Custom, Excise & Service Tax Tribunal
Cc (Ii) Airport Special Cargo, Mumbai vs Shri Samir Vora on 9 April, 2015
IN THE CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL WEST ZONAL BENCH AT MUMBAI COURT NO. II APPEAL No. APPELLANT RESPONDENT C/86660/13 CC (II) Airport Special Cargo, Mumbai Shri Samir Vora Shri Shah, Director Aditya Corpex Pvt. Ltd. Formerly M/s Adani Enterprises Ltd. M/s Adani Exports Ltd. M/s Hinduja Exports Pvt. Ltd. M/s Aditya Corpex Pvt. Ltd. M/s Bagadiya Brothers Pvt. Ltd. M/s Jayant Agro Organics Pvt. Ltd. M/s Midex Overseas Ltd. Shri Rajesh Adani Group Manageing Director Shri Deven Mehta Shri OMI Bagadiya Shri Vithaldas Gokaldas Udeshi Shri Narottam Somani C/85401/13 Formerly M/s Adani Enterprises Ltd. M/s Adani Exports Ltd. CC (II) Airport Special Cargo, Mumbai C/85402/13 Shri Rajesh Adani Do C/85403/13 M/s Jayant Agro Organics Ltd. Do C/85404/13 Shri Saurin Shah Do C/85405/13 Shri Samir Vora Do C/85396/13 M/s Milestone Tradelinks Pvt. Ltd. Do C/85423/13 Shri Vithaldas Gokaldas Udeshi Do C/85521/13 M/s Bagadiya Brothers Pvt. Ltd. Do C/85533/13 Shri Narottam Somani Do C/85549/13 Shri OMI Bagadiya Do C/85599/13 Shri Deven Mehta Do (Arising out of Order-in-Original No. COMMR/PMS/ADJN/13/2012-13 dated 14.01.2013 passed by the Commissioner of Customs, CSI Airport, Mumbai.). For approval and signature: Honble Shri Anil Choudhary, Member (Judicial) Hon'ble Shri P.S. Pruthi, 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 : Seen
of the order?
4. Whether order is to be circulated to the Departmental : Yes
authorities?
=====================================================
Appearance:
Shri V.S. Nankani, Sr. Advocate
Shri Atul Nanda, Sr. Advocate
Shri J.H. Motwani, Advocate
Ms. Hameeza Hakeem, Advocate
Ms. Nehal Parekh, Advocate
Shri Roshil Nichani, Advocate
For Exporter/Assessees
Shri V.K. Singh, Special. Counsel
For Revenue
CORAM:
SHRI ANIL CHOUDHARY, MEMBER (JUDICIAL)
SHRI P.S. PRUTHI, MEMBER (TECHNICAL)
Date of Hearing: 09.04.2015
Date of Decision: 26.08.2015
ORDER NO.
Per: Anil Choudhary:
Both the Revenue and the assessees are in appeal against Order-in-Original No. COMMR/PMS/ADJN/13/2012-13 dated 14.01.2013 passed by the Commissioner of Customs, CSI Airport, Mumbai. By the impugned order the FOB price declared for export of cut and polished diamonds have been rejected which been exported by the appellant exporters and the value was redetermined at the CIF value of the diamonds imported for the export after processing under Bond. Further penalties under Section 114 of the Customs Act, 1962 (the Act) ranging from Rs.25 Crores to Rs.25 Lacs has been imposed on the different Companies and individuals associated therewith. The learned Commissioner has held that the FOB value of Cut and Polished Diamonds (CPD for short) of assorted variety, exported by 6 Indian companies referred to herein, during the periods 2004-05 and 2005-06, not to be correct, rendering the goods liable to confiscation under Section 113(i) of the Act. However, as the goods are not available for confiscation, no redemption fine has been imposed. There is also no demand of duty in this case.
2. The appellant Adani Enterprises Ltd. (formerly known as Adani Exports Ltd.) has been in the business of foreign trade, that is export and import for more than 20 years. The appellant had been exporting and importing CPD during the financial years 19 94-95. The said activity of import and export of CPD was restarted in 2001 02 when the appellant also renewed the membership of Gem and Jewellery export promotion council, with a view to further grow its business. The appellant also obtained private bonded warehouse licence under Section 58 of the Customs Act in July, 2003 in order to carry on import and export of CPD as permissible under the Export and Import Policy 200207.
3. That with a view to expand the diamond business the appellant set up a 100% subsidiary in Mauritius known as Adani Global Limited which in turn set up to step down subsidiary in UAE namely Adani Global FZE (hereinafter referred to as AG FZE) and in Singapore namely Adani Global Pvt. Ltd. (hereinafter referred to as AGPL). With a view to grow its business appellant AEL and AG-FZE entered into a tripartite agreement with M/s. Daboul trading LLC, Dubai and M/s. Gudami International Pvt. Ltd.
4. The appellant's imported consignment of CPD and filed bills of entry for warehousing. The consignments were examined and bills of entry duly assessed, where after the consignment very allowed to be removed to the warehouse. In the bonded warehouse, the appellant carried out process like boiling, seiving and sorting, which are permissible to be carried in the bonded warehouse, in terms of Circular No. 40/99 issued by the CBEC. After carrying of these processes the appellants exported the CPDs having value addition. Each shipping bill was duly assessed after examination of the consignment by the proper officer of Customs. The examination was carried out as per the prescribed procedure in terms of Public Notice No. 11/98 issued by the Commissioner of Customs, airport, Mumbai, where after the let export order was given.
5. The case of the department, as seen from the allegations contained in the show-cause notice, is as under:
The Central Government announced Target Plus Scheme (TPS) with a view to promote exports by granting Scrips with duty credit against incremental exports in the year 2004-05 as compared to the previous year. This Scheme was announced in August, 2004 but was effective from 1.4.2004. TPS continued in the following year, i.e., 2005-06 and was discontinued with effect from 1.4.2006. It is alleged that with a view to take advantage of TPS, M/s. Adani Enterprises Ltd. (AEL) which was already in the business of import and export of CPD, acquired 5 other Indian entities or signed MOUs with them to undertake the same business of import and export of cut and polished diamonds. These 5 Companies are M/s. Hinduja Exports Pvt. Ltd. (HEPL), M/s. Aditya Corpex Pvt. Ltd. (ACPL), M/s. Bagadiya Brothers Pvt. Ltd. (BBPL), M/s. Jayant Agro Organics Ltd. (JAOL) and M/s. Midex Overseas Ltd. (MOL). It is further alleged that in addition to the 5 Indian Companies mentioned above, AEL also managed and controlled 45 legal entities overseas. The list of 45 overseas entities is given on pages 40 and 41 of the show-cause notice (SCN). It is alleged that the 5 Indian entities and the 45 overseas entities were all managed and controlled by AEL. It is further alleged that AEL indulged in circular trading of diamonds by importing into India and exporting the same either after no processing or after insignificant processes. It is alleged that the diamonds were imported into private bonded warehouses, for which all the 6 Indian Companies including AEL had obtained bonded warehouse licences. It is alleged that after import, the goods were taken into private bonded warehouse and without processing the same were removed for export within 3-4 hours or the next day as the case may be. It was therefore, alleged that the claim of AEL, that processes such as boiling, sieving, sorting and packing was done as claimed by AEL and other appellants was bogus and that the same diamonds, without processing, were exported out of India. Reliance is placed heavily on the statements of Mr. Lumesh Sanghavi dated 30.01.2006, 07.02.2006, 28.02.2006 and 30.01.2007, who was at the relevant time Manager of AEL. Statements of Rajesh Adani, Managing Director, Samir Vora, Saurin Shah, Bhavik Shah, Kamraj Bodal, Vipul Desai, Kaushal Pandya, Mehul Shah and C.E. Mahadevan were recorded which allegedly support the allegations in the show-cause notice. It is therefore alleged that there was no processing undertaken by the Indian Companies inside the bonded warehouse and hence, there was no value addition, meaning thereby, that the FOB value declared was inflated in respect of same set of diamonds which were imported into and exported from bonded warehouse, only to be re-imported and re-exported, in the name of different Indian entities to establish and artificially increase export turnover to obtain undue benefits under TPS. The show-cause notice refers to officers and executives of AEL like Samir Vora and Saurin Shah being the Directors on board of HEPL and ACPL respectively. Samir Vora has also admitted in his statement dated 2.2.2006 that he used to coordinate and look after imports and exports of cut and polished diamonds for AEL, ACPL, JAOL, MOL and BBPL. In relation to overseas entities, the show-cause notice sets out a chain of e-mails mainly sent by one Ms. Mary of Singapore to all the individuals within AEL located in either India or Singapore or Dubai. These e-mails have been set out at pages 59 and 60 of the show-cause notice as well as pages from 65 to 79 of the show-cause notice. It is alleged that AEL through Ms. Mary knew the bank account numbers of all the overseas entities and was reporting transfer of funds from one account to the other. The show-cause notice also refers to flow charts at pages 86 to 89 allegedly retrieved from the Laptop which was in the possession of Vipul Desai. The show-cause notice also refers to instances of circular movement of lots of diamonds which have been tabulated at pages 90 to 93, set out in detail in Annexure-H and Annexure-I to the show-cause notice. The details of the lots of diamonds which have been allegedly circularly traded according to the investigations are given on pages 81 to 83 of the show-cause notice which allegedly claims that 45 lots were rotated in 2004-05 and 90 lots were rotated in 2005-06.The table on these pages also gives size, quantity, number of instances of circular trading and the period during which these lots were imported/exported. Investigations were also conducted to show abnormal and unusual payment of high commissions amounts for exports to overseas parties some of whom were also buyers from Indian Companies, for which purpose although MOUs were entered into with the overseas entities for payment of commission, no disclosure thereof was made in the shipping bills by the Indian Companies at the time of export. It was alleged that the MOUs also show that part of the Commission was payable upon receipt of benefit under TPS. Investigation further revealed, as set out in the table at Page 138 of the show-cause notice that AEL also controlled the flow of funds between Indian companies and overseas entities by resorting to L/C discount and buyers credit which was an abnormal trend indicating circular trading.
6. On the basis of the above allegations, show-cause notice dated 30.03.2007 was issued alleging that the Indian entities have:
(i) Mis-declared the FOB value of export goods in contravention of the provisions of Section 14 and Section 50 of the Act read with Section 11 of the Foreign Trade (Development & Regulation) Act, 1992 and Rule 11 & Rule 14 of the Foreign Trade (Regulation) Rules, 1993;
(ii) Resorted to mis-declaration of value of export goods in the corresponding export documents before the designated authority which falls within the ambit of illegal exports as defined in Section 11H (a) of the Act and modus on the part of consortium amounts to smuggling as defined in Section 2(39) of the Act. As the goods have been exported resorting to mis-declaration in terms of quality and value rendering the goods liable for confiscation under Section 113(i) of the Act;
(iii) Have rendered themselves liable for penal action under Section 114 of the Act;
(iv) Through its Directors entered into conspiracy with certain parties/peoples based in Singapore, Dubai, Hongkong to cause dubious imports and exports of cut and polished diamonds to take undue benefits of TPS and through its Director Shri Rajesh Adani indulged in mis-declaration while filing Bills of Entry, Shipping Bills and other documents before Customs and DGFT with an intent to obtain DFCE/TPS under FTP from the office of Jt. DGFT, Mumbai, made, signed and/or used declarations, statements by suppressing/mis-representing facts to the said authority for obtaining DFCE/TPS;
(v) Entered into MOU through group companies, like MOU between ACPL and MOL or the MOU between HEPL and BBPL or between HEPL and JAOL for passing on the incremental exports and the ultimate beneficiary thereof would be Adani group of Companies.
(vi) Mis-declared the value addition of 5% in as much as the activities of assortment, boiling, sieving and repacking without any manufacturing/processing or change in the form of cut and polished diamonds by any stretch of imagination contributes to such value addition and further these processes too were not carried out on all the cut and polished diamonds imported and re-exported in the same form which has led to inflation and mis-declaration of FOB value of exports which in the light of the evidences in the show-cause notice, would be the value of the cut and polished diamonds at the time of imports.
(vii) Resorted to circular trading activity in the import and export of cut and polished diamonds by reimporting the same lot on more than one occasion to artificially boost the export turnover;
(viii) Have failed to declare the details of the Commission payable in the shipping bills
7. AEL filed a detailed reply dated 26.10.2007 to the show-cause notice and on 27.02.2012 filed further written submissions. The gist of the submissions made by AEL and others before the lower authority is as under:
a) 'Contemporaneous exports' show that the FOB value declared by them was correct;
b) All the shipping bills were duly assessed and goods examined by the Proper officer as provided for in Public Notice No.11/1998 dated 4.8.1998 issued by the Commissioner of Customs, Airport, Mumbai;
c) All the consignments of imported diamonds underwent the process of sieving, cleaning, boiling and sorting in the bonded warehouse which was a permissible activity also recognised by the Central Board of Excise and Customs in Circular No. 40/1999 dated 28.06.1999;
d) The Gem and Jewellery Export Promotion Council in its letter dated 23.10.2006 addressed to the then Union Minister of Commerce and Industry had accepted that the processing activity of the nature carried out by them in the bonded warehouse resulted in value addition of 5% or more;
e) There was no circular trading and that as demonstrated by the number of examples in Annexure-H & I to the show-cause notice, the charge of circular trading was not sustainable as set out in Exhibit-D to the reply;
f) All exports and imports of diamond consignments were legal and proper and in accordance with the provisions of Para 4A.18 of the then prevailing Foreign Trade Policy (FTP);
g) All the transactions were conducted at arms length between the parties and that neither the Indian Companies nor the overseas entities are related persons nor are they managed and controlled by the appellant AEL, and all the transactions were based on commercial consideration as reflected by the terms contained in Memorandum of Understanding dated 19.03.2003 between M/s. Daboul Trading Co. (Daboul), M/s. Adani Global FZE, M/s. Gudami International Pvt. Ltd. (Gudami);
h) As per Circular No.12 dated 9.9.2000 issued by RBI, declaration of Commission in the shipping bill was not mandatory, but optional. All the Commission remitted so far had been done with the approval of the Authorised dealer (Banks) in accordance with Foreign Exchange Management Act, 1999;
i) Lumesh Sanghavi retracted his statements vide affidavit dated 1.3.2006 and 4.1.2007 and requested for summoning him for cross-examination;
j) A request for cross-examination of forensic experts who gave the report on the data retrieved from the Companys computers, Kamaraj Bodal and officers who assessed the shipping bills and allowed exports was also made in the reply;
k) Diamonds were removed from TPS vide Notification No. 48 dated 20.02.2006 issued by the DGFT and therefore, exports thereof in the year 2005-06 were not eligible for benefit under TPS;
l) The application for issue of Duty credit scrip under TPS for the year 2004-05 made by the Company was pending before Jt. DGFT and till date, no benefit was received by the Company nor was there any loss of revenue.
8. Before the commissioner, cross-examination of Lumesh Sanghavi and Kamraj Bodal was conducted on 25.03.2008 while that of Kaushal Pandya was conducted on 7.4.2008. On 3.8.2011 and 1.12.2011, a total of 5 Customs officers who had assessed the shipping bills and allowed export were also cross-examined. The Officer of investigating agency - DRI was also present on each occasion during cross-examination, who questioned the witness in re-examination. DRI also filed written comments on the reply of AEL to the show cause notice. These comments have been reproduced by the Commissioner from para 14.0 to 14.8.2 of the impugned order. AEL filed its rebuttal to the DRI comments, which also have been reproduced by the Commissioner in para 15.0 to 15.7.6 of the impugned order.
9. By the impugned order, the Commissioner relied upon the statements of Lumesh Sanghavi and Kamaraj Bodal. He rejected the claim that retraction affidavits were sent to DRI and further also rejected the evidence recorded during cross-examination as an afterthought. On this basis, the Commissioner held as under:
It is therefore clear that no processing was carried out by any of the six Noticees to achieve value addition of 5 % or 10 % as the case may be. Even if it is taken that processes of boiling, sieving and assortment were carried out, the Noticees have not shown how these simple process can result in value addition of 5% or 10 % in the two respective years.
10. The Commissioner, therefore, concluded that Thus, the FOB value declared in the shipping bills by simply adding 5% or 10% of the CIF value is artificial and hence, the export value which is not a correct value has to be rejected under Section 14 of the Customs Act, 1962. Accordingly, the Commissioner held that-
mis-declaration of value declared in the shipping bills is firmly established. The goods cannot escape the mischief of confiscation for the mis-declaration of the value of export goods. The artificial value addition has also contributed to the mis-declaration of value of the export goods. No processing was undertaken to achieve the value addition and FOB value declared was incorrect. The simple process of boiling, sieving, and sorting do not automatically lead to value addition of 5% or 10% which was mechanically fixed by Shri Samir Vora and Shri Saurin Shah which is also confirmed by Shri Lumesh Sanghavi. It was possible for M/s.AEL to show incremental growth of exports through higher turnover and hence the difference between the FOB value of export goods and CIF value of import goods is not actual or real.
11. On the question of circular trading, the Commissioner, however, held as under:
The number of times each lot of diamonds was involved in circular trading is illustrated in para 9.1 and 9.2 of the Show Cause Notice. At the same time the illustrations given by the Noticees to show that circular trading is not possible also appears to be plausible. The contention of the Noticees is that conducting legal business operations to take the benefit of Government Scheme such as TPS is perfectly legitimate. While they conducted their business operations under perfectly legal and valid MOU and Tripartite agreements, they vehemently denied any Circular Trading. The flow chart do suggest the circular movement but Shri Vipul Desai from whose computer the same was recovered in his statement dated 19.2.07 stated that these charts were not prepared by him but by Shri Sudhakar Nair, Junior Assistant (Banking) who had left the Company subsequently. No statement of Shri Sudhakar Nair has been recorded.(emphasis supplied)
12. In view of his findings, the Commissioner imposed following penalties under Section 114 of the Act:
Name of the Noticee Amount of Penalty AEL Rs.25 Crores HEPL/ ACPL/BBPL/JAOL/MOL Rs.2 Crores each Rajesh Adani Rs.1 Crore Samir Vora / Saurin Shah Rs.75 Lakhs each Deven Mehta/ Omi Bagadiya/ Vithaldas Gokaldas Udeshi/ NarottamSomani Rs.25 Lakhs each
13. All the above Companies and individuals penalised by the Commissioner are in appeal. The department have also filed appeals in all cases on two grounds, the first being challenging the finding of the Commissioner with regard to Circular trading and second being for enhancement of penalties. All appeals were heard together. AEL and the department have also filed written submissions after the hearing.
14. We have heard M/s Vikram Nankani and Atul Nanda, Senior Advocates for the parties and V.K. Singh, Special Counsel for the department. We acknowledge the assistance rendered by both sides to us in painstakingly taking us through the complex facts and the voluminous record of documents. A brief record of the submissions made before us at the time of hearing is set out.
15. On behalf of the parties, it was urged that in diamond industry, labour intensive work at low cost, yields high value and therefore, processes like sieving, boiling and assorting could result in value addition even higher than 5% or 10%. While reiterating that Lumesh Sanghavi had retracted his statements, the Ld. Advocates sought to explain his statements and submitted that the Commissioner have not correctly appreciated the same. It was further submitted that the charge of circular trading was sustainable neither in law nor on facts and examples of the same were given with the help of Exhibit-D to the reply and from the statement of Lumesh Sanghavi and his evidence in cross-examination. Our attention was also drawn to pages 42 to 44 of the show-cause notice to show that the inquiries made through the High Commission of India, at Singapore did not reveal either common shareholding or common Directors, except in respect of Adani Global Pvt. Ltd., which admittedly is a subsidiary of AEL. The same is the outcome also of the inquiry made by with Consulate General of India, at Dubai, which shows that except for the wholly owned subsidiary Adani Global FZE, there are no other related parties. After referring to the parts of reply to the show-cause notice wherein the authenticity and genuineness of e-mails and its contents were challenged, the Ld. Advocates submitted that there is nothing sinister in the e-mails sent by Ms. Mary and that normal commercial information which is obtained in the usual course of business between the parties has been misunderstood as evidence of circular trading and control by AEL over the various overseas entities, neither of which is true. The payment of commission as well as arranging for buyers credit are legally permissible and in the absence of any allegation that these actions on the part of the Indian Companies was not in accordance with law, no charges in respect thereof can be made against the Indian companies. It was finally submitted that there is no loss to the revenue and assuming that the Indian companies did intend to take advantage of TPS, they had genuinely exported as per the scheme which required an exporter to achieve incremental exports, but were yet to be granted the duty credit scrips which is within the domain of the licensing authority. It was pointed out that AEL had exported cut and polished diamonds in the past, prior to TPS and continued to export between April and August, 2004 when the TPS had not been announced and so also continued to export in 2005-06 even after the removal of diamonds from the benefit of TPS on 20.02.2006, meaning thereby, all such transactions of diamonds were undertaken genuinely and in the ordinary course of business and not with the intention of artificially inflating the export turnover as alleged in the show cause notice. The Ld. Senior Advocates also submitted that once foreign exchange have been realised in relation to the exports made from India within the time stipulated under Foreign Exchange Management Act (FEMA), the FOB value declared under shipping bill cannot be doubted. It was submitted that burden to prove over valuation is on the department and the investigations have not revealed any contemporaneous exports at lower prices or valuation based on market inquiry before discarding the FOB value. It was therefore submitted that neither the goods are liable for confiscation nor any penalty warranted against the Indian companies and the Individuals associated thereto.
16. Shri V.K. Singh, Ld. Special Counsel stated that the appellant Adani Enterprises Ltd. formed a consortium with 5 other companies namely Aditya Corpex Private Ltd., Hinduja Exports Private Ltd., Midex Overseas, Jayant Agro Organics and Bagadia Brothers and obtained permission for setting up of Private bonded warehouses for import/export of CPD's. The activities covered under private bonded warehouses were to import polished diamonds, to sieve the diamonds, to assort, to do boiling of the cut and polished diamonds, to pack the cut and polished diamonds, to re-export. It is further alleged that during the financial year 2002-03 the export turnover of AEL was 20.31 crores which increased to Rs. 1465.27 crores in year 200-04, which further increased to Rs. 5626.67 crores in the year 200405 and during the year 2005-06 the same was at Rs. 11,193.64 crore. It is further stated that the other 5 appellant companies had admittedly no turnover of CPD during 200203 but had turnover during the financial year 200304, 200405 and 2005-06. It is further stated that AEL was controlling export of other 5 companies under the understanding that the benefit of Target Plus Scheme was to be availed by AEL.
16.1 That it is further urged that ACPL which was a partnership firm before being taken over by Milestone's Trade Link Pvt. Ltd., in which Mr. RK Sharma brother-in-law of Mr. Rajesh Adani (Director of AEL) and Mr. Saurin Shah-Executive of AEL were made directors. In Hinduja Exports Pvt. Ltd. which was earlier a partnership firm, was taken order by Ambitious Trade Link Private Ltd., group company of AEL. Hinduja Exports entered into MOU with Jayant Agro and Bagadia Brothers, whereas Aditya Corpex entered into MOU with Midex overseas. As per the MOU entire operations of export of CPD, to achieve the desired growth in the export turnover to enable them to claim the benefit of the Target Plus Scheme. Further the benefit of Target Plus Scheme was to accrue to HEPL and ACPL, and the firms/companies on passing of the benefit would be entitled to commission at the rate of 2% to 2.5% of FOB value.
16.2 That the import export of CPD's of all the 6 companies was being guided by brother-in-law of Mr. Gautam Adani, namely Mr. Samir Vora. Further the operations at ground level were looked after by Mr. Lumesh Sanghvi, an employee of AEL. The said fact stands and admitted in the statements of various persons recorded during investigation.
16.3 That with respect to the profile of the companies based at Hong Kong and Singapore, as the received from the High Commission of India, it is evident that out of total export of the CPD was 1643.02 million US dollars by the appellant companies in the year 200405, exports worth 1314.19 million USD was only to 8 companies out of the 45 overseas companies. Similarly during the financial year 2005-06 out of the total export of CPD worth US$ 1448.99, exports worth 1347.99 million USD was only to 7 companies. That during the year 2004-05 out of total imports worth 1304.13 million USD were effected from only 7 companies. Similarly is the position in the financial year 200506.
16.4 It is further urged that on perusal of the details of the 78 companies and report of High Commission of India, it was observed two Hong Kong-based companies namely Kwality Diamonds and Seven Stars, and four UAE - based companies namely Excel Global, Jewel Trade, Crown Diamonds and KVK Diamonds has acted as supplier as well as buyer of the CPD's for the appellant companies. Eight of the overseas companies were all incorporated after September 2004, which was after the introduction of the Target present scheme. Out of these 5 companies stopped their business activities during the year 2005. Three of the overseas companies were functioning from the same premises at Hong Kong. One Global Enterprises is a supplier of the CPD to the Indian companies whereas the other 2 companies namely Kamsun Development International and Wingate Trading were importing CPD from the Indian companies and that too at a price which is higher by 5% to 10%. The registered office of one Planica Exports have changed, at which address and other company Gracious export is already located. The said address is also the address of one Chew Bee Choo, one of the directors of Planica Exports and Gracious Exports. The registered address of Adani Global Pvt. Limited is also the residential address of Mr. Chang Chung Lind, Director of Gudami International Private Ltd. Most of the companies at Singapore have some common directors. Miss Mary Joseph, the employee of Adani Global Private Ltd. Singapore, is the Director of Gudami International. All the contracts of Gudami International, Singapore have been signed by Miss Mary in the capacity of director.
16.5 The learned special concert took us through each and every head of the charges framed in the show-cause notice, starting with abnormal and sudden increase in export of cut and polished diamonds from India, creation of consortium of Indian companies, the inter relationship between overseas entities and AEL, leading to circular trading of same set of diamonds between Indian companies and overseas entities, which was also supported by the investigations to show that no manufacturing or process was carried out in the bonded warehouse. As can be seen from the statements of Lumesh Sanghavi and others, who have inter alia admitted that the goods were re-exported after 3-4 hours or next day at values which were communicated to the team in Mumbai by Samir Vora or Saurin Shah from Ahmedabad and that there was no actual value addition but a mechanical determination by adding 5% or 10% on the CIF value. The Special Counsel also drew our attention to the fact that for the same activity, value addition has increased from 5% to 10% with effect from 1.4.2005, only because of the change in the policy and therefore, the so called value addition was only on paper and not linked to the processing activity claimed to have been allegedly carried out in the bonded warehouse. Shri Singh, therefore, supported impugned order of the Commissioner. Arguing on the appeals filed by the department, Shri Singh submitted that the Commissioner, however, was wrong in not upholding the charge of circular trading in view of the clear and cogent evidence of inter relationship between the buyer and the seller, elaborately set out in para 8.1 to para 8.22 from Pages 39 to 80 of the show-cause notice which he took us through in detail, which according to him was duly corroborated by the instances of circular trading set out in detail in paragraphs 9.1 to 9.13 of the show-cause notice. Lastly, Shri Singh submitted that but for these investigations, these Indian Companies would have made whopping windfall on the artificially inflated export turnover and therefore, while the Commissioner was justified in invoking Section 113(i) of the Act, and discarding the declared FOB value, he was wrong in taking lenient view on penalties imposed by him. Shri Singh, therefore, submitted that the penalties should be suitably enhanced.
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] Whether FOB value declared in the shipping bills for export of cut and polished diamonds by appellant companies is liable to be rejected on the ground that no processing activity to achieve value addition of 5% or 10%, was undertaken by the Indian companies in the bonded warehouses?
II] Whether the Indian companies artificially inflated the export turnover to take benefit under the Target Plus Scheme (TPS) by resorting to circular trading/movement of the same set of diamonds between Indian companies and overseas entities which are allegedly inter related?
III] What is the effect of the Commissions paid by the Indian entities for exports and the arrangement of buyers credit by the Indian entities on either the FOB value declared in the shipping bills or on the charge of circular trading referred to above?
IV] Whether the export goods can be held liable for confiscation under Section 113 (i) of the Act and consequently whether the amounts of penalties imposed by the Commissioner are justified or are the same to be increased?
18. We shall now deal with each of the above issues -
Issue No. I A. There are two parts to this issue. We have to see whether, firstly, any processing activity at all was carried out by the Indian companies in the bonded warehouse, and if so, to what extent and secondly, the relationship between such processing activity and the value addition, on one hand, and the relationship between the FOB value and the value addition, on the other hand.
B. The Commissioner finds that no processing was carried out by any of the six Indian companies to achieve value addition of 5% or 10%. He finds, the fact that no processing was undertaken is evident from the fact that invariably all exports took place within 3-4 days of their imports and sometimes, on the 2nd or 3rd day itself. The fact that some processing activity was carried out in the bonded warehouse cannot be denied as even Lumesh Sanghavi, whose statements have been heavily relied upon by the department, has also admitted to the processing activity being conducted in the bonded warehouse. It would be useful to reproduce the portions from the statements of Lumesh Sanghavi. In his statement dated 07.02.2006, Lumesh Sanghavi has stated as under:
(vi) The assorter first checks the correctness of the lot wise weight declared in each of the import packets. Then he will start the process 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 weighing machine, further assortment with regard to quality required.
viii) Repacking of the assorted CPD for exports by the office staff. C. In the same statement, Lumesh Sanghavi has further stated as under:
Qn.5: Please state whether 03 activities, i.e., sieving, boiling and quality assessment were done in respect of all the lots? Also, explain each process in detail?
Ans.5: No, in all cases all the above said 03 steps are not followed, as in some cases boiling may not be warranted and in some cases quality assessment may not be essential. The process of boiling of CPD is basically required to clean the diamonds. It is not done in all cases. For carrying out the process of sieving, the diamonds have to be placed on different sizes of metal sheets having perforations / holes and when the diamonds are placed on said metal sheets they pass through the holes and diamonds of one particular size gets eliminated from the lot. Thus, diamonds of different size are assorted by the process of sieving. Sometimes, the quality is assessed for ascertaining the impurity and thereby value of the CPD. This process is also not carried out 100%. D. In his statement dated 28.02.2006, Lumesh Sanghavi once again deposed as under:
On receipt of the imported consignment in the bonded warehouse, the process of assortment which included sieving, boiling and segregation would be undertaken for each lot (packet) separately, as detailed in reply to question No.3 of my statement dated 07/02/2006. As stated in my statement dated 07/02/2006, all the above processes of sieving, boiling and segregation would not be undertaken on all the consignments. Sometimes, only sieving and boiling would be undertaken and no segregation would be done. Similarly, some consignment would not be subjected to boiling. Thereafter, the diamonds would be packed in different lots for export and lot Nos. and weight in carats would be marked on each packet as was done in import consignments. The entire process of assortment would take 3 to 4 hours and the imported diamonds would be exported within 3 to 4 days of their imports. Sometimes the exports would also takes place on the second or third day of imports. On being asked, I state that the imported diamonds and the exported diamonds were in the same form i.e. cut and polished diamonds were imported and cut and polished diamonds were exported without carrying 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 30.01.2006 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 06.02.2006 and the relevant portion reads as under:
The imported diamonds were packed in transparent plastic bags inside the wrapper of plain white paper. On receipts of the parcel of diamonds we put it into the safe meant for the custody of diamonds in the office of Aditya Corpex Pvt Ltd. Thereafter, on the same day, Mr.Lumesh Sanghavi came to the office of Aditya Corpex Pvt Ltd, he checked the parcel and packets contained in it. Thereafter, as per the requirement, Mr.Lumesh used to take out the packets of certain lots from the parcel of imported diamonds for sorting into various size, by the assorters, in the office of Aditya Corpex Pvt Ltd. Sometimes, when Lumesh Sanghavi could not come to the office Aditya Corpex Pvt Ltd, he used to tell me on phone to take out packets of certain lots from the parcels (Aluminum Box) of imported diamonds and give them for sorting. On being asked I state that assorters used to separate the size of the different lot of imported diamonds with the help sieve of different size, as per instruction of Lumesh Sanghavi and this activity was supervised by myself. Upon sorting the imported diamonds into different sizes, two to four lots of different size group were made from the one lot and these lots were packed separately in plastic bags which were weighed in our presence, I tallied the total weight of the imported diamonds after separating into different sizes, with the total weight of diamonds imported lot wise. Thereafter, myself and mostly Rahul kept the diamonds in transparent plastic bags and wrapped these diamonds in a plain white paper and put lot No. and carats with pencil as per the details shown for these diamonds in the export invoice. G. It is contended that Lumesh Sanghavi retracted his statements but the DRI denies having received the affidavits of retraction which are claimed to have been sent by Lumesh Sanghavi vide 'UCP'. No acknowledgement of receipt of affidavit of retraction have been produced before us to uphold such a contention. Be that as it may, it is not as if retracted statements cannot be looked into at all in law. The Honble Supreme Court in Vinod Solanki Vs. Union of India,Laws(SC)-2008-12-139, has administered a word of caution in evaluating retracted statements. We have therefore closely examined not only the statements of Lumesh Sanghavi but two others who were also 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 percentage of value addition there is no other charge in para 4A.18 in 2005-06. A plain reading of para 4A.18 shows that it does not contain any condition, that the value addition must be as a result of any kind of manufacturing or specific processing activity in the bonded warehouse. In fact, it refers to import of cut and polished diamonds and to the export also of cut and polished diamonds. It is implied that para 4A.18 does not necessarily envisage any kind of manufacturing or processing activity to achieve value addition, because it does not refer to any new article at the time of export, different from the goods at the time of import. The sole objective is to earn foreign exchange by value addition, and subject to achieving this object, import and re-export out of bonded warehouse of the same item, namely; cut and polished diamonds is permitted. The Ld. Senior Advocates submitted that there is no bar in achieving value addition to satisfy the condition of 4A.18 simply as a result of trading, i.e. buying and selling cut and polished diamonds from the bonded warehouse. While this may appear to be the intention because para 4A.18 does not prescribe any conditions as to how to achieve the value addition, we need not test the scope of para 4A.18 by this argument alone, having accepted the first contention that processes of sieving, boiling and sorting were carried out.
18.3 Having regard to the plain language of para 4A.18 we are not persuaded to agree with the Commissioner that the simple processes carried out by the Indian companies cannot result in the value addition of 5% or more. No such co-relation between value addition and processing activity in the bonded warehouse is required under para 4A.18. Sieving, boiling and assorting of diamonds is a recognised activity of the diamond industry, as can be seen from the clarification contained in Circular No.40/1999 dated 28.06.1999 issued by CBEC which was issued in the context of para 8.13 of the Import and Export Policy 1997-2002, which is parimateria to para 4A.18 of FTP 2004-09, para 2 thereof is reproduced herein:
2. The issue has been examined in consultation with the Ministry of Commerce and they have clarified that the activities of mixing, sieving, assortment and cleaning etc. are allowed in respect of imported cut and polished diamonds and cut & polished coloured gemstones in the private / 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 of a diamond depends on 4 Cs which are colour, clarity, cut and carat. Therefore, if diamonds are segregated into a homogenous lot based on their size and quality, the value shall change even by employing simple labour intensive processes like sieving, boiling and assorting. The only piece of evidence we find on the relationship between the value addition and the process is in the form of representation made by Gem and Jewellery Export Promotion Council vide letter dated 23.10.2006 which relies on the same Circular of the CBEC while dealing with the various schemes in the Policy affecting the business of gem and jewellery including diamond industry. We are informed that the Customs Officers in charge of the bonded warehouse on being satisfied, have also cancelled the bonds, which aspect has been completely overlooked by the Commissioner.
18.5 It is true that Lumesh Sanghavi has not been able to say which of these processes were carried out in respect of how many consignments of imported diamonds before export, which (we are informed) aggregate to about 3000 consignments or whether all the processes were carried out for all the consignments, except making a general statement on 7.2.2006 which has been referred to above. It is equally true that Lumesh Sanghavi in each of his statements mentioned that the FOB value, in the invoices prepared by them for export, was shown as instructed by Samir Vora or Saurin Shah. But the question is, does such FOB value become liable for rejection merely because these two persons superior to LumeshSanghavi in the organisation instructed him to do so. Once we hold that there is no basis to support the finding of the Commissioner, that minimum value addition under para 4A.18 cannot be achieved by simple process, both as a point of law on interpretation of para 4A.18 and as a question of fact, in the absence of any expert evidence holding the same, we go back to the question whether the FOB value as declared in the shipping bill is correct.
18.6 For this purpose, we have to bear in mind the distinction between FOB value and the value addition. Section 14 of the Act provides that where duty is chargeable on ad valorem basis, the value shall be deemed to be the price at which such or like goods are ordinarily sold or offered for sale for delivery at the time and place of importation or exportation as the case may be in 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) (A B) V.A. = ------------------ 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 value shall also include interest paid in free foreign exchange to the foreign supplier. 18.7 FOB value is therefore only one of the components for determining the value addition. Determination of value addition is a function of DGFT / licensing authorities. We are here not concerned with the determination of value addition. We are informed that the applications by the appellant companies under TPS are pending with the offices of Jt. DGFT. It will be for the licensing authority to determine the value addition at the appropriate stage. We are here concerned with the correctness of the FOB value as declared in the shipping bills which is within the jurisdiction of the Customs officer and for that the powers are derived from Section 14 of Act, which deals with determination of assessable value read with Section 17 of the Act which confer the power of assessment on consignments of exports, in respect of which shipping bills are filed under Section 50 of the Act. We shall first examine the law on this point.
(a) In Frost International Vs. Commissioner 2006 (206) ELT 451 (Tri.) the selling price of the manufacturer of garments was taken to be the correct Present Market Value (PMV) and on that basis, the Commissioner rejected the higher FOB value declared by the exporter. This Tribunal held that the concept of PMV cannot be equated with the FOB value of the goods which represents the price in the international market. The same view was also taken in the second case of Frost International Vs. Commissioner. The Tribunal also did not accept the evidence of clearance by the foreign buyer at a lower price received on overseas inquiry. Both these decisions in Frost International were upheld by Apex Court and appeals filed by the department were dismissed as reported at 2007 (216) ELT A55.
(b) In Akshay Exports Vs. Collector [2003 (156) ELT 268], the Tribunal held that in the absence of market inquiry of goods exported from India, the FOB value cannot be discarded.
(c) In Siddachalam Exports Pvt. Ltd. Vs. CC [2011 (267) ELT 3], the Honble Supreme Court observed that although the Custom Valuation (Determination of Price of Imported Goods) Rules, 1988 applied only to goods imported into India, the principles thereof were also applicable to goods exported from India.
18.8 The transaction value in the present case is established by the fact that sale proceeds 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 stated that they strictly followed the procedure prescribed by law as contained in Public Notice No.11/1998 dated 4.8.1998. The Commissioner confirms that these officers . only verified that the goods confirmed to the description, quantity and value as declared in the shipping bill. The confirmation of the value by these Customs officers in our opinion is a clinching evidence and there is nothing in the show-cause notice to rebut this primary evidence as to the correctness of FOB value. At no stage of the assessment of thousands of consignments, exported by the appellant companies, was any doubt raised as to the truth or accuracy of the declared FOB value. The confirmation by the Customs officers, and the admission by the Commissioner that they verified inter alia the value of the goods, is direct evidence of the correctness of the value on physical examination of the goods. In these circumstances, we do not see how the Commissioner can reject the declared FOB value.
18.9 Yet the Commissioner did so. And the only reason for the Commissioner to do so is because neither the Customs officers who examined the goods nor the appellant companies have been able to show how simple process of boiling, sieving and assortment can result in value addition of 5% or more. This is a fundamental fallacy, which the order of the Commissioner suffers from in not maintaining the distinction between FOB value, which is required to be determined under Section 14 and various tests laid down in the many precedents, and value addition, of which FOB value is only one of the components and which need not arise only out of processing and indeed may have nothing to do with the processing under para 4A.18 of FTP. It would be unfair to reject the FOB value on a criteria which is not prescribed by law. As we have held, processing has been undertaken in respect of the export consignments. When neither Section 14 of the Act nor para 4A.18 of FTP requires the exporter to establish a relationship between processing and the FOB value declared in the shipping bill, which is to be independently determined, applying the tests under Section 14, the question of verification of the value addition, by the Customs officers at the time of export does not arise at all. This is more so since determination of value addition is within the jurisdiction of licensing authorities and not the Customs 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 the Customs Act or the FTP of such a relationship. Obviously in such a case, one will have to go by the provisions of Companies Act, 1956 to see whether one company controls the other and broadly, the two tests to establish control of one over the other is either voting power or control over the appointment of Board of Directors. The relationship in the context of determination of FOB value is the relationship between the buyer and the seller in the course of international trade. Hence, the issue of inter se relationship between AEL and Indian companies is not relevant for the purposes of Section 14. The show cause notice dwells on this issue only to show that AEL connived with the 5 other Indian entities to take advantage of benefits under TPS by showing higher incremental exports to derive maximum benefit under TPS. We do not see the relevance of the issue in this case. At the risk of repetition, we hold that since the application for grant of duty free scrips made by the Indian companies including AEL for the year 2004-05 is pending before the Licensing authority, it is for the licensing authority to consider whether the export turnover of each individual Indian company is to be reckoned or whether export turnover of all Indian companies to be clubbed for the purposes of calculating the benefits under TPS. We say no more than this so as not to prejudice the disposal of the application pending before the licensing authority. We remind ourselves that there is a concept and definition of group company in the FTP which we are sure shall be considered by the Licensing authority in determining the benefits under the TPS scheme.
18.12 As far as inter relationship between AEL and overseas entities is concerned, it is alleged that AEL controls the overseas entities. The basis for this allegation, as found in the impugned order, is as under:
a) As per report received from Indian High Commission, Singapore, several entities in Hongkong and Singapore were incorporated or started business in or around the period when TPS was announced and stopped the business soon after the TPS was over;
b) Registered office of some of the entities in Singapore like M/s.Planica Exports Pte Ltd and M/s.Emperor Exports Pte Ltd is common;
c) The registered address in some cases is residence of individual Directors;
d) Ms.MaryJoseph who is an employee of Adani 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 G A 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 20.02.2006 or the closure of TPS on 31.03.2006. No adverse inference can be drawn on this aspect. The fact that some of the companies have common registered offices or that registered office happened to be the residential premises of their Directors is again something which cannot be faulted in law and by no stretch of imagination shows control by AEL over them on this account. Common Directors or Directors who are employees of AEL or its subsidiaries also does not establish mutuality of interest. So also merely because Vinod Shantilal Shah is brother in law of the Chairman and Managing Director of AEL, it does not establish the relationship particularly when it is now shown that the Vinod Shantilal Shah is also Director in AEL or holds significant shares to exercise control over AEL and vice versa AEL has any shareholding or common Directors in G A International. Section 14 of the Act requires the interest of the buyer and the seller in the business of each other. There is no allegation of common shareholding except for the subsidiaries. It is also not shown that AEL has the power to appoint Directors or control the composition of Board of Directors of companies in which its employees or its Directors are also partners or Directors. It is not shown that AEL holds sufficient shares or voting power to control the decisions of the entities in which its Directors are also Directors or in which its employees are also Directors or Partners. Mutuality of interest must be proved both ways. It is interest in the business of each other which proves that the parties are related. The inquiries made through the Indian High Commission, Singapore or Indian Consulate in Dubai have not brought out any such factual position on either shareholding pattern or control over the composition of the Board of Directors of the overseas entities except the two subsidiaries.
18.14 Assuming that the relationship is established in those limited cases where the Directors or partners of overseas entities are also Directors or employees in AELs subsidiaries, as per the details set out on Pages 49 to 52 of the show cause notice, that by itself cannot be a ground to reject the declared FOB value. If the relationship has not influenced the price, then such export price must be accepted. Out of all the overseas buyers to whom the cut and polished diamonds were exported from bonded warehouse by Indian companies, only two such buyers namely; G A 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 decided by Sameer Vora or Saurin Shah based in Ahmedabad. This has also been admitted by Lumesh himself. Likewise, though Lumesh Sanghvi, admits to circular trading, on being shown during cross-examination the same examples referred to in his statements, which show the difference in quality, size and weight of each consignment, he has deposed to the contrary. We have independently also examined the evidence on record particularly Annexures H and I to the SCN and have found that the charge of the circular trading is not sustainable. Considering the overall facts and circumstances, this part of the statement of Lumesh Sanghvi cannot be seen as conclusive to the charge of, either over-valuation or circular trading.
18.16 In the above factual backdrop, we shall now deal with the case-law cited by the department. In the case of Omprakash Bhatia Vs. CC, 2003 (155) ELT 423 (SC), the exporter did not lead any evidence to show that the export value mentioned in the shipping bill was the true sale consideration, and accepted the lower value ascertained on market inquiry even at the time of hearing, while giving up the claim of drawback. It is in these facts that the Court was called upon to decide whether section 113(d) was applicable or not. In the instant case neither any market inquiry has been conducted, nor the appellant has accepted the value suggested by the department.
18.17 In CC Vs. Pankaj V. Sheth, 1997 (90) Cal. 31 (Cal.HC), the question was whether pending inquiry, the Court could direct the Customs Authorities to endorse the fact of exports in the DEEC book issued under the Advance Licensing Scheme. The Customs Authorities resisted on the ground that the enquiry in respect of export of plastic flat jet nozzles was pending since the goods were suspected to be over-invoiced and had been provisionally allowed exports. The High Court held that the Customs Authorities had the power to examine the correctness of the value of the goods under the DEEC scheme. Firstly, this case is not at the interim stage, and secondly, in the present case investigations have been completed and detailed show cause notice issued relying on the documents & statements, which we have examined as above.
18.18 The judgment in Bussa Overseas Vs C.L. Mahar, 2004 (163) E.L.T. 304 (Bom.) deals with a case where the goods were cleared under a Bond and therefore the argument that 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 Vs 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 Vs. 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 goods, is on the Department. .. All that it requires is the establishment of such a degree of probability that a prudent man may, on its basis, believe in the existence of the fact in issue. Thus legal proof is not necessarily perfect proof often it is nothing more than a prudent mans estimate as to the probabilities of the case. 32 However, this does not mean that the special or peculiar knowledge of the person proceeded against will relieve the prosecution or the Department altogether of the burden of producing some evidence in respect of that fact in issue. It will only alleviate that burden to discharge which very slight evidence may suffice. 18.21 In the present case, we find that the department has failed in discharging the burden cast upon it to produce any tangible evidence in respect of the charge of over-valuation or circular trading. For the same reason, the judgment in Steel India Company Vs. CCE, 2014 (310) E.L.T. 184 (Tri.) is of no assistance to the department.
18.22 For reasons aforesaid, the declared FOB value is accepted to be the correct FOB value under Section 14 of the Act and to that extent the order of the Commissioner is set aside.
19.0 Issue No. II 19.1 The allegations relating to circular trading are essentially set out in para 9.1 to 9.13 of the show cause notice. The Commissioner, as stated, did not confirm the allegation of circular trading and held that the defence to show that circular trading is not possible appears to be plausible. The department is aggrieved by this finding and has come in appeal.
19.2 Before examining the material marshalled in the show cause notice to show circular trading, we must record that it is admitted by the department that consignments of diamonds physically came into India and were also sent outside India, and further it is also admitted by the department that in all cases the FOB value as shown in the export invoices have been duly realised. In other words, it is not alleged that these were paper transactions. We find that the allegation of circular trading of diamond is based on same lot of diamonds being imported and exported over a number of times during different periods as detailed in the two tables on pages 81 to 83 of the show cause notice. We have therefore looked at import and export invoices to see how the individual lots referred to at pages 81 to 83 have been 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-comparability of carat, colour, cut and clarity (4 C's). It is therefore not possible to come to the conclusion that the appellant companies indulged in circular trading merely with reference to single lots (out of a consignment) which are said to be imported and exported during different periods. Curiously, the show cause notice itself admits in para 9.2 that even these single lots which are said to be involved in circular trading varied in weight and clarity. It however describes such variation to be marginal or slight variations. We are not impressed by the use of such adjectives particularly when the Commissioner also admits the value of each lot varies on account of variation in the 4 Cs. Whether such variation is marginal so as not to affect price is not for us to say. This perhaps required expert evidence who can only do so after examining each lot. We find this is missing. We cannot indulge in conjecture whether the variation in weight or clarity is marginal so as not to affect the value or identity of the lots. Weight is directly related to the size of diamonds. If the size of the diamonds is small, a small variation in weight can substantially increase the pieces of diamonds and similarly, if the size of the diamonds is bigger, the price thereof may increase manifold even with a small variation in weight.
19.3 Based on the details of the lots allegedly involved in circular trading, Annexure-H & I to the show-cause notice, contain details of these lots, bill of entry wise, and shipping bill wise, to allege circular trading. AEL in its reply to the show cause notice sought to demolish Annexure-H & I by reference to Exhibit-D to the reply. We have perused the Annexure-H & I to the show cause notice and Exhibit-D to the reply. In Exhibit-D we find that AEL has given several examples where the export of the lot on first import has taken place after the second import of the same alleged lot, which belies the allegation of circular trading, which if true, means that the export of the lot on first import should have taken place before the second import of the same alleged lot and not thereafter. These several examples establish that the sequence in the movement of same alleged lot to prove circular trading does not exist. AEL also submits with reference to Exhibit-D, there is no explanation how the same alleged lot exported to Singapore or Hong Kong has been re-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 28.02.2006, 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 03.01.2007. 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 the same documents such as invoice relating to the transactions which he has deposed in statement dated 28.02.2006 and 3.1.2007, he accepted that there was a variation in the weight and quality of diamonds. On re-examination by DRI officer, Lumesh Sanghavi maintained the variation in the specifications of the lots covered by two different invoices. Besides the documents speaks for themselves, oral evidence if contrary to documents has no value since documentary evidence shall prevail over oral statements. At the time of hearing before us the Ld. Counsels also produced a typed statement analysing the transactions of July, 2005 shown to Lumesh Sanghavi as recorded in his statement dated 28.02.2006, to illustrate that on facts, the allegation of circular trading cannot be maintained. From the typed statements, it is seen that while exporting D-Cut white diamonds under invoice dated 21.07.2005, the weight of PK 4 variety was 486.57 carats and that of PK 5 variety was 733.67 carats and if the same set (lot) of diamonds were allegedly imported on 26.07.2005 from Spectrum Trading, UAE, then the weight of each variety at the time of second export ought to have been the same, but as seen from the export invoice dated 28.07.2005, the weight of PK 4 variety was 725.63 carats which is much more than 486.57 carats in the previous exports and so also in case of PK 5, the weight in the second export was significantly lower at 512.61 carats as compared 733.67 carats. This difference in the weight (carats) of the two different variety of diamonds PK4 and PK 5 show that there is no circular trading, otherwise in the two export consignments of two similar variety of diamonds, weight should have been identical. The fact that the weight in carats of PK4 was much more in the second export and that of PK5 was substantially lower, it is evident that there is no circular trading. The second illustration in the typed statement, not only shows variation in carats but also sizes between the first and second round of diamonds which as submitted by the Ld. Senior Counsels fortifies their case that there is no circular trading, even if we go by the statement of Lumesh Sanghavi, who did not correctly appreciate the facts as flowing from the same documents which were shown to him. We find force in these submissions and hold that not only is the defence to circular trading plausible but incontrovertible.
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 19.02.2007 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 exporting the cut and polished diamonds to other overseas entities. We do not find anything incriminating in the 3 charts except a pictorial representation admitted by the parties.
20. On the contrary, AEL has sought to justify what they call as the business plan and the pattern of transactions on the basis of MOU dated 19.03.2003 between its subsidiary in Dubai, Daboul and Gudami whereby the UAE subsidiary agreed to arrange for and organise processing of unassorted diamonds in India through AEL or its nominees and Daboul agreed to procure unassorted diamonds directly or through its nominees for export to India and thereafter, purchase the same after processing in India through its intermediaries in Hongkong or Singapore for its European buyers. Shri Singh, Ld. Special Counsel, as has the Commissioner strongly objected to the reliance on this MOU. He submits that this MOU was never produced during investigations. On the other hand, AEL submits that, although a copy of this MOU was not produced during investigations there are enough references to the arrangement and understanding mentioned in the MOU in the statements of various persons recorded during investigations. Our attention has been drawn to the statement dated 24.01.2006 of Samir Vora in which he has, inter alia, stated that AELs overseas agents Daboul sent them proposal for unassorted diamonds and Daboul gives them the range of existing international value and after discussions, AEL sends its own proposal and that the value is decided after negotiation, if necessary. Bhavik Shah is the other person who makes reference to Daboul in his statement recorded on 31.01.2006 wherein he refers to Rakesh Shah- an employee of Adani Global FZE to be the coordinator for import and export of gold, gold jewellery and articles and cut and polished diamonds with Daboul. No doubt, there is no specific reference to MOU in these statements, but nonetheless these statements prove the existence of business relationship with Daboul which is dealing in cut and polished diamonds. Moreover, AEL had disclosed a copy of the said MOU along with its reply to the show cause notice filed on 29.10.2007, against which DRI had ample opportunity to ascertain the veracity of the documents before filing its written comments to reply filed by AEL. The DRI made general and sweeping remarks about the genuineness of said MOU in its written comments 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 of the department, here while dealing with the issue of circular trading. According to the department, these e-mails reveal that AEL controlled all the overseas entities because there is reference to the bank accounts of different overseas entities in these mails and also to transfer of funds from account of one overseas entity to another. These e-mails are sent by Ms. Mary who is an employee / Director of Adani Global Pte Ltd, Singapore and these e-mails are sent internally to all persons connected with AEL based in either India or Singapore or Dubai. It is alleged that if AEL does not control overseas entities there was no reasons for Ms. Mary to pass on information relating to bank accounts and its details including password to other persons within the Adani group and likewise there was no need for Ms. Mary to report the transfer of funds with reference to certain specified transaction from one overseas entity to another or from Indian company to overseas entity or by an overseas entity to an Indian company. We find that except for agreeing to what has been stated in these e-mails, none of the persons like Bhavik Shah, Vipul Desai or C.E. Mahadevan have admitted to these e-mails being evidence of either control by AEL of the overseas entities or to circular trading. Unfortunately, hereto the statement of Ms. Mary Joseph, author of almost all these mails have not been recorded, we are left to imagination why she was writing such mails and on whose instructions. These gaps are extremely vital to the issues at hand and fatal to the case of the department. AEL submits that she was doing so on account of the agreement between the parties as recorded in Clause 6 of the MOU which is reproduced herein:
In order to facilitate the movement of goods, Adani Global FZE has identified its business associate, M/s. Gudami International Pte Ltd as one of the parties who may be nominated as an intermediary where Daboul requires the transaction to be routed through an intermediary. Gudami shall arrange for funds wherever necessary to finance such imports, but Daboul shall assure AGFZE that funds will be available for the onward import from Gudami and for this purpose Gudami shall be entitled to call for and maintain and monitor financial information and records. In order to coordinate the working of these transactions, including movement of funds wherever necessary, Daboul, 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.4 at page 71 of the show cause notice, why have GA International, Gold Star and Labdhi transferred funds to Al Shahad considering that Labdhi is not even one of the 45 overseas entities in this case or are these entries representing settlement of accounts of some other independent transactions which has nothing to do with the transactions of cut and polished diamonds.
(d) None of the e-mails show fund flow corresponding to the circular trading of the lots as alleged in the show-cause notice, meaning thereby the allegation of circular trading is unsupported by evidence of corresponding financial trail.
21.2 As has been stated in the show-cause notice, the e-mails referred to in Annexure-M to the show cause notice show control by AEL of the overseas entities. We have already held what tests and conditions needs to be satisfied in law to establish control. It seems Ms. Mary Joseph has merely collated the information into e-mails which is otherwise available from the documents relating to the respective transaction which documents show the name of the buyer, name of the seller, serial number and date of the invoice, the amount and the bank in which the payment is to be remitted. These e-mails do not reveal the possibility of these e-mails being sent as a result of said MOU cannot be ruled out. We find nothing incriminating in these e-mails or anything to draw an inference of control of overseas entities by AEL.
21.3 Even if we were not to consider the said MOU, the e-mails can at best give rise to suspicion that AEL controlled the overseas entities. This, however, will remain a suspicion because statement of Ms. Mary has not been recorded. Suspicion howsoever strong cannot take the place of evidence.
21.4 On behalf of the Indian companies, it was also submitted that the allegation of circular trading is absurd and illogical because the CIF value of all the imported consignments has been accepted and in fact, proposed to be adopted as the correct value of the goods exported instead of the declared FOB value as stated in para 21.1 (viii) and corresponding para in respect of each Indian company in the show cause notice. The argument is that, if it is alleged that the same lot was circulated number of times as tabulated from pages 81 to 83 of the show cause notice, then the CIF value of the lots repeatedly circulated ought not to have been accepted, whereas 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 foreign exchange through banks and authorised dealers as proceeds of exports in compliance with the provisions of Foreign Exchange Management Act, 1999.
We, therefore, hold that the charge of circular trading fails.
22.0 Issue No. III The Issue relating to payment of commission and fund flow through mechanisms such as buyers credit or LC discounting are connected to the charge of circular trading and to support the allegation of control by AEL. We have for reasons recorded above, found both these charges to be unsustainable. On behalf of the Indian companies it was submitted that payment of commission in fact proves that the transactions of import and export of diamonds were genuine and on principal to principal basis since otherwise there was no need for them to pay commission if the transactions were bogus or involved mere circular trading. So also in relation to LC discount and buyers credit, it is submitted that these transactions were entered into because of interest arbitrage, since there is wide variation in the rates of interest between international markets and India. It is submitted that they have acted like any other prudent business men would do in the like circumstances. The department however, contends that AEL was strictly monitoring the number of days involved in the fund flow and its banking team in India took all decisions in relation to payments for all imports and exports. Suffice for us to state that when we have held the declared FOB value to be correct and there is no circular trading, we need not go into these issues, more so, when in query from the Bench whether the payment of commission or LC discounts or availing buyers credit violated any law of India, both sides submitted that none of these actions are in breach of any of the laws for the time being force in India. The Ld. Senior Counsels submitted that on the contrary the Circular No.12 dated 9.9.2000 issued by RBI and relied upon in the show cause notice supports the case of Indian companies that payment of commission is permissible and that it is not mandatory to disclose the same in the shipping bill as long as the agreement for payment thereof is produced to the authorised dealer at the time of remittance, which they have duly done so. There is according to them, no violation of the provisions of Foreign Exchange Management Act in the payment of commission or discounting 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.
23.0 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. Samir Vora and Saurin Shah have stated that Rajessh Adani was only involved on Policy matters. We find that the same is the position in relation to Deven Mehta, Omi Bagadiya, Vithaldas Udeshi and Narottam Somani on whom penalties have been imposed only because they have allowed themselves to act at the behest of AEL and have performed acts which have rendered the export goods liable to confiscation. without ascribing acts of omission or commission under the Act to levy penalty on them. Section 114 of the Act does not create vicarious liability. It is an action in personam. It is therefore necessary to show how each of these individuals acted in a manner which resulted in mis-declaration of FOB value to render the goods liable to confiscation under Section 113(i). We find no justification has been provided by the Commissioner in the order. The statement of these individuals are exculpatory, besides not being adversely implicated by others. In any case, we have set aside penalties on all concerned as aforesaid.
24. In the circumstances, we set aside the impugned order passed by the Commissioner and allow the appeals filed by all the parties and dismiss the appeals filed by the Department. Consequential reliefs if any are allowed.
(Pronounced in Court on 26.08.2015) (P.S. Pruthi) (Anil Choudhary) Member (Technical) Member (Judicial) Sp 53 C/86660, 85401 to 85405, 85396, 85423, 85521, 85533, 85549, 85599/13