Custom, Excise & Service Tax Tribunal
) I.P. Patel & Co vs &2) Commissioner Of Customs (Airport), ... on 9 October, 2012
IN THE CUSTOMS EXCISE & SERVICE TAX APPELLATE TRIBUNAL
WEST ZONAL BENCH AT MUMBAI
Application No. C/Stay/1941/12
in Appeal No. C/744/12
Appeal Nos. C/327, 328 & 744/12
(Arising out Order-in-Original No. COMMR/PMS/ADJN/ 01/2012-13 dated 12.04.2012 passed by the Commissioner of Customs (Airport), Mumbai)
For approval and signature:
Honble Mr. Ashok Jindal, Member (Judicial)
Honble Mr. P.R. Chandrasekharan, Member (Technical)
1. Whether Press Reporters may be allowed to see No
the Order for publication as per Rule 27 of the
CESTAT (Procedure) Rules, 1982?
2. Whether it should be released under Rule 27 of the Yes CESTAT (Procedure) Rules, 1982 for publication
in any authoritative report or not?
3. Whether Their Lordships wish to see the fair copy Yes
of the Order?
4. Whether Order is to be circulated to the Departmental Yes
authorities?
1) I.P. Patel & Co.
2) Mahesh Savani
3) Commissioner of Customs (Airport), Mumbai
Appellant
Vs.
1&2) Commissioner of Customs (Airport), Mumbai
3) I.P. Patel & Co.
Respondent
Appearance:
Shri Prakash Shah, Advocate for the appellant no. 1& 2 & respondent no. 3 Shri K.L. Goyal, Commissioner(AR) for the respondent no. 1& 2 & appellant no. 3 CORAM:
Honble Mr. Ashok Jindal, Member (Judicial) Honble Mr. P.R. Chandrasekharan, Member (Technical) Date of hearing : 09.10.2012 Date of decision : 09.10.2012 O R D E R No:..
Per: Mr. Ashok Jindal, Member (Judicial) Against the impugned order, both sides have filed appeals. Apart from that revenue has filed an application for stay of operation of the impugned order and an application for condonation of delay. The assessee has also filed application for early hearing of stay application filed by the revenue as well as for disposal of the appeals.
2. Considering the reasons stated for causing the delay in filing the appeal by the revenue have explained satisfactorily, we condone the delay in filing the appeal by the revenue.
3. As we are hearing both the appeals along with stay application of the revenue, therefore application for early hearing of stay and appeal filed by the assessee are allowed and appeals are taken up for disposal today itself.
4. The brief facts of the case are as follows. A show-cause notice was issued by the Air Intelligence Unit of CST Airport, Mumbai to show-cause why:
(a) 5877 carats of Cut & polished diamonds and 97 grams of Gold jewellery recovered from the baggage/person of Shri Manish H. Kalvadiya, a passenger who arrived from Dubai on 22.04.2003 should not be confiscated,
(b) 34147.66 carats of Cut & polished diamonds detained/seized on a follow up action from the office premises of M/s. I.P. Patel & Co. on 22.04.2003/24.04.2003/18.06.2003 should not be confiscated,
(c) Penalty should not be imposed on M/s. I.P. Patel & Co., Shri Manish H. Kalvadiya, Shri Bharat K. Bodra and Shri Girish K. Bodra.
The matter relating to (a) above, and consequently (c) above partly, has reached finality pursuant to the Final Order of Settlement Commission No. 46/Final Order/Cus/MGR/2008 dated 08.2.2008. The Honble Settlement Commission has settled the case on the following terms and conditions:
i) Customs duty settled at `83,11,724/- and same is already paid.
ii) Redemption fine in excess of `7,50,000 is waived.
iii) Penalty in excess of `10,00,000/- was waived on the applicant (Shri Manish Kalvadiya). Full immunity from penalty is granted to the co-applicants (S/Shri Mahesh V. Savani, Girish Bodra, Bharat Bodra).
iv) Immunity from prosecution was extended to all the applicants
5. The officers of Air Intelligence Unit on the basis of specific information searched the baggage of passenger Shri Manish Kalvadiya on his arrival from Dubai on 22.04.2003 at Chatrapati Shivaji Airport, Mumbai. On examination 5877 carats of Cut & polished diamonds valued at `2,79,61,710.00 were recovered from his baggage which were seized under provisions of Customs Act, 1962. Shri Manish Kalvadiya gave the name of Bharat Bodra, who was waiting outside the airport to receive the said diamonds. Shri Bharat K. Bodra was identified who was waiting outside and statements of these two persons were recorded. Shri Manish Kalvadiya stated that these diamonds were given to him by Shri Girish Bodra. It was found that Shri Bharat K. Bodra was acting on behalf of his brother Shri Girish Bodra and he stated in his statement that he was to hand over the diamonds to Shri Mahesh Savani of M/s. I.P. Patel & Co. It was suspected that Shri Mahesh Savani was the ultimate beneficiary of diamonds seized from Shri Manish Kalvadiya. In the follow up action, the officers of Air Intelligence Unit searched the office premises of M/s. I.P. Patel & Co. at Pancharatna Bldg., Mumbai on 22.04.2003 as Shri Mahesh Savani was partner in M/s. I.P. Patel & Co. In search at Mumbai office of M/s. I.P. Patel & Co., the physical stock of polished diamonds of 28,269.21 carats was found as against 27,997.72 carats recorded in the books of accounts. Therefore, the physical stock was in excess of stock in books by 271.49 carats. The staff at Mumbai office gave a handwritten stock statement claiming that a stock of 5848.99 carats was given to brokers for selling on approval basis over and above that was mentioned in the stock register. Thus, the unaccounted stock was held at 6120.47 carats (271.49 + 5848.99). However, the total stock of 28,269.21 carats found was detained. Subsequently, during the course of investigation the office premises of M/s. I.P. Patel & Co. at Mumbai and Surat were also searched, statements of number of persons were recorded which include employees of M/s. I.P. Patel & Co., Chartered accountant of M/s. I.P. Patel & Co., brokers to whom said diamonds on jangad were given and also the contractors working for M/s. I.P. Patel & Co. A total of 34147.66 carats of diamonds collectively valued at `36,46,66,620.25 were seized under the provisions of Customs Act, 1962 and subsequently 31,155.77 carats of diamonds of released to M/s. I.P. Patel & Co. after retaining 2991.89 carats of diamonds valued at `3,52,60,258.80 and a bond equal to the total seizure value of the diamonds as security; and the subject show-cause notice was issued making allegations as above.
6. The allegation against the assessee is that, the pax Shri Manish Kalvadiya had brought on 21/22.04.2003 the 5877 carats of Cut & polished diamonds to be handed over to Shri Bharat K. Bodra, who in turn was to hand over the same to Shri Mahesh Savani, partner, M/s. I.P. Patel & Co. The evidences relied upon for the same are the statements recorded from Shri Manish Kalvadiya who stated that the diamonds are to be handed over to Shri Bharat K. Bodra, read with statement of Shri Bharat K. Bodra dated 22.04.2003 in which he stated that the said Cut & polished diamonds brought by Shri Manish Kalvadiya were meant for Shri Mahesh Savani of M/s. I.P. Patel & Co.
7. In the follow up action, premises of M/s. I.P. Patel & Co. was searched by the officers of Air Intelligence Unit immediately on 22.04.2003. The show-cause notice alleges that the officers found stock of Cut & polished diamonds unaccounted in the premises of M/s. I.P. Patel & Co. The allegation is that the Cut & polished diamonds received from their Surat head office is not properly accounted; that Cut & polished diamonds issued to the brokers under cover of jangads issued by their Surat office, were not accounted in the books of account maintained on computer system at the Mumbai office; an extra stock of 271.49 carats vis-a-vis the stock as per the computer records was found in premises; representative of M/s. I.P. Patel & Co. informed them on 22.04.2003 itself that 5848.98 carts were with brokers on the basis of jangads. Treating the said quantity of Cut & polished diamonds with the brokers covered under jangads and excess stock physically found on the premises as unaccounted, its alleged that there was totally a surplus of 6120.47 carats of Cut & polished diamonds. The show-cause notice alleged that the accounting practice followed by M/s. I.P. Patel & Co. is not proper and is legally not correct. The Surat office of M/s. I.P. Patel & Co. was searched on 24.04.2003 but no incriminating evidences were recovered. The two CPUs under detention in the office of M/s. I.P. Patel & Co. at Mumbai were verified by the officers, but no incriminating evidences were found.
8. Shri Mahesh Savani, partner of M/s. I.P. Patel & Co. denied any wrong doing during his interrogation and in his statements recorded. He stated that he had no knowledge of the 5877 carats of Cut & polished diamonds brought by Shri Manish Kalvadiya and stated that he does not know why Shri Bharat K. Bodra was implicating him in the same. He stated that he was having licence for duty free import of Cut & polished diamonds worth of `8 crore and there was no necessity or reason for him to indulge in such activities which do not stand to gain him or his company. He also stated that there was no unaccounting of Cut & polished diamonds in his office at Mumbai or head office at Surat and all their transactions are properly accounted as per their accounting practice which were in vogue for the past 20 years. He emphasized that these practices were followed by the others in the trade too and have been accepted by the Income Tax authority for years. He submitted that Income tax authorities in 1987 had raised certain queries about the accounting procedures followed by them and had accepted the explanation provided and have been assessing their returns subsequently too.
9. In view of the decision of the Settlement of Commission referred above, the issue to be decided now is only about 34147.66 carats of Cut & polished diamonds seized from the premises of M/s. I.P. Patel & Co. The department has alleged that the diamonds recovered from the premises of M/s. I.P. Patel & Co. are smuggled into India and hence are liable for confiscation under Section 111(d) & 111(j) of Customs Act, 1962.
10. Adjudication took place and the adjudicating authority passed the following order:
Order
i) The proposal in the subject show-cause notice, to confiscate 34147.66 carats Cut & polished diamonds valued at `36,46,620.25 seized from the office premises of M/s. I.P. Patel & Co. under provisions of Section 111(d) and (j) of the Customs Act, 1962 is hereby dropped.
ii) Penalty of `1,00,000 (Rupees One lakh only) is imposed on M/s. I.P. Patel & Co. under the provisions of Section 112 read with Section 117 of the Customs Act, 1962
iii) Penalty of `25,000 (Rupees Twenty Five thousand only) is imposed on Shri Mahesh V. Savani, Partner M/s. I.P. Patel & Co. under the provisions of Section 112 read with Section 117 of the Customs Act, 1962.
11. Against the said order, revenue is in appeal for dropping the proposal to confiscate the diamonds as per show-cause notice and the assessees are in appeal against the imposition of penalties on both M/s. I.P. Patel & Co. and Shri Mahesh Savani.
12. As all the appeals are against the common order therefore all are disposed of by a common order.
13. Shri Prakash Shah, ld. advocate for the assessee appeared and submitted that as per the show-cause notice the allegation mainly against the assessee is that they have smuggled the diamonds in India. Hence they are liable for confiscation under Section 111(d) and 111(j) of the Customs Act that too based on the search made in their premises and found discrepancy in the books of accounts. In support of this he submitted that the assessee has given explanation regarding the difference in physical stock available in their office on 22.04.2003 and the stock as per the stock register as follows:
a) that the diamonds which are lying with brokers are not entered in the books of accounts, because of the high numbers of such Jangads about 125-150) per day;
b) that the physical balance at the end of the month is taken after calling back all the diamonds from brokers, and after entering the Jangads received from Surat in the Mumbai stock register, the physical balance will match with that of the closing stock in the register; and
c) that the system of Jangads are a traditional and accepted document which are honoured by insurance companies in settlements of claims and also admissible evidence in cases of theft or frauds.
14. It is further contended that Shri Mahesh Savani of M/s. I.P. Patel & Co. had licence for duty free import of CPD worth `8 crores and therefore there was no need for him to smuggle any diamonds into the country. The details and accounts of imports of rough diamonds by M/s. I.P. Patel & Co. is not disputed by the department. No discrepancy in stock of rough diamonds was found in the course of search, and no allegation is made that the rough diamonds purchased by M/s. I.P. Patel & Co. were sold. The rough diamonds are got further processed into Cut & polished diamonds which are exported, and the details and amount of the same are not disputed. Further, the brokers have confirmed the receipts of the diamonds from M/s. I.P. Patel & Co. which were subsequently seized by the department.
15. He further submitted that the case has been made out the assessees that they have not maintained proper accounts at Mumbai office. He further submitted that the shortage of diamonds found in the stock only on the ground that diamonds were given to the Jangads for approval in the market and after the stocks given to the Jangads for approval to the market same was given to the Surat office, so it was not taken in the stock by their Mumbai office. He further explained that as per the trade practice diamonds are to be given to Jangads for approval in the market and when the goods were returned from the Jangads they are to be entered in the books of accounts. He also submitted that during the investigation, the Jangads were called for statement, who were found physically having the stock of diamond with them and same was also seized during the course of investigation. If the diamonds given to the Jangads are to be taken in the stock, there will no shortage of stock. He further submitted that the assessee are maintaining books of accounts as per the trade practice prevailing in their trade. He further submitted that subsequent to seizure of diamond by the customs, the Income Tax authorities were also informed and they have examined their books of accounts and found that they are maintaining books of accounts in proper order and accounting system is correct. No other evidence is available on record to establish that the assessee had tried to smuggle the goods and violated the provisions of Section 111(d) and (j) of the Customs Act. Therefore, the impugned order quo dropping the proceedings of confiscation is correct but he submitted that as it has been held that goods are not liable for confiscation, penalties on the assessees are not warranted. Therefore, penalty imposed on M/s. I.P. Patel & Co. of `1 lakh and penalty of `25,000/- on Shri Mahesh Savani be set aside.
16. On the other hand, Shri K.L. Goyal, Commissioner (AR) appeared before us and submitted that the adjudicating authority has relied on the decision of the Income Tax department in the instant case wherein it was held that accounting system was proper and dropped the proceedings against the assessee. No independent investigation was done by the adjudicating authority. Therefore, impugned order quo dropping the proceedings of confiscation be set aside and adjudicating authority be directed for fresh adjudication after doing independent investigation regarding accounting procedure.
17. Heard both sides. Considered the submissions.
18. We find that this case is based on fact that the accounting procedure adopted by the assessee is correct or not? We have perused the impugned order also and the accounting procedure adopted by the assessee. As regards the non-maintenance of proper records at Mumbai office of M/s. I.P. Patel & Co., we observe that they had a manufacturing unit at Surat for the purpose of cutting and polishing of diamonds. They were mainly importing rough diamonds and exporting Cut & polished diamonds. At times the cutting/polishing was done by them on job work basis through contractors. They were transporting their diamonds through angadiyas on the basis of Jangads. The diamonds were also being given to brokers for getting clients and these were given to them on the basis of Jangads. The method of accounting has been explained by the employees of the said company in their various statements recorded and also by Shri Mahesh Savani. It is stated that the system of accounting of stock by them is being followed by them since long and that even income tax authorities did not take any objection against this procedure during an enquiry conducted by them in 1987. Further it is submitted by the assessees that though the diamonds forwarded to Mumbai office from Surat are reflected in the stock register maintained in their head office at Surat on the day of dispatch, the same are not entered in the stock register immediately at Mumbai office. The same are reflected in the paper packets in which the diamonds are packed after their sorting at Mumbai office and the same are tallied in the stock statements prepared at the end of the day, the stock book maintained at Surat and that at Mumbai reflected the same figures though on different dates. The Jangads issued are numbered according to the date but are not serially numbered.
19. We further find that the allegation that they are having possession of unaccounted diamond is based on method of accounting adopted by them. This system is recognised in Gem & Jewellery trade. We further find that the Income Tax authorities which are more acquainted about the accounting procedure have also stated that the accounts of assessee are found to be correct and complete considering the submissions of the assessee and also acceptance method of accounting of revenue in past assessments years and in original assessment years. It was found that it is clear that in all the case diamonds polished ones are entered in the next year. The entries maintained in Surat and maintained at Mumbai are supported by the documentary evidence and no evidence was found in the course of search by customs authorities that assessee has suppressed productive of polished diamond or made payment in respect of 52,284.34 carat which was in fact yielded from the conversion of imported rough diamond supported by proper documents. The matter was also examined by the Income Tax office and which has also given its finding that no material has been found by any authority indicating that the assessee has made any advance for illegally importing diamonds through Shri Manish H. Kalvadiya. Moreover Shri Manish H. Kalvadiya owned the diamonds recovered from his possession by the customs authorities and paid the customs duty as per the order of Settlement Commission. Thereafter it was found that accounting procedure followed by the assessee were proper and legally correct and there is no discrepancy in the stock of diamonds.
20. We further find that in this case except from the allegation of proper maintenance records/accounts by the assessee, no other evidence has been brought on record by the department which establish that the assessee was involved in the activity of illegal import or smuggling of diamonds. We further find that the adjudicating authority has examined the whole of the issue in detail and thereafter it has arrived that there is no evidence on record to establish that any dutiable or prohibited goods were attempted to be illegally imported or were removed from the customs area to invoke Section 111(d) or 111(j) of the Customs Act, 1962. Therefore, we do agree with the finding of the adjudicating authority for dropping the proceedings of confiscation of diamonds as proposed in the show-cause notice.
21. We further find that as the accounting procedure adopted by the assessee is proper and correct in the normal course of business and goods were not held liable for confiscation, therefore, no penalty is warranted under Section 112 read with Section 117 of the Customs Act, 1962. Therefore, we pass the following order:
22. The proposal in the show-cause notice to confiscate 34147.66 carat cut and polished diamond seized from the office premises of M/s. I.P. Patel & Co. under Section 111(d) and (j) of the Customs Act is dropped and set aside the penalties imposed on M/s. I.P. Patel & Co. and Shri Mahesh Savani in the impugned order.
23. In the nutshell, the appeal filed by the revenue is dismissed and the appeals filed by the assessees are allowed.
(Operative part pronounced in Court) (P.R. Chandrasekharan) (Ashok Jindal) Member (Technical) Member (Judicial) SR 14