-.
(4) Duty on unaccounted capital goods of Rs.58,54,698/-.
(5) Confiscation of 10631.39 carats of diamonds valued at Rs.4,03,72,667/-
that were unaccounted along with 6423.32 gms. of gold.
(6) Confiscation of unaccounted diamonds exported during 1998-99, 1999-2000
valued at Rs.27,00,76,393/-.
At this juncture, it would be necessary to note a few factual aspects.
The partners of M/s B.V. Star and M/s. B.V. Jewels are the same except that
M/s B.V. Jewels had an additional partner i.e. Mr.
Vijay Shah. Both the firms are gems and jewellery units set up in SEEPZ and
engaged in the manufacture and export of studded gold jewellery. Originally
B.V. Star was allotted a plot No.55 in the Zone where they had constructed a
building having four floors. In 1995 a request was made by B/s B.V. Star to the
Development Commissioner to permit M/s B.V. Jewels to shift their factory from
Gala to operate from Ist and 3rd floor of M/s B.V. Star's building. Same was
permitted. Accordingly, M/s B.V. Star operated from the 2nd and 4th floors
while M/s B.V. Jewels operated from the other two floors. During stock taking,
as noted above, the Accounts Manager, Shri Ramesh Iyer informed the department
officials that partners Mr. Suresh Mehta and Mr. Suken Mehta had kept some
diamonds separately. On 3.2.2000, Suresh Mehta produced 3861.65 carats of
diamonds the value of which varied between $40 to 50 per carat. By letter dated
3.2.2000 the physical stock of gold and diamonds as per the inventory sheet
prepared by the departmental authorities was confirmed. It was specifically
stated that there was no separate stock of gold and diamonds of M/s B.V.
Star as it was included in the stock of M/s B.V. Jewels. The seized stock of
diamond and gold were revalued by an appraiser.
The conclusions of the Commissioner and the Tribunal need to be noted.
First the case of M/s B.V. Star is dealt with. The issues and seriatim are
(a) Duty on gold shortage of 8604.5 grams valued at Rs.34,66,889 is
Rs.23,65,652 (b) Duty on shortage of 844.16 cts. of diamonds valued at
Rs.26,92,014 is Rs. 11,84,372 As regards gold and diamond, Commissioner
observed that the unit's claim that their stock was mixed up with that of M/s.
Jewels was not accepted as there is no provision available in Custom
Notification or EXIM Policy whereby two units can have joint stock of exempted
material. Customs Notification 177/1994- Cus at Para 7 (i) stipulates the goods
imported by a unit in EPZ can be transferred to other unit only with the prior
permission of Asstt. Commissioner of Customs of the Zone, which has not been
done. Diamonds are restricted for import and import without licence allowed
only to EPZ unit under EXIM Policy and as per Para 9.10 of Handbook of
Procedures, goods are to be imported into units' premises. Transfer of goods so
imported, to any other unit is in violation of EXIM Policy and Custom
Notification. The claim that the stock of gold, diamonds of M/s. B.V. Star is
available with M/s. B.V. Jewels was not accepted as detailed stock position of
M/s. B.V. Jewels indicated total shortage of 202 grams of gold without
considering stock of M/s. B.V. Star. Hence, Commissioner confirmed the custom
duty on gold and diamonds, which were found short.
CEGAT held that no stock taking report was prepared by department and have
accepted the unit's contention that while stock taking, department mixed up all
stock of diamond and gold and that for working out excess or shortage, the
stock position of both units have to be compared together. CEGAT further stated
that the expected recovery of 6812.36 grams of gold is not real recovery and if
percentage of recovery changes slightly, the figure 6812.36 may be twice or
thrice and if both stocks are taken together, alleged shortage of 8604.50 grams
of gold in respect of M/s B.V. Star will not exist as total recovery will be
In respect of diamonds, CEGAT observed that while taking stock, stock of
both the units are mixed and the stock position of both units are considered
with physical records, there would be shortage of 73 carats and observed to be
marginal difference since commencement of the units. CEGAT observed that
Commissioner has not dealt with this issue as department did not raise demand
on physical shortage of diamonds found in respect of M/s B.V.
) Duty foregone on missing capital goods which were imported duty free by
M/s B.V. Star valued at Rs.2,22,48,876/- (i) Duty on Capital goods value at
Rs.1,06,37,742/- imported by M/s B.V. Star illegally under possession and usage
of M/s B.V. Jewels.
The Commissioner observed that as per records and as confirmed by letter of
Estate manager dealing with allocation of space in SEEPZ dated 17.2.2000, the
area allotted to M/s B.V.
Jewels is Ist and 3rd floor and to M/s B.V. Star is 2nd and 4th floor of a
self built factory constructed by M/s B.V. Star. The unit's argument of having
applied for permission obtaining oral permission was discussed and rejected. It
was observed that the 20 machines with accessories were found installed in
premises allotted to M/s B.V. Jewels and were in exclusive use of M/s B.V.
Jewels. The Administrative officer of SEEPZ vide note dated 11.5.2000 had
clarified that the capital goods limit of M/s B.V.
Jewels had already been utilized and they were not entitled for duty free
import or procurement of capital goods by way of inter unit transfer.
Accordingly, the Commissioner observed that there was a deliberate attempt of
diversion of capital goods imported by M/s B.V. Star to M/s B.V. Jewels, as the
stipulated permission for such inter unit transfer to be obtained from
Development Commissioner under para 9.16 (b) of EXIM Policy, from Asstt.
Commissioner of Customs vide Para 7(i) of Notification 177/94 Customs, had
not been obtained by any of these units. The unit's argument of working as one
unit being sister concerns was rejected, as vide Para 9.37 (x) of Handbook of
Procedures of EXIM policy. Units need to obtain specific permission from
Development Commissioner for merger.
CEGAT observed that the appellants have answered a CRA objection in 1997
stating that M/s B.V. Star spared their Machinery to M/s B.V. Jewels for
effecting exports, and the department closed the CRA objection. Thus not only
were they aware that M/s B.V. Star's Machinery was used by M/s B.V. Jewels in
the same Zone, but also were satisfied with the reply. Thus it is not a case of
transfer of machinery to M/s B.V. Jewels, but use of machinery by M/s B.V.
Jewels for manufacture of jewellery for exports. Condition No 4 of Notification
No.177/94 required importer to execute a bond binding himself to bring such
goods into his unit and use them within the zone for the purpose specified in
the notification. Thus the said goods were brought into their units and those
were used within the same zone for the purpose of export. Further importer has
to satisfy the Development Commissioner that the goods so imported have been
used for that purpose. Notification No.177/94 Cus. gets violated only if goods
are to be transferred to another unit in the same zone.
In this case there is no transfer to another unit but use of machinery by
M/s B.V. Star for manufacture of jewellery for M/s B.V. Jewels with the
knowledge of department. Therefore question of permission of Assistant
Commissioner does not arise.
(ii) Confiscation of Capital goods valued at Rs.58,58,696/- which are not
found in the unit.
Commissioner noted that M/s B.V. Star had worked for a brief period of 15
days or so where they exported only five consignments during 6.5.1997 to
14.5.1997 and quantum of jewellery produced is observed to be negligible,
compared to quantum of capital goods imported by the unit. Capital goods worth
Rs.58,58,696/- were not accounted for in the unit, and it cannot be considered
as consumed/worn out considering a negligible export effected. It was
accordingly held that the duty foregone at the time of clearance is payable.
CEGAT observed that Notification No.196/87 Cus. Condition xiv (b) (i)
required importer to pay duty on consumable goods if not used in connection
with the manufacture of the jewellery in the same zone. Since goods have been
used in the same zone and there is no condition that the goods should be used
by the same unit, there is no violation of condition of Notification.
(iii) Confiscation of un-installed motors/brushes/hand pieces valued at Rs.
36,70,675/- for violation of Notification 196/87 Cus.
Commissioner found that 238 pieces of Bench Motor, 79 hand pieces, 500
carbon brushes were found in original packages having remained unused and
uninstalled for a period over six and half years violating condition xiv(b)(i)
contained in Notification 196/87 Cus., which stipulated that the equipment had
to be installed and used within a period of 1 year from the date of
CEGAT observed that condition xiv(b)(i) to Notification 196/87 as held by
Commissioner is not applicable, but the condition xiv (b) (ii) is applicable,
which permits retention of such goods within the zone in connection with the
promotion of export of gems and jewellery. The condition of retaining the goods
within the said zone for purpose of export is satisfied.
There is no violation of the Notification and therefore demand of duty and
confiscation of goods is not sustainable.
(d) Imposition of Penalty The commissioner confirmed duty of
Rs.2,57,90,900/- and imposed equivalent penalty apart from confiscating capital
goods installed in the premises of M/s. B.V. Jewels with an option to redeem
the same on payment of fine of Rs. 15,00,000/-.
CEGAT observed that as there was no shifting or transfer, these goods were
lying in plot No.55 only which is repeatedly accepted as address for both
units, and were not removed and use of machinery by M/s B.V. Jewels was for
purpose of manufacture.
Section 111(d)(j) & (o) invoked by Commissioner has not been violated,
and hence confiscation, imposition of redemption fine and demand of duty are
So far as M/S. B.V. JEWELS is concerned, the issues are as follows:
(a) Duty on shortage of 73,730 Ct of diamonds valued at Rs.
26,29,54,490/- Duty of Rs. 12,54,80,309/-.
Commissioner observed that Custom Notification 177/94 Cus; Stipulates that
the importer to dispose the diamonds in a manner as specified in EXIM Policy as
well as in the Notification. Para 8.29 of the EXIM Policy stipulates that the
Exporter is required to achieve an additional value addition of 5% over the
imported value of cut and polished diamonds. Para 8.34 of Hand book of
Procedure of Exim Policy stipulates that the invoice presented to the Customs
has to contain description of item, purity, Weight of gold, wastage claimed
thereof and the total weight including wastage. Similarly in the case of
studded jewellery, apart from above details of precious metal, the Exporter has
also to indicate weight and the value of the diamonds. Para 8.35 of Handbook
stipulates that the exports shall be allowed by Customs Authorities provided
endorsements made on Shipping Bill and Invoice are correct and value addition
achieved is not below the minimum prescribed limit. It was observed that as all
details cannot be brought on the same Invoice, Public Notice 20/96 contemplated
that the Exporters shall file 'Value Addition Statement'. Para 9.10 (d) of
Handbook stipulates that the diamonds are to be utilized within a period of two
years from the date of import, and remaining unutilized diamonds thereafter
would become dutiable. Hence the importers have to maintain the record of
consumption Bill of Entry wise, and the details of Bill of Entry are to be
shown in Export documents so as to show consumption within prescribed time.
Even the Bond executed with Customs is debited and credited based on import and
export, and therefore import content in export consignment has to be known, for
which import value of the diamonds studded in the jewellery exported has to be
As regards Par 8.78 B of Handbook, Commissioner observed that there is no
amendment made with reference of Para 8.34, 8.35 of handbook and 8.29 of EXIM
Policy while introducing this new Para. Therefore even with the new provision
the requirement of furnishing the import value of the diamonds in an Export
consignment cannot be dispensed with. The Commissioner did not accept the
argument, that accounting of diamonds is not required to be done value wise,
observing that the diamonds are imported with value ranging from 25 US $ per carat
to 3500 US$ per carat and one cannot equate all such diamonds. In many cases of
import effected by the Unit, the difference in rate per carat with reference to
various lots of diamonds in single invoice, is varying only in fraction of a
dollar, and argument of the unit about having variation in prices up to 30%
within the diamonds of the same lot after assortment, was not accepted.
Commissioner relied on a specific Bill of Entry No. 2977 cited by the unit, and
brought out that the difference within the lots of similar range of diamonds is
only a fraction of a dollar and rejected the unit's arguments that the diamonds
imported at the rate of 50 US dollar per carat can have rate varying from US $
35 to 65. As an example Commissioner observed that against 1894 carats of
diamonds valued at 75 US $ per carat imported by the unit, the unit exported
29931 carats of diamonds at this rate, whereby there was no account for 28037
carats and no explanation was provided by the unit.
Based on above method of verification of stock total shortage of 73,730
carats of diamonds valued at Rs.26,29,54,490/- was confirmed and duty demanded.
CEGAT observed that whenever diamond is valued, different people will give
different values and variation may be large and that is why value of diamonds
declared in the Value Addition Statement can never be the same as declared in
the Bills of Entry and declaration of Bill of Entry number in 'Value Addition
Statement' is based only on approximation. As no method of co-relating or
accounting of imported diamonds is specifically provided in the exemption
notification or in EXIM Policy, on representation from Gem and Jewellery Export
Council, Para 8.78 B was introduced in EXIM Policy on 1.4.2000 prescribing the
method of co- relation with reference to total quantity of imports and exports.
It was specifically provided that under no circumstances co-relation will be
done consignment wise.
CEGAT referred the observation of Commissioner that although the amendment
was made effective after the detection of the case, method adopted for cross
checking proper accounting of diamonds by the investigation does not militate
against the amendment. Commissioner by agreeing that the amendment of Para 8.78
B is applicable to the facts of the case, method adopted by the department for
co-relation was to be as per this para. Findings of the Commissioner are not
correct, as shortage of diamonds and duty demanded is worked out by co-relating
individual Bills of Entry and wherever exact weight has not tallied department
has considered the shortage of diamonds and demanded differential duty and that
no demand of Customs duty is made in the show cause notice on physical shortage
with reference to total quantity of exports and imports.
Unit's contention that diamonds after mixing and sorting cannot be
co-related with individual Bill of entry and jewellery is made, was accepted.
Shipping Bill was filed along with Value Addition Statement, and the value of
diamonds indicated therein may not tally with rates mentioned in the Bills of
Entry and therefore only Bills of Entry numbers showing values of imported
diamonds closest to value of diamonds used in export jewellery were indicated
in the relevant columns of 'Value Addition Statement'. CEGAT held that the
demand of duty on 73730 carats of diamonds found short was unsustainable and
set aside the same.
CEGAT observed that the alleged shortages have arisen due to wrong method of
co-relation and are imaginary shortages. In physical term shortage/excess by
weight of diamonds is insignificant. This fact stands compounded by faulty
documentation of search as there is no Panchanama and some data given by an
employee was adopted. There is no admission of shortage by appellant and no
incriminating documents have been recovered, therefore, the shortage is deemed
and based on lack of co-relation of value/cartage of diamonds.
(b) Confiscation of broken diamonds of 1607.3 carats of value Rs. 6,91,139/-
Commissioner rejected the unit's claim to consider 1607.30 carats of broken
diamonds produced by Shri Suresh Mehta on 07.02.2000 on the ground that the
stock taking of the unit was first conducted on 31.01.2000 and Shri Suresh
Mehta who was in New York came to SEEPZ specifically to explain the stock and
after his arrival in SEEPZ on 03.02.2000, he produced 3861.65 carats of
diamonds valued between 42 to 50 US $ per carat from his personal cupboard,
which also was taken into account for stock taking and stock taking was
concluded on 03.02.2000. Shri Suresh Mehta confirmed in writing that the stocks
found are as per inventory prepared by the Customs staff and counter signed by
his employees. Thereafter as Shri Suresh Mehta requested for valuation of
diamonds by an expert, the stock was kept in the safe of the unit and sealed by
Customs officials, and valuation was done on 07.02.2000.
The unit never indicated that they had any further stock of diamonds in
stock, in their several letters between 03.02.2000 to 07.02.2000. In the EPZ,
there is no physical control of goods by customs and all controls are accounts
based, and it is for the unit to produce material available for verification at
the time of stock taking, and production of any exempt material after five days
of conclusion of stock taking has no relevance, as premises or the persons working
in the unit were not under the control of the department. Records do not
indicate the unit to have so much broken diamonds, as between 01.10.1999 to
31.01.2000 quantity of diamonds that were broken for the purpose of
manufacturing was only 110.57 carats, as indicated in Annexure 5 of Show Cause
Notice. This quantity, added to earlier reported stock of broken diamonds,
amounted to total stock of broken diamonds as 750.31 carats only, and the unit
did not explain how they could have the additional stock of 856.72 carats of
broken diamonds in their possession.
CEGAT observed that entire SEEPZ is a customs bonded area, which is under
the joint control of Customs and Development Commissioner and exit or entry of
vehicles and persons is restricted through the main gate and subject to
security check. In fact all the physical stock available was only produced
commencing from 1.2.2000. It accepted the contention of appellants before it
that there is nothing like broken diamonds and even such diamonds will continue
to be utilized depending on the requirement of the particular purchase order
and only when such broken pieces cannot be utilized for any purchase order they
are considered as broken diamonds and entered in the register.
Though Commissioner accepted the physical stock as legitimate stock, he
proceeded to confiscate the entire broken diamonds. CEGAT set aside the demand
based on above conclusion.
) Confiscation of High Value diamonds valued at Rs.
39,63,286/- On 07.02.2000, 27 seven pieces of high value diamonds of which
23 pieces were in blister packing accompanied by certificate issued by European
Gemological laboratory and 4 pieces were in loose condition. It was claimed by
the assessee to have been legally imported stock which were produced by the unit.
Commissioner observed that, in case of three Bills of Entry, the certificate
numbers of diamonds do not tally with the numbers mentioned in the import
invoices. In case of seven other diamonds, they were imported with certificate
Numbers of Gemological Institute of America, whereas the certificates produced
were of European Gemological Laboratory. Seven diamonds imported vide Bill of
Entry No. 7602 dated 12.10.1998 were neither exported nor found in stock. Same
was in case of 03 heart shaped diamonds, imported vide Bill of Entry No.
3809 dated 22.01.1999. Commissioner did not agree with unit's claim about
certain quantity of diamonds against a particular invoice, as the invoice had
endorsement of certificate number for seven diamonds whereas for others, no
number was mentioned. Claim that though invoice does not mention invoice
number, diamonds were having certificate numbers. It was observed that, a
supplier will not supply some certified diamonds mentioning certificate number
only in respect of some diamonds and supply other diamonds in the same
consignment without indicating certificate number. The Commissioner confiscated
the 23 high value diamonds valued at 39,63,286/-, as the unit was not able to
prove beyond doubt that these diamonds were imported legally. Import details of
diamonds furnished were not found to be in order and certificate numbers of the
said diamonds were not found mentioned in the import documents. As diamonds
were found to be in original packing of foreign origin and no documentary proof
for legal import were produced, the goods were held liable for confiscation.
CEGAT observed that weight and description of the diamonds tallies with that
of invoice. Seizure and confiscation was not justified because supplier issued
invoice. Certificates are issued by another agency and supplier in all cases
may not indicate the certificate numbers on the invoices and packing list. In
respect of some diamonds, where the clarity was highlighted to be not tallying,
CEGAT observed that there are different standards for indicating the clarity as
seen from the grading given in U.K., USA. For example VS is standard adopted in
where as VS1 and VS2 are adopted by Gemological Institute of America and
therefore it is not correct to say that the clarity does not tally.
Accordingly, it set aside the confiscation of 23 pieces of High Value Diamonds
(d) Duty on unaccounted capital goods of value Rs.58,54,698/- (duty of Rs.
39,31,813/-) Commissioner found that goods valued at Rs.
58,34,698/- imported by M/s. B.V. Jewels was accepted by the unit to have
been sold to M/s. S.B.T. International Ltd., based on alleged oral permission
from the Development Commissioner. The Development Commissioner vide letter
11.05.2000 confirmed that they neither received nor granted any permission for
inter unit transfer cum sale or de- bonding of capital goods by M/s. B.V.
Jewels. Commissioner rejected their argument about notification No. 196/87,
that duty is payable only on capital goods, which are not proved to the
satisfaction of customs to have been installed, or otherwise used in the zone.
Para 3 (ii) of Notification No.177/94, which rescinded notification No.196/87,
clearly stipulates that anything done under rescinded notification, shall be
deemed to have been done under corresponding provision of Notification No.
177/94. The notification stipulates permission of customs for inter unit
transfer or sale. Para 110 of EXIM policy 1992-97 stipulates that imported
goods were permitted to be given only with the specific permission of
Development Commissioner. The unit failed to satisfy both the above said
provisions of Customs Notification and EXIM Policy and duty forgone at the time
of import of such goods amounting to Rs.39,31,813/- became payable.
CEGAT observed that Notification 196/87-CUS provides that importer has to
pay on demand an amount equal to the duty when capital goods are not proved to
the satisfaction to have been installed or otherwise used within the same Zone.
Since in this case capital goods were installed or used within the same Zone,
the Notification does not permit the demand of customs duty. CEGAT further
observed that in respect of notification 177/94-CUS, condition 4 of para 1
required the importer to execute a bond, to bring the said goods to his unit
and to be used within the said Zone. As the goods had been brought into their
unit and goods were being used in the same Zone, the notification does not
permit demand of Customs duty so long as goods remain within the said Zone and
are used for the purpose of exports.
(e) Confiscation of 10631.39 carats of diamonds valued at Rs.
4,03,72,667/- that were unaccounted along with 6423.32 of gold.
Commissioner observed the unit was in possession of 10631.39 carats of
diamonds for which no evidence of legal acquisition existed or was produced.
Part of diamonds was claimed to have been studded in jewellery in finished and
semi finished form. The contention that no Panchanama was drawn for seizure of
such goods was false as the same were seized under Panchanama dated 26.02.2000,
copy of which was received by M/s. B.V. Jewels. There was large scale export of
substituted diamonds and these diamonds also would have been exported in
similar fashion and these being un- authorised goods brought in SEEPZ, a Customs
Area, such articles were liable for confiscation under Section 113 (d) of Customs Act, 1962.
CEGAT observed that these diamonds were considered as excess, because value
given in respect of the quantity was not tallying with Bills of Entry in
possession of the units. CEGAT accepted the unit's submission that value taken
in inventory sheets is different from the value taken by the assessor, and as
the entire stock was seized from "work in progress" of 'setting
department', 'quality control department' after sorting and mixing, these
diamonds lost their identity with reference to a particular Bill of Entry and
values indicated in 'valuation report' may or may not tally with rate indicated
in the Bill of Entry. The excess quantity was observed as legitimately imported
and the confiscation was set aside.
(f) Confiscation of unaccounted diamonds exported during 1998- 99, 1999-2000
valued at Rs. 27,00,76,393/-.
Commissioner observed that M/s. B.V. Jewels exported jewellery studded with
diamonds valued at Rs.27,00,76,393/- for which no documentary evidence about
legal possession was produced. The corresponding quantity of diamonds were
found short in stock and exports effected using unaccounted diamonds by
mis-declaring the source of procurement was an act to cover up un-authorised
removal of duty free imported diamonds from SEEPZ.
CEGAT observed that the co-relation, which was done with each shipping bill
and Bill of Entry, is not correct and was set aside as above. It was concluded
that since method adopted was not correct, there was no unaccounted stock of
diamonds and hence question of confiscation does not arise.
We shall deal with the correctness of the conclusions of the Commissioner
vis-`-vis those of CEGAT in respect of each issue hereinafter.
So far as the shortage of gold and diamond is concerned, the Commissioner
found as a matter of fact on the basis of statements recorded of employees that
the stock of M/s B.V. Star was mixed up with that of M/s B.V. Jewels. Customs
Notification No.177/1994-Cus clearly stipulates that goods imported by a unit
in SEEPZ can be transferred to another unit only with the prior permission of
the concerned Assistant Commissioner of the Zone. The EXIM policy as well as
para 9.10 of Handbook of Procedures makes the position clear that goods are to
be imported into the importer unit's premises. It was, therefore, not
permissible for M/s B.V. Star to claim that the goods imported by it were mixed
up with the stock of M/s B.V. Jewels. CEGAT has proceeded on entirely erroneous
premises that it is the department which mixed up the stock in working out the
excess or shortage. So far as the expected recovery of 6812.36 grams of gold is
concerned, learned counsel for the respondents submitted that the position of
expected recovery as worked out by the department is artificial and
hypothetical. There was no material brought on record to show that the expected
recovery would be the actual. It is to be noticed as submitted by learned
counsel for the appellant that the expected recovery was worked out on the
basis of the figures supplied by the concerned respondents and the average has
been worked out. It is of relevance to note that the assessee's employees who
are accustomed with the process of recovery have accepted the figure worked out
by the departmental authorities.
So far as the shortage of diamond is concerned, it is to be noted that there
was practically no manufacturing activity carried out by M/s B.V. Star and,
therefore, the question of any staff being there does not arise.
Shortage of diamond was worked out at 844.16 carats. It is to be noted that
the mixing up of stock of two units is not legally permissible. CEGAT has
recorded a very confused finding that if the stock position of both the units
varies there shall be marginal difference, overlooking the fact that mixing was
not done by the department as concluded by it; but by the concerned
respondents. It was for them to explain the stock position. The department has
worked out the details with reference to the official records. It was for the
concerned respondents-assessees to reconcile the figures. To put it plainly
what was required to explain is as follows:
Opening stock as on 1.4.1998, receipts by way of imports are to be added to
it to work out the availability of stock from which the outgoings were to be
for exports, and the balance has to be the stock as per the records. It has to
tally with the physical stock. If it does not tally, the concerned assessee has
to explain as to why the discrepancy arose. The department has worked out the
details on that basis. Therefore, the duty as levied on the shortage of gold
and diamond was rightly worked out by the Commissioner. CEGAT without
considering the factual position on the basis of some abrupt conclusions which
are also not supportable factually held that there is no discrepancy. The duty
as levied by the Commissioner on the shortage of gold and diamond needs to be
confirmed, and we direct accordingly.
Next item relates to the missing capital goods. In this case the stand of
both M/s B.V. Star and M/s B.V. Jewels was that the capital goods imported duty
free by M/s B.V. Star was installed in the premises allotted to M/s B.V. Jewels
and were in exclusive use of the latter. The Administrative Officer of SEEPZ
vide his letter dated 11.5.2000 had clarified that the capital goods limit of
M/s B.V. Jewels had already been utilized and they were not entitled to import
any duty free capital goods. It was also not permissible for it to procure
capital goods by way of inter unit transfer.
Therefore, the diversion of capital goods imported by M/s B.V.
Star to M/s B.V. Jewels is clearly impermissible.
CEGAT proceeded on the basis as if there is no transfer and mere usage and
there is no violation. This is clearly contrary to para 9.16 (b) of EXIM
policy, in the absence of stipulated permission and also in terms of condition
No.7(i) of Notification No.177/94-Customs. Permissible transfer has to be in
the mode noted at para 9.16 of EXIM policy which relates to inter unit
transfer. It is not that only in the case of transfer permission is necessary.
Usage also would be covered because for duty free import the pre-requisite is
that it must be used in the premises of the unit. Notification 196/87-Customs
makes the position clear.
The goods imported were to be used by the imported unit.
Permitting another unit to use it is clearly in violation of the
stipulations in the notification which clearly mandate use by the imported unit
only, except with the requisite permission stipulated which in the instant case
was not there. Therefore, the duty on capital goods imported by M/s B.V. Star
and under possession and usage of M/s B.V. Jewels as ordered by Commissioner
needs confirmation which we direct.
So far as the confiscation of capital goods valued at Rs.58,58,696/- is
concerned, the Commissioner found that M/s B.V.
Star had worked for a brief period of two weeks during the period from
6.5.1997 to 14.5.1997. Five consignments were exported and the quantum of
jewellery produced was quite negligible compared to the quantum of capital
goods imported by the unit. As laid in para 9.10(b) of the EXIM policy and in
terms of para 7(i) of the Notification 177/94-Cus dated 21.10.1994, the
transfer from one unit to another unit had to be preceded by permission from
the Development Commissioner and proper accounting in the registers prescribed
by the department. In the instant case neither M/s B.V.
Star nor M/s B.V. Jewels had obtained any permission from Development
Commissioner or the Assistant Commissioner (Customs).
Stand that both the units being sister concerns and promoted by same
partners and was practically using as one unit is clearly untenable. Even for
merger of two or more units in terms of para 9.37(x) of Handbook of Procedures
of EXIM policy 1997-2002, specific permission from the Development Commissioner
is required to be obtained. Prior to delegation of powers to the Development
Commissioner the powers were vested with the SEEPZ Board. As the manufacturing
activity of M/s B.V. Star is admittedly negligible it could not have held by
CEGAT that the goods have been consumed or worn out during manufacture of
jewellery by M/s B.V. Star. As the consumption and utilization of capital goods
valued at Rs.58,58,696/- has not been properly accounted for and these goods
were found short while working out the details, the duty foregone at the time
of clearance of the goods is clearly leviable. The confirmation of demand by
the Commissioner as was done is in order.
So far as the missing installed motors, brushes, hand pieces are concerned,
these were found to be in the original packings and were cleared by bills of
entry Nos. 3126 and 7382 dated 8.7.1993 and 19.6.1993 respectively. Evidently,
the goods remained unused and uninstalled for a period of six and a half years.
According to the Commissioner this was in clear violation of conditions
xiv(b)(i) of Notification 196/87-Cus dated 5.5.1987.
Learned counsel for the respondents submitted that in the present case as
rightly observed by CEGAT, condition xiv(b)(i) is not applicable and it is a
case where condition xiv(b)(ii) is applicable. The CEGAT observed that
retention of the goods within the Zone in connection with the promotion of export
of gems and jewellery is permissible. For retaining the goods within the same
zone a satisfaction is required to be recorded that the same was for the
purpose of export.
Clause xiv(b) in its entirety reads as follows:
"the importer shall pay, on demand, an amount equal to the duty
(b) on goods, other than capital goods as are not proved to the satisfaction
of the Assistant Collector of Customs to have been:
(i) used in connection with the manufacture or packaging of gem and
jewellery within the said Zone for export out of India or for the promotion of
export of such goods or re-exported within a period of one year from the date
of importation thereof or within such extended period as the Assistant
Collector of Customs may, on being satisfied that there is sufficient cause for
not using them or for not re-exporting them within the said period allow;
(ii) retained within the said Zone in connection with the promotion of
exports of gem and jewellery.
Undisputedly, clause (b)(i) has not been complied with because the articles
have not been used in connection with manufacture or packaging of gems and
jewellery within the Zone for export out of India or for the promotion of
export of such goods or re-export. The time limit of one year period is fixed.
According to learned counsel for the respondents-assessees the articles can
be retained within the Zone in connection with the promotion of exports. The
Assistant Collector of Customs has to be satisfied that the retention of goods
within the Zone was in connection with the promotion of exports of gem and
jewellery. No material was placed before the Commissioner though it was clearly
indicated in the show cause notice as to how the retention of the goods was in
connection with the promotion of exports. On a bare reading of the details of
the goods in respect of which the demand was confirmed, goes to show that it
has nothing to do with the promotion of exports of gem and jewellery. The vital
requirement is that the retention should be in connection with "the
promotion of exports". The burden lay on the assessee to establish that
the condition was satisfied. No material whatsoever was placed before the
Commissioner to satisfy the requirement. CEGAT was therefore not justified in
annulling the demand. The demand as confirmed by the Commissioner stands
So far as the working out of shortage/excess are concerned we shall deal
with the case of M/s B.V. Star and M/s B.V. Jewels together.
The Departmental authorities placed reliance on clauses 8.34 and 8.35 of
EXIM Policy Handbook to contend that the details should be as noted in the
shipping bills and invoices in the background of conditions of export.
Learned counsel for the assessees-respondents, however, relied on para 8.78
B which reads as follows:
"8.78 B- For the purpose of monitoring in case of gem and jewellery
units at the time of scrutiny at any point of time the unit shall 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." Paras 8.34 and 8.35 operate in a field different from para
8.78 B. The exercise to be undertaken so far as the requirements of 8.78 B are
concerned, relate to a stage when the exporter is required to account for the
total quantity of imports and the comparison has to be made with total quantity
of exports and the balance stock including broken diamonds and other gemstones.
Paragraphs 8.34 and 8.35 operated at the time of export when the bills have
to be verified in the prescribed manner. That is a stage different from one
contemplated in para 8.78 B.
Paras 8.34 and 8.35 read as follows:
"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 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
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 the value
addition achieved is not below the minimum prescribed in the policy".
The Departmental authorities have adopted the view that the working out of
the details are to be done in terms of paras 834 and 8.35 and not in the line
of 8.78 B. That is clearly erroneous.
As the stages of adopting provisions referred to above stand on a different
footing the relevant provisions have to be applied at the stages they are
intended to be applied. The Commissioner seems to have not taken note of para
8.78 B. However, the respondents have the obligation to otherwise reconcile the
They cannot claim immunity from verification of stocks and its obligation
for reconciliation of differences, if any. By way of illustration it may be
indicated that Manufacture and Other Operations in Warehouses Regulations 1966
throws beacon light in this regard, more particularly Regulations 9 & 10
thereof. Power of the departmental authorities to verify the records to find
out whether imports and exports have been properly recorded cannot be denied.
Such verification shall not be only for the purpose of finding out the
compliance of paragraphs 8.34 and 8.35 and 8.78 B but the same shall be to test
the correctness of the accounts maintained. Therefore, it would be appropriate
to direct the CEGAT to work out the details so far as the alleged shortage of
73,730 carats of diamonds valued at Rs.26,29,54,490 are concerned.
We may note that in the case of high value diamonds undisputedly certain
diamonds along with connected records were produced by partner Suresh Mehta
some days after the verification started. According to the department the
production of such valuable articles at a later point of time clearly shows
that an attempt has been made to substitute the actual diamonds with items
which were not covered by the import documents. Similar is the position
relating to confiscation of 10631.39 carats of diamonds and alleged unaccounted
gold and diamonds.
The Tribunal shall permit the respondents-assessees to produce the original
records which shall be verified by it.
Definite stand of the department as to how there are suppressions resulting
in either excess or shortage of gold shall be considered. CEGAT shall consider
the basic features 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 respondents-assessees and that of the
departmental authorities already on record it finds that the plea of the
concerned assesses, 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.
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.
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 vehemently urged that the point was specifically taken before the
Tribunal, we find no mention thereof in the CEGAT's order. The matter can be
looked at from another angle. If, in reality, the CEGAT found that the action
taken by the departmental authorities was beyond the period of limitation, it
could have disposed of the appeals before it only on that ground without
examining the merits. On the contrary, in the absence of any specific plea in
the grounds of appeal, the point does not seem to have been urged before the
CEGAT, particularly, in view of the consideration of the merits and non-
consideration of the question of limitation. That being so we find no substance
in the plea of learned counsel for the respondents that the action taken by
authorities was beyond the period of limitation. Even otherwise, the proviso to
sub-section (2) of Section 28 is clearly applicable as the materials clearly
indicate non levy and short levy on account of mis-representation of facts by
The appeals are allowed to the extent indicated. There will be no order as