# COMMISSIONER OF CUSTOMS, MUMBAI v. MIS. B. V. JEWELS AND ORS

- **Citation:** [2004] Supp. 4 S.C.R. 413
- **Court:** Supreme Court of India
- **Decided:** 2004-09-14
- **Case number:** ·: Civil Appeal Nos. 4254-4260 of 2003
- **Bench:** S.N. Variava, Arijit Pasayat
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/commissioner-of-customs-mumbai-v-mis-b-v-jewels-and-ors-20118
- **Pages:** 28

## Headnote

Customs Act, 1962-Non-levy and short levy-Capital goodsUnaccounted diamonds-Seizure of-Goods imported by one firm utilised by
sister concern-Common premises-Mixing of two units-Held not legally
permissible-Duty levied on shortage of gold and diamond confirmed.
Exim Policy-Inter-unit transfer-Held, permission necessary not only
for transfer but also usage of imported goods-Demand confirmed-Plea
that units can transfer without permission, rejected.
Burden of proof-Jn respect of retention of goods in connection with
the promotion of exports of gem and jewellery-Held, burden lies on the
assessee to establish the satisfaction of condition.
Exim Policy-Paras 8.34 and 8.35, 8. 78B-'-Working out details of
quantity of imports and exports by the exporter-Held, the details to be done
in terms of para 8. 78B.
Show cause notice was issued to the respondents for shortage of
gold and diamonds, capital goods and unauthorised usage of capital
goods. On the basis of certain intelligence, regarding various provisions
of the Customs Act, 1962 (the 'Act') and Customs Rules, 1966 (the
'Rule'), the EXIM policy and violation of conditions of certain
Notifications on the basis of which the respondent had availed benefits,
in terms of Section lll(d), lll(j), lll(i), lll(o), lll(m), 112(a), 112(b),
113(d), 113(i), 114(i) and 114(A) of the Act. The premises of the
respondents Mis. B.V. Jewels and Mis. B.V. Star were searched. Both
the units were situated at the same plot. Officers of Customs recorded
statements of the Accounts Manager and stock taking was done, and
verification continued for several days. After completing verification it
was found that there was large scale evasion of duty, shortage of stocks
A
B
c
D
E
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of certain items while excess stock was found in respect of some others
items. In addition, it was found that there was shortage of capital goods
H
413
- 414
SUPREME COURT REPORTS [2004] SUPP. 4 S.C.R.
A
and unauthorised usage of capital goods. The unaccounted diamonds,
and capital goods were seized and show cause notice was issued to the
respondents.
B
c
D
The Commissioner considered the show cause reply and passed the
order imposing penalty, confiscation, etc.
The order of the Commissioner was set aside by CEGAT holding
that accusations were not established, that the shortage or excess as
claimed were not substantiated and various departmental notifications
were not properly construed by the Commissioner.
In appeal before this Court, Appellant contended that the show
cause notice elaborately detailed the various infractions, that CEGAT
did not examine the materials in their proper perspective, that the
judgment which is the result of perfunctory manner of disposal by .
CEGAT needs to be set aside and the order of the Commissioner deserves
to be restored.
Respondents contended that the Commissioner had not analysed
the show cause reply, had acted on mere surmises and conjectures without
keeping in view the applicable provisions and the notifications and had
E
confirmed the demands proposed in terms of the show cause notice, that
CEGAT ha.d analysed the issues in great detail and arrived at the correct
conclusions, that the position of expected recovery as worked out by the
department is artificial and hypothetical, that there was no material
brought on record to show that the expected recovery would be the
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actual, that the capital goods
imported duty free
by
Mis. B.V. Star was installed in the premises allo~ted to Mis. B.V. Jewels
and were in exclusive use of the latter, that in the present case condition
xiv (b)(i) of Notification 196/87-Cus. dated 5.5.1987 is not applicable
and it is a case where condition xiv (b)(ii) is applicable, that the articles
can be retained within the Zone in connection with the promotion of
G
exports and that the demands raised were clearly barred by limitation
and though the plea of limitation was specifically raised the same was
not considered by the Commissioner and since CEGAT accepted the
plea of

## Text

_Characters 0–39,980 of 65,518. This is a partial read: ask again with offset=39980 for what follows._

COMMISSIONER OF CUSTOMS, MUMBAI
v.
MIS. B. V. JEWELS AND ORS.
SEPTEMBER 14, 2004
[S.N. VARIAVA AND ARIJIT PASAYAT, JJ.J
Customs Act, 1962-Non-levy and short levy-Capital goodsUnaccounted diamonds-Seizure of-Goods imported by one firm utilised by
sister concern-Common premises-Mixing of two units-Held not legally
permissible-Duty levied on shortage of gold and diamond confirmed.
Exim Policy-Inter-unit transfer-Held, permission necessary not only
for transfer but also usage of imported goods-Demand confirmed-Plea
that units can transfer without permission, rejected.
Burden of proof-Jn respect of retention of goods in connection with
the promotion of exports of gem and jewellery-Held, burden lies on the
assessee to establish the satisfaction of condition.
Exim Policy-Paras 8.34 and 8.35, 8. 78B-'-Working out details of
quantity of imports and exports by the exporter-Held, the details to be done
in terms of para 8. 78B.
Show cause notice was issued to the respondents for shortage of
gold and diamonds, capital goods and unauthorised usage of capital
goods. On the basis of certain intelligence, regarding various provisions
of the Customs Act, 1962 (the 'Act') and Customs Rules, 1966 (the
'Rule'), the EXIM policy and violation of conditions of certain
Notifications on the basis of which the respondent had availed benefits,
in terms of Section lll(d), lll(j), lll(i), lll(o), lll(m), 112(a), 112(b),
113(d), 113(i), 114(i) and 114(A) of the Act. The premises of the
respondents Mis. B.V. Jewels and Mis. B.V. Star were searched. Both
the units were situated at the same plot. Officers of Customs recorded
statements of the Accounts Manager and stock taking was done, and
verification continued for several days. After completing verification it
was found that there was large scale evasion of duty, shortage of stocks
A
B
c
D
E
F
G
of certain items while excess stock was found in respect of some others
items. In addition, it was found that there was shortage of capital goods
H
413
- 414
SUPREME COURT REPORTS [2004] SUPP. 4 S.C.R.
A
and unauthorised usage of capital goods. The unaccounted diamonds,
and capital goods were seized and show cause notice was issued to the
respondents.
B
c
D
The Commissioner considered the show cause reply and passed the
order imposing penalty, confiscation, etc.
The order of the Commissioner was set aside by CEGAT holding
that accusations were not established, that the shortage or excess as
claimed were not substantiated and various departmental notifications
were not properly construed by the Commissioner.
In appeal before this Court, Appellant contended that the show
cause notice elaborately detailed the various infractions, that CEGAT
did not examine the materials in their proper perspective, that the
judgment which is the result of perfunctory manner of disposal by .
CEGAT needs to be set aside and the order of the Commissioner deserves
to be restored.
Respondents contended that the Commissioner had not analysed
the show cause reply, had acted on mere surmises and conjectures without
keeping in view the applicable provisions and the notifications and had
E
confirmed the demands proposed in terms of the show cause notice, that
CEGAT ha.d analysed the issues in great detail and arrived at the correct
conclusions, that the position of expected recovery as worked out by the
department is artificial and hypothetical, that there was no material
brought on record to show that the expected recovery would be the
F
actual, that the capital goods
imported duty free
by
Mis. B.V. Star was installed in the premises allo~ted to Mis. B.V. Jewels
and were in exclusive use of the latter, that in the present case condition
xiv (b)(i) of Notification 196/87-Cus. dated 5.5.1987 is not applicable
and it is a case where condition xiv (b)(ii) is applicable, that the articles
can be retained within the Zone in connection with the promotion of
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exports and that the demands raised were clearly barred by limitation
and though the plea of limitation was specifically raised the same was
not considered by the Commissioner and since CEGAT accepted the
plea of the respondents on merits it did not refer to that plea.
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Allowing the Appeals partly, the Court
COMMR. OF CUSTOM v. B.V. JEWELS
415
HELD : 1. It was not permissible for Mis. B. V. Star to claim that
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the goods imported by it were mixed up with the stock of Mis. B.V.
Jewels. Tribunal has proceeded on entirely erroneous premises that it is
the department which mixed up the stock in working out the excess or
shortage. [433-CJ
2. The mixing up of stock of two units is not legally permissible.
The finding of CEGAT that if the stock position of both the units varies
there shall be marginal difference, overlooking the fact that mixing was
not done by the department but by the concerned respondents is not
correct. It was for them to explain the stock position. The department
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has worked out the details with reference to the official records. It was
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for the concerned respondents-assessees to reconcile the figures.
Therefore, the duty as levied on the shortage of gold and diamond was
rightly worked out by the Commissioner, CEGAT without considering
the factual position on the basis of some abrupt conclusions which are
also not supportable factually held that there is no discrepancy. The D
duty as levied by the Commissioner on the shortage of gold and diamond
is confirmed. [433-G, H; 434-B, CJ
3. Permissible transfer has to be in the mode noted a para 9.16 of
EXIM policy which relates to inter unit transfer. It is not that only in
the case of transfer permission is necessary. Usage also would be covered
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because for duty free import the pre-requisite is that it must be used in
the premises of the unit. Notification 196/87-Customs makes the position
clear. The goods imported were to be u~ed by the imported unit.
Permitting another unit to use it is clearly in violation of the stipulations
in the notification which clearly mandate use by the imported unit only,
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except with the requisite permission stipulated which in the instant case
was not there. Therefore, the duty on capital goods imported by Mis.
B. V. Star and under possession and usage of Mis. B. V. Jewels as ordered
by Commissioner is confirmed. (434-F, G, H; 435-A]
4. As laid in para 9.lO(b) of the EXIM policy and in terms of para G
7(i) of the Notification 177/94-Cus dated 21.10.1994, the transfer from
one unit to another unit had to be preceded by permission from the
Development Commissioner and proper accounting in the registers
prescribed by the department. In the instant case neither Mis. B.V. Star
nor Mis. B. V. Jewels had obtained any permission from Development H
416
SUPREME COURT REPORTS [2004] SUPP. 4 S.C.R.
A
Commissioner or the Assistant Commissioner (Customs). Contention of
Respondents that both the units being sister concerns and promoted by
same partners and was practically using as one unit is clearly untenable.
Even for merger of two or more units in terms of para 9.37(x) of Handbook
of Procedures of EXIM policy 1997-2002, specific permission from the
B
Development Commissioner is required to be obtained. [435-B, C, D]
5. As the manufacturing activity of Mis. B.V. Star is admittedly
negligible CEGAT could not have that the goods have been consumed
or worn out during manufacture of jewellery by Mis. B.V. Star. As the
consumption and utilization of capital goods has not been properly
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accounted for and these goods were found short while working out the
details, the duty foregone at the time of clearance of the goods is clearly
leviable. The confirmation of demand by the Commissioner is in order.
[435-E-F]
D
6. On a bare reading of the details of the goods in respect of which
the demand was confirmed, goes to show that it has nothing to do with
the promotion of exports of gem and jewellery. The vital requirement is
that the retention should be in connection with "the promotion of
exports". The burden lay on the assessee to establish that the condition
was satisfied. No material whatsoever was placed before the
E
Commissioner to satisfy the requirement. CEGAT was not justified in
annulling the demand. The demand as confirmed by the Commissioner
stands revived. [436-G, H; 437-A]
7. Para 8.34 and 8.35 ofEXIM policy operate in a field different from
para 8.78B. The exercise to be undertaken so far as the requirements of
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8.78B are concerned, relate to a stage when the exporter is required to
account for the total quantity of imports and the comparison has to be
made with total quantity of exports and the balance stock including broken
diamonds and other gemstones. The view of Departmental authorities that
the working out of the details are to be done in terms of paras 8.34 aild 8.35
G
and not in the line of8.78B is clearly erroneous. [437-F; 438-E]
8. Power of the departmental authorities to verify the records to
find out whether imports and exports have been properly recorded shall
not be only for the purpose of finding out the compliance of paragraphs
8.34 and 8.35 and 8.78B but the same shall be to test the correctness of
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the accounts maintained. Therefore, it would be appropriate to direct
COMMR. OF CUSTOM v. B.V. JEWELS
417
CEGAT to work out the details so far as the alleged shortage of 73,730
carats of diamonds valued at Rs. 26,29,54,490 are concerned. [438-G, HJ
9. The reference of departmental authorities to the proviso appended
to Section 28(2) of the Act and its non-applicability was not taken in the
grounds of appeal before CEGA T though it was vehemently urged that
the point was specifically taken before the Tribunal. If, in reality, CEGAT
found that the action .taken by the departmental authorities was beyond
the period of limitation, it could have disposed of the appeals before it
only on that ground without examining the merits. On the contrary, in
the absence of any specific plea in the grounds of appeal, the point does
not seem to have been urged before CEGAT, particularly, in view of the
consideration of the merits and non-consideration of the question of
limitation. That being so there is no substance in the plea of the
respondents that the action taken by authorities was beyond the period
of limitation. Even otherwise, the proviso to sub-section (2) of Section 28
is clearly applicable as the materials clearly indicate non levy and short
levy on account of misrepresentation of facts by the respondents.
[439-F, G, H; 440-A,B)
[The Court directed that the Tribunal shall permit the respondentsassessees to produce the original records which shall be verified by it.
Definite stand of the department as to how there are suppressions
resulting in either excess or shortage of gold shall be considered. CEGAT
shall consider the basic features to work out the details and find out
whether there is any excess or shortage as alleged by the departmental
authorities. If after considering the explanation of the respondentsassessees and that of the departmental authorities already on record it
finds that the plea of the concerned assessees, is without substance it
shall work out the suppression, if any, and the duty payable. The quantum
of penalty would be equal to the sum of duty leviable in te.rms of
confirmation of Commissioner's order. The penalty to that extent stands
confirmed, the balance of penalty, if any, would depend upon reexamination by CEGAT.J [439-C, DJ
CIVIL APPELLATE JURISDICTION·: Civil Appeal Nos. 4254-4260
of 2003.
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From the Judgment and Order dated 14.2.2003 of the Central
Excise Customs and Gold (Control) Appellate Tribunal, West Regional
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418
SUPREME COURT REPORTS [2004] SUPP. 4 S.C.R.
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Bench at Bombay in A. No. C/825-831/2001 in F.O. No. C-1/396-402/WZB
of 2003.
Anoop G. Chaudhri, K Swami, Mrs. June Chaudhri, Rohit Singh, A.
Subba Rao, P. Parmeshwaran and B.K. Prasad for the Appellant.
B
V.M. Doiphode and Rajesh Kumar for the Respondent Nos. 1-7.
The Judgment of the Court was delivered by
ARIJIT PASAYAT, J. : Customs authorities question correctness of
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the judgment rendered by the Customs Excise and Gold (Control) Appellate
Tribunal, West Regional Bench at Mumbai (hereinafter referred to as the
'CEGA T') setting aside the order passed by the Commissioner of Customs
(Airport) confirming demand of duty and penalty. Background facts in a
nutshell are as follows :
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G
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Show cause notice was issued to the respondents alleging shortage of
gold and diamonds, capital goods and unauthorized usage of capital goods.
It is to be noted that the show cause notice was issued on the basis of certain
intelligence gathered regarding infraction of various provisions of the
Customs Act, 1962 (in short the 'Act') and Customs Rules, 1966 (in short
the 'Rules'), the EXIM policy and violation of conditions of certain
Notifications on the basis of which the respondents had availed benefits. The
purported action was in terms of Sections 111 ( d), 111 U), 111 (I), 111 ( o ),
11 l(m), l 12(a), l 12(b), 113(d), I 13(i), I 14(i) and l 14(A) of the Act. The
premises of the respondents M/s. B.V. Jewels and Mis. B.V. Star were
searched. Both the units were situated at plot No. 55 of Santacruz Electronics
Export Processing Zone (in short 'SEEPZ'), Andheri East Mumbai. Officers
of Customs visited the unit on 31.1.2000, recorded statements of the
Accounts Manager and stock taking was done. Verification continued for
several days. Partner Suresh joined the verification on 3.2.2000. After
completing verification it was found that there was large scale evasion of
duty, shortage of stocks of certain items while excess stock was found in
respect of some other items. Additionally, it ,was found that there was
shortage of capital goods and unauthorized usage of capital goods. The
unaccounted diamonds, and capital goods were seized and cause notice was
issued granting opportunity to the respondents to have their say in the matter.
The Commissioner considered the show cause reply and after considering the
COMMR. OF CUSTOM v. B.V. JEWELS [PASAYAT, J.)
419
materials brought on record by departmental authorities and the reply
A
furnished by the respondents, passed the order to the following effect :
(1)
The demand of duty of Rs. 2,57,90,900 under the proviso to
Section 28(2) of the Act on Mis. B.V. Star was confirmed. A
similar amount was imposed as penalty under Section l 14(A) of B
the Act.
(2)
8604.5 gms. of gold and 844.16 cts. of diamonds valued at
Rs. 62,86,823 and capital goods of Rs. 58,58,696 were held to be
liable for confiscation under Sections 11 l(d), 11 IG), 11 l(o) of the
Act.
(3)
Confiscation of capital goods under seizure valued at Rs.
1,06,37,742 found in the premises ofM/s. B.V. Jewels along with
motors, hand pieces and carbon brushes valued at Rs. 36,70,765
under the aforesaid provisions were directed to be confiscated.
However, M/s. B.V. Star was given an option to clear the goods
on demand of fine of Rs. 15,00,000 in lieu of confiscation in terms
of Section 125(1) of the Act. It was clarified that the fine in lieu
of confiscation was to be in addition to any duty payable in respect ·
of such goods as prescribed under Section 125(2) of the Act.
(4)
Penalty of Rs. 12,00,000 was imposed on Mis. B.V. Star under
Section l 12(a).
(5)
The demand of duty of Rs. 12,94,12,122 under the proviso to
Section 28(2) of the Act on Mis. B.V. Jewels was confirmed.
Similar amount was imposed as penalty in terms of Section l 14(A)
of the Act.
(6)
It was held that 73730 cts. of diamonds valued at Rs. 26,29,54,490
and capital goods found missing valued at Rs. 58,54,698 were
liable for confiscation under Sections 111 ( d), 111 G) and 111 ( o)
of the Act. It was noticed that these items were not available for
confiscation. 23 pieces of high value diamonds valued at Rs.
39,63,286 under the aforesaid provisions were directed for
confiscation.
c
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G
(7)
Broken diamonds valued at Rs. 6,91,139 under Sections 11 l(o) H
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420
SUPREME COURT REPORTS [2004] SUPP. 4 S.C.R.
and I I 9 of the Act was also directed for confiscation. The
redemption of seized goods on payment of fine of Rs. 70,000 was
allowed.
(8)
Confiscation of diamonds and diamond studded in semi-finished
gold jewellery valued at Rs. 4,03, 72,667 along with inseparable
gold weighing 6423.32 gms. valued at Rs. 62,81,736 were directed
to be confiscated. Redemption fine of Rs. 43,00,000 was fixed.
Unaccounted diamonds valued at Rs. 27,00,76,393 was held to be
liable for confiscation but it was observed that these were not
available for confiscation.
(9)
Penalty of Rs. 5 crores was imposed on M/s. B.V. Jewels under
Sections l I2(a) and I I4(i) of the Act.
(10) Penalty ofRs.10,00,000 was imposed each on Mr.Suresh Mehta
and Mr. Suken Mehta.
(I I) Penalty of Rs. 2,00,000 was imposed on Mrs. Saroj Mehta, Mrs.
Sapna Mehta, S~ivani Mehta, Mr. B.V. Shah, Mr. Rajesh B. Shah
and Mr. Bharat S. Shah.
(12) Penalty of Rs. 1,00,000 was imposed on Mr. Vijay Shah.
The order of the. Commissioner was questioned in appeal before
CEGA T which by the impugned judgment set aside the same holding that
the accusations were not established. The shortage or excess asclaimed were
not substantiated and various departmental notifications were not properly
construed by the Commissioner. The order the CEG~ T is challenged in these
appeals .
. Learned senior counsel appearing for the appellant submitted that the
show cause notice elaborately detailed the various infractions. The
Commissioner analysed the materials colleded in the background of the show
cause reply furnished by the respondents and came.·. to hold that the
accusations were established. Accordingly, the directions· as noted above
were given. Unfortunately, the CEGA T did not examine the :materials in their
proper perspective. By abrupt .conclusions without arty material to support
them and/or without indicating reasons the conclusions of the Commissioner
were nullified. The judgment which is the result of perfunctory manner of
COMMR. OF CUSTOM v. B.V. JEWELS [PASAYAT, J.]
421
disposal by the CEGA T needs to be set aside and the order of the
A
Commissioner deserves to be restored.
Learned counsel for the respondents on the other hand submitted that
the Commissioner had not analysed the show cause reply, had acted on mere
surmises and conjectures without keeping in view the applicable provisions
B
and the notifications and had confirmed the demands proposed in terms of
the show cause notice. According to him, the CEGA Thad analysed the issues
in great detail and arrived at the correct conclusions.
The various infractions for which duty and/or penalty were imposed
which were highlighted by the Customs Authorities are essentially as follows
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In respect of Mis. B.V. Star the allegations and levies were as
follows :
(1)
Levy of duty on gold shortage of 8604.5 gms. valued at Rs.
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34,66,889. The duty component is Rs. 23,65,652.
(2)
Duty on shortage of 844.16 cts. of diamonds valued at Rs.
26,92,014, the duty component on which was Rs. 11,84,372.
(3)
Duty levied on missing capital goods which were imported duty
free the value of which was Rs. 2,22,48,876. This essentially
related to three items i.e. (i) duty on capital goods valued at Rs.
1,06,37,742 which were imported by Mis. B.V. Star were found
to be in illegal possession and usage of Mis. B.V. Jewels; (ii)
capital goods valued at Rs. 58.58.696 which were not found
in the unit; and (iii) un-installed motors, hand pieces and
brushes valued at Rs. 36, 70,675 for violation of the notification
No. 196187.
(4)
Penalty of Rs. 12 lakhs imposed under Section l 12(a) of the Act.
So far as issues relating to Mis. B.V. Jewels are concerned, they are as
follows:
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(1)
Duty on shortage of 73730 cts. of diamonds valued at Rs.
26,29,54,490, the duty on which payable was Rs. 12,54,80,309.
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G
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SUPREME COURT REPORTS [2004] SUPP. 4 S.C.R.
(2)
Broken diamonds of 1607.3 carats valued at Rs. 6,91,139.
(3)
Confiscation of high value diamonds valued at Rs. 39,63,286.
(4)
Duty on unaccounted capital goods of Rs. 58,54,698.
(5)
Confiscation of 10631.39 carats of diamonds valued at Rs.
4,03,72,667 that were unaccounted along with 6423.32 gms. of
gold.
(6)
Confiscation of unaccounted diamonds exported during 1998-99,
1999-2000 valued at Rs. 27,00,76,393.
At this juncture, it would be necessary to note a few factual aspects.
The partners ofM/s. B.V. Star and Mis. B.V. Jewels are the same except
that M/s. B.V. Jewels had an additional partner i.e. Mr. Vijay Shah. Both the
firms are gems and jewellery units set up in SEEPZ and engaged in the
manufacture and export of studded gold jewellery. Originally B. V. Star was
allotted a plot No. 55 in the Zone where they had constructed a building
having four floors. In 1995 a request was made by M/s. B. V. Star to the
Development Commissioner of permit Mis. B.V. Jewels to shift their factory
from Gola to operate from Ist and 3rd floor ofM/s. B.V. Star's building. Same
was permitted. Accordingly, Mis. B.V. Star operated from the 2nd and 4th
floors while Ms. B. V. Jewels operated from the other two floors. During stock
taking, as noted above, the Accounts Manager, Shri Ramesh Iyer informed
the department officials that partners Mr. Suresh Mehta and Mr. Suken Mehta
had kept some diamonds separately. On 3.2.2000, Suresh Mehta produced
3861.65 carats of diamonds the value of which varied between $40 to 50 per
carat. By letter dated 3.2.2000 the physical stock of gold and ctiamonds as
per the inventory sheet prepared by the departmental authorities was confirmed.
It was specifically stated that there was no separate stock of gold and
diamonds of Mis. B.V. Star as it was included in the stock of Mis. B.V.
Jewels. The seized stock of diamond and gold were revalued by an appraiser.
The conclusions of the Commissioner and the Tribunal need to be noted.
First the case of Mis. B.V. Star is dealt with. The issues and seriatim
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are as follows :
•
COMMR. OF CUSTOM v. B.V. JEWELS [PASA YAT, J.]
423
(a)
Duty on gold shortage of 8604.5 grams valued at Rs. 34,66,889 is Rs.
A
23,65,652?
(b)
Duty on shortage of 844.16 cts. of diamonds valued at Rs. 26,92,014
is Rs. 11,84,372.
As regards gold and diamond, Commissioner observed that the unit's
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claim that their stock was mixed up with that of M/s. B.V. Jewels was not
accepted as there is no provision available in Custom Notification or EXIM
Policy whereby two units can have joint stock of exempted material. Customs
Notification I 7711994-Cus at Para 7 (i) stipulates the goods imported by a
unit in EPZ can be transferred to other unit only with the prior permission
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of Asstt. Commissioner of Customs of the Zone, which has not been done.
Diamonds are restricted for import and import without licence allowed only
to EPZ unit under EXIM Policy and as per Para 9.10 of Handbook of
Procedures, goods are to be imported into units' premises. Transfer of goods
so imported, to any other unit is in violation of EXIM Policy and Custom
Notification. The claim that the stock of gold, diamonds of Mis. B.V.:" Star
is available with Mis. B.V. Jewels was not accepted as detailed stock position
of Mis. B.V. Jewels indicated total shortage of 202 grams of gold without
considering stock of Mis. B.V. Star. Hence, Commissioner confirmed the
custom duty on gold and diamonds, which were found short.
CEGA T held that no stock taking report was prepared by department
and have accepted the unit's contention that while stock taking, department
mixed up all stock of diamond and gold and that for working out excess or
shortage, the stock position of both units have to be compared together.
CEGAT further stated that the expected recovery of 6812.36 grams of gold
is not real recovery and if percentage ofrecovery changes slightly, the figure
6812.36 may be twice or thrice and if both stocks are taken together, alleged
shortage of 8604.50 grams of gold in respect of Mis. B.V. Star will not exist
as total recovery will be much more.
In respect of diamonds, CEGA T observed that while taking stock, stock
of both the units are mixed and the stock position of both units are considered
with physical records, there would be shortage of 73 carats and observed to
be marginal difference since commencement of the units. CEGA T observed
that Commissioner has not dealt with this issue as department did not raise
demand on physical shortage of diamonds found in respect of Mis. B.V.
Jewels.
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(c)
Duty foregone on missing capital goods which were imported
duty free by Mis. B. V. Star valued at Rs. 2,22,48,876
(j)
Duty on Capital goods value at Rs. 1,06,37, 742 imported by
Mis. B. V. Star illegally under possession and usage of Mis.
B. V. Jewels.
The Commissioner observed that as per records and as confirmed by
Jetter of Estate manager dealing with allocation of space in SEEPZ dated
17.2.2000, the area allotted to Mis. B.V. Jewels is 1st and 3rd floor and to
Mis. B. V. Star is 2nd and 4th floor of a self built factory constructed by Ml
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s. B.V. Star. The unit's argument of having applied for permission obtaining
oral permission was discussed and rejected. It was observed that the 20
machines with accessories were found installed in premises allotted to Mis.
B.V. Jewels and were in exclusive use of Mis. B.V. Jewels. The Administrative
officer of SEEPZ vide note dated 11.5.2000 had clarified that the capital
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goods limit of Mis. B.V. Jewels had already been utilized and they were not
entitled for duty free import or procurement of capital goods by way of inter
unit transfer. Accordingly, the Commissioner observed that there was a
deliberate attempt of diversion of capital goods imported by Mis. B.V. Star
to Mis. B.V. Jewels, as the stipulated permission for which inter unit transfer
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to be obtained from Development Commissioner under para 9 .16(b) of EXIM
Policy, from Asstt. Commissioner of Customs vide Para 7(i) of Notification
177194 Customs, had not been obtained by any of these units. The unit's
argument of working as one unit being sister concerns was rejected, as vide
Para 9.37 (x) of Handb~ok of Procedures of EXIM policy. Units need to
obtain specific permission from Development Commissioner for merger.
CEGA T observed that the appellants have answered a CRA objection
in 1997 stating that Mis. B.V. Star spared their machinery to Mis. B.V. Jewels
for effecting exports, and the department closed the CRA objection. Thus not
only were they aware that Mis. B.V. Star's Machinery was used by Mis. B.V.
Jewels in the same Zone, but also were satisfied with the reply. Thus it is
not a case of transfer of machinery to Mis. B.V. Jewels, but use of machinery
by Mis. B.V. Jewels, but use of machinery by Mis. B.V. Jewels for
manufacture of jewellers for exports. Condition No. 4 of Notification No.
177194 required importer to execute a bond bipding himself to briing such
goo~s into his unit and use them within the zone for the purpose specified
in the notification. Thus the said goods were brought into their units and those
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COMMR. OF CUSTOM v. B.V. JEWELS [PASAYAT, J.]
425
were used within the same zone for the purpose of export. Further importer
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has to satisfy the Development Commissioner that the goods so imported
have been used for that purpose. Notification No. 177 /94 Cus. gets violated
only if goods are to be transferred to another unit in the same zone. In this
case there is no transfer to another unit but use of machinery by M/s. B.V.
Star for manufacture of Jewellery for Mis. B.V. Jewels with the knowledge
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of department. Therefore question of permission of Assistant Commissioner
does not arise.
(ii)
Confiscation of Capital goods valued at Rs. 58,58,696 which are
not found in the unit.
Commissioner noted that M/s. B. V. Star had worked for a brief period
of 15 days or so where they exported only five consignments during 6 .5 .1997
to 14.5.1997 and quantum of jewellery produced is observed to be negligible,
compared to quantum of capital goods imported by the unit. Capital goods
worth Rs. 58,58,696 were not accounted for in the unit, and it cannot be
considered as consumed/worn out considering a negligible export effected.
It was accordingly held that the duty foregone at the time of clearance is
payable.
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CEGAT observed that Notification No. 196/87 Cus. Condition xiv (b )(i)
required importer to pay duty on consumable goods if not used in connection
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with the manufacture of the jewellery in the same zone. Since goods have
been used in the same zone and there is no condition that the goods should
be used by the same unit, there is no violation of condition of Notification.
(iii) Confiscation of un-installed motors/brushes/hand pieces valued at
R.s. 36, 70,675 for violation of Notification 19618 Cus.
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Commissioner found that 238 pieces of Bench Motor, 79 hand pieces,
500 carbon brushes were found in original packages having remained unused
and uninstalled for a period over six and half years violating condition
xiv(b)(i) contained in Notification 196/87 Cus., which stipulated that the
equipment had to be installed and used within a period of l year from the date
of importation.
CEGA T observed that condition xiv(b )(i) to Notification 196/87 as held
by Commissioner is not applicable, but the condition xiv (b) (ii) is applicable,
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· which permits retention of such goods within the zone in connection with H
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SUPREME COURT REPORTS [2004] SUPP. 4 S.C.R.
the promotion of export of gems and jewellery. The condition of retaining
the goods within the said zone for purpose of export is satisfied. There is no
violation of the Notification and therefore demand of duty and confiscation
of goods is not sustainable.
(d)
Imposition of Penalty
The commissioner confirmed duty of Rs. 2,57 ,90,900 and imposed
equivalent penalty apart from confisc~ting capital goods installed in the
premises of Mis. B.V. Jewels with an option to redeem the same on payment
of fine of Rs. 15,00,000.
CEGA T observed that as there was no spifting or transfer, these goods
were lying in plot No. 55 only which is repeatedly accepted as address for
both units, and were not removed and use of machinery by Mis B.V. Jewels
was for purpose of manufacture. Section 111 ( d)U) & ( o) invoked by
Commissioner has not been violated, and hence confiscation, imposition of
redemption fine and demand of duty are not warranted.
So far as Mis. B.V. Jewels is concerned, the issues are as
follows :
(a)
Duty on shortage of 73,730 Ct of diamonds valued at Rs.
26,29,54,490 Duty of Rs. 12,54,80,309.
Commissioner observed that Custom Not.ification 177194 Cus; Stipulates
that the importer to dispose the diamonds in a manner as specified in EXIM
Policy as well as in the Notification. Para 8.29 of the EXIM Policy stipulates
that the Exporter is required to achieve an additional value addition of 5%
over the imported value of cut and polished diamonds. Para 8.34 of Hand
book of Procedure of EXIM Policy stipulates that the invoice presented to
the Customs has to contain description of item, purity, weight of gold,
wastage claimed thereof and the total weight including wastage. Similarly in
the case of studded jewellery, apart from above details of precious metal, the
Exporter has also to indicate weight and the value of the diamonds. Para 8.35
of Handbook stipulates that the exports shall be allowed by Customs
Authorities provided endorsements made on Shipping Bill and Invoice are
correct and value addition achieved as not below the minimum prescribed
limit. It was observed that as all details cannot be brought on the same
Invoice, Public Notice 20196 contemplated that the Exporters shall file 'Value
COMMR. OF CUSTOM v. B.V. JEWELS [PASA Y AT, J.]
427
Addition Statement'. Para 9.10 (d) of Handbook stipulates that the diamonds
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are to be utilized within a period of two years from the date of import, and
remaining unutilized diamonds thereafter would become dutiable. Hence the
importers have to maintain the record of consumption Bill of Entry wise, and
the details of Bill of Entry are to be shown in Export documents so as to show
consumption within prescribed time. Even the Bond executed with Customs
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is debited and credited based on import and export, and therefore import
content in export consignment has to be known, for which import value of
the diamonds studded in the jewellery exported has to be furnished.
As regards Par 8. 78 B of Handbook, Commissioner observed that there
is no amendment made with reference of Para 8.34, 8.35 of handbook and
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8.29 of EXIM Policy while introducing this new Para. Therefore even with
the new provision the requirement of furnishing the import value of the
diamonds is in Export consignment cannot be dispensed with. The
Commissioner did not accept the argument, that accounting of diamonds is
not required to be done value wise, observing that the diamonds are imported D
with value ranging from 25 US $ per carat to 3500 US $ per carat and one
cannot equate all such diamonds. In many cases of import effected by the
Unit, the difference in rate per carat with reference of various lots of
diamonds' in single invoice, is varying only in fraction of a dollar, and
argument of the unit about having variation in prices up to 30% within the
diamonds of the same lot after assortment, was not accepted. Commissioner
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relied on a specific Bill of Entry No. 2977 cited by the unit, and brought out
that the difference within the lots of similar of diamonds is only a fraction
of a dollar and rejected the unit's arguments that the diamonds imported at
the rate of 50 US dollar per carat can have rate varying from US $ 35 to 65.
As an example Commissioner observed that against 1894 carats of diamonds
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valued at 75 US $ per carat imported by the unit, the unit exported 29931
carats of diamonds at this rate, whereby there was no account for 28037 carats
and no explanation was provided by the unit. Based on above method of
verification of stock total shortage of 73,730 carats of diamonds valued at
Rs. 26,29,54,490 was confirmed and duty demanded.
CEGA T observed that whenever diamond is valued, different people
will give different values and variation may be large and that is why value
of diamonds declared in the Value Addition Statement can never be the same
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as declared in the Bills of Entry and declaration of Bill of Entry number in
'Value Addition Statement' is based only on approximation. As no method H
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SUPREME COURT REPORTS [2004] SUPP. 4 S.C.R.
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of co-relating or accounting of imported diamonds is specifically provided
in the exemption notification or in EXIM Policy, on representation from Gem
and Jewellery Export Council, Para 8. 78 B was introduced in EXIM Policy
on 1.4.2000 prescribing the method of co-relation with reference to total
quantity of imports and exports. It was specifically provided that under no
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circumstances co-relation will be done consignment wise.
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CEGA T referred the observation of Commissioner that although the
amendment was made effective after the detection of the case, method
adopted for cross checking proper accounting of diamonds by the investigation .
does not militate against the amendment. Commissioner by agreeing that the
amendment of Para 8. 78 B is applicable to the facts of the case, method
adopted by the department for co·relation was to be as per this para. Findings
of the Commissioner are not correct, as shortage of diamonds and duty
demanded is worked out by co-relating individual Bills of Entry and
wherever exact weight has not tallied department has considered the shortage
of diamonds and demanded differential duty and that no demand of Customs
duty is made in the show cause notice on physical shortage with reference
to total quantity of exports and imports. Unit's contention that diamonds after
mixing and sorting cannot be co-related with individual Bill of entry and
jewellery is made, was accepted. Shipping Bill was filed along with Value
Addition Statement, and the value of diamonds indicated therein may not
tally with rates mentioned in the Bills of Entry and therefore only Bills of
Entry numbers showing values of imported diamonds clo.sest to value of
diamonds used in· export jewellery were indicated in the relevant columns of
'Value Addition Statement'' CEGAT held that the demand of duty on 73730
carats of diamonds found short was unsustainable and set aside the same.
CEGA T observed that the alleged shortages have arisen due to wrong
method of co-relation and are imaginary shortages. In physical term shortage/
excess by weight of diamond is insignificant. This fact stands compounded
by faulty .documentation of search as there is no Panchanama and some data
given by an employee was adopted. There is no admission of shortage by
appellant and no incriminating documents have been i:ecovered, therefore, the
shortage is deemed and based on lack of co-relation of value/cartage of
diamonds.
(a)
Confiscation of broken diamonds of 1607.3 carats of value
Rs. 5,91,139.
COMMR. OF CUSTOM v. B.V. JEWELS [PASAYAT, J.]
429
Commissioner rejected the unit's claim to consider 1607.30 carats of A
broken diamonds produced by Shri Suresh Megta on 07.02.2000 on the
ground that the stock taking of the unit was first conducted on 31.01.2000
and Shri Suresh Mehta who was in New York came to SEEPZ specifically
to explain the stock and after his arrival in SEEPZ on 03.02.2000, he
produced 3 861.65 carats of diamonds valued between 42 to 50 US $ per carat B
from his personal cupboard, which also was taken into account for stock
taking and stock taking was concluded on 03.02.2000. Shri Suresh Mehta
confirmed in writing that the stocks found are as per inventory prepared by
the Customs staff and counter signed by his employees. Thereafter as Shri
Suresh Mehta requested for valuation of diamonds by an expert, the stock c
was kept in the safe of the unit and sealed by Customs officials, and valuation
was done on 07 .02.2000 . The unit never indicated that they had any further
stock of diamonds in stock, in their several letters between 03.02.2000 to
07 .02.2000. In the EPZ, there is no physical control of goods by customs and
all controls are accounts based, and it is for the unit to produce material
available for verification at the time of stock taking, and production of any
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exempt material after five days of conclusion of stock taking has no
relevance, as premises or the persons working in the unit were not under the
control of the department. Records do not indicate the unit to have so much
broken diamonds, as between 01.10.1999 to 31.01.2000 quantity of diamonds
that were broken for the purpose of manufacturing was only 110.57 carats,
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as indicated in Annexure 5 of Show Cause Notice. This quantity, added to
earlier reported stock of broken diamonds, amounted to total stock of broken
diamon~s as 750.31 carats only, and the unit did not explain how they could
have the additional stock of 856. 72 carats of broken diamonds in their
possession.
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CEGA T observed that entire SEEPZ is a customs bonded area, which
is under the joint control of Customs and Development Commissioner and
exit or entry of vehicles and persons is restricted through the main gate and
subject to security check. In fact all the physical stock available was only
produced commencing from 1.2.2000. It accepted the contention of appellants
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before it that there is nothing like broken diamonds and even such diamonds
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will continue to be utilized depending on the requirement of the particular
purchase order and only when such broken pieces cannot be utilized for any
purchase order they are considered as broken diamonds and entered in the
register. Though Commissioner accepted the physical stock as legitimate
stock, he proceeded to confiscate the entire broken diamonds. CEGA T set H
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SUPREME COURT REPORTS [2004] SUPP. 4 S.C.R.
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aside the demand base on above conclusion.
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(c).