Absence of Heavy Machinery Alone Not Proof of Diversion of Imported Gold and Silver: CESTAT Quashes Confiscation [Read Order]

The New Delhi Principal Bench of the Customs, Excise, and Service Tax AppellateTribunal (CESTAT) ruled that absence of heavy machinery alone could not prove that an SEZ unit diverted duty-free imported gold and silver into the domestic market.

Bharti Gems, an SEZ unit in Jaipur, was engaged in the manufacture and export of silver and gold jewellery. P P Jewellers & Diamonds Pvt. Ltd., Its My Name and certain individuals were also made parties to the proceedings.

The department alleged that Bharti Gems imported gold and silver duty free but diverted them into the domestic tariff area. It also alleged that Bharti Gems did not have the machinery or workforce required to manufacture the jewellery it claimed to have exported.

The Commissioner confiscated seized silver jewellery under Section 111(o) of the Customs Act and confirmed customs duty of Rs. 1,44,04,165 with interest. Penalties were imposed on Bharti Gems, P P Jewellers, Its My Name and individuals under Sections 112(b)(ii), 114A and 114AA.

The appellants’ counsel argued that Bharti Gems had approval to manufacture gold and silver jewellery in the SEZ. They argued that jewellery, especially chains, could be made by hand and that the absence of chain-making machines did not prove non-manufacture. They also argued that the additional Bond-cum-Legal Undertaking of Rs. 224.73 crore was accepted by the competent authority.

The department’s counsel argued that Bharti Gems exceeded the procurement limit, lacked proper manufacturing facilities, did not engage skilled labour, and exported other goods in the guise of jewellery.

The two-member bench comprising Justice Dilip Gupta (President) and P. Anjani Kumar (Technical Member) found the Commissioner’s findings and confiscation of silver jewellery unsustainable. The tribunal observed that once the additional Bond-cum-Legal Undertaking was accepted, activities carried out on its basis could not later be treated as unauthorised.

The tribunal pointed out that statements recorded under Section 108 of the Customs Act could not be relied upon unless the procedure under Section 138B was followed. It also observed that NSDL data alone could not override stock registers, purchase ledgers, invoices and shipping documents maintained in the ordinary course of business.

The tribunal held that the department could not shift the burden on the exporter merely because export goods were not examined. The confiscation, duty demand and penalties were set aside and all appeals were allowed.

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates