Indian Kanoon - Search engine for Indian Law

The petitioner calls in question the legality and correctness of the order dated 20.04.2015 passed by the respondent, in and by which, the respondent imposed penalty of Rs.61.76 Crores under Section 11 (2) of the Foreign Trade (Development & Regulation) Act, 1992 on the petitioner for having violated the conditions of the Letter of Approval.

2. The case of the petitioner is that the petitioner firm is a partnership firm engaged in the business of import and export of gold jewellery and other precious stones since 2006. For the purpose of importing and exporting such gold jewellery, the petitioner firm has obtained a Letter of Approval (LoA) on 10.06.2008 issued by the Assistant Development Commissioner for manufacture of "gold bangles and pendants" at the petitioner's firm situate inside the Madras Export Processing Zone (MEPZ), Special Economic Zone, Tambaram, Chennai. On the basis of such letter of approval, the petitioner firm set up a manufacturing facility for gold jewellery and articles and commenced export of gold medallions. According to the petitioner, gold medallions are nothing but pendants. In other words, the petitioner firm manufactured 'gold medallions' which are technically called as pendants. Both the medallions and pendants are one and the same and they were used to hang on the neck. The respondent also permitted the petitioner to continue to export the gold articles inasmuch as all the pendants are not medallions but all medallions are pendants. Further, before export of the goods, they were physically examined by the customs authorities with respect to description, quantity, weight etc., and they have not raised any objection. In fact, the petitioner firm had successfully exported the gold jewel during the financial year 2008-2009, 2009-2010, 2010-2011 and 2011-2012 and during this period, there was no complaint or objection raised by the respondent with respect to violation of the conditions of LoA. However, on and from 31.03.2012, since the Government withdraw certain tax benefits to SEZ, the petitioner did not continue the business and the petitioner unit was lying idle. Subsequently, on 24.04.2013, the petitioner unit was closed and a letter to that effect was also submitted to the appropriate authority. The appropriate authority also granted permission on 28.06.2013 for closure of the unit and to exit the SEZ after paying all customs duty/VAT for durable and taxable items such as machineries and raw materials. The petitioner firm also, before exit, paid Rs.1,38,170/- towards payment of VAT for capital goods and raw materials. According to the petitioner, during the course of their business, the petitioner unit ws alwo awarded "Certificate of Appreciation" by the respondent for achieving highest turnover in 2010-2011 in gem & jewellery sector.

5. The learned counsel for the petitioner, by quoting Rule 54 (2) of the SEZ Rules, 2006 would contend that if the Unit has not achieved positive Net Foreign Exchange Earning or failed to abide by any conditions of the Letter of Approval or Bond-cum-Legal Undertaking, then, action can be initiated under the provisions of the Act. In this case, the petitioner has achieved their entire obligation for the entire period from 2009-2010 to 2011-2012. In fact, the petitioner firm had duly expedited and achieved the entire obligations as per the foreign trade policy including NFE earnings. Moreover, the value addition prescribed in Foreign Trade Policy is only 1.5% but the petitioner firm achieved value addition of 7% which was more than 400% of the prescribed value addition. Therefore, according to the learned counsel for the petitioner, the first limb of the condition imposed in Rule 54 (2) of the Rules is not attracted against the petitioner. As regards the next limb of the condition in Rule 54 (2), according to the respondent, the petitioner has committed violation of the conditions prescribed in the LoA inasmuch as the petitioner was granted permission for manufacture and export of 'Gold Articles and Pendants' whereas, they have manufactured and exported articles in the nature of 'Gold Medallions'. The learned counsel for the petitioner would vehemently contend that there was no distinction or dissimilarities between 'Medallion' and 'Pendant' and both are same. In fact, there is no demarcation or classification made under the SEZ Rules or the Act with respect to the differentiation of 'Medallions' and 'Pendant'. The respondent has failed and neglected to consider the functional utility of the 'medallions' and by misreading the dictionary meaning, it was concluded that 'medallions' and 'pendant' are different. The learned counsel for the petitioner demonstrated that a pendant is round in shape called a 'medallion' and a 'pendant' which has a hook is called a 'locker'. To substantiate the above, the petitioner also produced the affidavits obtained from the goldsmith, jewellery dealer and the Jewellers and Diamond Merchants Association which were submitted before the respondent during the course of personal hearing. By placing reliance on the above, it was contended that both 'medallion' and 'pendant' are one and the same. Further, it is contended that at the time of submitting the application for setting up the unit in SEZ, it was clearly stated that the product to be manufactured is 'gold jewellery and article' and description of the term was indicated as 'Pendant and Bangles'. Therefore, according to the learned counsel for the petitioner, even if pendant and medallion will fall under different criteria, as assumed by the respondent, they will be classified within the scope of 'jewellery and article'. the purpose for which manufacturing, the petitioner's unit was established.

13. It is the vehement contentiion of the learned Assistant Solicitor General appearing for the respondent that the contention of the petitioner there is no separate classification under Customs Tariff is not correct. In customs tariff, these two products are differentiated under Heading 71.13 which deals with 'articles of jewellery and parts thereof' or precious metal or metal clad with precious metal. As per the Customs Tariff under the heading 71.13 (a),small objects of personal adomment (gem-set or not) such as rings, bracelets, necklaces, brooches, ear-rings, neck chains, watch-chains and other ornamental chips, fobs, pendants (i.e., pins and clips, culf-links, dress-studs, buttons etc., religious or other crosses, medals and insignia, hat, ornament (pins, buckles, rings etc.,) ornaments for handbags, buckles and slides for belts, shoes etc., hair-slides, tiaras, dress combs and similar hair ornaments comes within the purview of articles of jewellery and parts thereof. It is clearly stated in 71.13 (b) that articles of personal use normally carried in the pocket, in the hand bag or on the person such as cigar or cigarette cases, snuff boxes, spectacle cases, power boxes, lipstick holders, pocket combs, cachou boxes, chain purses, rosaries, key rings. By placing reliance on the above categories contained in the Customs tariff, it is contended that medallions are large medals. A pendant on the other hand, is an object that is allowed to hang freely from something else. Hanging light fixtures too, for example are called 'pendants'. Thus, medallions can be made into a pendant and worn, but that would not be the case with all medallions and vice-versa. As per the customs tariff, medals and medallions (other than for personal adornment) are classified under Heading 71.14 which relates to articles of goldsmiths or silversmith wares and part thereof contains precious metal or metal clad. Therefore, it is contended by the learned Assistant Solicitor General that the medallions exported by the petitioner are manifestly different in terms of classification under the customs tariff. In this case, the petitioner was issued with LoA for manufacture and export of 'pendants and bangles' which are classified under the category of Articles of Jewellery and parts thereof provided under Customs Tariff No.71.13, whereas, 'medallions' are classified under customs tariff 71.14. Therefore, it is reiterated that medallions exported by the petitioner are manifestly different in terms of classification under the customs tariff and is in violation of LoA.

"9. We have carefully gone through the orders of the lower authorities below. The CIT (Appeals) found that what was manufactured by the assessee is 24 Carat gold medallion. The CIT (Appeals) has also found that the gifts presented on special occasions would be considered as medallions which are not meant as ornaments but would be treated as treasure of momentos or items of valuable investment. The question arise for consideration is; Is there any difference between pendant and medallion? The meaning of the word 'pendant' and 'medallion' has to be construed in the Indian context. Normally, the pendant would be worn as an ornament along with chain or necklace. The pendent in common parlance may also be called as medallion. The medallion has to be worn as an ornament along with chain or necklace. Similarly, pendant is also to be worn as ornament along with chain or necklace. Therefore, the Tribunal is of the considered view that the words 'pendant' and 'medallion' have the same meaning and usage in common parlance. By taking into consideration of the usage of pendant or medallion, this Tribunal is of the considered opinion that the pendant and medallion have the same characteristics and value in the common parlance. When the assessee claims that it is manufacturing pendants and the same was exported, merely because the foreign nationals call this as medallion, it does not mean that what was manufactured by the assessee is only medallion. The product manufactured by the assessee even though called as 'medallion', it is pendant in the Indian context. It is an ornament worn by hainging in the chain or necklace. It is common knowledge that the award/medal conferred on special and ceremonial occasinos would be normally known as 'medallions'. It does not mean that the medallions could not be worn as ornament/ jewellery in the normal course. In our opinion, the pendant and medallion can be used as ornament jewellery along with chain and necklace. At the best, one may say that pendant and medallion are nothing but a designer jewellery to be worn along with chain or necklace. By taking into consideration of the utility of the medallions, this Tribunal is of the considered opinion that medallion is also a pendant. Therefore, merely because the product manufactured by the assessee was described as medallion, it cannot be said that there was any violation of approval granted by the Development Commissioner, Special Economic Zone. Irrespective of nomenclature used by the assessee or the Special Economic Zone, this Tribunal is of the considered opinion that what was manufactured by the assessee is pendant. Therefore, there is no violation of conditions imposed by the Development Commissioner."