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CC (II) Airport Special Cargo, Mumbai And Others Versus Shri Samir Vora And Others

2015 (9) TMI 1370 - CESTAT MUMBAI

Undue benefit of Target Plus Scheme (TPS) - Export of cut and polished diamonds (CPD) without value addition - warehousing of imported CPD - 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. - Rejection of declared FOB value of diamonds - Penalty u/s 114 - Misdeclaration - contravention of the provisions of Section 14 and Section 50 of the Act read with S .....

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bour 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 t .....

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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 concept under the Foreign Trade Policy (FTP).

On the question of valuation, the Commissioner also records that evidences disclosed in the show-cause notice, there is an allegation that the FOB value declared is not genuine on account of con .....

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ies as well as AEL and overseas entities.

There is no allegation of common shareholding except for the subsidiaries. It is also not shown that AEL has the power to appoint Directors or control the composition of Board of Directors of companies in which its employees or its Directors are also partners or Directors. It is not shown that AEL holds sufficient shares or voting power to control the decisions of the entities in which its Directors are also Directors or in which its employees .....

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endent parties in respect of whom there is no allegation of relationship is available, the same would apply to all other exports including those made to related persons. This is notwithstanding the fact that the department has failed to discharge the onus of proving relationship between AEL and overseas entities - 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 j .....

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legation 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 corr .....

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aken up by the competent authority. - 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. .....

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ndent : Shri V K Singh, Special Counsel ORDER Per Anil Choudhary Both the Revenue and the assessees are in appeal against Order-in-Original No. COMMR/PMS/ADJN/13/2012-13 dated 14.01.2013 passed by the Commissioner of Customs, CSI, Airport, Mumbai. By the impugned order the FOB price declared for export of cut and polished diamonds have been rejected which been exported by the appellant exporters and the value was re-determined at the CIF value of the diamonds imported for the export after proces .....

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ction 113(i) of the Act. However, as the goods are not available for confiscation, no redemption fine has been imposed. There is also no demand of duty in this case. 2. The appellant Adani Enterprises Ltd. (formerly known as Adani Exports Ltd.) has been in the business 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 w .....

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t 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 were examined and bills of entry duly asses .....

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ion was carried out as per the prescribed procedure in terms of Public Notice No. 11/98 issued by the Commissioner of Customs, airport, Mumbai, where after the let export order was given. 5. The case of the department, as seen from the allegations contained in the show-cause notice, is as under: The Central Government announced "Target Plus Scheme' (TPS) with a view to promote exports by granting Scrips with duty credit against incremental exports in the year 2004-05 as compared to the .....

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are M/s. Hinduja Exports Pvt. Ltd. (HEPL), M/s. Aditya Corpex Pvt. Ltd. (ACPL), M/s. Bagadiya Brothers Pvt. Ltd. (BBPL), M/s. Jayant Agro Organics Ltd. (JAOL) and M/s. Midex Overseas Ltd. (MOL). It is further alleged that in addition to the 5 Indian Companies mentioned above, AEL also managed and controlled 45 legal entities overseas. The list of 45 overseas entities is given on pages 40 and 41 of the show-cause notice (SCN). It is alleged that the 5 Indian entities and the 45 overseas entities .....

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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. Stateme .....

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into and exported from bonded warehouse, only to be re-imported and re-exported, in the name of different Indian entities to establish and artificially increase export turnover to obtain undue benefits under TPS. The show-cause notice refers to officers and executives of AEL like Samir Vora and Saurin Shah being the Directors on board of HEPL and ACPL respectively. Samir Vora has also admitted in his statement dated 2.2.2006 that he used to coordinate and look after imports and exports of cut an .....

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reporting transfer of funds from one account to the other. The show-cause notice also refers to flow charts at pages 86 to 89 allegedly retrieved from the Laptop which was in the possession of Vipul Desai. The show-cause notice also refers to instances of circular movement of lots of diamonds which have been tabulated at pages 90 to 93, set out in details in Annexure-H and Annexure-I to the show-cause notice. The details of the lots of diamonds which have been allegedly circularly traded accord .....

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dian Companies, for which purpose although MOUs were entered into with the overseas entities for payment of commission, no disclosure thereof was made in the shipping bills by the Indian Companies at the time of export. It was alleged that the MOUs also show that part of the Commission was payable upon receipt of benefit under TPS. Investigation further revealed, as set out in the table at Page 138 of the show-cause notice that AEL also controlled the flow of funds between Indian companies and o .....

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(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 .....

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tent to obtain DFCE/TPS under FTP from the office of Jt. DGFT, Mumbai, made, signed and/or used declarations, statements by suppressing/mis-representing facts to the said authority for obtaining DFCE/TPS; (v) Entered into MOU through group companies, like MOU between ACPL and MOL or the MOU between HEPL and BBPL or between HEPL and JAOL for passing on the incremental exports and the ultimate beneficiary thereof would be Adani group of Companies. (vi) Mis-declared the value addition of 5% in as m .....

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e value of the cut and polished diamonds at the time of imports. (vii) Resorted to circular trading activity in the import and export of cut and polished diamonds by reimporting the same lot on more than one occasion to artificially boost the export turnover; (viii) Have failed to declare the details of the Commission payable in the shipping bills 7. AEL filed a detailed reply dated 26.10.2007 to the show-cause notice and on 27.02.2012 filed further written submissions. The gist of the submissio .....

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s a permissible activity also recognised by the 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 Annexu .....

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y 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/s. Gudami International Pvt. Ltd. (Gudami); h) As per Circular No. 12 dated 9.9.2000 issued by RBI, declaration of Commission in the shipping bill was not mandatory, but optional. All the Commission remitted so far had been done with the approval of the Authoris .....

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ication No. 48 dated 20.02.2006 issued by the DGFT and therefore, exports thereof in the year 2005-06 were not eligible for benefit under TPS; i) The application for issue of Duty credit scrip under TPS for the year 2004-05 made by the Company was pending before Jt. DGFT and till date, no benefit was received by the Company nor was there any loss of revenue. 8. Before the commissioner, cross-examination of Lumesh Sanghavi and Kamraj Bodal was conducted on 25.03.2008 while that of Kaushal Pandya .....

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iled its rebuttal to the DRI comments, which also have been reproduced by the Commissioner in para 15.0 to 15.7.6 of the impugned order. 9. By the impugned order, the Commissioner relied upon the statements of Lumesh Sanghavi and Kamaraj Bodal. He rejected the claim that retraction affidavits were sent to DRI and further also rejected the evidence recorded during cross-examination as an afterthought. On this basis, the Commissioner held as under: "It is therefore clear that no processing wa .....

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rt 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 .....

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On the question of circular trading, the Commissioner, however, held as under: "The number of times each lot of diamonds was involved in circular trading is illustrated in para 9.1 and 9.2 of the Show Cause Notice. At the same time the illustrations given by the Noticees to show that circular trading is not possible also appears to be plausible. The contention of the Noticees is that conducting legal business operations to take the benefit of Government Scheme such as TPS is perfectly legi .....

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." (emphasis supplied). 12. In view of his findings, the Commissioner imposed following penalties under Section 114 of the Act: Name of the Noticee Amount of Penalty AEL Rs.25 Crores HEPL/ACPL/BBPL/JAOL/MOL Rs.2 Crores each Rajesh Adani Rs.1 Crore Samir Vora/Saurin Shah Rs.75 Lakhs each Deven Mehta/ Omi Bagadiya/Vithaldas Gokaldas Udeshi/Narottam Somani Rs.25 Lakhs each 13. All the above Companies and individuals penalised by the Commissioner are in appeal. The department have also filed ap .....

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aking 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 exp .....

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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 the outcome also of the inquiry made by with Consulate General of India, at Dubai, which shows that except for the wholly owned subsidiary Adani Global FZE, there are no other related parties. After referring to the parts of reply to the show-cause notice wherein the authenticity and genuineness of e-mails and its contents .....

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the part of the Indian Companies was not in accordance with law, no charges in respect thereof can be made against the Indian companies. It was finally submitted that there is no loss to the revenue and assuming that the Indian companies did intend to take advantage of TPS, they had genuinely exported as per the scheme which required an exporter to achieve incremental exports, but were yet to be granted the 'duty credit scrips' which is within the domain of the licensing authority. It w .....

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the show cause notice. The Ld. Senior Advocates also submitted that once foreign exchange have been realised in relation to the exports made from India within the time stipulated under Foreign Exchange Management Act (FEMA), the FOB value declared under shipping bill cannot be doubted. It was submitted that burden to prove our valuation is on the department and the investigations have not revealed any contemporaneous exports at lower prices or valuation based on market inquiry before discarding .....

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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 an .....

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g taken over by Milestone's Trade Link Pvt. Ltd., in which Mr. RK Sharma brother-in-law of Mr. Rajesh Adani (Director or AEL) and Mr. Saurin Shah-Executive of AEL were made directors. In Hinduja Exports Pvt. Ltd. which was earlier a partnership firm, was taken order by Ambitious Trade Link Private Ltd., group company of AEL. Hinduja Exports entered in to MOU with Jayant Agro and Bagadia Brothers, whereas Aditya Corpex entered into MOU with Midex overseas. As per the MOU entire operations of .....

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d level were looked after by Mr. Lumesh Sanghvi, an employee of AEL. The said fact stands and admitted in the statements of various persons recorded during investigation. 16.3 That with respect to the profile of the companies based at Hong Kong and Singapore, as the received from the High Commission of India, it is evident that out of total export of the CPD was 1643.02 million US dollars by the appellant companies in the year 2004-05, exports worth 1314.19 million USD was only to 8 companies ou .....

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ong- based companies namely 'Kwality Diamonds' and 'Seven Stars', and for UAE - based companies namely 'Excel Global', 'Jewel Trade', 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 activit .....

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cious 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 common directors, Miss Mary Joseph, the employee of Adani Global Private Ld. Singapore, is the Director of Gudami International. All the contract .....

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ntities, which was also supported by the investigations to show that no manufacturing or process was carried out in the bonded warehouse. As can be seen from the statements of Lumesh Sanghavi and others, who have inter alia admitted that the goods were re-exported after 3-4 hours or next day at values which were communicated to the team in Mumbai by Samir Vora or Saurin Shah from Ahmedabad and that there was no actual value addition but a mechanical determination by adding 5% or 10% on the CIF v .....

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h submitted that the Commissioner, however, was wrong in not upholding the charge of circular trading in view of the clear and cogent evidence of inter relationship between the buyer and the seller, elaborately set out in para 8.1 to para 8.22 from Pages 39 to 80 of the show-cause notice which he took us through in detail, which according to him was duly corroborated by the instances of circular trading set out in detail in paragraphs 9.1 to 9.13 of the show-cause notice. Lastly, Shri Singh subm .....

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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 act .....

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rs credit by the Indian entities on either the FOB value declared in the shipping bills or on the charge of circular trading referred to above? IV] Whether the export goods can be held liable for confiscation under Section 113 (i) of the Act and consequently whether the amounts of penalties imposed by the Commissioner are justified or are the same to be increased? 18. We shall now deal with each of the above issues- Issue No. I A. There are two parts to this issue. We have to see whether, firstl .....

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is evident from the fact that invariably all exports took place within 3-4 days of their imports and sometimes, on the 2 nd or 3 rd day itself. The fact that some processing activity was carried out in the bonded warehouse cannot be denied as even Lumesh Sanghavi, whose statement have been heavily relied upon by the department, has also admitted to the processing activity being conducted in the bonded warehouse. It would be useful to reproduce the portions from the statements of Lumesh Sanghavi .....

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d 30 minutes. However, according to my experience, in the bonded warehouse activity, only about 25% consignments were put for sieving. The rest of the consignments did not go through this process at all. The process of boiling involves boiling of the diamonds in a small glass like see through beaker (machine) which operates 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 w .....

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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 .....

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eby value of the CPD. This process is also not carried out 100%. D. In his statement dated 28.02.2006, Lumesh Sanghavi once again deposed as under: "On receipt of the imported consignment in the bonded warehouse, the process of assortment which included sieving, boiling and segregation would be undertaken for each lot (packet) separately, as detailed in reply to question No. 3 of my statement dated 07/02/2006. As stated in my statement dated 07/02/2006, all the above processes of sieving, b .....

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hin 3 to 4 days of imports. Sometimes the exports would also takes place on the second or third day of imports. On being asked, I state that the imported diamonds and the exported diamonds were in the same form i.e. cut and polished diamonds were imported and cut and polished diamonds were exported without carrying out any process except sieving, boiling and segregation." E. On this issue of whether processing at all was carried out or not, Kamaraj Bodal, who reported to Lumesh Sanghavi in .....

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ds 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 port .....

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s form the parcel of imported diamonds for sorting into various size, by the assorters, in the office of Aditya Corpex Pvt Ltd. Sometimes, when Lumesh Sanghavi could not come to the office Aditya Corpex Pvt. Ltd. he used to tell me on phone to take out packets of certain lots from the parcels (Aluminuim Box) of imported diamonds and give them for sorting. On being asked I state that assorters used to separate the different size, as per instruction of Lumesh Sanghavi and this acitivity was superv .....

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paper and put lot No. and carats with pencil as per the details shown for these diamonds in the export invoice." G. It is contended that Lumesh Sanghavi retracted his statements but the DRI denies having received the affidavits of retraction which are claimed to have been sent by Lumesh Sanghavi vide 'UCP'. No acknowledgement of receipt of affidavit of retraction have been produced before us to uphold such a contention. Be that as it may, it is not as if retracted statements cannot .....

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ing were carried out by the Indian companies in the bonded warehouse. It is therefore not possible to hold no process at all was carried out by the Indian companies in the bonded warehouse. 18.1 This takes us to the next question as to whether processes of boiling, sieving and sorting carried out in the bonded warehouse resulted in value addition of 5% or more in the years 2004-05 and 2005-06. These percentages of value addition flow from provisions of Para 4A.18 of FTP which was amended in 2005 .....

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xcept 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 manufactu .....

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.18 simply as a result of trading, i.e. buying and selling cut and polished diamonds from the bonded warehouse. While this may appear to be the intention because para 4A.18 does not prescribed any conditions as to how to achieve the value addition, we need not test the scope of para 4A.18 by this argument alone, having accepted the first contention that processes of sieving, boiling and sorting were carried out. 18.3 Having regard to the plain language of para 4A.18 we are not persuaded to agree .....

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f the Import and Export Policy 1997-2002, which is parimateria to para 4A.18 of FTP 2004-09 , para 2 therefore is reproduced herein: "2. The issue has been examined in consultation with the Ministry of Commerce and they have clarified that the activities of mixing, sieving, assortment and cleaning etc. are allowed in respect of imported cut and polished diamonds and cut & polished coloured gemstones in the private/public bonded warehouses set up under paragraph 8.13 of the Exim Policy. .....

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point. The question whether these simple processes can result in value addition of 5% or more is a matter of fact. If the 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 seg .....

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usiness 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 processes were carried out in respect of how many consignments of imported diamonds before export, which (we are informed) aggregate to about 3000 consignments or whether all .....

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o do so. Once we hold that there is no basis to support the finding of the Commissioner, that minimum value addition under para 4A.18 cannot be achieved by simple process, both as a point of law on interpretation of para 4A.18 and as a question of fact, in the absence of any expert evidence holding the same, we go back to the question whether the FOB value as declared in the shipping bills is correct. 18.6 For this purpose, we have to bear in mind the distinction between FOB value and the value .....

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B value. We shall deal with this aspect later in detail when dealing with circular trading. Value addition is a concept under the Foreign Trade Policy (FTP). The formula for determining value addition is given in para 4A.6 of the FTP for 2004-09 which is reproduced herein: "4A.6 The value addition for the purpose of gem and jewellery sector shall be as per paragraph 4A.2.1 of Handbook (Vol.1) V.A. = (A-B) x 100, where B V.A. = Value Addition A = FOB Value of the export realised/FOR value of .....

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ning 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 ju .....

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e correct Present Market Value (PMV) and on that basis, the Commissioner rejected the higher FOB value declared by the exporter. This Tribunal held that the concept of PMV cannot be equated with the FOB value of the goods which represents the price in the international market. The same view was also taken in the second case of Frost International Vs. Commissioner. The Tribunal also did not accept the evidence of clearance by the foreign buyer at a lower price received on overseas inquiry. Both t .....

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ed Goods) Rules, 1988 applied only to goods imported into India, the principles thereof were also applicable to goods exported from India. 18.8 The 'transaction value' in the present case is established by the fact that sale proceeds in foreign exchange have been fully realised. There is also no evidence on record as required under Section 14, to show that the price of such or like goods for delivery at the time and place of exportation is lower. On the other hand the appellant companies .....

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n reports recorded at the time of assessment of the export consignments on the shipping bill, on the basis of which let export orders were passed by the proper officer of Customs under Section 51 of the Act, in each case. A few photocopies of the duplicate copy of the shipping 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 prescr .....

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sands 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 so. And the only .....

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ition, of which FOB value is only one of the components and which need not arise only out of processing and indeed may have nothing to do with the processing under para 4A.18.of FTP. It would be unfair to reject the FOB value on a criteria which is not prescribed by law. As we have held, processing has been undertaken in respect of the export consignments. When neither Section 14 of the Act nor para 4A.18 of FTP requires the exporter to establish a relationship between processing and the FOB val .....

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ct the FOB value, is that the value addition of 5% or more cannot be achieved only by carrying out simple processes, is not sustainable. We therefore, hold that the FOB value declared is correct. 18.10 On the question of valuation, the Commissioner also records that evidences disclosed in the show-cause notice, there is an allegation that the FOB value declared is not genuine on account of control by AEL over all the overseas parties involved in the transactions as buyers or sellers of diamonds. .....

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d 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 .....

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since the application for grant of duty free scrips made by the Indian companies including AEL for the year 2004-05 is pending before the Licensing authority, it is for the licensing authority to consider whether the export turnover of each individual Indian company is to be reckoned or whether export turnover of all Indian companies to be clubbed for the purposes of calculating the benefits under TPS. We say no more than this so as not to prejudice the disposal of the application pending before .....

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mission, Singapore, several entities in Hongkong and Singapore were incorporated or started business in or around the period when TPS was announced and stopped the business soon after the TPS was over; b) Registered office of some of the entities in Singapore like M/s. Planica Exports Pte Ltd and M/s. Emperor Exports Pte Ltd is common; c) The registered address in some cases is residence of individual Directors; d) Ms. MaryJoseph who is an employee of Adani Global Pte Ltd has also signed all con .....

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rnational is the brother in law of the Chairman and Managing Director of AEL. 18.13 The fact that some of the overseas entities were started around time of introduction of TPS or closed business simultaneously with closure of TPS does not establish these entities in Singapore and Hongkong were controlled by AEL. We find that out of 45 overseas entities, six have started business between September and December, 2004 and two of them in May and August, 2005. Again out of 45 overseas entities, only .....

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nt. 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. .....

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ctors are also Directors or in which its employees are also Directors or Partners. Mutuality of interest must be proved both ways. It is interest in the business of each other which proves that the parties are related. The inquiries made through the Indian High Commission, Singapore or Indian Consulate in Dubai have not brought out any such factual position on either shareholding pattern or control over the composition of the Board of Directors of the overseas entities except the two subsidiarie .....

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ed from bonded warehouse by Indian companies, only two such buyers namely; G A International and Gudami Internation, Singapore are part of the list of alleged related parties, but the total exports to them in 2004-05 constitutes only about 22.45% which means that the remaining 77.55% of exports at or about the same price has been made to independent buyers. In 2005-06, exports to independent buyers is about 28.21% assuming all the buyers in Singapore are related. We have arrived at this finding .....

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said that the diamonds were over-invoiced. This statement by itself does 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 i .....

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ing. 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 was the true sale consideration, and accepted the lower value ascertained on market inquiry even at the time of hearing, while giving up the claim of drawback. It is in these facts that the Court was called upon to decided whether s .....

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of plastic flat jet nozzles was pending since the goods were suspected to be over-invoiced and had been provisionally allowed exports. The High Court held that the Customs Authorities had the power to examine the correctness of the value of the goods under the DEEC scheme. Firstly, this case is not at the interim stage, and secondly, in the present case investigations have been completed and detailed show cause notice issued relying on the documents & statements, which we have examined as a .....

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rise at all. 18.19 The issue involved in the judgment in Euresian Equipment and Chemicals Ltd. and Others vs. CC 1980 (6) ELT 38 (CAL) does not arise for consideration in the facts of the instant case, as it is not the claim of the appellants that liability if any is wiped out or extinguished with the exportation of goods. 18.20 In CC vs. D. Bhormull, 1983 (13) ELT 1546 (SC), the Hon'ble Apex Court held that a case need not be proved with a mathematical precision in the context of smuggled g .....

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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 .....

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Section 14 of the Act and to that extent the order of the Commissioner is set aside. 19.0 ISSUE NO. II 19.1 The allegations relating to circular trading are essentially set out in para 9.1 to 9.13 of the show cause notice. The Commissioner, as stated, did not confirm the allegation of circular trading and held that the defence to show that circular trading is not possible appears to be plausible. The department is aggrieved by this finding and has come in appeal. 19.2 Before examining the mater .....

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f diamonds being imported and exported over a number of times during different periods as detailed in the two tables on page 81 to 83 of the show cause notice. We have therefore looked at import and export invoices to see how the individual lots referred to at pages 81 to 83 have been imported and exported. On examination of the invoices relating to import as well as export of cut and polished diamonds it is seen that each consignment consists of various lots of different descriptions, weight, v .....

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ction 46 or the shipping bill under Section 50 contains a declaration of the goods covered by the total quantity and value of the goods supported by the invoice, which covers the totality of all the lots constituting the consignment. Singling out one or two lots from a 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, c .....

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light 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 to affect the value or identit .....

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ping bill wise, to allege circular trading. AEL in its reply to the show cause notice sought to demolish Annexure H & I by reference to Exhibit - D to the reply. In Exhibit -D we find that AEL has given several examples where the export of the lot on first import has taken place after the second import of the same alleged lot which belies the allegation of circular trading, which if true, means that the export of the lot on first import should have taken place before the second import of the .....

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ere to Dubai and Dubai to India, suggesting thereby the whole theory of circular trading is bogus and impossible. We find no answers to this point in the contentions raised by the department. 19.4 To prove circular trading show cause notice also relies upon the statement of Lumesh Sanghavi. In his statement dated 28.02.2006, he has admitted to circular trading in relation to documents shown to him in respect of imports and exports by and to the Indian companies in July, 2005 as recorded on pages .....

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nting 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 .....

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ts and if the same set (lot) of diamonds were allegedly imported on 26.07.2005 from Spectrum Trading, UAE, then the weight of each variety at the time of second export ought to have been the same, but as seen from the export invoice dated 28.07.2005, the weight of PK 4 variety was 725.63 carats which is much more than 486.57 carats in the previous exports and so also in case of PK 5, the weight in the second export was significantly lower at 512.61 carats as compared 733.67 carats. This differen .....

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tween the first and second round of diamonds which as submitted by the Ld. Senior Counsels fortifies their case that there is no circular trading, even if we go by the statement of Lumesh Sanghavi, who did not correctly appreciate the facts as flowing from the same documents which were shown to him. We find force in these submissions and hold that not only is the defence to circular trading plausible but incontrovertible. 19.5 The third piece of evidence referred to in the show cause notice, to .....

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not prove circular trading. AEL has explained these charts to depict the business plan and a pattern of transactions. This in fact appears to be so, these charts appeared to be graphic representation of information which have been tabulated by DRI in the show cause notice covering the names and identities of overseas entities into buyer and seller as can be seen form pages 40, 41 and 45 to 48 of the show cause notice. The Indian companies have also not disputed the fact that they were importing .....

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nd 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 .....

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onal value and after discussions, AEL sends its own proposal and that the value is decided after negotiation, if necessary. Bhavik Shah is the other person who makes reference to Daboul in his statement recorded on 31.01.2006 wherein he refers to Rakesh Shah an employee of Adani Global PZE to be the coordinator for import and export of gold, gold jewellery and articles and cut and polished diamonds with Daboul. No doubt, there is no specific reference to MOU in these statements, but nonetheless .....

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e Commissioner must undertake fact finding especially when it is not as if AEL had adverted to business relationship with Daboul for the first time in its reply to show cause notice. We cannot help but noticing that the reply disclosing the MOU with Daboul was filed on 29.10.2007 and the adjudication order has been passed after more than 5 years, which gave ample opportunity to inquire into the genuineness of the said MOU. 21. The most significant material relied upon in the show cause notice ar .....

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. According to the department, these e-mails reveal that AEL controlled 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 th .....

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n 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 Joseph, author of almost all these mails have not been recorded, we are left to imagination why she was writing such mails and to whose instructions. These gaps are extremely vital to the issues at hand and fatal to the case of the department. .....

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but Daboul shall assure AGFZE that funds ill be available for the onward import from Gudami and for this purpose Gudami shall be entitled to call for and maintain and monitor financial information and records. In order to coordinate the working of these transactions, including movement of funds wherever necessary, Daboul, AGFZE and Gudami may nominate a common person to act as a representative of all the parties who is acceptable to all the parties." For want of better explanation from the .....

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to transactions with parties other than the 45 overseas entities, as for example, Aramex International Exchange, Radya Baqer Trading LLC, Navy Impex LLC and White Monitor General Trading LLC to name a few. (c) The e-mails provide no explanation on the transfer from one overseas entity to another. In many cases where there is no reference to corresponding invoice related to either import or export of cut and polished diamonds which are the subject matter of the present case. For instance against .....

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tice, 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 d .....

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U, the e-mails can at best give rise to suspicion that AEL controlled the overseas entities. This, however, will remain a suspicion because statement of Ms. Mary has not been recorded. Suspicion howsoever strong cannot take the place of evidence. 21.4 On behalf of the Indian companies, it was also submitted that the allegation of circular trading is absurd and illogical because the CIF value of all the imported consignments has been accepted and in fact, proposed to be adopted as the correct val .....

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e and correct value, meaning thereby each consignment is a fresh and a new transaction, independent of each other and not of the same goods repeatedly circulated. We do see force in this argument. We find the 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 CI .....

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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. 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 circula .....

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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 team in India took all decisions in relation to payments for .....

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ar No. 12 dated 9.9.2000 issued by RBI and relied upon in the show cause notice supports the case of Indian companies that payment of commission is permissible and that it is not mandatory to disclose the same in the shipping bill as long as the agreement for payment thereof is produced to the authorised dealer at the time of remittance, which they have duly done so. There is according to them, no violation of the provisions of Foreign Exchange Management Act in the payment of commission or disc .....

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onfiscation of the exports goods under Section 113 (i) of the Act, consequently, we also set aside the penalties imposed by the Commissioner in the impugned order under Section 114 of the Act. 23.1 Before parting, on behalf of some of the individuals on whom the penalties have been imposed it has been submitted that penalties have been mechanically imposed without ascertaining the role played by each of them. It was submitted that the penalty on Rajesh Adani has been imposed simply because he is .....

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