Exemption Notifications Override CBEC Circulars: CESTAT Rules Jewellery Exports Need Not Be Made Only from Imported Gold [Read Order]

The Directorate of Revenue Intelligence (DRI) alleged that PH Jewels, the appellant - exporter, had diverted 25 kg of duty-free imported gold into the domestic market instead of using it for export jewellery.

The Revenue Intelligence claimed that the firm had instead exported jewellery manufactured from domestically procured gold, thereby violating Notification No. 57/2000-Cus dated 8 May 2000, under which the gold had been imported duty-free by MMTC, a nominated agency.

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The Principal Commissioner of Customs confirmed a duty demand of ₹73.52 lakh with interest, ordered confiscation of the gold, and imposed penalties on PH Jewels and its representative, Shri Sanjay Agarwal.

Before the Tribunal, the appellants contended that the exemption notification nowhere mentioned that only the imported gold must be used for manufacturing jewellery meant for export.

They argued that the show cause notice and the impugned order incorrectly relied on CBEC Circular No. 27/2016-Cus dated 10 June 2016, which directed that jewellery must be exported only from the imported gold supplied by nominated agencies.

The appellants said that circulars are only administrative instructions and cannot override statutory notifications issued under Section 25 of the Customs Act.

The bench examined the provisions of Notification No. 57/2000-Cus and the relevant Foreign Trade Policy (FTP). It observed that while the FTP permits procurement of gold either in advance or as replenishment after export, the exemption notification did not impose any condition requiring the exporter to use exclusively imported gold for jewellery exports.

The CESTAT noted that the CBEC circular attempted to read such a condition into the notification, which is impermissible in law.

The bench of P V Subba Rao and Angad Prasad, said that the principle that taxation law cannot be based on intendment. It pointed out that exemption notifications issued by the Government are subordinate legislation, vetted by Parliament, and carry the force of law. By contrast, CBEC circulars are only instructions to departmental officers and cannot modify, restrict, or expand the scope of statutory notifications.

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Since neither the show cause notice nor the exemption notification prescribed such a condition, the Tribunal held that the demand was unsustainable.

In addition, the tribunal further directed that duty and interest amounts earlier paid by MMTC, but ultimately borne by PH Jewels, must be refunded in accordance with Section 27 of the Customs Act, 1962. It clarified that both the person who pays duty and the person who bears its incidence are entitled to claim refunds.

The bench sets aside the demand of duty, interest, and penalties imposed on PH Jewels, clarifying that CBEC circulars cannot impose additional conditions not prescribed in exemption notifications.

The appellants were also found entitled to a refund of any pre-deposits made during the appellate proceedings. Accordingly, the Tribunal set aside the impugned order in its entirety.

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