Customs, Excise and Gold Tribunal - Mumbai
B.V. Jewels vs Commissioner Of Cus. on 14 February, 2003
Equivalent citations: 2003(155)ELT589(TRI-MUMBAI)
ORDER Jyoti Balasundaram, Member (J)
1. M/s. B.V. Star and M/s. B.V. Jewels are units situated inside the Santacruz Electronics Export Processing Zone (SEEPZ) and the remaining appellants are all partners (except one) of the two firms which are situated in the same building on different floors. Units located in SEEPZ engaged in exporting gems and jewellery are entitled to import capital goods, raw materials and consumables without payment of duty subject to certain conditions set out in relevant notification Nos. 196/87-Cus., dated 5-5-1987 and 177/94-Cus., dated 21-10-1994. Value addition norms are prescribed in the Import (Control) Policy from time to time, the requirement of maintaining accounts of goods imported/ exported, etc. in certain formats are notified by the jurisdictional Customs authorities by Public Notices, all the raw materials imported are assessed by the customs authorities and export shipments are also so assessed. These two units were visited by the officers of Customs for stock taking on 31-1-2000. The Managing Partners were not present. Initially, the store rooms were sealed. Inventories were completed in 2/3 days. Inventory sheets were prepared and copies were given to the appellants. At a later date, Shri Suresh Mehta, Partner produced some high value diamonds and broken diamonds before the Customs authorities. Detailed investigations took place and as a result thereof, show cause notices were issued to the appellants alleging as under :-
M/s. B.V. Star: It had imported 10 kgs of gold and 1351.04 cts. of diamonds in the year 1997 and had effected 5 exports leaving a balance stock of 8604.5 gms. Of gold valued at Rs. 34,66,889 (cif) and 844.16 cts of diamonds valued at Rs. 28, 19,934 (cif). During the course of stock taking the unit failed to produce the above said stock of gold and diamonds to the officers. S/Shri Suresh Mehta, Ramesh Iyer, Sandip Sawant and Hardip Singh Bawa in their statements recorded under Section 108 of Customs Act, 1962 had stated that no separate stock is maintained in respect of these goods and whatever stock are available are mixed with the stock of M/s. B.V. Jewels. Though Shri Suresh Mehta in his statement stated that he had given clear instructions to his staff to maintain the stock separately, from the statements of the above said other persons and the statement of other employees it is evident that the stock of diamonds and gold are controlled by Shri Suresh Mehta and Suken Mehta and what is available to other is only those diamonds which are required for ongoing manufacturing process. This fact is further evident from the fact of taking out 3861.35 cts. of diamonds from the personal cupboard of Shri Suresh Mehta after his arrival from New York on 3-2-2000. Furthermore, had it been a case of maintaining the stock of both the units together there should have been excess of the said 844.16 cts. of diamonds and 8604.5 gms of gold. However, the stock taking revealed otherwise. In fact there is a shortage of gold and diamonds in M/s. B.V. Jewels. Therefore, there is clear shortage of 8604.5 gms of gold and 844.16 cts. of diamonds in the stock of M/s. B.V. Star. It had imported capital goods valued at Rs. 2,30,07,470/- since 1993 and none of these capital goods were found installed in the allotted premises of M/s. B.V. Star except 238 pieces of bench motors, 79 hand pieces and 500 carbon brushes which were seized under panchanama. 20 machines with accessories as detailed in the Annexure A of the Panchanama dated 28-2-2000 were found installed and in use of M/s. B.V. Jewels which were placed under seizure. The remaining capital goods are found missing from both the units. In this regard, the investigations have revealed that the area allotted to M/s. B.V. Jewels is 1st and 3rd floor and to M/s. B.V. Star is 2nd and 4th floor. Shri Suresh Mehta's claim of having taken permission from the SEEPZ authorities to use the premises other than above in his letter addressed to Chief Commissioner by enclosing copy of a letter No. NIL dated NIL was not acceptable because the-Estate Manager, SEEPZ who deals with the allocation of the space to SEEPZ units has confirmed vide letter dated 17-2-2000 that the allocation of space is as said above and not as claimed by Suresh Mehta. The employees of the unit in their statement recorded under Section 108 of Customs Act, 1962 have confirmed that there is no separate demarcation in respect of the installation of the machines for both the units. This fact has been admitted by Shri Suresh Mehta in his letter dated 17-4-2000 wherein he has explained that though M/s. B.V. Jewels and M/s. B.V. Star are different legal entities they operate as one unit being family concerns. Such operations are not permitted under the EXIM Policy or the Customs Notification. For inter-unit transfer of capital goods the unit has to obtain permission from the Development Commissioner under Para 9.16(b) of the EXIM Policy. Thereafter, the unit has to obtain permission from the Asstt. Commissioner in accordance with Para 7(i) of Notification 177/94-Cus., dated 21-10-1994. In this case both the transferee and transferor units have not obtained any permission from the Development Commissioner nor the Asstt. Commissioner of Customs. Further the claim of operating as one unit is also not acceptable as the Hand-book of Procedures vide Para 9.37(x) which deals with merger of two or more units have to take specific permission from the Development Commissioner, the powers of which has been delegated to the Development Commissioner vide the said Para, as prior to this amendment in the Handbook the powers rested with SEEPZ Board. The investigations also revealed that there is no production in M/s. B.V. Star since June, 1997 and whatever jewellery produced by M/s. B.V. Star is negligible in comparison with the quantum of capital goods imported by them. In fact, it is evident that capital goods imported by M/s. B.V. Star are in exclusive use of M/s. B.V. Jewels. This also is the case in respect of the capital goods valued at Rs. 58,58,696/-which are of a kind that can be worn out. Since the manufacturing activity of M/s. B.V. Star is found to be negligible, it cannot be considered that these goods are consumed/worn out during manufacture of jewellery by M/s. B.V. Star. Similarly, as per Condition xiv(b)(i) to Notification No. 196/87-Cus., dated 5-5-87 against which the motors imported by M/s. B.V. Star were cleared, the unit had to install and use these motors within a period of one year from the date of its importation. Motors, hand pieces and carbon brushes totally valued at Rs. 36,70,765 under seizure are found to be un-used in original packing, which is in violation of above said condition of the said Notification. The diamonds and gold imported into the unit were permitted to be cleared duty free on the condition that the same would be used for manufacture of jewellery for export. As detailed earlier, the investigations have revealed that M/s. B.V. Star were in fact not using the diamonds and gold imported by them which are found short in the unit for manufacture of export of jewellery. This fact was wilfully suppressed by the unit till the time of stock taking. Further even after the stock taking they continued to suppress/mis-state these facts which were brought out during the investigations. In respect of the capital goods imported by M/s. B.V. Star also they have suppressed the fact of un-authorised usage of the capital goods by M/s. B.V. Jewels which are valued at Rs. 2,23,07,470/- on which Customs Duly of Rs. 2,22,40,876 was foregone at the time of its clearance, the details of which are as per Annexure III to the Show Cause Notice. In view of this, this is a fit case for invoking proviso clause of Section 28 of Customs Act, 1962 for demanding aforesaid Customs duty on gold, diamonds and capital goods totally amounting to Rs. 2,57,90,900/-.
2. M/s. B.V. Jewels :- The Customs officers went to the unit on 31-1-2000 for stock taking and the responsible persons available in the unit informed them that entire stock of precious goods i.e. gold and diamonds are kept in the safe because the manufacturing process for the date was over. In view of this, the officers sealed the safe for detailed inventory of the goods on the next day. On the next day, after the stock taking was over, the 3861.65 cts. of diamonds produced by Shri Suresh Mehta from his personal cupboard were taken into accounts. During the course of stock taking it was found that the unit was not maintaining proper accounts to show the exports of diamonds effected against their procurement i.e. import or DTA. Hence, while conducting the stock taking, the unit was asked to prepare statement of import and export of diamonds in the jewellery for the period 1998-99 and 1999-2000 rate wise and the same was prepared by them and submitted to Customs on 4-2-2000. Detailed scrutiny of these statements revealed that in respect of many type of diamonds, the unit had exported a quantity which were not legally imported by them. A glaring example is that M/s. B.V. Jewels had imported a total quantity of 1894.51 cts. of diamonds having a value $ 75 per ct. against which they have exported 29,931.61 cts., thereby indicating export of 280371.10 cts. of unaccounted diamonds having a rate of $ 75 per ct. The details in respect of diamonds and their rates were indicated in Annexure III to the show cause notice. In terms of Para 8.34 of the Handbook of Procedures, as stated above, the jewellery units, at the time of export of studded jewellery have to furnish along with the Shipping Bill, the details of description of the item under export i.e. purity and weight of precious metal and wastage claimed thereon, the description, weight and value of the precious/semi-precious stones, diamonds etc. The Commissioner of Customs vide Public notice 20/96 had also directed the units to file a value addition statements along with the Shipping Bill at the time of exports. Accordingly, all the units in SEEPZ including M/s. B.V. Jewels have been submitting value addition statements wherein they declare the import value of diamonds, its weight and number of pieces. In the value addition statements M/s. B.V. Jewels have claimed 5% value addition on the declared import value of diamonds to satisfy the condition of Para 8.29 of the EXIM Policy, 1997-2002. In terms of Para 8.35 of the Handbook of Procedures, the Customs authorities had allowed the exports accepting the declaration made on the Shipping Bills and accompanying value addition statement in respect of the achievement of value addition on diamonds as well as gold and have been permitting the claim of wastage of precious metal. The statements furnished by the unit in respect of export of diamonds in the jewellery by M/s. B.V. Jewels were compiled from the value of the diamonds declared in the value addition statements furnished with Shipping Bills at the time of exports. In respect of these statements of exports, Shri Suresh Mehta in his statement recorded under Section 108 of Customs Act, 1962 could not give any satisfactory explanation. In the statement dated 8-2-2000, he tried to explain that they import all types of diamonds together so that they get it at a lesser price and after import they are assorted and studded on jewellery and hence it will not be possible for the unit to state the origin of the diamonds. This statement appear to be not acceptable because of the fact that it is the unit who were declaring the import value of the diamonds as well as the related import documents of these diamonds in the value addition sheets submitted along with the Shipping Bills. The jewellery in the export consignments was checked by the Appraiser and after satisfying themselves in respect of the value that has been declared by the unit, the jewellery was permitted to be exported and therefore the diamonds which were exported in the jewellery were having value as declared by the unit. Shri Suresh Mehta was specifically asked to explain the statement compiled by the department during the course of recording of the statement. He was also asked to do the same in the meeting held by Commissioner of Customs, along with his Chartered Accountant Shri Kersi Lal Kaka and in spite of oral and written promises that he would be furnishing the reconciled statement explaining the position, he has failed to do so and come up with the argument that they are not required to do so as per the statute. Shri Suresh Mehta has cited example of import of diamonds of $ 50 per ct. which can have value of $ 35 to $ 65 after segregation. This argument also appears to be not acceptable because scrutiny of export invoices and value addition statements reveal that they themselves have exported diamonds with difference of value of $ 2 in a single consignment and such exports are found to be many. Further it is also noticed from the invoices of import of diamonds, M/s. B.V. Jewels has been regularly importing diamonds with value difference of 5 dollars in individual consignments. It is also noticed from the import invoices that the prices of diamonds are specific to fraction of dollars. Their claim of amendment of Handbook vide para 8.78(B), has no relevance in this case as the amendment has been done after the detection of this case. Moreover, para 8.78(B) cannot be read in isolation because the earlier provisions of Para 8.34 and 8.35 are not amended and the units are required to furnish the details even now as existed earlier. In view of the above said the unit has failed to satisfactorily explain the stock of diamonds. Since M/s. B.V. Jewels did not produce the reconciled statement of import and export of diamonds and its stork held by them, a detailed scrutiny of the exports effected by the unit since 1-4-1998 vis-a-vis its imports was carried out and the exports affected by the unit against all the individual Bills of Entry for the period 1-4-98 to 5-2-2000 were worked out and indicated at Annexure VIII of the show cause notice. The details of export of diamonds in jewellery rate wise, indicating the quantity of diamonds rate wise which should have been in the stock of the unit, the physical stock, shortage and quantity of unaccounted diamonds were indicated in Annexure IX to the show cause notice. The duty foregone at the time of clearance of diamonds against each Bill of Entry was indicated in Annexure X to the show cause notice. The state of details of export of diamonds studded in jewellery, which could be accounted with respect to their import, and the balance unaccounted were indicated in Annexure XI to the show cause notice.
3. During the course of stock taking on 1st and 2nd February, 2000 and from the statement of imports and exports of diamonds effected during 1998-99 and 1999-2000 it was observed that M/s. B.V. Jewels had imported high value diamonds i.e. over $ 1000 per carat and most of them were not exported and found in stock. On 7-2-2000 at about 10.00 a.m. during the revaluation of the stock of diamonds, Shri Suresh Mehta furnished 27 pieces of diamonds out of which 23 were with certificates. A detailed scrutiny of imports and exports of diamonds valued over 1000 dollars were therefore carried out and the details are as per Annexure VI to the show cause notice. The scrutiny has revealed that M/s. B.V. Jewels had imported 118 pieces of diamonds weighing 86.7 cts. of which they had exported only 4 pieces weighing 4.75 cts. leaving a balance of 81.95 cts. The scrutiny also revealed that they had imported diamonds valued above US $ 3000 per carat vide 3 Bills of Entry i.e. 3809 dt. 22-1-99, 2602, dt. 12-10-98 and 2601, dt. 12-10-98. Scrutiny of the invoices relating to these imports revealed that only in invoice No. 264 dated 29-9-98 relating to B/E No. 2602, dated 12-10-1998 they had imported 7 diamonds with certificates issued by Gemological Institute of America, copy of which were produced by the unit for verification and the same was found to be in order. However, these diamonds were neither found to be exported nor in stock. None of the other invoices bear any certificate numbers. Shri Suresh Mehta vide letter dated 25-4-2000 claimed that the 23 diamonds he produced on 7-2-2000 were imported vide B/E No. 2601 and 2602 both dated 12-10-1998 and mentioned the certificate numbers in the respective invoices. A comparative study of these certificates via-a-vis the description of the diamonds in the invoices were indicated vide Annexure VIA of the show cause notice. In respect of 18 diamonds as shown in the said Annexure weight and description tally but in respect of 5 diamonds the clarity of the diamonds do not tally. Shri Suresh Mehta was asked on 3-4-2000 as to whether he has any more diamonds to produce to which he confirmed in writing. The 27 pieces of diamonds were produced by him after five days and from his own custody. In B/E No. 2602 dated 12-10-1998, the invoice shows import of 7 pieces against which certificates numbers are mentioned, which indicates that the other diamonds are without certificate numbers. If the other diamonds had certificate numbers, there is no reason why these numbers are not figuring in the invoice. In view of this the claim of Suresh Mehta of having imported these diamonds against the said Bills of Entry appeared to be not acceptable. Along with the certified diamonds Shri Suresh Mehta also had produced four pieces of diamonds i.e. 1 piece weighing 1.01 cts. valued USD 2500 per ct. and 3 pieces weighing 3.11 cts. valued US $ 3000 per ct. No import documents are available for these diamonds. Thus investigations in this regard revealed that the production of the 27 pieces of diamonds is a clear act of substitution on the part of Shri Suresh Mehta to adjust the stock of high value diamonds. It appeared that production of 1607.30 cts. of broken diamonds that too after 5 days the stock taking is a clear substitution to adjust the total weight of diamonds in the stock and therefore cannot be taken into account in the diamonds stock of M/s. B.V. Jewels. Further, even if it is considered that M/s. B.V. Jewels had the stock of 1607.30 cts. of broken diamonds during the stock taking, since notification 177/94 does not permit any wastage on cut and polished diamonds during the manufacturing process, the possession of the said broken diamonds would not alter the liability to duty on the diamonds imported. In view of the aforesaid, the total acceptable quantity of diamonds by weight in the stock of M/s. B.V. Jewels is 20909.75 cts. as detailed in Annexure XII to the show cause notice. The unit was having a stock of 2763.33 cts. of diamonds as on 31-3-1998 and taking into account of all the imports and exports from this date to the date of stock taking including the two exports effected on 5-2-2000, the total quantity of diamonds which should be in the stock of M/s. B.V. Jewels worked out to 21775.6 cts. thereby a shortage of stock 865.85 cts. of diamonds by weight is revealed. Even though the stock taking was carried out on 1st and 2nd Feb., 2000, the ex-ports of 5-2-2000 are taken into the stock because the two export consignments were released during 2-2-2000 and 7-2-2000 when the diamonds were re-weighed and re-valued. However, as detailed in para v above and in Annexure VIII to the Show Cause Notice the quantity of stock of diamonds as per the books of accounts in the unit of M/s. B.V. Jewels should have been 84853.96 cts. (i.e. total import of 130688.67 cts. - accounted exports of 45834.71 cts.) against which they were found to be in possession of only 11123.96 cts. of diamonds which could be co-related to the import documents. From this physical stock of 21755.35 cts. of diamonds, 10631.39 cts. of diamonds valued at US $ 938899.09 equivalent to Rs. 40372667/- (at an average exchange rate of Rs. 43=1USD) are therefore found to be in the possession of the unit which are not supported by any import documents, therefore, the actual physical stock of diamonds which are legally imported by the unit is found to be only 11123.96 cts. resulting in a shortage of 73730 cts. of diamonds valued at USD 6155557 equivalent to Rs. 26,29,54,490/- (c.i.f. and Rs. 26,55,85,035/-(A.V.) as detailed in Annexure IX to the Show Cause Notice. Therefore, customs duty of Rs. 12,54,80,309/- foregone at the time of clearance of the diamonds which were found short has become payable. The investigations also revealed that M/s. B.V. Jewels appeared to have un-authorisedly disposed off capital goods valued at Rs. 58,34,698/- which were not found installed in the unit during the inspection by Customs. Therefore, the customs duty foregone on these capital goods amounting to Rs. 39,81,813/- at the time of its clearance appeared to have become payable. Similarly, in view of the unauthorised disposal of the capital goods which is in violation of provision of Notification 196/87-Cus., dated 6-5-87 as well as EXIM Policy the said goods are liable for confiscation under Section 111(d) and 111(o) of the Customs Act, 1962. M/s. B.V. Jewels have authorisedly used capital goods totally valued at Rs. 1,06,37,742/- which are placed under seizure. The investigations have revealed that these machines were imported by M/s. B.V. Star and cleared duty free under Notification 197/97-Cus., dated 5-5-87 and that M/s. B.V. Jewels and/or M/s. B.V. Star did not obtain any permission from Customs or the Office of the Development Commissioner for such inter unit transfer which is in violation of the said Notification as well as EXIM Policy and therefore goods under seizure are liable for confiscation under Section 111(d) and (o) of Customs Act, 1962.
4. The diamonds imported into the unit were permitted to be cleared duty free on the condition that the same would be used for manufacture of jewellery for export. As detailed earlier the investigations have revealed that M/s. B.V. Jewels were in fact not using the diamonds which were found short in the unit for manufacture and export of jewellery. This fact was wilfully suppressed by the unit. The total duty evasion on the diamonds found missing works out to Rs. 12,54,80,309/-. In respect of the capital goods imported by M/s. B.V. Jewels also they have suppressed the fact of unauthorised disposal of the capital goods valued at Rs. 58,34,698 on which Customs Duty of Rs. 39,31,813 was foregone at the time of its clearance, the details of which are as per Annexure VI to the Show Cause Notice. In view of this, this is a fit case for invoking proviso clause of Section 28 of Customs Act, 1962 for demanding total Customs duty. The above said findings of shortage of diamonds constitute gross violation of the provision of Notification No. 177/94-Cus., dated 21-10-1994. The revelation of the fact that 737730 cts. Of diamonds are found short indicate that these diamonds were removed from the unit and SEEPZ which is a Customs Area. The above said finding of 'shortage also indicates that the unit was not maintaining proper records of imported goods as prescribed under the said Notification. Same is the case of capital goods imported by M/s. B.V. Jewels which were found missing from the unit which is in violation of Notification 196/87-Cus., dated 5-5-87. Therefore the said 737370 cts. of diamonds valued at Rs. 26,29,54,490/- and the capital goods valued at Rs. 58,34,698 are liable for confiscation under Section 111(o) and 111(j) and Section 111(d) of Customs Act, 1962. As detailed earlier, Shri Suresh Mehta had produced 23 diamonds accompanied with International Certificates totally weighing 27.42 cts. valued at Rs. 39,63,286/-. Since Shri Suresh Mehta failed to produce any documentary evidence to show the legal importation of these diamonds, it appears that the same were smuggled in India and hence liable for confiscation under Section 111(d), 111(1), 111(m) of Customs Act, 1962.
5. As detailed earlier, the investigation have revealed that the unit had exported diamonds totally valued at Rs. 27,00,76,392/- studded in the jewellery for which they have failed to produce any documentary evidence under which they had procured the diamonds in SEEPZ. Since corresponding quantity of diamonds were found missing, M/s. B.V. Jewels and its active partners S/Shri Suresh Mehta and Suken Mehta had indulged in unauthorized substitution of diamonds to cover up the diamonds which they had fraudulently removed from SEEPZ. This act of substitution is also established from the fact that Shri Suresh Mehta even after the stock taking was over, tried to substitute high value diamonds imported by them earlier and also tried to cover up the shortage of diamonds by producing broken diamonds. Thus M/s. B.V. Jewels is found to have mis-declared the quality and value of diamonds and its procurement in the Shipping Bills as detailed in Annexure X to the show cause notice in violation of Section 50(2) of Customs Act, 1962 and the goods by virtue of Section 2(33) of Customs Act, 1962 so mis-declared are deemed to be prohibited goods. As stated above, by virtue of the violation of Section 50 of the Customs Act, 1962, and of the Foreign Exchange Regulation Act, 1973, the 64,078.35 cts. of diamonds are deemed to be prohibited goods under Customs Act, 1962 and the FERA, 1973. It, therefore, appeared that M/s. B.V. Jewels having presented the said Shipping Bill for export of jewellery studded with cut and polished diamonds contrary to the aforesaid prohibition imposed under the Customs Act, 1962 and the FERA, 1973 and therefore the aforesaid 63,078.35 cts. of cut and polished diamonds valued at Rs. 27,00,76,393/- exported during 1998-99 and 1999-2000 (till 5-2-2000) under the Shipping Bill as detailed in Annexure XI of the show cause notice are liable for confiscation under Section 113(d) and (i) of Customs Act, 1962. By virtue of the aforesaid acts of omission/commission by M/s. B.V. Jewels and its partners appeared to have rendered the said diamonds exported liable for confiscation and therefore thereby rendered themselves liable for penalty under Section 114(1) of Customs Act, 1962. The said loose diamonds and diamonds studded in semi-finished jewellery under seizure appeared to be liable for confiscation under Section 119 of Customs Act, 1962. Further as stated earlier, M/s. B.V. Jewels have been found to export jewellery with diamonds which were not, legally procured by them. M/s. B.V. Jewels in their various representations have requested for release of these seized diamonds for export and therefore these unaccounted diamonds appeared to have been brought into SEEPZ, a Customs Area, unauthorisedly for exports and therefore are liable for confiscation under Section 113(d) of Customs Act, 1962. Broken diamonds valued USD 16073 equivalent to Rs. 6,91,139/- appeared to be liable for confiscation under Section 119 of Customs Act, 1962. Further the said broken diamonds are considered as accumulated during manufacturing process since Notification 177/94-Cus. do not permit any wastage of diamonds. These broken diamonds are liable for confiscation under Section 111(o) of the Customs Act, 1962.
6. Under the above said circumstances, M/s. B.V. Star and its partners S/Shri Suresh Mehta, Suken Mehta, Mrs. Sapna S. Mehta, Mrs. Shivani S. Mehta, Bharat Shah, Beena Shah, Shri Rashish B. Shah, Shri Vijay Shah and Smt. Saroj Mehta were also called upon to explain as to why -
(a) Customs duty of Rs. 2,57,90,900/- as detailed earlier shall not be demanded and confirmed under Section 28 of Customs Act, 1962.
(b) Penalty shall not be imposed under Section 114(a) of the Customs Act, 1962 on M/s. B.V. Star.
(c) 8604.5 gms of gold, 844.16 cts. of diamonds and the capital goods found missing totally valued at Rs. 2,85,94,293 shall not be held liable for confiscation under Section 111(d), (i) and (o) of the Customs Act, 1962.
(d) Motors and pieces and carbon brushed under seizure totally valued at Rs. 36,70,765/- shall not be confiscated under Section 111(d) and (o) of Customs Act, 1962.
(e) Capital goods imported by M/s. B.V. Star found installed in the premises of M/s. B.V. Jewels totally valued at Rs. 1,06,37,742/- which are under seizure shall not be liable for confiscation under Section 111(d) and (o) of Customs Act, 1962 and why
(f) Penalty shall not be imposed under Section 112(a) and (b) of the Customs Act, 1962.
7. M/s. B.V. Jewels and its partners S/Shri Suresh Mehta, Suken Mehta, Bhart Shah, Beena Shah, Rashish Shah, Smt. Sapna S. Mehta, Mrs. Shivani S. Mehta, Smt. Saroj Mehta and Smt. Sharan Mehta were also called upon to explain as to why -
(a) Customs duty of Rs. 12,94,12,122 on the diamonds found short and the capital goods found not installed shall not be demanded and confirmed under Section 28 of Customs Act, 1962.
(b) Penalty shall not be imposed under Section 114A of the Customs Act, 1962.
(c) The 73730 cts. of diamonds valued at Rs. 26,29,54,490/- and the capital goods found missing valued at Rs. 58,54,698/- shall not be held liable for confiscation under Section 111(d), 111(j) and 111(o) of Customs Act, 1962.
(d) The capital goods imported by M/s. B.V. Star found installed in the premises of M/s. B.V. Jewels which are under seizure totally valued at Rs. 1,06,37,742/- shall not be held liable for confiscation under Section 111(d) and 111(o) of Customs Act, 1962.
(e) The 23 high value diamonds totally valued at Rs. 39,63,288 shall not be confiscated under Section 111(d), 111(j), 111(1), 111(m) and 111(o) of the Customs Act, 1962.
(f) The broken diamonds valued at Rs. 6,91, 139/- shall not be confiscated under Sections 111(o) and 119 of Customs Act, 1962.
(g) The unaccounted diamonds and diamonds studded in semifinished gold jewellery valued at Rs. 4,03,72,667/- along with the 6423.32 gms of gold in .995 purity (the gold content of semi finished jewellery containing diamonds which could not be separated) valued at Rs. 26,81,7367- under seizure shall not be confiscated under Sections 119 and 113(d) of Customs Act, 1962.
(h) The unaccounted diamonds exported during 1998-99 and 1999-2000 (till 5-2-2000) totally valued at Rs. 27,00,76,393 as detailed earlier shall not be held liable for confiscation under Section 113(d) and 113(i) of Customs Act, 1962 and penalty shall not be imposed under Sections 112(a) and (b) and 114(i) of Customs Act, 1962.
8, The appellants were heard by the adjudicating authority who passed the impugned order holding as under :-
M/s. B. V. Star : I confirm the demand of duty of Rs. 2,57,90,900/-under the proviso clause of Section 28(2) of the Customs Act, 1962 impose penalty of Rs. 2,57,90,900/- under Section 114A of Customs Act, 1962 ; I hold that 8604.15 gms of gold and 844.16 cts of diamonds totally valued at Rs. 62,86,823/- and capital goods valued at Rs. 58,58,696/- are liable for confiscation under Section 111(d), 111(i) and 111(o) of Customs Act, "1962. However, these goods are not available for confiscation ; 1 order confiscation of the capital goods under seizure valued at Rs. 1,06,37,742/- found installed in the premises of M/s. B.V. Jewels and motors, hand pieces and carbon brushes under seizure valued at Rs. 36,70,765/- under Section 111(d), 111(i) and 111(o) of Customs Act, 1962. However, I give an option to M/s. B.V. Star under Section 125(1) of Customs Act, 1962 to clear the said goods on payment of fine of Rs. 15,00,000/- in lieu of confiscation. I make it clear that the said fine in view of confiscation shall be in addition to any duty payable in respect of the said goods as prescribed under Section 125(2) of Customs Act, 1962 and that M/s. B.V. Star shall be at liberty to use the goods in the zone or remove the goods out the zone; I impose penalty of Rs. 12,00,000/- under Section 112(a) of Customs Act, 1962.
M/s. B.V. jewels : I confirm the demand of duty of Rs. 12,94, 12, 122/-under the proviso clause of Section 28(2) of the Customs Act, 1962, I impose penalty of Rs. 12,94, 12, 122/- under Section 114A of Customs Act, 1962; I hold that 73730 cts. of diamonds valued at Rs. 26,29,54,490/- and capital goods found missing valued at Rs. 58,54,698/- are liable for confiscation under Sections 111(d), 111(j) and 111(o) of Customs Act, 1962. However, these goods are not available for confiscation; I order absolute confiscation of 23 pieces of high value diamonds under seizure totally valued at Rs. 39,63,286/- under Section 111(d), 111(j) and 111(o) of Customs Act, 1962; I order confiscation of broken diamonds under seizure valued at Rs. 6,91, 139/- under Section 111(o) and 119 of Customs Act, 1962. However, in exercise of powers vested upon me under Section 125 of Customs Act, 1962, I allow to redeem the seized goods on payment of redemption fine of Rs. 70,000/- either to be used in the Zone or to be taken outside on payment of duty which has been confirmed under para (a) above; I order confiscation of diamonds and diamonds studded in semi-finished gold jewellery valued at Rs. 4,03,72,667/- along with the inseparable gold weighing 6423.32 gms in .995 purity valued at Rs. 26,81,736/- under seizure under Sections 113(d) and 129(2) of Customs Act, 1962. However, in exercise of powers vested upon me under Section 125 of Customs Act, 1962, 1 allow to redeem the seized goods on payment of redemption fine of Rs. 43,00,000/- to be used in the Zone; I hold that the unaccounted diamonds exported during 1998-99 and 1999-2000 (till 5-2-2000) totally valued at Rs. 27,00,76,393/- liable for confiscation under Sections 113(d) and 113(i) of Customs Act, 1962. However, these are not available for confiscation; I impose penalty of Rs. 5,00,00,000/- on M/s. B.V. Jewels under Section 112(a) and Section 114(i) of Customs Act, 1962; I impose a penalty of Rs. 10,00,000/- each on Shri Suresh Mehta and Shri Suken Mehta ; I impose penalty of Rs. 2,00,000/- each on S/Smt. Saroj S. Mehta, Sapna S. Mehta, Shivani S. Mehta, Bina B. Shah, S/Shri Rajesh B. Shah, Bharat S. Shah; I impose penalty of Rs. 1,00,000/- on Shri Vijay Shah."
9. Hence, these appeals.
10. We have heard Shri V.M. Doiphode, Advocate for the appellants and Shri K.M. Mondal, Consultant for the Revenue. Our findings are recorded as below:
M/s. B.V. Jewels : - Demand of customs duty of Rs. 12,54,80,309/-on 73730 cts. of diamonds valued at Rs. 26,29,54,490/- (Ref. Para xii of Order-in-Original on page 145). The shortage of diamonds of 73730 cts. is worked out as per Annexure IX (page 45-58 of paper book Vol. 2) and the duty confirmed is worked out as per Annexure X (pages 59 to 71 of Vol. 2). Duty demand is not based on physical shortage of diamonds found by the Dept. The physical shortage of diamonds is worked out by the Dept. in Annexure XII at page 110 of Vol. 2. The shortage arrived at by the Dept. was 1481.73 cts. of diamonds whereas the demand has been raised for 73730 cts. which has been arrived at by co-relating individual exports shipping bill-wise with reference to each Bill of Entry. This co-relation is done in Annexure VIII (pages 16-44 of Vol.12 and Annexure XI (pages 72 to 109).. What the Revenue has done is as follows :-
Suppose 100 cts. of diamond were imported at US $ 50 under a B/E, the Revenue has co-related this B/E with various shipping bills and only where the rate of $ 50/- per ct. is found exactly tallying with rate indicated in the value addition statement enclosed to the shipping bills, the Revenue says such diamonds are accounted for and the balance diamonds @ $ 50 per ct. are taken as not accounted for and the department contends that the remaining diamonds ought to be in physical balance and if it is not there, the Revenue says the appellants have failed to account for such quantity and demanded duty on such shortage. Similarly, co-relation is done with reference to each shipping bill. For example, if value addition statements enclosed with the shipping bills, show that 100 cts. are exported, say at $ 75 per ct. but the import @ $ 75 is only 75 cts. the Revenue contends that the balance 25 cts. @ $ 75/- rate is procured by the appellant from outside and exported and such exports are not taken into consideration for accounting of diamonds. The appellant contends that the method adopted by Revenue to arrive at shortage of 73730 cts., of diamonds is not sup ported by the provisions of the relevant Exemption Notification or EXIM Policy. One to one co-relation consignment wise was never adopted by the Revenue for accounting imported diamonds. We have seen from order No. Commr/YG/19/2001(AP) dated 2-3-2001 passed by Commissioner of Customs, Airport in respect of M/s. Mahalaxmi Gems that same consignment was valued differently by 3 Trade panels and the variation between the declared and ascertained value was up to 200%. For example, diamonds at S.No. 3 was declared at $ 21 per ct, the first Panel ascertained the value at $ 60 per ct.; the second Panel at $ 30-33 and the 3rd Panel ascertained the value as $ 20-21 per ct. There fore, we see force in the submission that whenever a diamond is valued, different people will give different values and the variation may be very large and that is why the value of diamonds declared in the Value Addition Statements can never be the same as declared in the B/Es and declaration of B/E number in the Value Addition Statement is based only on approximation. Since no method of co-relation or ac counting of imported diamonds was specifically provided in the Ex emption Notification or in the EXIM Policy and on representation from Gems & Jewellery Export Promotion Council, Para 8.78b was intro duced in the EXIM Policy in 1-4-2000, prescribing the method of co-
relation with reference to total quantity of imports and total quantity of exports. It was specifically provided that under no circumstances, co-
relation will be done consignment-wise. The Id. Commissioner of Cus tom in page 36 of the impugned order held that although the amendment was made effective after the detection of the case, method adopted for cross checking proper accounting of diamonds by the investigating agency does not militate against the said amendment. Thus the Commissioner while agreeing that amendment of para 8.78b is applicable to the facts of the case, holds that the method adopted by the department for co-relation is as per this para. However, we hold that this finding of the Commissioner is not correct as the shortage of diamonds and the demand of duty is worked out as per Annexure IX and X, page 45 of Vol. 2 and pages 459-71 of Vol. 2 only by co-relating individual shipments with individual B/Es and wherever the exact rate has not tallied, the department has considered the shortage of diamonds and demanded differential duty. The co-relation is done with reference to quantity of exports with quantity of imports as it would be seen in Annexure XII, page 112 of Vol. 2. However, no demand of Customs duty has been made in the show cause notice on this physical shortage which is arrived at on the basis of co-relation with total quantity of exports to imports.
11. During the hearing before us, it was explained that the SEEPZ Customs has been doing stock taking and account of diamonds imported with reference to only quantity as would be seen by the note of one officer who had done the stock challenge on 18-8-98 (page 37 of additional synopsis paper book). The appellants explained that whenever a Purchase Order is released, the diamond department of the manufacturer after verification of the stock lying with them orders for their requirement. The diamonds are either imported or purchased from DTA. When the diamonds are received after due customs formalities, the same will be issued to diamond department. The same after assortment as per requirement will be mixed with the existing stock. The diamonds are re-assorted and. made into packets for the P.O. and released to the Setting department. The packets so received will have the details of diamond weight and the rate fixed by assorters. The as-sorter at no point of time has access to the import documents. The rate fixed by them are by their experience and the market trend. Hence, there will be a fluctuation in the rate specified by them. Diamond being natural product, the rates fixed by two persons will never be similar. The packets issued to Setting department contains the weight and rate per carat specified in the bag through which the movement of jewellery is tracked up till the end of the process. The bag finally reaches the Quality Control Department and after passing the Quality Control Department, the final chart for export is prepared by the Quality Control Department which indicates the description of the piece, quantity of gold, diamond pcs. weight and rate. The Export Department which receives the same issues the B/E number for the import of raw material based upon the nearest available price quoted by the Diamond Department and the products are taken along with the documents for export to the Customs Department. The diamonds after mixing and sorting cannot be co-related with reference to individual B/E because diamond is a natural product and 2 valuers cannot give the same value to a diamond. Thus, if jewellery is made and shipping bill is filed along with Value Addition Statement, the value of the diamond indicated therein may not exactly tally with the rates mentioned in the B/E and therefore only B/E numbers showing values of imported diamonds closest to values of diamonds used in export jewellery were indicated in the relevant columns of the Value Addition Statement. It was further explained that the inventory sheet prepared by the department during the stock taking on 1st and 2nd Feb., 2000 had indicated certain value against the diamonds physically found in the premises. However, on a request made by the partner of the appellants, re-valuation was done on 7-2-2000 by D. Navinchandra & Co., an approved valuer and the valuation does not tally with valuation done in the inventory sheet in respect of the same diamonds which were physically found. The above explanation is plausible and further it has not been controverted by the Revenue and hence requires to be accepted. We, therefore, hold that the above demand of duty is not sustainable, and accordingly set aside the same.
12. The Customs issued Public Notice No. 2/88, dated 28-7-88 and Public Notice No. 20 dated 8-11-96 which prescribed the procedure to be followed by the Gems and Jewellery units. However, no format of Value Addition Statement was prescribed. Such Value Addition Statement format was issued vide Public Notice No. 11/99 effective from 1-1-2000. During the period 1-4-98 onwards although no Value Addition format was prescribed, the appellants were filing such Value Addition Statements on their own.
13. Duty of Rs. 39,39,813/- on capital goods valued at Rs. 58,34,698/-found missing from the unit (para xii, internal page 40 of Order-in-Original): - The appellants explained that they had shifted from Gala No. G-4 and they had sold the unit along with the capital goods to M/s. S.B. & T. International (another unit in SEEPZ) in May, 1995. Notification No. 196/87-Cus. provides that importer shall pay on demand an amount equal to the duty leviable on goods which are capital goods as are not proved to the satisfaction of the Asstt. Collector of Customs to have been installed or otherwise used within the said Zone. Since in the case of appellants' capital goods were installed or used within the said Zone, the Notification does not permit the demand of Customs duty which therefore cannot sustain. Even in respect of Notification No. 177/94-Cus. Condition 4 of para 1 requires the importer to execute a Bond to bring the said goods to his unit and to be used within the said Zone. Since the appellants had brought the goods into their unit and goods are being used in the same zone, even the latter Notification does not permit demand of Customs duty so long as the goods remain within the said Zone and are used for the purpose of exports.
14. Shortage of 73730 cts. of diamonds valued at Rs. 26,29,54,490/- :-This shortage has been worked out by co-relation of imported diamonds and exported diamonds with reference to individual consignments and tallying each rate at which diamonds were imported with the rate indicated in the Value Addition statements. These shortages have arisen only because of wrong methods of co-relation as explained earlier and are only imaginary shortages. In physical terms, the shortage/excess by weight of diamonds is insignificant. This fact stands compounded by the faulty documentation of the search. There is no panchanama and some data given by an employee is adopted. There is no admission of shortage by the appellants, and no incriminating documents have been recovered. The shortage is therefore, 'deemed', and based on lack of co-relation of value/caratage of diamonds. The 'so called' physical shortage has been worked out in Annexure XII, page 110, Vol. 2. The appellants in reply to show cause notice had explained in paras 26 and 27 at pages 220 and 221 of Vol. 1 that taking into consideration exports, imports and physical stock and stock as per book the shortage of diamonds will be only 73.52 cts. as against the physical shortage worked out by the Department of 1481.73. The shortage in Annexure XII is higher only because the department disallowed high value diamonds of 31.54 cts. and broken diamonds of 1607.3. However, the Commissioner has not controverted the submission of the appellants in reply to show cause notice regarding physical shortage of approx. 73 cts. Annexure XI to show cause notice vol. 12 (pages 72 to 109) gives details of exports of diamonds imported, B/E wise and the department has worked out excess unaccounted, by trying to match the exact rate of exports with the exact rate of imports. At page 109, the diamonds of 65841 cts. are considered as unaccounted exports. After adding 10631.39 cts. to physical balance excess of diamonds at page 58 of Vol. 2 in Annexure IX(this quantity was seized as it was found in excess) will come to cts.76473.07. After deducting the opening balance of 2763.63 cts. and adding high value diamonds approx. 27.42 cts.(which have to be added as they were also seized as found in excess) the excess figure would tally with the shortage of 73730 cts. This opening balance is indicated on page 10 of Vol. 2. This figure of excess will come to about 73736 cts. which is almost the same as the figure of shortages worked out by the department which is held liable to confiscation and on which demand of duty has been confirmed by the Commissioner, but set aside by us.
15. Confiscation of broken diamonds of 1607.3 cts :- This stock was produced by Shri Suresh Mehta, Partner of the appellants, on 7-2-2000 when the re-valuation of physical stock was being done by D. Navinchandra & Co. an independent valuer. The Commissioner states that production of this material after 5 days of stock taking has no relevance because the premises or the persons working in the unit are under the control of the appellants - page 143, para IX. We find that the stock taking has commenced on 31-1-2000 and the first inventory sheets were prepared and then re-valuation was done on 7-2-2000 which was part of stock taking as admittedly no stock taking was prepared on 7-2-2000 or thereafter. The entire SEEPZ is a Customs bonded area which is under the joint control of the Customs and Development Commissioner and exit or entry of vehicles and persons is restricted through the main Gate and subject to Security check. It is not the case of the department that Shri Suresh Mehta brought the broken diamonds from outside. In fact, all the physical stock available was only produced by the employees of the appellants or the partner of the appellants, commencing from 1-2-2000. Therefore, the reason given by the Commissioner for not accepting to take this stock into account is not justified. The Commissioner further states that the quantity of diamonds broken during the manufacturing process was only 107.57 cts. and if this is added to the earlier stock the actual quantity should come to 750.31 cts. The appellants had explained that the department is taking the quantity as broken diamonds and there is nothing like broken diamonds and even such diamonds will continue to be utilised depending upon the requirement of a particular Purchase order. Only when such broken pieces cannot be utilised for any purchase order, they are considered as broken diamonds and entered in the Register. Further mere is no wastage permitted in the case of broken diamonds and it keeps on accumulating. Though the Commissioner accepts the physical stock as legitimate stock he has proceeded to confiscate the entire 1607.33 cts. of broken diamonds. The contention of the appellants is accepted, and confiscation is set aside.
16. Seizure of 23 pcs. of high value diamonds : para X, order-in-Original page 143, Vol. I:- The details are given in Annexure VIA at pages 13 and 14 of Vol. 2. As per this comparative study itself in respect of diamonds at S/No. 4 - 14 weight and description tallies and though these diamonds were accompanied by certificates, the invoices do not have certificate numbers endorsed on them. Same is the case in respect of diamonds mentioned at S/Nos. 23-28 and 36. In respect of S/Nos. 33, 34, 39, 40 and 45 certificate numbers are not endorsed on the invoice and the allegation is that clarity did not tally. Though this was the allegation in the show cause notice the Commissioner in his order has wrongly concluded that the certificate number of the diamonds did not tally with the certificate number mentioned in the invoice of the imports claimed by the Noticee. He has further referred to the B/E No. 2602 and stated that the appellants had mentioned 7 diamonds certificate numbers of Gemmological Institute of America whereas the Certificates produced were of the European Gemmological Laboratory. This is absolutely incorrect because the allegation in the show cause notice was only that the diamonds accompanied the certificates but these numbers were not endorsed on the invoices. In fact the show cause notice accepts that in respect of certain high value diamonds the certificate numbers endorsed on the invoices tallied with the actual certificates 7 diamonds were accompanied by certificates issued by Gemmological Institute of America, copy of which was produced by the unit and the same found to be in order - page 186, para vi. The weight and the description tallies, therefore, the seizure and confiscation is not justified because supplier issues the invoice and the certificates are issued by another agency and the supplier in all cases may not endorse the certificate numbers on the invoices and packing list. When the details of certificates and invoices tally, there is no ground for alleging that the high value diamonds are illegally imported and not pertaining to the said B/E. Further, in respect of some diamonds where the clarity does not tally, there are different standards for indicating the clarity as seen from grading given in U.K. Scandinavian Nomenclature, Gemmological Institute of America, GIIBJO. For example, VS is the standard adopted in UK whereas VSI and VS2 are adopted by Gemmological Institute of America and therefore, it is not correct to say that the clarity does not tally. For the above reasons, we set aside the confiscation of 23 pcs. of high value diamonds. Seizure of 86.76 cts. of $ 1000 per ct. The appellants have exported 9.38 cts. of diamonds vide shipping bill No. 9720, 10814, 15098, 16588, 17758, 6880 and also sold diamonds of 41.68 cts. to MMTC vide invoice No. 219, 228, 330, 353, 372. Certain goods were returned and the submissions made is only regarding those exports for which the realisation certificates have been produced for the sale of goods by MMTC. The department has not taken into consideration these high value diamonds sold to MMTC and exported on the grounds that the B/E and shipping bill-wise consignments rates are not tallying as discussed earlier. Taking this into account, there is no physical shortage of high value diamonds of US $ 1000 and the same is obvious from high value diamonds in excess of $ 1000 available in stock and unaccounted for as reported in Annexure VI and VIA, page Nos. 11-15 of Vol. 2.
17. Regarding confiscation of diamonds and diamonds studded in semi-finished gold jewellery valued at Rs. 4,03,72,667/- along with inseparable quantity of 6423.32 cts. of 99.5% purity valued at Rs. 26,81,736/- , diamonds of 10631.39 cts. were confiscated as no documentary evidence was produced by the appellants regarding licit possession. These excess diamonds have been worked out by the department as per Annexure at pages 45-58 of Vol. 2. It was explained that the diamonds of 10631.39 cts. are considered as excess because the value given in respect of this quantity was not tallying with the B/E in possession of the appellants. It was submitted that even the value taken in inventory sheets are different from the values taken by valuer in his Valuation Report dated 7-2-2000, since the entire stock was seized from work-in-progress of Setting department and other Quality Control Department after the issue by Diamond department after sorting and mixing, these diamonds had lost their identity with reference to a particular B/E and therefore the values as indicated in Valuation Report may or may not tally with the actual rate indicated in the B/E. This position was demonstrated with reference to inventory sheet and the Valuation Report. It was also contended that the same quantity found physically lying with the appellants was valued differentially by the Customs and by Shri D. Navinchandra, a private valuer. We, therefore, hold that this excess quantity was legitimately imported or available as per records, and hence set aside their confiscation.
18. The stock of 6423 gms. Gold was seized because it was inseparable. There is no other allegation regarding this quantity of gold. Further, the confiscation is ordered as per Section 113 of the Customs Act. Invocation of this Section is totally misplaced as it applies only to goods which are prohibited for export. Since the diamond jewellery is not prohibited for exports, the confiscation ordered under Section 113(d) is not sustainable and we set aside the same.
19. Unaccounted diamonds exported during 1998-99, 1999-2000:- The quantity of unaccounted diamonds exported has been arrived at in Annexure XI at pages 72-109 of Vol. 2 which gives the total quantity as 65841.68 cts. of diamonds. Only jewellery studded with diamonds is exported and the department considers this as export of diamonds because co-relation has been done with reference to each shipping bill and B/E and this method is not correct as set out earlier. Therefore, there is no unaccounted stock of diamonds and hence the question of confiscation does not arise. Accordingly, we set aside the confiscation.
20. Since neither demand of duty is sustainable nor confiscation of any of the seized goods or unaccounted diamonds legitimately exported is sustainable for the reasons given above, we set aside imposition of penalty on the appellant and its partners.
B.V. Star : The total demand of duty confirmed is Rs. 2,57,90,900/- on account of the following : -
(i) Rs. 23,65,652/- on 8160.51 gms of gold;
(ii) Rs. 11,84,372/- on 844.16 cts. of diamonds; and
(iii) Rs. 2,22,40,8767- on the capital goods.
Demand of Rs. 23,65,652/- on 8604.5 gms of gold : There was no stock taking report prepared by the Dept. The inventory sheets which were submitted during the course of hearing (but not relied upon) did not indicate whether stock taking pertains to M/s. B.V. Jewels or M/s. B.V. Stars or both. The appellants contended that during stock taking, the department has mixed up all stocks of diamonds and gold and since both are situated in the same building of Plot No. 55, SEEPZ, for working out excess or shortage, the stock position of both the units have to be compared together. We accept the contention.
21. In respect of gold the shortages worked out for B.V. Stars as per Annexure II of Vol. 2 and Annexure I, on page 2 for B.V. Jewels, the appellants state that there is no shortage of gold in respect of B.V. Jewels. While taking stock, the department has taken physical stock consisting of gold-in-process and expected recovery on dust etc. In respect of 6812.68 gms of gold it is explained that with reference to inventory sheets on page 2 and in respect of polishing dust, setting pieces, casting, Wash Radium solution and solution, actual weight was not taken but only approximate weight has been taken and the expected recovery has been also only estimated and not based on any evidence of actual recoveries either with reference to recovery made earlier by the appellants or any other units or any information given by any goldsmith or any expert. We agree that since percentage of recovery is only an estimate, the expected recovery of 6812.36 gms cannot be considered as the real recovery. If the percentage of recovery slightly changes the figure of 6812.36 may be two times or three times more and if both the stocks are taken together the alleged shortage of 8604.50 gms of gold in respect of B.V. Star will not exist as total expected recovery will be much more than the estimated recovery of 6812.36 gms. Though the units are required to maintain the records separately at the time of stock taking, the department proceeded to take stocks by mixing the stocks available as the inventory sheets did not bear either the name of B.V. Jewels or B.V. Stars. Copy of stock taking report made on 30-5-2001 by the Air intelligence Unit was submitted to demonstrate that this is the way stock taking takes place and also to demonstrate that by taking the stock of both the units, the officers did not find any abnormal shortage or excess and no action was taken against the unit. Though the stock taking pertains to a period subsequent to issue of show cause notice, since both the units are located in Customs bonded area and there is no allegation that the appellants have brought in any diamonds/gold within the SEEPZ area or taken out anything outside the SEEPZ area with intention to tally the stock, taking was conducted by Air Intelligence Unit Systematically, and they found everything in order. We hold that this goes to prove the bona fides of the appellants.
2. Demand of Rs. 11,84,372/- on 844.16 cts. of diamonds : It has been already explained that while taking stock both the stock of M/s. B.V. Jewels and M/s. B.V. Star are mixed, and in reply to show cause notice at paras 26-27, pages 220 and 221, Vol. 1, stock position of both the units of diamonds are considered with physical records. There would be shortage of 73 cts. which could be due to marginal difference since the commencement of the units. The Id. Commissioner has not dealt with this issue as the department did not raise demand on the physical shortage of diamonds found in respect of M/s. B.V. Jewels.
3. Demand of Rs. 2,22,40,876 on the capital goods : This demand is raised on the ground that none of these capital goods were installed in the allotted premises of M/s. B.V. Star during the stock taking. While alleging this, the department has not even relied upon any letter of Development Commissioner exactly allotting the floors to M/s. B.V. Jewels and M/s. B.V. Star. The appellants submit that while executing the bond as required under Customs Notification, address of both the units has been indicated as plot No. 55 SEEPZ. In fact, the show cause notice at page 196 of Vol. 1 gives the address as Plot No. 55 both B.V. Jewels and B.V. Star. Thus the premises recognised by the Customs are Plot No. 55 and the department alleges that in respect of the machinery being on a particular floor, the machinery was found in another floor but within the same premises i.e. Plot No. 55. Therefore, the demand will not survive solely on this ground.
22. M/s. B.V. Stars is a unit in SEEPZ which is under direct control and supervision of Customs and SEEPZ authorities. The appellants in 1997 had informed the Asstt. Commissioner of Customs regarding use of their capital goods by M/s. B.V. Jewels (page 295 - Vol. 1). CRA during the inspection had raised the query that B.V. Jewels had utilised the machinery imported by M/s. B.V. Starts. The appellants had explained that B.V. Jewels would have imported the duplicate set of machinery costing millions of rupees in Foreign Exchange. But M/s. B.V. Stars spared their machinery to B.V. Jewels for their effecting exports and thus saved incurring huge amount of foreign exchange. The machinery was utilised only for exports after giving explanation as early as 1997 and the department had closed this matter. Thus, not only were they aware that M/s. B.V. Stars were using their machinery for manufacture of jewellery by B.V. Jewels in the same zone but further they were satisfied with the reply. Thus, we hold that, it is not a case of transfer of machinery to B.V. Jewels but use by B.V. Jewels for manufacture of jewellery studded with diamonds, for exports. Condition 4 of Notification 177/94-Cus. requires the importer to execute a bond in such form binding himself to bring such goods into his unit and use them within the Zone for the purpose specified in the Notification. Thus, the appellants had brought the said goods into their units and used the same within the same Zone for the purpose of export. Further it is required that the importer has to satisfy the Development Commissioner of the Zone that the goods so imported have been used for the purpose specified in the Notification. In this case, there is no objection raised by Development Commissioner regarding use of machinery. It is not the case of the department that the capital goods imported by B.V. Star are missing but the machinery is found lying at Plot No. 55 (page 119 of Vol. 3) The machinery has been listed as found installed in the premises of B.V. Jewels though the appellants claim that it has been installed in the premises of B.V. Stars, as orally permitted by Development Commissioner after the appellants had written to the Development Commissioner for making changes (page 152 of Vol. 3 letter dated 9-1-95), Further, the condition of Notification 177/94 gets violated only if the goods are to be transferred or supplied to another unit in the same zone. In this case, there is no transfer or supply to another unit but use of the machinery by M/s. B.V. Stars for manufacture of jewellery studded with diamonds for M/s. B.V. Jewels with the knowledge of the department. Therefore, the question of taking permission of Asstt. Collector does not arise as it is not a case of transfer and the same Notification requires importers only to bring the goods into the unit and use the same within the zone, and this condition has been fulfilled.
23. Regarding 238 pcs. of Bench Motors, 79 Hand pieces and 500 Carbon Brushes found in the premises of the appellants in original packing and uninstalled, the Commissioner has held that these goods were lying un-installed for 61/2 years and he has applied condition (xiv) of Notification 196/97 to charge customs duty of Rs. 36,70,765/-. However, Condition xiv(b){l) of Notification 196/87 is not applicable as the condition applicable will be xiv(b)(ii) which permits retention of such goods within the Zone in connection with the promotion of exports of Gems and Jewellery. Condition xiv(b) prescribes two conditions i.e. (1) either for use in connection with the manufacture or packaging of Gems and Jewellery within the said Zone, or export out of India or re-export within a period of one year and (2) to retain the same within the said Zone for the purpose of export. In the case of appellants, the second condition will be applicable since the goods have been retained for promotion of exports. Thus there is no violation of this Notification and therefore the demand of duty and subsequently confiscation of said goods is not sustainable.
24. Regarding capital goods valued at Rs. 58,58,696/- found missing: [Ref. Page 136 of Vol. 1). The Id. Commissioner has observed that since the manufacturing activity of M/s. B.V. Stars is found to be negligible, these goods cannot be considered as having been consumed during manufacture of jewellery of M/s. B.V. Stars. The admitted position is that goods found short were consumables. As already explained, the machinery of B.V. Star was used for the manufacture of jewellery studded with diamonds belonging to B.V. Jewels and such use was permitted under Notification because it does not amount to transfer or shifting the machinery and this was known to the department as early as 1997 since the appellant had replied to CRA objection in 1997. Notification 196/87-Cus requires the importer to pay duty on demand under xiv(b)(i) on consumable goods i.e. other than capital goods if not used in connection with the manufacture of jewellery within the said Zone. Since the goods have been used in the said Zone and there is no condition that the goods should be used by the same unit, there is no violation of condition of Notification and thus the demand on this account is not justified.
25. Confiscation of capital goods valued at Rs. 1,06,37,742/-: The Commissioner has confiscated these goods under Sections 111(d), (j) and (o). Section 111(d) is not applicable as the goods have been imported legitimately by the appellants in SEEPZ, Section 111(j) will not be applicable as the machinery has not been shifted without the permission of the proper officer as there is no shifting or transfer. (These goods were lying in the premises of Plot No. 55 and they were not removed and use of the machinery by M/s. B.V. Jewels was for the purpose of manufacture of jewellery). Further Section 111 (o) will not apply as none of the post-importation conditions have been violated. Therefore, the confiscation and consequent redemption fine and demand of duty under Section 125 is not warranted. Further, for these reasons, the imposition of penalty also is not warranted.
26. The appellants further submit that even if there is any technical or procedural violation, they have substantially complied with provisions of Customs Notification by importing machinery, utilising it in the same Zone and also have exported jewellery studded with diamonds and achieved more than minimum net foreign exchange earning as required under EXIM Policy and the Development Commissioner who is the monitoring authority and to whom periodical returns have been filed, is satisfied about the utilisation of the imported goods for the purpose of exports. Appellants have relied upon Supreme Court judgment in the case of K.R. Steel Union Ltd. v. Commissioner of Customs, Kandla reported in 2001 (129) E.L.T. 273 (S.C). The object and purpose of such Notification is to encourage exports by granting exemptions from Customs duty on materials that are required to be imported for the purpose of goods produced which are exclusively exported. The wordings of the Notification have to be construed keeping in view the said object and purpose of the exemption. Thus, the purpose of Notification 196/87 and 177/94-Cus. is to allow duty free import on capital goods, raw material consumable for use in the manufacture and export exclusively as no domestic sales are permitted by units in SEEPZ. We note that, this being the basic and primary purpose and admitted position being that the appellants have fulfilled the export obligation, any technical or procedural violation of the Policy or the Exemption Notification, is required to be condoned. We do so, accordingly.
27. In the result, we set aside the impugned order and allow the appeals.