ORDER
K.K. Agarwal, Member (T)
1. The appellants’ (M/s B.V. Jewel’s) unit located in Santacruz Electronics Export Processing Zone is engaged in the manufacture of jewelleries studded with diamonds for 100% exports. They were availing exemption from Customs duty on cut and polished diamonds imported under Notification No. 177/94-Cus dated 21.10.1994. On the basis of certain intelligence gathered to the effect that there were shortages of diamonds in the stock of M/s B.V. Jewels, stock-taking was carried out in the premises of the appellants by SEEPZ Customs Officers from 01.02.2000 to 03.02.2000 when it was found that the appellants were not maintaining prescribed records properly and certain shortages and excesses were detected during the course of stock taking. The unit was asked to prepare a statement of import and export of diamonds according to the rate at which the diamonds were imported and exported which was prepared by one Shri Ramesh Iyer, Accounts Manager and submitted under his signature. On verification of the said statement, it was found that in a large number of cases diamonds in the jewellery have been exported which are not relatable to any import documents. For example, during the period 01.04.1998 to 31.01.2000, the appellants were found to have imported a total quantity of 1894.51 cts. of diamonds at the rate of US$ 75 per ct. Against this quantity of diamonds, the appellants were found to have exported 29931.61 cts. diamonds in the jewellery indicating thereby that the appellants had exported excess unaccounted diamonds in the jewellery to the extent of 28037.10 cts. import value of which was US$ 75 per ct. This statement showed that there was a shortage of 73739.00 cts. and excess unaccounted stock of 10631.39 cts. The stock taking was completed on 03.02.2000 when Shri Suresh Mehta, partner vide his letter dated 03.02.2000 confirmed that the physical stock of goods was as per the inventory sheets prepared by Customs which has been countersigned by his employees. However, on 07.02.2000 when re-valuation of physical stock of diamonds was being concluded by the expert valuer Shri D. Naveen Chandra, at about 10.35 P.M. Shri Suresh Mehta vide his letter dtd. 07.02.2000, produced 27 pieces of high value diamonds weighing 31.54 cts. and 1607.03 cts. of broken diamonds for taking them into stock. He claimed that out of 27 pieces of high value diamonds, 23 pieces are certified diamonds covered by Bills of Entry No. 2601 & 2602 both dated 12.10.1998. Out of these 23 pieces of diamonds, 12 pieces accompanied by certificates from International Gemological Institute, Antwerp were claimed to be covered by Bill of Entry No. 2601 and the remaining 11 pieces accompanied by certificates from European Gemological Laboratory are claimed to be covered by Bill of Entry No. 2602.
2. However, as per records maintained for the period 01.09.1999 to 31.01.2000, total quantity of broken diamonds was found to be 110.57 cts. Since the high value diamonds and broken diamonds were not produced at the time of stock verification and the same was duly verified by the unit’s officers who had countersigned the statement in confirmation of the fact that no other stock was lying with them, these quantities subsequently produced were not accepted by the department and form part of the shortages initially detected.
3. In view of the above facts, a show cause notice dated 05.06.2000 was issued to the appellants seeking to demand duty amounting to Rs. 12,54,80,309/- on the diamonds found short and impose penalty under Section 114A on M/s B.V. Jewels, besides proposing confiscation of 73730 cts. of diamonds valued at Rs. 26,29,54,490/-.
4. The show cause notice also proposed to confiscate 23 pieces of high value diamonds totally valued at Rs. 39,63,286/- and broken diamonds valued at Rs. 6,91,139/- which were subsequently produced and had not been accounted for in the stock, being illicitly imported. The excess quantity of diamonds weighing 10631.39 cts. valued at Rs. 4,03,72,667/- alongwith gold valued at Rs. 26,81,736/-. was also proposed to be confiscated. The notice also sought to confiscate unaccounted diamonds exported during 1998-99 & 1999-2000 to the extent of 63078.35 cts. valued at Rs. 27,00,76,393/-.
5. The matter was adjudicated by the Commissioner, who confirmed the entire show cause notice vide his order dated 13.06.2001. On appeal, the Tribunal set aside the entire order on the ground that during the course of stock taking what was required to be taken into account was the total quantity of diamonds imported and the total quantity of diamonds exported without taking into account the value thereof bill of entry-wise and shipping bill-wise as the value was considered to be estimated value which varies from person to person and could not therefore be made basis thereof. The Tribunal, in a nutshell, went by para 8.78B of the Exim policy which prescribed a method of co-relation with reference to total quantity of imports and total quantity of exports. It was held that the value of diamonds declared in the value addition statement can never be the same as declared in the bill of entry as declaration in the two documents was based on approximation. The shortages were worked out because of wrong method of co-relation which were set aside. In respect of broken diamonds, the Tribunal held that since re-valuation was done on 07.02.2000 and stock taking was a continuing process, stock produced later on was also part of the physical stock lying with the appellants. In respect of high value diamonds, it was held that since weight and description tallies, the seizure and confiscation was not justified, because the supplier issued the invoice and the certificates were issued by another agency and that the supplier in all the cases may not endorse the certificate number on the invoice. The excess diamonds found were also held not liable to confiscation as they were found excess due to co-relation of diamonds with respect to value declared in the bill of entry which was a wrong method.
6. The Revenue filed an appeal in the Supreme Court and the Supreme Court has remanded the matter back to the Tribunal vide its order dated 14.09.2004. Relevant paras i.e. para 29 to para 32 are reproduced below as they form the crux of the remand matter:
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 obligation to otherwise reconcile the stock. They cannot 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 & 10 thereof. Power of the departmental authorities to verify the records to find out whether imports and exports have been properly recorded cannot 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. 26,29,54,490/0 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 respondents-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 re-examination by CEGAT as directed supra.
7. It is the remand proceedings which were argued before us in the present appeal.
8. There is a dispute between the two sides regarding the scope of the remand proceedings. The learned advocate for the appellants submitted that in para 26 of the Hon’ble Supreme Court’s order the Hon’ble Supreme Court has categorically observed that paras 8.34 and 8.35 operate in a field different from Para 8.78B. In para 27, it is held that paras 8.34 and 8.35 operated at the time of export when the bills have to be verified in the prescribed manner. In para 29, it is categorically held that 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. There is a reference in para 30 of the Hon’ble Supreme Court’s judgment that the power of the departmental authorities to verify records cannot be denied. However, in the same para, Hon’ble Supreme Court holds that 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. Therefore, even though the Hon’ble Supreme Court in para 30 has stated that 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. During the period 1998-1999 and 1999-2000 at the time of export of jewellery studded with diamonds shipping bills were accompanied with the value addition statements which indicated the bill of entry numbers under which the diamonds were imported. Before permitting exports the proper officer of Customs have to see that the declarations filed in the shipping bills and accompanied documents are correct after verifying the documents and physically the export goods. The officers verified physically the jewellery studded with diamonds which were before them at the time of exports and they were satisfied with the records given in the value addition statements in a particular bill of entry was found to be correct and thereafter only the exports were allowed. Paras 8.34 and 8.35 clearly stated that the exports shall be allowed by the Customs authorities provided the endorsements made on the shipping bills and the invoices are correct and the value addition achieved is not below the minimum prescribed in the policy. It was, therefore, urged that even though there is a reference in para 30 to verify the compliance of para 8.34 and 8.35, that stage is already crossed at the time of examining the goods physically and allowing exports. If after completion of exports at a later stage verification has to be done, the same has to be done as provided in para 8.78B and therefore co-relation has to be only with reference to total quantity of imports and total quantity of exports. In his submission, this is what the Hon’ble Supreme Court has stated in para 29.
9. Shri Mondal on behalf of the Revenue, however, submits that the main allegation in the show cause notice is substitution of cut and polished diamonds imported and cleared duty free for manufacture of jewellery for export with some other diamonds which are not covered by any import documents. The other allegation is improper maintenance of records contrary to the provisions of Notification No. 177/94-Cus dated 21.10.1994 as amended and the provisions of the Exim policy, 1997-2002.
10. As per the provisions of the policy and the notification, the manufacturer-exporter has to satisfy that the imported diamonds have been exported after being studded in the jewellery and after minimum value addition of 5% over and above the import value of diamonds. It is, therefore, of no significance even if the physical exports of diamonds are found to tally with the physical imports of diamonds in terms of weight. The policy requires that the physical exports of diamonds in the jewellery should also tally with the physical imports of diamonds in terms of value.
11. He submitted that the contention of the appellants that the Tribunal is required only to see the compliance of para 8.78B is totally incorrect. Learned advocate ignores the observations and directions of the Apex Court contained in para 30 of its order which are very loud and clear. Even on a plain reading of para 30, it will be abundantly clear that the appellants have to comply not only with the requirements of para 8.78B but also with the requirements of paras 8.34 & 8.35 of the Handbook of Procedures. In para 26 of its order, the Apex Court has observed that paras 8.34 and 8.35 operate in a field different from para 8.78B. Requirements of para 8.78B relate to a stage when the exporter is required to account for the total quantity of imports with the total quantity of exports and the balance stock including broken diamonds and other gemstones. In para 27 of the order, the Apex Court has observed that paras 8.34 & 8.35 operate at the time of export when the shipping bills have to be verified in the prescribed manner. This is a stage different from the one as contemplated in para 8.78B.
12. After referring to the requirements of paras 8.34, 8.35 & 8.78B, the Apex Court has observed in para 30 of its order that the relevant provisions have to be applied at the stages they are intended to be applied. In the very same para 30, the Apex Court has also observed that power of the departmental authorities to verify the records to find out whether imports and exports have been properly recorded cannot be denied. Such verification shall not be only for the purpose 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 accounts maintained.
13. In view of the above unambiguous observations of the Apex Court, the contention of the appellants that they are required only to comply with the requirements of para 8.78B is incorrect and hence the same is unacceptable.
14. He then referred to the statement submitted by the appellants (attached to this order as Annexure ‘A’) showing compliance with the requirement of para 8.78B by making a co-relation with reference to total quantity found in stock, total quantity imported during the relevant period and total quantity exported during the relevant period which shows that the appellants have not been able to reconcile the imports and exports even in relation to their quantity alone. This statement also shows shortages of diamonds to the extent of 1473.44 cts. excluding broken diamonds of 1607.03 cts. and high value diamonds of 31.54 cts. Further, this statement also shows excess of diamonds to the extent of 165.40 cts. if broken diamonds and high value diamonds are included in the physical stock found. This only demonstrates that the appellants are not able to tally the accounts of diamonds even in terms of para 8.78B.
15. We have considered the above submissions. Since the scope of the remand order is the crux of the whole issue, we thought it prudent to first give our finding whether the shortages have to be worked out bill of entry and shipping bill-wise as per provisions of para 8.34 and 8.35 or according to para 8.78B under which only the quantity is to be tallied without reference to value. We find that the Apex Court after referring to the requirements of paras 8.34, 8.35 & 8.78B has observed in para 30 of its order that the relevant provisions have to be applied at the stages they are intended to be applied. However, as contended by the learned Counsel for the revenue, in the very same para the Apex Court has also observed that the power of the departmental authorities to verify the records to find out whether imports and exports have been properly recorded cannot be denied. Such verification shall not be only for the purpose of finding out the compliance of paras 8.34, 8.35 and 8.78B, but the same shall be to test the correctness of the accounts maintained. In para 32, the Apex Court has directed that the Tribunal shall permit the 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 excesses or shortages 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 respondents/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.
16. It was in consequence of the direction given in para 32 that the respondents/assessees were required to produce their books of accounts and the records prescribed under the Exim policy and under the Public Notice issued by the departmental authorities. We found that the records were incomplete inasmuch as the records only show the total stock received and the total stock exported without giving details of the bills of entry under which the stock was received and the shipping bill numbers under which it was exported. Even the value of the diamonds per piece, per bill of entry wise was not given. Therefore, there was no way to know as to whether what was imported has been actually exported. We do not find any substance in the plea of the assessee that the value has to be approximated and not the actual value as declared in the bill of entry and once the value declared in the shipping bill was examined by the Customs Officers and found to be correct it cannot be disputed. Our attention had been drawn to para 8.29 of the Exim policy for the period 1997-2000 which says that the exporter was also required to achieve a value addition of 5% over the value of cut and polished diamonds and precious and semi-precious stones etc. over and above the value addition prescribed for gold, silver and platinum content. This addition has to be bill of entry-wise and variety-wise and therefore unless originally declared value in the bill of entry is shown, there are no means to know as to whether the said value addition has been achieved or not. In view of this, the value shown in the shipping bill cannot be approximated as contended by the appellants, but has to be one which is declared in the bill of entry. If the Customs officer has failed to detect the same does not mean that the appellants can be absolved of the responsibility of accounting for the same. We also find that the appellants were given a chance to reconcile the quantities as per the provisions of para 8.78B of the Hand Book, but even then they failed to do so, as according to their own statement there was either a shortage of 1473.44 cts or an excess of 165.40 cts depending upon the facts whether the broken diamonds of 1607.03 cts and high value diamonds of 31.54 cts are taken into account. This obviously shows that the accounts were not maintained properly at all and there are no ways and means of determining the value of excesses or shortages of diamonds once the diamonds were not physically present and the excesses or shortages are on account of non-matching of the entries in the books of accounts with those physically present. Therefore, for determining their value, co-relation of the diamonds with the bills of entry and the shipping bills has to be undertaken.
17. There is yet another reason for determining the shortages and excesses bill of entry and shipping bill-wise as the diamonds imported under a particular bill of entry or exported under a shipping bill are of various varieties depending upon the value per ct. Therefore, an interpretation of para 8.78B has to be taken in the manner that total quantity of a particular variety (value-wise) has to be undertaken and not total quantity of different varieties put together, as there cannot be matching between export of one variety with the export of another variety, even though the quantity may be identical as the variety is based on value which differ widely and difference between two pieces of diamond of equal weight can be very high. We, therefore, hold that for determining the excesses and shortages, we will have to look into the import and export documents variety-wise in view of the appellants’ inability to reconcile the same, total quantity-wise as per their interpretation of para 8.78B leave aside variety-wise reconciliation. Having said so, we now proceed to determine the excesses and shortages, unaccounted diamonds, high value diamonds and broken diamonds etc.
18. Having taken the view that the shortages are to be re-determined with reference to bill of entry and the shipping bill we find that once this method is adopted there is no dispute between the appellants and the respondents that as per this method the shortages are to the extent of 73730 cts. as reflected in the show cause notice and the duty demandable on the same is 12,54,80,309/-. However for arriving at the actual shortage, we have to take a view whether the high value diamonds and the broken diamonds produced subsequently have to be taken into account or not. Our findings in respect of these two are as under:
HIGH VALUE DIAMONDS:
19. We find that the appellants have taken a plea that the Apex Court in its remand order in para 31 only refers to the arguments of the Revenue regarding high value diamonds that they were produced by the partners of the appellants Shri Suresh Mehta some days after the verification started. However, finding of the Hon’ble Tribunal has not been reversed and since as per para 35 of the Hon’ble Supreme Court’s judgment, the appeals are allowed to the extent indicated, unless there is a reversal of finding of the Hon’ble Tribunal, the Hon’ble Tribunal is not required to again deal with the issue of high value diamonds as the same has been decided in favour of the appellants. We however feel that if para 31 and 32 of the Apex Court’s order are read together, then it would be clear that what the CESTAT is required to determine is to check the accuracy of accounts and find out if there is any excesses or shortages as alleged by the departmental authorities. Since the department has alleged shortages of high value diamonds, excess of unaccounted diamonds, the same have to be looked into by us and a clear finding is to be given on the same.
20. Having said that the shortage and excess of high value diamonds and unaccounted diamonds are also to be looked into, we further hold that the principle for determining the shortages and excesses will be the same as laid down for determining the shortages/excesses of other than high value diamonds in the preceding paras i.e. the shortages/excesses have to be determined with reference to each bill of entry and shipping bill-wise. Here we find that it is the case of the Revenue that out of 86.7 cts. of high value diamonds imported by the appellants, only 10.93 cts. are found to have been exported in the jewellery as is evident from Annexure IX to the show cause notice at Page 58 of the paper book Volume-II. The remaining quantity of 75.79 cts. were not found in stock. If the methodology adopted for determining the shortages bill of entry and shipping bill-wise is followed, there is no dispute between the appellants and the revenue that there was shortage of 75.77 cts. on 03.02.2000 when the stock taking was completed. The appellants’ only case is that subsequently on 07.02.2000, 27 pieces of high value diamonds weighing 31.54 cts. and 1607.03 cts. of broken diamonds were produced for taking them into stock, which should be taken into account and shortages determined accordingly. The revenue’s contention is that, once on 03.02.2000 Shri Suresh Mehta has confirmed in writing that the physical stock of goods is as per inventory sheets prepared by the customs which has been countersigned by his employees, the subsequent production of the high value diamonds cannot be taken into account and it should be held that they have been procured from some where-else without any proof of import.
21. We have considered this plea. We hold that the stock subsequently produced should also be taken into account, because in such a situation there can always be mistake of not producing some stock which was not in the knowledge or which could not be quickly recollected by the employees of the appellants. However we find that out of 27 pieces subsequently produced, 18 pieces mentioned at Sr. No. 4 to 14, 23 to 28 and 36 of Annexure 6A to the show cause notice at page 13 and 14 of paper book Volume II tallied with weight and description shown in the Bills of Entry. We accordingly hold that these diamonds will have to be taken into account while determining the shortages ignoring the revenue’s plea that the relevant invoices did not show the certificate number as indication of certificate number is not a legal requirement. Further, in respect of 5 pieces mentioned at Sr. No. 33, 34, 39, 40 and 45 of Annexure 6A to the show cause notice, only clarity does not tally. We find that the appellants have taken a stand that there are different standard for indicating the clarity as seen from grading given in U.K. Scandinavian Nomenclature, Gemological Institute of America, for e.g. VS is the standard adopted in U.K., whereas VS I and VS II are adopted by Gemological Institute of America and therefore it is not correct to say that the clarity does not tally. Since the description and weight in all these 23 pieces tally with description weight given in the invoices and bills of entry and the accompanying certificates, we hold that the same should be taken into account. The total weight of these 23 pieces as reflected in Annexure XI to the show cause notice comes to 27.42 cts. valued US $ 90,087.58 (Assessable value Rs. 38,94,570) as shown in Annexure ‘B’ to this order.
The duty on the 23 pieces would amount to Rs. 19,78,442/- as per Annexure B to this order.
22. As regards remaining 4 pieces of high value diamonds, since there is no corresponding import documents showing their licit import, the same are held as unaccounted diamonds and cannot be taken into account for the purpose of determining the shortages/excesses.
BROKEN DIAMONDS
23. Now, we come to the includibility of the broken diamonds produced subsequently. Here we find that the Apex Court has no where referred to the quantity of broken diamonds produced subsequently in its remand order and therefore it has to be taken that the Tribunal’s finding in its earlier order remained undisturbed. We, therefore, allow inclusion of the broken diamonds weighing 1607.03 Cts. valued at Rs. 6,91,139/-.
24. Therefore, after allowing the inclusion of 23 pieces high value diamonds weighing 27.42 Cts. valued at US $ 90,087.58 (assessable value Rs. 38,94,570/-) and broken diamonds 1607.03 Cts. valued at Rs. 6,91,139/- the total shortage will come to 72095.55 Cts. valued at Rs. 26,09,98,326/-. The duty on the same will come to Rs. 12,31,86,708/- which is accordingly confirmed. Calculation of duty is shown in Annexure ‘C’ attached to this order.
25. As regards penalty in respect of this duty evaded and now confirmed, we find from para 32 of the Supreme Court’s remand order that the court has observed as under:
If after considering the explanation of the respondents/assessees and that of the departmental authorities already on record it finds that the plea of the concerned assessees, is without substance it shall be work out the suppression, if any, and the duty payable. The quantum of penalty would be equal to the sum of the duty leviable in terms of confirmation of Commissioner’s order as done by us supra….
26. In view of the above, a penalty equivalent to the amount of duty evaded is required to be confirmed. We accordingly confirm the penalty of Rs. 12,31,86,708/-.
27. We now come to the confiscation of 10631.39 Cts. of diamonds referred to in para 31 of the Apex court’s order. Since the appellants’ accounts have not been found to be correct and shortages/excesses have been determined afresh, finding has to be given on this unaccounted diamonds as they were found in excess of what was licitly imported. Since there is no document to establish their licit import, we uphold their confiscation with an option to redeem the goods on payment of redemption fine of Rs. 43 Lakhs under Section 125 of the Customs Act as held by the Commissioner.
28. Similar is the situation in respect of unaccounted diamonds which have been exported without proof of its licit import as shown Annexure -XI to the Show Cause Notice weighing 63078.35 valued at Rs. 27,00,76,393/-. Since there is no proof regarding their licit import, the liability to the confiscation as done by the Commissioner is upheld.
29. As regards imposition of penalty of Rs. 5 Crores on M/s. B.V. Jewels under Section 112(a) and Section 114(i) of the Customs Act, 1962 is concerned, we find that a penalty of around Rs. 12 Crores has already been imposed under Section 114A of the Customs Act, and therefore we feel that further imposition of penalty of Rs. 5 Crore under Section 112(a) and Section 114(i) is unwarranted. Accordingly we set aside the same.
30. As regards imposition of penalty of Rs. 2 Lakhs each on M/s Saroj S. Mehta, Sapna S. Mehta, Shivani S. Mehta and Rs. 10,00,000/- each on Shri Suresh Mehta and Shri Suken Mehta, partners of M/s B.V. Jewels, we feel that sufficient penalty has already been imposed on the firm M/s B.V. Jewels and therefore imposition of further penalty under Section 112(a) and 114(i) on individual partners is not called for. Accordingly we set aside the same and allow their appeals.
31. It is being made clear that the Apex Court has decided the appeal of M/s B.V. Star finally and both the Revenue and the appellants have agreed to the same at the time of hearing. Therefore we are not required to deal with the case of M/s B.V. Star. Accordingly we refrain ourselves from dealing with the appeal of M/s B.V. Star which has been finally disposed of by the Apex Court.
32. Appeals are disposed of in the above terms.
(Pronounced in Court on 21.12.06)