TMI Blog2015 (9) TMI 1370X X X X Extracts X X X X X X X X Extracts X X X X ..... and assorting. The only piece of evidence we find on the relationship between the value addition and the process is in the form of representation made by Gem and Jewellery Export Promotion Council vide letter dated 23.10.2006 which relies on the same Circular of the CBEC while dealing with the various schemes in the Policy affecting the business of gem and jewellery including diamond industry. We are informed that the Customs Officers in charge of the bonded warehouse on being satisfied, have also cancelled the bonds, which aspect has been completely overlooked by the Commissioner. Section 14 of the Act provides that where duty is chargeable on ad valorem basis, the value shall be deemed to be the price at which such or like goods are ordinarily sold or offered for sale for delivery at the time and place of importation or exportation as the case may be in the course of international trade. There is no dispute about the CIF value declared by the Indian companies in the bills of entry. Rather such CIF value has been adopted by the Commissioner, to be the correct FOB value. We shall deal with this aspect later in detail when dealing with circular trading. Value addition is a conce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder Section 14 of the Act and to that extent the order of the Commissioner is set aside. Stand of the department in the show-cause notice to be self-contradictory. If the same lot is circulated into India a number of times, it is only rational to take the CIF value only once for the same lot to support the allegation of circular trading. By not doing so, and by accepting the CIG value of each individual consignments of imported diamonds, the department has admitted each consignment to be different from the other, and not of the same goods, thereby militating against their own case of circular trading. The Indian companies contend and rightly so, that the implications of acceptance of CIF value means each time a new consignment has been imported unrelated to any other in the past or future, duly corroborated by remittance of foreign exchange through banks or authorised dealers equal to the value of the goods received in India. Correspondingly in relation to exports, receipt of foreign exchange through banks and authorised dealers as proceeds of exports in compliance with the provisions of Foreign Exchange Management Act, 1999. Payment of commission would be relevant for calcu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iness of foreign trade, that is export and import for more than 20 years. The appellant had been exporting and importing CPD during the financial years 19 94-95. The said activity of import and export of CPD was restarted in 2001 02 when the appellant also renewed the membership of Gem and Jewellery export promotion council, with a view to further grow its business. The appellant also obtained private bonded warehouse licence under Section 58 of the Customs Act in July, 2003 in order to carry on import and export of CPD as permissible under the Export and Import Policy 2002-07. 3. That with a view to expand the diamond business the appellant set up a 100% subsidiary in Mauritius known as Adani Global Limited which in turn set up to step down subsidiary in UAE namely Adani Global FZE (hereinafter referred to as AG FZE) and in Singapore namely Adani Global Pvt. Ltd. (hereinafter referred to as AGPL). With a view to grow its business appellant AEL and AG-FZE entered into a tripartite agreement with M/s Daboul trading LLC, Dubai and M/s. Gudami International Pvt. Ltd. 4. The appellant's imported consignment of CPD and filed bills of entry for warehousing. The consignments w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ined bonded warehouse licences. It is alleged that after import, the goods were taken into private bonded warehouse and without processing the same were removed for export within 3-4 hours or the next day as the case may be. It was therefore, alleged that the claim of AEL, that processes such boiling, sieving, sorting and packing was done as claimed by AEL and other appellants was bogus and that the same diamonds, without processing, were exported out of India. Reliance is placed heavily on the statements of Mr. Lumesh Sanghavi dated 30.01.2006, 07.02.2006, 28.02.2006 and 30.01.2007, who was at the relevant time Manager of AEL. Statements of Rajesh Adani, Managing Director, Samir Vora, Saurin Shah, Bhavik Shah, Kamraj Bodal, Vipul Desai, Kaushal Pandya, Mehul Shah and C.E. Mahadevan were recorded which allegedly support the allegations in the show-cause notice. It is therefore alleged that there was no processing undertaken by the Indian Companies inside the bonded warehouse and hence, there was no value addition, meaning thereby, that the FOB value declared was inflated in respect of same set of diamonds which were imported into and exported from bonded warehouse, only to be re-im ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... low of funds between Indian companies and overseas entities by resorting to L/C discount and buyers credit which was an abnormal trend indicating circular trading. 6. On the basis of the above allegations, show-cause notice dated 30.03.2007 was issued alleging that the Indian entities have: (i) Mis-declared the FOB value of export goods in contravention of the provisions of Section 14 and Section 50 of the Act read with Section 11 of the Foreign Trade (Development Regulation) Act, 1992 and Rule 11 Rule 14 of the Foreign Trade (Regulation) Rules, 1993; (ii) Resorted to mis-declaration of value of export goods in the corresponding export documents before the designated authority which falls within the ambit of illegal exports as defined in Section 11H (a) of the Act and modus on the part of consortium amounts to smuggling as defined in Section 2(39) of the Act. As the goods have been exported resorting to mis-declaration in terms of quality and value rendering the goods liable for confiscation under Section 113(i) of the Act; (iii) Have rendered themselves liable for penal action under Section 114 of the Act; (iv) Through its Directors entered into conspiracy w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Central Board of Excise and Customs in Circular No. 40/1999 dated 28.06.1999; d) The Gem and Jewellery Export Promotion Council in its letter dated 23.10.2006 addressed to then Union Minister of Commerce and Industry had accepted that the processing activity of the nature carried out by them in the bonded warehouse resulted in value addition of 5% or more; e) There was no circular trading and that as demonstrated by the number of examples in Annexure-H I to the show-cause notice, the charge of circular trading was not sustainable as set out in Exhibit-D to the reply; f) All exports and imports of diamonds consignments were legal and proper and in accordance with the provisions of Para 4A.18 of the then prevailing Foreign Trade Policy (FTP); g) All the transactions were conducted at arms length between the parties and that neither the Indian Companies nor the overseas entities are related persons nor are they managed and controlled by the appellant AEL, and all the transactions were based on commercial consideration as reflected by the terms contained in Memorandum of Understanding dated 19.03.2003 between M/s. Daboul Trading Co. (Daboul), M/s. Adani Global FZE, M/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n that processes of boiling, sieving and assortment were carried out, the Noticees have not shown how these simple process can result in value addition of 5% or 10% in the two respective years . 10. The Commissioner, therefore, concluded that Thus, the FOB value declared in the shipping bills by simply adding 5% or 10% of the CIF value is artificial and hence, the export value which is not a correct value has to be rejected under Section 14 of the Customs Act, 1962 . Accordingly, the Commissioner held that- ................ mis-declaration of value declared in the shipping bills is firmly established. The goods cannot escape the mischief of confiscation for the mis-declaration of the value of export goods. The artificial value addition has also contributed to the mis-declaration of value of the export goods. No processing was undertaken to achieve the value addition and FOB value declared was incorrect. The simple process of boiling, sieving, and sorting do not automatically lead to value addition of 5% or 10% which was mechanically fixed by Shri Samir Vora and Shri Saurin Shah which is also confirmed by Shri Lumesh Sanghavi. It was possible for M/s. AEL to show incremen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s in painstakingly taking us through the complex facts and the voluminous record of documents. A brief record of the submissions made before us at the time of hearing is set out. 15. On behalf of the parties, it was urged that in diamond industry labour intensive work at low cost, yields high value and therefore, processes like sieving, boiling and assorting could result in value addition even higher than 5% or 10%. While reiterating that Lumesh Sanghavi had retracted his statements, the Ld. Advocates sought to explain his statements and submitted that the Commissioner have not correctly appreciated the same. It was further submitted that the charge of circular trading was sustainable neither in law nor on facts and examples of the same were given with the help of Exhibit-D to the reply and from the statement of Lumesh Sanghavi and his evidence in cross-examination. Our attention was also drawn to pages 42 to 44 of the show-cause notice to show that the inquiries made through the High Commission of India, at Singapore did not reveal either common shareholding or common Directors, except in respect of Adani Global Pvt. Ltd., which admittedly is a subsidiary of AEL. The same is th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e for confiscation nor any penalty warranted against the Indian companies and the Individuals associated thereto. 16. Shri V.K. Singh, Ld. Special Counsel stated that the appellant Adani Enterprises Ltd. formed a consortium with 5 other companies namely Aditya Corpex Private Ltd., Hinduja Exports Private Ltd., Midex Overseas, Jayant Agro Organics and Bagadia Brothers and obtained permission for setting up of Private bonded warehouses for import/export of CPD's. The activities covered under private bonded warehouses were to import polished diamonds, to sieve the diamonds, to assort, to do boiling of the cut and polished diamonds, to pack the cut and polished diamonds, to re-export. It is further alleged that during the financial year 2002-03 the export turnover of AEL was 20.31 crores which increased to ₹ 1465.27 crores in 200-04, which further increased to ₹ 5626.67 crores in the year 2004-05 and during the year 2005-06 the same was at ₹ 11,193.64 crore. It is further stated thet the other 5 appellant companies had admittedly no turnover of CPD during 2002-03 but had turnover during the financial year 2003-04, 2004-05 and 2005-06. It is further stated tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ', Crown Diamonds' and 'KVK Diamonds' has acted as supplier as well as buyer of the CPD's for the appellant companies. Eight of the overseas companies were all incorporated after September 2004, which was after the introduction of the 'Target Plus scheme'. Out of these, 5 companies stopped their business activities during the year 2005. Three of the overseas companies were functioning from the same premises at Hong Kong. One Global Enterprises is a supplier of the CPD to the Indian companies whereas the other 2 companies namely 'Kamsun Development International' and 'Wingate Trading' were importing CPD from the Indian companies and that too at a price which is higher by 5% to 10%. The registered office of one 'Planica Exports' have changed, at which address and other company Gracious export is already located. The said address is also the address of one Chew Bee Choo, one of the directors of Planica Exports and Gracious Exports. The registered address of Adani Global Pvt. Limited is also the residential address of Mr. Chang Chung Lind, Director of Gudami Internantional Private Ltd. Most of the companies at Singapore have some comm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lared FOB value, he was wrong in taking lenient view on penalties imposed by him. Shri Singh, therefore, submitted that the penalties should be suitably enhanced. 17. We have considered the lengthy arguments made by both sides and gone through the detailed written submissions filed by them. We have also perused the record and find that essentially the issues raised are questions of fact which we need to decide based on voluminous documents which each side has taken us through. We therefore first frame the issues for our decision. The issues framed are as under: I] Whether FOB value declared in the shipping bills for export of cut and polished diamonds by appellant companies is liable to be rejected on the ground that no processing activity to achieve value addition of 5% or 10% , was undertaken by the Indian companies in the bonded warehouses? II] Whether the Indian companies artificially inflated the export turnover to take benefit under the Target Plus Scheme (TPS) by resorting to circular trading/movement of the same set of diamonds between Indian companies and overseas entities which are allegedly inter related? III] What is the effect of the Commissions paid by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... perates on electricity. The diamonds are normally boiled for about 20 minutes to remove dust/impurities. Again according to my experience of bonded warehouse, only 50% consignments were subjected to boiling. After the process of sieving and boiling, if at all done, the next process was assortment, i.e., segregating the diamonds on purity basis. vii) Lot wise assorting of received consignments of CPD in the respective bonded warehouses of the aforesaid companies / firms by way of boiling for cleaning, sieving for separating diamonds size wise, size wise weightment of diamonds using weighing machine, further assortment with regard to quality required. viii) Repacking of the assorted CPD for exports by the office staff. C. In the same statement, Lumesh Sanghavi has further stated as under: Qn.5: Please state whether 03 activities, i.e., sieving, boiling and quality assessment were done in respect of all the lots? Also, explain each process in detail? Ans.5: No, in all cases the above said 03 steps are not followed, as in some cases boiling may not be warranted and in some cases quality assessment may not be essential. The process of boiling of CPD i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... along with him and they used to assort the diamonds by sieving and boiling. They used to segregate the diamonds as per quality and they used to pack the same for exports. I have never participated in said assorting of diamonds. As per the instructions of Shri Lumesh Sanghavi, I used to prepare export invoices by typing the same on the computer installed in our office and I used to fax the same to our CHA and the Security Agency who used to transport the same from our office to Custom Office. F. To the same effect is also the statement of Kaushal Pandya recorded on 06.02.2006 and the relevant portion reads as under: The imported diamonds were packed in transparent plastic bags inside the wrapper of plain white paper. On receipts of the parcel of diamonds we put it into the safe meant for the custody of diamonds in the office of Aditya Corpex Pvt Ltd. Thereafter, on the same day, Mr. Lumesh Sanghavi came to the office of Aditya Corpex Pvt Ltd, he checked the parcel and packets contained in it. Thereafter, as per the requirement, Mr. Lumesh used to take out the packets of certain lots form the parcel of imported diamonds for sorting into various size, by the assorters, in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded in 2005-06 to increase the value addition from 5% to 10%. Para 4A.18 as it stood in2004-05 reads as under: 4.18 Private/Public Bonded Warehouse may be set up in SEZ/DTA for import and re-export of cut and Polished diamonds, cut polished coloured gemstones, uncut unset precious semi-precious stones, Import re-export of cut polished diamonds cut polished coloured gemstones will be subject to achievement of minimum value addition of 5%. 18.2 Save and except increase in the percentage of value addition there is no other charge in para 4A.18 in 2005-06. A plain reading of para 4A.18 shows that it does not contain any condition, that the value addition must be as a result of any kind of manufacturing or specific processing activity in the bonded warehouse. In fact, it refers to import of cut and polished diamonds and to the export also of cut and polished diamonds. It is implies that para 4A.18 does not necessarily envisage any kind of manufacturing or processing activity to achieve value addition, because it does not refer to any new article at the time of export, different from the goods at the time of import. The sole objective is to earn foreign exchange ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Commissioner wants to read such a condition in para 4A.18, even if one were to presume that para 4A.18 has an inbuilt condition of achieving value addition out of processing activity in the bonded warehouse. Both sides agree and therefore, we take note, that value of a diamond depends on 4 Cs which are colour, clarity, cut and carat. Therefore, if diamonds are segregated into a homogenous lot based on their size and quality, the value shall change even by employing simple labour intensive processes like sieving, boiling and assorting. The only piece of evidence we find on the relationship between the value addition and the process is in the form of representation made by Gem and Jewellery Export Promotion Council vide letter dated 23.10.2006 which relies on the same Circular of the CBEC while dealing with the various schemes in the Policy affecting the business of gem and jewellery including diamond industry. We are informed that the Customs Officers in charge of the bonded warehouse on being satisfied, have also cancelled the bonds, which aspect has been completely overlooked by the Commissioner. 18.5 It is true that Lumesh Sanghavi has not been able to say which of these p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mstone etc. 'Value' for this purpose includes both imported as well as domestically procured inputs. Wherever gold has been obtained on loan basis, the value shall also include interest paid in free foreign exchange to the foreign supplier. 18.7 FOB value is therefore only one of the components for determining the value addition. Determination of value addition is a function of DGFT/licensing authorities. We are here not concerned with the determination of value addition. We are informed that the applications by the appellant companies under TPS are pending with the offices of Jt. DGFT. It will be for the licensing authority to determine the value addition at the appropriate stage. We are here concerned with the correctness of the FOB value as declared in the shipping bills which is within the jurisdiction of the Customs officer and for that the powers are derived from Section 14 of Act, which deals with determination of assessable value read with Section 17 of the Act which confer the power of assessment on consignments of exports, in respect of which shipping bills are filed under Section 50 of the Act. We shall first examine the law on this point. (a) In Frost I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bills have been produced before us. We have also perused the record of cross-examination of 5 Customs Officers, who examined the goods. All of them have unambiguously stated that they strictly followed the procedure prescribed by law as contained in Public Notice No. 11/1998 dated 4.8.1998. The Commissioner confirms that these officers .............. only verified that the goods confirmed to the description, quantity and value as declared in the shipping bill. The confirmation of the value by these Customs officers in our opinion is a clinching evidence and there is nothing in the show-cause notice to rebut this primary evidence as to the correctness of FOB value. At no stage of the assessment of thousands of consignments, exported by the appellant companies, was any doubt raised as to the truth or accuracy of the declared FOB value. The confirmation by the Customs officers, and the admission by the Commissioner that they verified inter alia the value of the goods, is direct evidence of the correctness of the value on physical examination of the goods. In these circumstances, we do not see how the Commissioner can reject the declared FOB value. 18.9 Yet the Commissioner did s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r Indian companies as well as AEL and overseas entities. 18.11 We shall first deal with the relationship between AEL and Indian companies. There is no definition either in the Customs Act or the FTP of such a relationship. Obviously in such a case, one will have to go by the provisions of Companies Act, 1956 to see whether one company controls the other and broadly, the two tests to establish control of one over the other is either 'voting power' or control over the appointment of Board of Directors. The relationship in the context of determination of FOB value is the relationship between the buyer and the seller in the course of international trade. Hence, the issue of inter se relationship between AEL and Indian companies is not relevant for the purposes of Section 14. The show cause notice dwells on this issue only to show that AEL connived with the 5 other Indian entities to take advantage of benefits under TPS by showing higher incremental exports to derive maximum benefit under TPS. We do not see the relevance of the issue in this case. At the risk of repetition, we hold that since the application for grant of duty free scrips made by the Indian companies includi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... verseas entities, only 4 closed down and that too, between September and November, 2005 which is well before the deletion of diamonds from TPS on 20.02.2006 or the closure of TPS on 31.03.2006. No adverse inference can be drawn on this aspect. The fact that some of the companies have common registered offices or that registered office happened to be the residential premises of their Directors is again something which cannot be faulted in law and by no stretch of imagination shows control by AEL over them on this account. Common Directors or Directors who are employees of AEL or its subsidiaries also does not establish mutuality of interest. So also merely because Vinod Shantilal Shah is brother in law of the Chairman and Managing Director of AEL, it does not establish the relationship particularly when it is now shown that the Vinod Shantilal Shah is also Director of AEL or holds significant shares to exercise control over AEL and vice versa AEL has any shareholding or common Directors in G A International. Section 14 of the Act requires the interest of the buyer and the seller in the business of each other. There is no allegation of common shareholding except for the subsidiaries. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es not prove the case of the department. There are many reasons for the same. He himself admitted that he examined only a few consignments when the sorters were absent. Besides the price was decided by Sameer Vora or Saurin Shah based in Ahmedabad. This had also been admitted by Lumesh himself. Likewise, though Lumesh Sanghavi, admits to circular trading, on being shown during cross-examination the same examples referred to in his statements, which show the difference in quality, size and weight of each consignment, he had deposed to the contrary. We have independently also examined the evidence on record particularly Annexures 'H' and 'I' to the SCN and have found that the charge of the circular trading is not sustainable. Considering the overall facts and circumstances, this part of the statement of Lumesh Sanghvi cannot be seen as conclusive to the charge of, either over-valuation or circular trading. 18.16 In the above factual backdrop, we shall now deal with the case law cited by the department. In the case of Omprakash Bhatia vs. CC, 2003 (155) ELT 423 (SC), the exporter did not lead any evidence to show that the export value mentioned in the shipping bill ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ved that 30. It cannot be disputed that in proceedings for imposing penalties under clause (8) of Section 167, to which Section 178A does not apply, the burden of proving that the goods are smuggled goods, is on the Department .All that it requires is the establishment of such a degree of probability that a prudent man may, on its basis, believe in the existence of the fact in issue. Thus legal proof is not necessarily perfect proof often it is nothing more than a prudent man's estimate as to the probabilities of the case. 32.............However, this does not mean that the special or peculiar knowledge of the person proceeded against will relieve the prosecution or the Department altogether of the burden of producing some evidence in respect of that fact in issue. It will only alleviate that burden to discharge which very slight evidence may suffice. 18.21 In the present case, we find that the department has failed in discharging the burden cast upon it to produce any tangible evidence in respect of the charge of over-valuation or circular trading. For the same reason, the judgment in Steel India Company vs. CCE, 2014 (310) ELT 184 (Tri) is of no assistan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consignments to say that the same set of diamonds have been traded again and again is a misnomer. The Commissioner also admits in the impugned order that the value of each diamond varies on account of non-comparability of carat, colour, cut and clarity (r C's). It is therefore not possible to come to the conclusion that the appellant companies indulged in circular trading merely with reference to single lots (out of a consignment) which are said to be imported and exported during different periods. Curiously, the show cause notice itself admits in para 9.1 that even these single lots which are said to be involved in circular trading varied in weight and clarity. It however describes such variation to be marginal or slight variations. We are not impressed by the use of such adjectives particularly when the Commissioner also admits the value of each lot varies on account of variation in the 4 Cs. Whether such variation is marginal so as not to affect price is not for us to say. This perhaps required expert evidence who can only do so after examining each lot. We find this is missing. We cannot indulge in conjecture whether the variation in weight or clarity is marginal so as not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e record of cross-examination of Lumesh Sanghavi which has been set out by the Commissioner in extensor. We find that when confronting with the same documents such as invoice relating to the transactions which he has deposed in statement dated 28.02.2006 and 3.1.2007, he accepted that there was a variation in the weight and quality of diamonds. On re-examination by DRI officer, LUmesh Sanghavi maintained the variation in the specifications of the lots covered by two different invoices. Besides the documents speaks for themselves, oral evidence if contrary to documents has no value since documentary evidence shall prevail over oral statements. At the time of hearing before us the Ld. Counsels also produced a typed statement analysing the transactions of July, 2005 shown to Lumesh Sanghavi as recorded in his statement dated 28.02.2006, to illustrate that on facts, the allegation of circular trading cannot be maintained. From the typed statements, it is seen that while exporting D-Cut white diamonds under invoice dated 21.07.2005, the weight of PK 4 variety was 486.57 carats and that of PK 5 variety was 733.67 carats and if the same set (lot) of diamonds were allegedly imported on 26. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he fact that they were importing cut and polished diamonds from some of the overseas entities and exporting the cut and polished diamonds to other overseas entities. We do not find anything incriminating in the 3 charts except a pictorial representation admitted by the parties. 20. On the contrary, AEL has sought to justify what they call as the business plan and the pattern of transactions on the basis of MOU dated 19.03.2003 between its subsidiary in Dubai, Daboul and Gudami whereby the UAE subsidiary agreed to arrange for and organise processing of unasserted diamonds in India through AEL or its nominees and Daboul agreed to procure unasserted diamonds directly or through its nominees for export to India and thereafter, purchase the same after processing in India through its intermediaries in Hong Kong or Singapore for its European buyers. Shri Singh, Ld. Special Counsel, as has the Commissioner strongly objected to the reliance on this MOU. He submits that this MOU was never produced during investigations. On the other hand, AEL submits that, although a copy of this MOU was not produced during investigations there are enough references to the arrangement and understanding me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontrolled all the overseas entities because there is reference to the bank accounts of different overseas entities in the mails and also to transfer of funds from account of one overseas entity to another. These e-mails are sent by Ms. Mary who is an employee/Director of Adani Global Pte. Ltd. Singapore and these e-mails are sent internally to all persons connected with AEL based in either India or Singapore or Dubai. It is alleged that if AEL does not control overseas entities there was no reasons for Ms. Mary to pass on information relating to bank accounts and its details including password to other persons within the Adani group and likewise there was no need for Ms. Mary to report the transfer of funds with reference to certain specified transaction form one overseas entity to another or from Indian company to overseas entity or by an overseas entity to an Indian company. We find that except for agreeing to what has been stated in these e-mails, none of the persons like Bhavik Shah, Vipul Desai or C.E. Mahadevan have admitted to these e-mails evidence of either control by AEL of the overseas entities or to circular trading. Unfortunately, hereto the statement of Ms. Mary Josep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is not even one of the 45 overseas entities in this case or are these entries representing settlement of accounts of some other independent transactions which has nothing to do with the transactions of cut and polished diamonds. (d) None of the e-mails show fund flow corresponding to the circular trading of the lots as alleged in the show-cause notice, meaning thereby the allegation of circular trading is unsupported by evidence of corresponding financial trail. 21.2 As has been stated in the show-cause notice, the e-mails referred to in Annexure-M to the show cause notice show control by AEL of the overseas entities. We have already held what tests and conditions needs to be satisfied in law to establish control . It seems Ms. Mary Joseph has merely collated the information into e-mails which is otherwise available from the documents relating to the respective transaction which documents show the name of the buyer, name of the seller, serial number and date of the invoice, the amount and the bank in which the payment is to be remitted. These e-mails do not reveal the possibility of these e-mails being sent as a result of said MOU cannot be ruled out. We find nothing incrimi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent Act, 1999. We, therefore hold that the charge of circular trading fails. 22.0 Issue No. III The issue relating to payment of commission and fund flow through mechanisms such as buyers credit or LC discounting are connected to the charge of circular trading and to support the allegation of control by AEL. We have for reasons recorded above, found both these charges to be unsustainable. On behalf of the Indian companies it was submitted that payment of commission in fact proves that the transactions of import and export of diamonds were genuine and on principal to principal basis since otherwise there was no need for them to pay commission if the transactions were bogus or involved mere circular trading. So also in relation to LC discount and buyers credit, it is submitted that these transactions were entered into because of interest arbitrage, since there is wide variation in the rates of interest between international markets and India. It is submitted that they have acted like any other prudent business men would do in the like circumstances. The department however, contends that AEL was strictly monitoring the number of days involved in the fund flow and its banking ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relation to Deven Mehta, Omi Bagadiya, Vithaldas Udeshi and Narottam Somani on whom penalties have been imposed only because they have allowed themselves to act at the behest of AEL and have performed acts which have rendered the export goods liable to confiscation. ............... without ascribing acts of omission or commission under the Act to levy penalty on them. Section 114 of the Act does not create vicarious liability. It is an action in personam. It is therefore necessary to show how each of these individuals acted in a manner which resulted in mis-declaration of FOB value to render the goods liable to confiscation under Section 113(i). We find no justification has been provided by the Commissioner in the order. The statement of these individuals are exculpatory, besides not being adversely implicated by others. In any case, we have set aside penalties on all concerned as aforesaid. 24. In the circumstances, we set aside the impugned order passed by the Commissioner and allow the appeals filed by all the parties and dismiss the appeals filed by the Department. Consequential reliefs if any are allowed. ( Pronounced in Court on 26-08-2015 ) - - TaxTMI - TMITax ..... X X X X Extracts X X X X X X X X Extracts X X X X
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