M.S. Sanklecha, J.
1. This is an appeal under Section 130 of the Customs Act, 1962 (hereinafter referred to as the said Act) from the order dated 21/12/2006 of the Customs Excise and Service Tax Appellate Tribunal (hereinafter referred to as “CESTAT”). This appeal was admitted on 14/8/2007 on the following substantial questions of law:
(a) Whether in the facts and circumstances of the case, the CESTAT was correct in confirming the demand of duty of Rs.12,31,06,700/- and a penalty of an equivalent amount?
(b) Whether in the facts and circumstances of the case, the CESTAT was right in ordering confiscation of 10,631.39 carats of diamond and imposing a redemption fine of Rs.43 lakhs?
(c) Whether in the facts and circumstances of the case, the CESTAT was correct in concluding that 63,078.35 carats of diamonds are liable for confiscation?
2. The CESTAT by its impugned Order dated 21 /12/2006 held that there was a shortage of 72095.55 Carats of diamonds (after taking into account/giving credit to the explained High Value Diamonds and Broken Diamonds) which had been imported without payment of duty by availing of Not. No. 177/94-Cus dated 21/10/1994. This resulted in upholding the demand of duty of customs to the extent of Rs.12,31,86,708/-. Further an equivalent penalty of Rs.12,31,86,708/- under Section 114A of the said Act was also imposed upon the Appellant. The impugned Order also upheld the confiscation of 10631.39 Carats of diamonds with an option to redeem the same on payment of Rs.43/- lakhs as redemption fine under Section 125 of the said Act. This was on account of the fact as the diamonds were found in the possession of the Appellant but not supported by any documents of its licit import. The impugned Order also upheld the confiscation of 63078.35 Carats of diamonds which have been exported as a part of studded jewellery but without any proof of its licit import. The aforesaid finding was arrived at on the basis of the interpretation of Notification No. 177/94-Cus dated21/10/1994, Export-Import Policy -1997-2002 and Hand book of Procedure -1997-2002 as applicable to Gem and Jewellery unit situated in an Export Processing Zone.
3. Briefly, the facts leading to the present appeal are as under:
a) Since 1988 the appellant is engaged in the manufacture and export of gold jewellery studded with diamonds at its unit situated in Export Processing Zone i.e. Santacruz Electronics Export Processing Zone (hereinafter referred to as SEEPZ).
b) Consequent to intelligence gathered, officers of the Respondent carried out stock taking on 1/2/2000 at the Appellants premises. During stock taking it appeared that the Appellant was not maintaining proper record and account resulting in detection of certain excess and shortages of cut and polished diamonds from that imported without payment of duty under Notification No. 177/94-Cus. dt. 21/10/1994. This lead to a detailed enquiry and investigation leading to a show cause Notice dated 5/6/2000 inter alia calling upon the Appellant and its partners to explain (so far as it is relevant to the present proceedings ) as to why:
(i) Customs Duty of Rs.12,54,80,309/- on the 73730 Carats of diamonds found short should not be demanded under Section 28 of the said Act;
(ii) Equivalent Penalty shall not be imposed under Section-114A of the said Act;
(iii) 73730 carats of diamonds valued at Rs.26,29,54,490/- found short shall not be held liable for confiscation under Section 111(d), 111(j) and 111(o) of the said Act;
(iv) 23 high value diamonds totally valued at Rs.39,63,286 shall not be confiscated under Section 111(d), 111(j), 111(l), 111(m) and 111(o) of the said Act as there was no evidence available of its legal import;
(v) The broken diamonds valued at Rs.6,91,139 shall not be confiscated under Section 111(o) and 119 of Customs Act, 1962;
1. (vi) The 10631.39 Carats of unaccounted diamonds some found in stock and some studded in semi finished gold jewellery valued at Rs.4,03,72,667/- along with the 6423.32 gms. of gold in .995 purity (the gold content of semi finished jewellery containing diamonds which could not be separated) valued at Rs.26,81,736/- under seizure shall not be confiscated under Section 119 and 113(d) of said Act;
(vii) The unaccounted diamonds exported during 1998-99 and 1999-2000 (till 5.2.2000) totally valued at Rs.27,00,76,393/-(63078.35 Cts) shall not be held liable for confiscation under Section 113(d) and 113(i) of said Act; and
(viii) Penalty shall not be imposed under Section 112(a) and (b) and 114(i) of said Act;
c) During the course of stock taking it was noticed that the Appellant was not maintaining proper records/accounts in respect of the receipts and consumption of diamonds of different types and value either imported or procured from DTA to be used in discharging its Export obligations. This shortage of diamonds was worked out on the basis of the stock which should have been available with the Appellant being total quantity imported by the appellant and compared the same with physical stock available on stock taking and those utilized in exported studded jewellery during the period 1/4/1998 to 5/2/2000. The Respondent carried out a detailed scrutiny of total imports and total exports and worked out the duty as indicated in Annexure VIII to the Notice. The details of physical stock, shortage and quantity of unaccounted diamonds rate/value wise were indicated in Annexure IX to the Notice. The details of duty foregone on shortages is indicted in Annexure X to the Notice and the details of exports of accounted and unaccounted diamonds, shipping bill wise is indicated in Annexure XI to the Notice. The Notice also placed reliance upon the statements made by the partners and employees of the Appellant, in support of its demand.
d) On 20/07/2000, the Appellant filed its reply to the show cause notice dated 5/6/2000 contesting the same. It was the case of the Appellant that they have maintained proper records/accounts of imports and exports of diamonds effected by them and periodically returns were also filed with the Respondents. It was pointed out that as a matter of business practice followed by the industry, when cut and polished diamonds are imported, the invoices of import indicate the aggregate weight of the Diamonds in carat, however the same contains many pieces of diamonds and each piece of diamond would have different sizes, colour and quality resulting in different value to each of them. The invoice price is more or less the average price of a particular consignment and not of each of the pieces comprised in the import. Thereafter as is the Industry practice the imported diamonds are assorted and re-assorted so as to meet the specific requirement of the export orders. Consequently, the identity of the diamonds with reference to its original package is lost and it is humanly impossible to co-relate a particular diamond with the original import documents. It was also pointed out that in view of the difficulty being faced by the diamond trade in keeping each consignment of imported diamonds separately as required under the Import Export Policy, a representation was made by the Gem and Jewellery Export Promotion Council on 16/12/1999 to the Government of India as they were finding it impossible to keep a record of each imported consignment of diamonds with regard to the bill of entry under which the same was imported. This was accepted by the Government of India and with effect from 1/4/2000 paragraph 8.78B was introduced in the Handbook of Procedures 1997-2002 clarifying that for the purposes of monitoring the performance of a Gem and Jewellery Unit at no point of time, the unit shall be required to co-relate every export consignment with the corresponding import consignment. Consequently, there is no shortage of diamonds of 7370 carats and/or excesses as of certain verities of diamond as alleged. In view of the aforesaid reply, the Appellant requested that the show cause notice be dropped.
e) On 15/06/2001, the Respondent after considering the Appellant’s submissions held that there was a breach of Notification No.177/94–Cus. dated 21/10/1994 and the provisions of the Export Import Policy 1997-2002 and Handbook of Procedures-1997-2002 and passed an order confirming the show cause Notice by holding that there was a shortage of 7370 Carats of diamond leading to a demand of Rs.12,54,80,309/- being the duty not paid on import of these diamonds, besides imposing an equivalent penalty under Section 114A of the said Act and holding that the 7370 Carats of diamond are liable for confiscation; 23 high value diamonds produced five days after stock taking and not supported by proper documents were absolutely confiscated; Broken diamonds valued at Rs.6,91,139 were confiscated with an option to redeem the same on payment of redemption fine of Rs.70,000/-; the 10631.39 Carats of unaccounted diamonds found in stock were confiscated with an option to redeem the same on payment of redemption fine of Rs.43,00,000/-; 63078.35 Carats of unaccounted diamonds valued at Rs.27,00,76383/- exported during 1998 to 2000 were held liable for confiscation; and Penalty of Rs.5,00,000/- under Section 112 and 114 of the said Act was also imposed. Besides that, personal penalties were imposed upon the partners of the Appellant. The Respondent in his order held that 73730 Carats diamonds found short on physical stock taking when compared with the bill of entry and Value Addition Statement given by the appellant at the time to exporting the studded jewellery. Consequently it was held that the Appellant had not maintained proper account of import, consumption, utilization of the imported diamonds, besides not using the imported diamonds in the manner prescribed under the Export Import Policy-1997-2002 and the Hand Book of Procedures-1997-2002. Further in terms of Para 8.29 of the Export Import Policy-1997-2002, the exporter is required to achieve an additional value addition of 5% over the value of imported cut and polished diamonds. In order to establish that the necessary value addition has been achieved in respect of the imported diamonds, Value Addition Statement is furnished by the importer along with shipping bill at the time of export of the final product viz. studded jewellery. The Respondent found that the bill of entry details furnished in the Value Addition Statement did not correspond to the value/cost of diamonds declared therein. Thus the Appellant had not complied with para 8.34 and 8.35 of the Handbook of Procedure-1997-2002 and were also consequently in breach of Exemption Not. No. 177/94-Cus dated 21/10/1994.
f) Being aggrieved by the order of the Respondent dated 15/6/2001 the Appellant preferred an appeal to CESTAT. The CESTAT by its order dated 14/2/2003 allowed the Appellant’s appeal. The CESTAT held that there is no shortage of diamonds as confirmed by the order of the Respondent, particularly, in view of the fact that the shortages were arrived at on the basis of the co-relation of imported and exported diamonds with reference to individual consignment and tallying each rate of imported diamonds with the rate indicated in the Value Addition Statement. The CESTAT held that in physical terms the shortage/excess by weight of diamonds is insignificant. Consequently, not only the demand in respect of shortage was set aside but also its confiscation and confiscation of the seized diamonds and unaccounted diamonds legitimately exported were also held to be not sustainable. Consequently, the penalties imposed were also set aside.
g) Being aggrieved by the order dated 14/2/2003 of the CESTAT, the Respondent preferred an appeal before the Apex Court. On 14/9/2004, the Supreme Court allowed the appeal of the Respondent by way of remand. The Supreme Court after referring to Paragraphs 8.34, 8.35 and 8.78B of the Hand Book of Procedure 1997-2002 gave the following directions:
“29. The Departmental authorities have adopted the view that the working out of the details are to be done in terms of Paras 8.34 and 8.35 and Not in the line of 8.78B. That is clearly erroneous.
30. As the stages of adopting provisions referred to above stand on a different footing the relevant provisions have to be applied at the stages they are intended to be applied. The Commissioner seems to have not taken note of Para 8.78B. However, the respondents have the obligations to otherwise reconcile the stock. They can not claim immunity from verification of stocks and its obligation for reconciliation of differences, if any. By way of illustration it may be indicated that Manufacture and other Operations in Warehouses Regulations 1966 throws beacon light in this regard, more particularly Regulations 9 and 10 thereof. Power of the departmental authorities to verify the records to find out whether imports and exports have been properly recorded can not be denied. Such verification 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 the accounts maintained. Therefore, it would be appropriate to direct the 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.
31. We may note that in the case of high value diamonds undisputedly certain diamonds along with connected records were produced by partner Suresh Mehta some days after the verification started. According to the department the production of such valuable articles at a later point of time clearly shows that an attempt has been made to substitute the actual diamonds with items which were not covered by the import documents. Similar is the position relating to confiscation of 10631.39 carats of diamonds and alleged unaccounted gold and diamonds.
32. The Tribunal shall permit the respondents-assessees 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 respondent-assessees 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 terms of confirmation of Commissioner’s order as done by us supra. The penalty to that extent stands confirmed. The balance of penalty, if any, would depend upon reexamination by CEGAT as directed supra.
33. Respondents also urged before us 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 the CEGAT accepted the plea of the respondents on merits it did not refer to that plea.
34. We find that reference was made by departmental authorities to the proviso appended to sub-section (2) of Section 28 of the Act. No plea about its non-applicability was taken in the grounds of appeal before the CEGAT and though it was vehemently urged that the point was specifically taken before the Tribunal, we find no mention thereof in the CEGAT’s order. The matter can be looked at from aNother angle. If, in reality, the 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 the CEGAT, particularly, in view of the consideration of the merits and non consideration of the question of limitation. That being so we find no substance in the plea of learned Counsel for 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.
35. The appeals are allowed to the extent indicated. There will be no order as to costs.”
h) Consequent to the remand order dated 14/9/2004, the CESTAT heard the Appellant and the Respondent in terms of the directions of the Apex Court. The CESTAT by its order dated 21/12/2006 negatived the contention of the Appellant that the working out of the shortage/excess of diamonds in stock has to be done only in terms of Paragraph 8.78B of the Hand Book of Procedures 1997-2002. The CESTAT has observed that in terms of the directions of the Supreme Court the verification has to be done not only for the purposes of finding out the compliance of Paragraphs 8.34, 8.35 and 8.78B but the same shall be to test the correctness of the account maintained. The CESTAT found as a fact that the Books of Account and the records prescribed under the Exim Policy and under the Public Notice issued by the Respondent are incomplete as no records of value wise import of diamonds are kept thus making it impossible to ascertain the value addition on imported diamonds required Paragraph 8.29 of the Exim Policy is achieved. In consequence of the directions given by the Supreme Court the Appellant filed a statement before the CESTAT seeking to co-relate imported diamonds with the exported diamonds in accordance with Paragraph 8.78B of the Exim policy which is annexed as Annexure A to the order dated 21/12/2006 of CESTAT. Even this statement does Not reconcile all the stock. This it self according to CESTAT is proof of the fact that the accounts were not maintained properly. Therefore the necessity of correlating the diamonds with the bills of entry and shipping bills to determine the value of the stock became necessary. However, the CESTAT has observed that even in terms of Paragraph 8.78B of the Hand Book of Procedures 1997-2002, the total quantity of a particular variety ( value wise) has to be undertaken and not the total quantity of different qualities put together as there cannot be any matching between the export of one variety of diamonds with that of another variety even though the quantity may be identical as the difference between diamonds of identical weight could be high. No such exercise has been done by the Appellant. The CESTAT has also observed that once the shortages have to be determined bill of entry and shipping bill wise there is no dispute between the Appellant and the Respondent about the working out of the demand that the shortage of diamonds and after taking into account the 23 Carats of High value diamonds and the Broken diamonds the shortage works out to 72,095.55 Carats and the duty demandable is Rs.12,31,86,708/- Equivalent Penalty under Section 114A of the said Act was also upheld. However, the confiscation of 10631.39 Carats did not have any document in support to establish their licit import and the same are liable for confiscation. However, an option to redeem the same on payment of redemption fine of Rs.43.00 lacs was granted to the appellant. Similarly, diamonds weighing 63078.35 Carats which have been used in studded jewellery exported were not supported with any document to evidence their licit import. Consequently, it was held that 6308.35 Carats of diamonds are liable for confiscation.
i) Being aggrieved by the order dated 21/12/2006 of the CESTAT the Appellant has preferred the present appeal on the substantial question of law referred to herein above.
4. Before dealing with the arguments/submissions made by the Appellants and Respondents, it may be useful to extract the relevant provisions of the Notification No.177/94-Cus dated 21/10/1994, Export-Import Policy 1997-2002 and Handbook of Procedure 1997-2002 as under:
Notification No. 177/94-Cus.dated 21/10/1994(only relevant portion extracted)
Exemption to specified goods for use in export of gem and jewellery:
--- In exercise of the powers conferred by sub -section (1) of Section 25 of the Customs Act, 1962 (52 of 1962), the Central Government, being satisfied that it is necessary in the public interest so to do, hereby exempts goods specified in the Annexure I to this Notification (hereinafter referred to as the said goods), when imported into India by the gem and jewellery units set up in an Export Processing Zone or in a Free Trade Zone specified in Annexure II of this Notification (hereinafter referred to as the Zone), for the manufacture or packaging of gem and jewellery for exports out of India, or for the promotion of exports of gem and jewellery, from the whole of the duty of customs leviable thereon under the First Schedule to the Customs Tariff Act, 1975 (51 of 1975), and from the whole of the additional duty, if any, leviable thereon under section 3 of the said Customs Tariff Act, subject to the following conditions, namely:-
(1) .....
(2) ....
(3) ....
(4) The importer executes a bond in such form and for such sum as may be specified by the Assistant Commissioner of Customs binding himself to-
(i) bring the said goods into his unit and use them within the Zone for the purposes specified in this Notification;
(ii) dispose of the said goods or the gem and jewellery manufactured or packaged in the unit or the waste arising out of such production or packaging in the manner as may be prescribed in the Export-Import Policy and in this Notification;
(5) the importer shall maintain a proper account of import, consumption and utilization of the said goods and of the exports made by him, and shall submit such account periodically to the Assistant Commissioner of Customs;
(6) the importer satisfies the Development Commissioner of the Zone that the goods so imported have been used for the purposes specified in the Notification or for any other purposes specified in Export-Import Policy;
(7)….
…..”
Export Import Policy 1997-2002
Value Addition
8.17 The value addition will be calculated with reference to the value of gold/silver/platinum content including admissible wastage. The minimum value addition shall be:
| S.No. | Item of Export | Minimum Value Addition |
| (a) | Studded gold/platinum/silver jewellery and articles thereof | 15% |
| (b) | Plain gold/platinum/silver jewellery and articles thereof | 10% |
| (c) | Gold/platinum/silver unstudded chains manufactured by fully mechanised process | 3% |
8.26 …
8.29 An exporter shall also be required to achieve an additional value addition of 5% over the value of cut and polished diamonds, precious and semi-precious stones, pearls and synthetic stones used as studdings over and above the value addition prescribed for the gold/silver/platinum content.
Net Foreign Exchange Earning as a percentage of exports (NFEP) and minimum export performance.
9.29 The Unit shall be a net foreign exchange earner. The minimum level of foreign exchange earning as a percentage of exports (NFEP) as defined in paragraph 9.29 and the minimum export performance shall be as specified in Appendix I of the Policy. Items of manufacture for export specified in the Letter of Permission/Letter of Intent alone shall be taken into account for calculation of net foreign exchange earning as a percentage of exports and export performance.
However, for STP units export obligation norms alone, as Notified, would apply.
Notwithstanding the above, electronic hardware units shall be allowed to be set up without stipulation of a minimum net foreign exchange earning as a percentage of exports.
Net Foreign Exchange Earning as a Percentage of Exports (NFEP)
9.29 Net Foreign Exchange Earning as a percentage of exports (NFEP) shall be calculated annually and cumulatively for a period of five years from the commencement of commercial production according to the following formula:
A-BNFEP = _______ X 100, where
A. NFEP is Net Foreign Exchange Earning as a percentage of exports.
B. is the FOB value of exports by the EOU/EPZ/EHTP unit; and
C. is the sum total of the CIF value of all imported inputs, the CIF value of all imported capital goods, and the value of all payments made in foreign exchange by way of commission, royalty, fees, dividends, interest on external borrowings during the first five years period or any other charges. “Inputs” mean raw materials, intermediates, components, consumables, parts and packing materials.
Handbook of Procedures
Endorsement on Shipping Bill and Invoice
8.34 At the time of export of jewellery, the shipping bill and the invoice presented to the customs authorities shall contain the description of the item, its purity, weight of gold/silver/platinum content, wastage claimed thereon, total weight of gold/ silver/platinum content plus wastage claimed and its equivalent quantity in terms of 0.995/0.999 fineness for gold/silver/Platinum and /in terms of 0.9999 fineness for platinum and its value, fob value of exports and value addition achieved. If the purity of gold/silver/platinum used is the same in respect of all or some of the items made out from each of these metals for export, the exporter may give the total weight of gold/silver/platinum and other details of such similar items which are of the same purity. In case of studded items, the shipping bill shall also contain the description, weight and value of the precious/semi-precious stones/diamonds/pearls used in manufacture, and the weight/value of any other precious metal used for alloying the gold/silver.
Conditions of Exports
8.35 The exports shall be allowed by the customs authorities provided the endorsement made on the shipping bill and the invoice are correct and the value addition achieved is not below the minimum prescribed in the Policy.
Conditions of Import
9.10 The import shall be subject to the following conditions:
(a) The goods shall be imported into the EOU/EPZ/EHTP/STP premises.
(b) The normal procedure that is applicable for customs bonding will be followed. Besides, transit bond, wherever required, shall be executed for the purpose of goods being taken from the port of importation to the premises; required, shall be executed for the purpose of goods being taken from the port of importation to the premises.
(c) Import of prohibited items in the Negative List of Imports shall not be allowed.
(d) The goods shall be utilised for exports within a period of two years as may be extended by customs authority except gold/silver/platinum for which the provisions of Chapter 8 of the Policy shall apply; and
(e) Goods already imported/shipped/arrived before the issue of Letter of Permission/Letter of Intent are also eligible for duty free clearance under the EOU/EPZ/EHTP/STP scheme provided customs duty has not been paid and the goods have not been cleared from Customs.
Maintenance of account of import and utilisation
9.11 The importer shall maintain in the specified form a proper account of the import, consumption and utilisation of all imported materials and of the exports made by him and submit them periodically, as may be required, to the Development Commissioner of the EPZ/STP/EHTP concerned. The importer shall ensure minimum Net Foreign Exchange earning as a percentage of exports and export performance as stipulated in Appendix I of the Policy. He shall also abide by all the terms and conditions incorporated in the LOP/LOI/Industrial License issued to him. Failure to ensure minimum NFEP/export performance as stipulated in Appendix I of the Policy or to abide by any of the terms and conditions of the LOP/LOI/IL shall render him liable to penal action under the provisions of the Foreign Trade (Development and Regulation) Act, 1992 and the Rules and Orders made thereunder without prejudice to any other action such as cancellation of revocation of LOP/LOI/ Industrial licence.
W.e.f. 1/4/2000
Consignment-wise Accounts between Exports and Imports
8.78 B. For the purpose of monitoring, in case of gems and jewellery units at the time of scrutiny at any point of time, the unit shall be able to account for, by way of fulfillment of export obligation and realization of prescribed NFEP, the entire quantity of imports as might have been made by the units. The exporter shall also account for the total quantity of imports by way of total quantity of exports and the balance stocks including broken diamonds and other gemstones.
However, at no point of time, the unit shall be required to co-relate every export consignment with the corresponding import consignment.
5. The Appellant submit that the impugned order of CESTAT dated 21/12/2006 is perverse inasmuch as it has mis-interpreted the relevant provisions of the Export Import Policy-1997-2002, Handbook of Procedures 1997-2002 and the Notification No. 177/94-Cus dt. 21/10/1994 to infer that the Appellant has failed to explain and reconcile the stock in its hand with those imported and those used in the export of studded jewellery and also reached its aforesaid conclusion ignoring the evidence led by the appellants as directed by the Apex Court. In support of the above contention, the Learned Senior Counsel Mr. Sreedharan, submitted as under:
a) In terms of the Supreme Court order dated 14/09/2004 the shortage, if any, has to be worked out on the basis of paragraph 8.78 B of the Handbook of Procedure-1997-2002 to the Exim policy and the appellant had in accordance with the paragraph reconciled the total quantity of import and export of diamonds during the relevant period i. e. from 01.04.1998 to 05.02.2000. The reconciliation statement is the part of the impugned order as Annexure A thereto. A perusal of the reconciliation statement would clearly establish that after giving credit for broken diamonds and high value diamonds, unexplained shortage is only 1473 carats and the alleged excess of diamonds is only 165.04 carats. The aforesaid difference in the excess of stock could be attributed to weighment tolerance and human error. The excess of the diamonds in stock is a cumulative excess from the year 1988. However, in any view the entire Accounts could not be rejected merely because there is a marginal difference.
b) The entire case of the Respondent of shortage and illicit procurement of diamonds is based on the Value Addition Statement furnished along with shipping bills at the time of exports of the studded jewellery. The basis of the entire proceedings is to the extent the cost/value of imported diamonds as furnished in the Value Addition Statement do not tally with values/cost of the diamonds declared in the Bills of Entry filed during the import of the diamonds. The entire purpose and object of giving the value addition statement was to ensure that net foreign exchange earning as a percentage of export (NFEP) is achieved on the studded jewellery of gold. Consequently, the value of imported diamonds as given in the value addition statement was an average figure. This was so, as it was impossible to correlate the exported diamonds with the imported diamonds in view of the peculiar nature of the diamonds industry viz. when diamonds were imported, a particular number of carats of diamonds are imported at a particular rate. These carats consist of number of individual stones each of which would have a different valuation. On import the diamonds are assorted and re-assorted repeatedly depending upon the quality of the individual stone. Thus, making it impossible to keep a track of the costs of each imported diamond with regard to the Bill of entry under which it was imported. The aforesaid fact was made known to the Respondents at the time of search itself by the statement of its partner one Suresh Mehta.
c) Without prejudice to the above it was submitted that the Appellants were functioning within SEEPZ and the accounts and records were maintained by them in terms of Public Notice issued by the Respondent and over seen by its officers and in particular Daily Receipt Register as well as Finished Product Register which were countersigned by them. At no point of time did the officers of the Respondent inform the Appellant that records are not being properly maintained. Consequently it is not open to the Respondents to now contend that the records are not properly maintained. Further it is a fact that all the times that activities of the appellants were supervised and controlled by the Customs department. In view of the above, in the absence of any corroborative evidence of illegal removal and/or procurement of diamonds it is not open to the department to claim that there has been substitution and/or shortages of the diamonds from that which were imported by the Appellant.
d) Further the fact that Paragraph 8.34 and 8.35 of the Hand book of Procedures-1997-2002 were impossible of performance by the diamond industry is also evident of the fact that consequent to a representation made in December 1999(prior to the stock taking at the appellant’s premises) the Government introduced paragraph 8.78B in the Handbook of Procedures-1997-2002 with effect from 1.4.2000 and the same being clarificatory in nature should be given retrospective effect. The above para does not require correlation consignment wise of import and export consignment.
e) Before it can be alleged that there has been a breach of Notification No.177/94-Cus dated 21/10/1994 on the part of the Appellants, it is the Development Commissioner who must be satisfied that there is a breach of the Notification on the part of the importer and this is not so in this case. In support of its aforesaid submission during the course of the hearing the appellant filed an affidavit dated 25/4/2012 to which was annexed a letter dated 25/4/2012 from the office of the Development Commissioner to the Appellants certifying that the appellants’ unit in SEEPZ has achieved value addition for the years 1988-89 to 1999-2000.
f) The requirement of achieving value addition on the diamonds in terms of Paragraph 8.29 Import Export policy 1997-2002 is the same as /synonymous to NEFP as provided in Paragraph 9.29 of the Import Export Policy for the period 1997 to 2002 and therefore the same is to be achieved periodically i.e. annually and not with regard to each consignment of imported diamonds. In support of its submission that value addition and NFEP mean the same thing, attention was drawn to the policy provisions existing for the earlier periods viz. 1992 to 1997 where the method of computing value addition is the same as that provided for computing the NFEP. Therefore computation of NEFP/Value addition in respect of each consignment of imported diamonds exported is not warranted.
g) The confiscation of 10631.39 Cts. and 63088.35 Cts only on the basis that they could not be correlated to any of the Bills of entry for import is baseless in view of the nature and manner of doing business. In any case diamonds are not notified goods under Section 123 of the said Act and the onus is on the Respondent to establish that the diamonds have been illicitly imported.
In view of the above submissions it was urged on behalf of the Appellant that in terms of Supreme Court order dated 14/9/2004 they have been able to explain /reconcile imported diamonds and diamonds exported in studded jewellery save and except to the marginal amount 165.40 carats being in excess and 1473 carats being short.
6. As against the above, the learned counsel Mr. Advait Sethana for the Revenue submits that there is no perversity in the impugned order of the Tribunal dated 21/12/2006 and the finding of fact arrived at by the Tribunal should not be interfered by this Court. In particular, it was contended by the Counsel for the Revenue as under:
a) In terms of Notification No.177/94 dated 21.10.1994 the Appellant was allowed to import cut and polished diamonds without payment of duty subject to the condition that imported goods would be used in compliance with the terms of the Notification and the provisions of the Export–Import Policy. In terms of the condition of the above Notification as provided in clause 5 thereof, the importer is obliged to maintain proper account of imports, consumption and utilization of the imported goods in the exports made. In this case it was submitted the Appellant has admittedly failed to keep proper account of the imported goods and therefore in breach of Notification No.177/94-Cus.dt. 21/10/994. Further proper record was also not maintained in terms of Public Notice No.20/1996. The importer of diamonds is required to keep account of the diamonds type wise/value wise so as to ensure appropriate value addition thereon as well as ensure proper utilization in exports.
b) In terms of Paragraph 8.29 of the Export-Import Policy 1997-2002, exporter is required to achieve an value addition of 5% over the imported cut and polished diamonds used in studded jewellery. This value addition of over 5% on the imported diamonds is over and above minimum value addition required for studded jewellery in terms of Paragraph 8.17 of the Export-Import policy 1997-2002 which provides for 15% value addition in respect of studded jewellery. The appellants having furnished Value Addition Statement at the time of filing of shipping bill for exports of studded jewellery are bound by the statement made by them therein. In their Value Addition Statement the Appellant has itself computed declared 5% value addition on the cost of the diamonds. Further it is only in response to the demand Notice has the Appellant taken the stand that the value declared by it of diamonds is only approximate/assumed/average value. Absence of any corroborative evidence is immaterial as the Appellants are bound by the signed Value Addition Statement furnished at the time of filing Shipping Bills for exports.
c) It is the case of the Revenue that the concept of value addition is distinct and different from NEFP as provided in Paragraph 9.29 of the Export Import Policy 1997-2002. NEFP is required to be calculated annually and cumulatively over a period of 5 years and also takes into account imported capital goods used in manufacture of export product while value addition is to be achieved is in respect of each imported diamonds in terms of Paragraphs 8.29 of the Export Import Policy 1997-2002. The word of value addition and NEFP are not synonymous. In any view of the matter in terms of Paragraph 8.34 and 8.35 of the Hand book of procedures -1997-2002 it was the obligation of the exporter to satisfy the value addition requirement in respect of the imported diamonds at the time they were exported as part of studded jewellery.
d) Paragraph 8.78B of the Hand book of Procedures 1997-2002 will not be applicable for the present proceedings which cover the period ending on 5/2/200 as Para 8.78B came into Handbook only with effect from 1/4/2000 and cannot have retrospective effect. Alternatively it was submitted that Paragraph 8.78B applies only for the purpose of computing NFEP and not value addition which is required to be achieved in respect of each export consignment as required in terms of Paragraph 8.29 and 8.17 of the Import Export Policy 1997-2002. In any case it is submitted that even in terms of Paragraph 8.78B of the Handbook of Procedures the reconciliation has to be done both quantity wise as well as value wise. This is so as each type of diamond and/or Diamonds of particular value would be a distinct and different class of diamonds. Further the requirement of tracing the imported diamond is important as the duty forgone at the time of import can be known only from the date and value at which the diamonds were imported.
e) The Appellant has failed to explain the shortages and excess of diamonds and the reconciliation statement being Exhibit-A to the impugned order as only done quantity wise and not value wise. Consequently, reconciliation statement furnished by the appellant being Exhibit A does not meet with the directions of the Supreme Court and further even by the method adopted by the appellant they have not been able to reconcile imported diamonds with the exported diamonds.
f) The Accounts and records have not been maintained by the Appellant so as to discharge its obligation under Notification No. 177/94-Cus. dated 21/10/1994.The Notification required them to keep a record of each consignment of diamond imported by them under a Bill of entry and the extent to which it was used in the manufacture of a exported product. In the absence of keeping such a record they have failed to satisfy the condition of the Notification.
g) Paragraph 9.10 of the Hand Book of Procedures clearly provides that the imported goods shall be utilized for export within a period of two years from its import.
In view of the above, it was submitted that the impugned order of CESTAT is a proper and correct order and calls for no interference by this Court.
7. In the course of its business the Appellant imported cut and polished diamonds. The imported cut and polished diamonds are classifiable under Chapter 71 Heading 71.02 of the Customs Tariff Act,1975 and charged to customs duty at ad valorem rate depending upon the value of the diamonds. However as the imported cut and polished diamonds were to be used in the manufacture of studded jewellery for export in its unit situated in SEEPZ an exemption was available under Notification No.177/94-Cus. dt. 21/10/1994. The Appellant opted for the benefit of Notification No. 177/94-Cus dt. 21/10/1994 and cleared the imported cut and polished diamonds without payment of duty of Customs. At the time of the import of cut and polished diamonds the Appellant filed bill of entry claiming benefit of above Notification and also invoices of its seller along with bill of entry which indicates value and quantity of cut and polished diamonds in carats being imported. The Appellants in terms of the Notification also executes a bond in favour of the of the Assistant Commissioner of Customs undertaking to use the goods in the manufacture of jewellery for exports out of India and also undertakes to follow the procedure under the export import policy and in the Notification. Further, one of the conditions of the import under the aforesaid Notification is that the Appellant will maintain proper account of the import, consumption and utilization of the cut and polished diamonds and the exports made of the final products. The Export Import Policy 1997-2002 in Paragraph 8.29 thereof provides that an exporter like an Appellant would be required to achieve a value addition of 5% on the imported diamonds over and above the value addition prescribed for studded jewellery. Consequently, at thetime of exporting studded jewellery and while filing the shipping bill, the Appellant is required to file a Value Addition Statement to satisfy the authorities of compliance with Notification No.177/1994 read with Paragraph 8.29 of the Export Import Policy 1997-2002 in accordance with Paragraph 8.34 and 8.35 of the Hand Book of Procedures 1997-2002. This value addition statement inter alia indicates the value addition achieved in respect of the imported cut and polished diamonds as also in respect of studded jewellery which are being exported. The export is allowed only if value addition achieved on the imported cut and polished diamonds is not less than 5% as prescribed in the policy over and above the 15% value addition on studded gold jewellery as provided in Paragraph 8.17 of Export Import Policy 1997-2002. In the course of stock taking carried out by the Respondent, it was noticed that particulars given in the Value Addition Statement by the appellants did not in all cases tally with the bill of entry number under which the import was done by the Appellant. Consequently an exercise was carried out by the Respondent to seek and correlate the shipping bills and Value Addition Statement with the bill of entry under which the cut and polished diamonds were claimed to have been originally imported. In the aforesaid exercise it was found that out of 130688.67 carats of imported diamonds (including opening stock) on 1/4/1998 only a quantity of 45834.17 carats could be co-related to the particulars given in the bills of entry at the time of the Import. The Respondent also found on stock taking that there was a shortage of 73730 carats of diamonds and quantity of 10631.39 carats were found to be in possession of the appellants without support of any document indicating their licit import besides a quantity of 63078.36 carats of diamonds which had been exported as a part of studded jewellery also did not have any document in support to show licit import/acquisition of diamonds by the Appellant. Thus leading to the present proceedings which were remanded by the Apex Court withdirections to CESTAT to determine the shortages and/or excess of diamonds to those imported after taking into account the diamonds which have been exported.
8. As against the above, it is the case of the Appellant that in view of the nature of its business, it is impossible to correlate the imported cut and polished diamonds with those exported as part of studded jewellery and declared in the Value Addition Statement. This is so as on import the cut and polished diamonds are mixed, assorted and re-assorted depending upon the individual value of the diamond piece. Thus, making it impossible to correlate the exported diamonds with the bill of entry under which it was imported. In fact, it is the appellant’s case that in view of impossibility of correlating the diamonds exported with the bill of entry under which it was imported, the Government had at the instance of the appellants’ association introduced Paragraph 8.78B to the Hand Book of Procedures with effect from 1/4/2000 clarifying that at no point of time will the unit be required to co-relate every export consignment with the corresponding import consignment. Therefore, it is the case of the Appellant that in terms of Paragraph 8.78B of the Hand book of Procedures all that they are required to do is to have the quantity wise reconciliation of the imported diamonds with those exported and those in stock have to be done and not value wise reconciliation bearing in mind the peculiar nature of the diamond industry. Further they also contend that this is also the directions of the Apex Court in its order dated 14/9/2004.
9. Bearing in mind the aforesaid basic dispute between the Appellant and the Respondent, we now consider the impugned Order dt. 21/12/2006 passed by CESTAT. The present proceedings were remanded to CESTAT by the Apex Court after setting aside an earlier Order dt. 14/2/2003 of CESTAT which had allowed the appeal of the Appellant herein. However while remanding the present matter to CESTAT it had inter alia permitted the Appellant to produce its original record before the CESTAT so as to explain excess/shortage as alleged by the Respondent. The Apex Court while remanding the matter drew attention to Regulation 9 and 10 of the Manufacture and other Operations in Warehousing Regulation 1996 which provides that the manufacturer can produce the accounts maintained for its own purposes with regard to stock, raw material, work in progress etc. and the same could be inspected by the authorities to ensure compliance. Therefore, in terms of the directions of the Supreme Court the verification could be of the accounts maintained by the Appellant for its own purposes and such verification would not only be for purposes of paragraphs 8.34, 8.35 and 8.78B of the Handbook of Procedure 1997-2002 but also to test the correctness of the account being maintained by them. Therefore the Appellant was given one more opportunity to explain the shortages/excess as alleged by producing its accounts.
10. The first submission of the Appellant was that CESTAT had gone beyond the scope of the remand Order of the Apex Court dated 14/9/2004. According to the Appellant in terms of para 29 of the Apex Court Order the determination of the shortages and excess had to be done only in terms of Paragraph 8.78B of the Hand Book of Procedures 1997-2002 as application of Paragraph 8.34 and 8.35 of Hand Book of Procedures 1997-2002 was held to be clearly erroneous. The CESTAT after considering the entire order of the Apex Court concluded that the exercise of verification had to be done not only to find out compliance in terms of paragraph 8.34, 8.35 and 8.78B of the Hand Book of Procedures but to test the correctness of the accounts maintained. One more reason which seems to have weighed with CESTAT to not accept the submission of the Appellant is that in its earlier Order dated 14/2/2003 the CESTAT had allowed the Appellant’s appeal on application of Paragraph 8.78B of the Handbook of Procedures 1997-2002 and the same was set aside by the Order of the Apex Court dated 14/9/2006 and remanded to it for fresh disposal. The impugned Order has properly understood the directions of the Apex Court, particularly, if we bear in mind that the Supreme Court has observed that Regulation 9 and 10 of the Manufacture and other Operations in Warehousing Regulation 1996 throws beacon light in regard to production of accounts to satisfy due compliance. Further the Supreme Court has even in para 29 of its order, on which reliance is heavily placed by the Appellant, has not directed the application of Paragraph 8.78B per se but only in line with Paragraph 8.78B of the Handbook of Procedures 1997-2002. Notwithstanding the above, the Respondent contend that Paragraph8.78 B of the Handbook of Procedure 1997-2002 will not be applicable, as it came into force only with effect from 1/4/2000 and cannot have retrospective effect. As has been noted above, Paragraph 8.78B of the Hand Book of Procedures 1997-2002 was introduced consequent of a representation made by Gems and Jewellery Association of which the Appellant is a member. Therefore, paragraph 8.78B of the Handbook of Procedures 1997-2002 is clearly clarificatory in nature. Further, it also provides that at no point of time, a unit shall be required to correlate each export consignment with the corresponding import consignment. Further as observed by this Court in the matter of Apar Industries reported in 323 ITR Page 411 that an amendment which is intended to remove an ambiguity must necessarily be regarded as clarificatory and consequently be given a retrospective effect. In this case Paragraph 8.78B of the Handbook of Procedures 1997-2002 would be effective form the date of commencement of the relevant policy i.e. 1/4/1997. According to the Appellant, they have reconciled the total quantity of import and export of diamonds during the relevant period i.e. 01/04/1998 to 05/02/2000. The CESTAT erred in rejecting the entire reconciliation statement only because the Appellant was unable to explain the marginal shortage of 1473 carats of diamonds and excess of 165.04 carats of diamonds which could be attributable to human error, weighment tolerance. According to us, the CESTAT was correct in understanding the order of the Supreme Court dated 14/09/2004, which required the Appellant to reconcile the stock and such reconciliation of stock had to be done not only for the purposes of paragraphs 8.34, 8.35 and 8.78B but to test the correctness of the account maintained. Consequently, the Apex Court had permitted the Appellant to produce its original records before the CESTAT so as to explain the excess/shortage of the diamonds. This had to be done by the Appellant producing its books of account and the record prescribed under Exim policy and the public notice issued by the Respondent. In any view of the matter, even if it is accepted that the direction of the Supreme Court to CESTAT was to reconcile the stock in line with paragraph 8.78B of the Handbook of Procedures 1997-2002, the reconciliation in terms of para 8.78B has to be done not only quantity wise but also value wise. This is particularly so when Paragraph 8.78B of the Hand Book of Procedures 1997-2002 is read in the context of other provisions of the Policy, the Hand book and the Apex Court order dated 14/9/2004. The Apex Court while remanding the matter had inter alia observed that reconciliation has to be arrived at of the actual stock of diamonds in line with Paragraph 8.78B of the Handbook of Procedures. Further as correctly pointed out by the Respondent the inherent nature of diamonds is such that two diamonds of the same weight could have enormous difference in its value due to its intrinsic nature. Each diamond would be distinct from the other diamonds not on the basis of its weight but on the basis of its value. Consequently Para 8.78B when it requires reconciliation to be done of the quantity of imports with the quantity of exports and the balance stock, it would itself require a value wise classification for the purposes of reconciliation. This interpretation is further strengthened by the fact that when the appellant imported the cut and polished diamonds it availed of the benefit of Notification No.177/1994-Cus dated 21/10/1994 which exempted duty which would have been payable on the basis of the value of the diamonds and not on the basis of the weight of the diamonds. The diamonds are chargeable to duty on an ad-valorem basis. Further, in terms of Paragraph 8.29 of the Export Import Policy-1997-2002 the appellant is required to achieve value addition of 5% over the value of cut and polished diamonds which were imported over and above the value addition prescribed for studded jewellery in Para 8.17 of the Export Import Policy -1997-2002. Further, this value addition has to be in respect of each diamond which has been imported and not on the basis of over all imports and exports as is evident from Paragraph 9.35 of the Hand Book of Procedures 1997-2002 which clearly provides that the exports would be allowed by the Customs Authorities only when the value addition achieved in respect of the imported goods is not below the minimum prescribed in the policy. The value addition is not based on the weight of the diamonds but on the value of the imported diamonds. This again establishes the fact that the Appellant is required to maintain proper record /account of import, consumption and utilization of the imported cut and polished diamonds which again has to be value wise as not only provided in Notification No.177/1994 dated 21/10/1994 but also in terms of Paragraph 9.11 of the Hand Book of Procedures 1997-2002 which clearly provides that the importer shall maintain in specified form a proper account of the import, consumption and utilization of the imported material. Therefore, as explained above, as per our interpretation of para 8.78B read with the directions of the order dated 14/09/2004 of the Apex Court, the Appellant was obliged to explain the shortage/excess of diamonds both quantity wise and value wise. This has admittedly not been done by the Appellant. Therefore, the CESTAT was correct in its observation that unless the originally declared value in the bill of entry is shown there would be no means to know whether the value addition required in terms of paragraph 8.29 of the Export Import Policy 1997-2002 has been achieved on the imported cut and polished diamonds. The CESTAT has not accepted the reconciliation statement as submitted by the Appellant, essentially on the basis that no value wise co-relation had been done by the appellant and only total quantity wise co-relation was done. However, even with respect to quantity wise co-relation sought to be done under paragraph 8.78B of the Handbook of Procedures 1997-2002 by the Appellant, they had failed to explain the complete shortage and/or excess as found by the Respondent. This was not only unacceptable in terms of the Supreme Court directions, but also established that the reconciliation/accounts done/maintained by the appellants is Not worthy of acceptance.
11. The next submission urged on behalf of the Appellant was that the entire case of the Respondent of alleged shortage and illicit procurement of diamonds is based solely on incorrect particulars given in value addition statement furnished by them along with shipping bills at the time of the export of the studded jewellery. The value addition statement filed at the time of exporting studded jewellery indicated not only the cost of the imported diamonds but also value addition met thereon and the corresponding bill of entry under which the cut and polished diamonds were originally imported. Whenever, the bill of entry was not found in support of the imported diamonds, it was concluded by the Respondent that the same was illegally procured and whenever the same corresponded, credit was given to the Appellant for the same. It is the case of the Appellant that the value addition statement did not declare the exact price of the imported diamonds, in view of the nature of its business, the value addition statement declared an estimated/average cost of the diamonds used in the export of studded jewellery. Further in the absence of any corroborative evidence it is not correct to allege that there has been clandestine removal of the diamonds as they are situated in customs area and under surveillance of the Respondent. Further, the nature of the Appellant’s business make it impossible for them to co-relate the exported diamonds with the imported diamonds. In view of peculiar nature of the diamond industry, where diamonds were imported at a particular rate for an aggregate weight i. e. carats. However, these carats consist of a number of individual stones each of which has a different value. Consequently, as a result of assorting and/or reassorting repeatedly, it was impossible to keep a track of the cost of each imported diamonds with regard to the bill of entry under which it was imported. The submission of the Appellant that no reliance should be placed on the Value Addition Statement is rather curious as the value addition statement was a statement declared by them and as required not only under the public notice issued by the Respondent but also under Paragraph 8.34 and 8.35 of the Hand Book of Procedures 1997-2002. At the time when the Appellant furnished the Value Addition Statement they did Not declare that the costs of the diamonds declared therein is an average/estimated figure nor did they declare that the bill of entry number which is being mentioned as the document under which diamonds were imported is randomly picked out of the total Bills of entry covering the period of present proceedings. It ill comes for the Appellant to state that the Value Addition Statement should not be relied upon and/or should be ignored in determining the actual quantity of diamonds in stock with them and the extent to which they have been used in exported studded jewellery. The further contention of the Appellant is that considering the nature of its business, it is not humanly possible to keep an account of the imported diamonds so as to relate the imported diamonds when exported to the bill of entry under which the diamonds being exported were imported. This is because of constant assortment and re-assortment of the diamonds before they are used in studded jewellery which are exported. Therefore, at the time of export, the value of the diamonds as shown in the value addition statement is merely a value estimated/averaged by the assorter and cannot be co related to the value addition statement. In support of the aforesaid submission, it was pointed out that this was not a stand developed by the Appellant in response to the notice but this was a stand clearly taken at the time of stock taking itself. In support reliance was placed upon the statement of its partner one Suresh Mehta made on 8/2/2000 under Section 108 of the said Act to the officers of the Respondent. This submission does not seem to be supported by the statement made by its partner (Suresh Mehta) and employee (Sandip Savant) to the Respondent at the time of stock taking . It would be best to reproduce the relevant parts of the statements made under Section 108 of the said Act. Relevant part of the Statement of Sursh Mehta made on 8/2/2000 is as under:
“Q.7 In the above process, how you will be able to show that goods imported under particular bill of entry have been utilized fully and exported?
Ans. Every export of jewellery came under certain price of diamonds and we know at the time of assessment from which bill of entry these packets are removed which are noted down during assortment and are deducted at the time of bill of entry.
Q.8 :In that case, will you be able to know whether a stock of particular bill of entry is exhausted or Not?
Ans. Unlike any other produced where there are stamping or marking are done to show their identity until this product is work out is not possible to do on diamond at the time of manufacturing. Even though in absence of such marking it is the eye of an expert of a diamond can deduct what type of diamond price it is having. In your question as and when we assort for a particular type of diamond we always take care as far as possible similar diamonds are assorted from the mix lots of diamonds which come from under different bill of entry. Hence after mixing and assorting diamonds from such mix lots it humanly impossible that what is the balance of diamond in a particular bill of entry.
Since due yesterday awaking till 2.00a.m. in the morning for our stock taking on my request. I am now tired and will present (prevent) my self for giving further statement before you.
“The relevant part of the statement dated 7/2/200 of Appellant’s employee one Sandip Sawant is as under:
“Q.2. Who prepares the value addition sheet? How it is prepared?
Ans: The Value addition sheet is prepared by me in handwritten and the same is given to computer department who makes the fair sheet. The Value addition sheet is signed by our Admin incharge Mr. Col. Bawa and in his absence Mr. Ramesh Iyer sign the value addition sheet. The value addition sheet contains many columns such as style No. Quantity, purity, gross weight, Rate of RM and unit price etc., The details of style no., quantity, description, weight, purity are given by Quality Control Department and Diamond rate is given by the Diamond Assorter and unit price is given by Mr. Suken Mehta or Mr.Suresh Mehta. On the basis of these details Value sheet is prepared. The diamond assorter alongwith rate also given the date of Import and after verifying this particulars I give the details of bill of entry against which the said Import is made. In my absence Mr. Ramesh Iyer gives such details”.
12. In view of the above, the reason of impossibility of performance raised by the Appellants is not believable. Further, it is pertinent to note that during the adjudication proceedings before the original authorities the Appellant in its reply had stated that at the time of hearing they would produce the evidence of other exporters to show that other exporters in SEEPZ in the business of Gem and Jewellery business are not indicating the value addition details to the Respondent in view of the impossibility of performance. However, no such additional evidence was produced at the time of hearing and therefore, the Appellant’s contention that such requirement is impossible of performance as is evidenced by the fact that it is not carried out by any other unit in the same industry was not proved by them. During the course of the hearing before us the Advocate for the Appellant did draw our attention to response received on enquiries made under the Right to Information Act about the proceedings commenced against other Gem and Jewellery units with regard to the value indicated in the value addition statement. However, the aforesaid evidence was not produced before the CESTAT and therefore, it would be improper for us to refer to it and/or to make any comments on the same, particularly in view of the fact that the information under Right to Information Act was received by the appellant on 16/10/2006 and was very much available before the hearing concluded before CESTAT on 7/11/2006 and the impugned order was passed on 21/12/2006, yet the Appellant chose not to rely upon the same during the hearing before CESTAT. Further unless one knows the complete facts with regard to the other units it would not be fair to reach any conclusion with regard to them. In any case the only information obtained is that stock taking was done in respect of only one unit out of 32 units in SEEPZ. One must bear in mind that the entire proceedings against the Appellant commenced on gathering of Intelligence. It is further pertinent to note that the Appellant has availed of an exemption Notification and consequently imported the diamonds without payment of duty subject to various conditions including the condition of value addition of 5% of the cost of imported diamonds. In these circumstances, if they were unable to comply with the notification, they ought not to have availed of the exemption Notification. The exemption Notification was not forced upon them, but was an option exercised/availed by the Appellant. Further, the appellants themselves having declared the cost of the diamonds in the value addition statement without specifying that the same was an average cost or an estimated cost and that the bill of entry number specified was a random number taken out of bill of entry under which diamonds were imported. Therefore, they are bound by the aforesaid Value Addition Statement. In the above facts, there is no need for corroborative evidence and it is for the Appellant to satisfy the authorities that they have complied with the conditions of Notification No.177/94 dated 21/10/94.
13. The Appellants next contended that being a unit situated in a EPZ they are required to achieve NFEP as defined in Paragraph 9.29 of the Export Import Policy 1997-2002 and the words “value addition” and “ NFEP” are synonymous. Therefore the purpose and object of filing the Value Addition Statement was to ensure that NFEP is achieved on the studded jewellery of gold. This NFEP has to be calculated annually and cumulatively for a period of five years by complying with the prescribed formula for computing the same. These calculations have to be done over all, either annually or cumulatively for a period of five years and not in respect of individual consignments. In support of the Appellant’s stand the Learned Senior Counsel relied upon earlier policy for the period 1992-97 to contend that the value addition and NFEP are identical concepts. In support he invited attention to the fact that the word Value Addition as defined and computed in Para 97 and 199 of the Export Import Policy 1992-97 are the same as provided for NFEP in Para 9.5 and 9.29 of the Export Import Policy 1997-2002 and therefore the words are synonymous. Therefore the computation of value addition has to be done not for each export, consignment wise, as sought to be done by the Respondents. In regard to a specific query from the bench whether an earlier Policy could be used to interpret the current policy, the Counsel replied in the affirmative and in support of the same relied upon the decision of the Apex Court in the matter of Raj Prakash Chemicals Limited and Another Vs. Union of India and others reported in 1987 (30) E.L.T. 45 (S.C.) wherein he relied upon the observation of the Court to the effect......
“There was a change in the nomenclature of the Headings of different lists, but the change effected was merely by way of clarification in order to promote a clearer comprehension among foreign countries of India’s import Policy. It was a change essentially in nomenclature.....”
14. The above observations have to be read in the context of in which they were made, in that case Diamond Exporters had been denied Export House certificates under Import policy 1978-79 which entitled them to get Addl. Licences for import. The Diamond exporters filed writ petitions and by the time the matter was decided in their favour and Addl. Licneces granted, the Import Policy had undergone a change and the issue was what could be imported by the Petitioner viz. what was permitted under the current policy or that permitted under the earlier policy of 1978-79. It was in the above context that these observations were made and the Apex Court was concerned with both the earlier policy and the policy as existing at the time of import, unlike in this case. The Apex Court also observed in the above case that the “Considerations pertaining to current economical and fiscal needs has lead to periodic reorientation of the country’s import Policy.” Therefore according to us the Export Import Policy has to be interpreted on its own terms and conditions and not be influenced by the provisions in the earlier policy unless the earlier policy is also under consideration as in the case of Raj Prakash Chemicals (supra). The aforesaid decision to our mind does not assist the Appellant as in this particular case the Export Import Policy 1997-2002 has deliberately used two different words namely value addition and NFEP. The words Value addition for studded jewellery is referred to in Para 8.17 of policy while minimum NFEP requirement is provided in Appendix I read with Paragraph 9.5 of the policy of 1997-2002. This clearly brings out that the Policy considers the two to be different concepts. The contention of the Appellant that the Value addition statement is being filed only to ensure that the NFEP is achieved on the studded jewellery is also not correct. This is so as value addition requirement has to be met in respect of the imported diamonds at the time of export as provided in Paragraph 8.35 of the Handbook of Procedure 1997-2002.
15. It was next contended by the Appellant that the records and accounts were maintained by them in terms of public notice issued by the Respondent and the same were accepted by the Respondent. Therefore the present proceedings are unwarranted. The Learned Counsel for the Respondent pointed out that the Appellant had failed to maintain proper account of import, consumption and utilization of the imported goods. This was established by the failure of the Appellant to explain shortage and excess even after the Supreme Court granted an opportunity to the Appellant to explain the same before CESTAT. This condition of maintaining proper account is not only found in the notification but is also requirement of Paragraph 9.11 of the Hand Book of Procedures 1997-2002. Further the requirement of maintaining proper account of the imported diamonds also became necessary in view of Para 9.10(d) of the Hand Book of Procedures 1997-2002 which stipulates that the imported diamonds are to be utilized within a period of two years from the date of import, otherwise the same will become dutiable. The Learned Counsel for the Respondent urged that maintaining of account/record of the imported diamonds supported by the relevant bill of entry is of particular significance in case of diamond industry as exemption is granted to the imported diamonds from duty which has been worked out at the ad-volaram basis depending upon the value of the diamonds. In these circumstances, we find that it was imperative for the Appellant to maintain a proper account and record, both quantity wise and value wise of the imported diamonds. For maintaining the records the appellants did comply with the prescribed form of the public notice issued by the Respondent. However, the record did not indicate value wise classification of goods. This is particularly important in case of diamonds value and weight would make it distinct and different from diamonds of different value and weight. The maintaining of recordes. Therefore it is clear that the Appellant had not maintained the records of all diamonds of identical weight and value separately, to satisfy the proper maintaining of account/records of the Diamonds. In the alternative, it was submitted by the Appellant that its records and in particular two Registers had been was over seen by officers of Respondents counter signing the same. It is the case of the Learned Senior Counsel for the Appellant that at no point of time, any of the officers of the Respondent inform the Appellant that the records were not being properly maintained. Therefore, it is not open to the Respondent to now contend that the records are not properly maintained. The aforesaid issue does not appear to be reflected in the order of the CESTAT as it was not argued, particularly in view of the fact that when the Apex Court remanded the matter, the remand was for specific purpose of the Appellant reconciling the stock by producing its accounts. Be that as it may, we have considered the aforesaid submission of the appellant. The aforesaid submissions would have come to aid of the Appellant in case it was their contention that the demands were barred by limitation. In this particular case, the Apex Court has by its order dated 14/09/2004 had very clearly observed that the extended period of limitation is clearly applicable in the fact of this case. Besides, the appellants themselves are not challenging the show cause notice dated 5/6/2000 on the ground that it is barred by limitation. In such circumstances, in view of Section 28 of the said Act it is open to the department to raise the issue of accounts and record not being properly maintained.
16. It was next contended by the Appellant that before any breach of Notification no. 177/94 dated 21.10.1994 can be alleged, it is the Development Commissioner, who must be satisfied that there has been breach of the Notification on the part of the Appellant. This according to the appellants has not happened in this case. In support of the above submission, attention is invited to condition in clause (6) of Notification No.177/94-Cus. dated 21/10/1994. Further during the course of the hearing, the Learned Senior Counsel for the Appellant filed an affidavit dated 25/04/2012 to which was annexed the letter from the office of the Development Commissioner, certifying that the Appellant has achieved an overall value addition for the years 1988-89 to 1999-2000. This submission ignores the fact that under condition No. 4 of the Notification the Appellant had undertaken to the Respondent to comply with the conditions of the Notification and on that basis the exemption was granted to the Appellant. Therefore in terms of condition in clause 4 of the Notification No.177/94 the Respondent had independent right to ensure the compliance of the above Notification under which exemption from payment of customs duty was claimed by the Appellant. So far the certificate dated 25/4/2012 from the office of the Development Commissioner which was produced before us is concerned, it must be noted that the issue here is not of overall value addition, but value addition of 5% in respect of the imported diamonds. The certificate issued by the Development Commissioner does not indicate that the value addition in respect of cut and polished diamonds of 5% as prescribed in the Exim policy has been achieved by the Appellant. Consequently, the certificate of the Development Commissioner dated 25/4/2012 is of no avail. Therefore the Respondents have jurisdiction to issue the present notice and demand duty which was forgone at the time when the cut and polished diamonds were imported by the Appellant claiming benefit of Notification No.177/94-Cus dated 21/10/1994.
17. It was next contended by the Appellants that the confiscation of 10631.39 carats and 63088.35 carats of diamonds is only on the basis that the same could not be co-related to any of the bill of entry for import is baseless in view of the nature of the Appellant’s business. In fact there are no documents supporting the import of the above diamonds and therefore the confiscation as upheld by the CESTAT cannot be found fault with. The alternative submission made by the Appellant with regard to the aforesaid confiscation, that cut and polished diamonds not being Notified goods under Section 123 of the said Act, the burden of proof to establish that the diamonds have been illicitly imported is on the Respondent. In the present facts, the Respondents found a shortage of cut and polished diamonds on stock taking as well as excess of cut and polished diamonds (not supported by import documents). It was for the Appellant thereafter to explain the same. This court in the matter of Sailesh Jogani reported in 241 ELT 348 laid down the principles of burden of proof in respect of non-notified goods in para 15 thereof as under:
“(1)….
(2) In case of other goods which are not covered by sub-section (2) of Section 123 and in respect of which no notification is issued the basic cannons of criminal jurisprudence and natural justice will apply. The burden of proving that the goods are smuggled will be on the Department.
(3) However, the Department has to establish its case with such a degree of probability that a prudent man may on its basis believe in the existence of the fact in issue.
(4) The Department is not obliged to prove facts which are especially within the knowledge of the proceedee as part of its primary burden because under Section 106 of the Indian Evidence Act, the burden of proving facts which are specially within the knowledge of a person is on him.
(5) However, the special or peculiar knowledge of the person proceeded against will not relieve the Department altogether of the burden of producing some evidence in respect of that fact in issue. It will only alleviate that burden, to discharge which very slight evidence will suffice.
(6)….
(9)…”
Therefore the aforesaid tests have been met by the Respondent and the onus of discharging the burden was shifted on the Appellant in the present facts. Therefore, though the burden to explain the shortage and/or excess was not shifted the onus to prove was shifted from the Respondent to the Appellants and they have been unable to discharge the onus. This shifting of onus of proof was after the Respondents had prima facie established certain excess and shortage of diamonds in the hands of the Appellant (See the decision of this Court in the matter of Phoenix Mills reported in 168 ELT 310). Therefore in the present facts, even though Section 123 of the said Act is not applicable, yet the Respondent have been able to establish the illicit procurement of cut and polished diamonds by the Appellant and the Order of CESTAT cannot be found fault with.
18. The Appellant also submitted that the CESTAT erred in not giving credit for 4 high Value diamonds while computing the shortages of cut and polished at 72,095.55 Carats. We find that CESTAT has given credit of 23 High Value Diamonds as they were duly supported by documents. The 4 High Value diamonds for which credit was not given were not supported by import documents. This finding of fact is not perverse and is based on the appreciation of evidence led before CESTAT.
19. In the result we uphold the impugned Order dated 21/12/2006 passed by CESTAT. The Question Nos. (a),(b) and (c) referred to hereinabove on which the appeal was admitted are answered in the affirmative against the Appellant and in favour of the Respondent. No order as to costs.
20. At this stage, the Appellant sought a stay of this order for a period of 8-weeks. None present for the Respondent. Accordingly, prayer is accepted and judgment is stayed for a period of 8-weeks from today.