TMI Blog2010 (3) TMI 430X X X X Extracts X X X X X X X X Extracts X X X X ..... Z, Mumbai wherein they store consignments of cut and polished diamonds imported by them and also carry out sorting, cleaning and packing of these diamonds and export them. 2. On 22-3-1999, DJ submitted 9 shipping bills for clearance of 9 consignments of cut and polished diamonds for export which were earlier imported from M/s. Steevensons Inc., New Jersey. Consignments were being exported to M/s. Diastar Inc., New Jersey, U.S.A. On 25-3-1999, officers of SEEPZ, Customs conducted physical stock verification of the gold lying in the factory/warehouse of the DJ and noticed shortage of 2732.73 Gms of gold as against the recorded stock. 3. Entire consignment of diamonds was seized and subsequently released provisionally and allowed to be exported after deposit an amount of Rs. 10 Lakhs by DJ. DJ also deposited an amount of Rs. 6,65,000/- towards duty liable on the shortage of gold noticed during stock taking. 4. After recording statement of the Shri P.K. Jain, Managing Director who is also an appellant in this case, show cause notice was issued which culminated into adjudication order whereby the demand for customs duty on the shortage of gold noticed was confirmed; confiscation o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5% over the value of imported diamonds, is earned as a result of re-export. Para 9.21 of the said Exim Policy, permits re-export of diamonds with or without repacking/labeling/minor processing. This would mean that diamonds imported by EPZ Units can be re-exported by them in the same form and in the same lot even without subjecting them to any minor processing and also without re-labeling or re-packing the Exim Policy has nowhere laid down either the procedure or the guidelines regarding the manner in which the value addition should be achieved. Notification No. 177/94 dated 21-10-94 as amended allows import or diamonds by the Gem Jewellery units set up in the Export Processing Zone either for manufacture or for packaging of the diamonds for exports out of India subject to the conditions specified therein. It is not necessary that the diamonds imported should be subjected to certain processes/ activities, before they are exported. Even re-packing of the imported diamonds prior to their export, is sufficient for meeting the requirements of export obligation as well as value addition. B. The learned Commissioner has also grievously erred on facts. His finding that except for cha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... problems for over a year with the result that they had difficulty in achieving the export turnover fixed by the Development Commissioner, SEEPZ for the year 1998-99. It was in order to overcome this situation that his brother in New Jersey who runs two companies vis. M/s. Steveson Overall Inc. and M/s. Diastar Inc. had agreed to help him by supplying 9 consignments of cut and polished diamonds and buying the same from the Appellants so that the export turnover fixed by the Development Commissioner, SEEPZ could be achieved. When the brother of Mr. Pravin Kumar Jain, the Mg. Director of the Appellants in New Jersey, out of genuine concern for his own brother in India, has volunteered or agreed to help his brother, by selling the diamonds to the Appellants and buying the same from them, even if this transaction results in some financial loss for him, this transaction cannot be held as one concluded with an ulterior motive and therefore not genuine. What is relevant for consideration is whether foreign exchange earnings to the extent of an increase of minimum of 5% over the value of import consignments would have accrued if only the Department had allowed the export of diamonds, on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Notification No. 177/94 dated 21-10-94 as amended. It is equally unjust and unfair to impose penalty on the Appellants, on this ground. (ii) In fact since the loss of gold arising during the process of manufacture of plain and studded gold jewellery is always generally more than 3.5% and 9% respectively, for the sake of uniformity, Notification No. 177/94 dated 21-10-94 as amended permits wastage of gold only upto these percentages and no Customs duty is charged on losses upto these percentages. It is recognized that the losses of gold over and above these percentages will be found in some form containing gold that can be recovered. Such loses are in the form of dust, scrap or sweeping of gold arising in the manufacturing process. The Appellants refine such scrap, dust and sweepings and recover gold. They are also permitted to forward to the Government Mint, the quantity of gold so recovered from dust etc., for conversion into standard gold bars and return to the Export Processing Zone, in accordance with the procedure specified by the Customs. The Appellants therefore claim that there was no such shortage of 2732.73 grams of gold, as alleged by the Department when the officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ission of duty. 9. Learned advocate submitted that diamonds could not have been confiscated under Section 111(d) and 111(o) of Customs Act, 1962, since the omission arose during export of diamonds. At the time of importation there was no contravention of any of the provisions rendering the goods liable to confiscation. Further in view of the fact that company had achieved the actual value addition of 6% as against the requirement of 5% in terms of Exim Policy, Section 111(o) of Customs Act, 1962 would also not be applicable. He relies upon the decision of the Hon'ble Supreme Court in the case of Amrit Foods v. CCE, UP. - 2005 (190) E.L.T. 433 (S.C.), Max G.B. Limited reported in 2008 (221) E.L.T. 491 (P H) and Nakoda Textile Industries Limited reported in 2009 (240) E.L.T. 199 (Bom.) in support of his contention that in the absence of specific Provisions having been mentioned in the show cause notice, penalty could not have been imposed on DJ. Penalty was proposed to be imposed on the appellants under Section 112(a) and 114 of Customs Act, 1962 and it is his submission that Sections are not applicable. Learned advocate relied upon the decision in the case of MMK Jewellers v. Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which was to artificially boost the export turnover. It is impossible to believe that two companies owned by same person would export and import the consignment of diamonds for re-packing purpose and sorting purpose all the way to India from U.S.A. All the facts and circumstances relating to the transaction of diamonds clearly show that it was an artificial paper transaction to boost the export turnover of DJ. 12. The next question that arises is, whether the department made mistake in citing relevant sections for confiscation of the diamonds. The learned advocate submitted that Section 111(d) would not be applicable at all in view of the fact that there was no mis-declaration of value or description etc. As regards Section 111(o), he submitted that 6% value addition was permitted in the Exim Policy and was also accepted by CBE C. No doubt the value addition is possible as observed earlier when the transactions genuine transactions. No prudent person can believe that a company owned by a person would send diamonds for re-packing or sorting etc all the way to India from U.S.A. and the same person would re-import in the name of another company owned by himself. Obviously the purpos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Director that he had undertaken this export to boost the turnover and the three companies involved belonged to two brothers had not been taken into account. Otherwise the conclusion would have been totally different. Therefore, after having taken into account all the facts of the case, the conclusion that we have reached is totally different from the one reached earlier. 14. Now, coming to the duty demand on shortage of gold, Hon'ble High Court has directed us to consider the issue in the light of statement of the Managing Director. The Managing Director had admitted that the shortage could arise because of excess processing loss or because of manufacture of different types of jewellery or because of pilferage. However, he was not asked to quantifv the same since he himself voluntarily admitted to pay duty. The departmental officers did not proceed to investigate the matter further in view of the shortage of stock was on the basis of report given by the Managing Director on 25-3-1999 and not on the basis of Panchanama or on the basis of stock arrived at by the officers. The perusal of stock report also shows that statements have been signed only on behalf of DH and there ..... X X X X Extracts X X X X X X X X Extracts X X X X
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