Custom, Excise & Service Tax Tribunal
Commissioner Of Customs vs S.B & T International Ltd on 17 November, 2015
IN THE CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL,WEST ZONAL BENCH AT MUMBAI COURT No.II APPEAL No.C/568/04 Appln.No.C/CO/478/04 (Arising out of Order-in-Original No.COMMR/MCT/06/2003 dated 25/04/2003 passed by Commissioner of Customs. CSI Airport, Mumbai) For approval and signature: Honble Mr.S.S.Garg, Member (Judicial) Honble Mr. Raju, 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? ========================================
Commissioner of Customs, CSI Airport, Mumbai Appellant Vs. S.B & T International Ltd., Respondent Appearance:
Shri.Kamal Puggal, Asst. Comm. (AR) for appellant Shri.Sunil Gajanan Agarwal, Advocate, for respondent CORAM:
Honble Mr. S.S.Garg, Member (Judicial) Honble Mr. Raju, Member (Technical) Date of Hearing : 17/11/2015 Date of Decision : /2016 ORDER NO Per: Raju
1. The respondents are manufacturers of gem & jewellery and are located in SEEPZ-SEZ, Mumbai. A stock taking was conducted by revenue in their premises on 18th & 19th March 2002 for checking the stock of gold, platinum and diamonds. On comparing the said stock with that recorded in their books of accounts certain variation was detected. The variation in the quantity in the gold and diamonds was satisfactorily explained by the respondent. However, they could not explain the shortage of 5,987.17 gms of platinum in the stock. The respondents tried to explain the shortage as manufacturing loss and possible thefts. This explanation was not found acceptable in terms of condition No.3 of Notification No.137/2000-Cus dated 19/10/2000, which require the respondents to maintain proper accounts in the format convenient to them, financial year wise, in respect of stock, among other things. It was argued that the respondent had claimed a manufacturing loss of 9% during its export and any loss in excess of said percentage should have been reported to the Customs department. As a result of demands, a show-cause notice was issued to the respondents seeking to recover a duty of Rs.9,70,039/- on the said platinum. It was also alleged that the said platinum was liable to confiscation under Section 110 (o) of Customs Act, 1962. It was also alleged that the respondent had violated the provisions of Chapter 9A of the (Export-Import) EXIM Policy as well as the Handbook of Procedures, 1997-2002 prescribed in para 9A.5 to the effect that the wastage/manufacturing loss of platinum in the manufacture of jewellery shall be within overall percentage prescribed in Appendix-41 of Handbook of Procedures. The Handbook of Procedures vide Serial No.111 has prescribed 9% wastage of platinum in the manufacture of studded jewellery. Since the shortage was in excess of 9% prescribed under the policy and it was held that the respondents were fully aware of the shortages. It was held that it was a fit case for invoking proviso to Section 28 of the Customs Act, 1962 and the respondents were held liable to penalty under Section 114A. It was also held that since the respondents were aware of the excess manufacturing loss, the permissible limit and they failed to inform the Revenue resulting in clear violation of the condition 3 of the Notification No.137/2000-Cus. As a result, the platinum found short was held to be liable to confiscation under Section 111 (o) and 111(d) of the Customs Act, 1962. However no confiscation was ordered as goods were not available. It was also held that the duty of Rs.9,70,040/- was payable by the respondent under Section 28 of the Customs Act. The order however does not confirm the penalties sought to be imposed on the two Directors on the ground that though they had prior knowledge of shortages and they did not report to Customs, there was no evidence to show that they have done so for their personal benefit and that non-reporting and non-maintenance of report not done at their behest. However, penalty on the respondent was upheld on the ground that it was the duty of the respondent to maintain proper accounts. While imposing penalty on the respondent, the Commissioner imposed a penalty of 25% of the duty payable under Section 114A of the Customs Act, 1962. There was no order of confiscation or imposition of redemption fine in lieu of confiscation. Revenue is in appeal against the said order on the ground that the Commissioner ought to have confirmed penalty equal to the duty evaded and not merely 25% of the duty involved under Section 114A of the Customs Act. The commissioner ought to have imposed a redemption fine in lieu of confiscation.
2. It was argued by the learned AR that the Commissioner ought to have imposed a penalty equal to the duty involved and though the respondent had the option of paying 25% of said penalty if they paid the same within 30 days from the date of receipt of order by them. In the instant case, the respondent had not paid the said duty within 30 days as stipulated under the proviso to Section 114A of the Customs Act. Revenue also argued that the Commissioner has not ordered confiscation of the missing platinum and has not imposed any redemption fine in lieu of confiscation under Section 125 of the Customs Act. It was argued that since the goods were released on the strength of a bond, a redemption fine is imposable even if the goods were physically not available for confiscation. Revenue relied on the decision of the Honble Supreme Court in the case of Weston Components 2000 (115) ELT 278 (SC).
3. The learned Counsel for the respondent argued that no penalty can imposed. The respondent also filed a cross objection against the said appeal by the Revenue. The learned Counsel argued that the shortage in platinum was due to process loss and since the shortage was a process loss, the entire platinum was accounted for in their records. It was argued that the production of platinum jewellery is minuscule 3% of the total turnover and they dont have any special machinery required for processing platinum jewelry. He argued that they were using the machinery, which is used for processing gold jewelry, for manufacture of platinum jewelry. It was also argued that a limit of 9% wastage does not cover intangible manufacturing loss. It was argued that they had maintained the records properly and they submitted that they were not aware of exact shortage, which they could have come to know only at the end of year during the physical stock taking and it is incorrect to say that they have not maintained the records properly or have violated the condition of Notification No.137/2000-Cus. He argued that even if it is presumed that there was a shortage and the said shortage had not been utilised in the manner prescribed under Notification No.137/2000-Cus. They had immediately paid duty on the alleged shortages and since they had paid the said duty, the question of imposing penalty does not arrive. It was argued that there was a general finding that the respondent had violated the provisions of Section 9A of the EXIM polity. However, the exact violation has not been specified in the impugned order. It was argued that physical stocktaking was to be conducted at the end of the financial year, but the customs authorities visited their premises on 18th & 19th March, 2002. It was argued that the respondent would have intimated the said shortage of platinum to the Customs authorities at the end of the financial year, i.e. on 31/03/2002. It was argued that the respondents were not aware of the exact shortages of platinum as they were expecting to recover some platinum from the dust and sweeping collected at the time of the manufacture of platinum jewelry. It was argued that the stock taking by the custom was pre-mature at that time. It was argued that no confiscation of platinum can be ordered as there was no contravention of any condition for duty free import of platinum or provision of EXIM policy. It was argued that no confiscation of platinum can be ordered under Section 111 (d) of the Act, as there has been no violation of any prohibition at the time of import of platinum. It was argued that in view of the above, no fine can be imposed in lieu of confiscation. As regards the penalty under Section 114A, it was argued that neither any intention to evade duty on the part of the respondents nor there is any allegation in the show cause notice that the respondent had any intention to evade duty and therefore, imposition of penalty by the Commissioner under Section 114A of the Act is illegal and bad in law. It was argued that they had paid the duty immediately on shortages being pointed out by the Revenue. Though they believe that no duty was payable and this payment was made prior to the issue of show cause notice when the investigation was going on. It was argued that imposition of penalty on the discretion of the adjudicating authority based on the facts and circumstances of the matter. Section 114A does not prescribe the mandatory penalty of equal amount of the duty but the maximum limit for imposition of penalty.
4. We have gone through the rival arguments.
5. We find that there was no evidence of any clandestine removal of platinum. In the initial stages, the respondent had hinted some thefts however there was no further investigation on that line. The shortages of platinum are either on account of process loss or pilferages. Notification No.137/2000-Cus allow the import of these goods subject to execution of bond in the form specified by the Assistant Commissioner or Deputy Commissioner binding himself among other things to dispose of the imported goods, the article produced manufacturing process and packed in the said unit or the waste, scraps and remnants arising out of such production, manufacturing, processing or packaging in the manner as provided in the EXIM policy and in the said notification. The said notification also requires them to maintain records financial year wise and to submit quarterly/monthly statements to the Assistant Commissioner of Customs or to the Deputy Commissioner of Customs in the prescribed Appendix 16 of the Handbook of procedure Vol.I. It can be seen that total responsibility has been placed on the importer to use the goods in proper manner and to maintain records. In the instant case the records did not match the actual stocks. While on one hand excess loss has been sought to be explained on account of using Gold jewelry machines for making platinum jewelry, on the other hand it is claimed that the shortage may have been in the dust whish was to be processed before end of financial year. It can be seen from the above that the benefit of notification is available only subject to following condition imposed in the EXIM policy. It is common ground between the parties that the EXIM policy permits process loss of only 9% in case of platinum jewellery. Therefore, terms of policy even violated in the instant case in so far as they have consumed platinum much in excess of the prescribed process loss prescribed under the policy. To that extent they have not fulfilled the conditions of the notification and have failed to account for the platinum and therefore they are liable to payment of duty on the unaccounted platinum.
6. Section 114A of the Customs Act, 1962 can be invoked only in cases where the duty has not been levied by reason of collusion or any wilful mis-statement or suppression of facts. In the instant case while there is a bland allegation, there is no evidence of any wilful mis-statement or suppression. The notice alleges that despite the knowledge that there were shortages the respondents did not inform the revenue. Whit the respondents have argued that the shortages were to be calculated at the end of financial year and would have been reported. It is nobodys case that the respondents were required to report it on daily or weekly basis. In the absence of any evidence of any wilful mis-statement or suppression no penalty can be imposed.
7. Revenue argued that the platinum imported was on execution of bond under Notification No.137/2000 which require them inter-alia to dispose of the said goods or service in terms of the notification and bond. The said bond also bound them to the condition that in case of failure to utilise the said goods for the said purpose within a period of five years to pay an amount equal to the duty leviable on the said unutilized goods along with interest @ 25% on the said duty from the duty of importation till payment of such duty. Revenue has relied on the decision of the Honble Supreme Court in the case of Weston Components Ltd., Vs. CC, New Delhi 2000 (115) ELT 278 (SC) (supra). In the said decision, following has been observed:
It is contended by the learned Counsel for the appellant that redemption fine could not be imposed because the goods were no longer in the custody of the respondent-authority. It is an admitted fact that the goods were released to the appellant on an application made by it and on the appellant executing a bond. Under these circumstances if subsequently it is found that the import was not valid or that there was any other irregularity which would entitle the customs authorities to confiscate the said goods, then the mere fact that the goods were released on the bond being executed, would not take away the power of the customs authorities to levy redemption fine.
2.?The appeal is dismissed. It is apparent from the decision of Honble Supreme Court that if the goods are released in custody of a person under a bond then the same can confiscated even if the same are not physically available. The respondent relied upon the decision of the Tribunal in the case of SS Watch Industries Vs. CC (I) New Delhi 2011 (274) ELT 369 (Tri-Del) to assert that when the goods are not physically available no redemption fine can be imposed. In the said decision, the Tribunal has observed as under:
3.3?However, as regards the redemption fine imposed under Section 125 of the Act in respect of the goods held to be liable for confiscation but which are not available for confiscation, provisions of Section 125 are attracted only in the cases when either the goods are physically available for confiscation or the goods had been released provisionally against the Bond and as per the terms of the conditions of the Bond, the person from whose possession/control the goods had been seized, is bound to produce the goods whenever called upon to do so. We are supported in this view from the judgment of Honble Punjab & Haryana High Court in case of Commissioner of Customs, Amritsar v. M/s. Raja Impex (P) Ltd. reported in [2008-TIOL-280-HC-P&H-CUS = 2008 (229) E.L.T. 185 (P & H)] wherein the Honble High Court held that when the goods are not available for confiscation for the reason that the same had been released unconditionally, the redemption fine under Section 125 could not be imposed, that Honble Supreme Courts judgment in case of Weston Electronic Components v. Commissioner of Customs, New Delhi reported in 2000 (115) E.L.T. 278 (S.C.) is applicable only in those cases where the goods had been released against a bond executed by the person from whose possession/control the goods had been seized and that when the goods have been released against a bond, the position is as if the goods were available. Same view has been taken by the Tribunal in the case of G.M. Exports v. Commissioner of Customs, Bangalore reported in 2008 (226) E.L.T. 571 (Tri.-Bang.). In this case, the goods held to be liable for confiscation in paras 116(ii), (iii) & (iv) of the impugned order are neither available for confiscation nor the same had been released provisionally against bond. Therefore, no redemption fine could be imposed under Section 125 of the Customs Act.
It is noticed that in the said case, there was no bond for the use of goods in a particular manner. I find that in similar circumstances the Tribunal has as follows
i) KAY BEE TAX SPIN LTD. 2014 (305) E.L.T. 132 The Revenue is in appeal only for reason that the Adjudicating Authority has not ordered for confiscation of the raw materials despite there being a bond executed by the assessee. We find that the main plank of the Revenues appeal is that the commissioner has erred in refraining from formally confiscating and imposing redemption fine on of goods. In our view, the revenue appeal is on diversion of imports and inasmuch as when the goods are not there for confiscation, the question of confiscation cannot arise. Reliance placed by the revenue on the judgment of the Supreme Court in the case of Western Components [2000 (115) E.L.T. 278 (S.C.)] is also misplaced in the facts of the case in hand. Adjudicating Authority has himself held that the respondents assessee is liable to pay Central Excise Duty on the goods manufactured out of the raw materials imported on which the revenue has foregone the Customs duty.
ii) GUNJAN EXPORTS 2013 (295) E.L.T. 733
5.?I have considered the submissions and I find myself unable to appreciate the submissions. The Honble Supreme Court had clearly held in the case of Weston Components Limited that when the goods are released provisionally on execution of bond, confiscation can be affected even if the goods are not available. The natural conclusion is that the goods should have been released on bond which would mean that the goods have been taken possession of by way of seizure and subsequently released on execution of bond. Admittedly that is not the situation in this case also. In this case, respondents themselves have diverted the goods and after diversion, proceedings have been initiated. There is no seizure of the diverted goods and release of the same provisionally on execution of bond. Therefore, the issue is covered by the decision of the Honble Supreme Court and in the absence of release on the basis of execution of a bond, goods could not have been confiscated. The decision of the Larger Bench of the Tribunal relied upon by the learned Commissioner is also applicable since in this case also there is no bond with a security is available. The B-17 Bond is a general purpose bond undertaking to fulfil the conditions of notification and other requirements and does not help the Revenue to confiscate the goods not available and impose the redemption fine in lieu of confiscation. Further, the confiscation always presumes availability of goods and presumption normally is that goods have been seized and thereafter the proceedings would culminate into confiscation or release. Confiscation would mean that seized goods become the property of the Government and the party to whom it is ordered to be released on payment of fine, will have to pay fine and redeem the goods. When the goods have been diverted and not released on execution of bond with conditions, the question of confiscation of the same does not arise since goods have already become someone elses property. Under these circumstances, I find no merits in the appeal filed by the Revenue and accordingly, reject the same.
In view of above the decision of Honble Supreme Court in the case of Weston Components Ltd., Vs. CC, New Delhi 2000 (115) ELT 278 (SC) (supra) is not applicable to the instant case.
8. The appeal of the revenue is consequently dismissed. CO filed by the respondents is allowed.
(Pronounced in Court on..) (S.S.Garg) Member (Judicial) (Raju) Member (Technical) pj 1 12