Full Judgment Text
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CASE NO.:
Appeal (civil) 813-814 of 2004
PETITIONER:
Commissioner of Customs, Mumbai
RESPONDENT:
M.M.K. Jewellers & Another
DATE OF JUDGMENT: 11/03/2008
BENCH:
Ashok Bhan & Dalveer Bhandari
JUDGMENT:
J U D G M E N T
(With Civil Appeal Nos. 822-824, 818-820, 815-817, 825-827, 1537-
1539, 4641 of 2004 and Civil Appeal No. 7274 of 2005)
Dalveer Bhandari, J.
1. The questions of law involved in all these appeals are
identical, therefore, we propose to dispose of these appeals by
this common judgment. For the sake of convenience, the
facts of Civil Appeal Nos. 813-814 of 2004 are recapitulated as
under:
2. The respondent M/s M.M.K. Jewellers is a unit in
Santacruz Electronics Export Processing Zone, engaged in the
manufacturing of plain/studded/unstudded gold jewellery for
export from directly imported gold or from the gold procured
from MMTC in terms of Notification No. 196/87-Cus dated
5.5.1987 which was further amended by Notification No.
155/92-Cus dated 30.3.1992 and Notification No. 177/94-Cus
dated 21.10.1994. The said notification, inter alia, permitted
graded percentage of gold wastage or loss depending on the
value addition achieved, on the jewellery of the description
specified therein, and provided that scrap, dust or sweepings
may be forwarded to the Government Mint by the importer for
conversion into standard gold bars and returned to the said
zone in accordance with the procedure specified by the
Commissioner of Customs in this regard. Amongst other
conditions, the said notification required that the importer
shall maintain a proper account of import, consumption and
utilization of the goods and of exports made by him. Public
Notice No.2/1988 dated 28.7.1988 issued by the
Commissioner of Customs, Airport in terms of the abovesaid
notification required the units in SEEPZ to maintain registers
as per proforma annexed thereto.
3. On 11.11.1995, acting on information that the Gem &
Jewellery Units in SEEPZ have been misusing the facility by
showing excess manufacturing wastage or loss than
permissible under the above mentioned notification, causing
shortage in physical stock, claiming it to be lying in the form of
dust, the Officers of the Mumbai Customs Preventive
Commissionerate visited the premises of the said unit and
verified the records from the period of inception of the unit and
took the physical stock of gold followed by detailed
investigations which resulted in the detection of a shortage of
6410.885 grams of gold, valued at Rs.28,72,076.48. The
respondent unit was found to have not been maintaining the
Wastage Account Register prescribed vide Public Notice No.
2/88 dated 28.7.1988.
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4. During the investigation, the respondent unit claimed
that the excess manufacturing wastage/loss took place in the
production of jewellery and the same was available in the form
of dust/slurry and the gold was recoverable by refining the
same and the claim of loss made at the time of export was
approximation.
5. The EXIM Policy (1992-97) in para 90 prescribes the
admissibility of gold wastage or manufacturing loss as
specified in para 147 of the Hand Book Procedures and the
Table-I thereto whereby the actual wastage or loss is
admissible only \023upto\024 the extent prescribed and as according
to the said Customs Notification issued in this behalf.
6. The wastage norms specified in para 147 of the \021Hand
Book of Procedures\022 in respect of mounting and findings are
applicable only in cases where the mountings and findings
have been manufactured from imported gold and exported as
such and no wastage is admissible if the mountings and
findings are imported as they are used as such in jewellery
which is then exported in terms of the explanation given below
in the \021Table\022 to clause 10 of Notification No. 177/94 and as
clarified by the Ministry of Finance vide letter
F.No.305/91/94FTT dated 11.10.1994.
7. No further loss is permitted on the repairs of the
imported products as the claim of loss is admitted at the time
of an initial export of the products.
8. From the above, it appears that the respondent has failed
to maintain the \021Wastage Account Register\022 for the purpose of
monitoring the actual manufacturing wastage or loss but
claimed the maximum wastage/loss of claim as mentioned
above was made farce and thus they violated the conditions of
the aforesaid notification and Public Notice No. 2/88 of
28.7.1988.
9. It also appears that the respondent has failed to
export/account for 6410.885 grams of gold valued at
Rs.28,72,076.48 claiming it to be lying in dust and claiming
protection under sub-proviso to condition.
10. It, therefore, appears that the aforesaid duty free gold
weighing 6410.885 grams and valued at Rs.28,72,076.48 were
neither exported nor were available in the physical stock and
thereby violating the conditions of the aforesaid Customs
Notification and, consequently, appear to have rendered
themselves liable for confiscation under section 111(o) of the
Customs Act, 1962.
11. It, therefore, prima facie indicates that the respondent
did or omitted to do an act which act or omission rendered the
abovesaid duty-free gold weighing 6410.885 grams and valued
at Rs.28,72,076.48 liable for confiscation under section 111 of
the Customs Act, 1962 or abetted to do an act or omission of
such an act and dealt with the said gold which they knew or
had reason to believe were liable to confiscation under section
111 of the Customs Act, 1962 as indicated above and thus
rendered themselves liable for penal action under clauses (a)
and (b) respectively of section 112 of the Customs Act, 1962
and also the mandatory penalty under section 114A of the
said Act.
12. Now, therefore, the respondent was called upon to pay
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Rs.20,82,255.45 as customs duty at the rate of 50% (BCD) +
15% CVD (as applicable on 11.11.1995) on the aforesaid
shortage of gold weighing 6410.885 grams valued at
Rs.28,72,076.48 as specified above under section 28 of the
Customs Act, 1962 and in terms of the Bond executed with
the Assistant Commissioner of Customs, SEEPZ and explain
in writing to the Commissioner of Customs (Preventive), New
Customs House, Ballard Mumbai 400 038, as to why the
aforesaid amount should not be recovered and penalty
imposed under sections 112(a) and (b) and 114A of the
Customs Act, 1962.
13. On behalf of respondent M.M.K. Jewellers, reply to the
show cause notice was filed by Mr. A.S. Sunder Rajan,
Advocate vide his letter dated 24.2.1998. In the said letter, he
contended that the Officers during the stock taking on
11.11.1995 detected a shortage of 6410.885 grams of gold and
the gold was reportedly lying in the form of dust and slurry.
He also stated that in terms of the general bond, the importer
has to maintain a proper accounting of import, consumption
and utilization of the goods and there is no reference to the
wastage and that only vide Public Notice 20/96 dated
8.11.1996, the requirement of maintaining of wastage register
was prescribed.
14. The respondent submitted that the present show-cause
notice dated 13.11.1997 relates to import from 1992-1993
and, therefore, the show-cause notice is time barred. It was
also submitted on behalf of the respondent that non-
accounting of gold or the wastage thereof does not amount to
violation of any provisions of the Customs Act, 1962 or the
conditions of Customs Notification No.177/94 issued on
21.10.1994.
15. The respondent submitted that the proprietor of the
company in his statement informed that the gold is available
in dust and slurry lying in his unit, which is recoverable and
the same has been subsequently recovered and, therefore,
there is no shortage. In view of this, the invocation of section
111(o) and section 112 is not sustainable. It was also
submitted that section 114A of the Customs Act, 1962 was
applicable only in respect of a case where duty has not been
levied or has been short levied and since the present case
relates to accounting of gold, question of levy or penalty does
not arise.
16. The respondent stated that the unit had recovered a
substantial amount of metal against the shortage of 6410.885
grams alleged in the show-cause notice. Regarding imposition
of penalty under section 112 of the Customs Act, 1962, it was
stated that the show-cause notice was issued under section 28
of the Customs Act, 1962 for the purpose of recovery of duty
and hence provision of section 112 cannot be invoked. It was
asserted that the imported gold has been used for the
manufacture of jewellery and that the said section can be
invoked only in case where imported gold has not been utilized
in a manner prescribed in the said notification. The matter of
dispute is only regarding the quantum of wastage and recovery
of gold therefrom and, therefore, section 111(o) of the Customs
Act, 1962 cannot be invoked and, consequently, section 112(a)
or 114A of the Customs Act, 1962 also cannot be invoked. It
was further submitted that the show-cause notice is time
barred and that since the show-cause notice is issued under
section 28 of the Customs Act, 1962 penalty under section
112 cannot be levied.
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17. It was also submitted that section 114A of the Customs
Act, 1962 has no application to the facts of this case as the
said section came into force w.e.f. 28.9.1996 and the show-
cause-notice pertains to an earlier period. It was pointed out
that section 114A is applicable only in a case where the duty
has been short-levied by reason of collusion, wilful
misstatement or suppression of facts and since there is no
such allegation, section 114A cannot be invoked.
18. The Commissioner of Customs in his order dated
27.7.2001, after considering the show-cause-notice and the
reply filed by the respondent, observed that on 11.11.1995,
the Officers attached to Preventive Commissionerate of
Mumbai Customs conducted the stock taking and verification
of records which resulted in detection of shortage of 6410.885
grams of gold, valued at Rs.28,72,076/-. During the
investigation, the respondent unit claimed that the said
quantity of gold found short was recoverable from the
dust/slurry lying in the unit. Shri Mohanlal M. Kedia,
Proprietor of the firm in his statement recorded under section
108 of the Customs Act, 1962 stated that the quantity of
6410.885 grams was the loss taken place at the time of
manufacturing and the year-wise excess loss from 1990-91 to
1995-96 was ranging between 1.16% to 3.21% whereby the
average excess loss for the period was approximately 1.28%.
They also admitted that they did not maintain wastage
register. Therefore, by their own admission they had been
incurring wastage of gold more than the permissible limit as
prescribed in the Notification 196/87-Cus and 177/94-Cus
and also vide Para 147 of the \021Hand Book of Procedures\022 read
with Para 90 of the EXIM Policy, 1992-97.
19. The Commissioner of Customs found that there was no
dispute regarding computation of shortage. However, the only
claim was that so much gold was recoverable by refining the
dust/slurry lying in the unit. The respondent took the
preliminary objection that the demand of duty under section
28 of the Customs Act, 1962 has been made after six months
of the detection of the shortage because the demand has been
made to the extent of duty on the goods which were found to
have been violated.
20. According to the Commissioner of Customs, the gold
imported into the unit was permitted duty free clearance from
time to time under Notification No.196/87(Custom) till
21.10.1994 and thereafter under Notification 177/94(Custom).
Both these notifications have inherent conditions which are to
be complied with by the respondent unit. These conditions
inter alia permitted certain quantity of manufacturing
loss/wastage on gold and the remaining quantity has to be
exported in the form of jewellery. While computing the
shortage during the time of stocking this fact has been taken
into account and it is not disputed. Therefore, the
Commissioner found that the duty on such shortage is
recoverable and also such non-fulfilment of the conditions of
the Notification and EXIM Policy would render the goods found
short, liable for confiscation under section 111(d) and 111(o) of
the Customs Act, 1962 and, consequently, the Unit would be
liable to penal action under section 112(a) of the Customs Act,
1962 as it was due to their acts of commission and/or
omission which gave rise to such shortages rendering the
goods found liable for confiscation.
21. The Commissioner of Customs, in his order, has held
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that to the extent of maintaining of prescribed register, the
respondent violated the conditions of the said notifications.
The Commissioner also held that the claim of recovery of gold
from the slurry/dust cannot be adjusted towards the shortage
of gold found during stock checking. The Commissioner held
that the shortage of 6410.885 grams of gold was valued at
Rs.28,72,076/- and, therefore, the custom duty of
Rs.20,82,225/- as demanded in the show cause notice was
also payable. The Commissioner of Customs held that the
above shortage is violation of the conditions of the Notification
No. 196/87 and 177/94-Cus and the EXIM Policy and,
therefore, 6410.885 grams of gold valued at Rs.28,72,076/-
was liable to confiscation under sections 111(d) and 111(o) of
the Customs Act, 1962. He, however, held that these goods
are not available for confiscation, therefore, by virtue of their
acts of commission and/or omission, the respondents have
rendered the said goods liable for confiscation and rendered
themselves liable for penalty under section 112(a) of the
Customs Act, 1962. The Commissioner of Customs in his
order observed that no cause of collusion, wilful misstatement
or suppression of facts has been brought out in the show
cause notice so as to invoke the provisions of section 114A of
the Customs Act, 1962. Therefore, he did not find that it was
a fit case for invoking section 114A of the Customs Act, 1962
relating to the penalty.
22. The Commissioner of Customs passed the following
order:
\023(a) I confirm the demand of duty of
Rs.20,82,255/- (Rupees Twenty Lakhs Eighty
Two Thousand Two Hundred Fifty Five only)
under Section 28 of Customs Act, 1962.
(b) Though the said 6410.885 gms of gold, valued
at Rs.28,72,076/- found short is liable for
confiscation, since the same is not available for
confiscation, while confirming its liability of
confiscation under section 111(d) and 111(o) of
Customs Act, 1962, I am not ordering
confiscation of the said goods.
(c) I impose penalty of Rs.2,87,000/- (Rupees Two
Lakhs Eighty Seven Thousand only) on M/s.
M.M.K. Jewellers (M/s. Jewel Exports Pvt.
Ltd.) under Section 112(a) of Customs Act,
1962.\024
23. The respondent, aggrieved by the said order of the
Commissioner of Customs, preferred an appeal before the
Customs, Excise and Gold (Control) Appellate Tribunal, West
Regional Bench, Mumbai (for short \023the Tribunal\024).
24. The Tribunal decided all these 14 identical appeals by a
common judgment dated 19.6.2003. The Tribunal held that
the confirmation of demand of duty by the adjudicating
authority under Section 28 of the Customs Act, 1962 is wrong
in law and facts and the impugned order of the Commissioner
of Customs cannot be sustained. The Tribunal also held that
the confirmation of duty is barred by limitation. The Tribunal
observed regarding clauses (5) and (8) of the notification that
one has to be practical that when the jewellery is
manufactured out of the raw material and when the gold is
converted from primary form to the end product, there may be
certain dust which may fly from the place of manufacture or it
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may even be irrecoverable loss due to the process of
manufacture of the final product. It can be invisible. The
Tribunal observed that the table of the notification also stated
the percentage of gold which could be allowed for wastage.
The appeal filed by the respondent was allowed with
consequential relief.
25. The appellant Commissioner of Customs, Mumbai,
aggrieved by the said judgment of the Tribunal, has preferred
this appeal under section 130E(b) of the Customs Act, 1962.
26. Since the respondent has laid serious stress on the
question of limitation and imposition of penalty therefore, we
deem it appropriate to reproduce the provisions (sections 28
and 114A) dealing with limitation and penalty in the Customs
Act, 1962. Sections 28 and 114A are reproduced as under:
\02328. Notice for payment of duties, interest,
etc.\027 (1) When any duty has not been levied or has
been short-levied or erroneously refunded, or when
any interest payable has not been paid, part paid or
erroneously refunded, the proper officer may, \027
(a) in the case of any import made by any
individual for his personal use or by
Government or by any educational,
research or charitable institution or
hospital, within one year ;
(b) in any other case, within six months,
from the relevant date, serve notice on the person
chargeable with the duty or interest which has not
been levied or charged or which has been so short-
levied or part paid or to whom the refund has
erroneously been made, requiring him to show
cause why he should not pay the amount specified
in the notice:
Provided that where any duty has not been
levied or has been short-levied or the interest has
not been charged or has been part paid or the duty
or interest has been erroneously refunded by reason
of collusion or any wilful misstatement or
suppression of facts by the importer or the exporter
or the agent or employee of the importer or exporter,
the provisions of this sub-section shall have effect
as if for the words "one year" and "six months", the
words "five years" were substituted.
Explanation.-Where the service of the notice is
stayed by an order of a court, the period of such
stay shall be excluded in computing the aforesaid
period of one year or six months or five years, as the
case may be.
(1A) When any duty has not been levied or has
been short-levied or the interest has not been
charged or has been part paid or the duty or
interest has been erroneously refunded by reason of
collusion or any willful misstatement or suppression
of facts by the importer or the exporter or the agent
or employee of the importer or exporter, to whom a
notice is served under the proviso to sub-section (1)
by the proper officer, may pay duty in full or in part
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as may be accepted by him, and the interest
payable thereon under section 28AB and penalty
equal to twenty-five per cent. of the duty specified in
the notice or the duty so accepted by such person
within thirty days of the receipt of the notice.
(2) The proper officer, after considering the
representation, if any, made by the person on whom
notice is served under sub-section (1), shall
determine the amount of duty or interest due from
such person (not being in excess of the amount
specified in the notice) and thereupon such person
shall pay the amount so determined.
Provided that if such person has paid the duty
in full together with interest and penalty under sub-
section (1A), the proceedings in respect of such
person and other persons to whom notice is served
under sub-section (1) shall, without prejudice to the
provisions of sections 135, 135A and 140, be
deemed to be conclusive as to the matters stated
therein:
Provided further that, if such person has paid
duty in part, interest and penalty under sub-section
(1A), the proper officer shall determine the amount
of duty or interest not being in excess of the amount
partly due from such person.
(2A) Where any notice has been served on a person
under sub-section (1), the proper officer,--
(i) in case any duty has not been levied or
has been short-levied, or the interest has
not been paid or has been part paid or
the duty or interest has been erroneously
refunded by reason of collusion or any
willful mis-statement or suppression of
facts, where it is possible to do so, shall
determine the amount of such duty or the
interest, within a period of one year; and
(ii) in any other case, where it is possible to
do so, shall determine the amount of duty
which has not been levied or has been
short-levied or erroneously refunded or
the interest payable which has not been
paid, part paid or erroneously refunded,
within a period of six months,
from the date of service of the notice on the person
under sub-section (1).
(2B) Where any duty has not been levied or has
been short-levied or erroneously refunded, or any
interest payable has not been paid, part paid or
erroneously refunded, the person, chargeable with
the duty or the interest, may pay the amount of
duty or interest before service of notice on him
under sub-section (1) in respect of the duty or the
interest, as the case may be, and inform the proper
officer of such payment in writing, who, on receipt
of such information, shall not serve any notice
under sub-section (1) in respect of the duty or the
interest so paid:
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Provided that the proper officer may determine
the amount of short-payment of duty or interest, if
any, which in his opinion has not been paid by such
person and, then, the proper officer shall proceed to
recover such amount in the manner specified in this
section, and the period of "one year" or "six months"
as the case may be, referred to in sub-section (1)
shall be counted from the date of receipt of such
information of payment.
Explanation 1.-Nothing contained in this sub-
section shall apply in a case where the duty was not
levied or was not paid or the interest was not paid
or was part paid or the duty or interest was
erroneously refunded by reason of collusion or any
willful mis-statement or suppression of facts by the
importer or the exporter or the agent or employee of
the importer or exporter.
Explanation 2.-For the removal of doubts, it is
hereby declared that the interest under section
28AB shall be payable on the amount paid by the
person under this sub-section and also on the
amount of short-payment of duty, if any, as may be
determined by the proper officer, but for this sub-
section.
(2C) The provisions of sub-section (2B) shall not
apply to any case where the duty or the interest had
become payable or ought to have been paid before
the date on which the Finance Bill, 2001 receives
the assent of the President.
(3) For the purposes of sub-section (1), the
expression "relevant date" means,\027
(a) in case where duty is not levied, or
interest is not charged, the date on which
the proper officer makes an order for the
clearance of the goods;
(b) in a case where duty is provisionally
assessed under section 18, the date of
adjustment of duty after the final
assessment thereof;
(c) in a case where duty or interest has been
erroneously refunded, the date of refund;
(d) in any other case, the date of payment of
duty or interest.\024
\023114A. Penalty for short-levy or non-levy of duty
in certain cases.\027Where the duty has not been
levied or has not been short-levied or the interest
has not been charged or paid or has been part paid
or the duty or interest has been erroneously
refunded by reason of collusion or any willful mis-
statement or suppression of facts, the person who is
liable to pay the duty or interest, as the case may
be, as determined under sub-section (2) of section
28 shall, also be liable to pay a penalty equal to the
duty or interest so determined:
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Provided that where such duty or interest, as
the case may be, as determined under sub-section
(2) of section 28, and the interest payable thereon
under Section 28AB, is paid within thirty days from
the date of the communication of the order of the
proper officer determining such duty, the amount of
penalty liable to be paid by such person under this
section shall be twenty-five percent of the duty or
interest, as the case may be, so determined:
Provided further that the benefit of reduced
penalty under the first proviso shall be available
subject to the condition that the amount of penalty
so determined has also been paid within the period
of thirty days referred to in that proviso:
Provided also that where the duty or interest
determined to be payable is reduced or increased by
the Commissioner (Appeals), the Appellate Tribunal
or, as the case may be, the court, then, for the
purposes of this section, the duty or interest as
reduced or increased, as the case may be, shall be
taken into account:
Provided also that where the duty or interest
determined to be payable is increased by the
Commissioner (Appeals), the Appellate Tribunal or,
as the case may be, the court, then, the benefit of
reduced penalty under the first proviso shall be
available if the amount of the duty or the interest so
increased, along with the interest payable thereon
under Section 28AB, and twenty-five per cent of the
consequential increase in penalty have also been
paid within thirty days of the communication of the
order by which such increase in the duty or interest
takes effect:
Provided also that where any penalty has been
levied under this section, no penalty shall be levied
under Section 112 or Section 114.
Explanation.-For the removal of doubts, it is
hereby declared that-
(i) the provisions of this section shall also
apply to cases in which the order
determining the duty or interest under
Sub-section (2) of Section 28 relates to
notices issued prior to the date on which
the Finance Act, 2000 receives the assent
of the President;
(ii) any amount paid to the credit of the
Central Government prior to the date of
communication of the order referred to in
the first proviso or the fourth proviso
shall be adjusted against the total
amount due from such person.\024
27. Section 114A can be invoked for imposition of equivalent
amount of duty as penalty in cases where the short levy or
non-levy has occurred due to mis-declaration or suppression
of facts on the part of the assess-importer. Section 114A is a
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mirror-image of proviso to section 28 of the Customs Act.
28. It has been asserted on behalf of the respondents that in
view of the findings of the Commissioner of Customs that there
is no suppression or mis-declaration on the part of the
respondent, consequently, the duty short levied or not levied
has to be demanded under section 28(1) itself and not under
the proviso to section 28(1). It was submitted that when there
is no suppression or mis-declaration on the part of the
respondent, the impugned order confirming the duty beyond
the period of six months from the relevant date is not
sustainable in law.
29. In the counter affidavit, it is incorporated that assuming
that the manufacturing loss is in excess of the specified limits
mentioned in para 10 of Notification No.177/94-Cus, even
then no duty can be demanded on the loss of gold when there
is no allegation or evidence that the imported gold has been
diverted for other purposes, other than for the manufacture
and export of gold. The requirement of Notification No.
177/94-Custom stands satisfied even in such cases.
30. The respondent has also dealt with the distinction
between recoverable scrap and irrecoverable loss. In the
counter affidavit, a table has also been given to demonstrate
that there is no shortage as alleged by the appellant.
31. The appellant filed an additional affidavit through Mr.
Promod Kumar, Superintendent of Customs (Preventive). It is
mentioned in the additional affidavit that the import could be
either direct or through the Minerals and Metal Trading
Corporation (MMTC). The exemption was subject to certain
conditions, and the importer was to execute a general bond
undertaking to fulfil the export obligation and the conditions
stipulated in the notification. It is mentioned in the additional
affidavit that the allowable percentage of loss varied from the
type of jewellery and the degree of value addition in the
jewellery being manufactured. Thus, there was a graded scale
for allowable loss, which was linked to the degree of value
addition. It is also incorporated that on 28.7.1988, the
Collector of Customs issued Public Notice specifying interim
procedure for customs clearance at the Gem and Jewellery
Complex, SEEPZ. The Units in the SEEPZ were required to
maintain accounts of imported raw materials and capital
goods, finished goods, rejected goods etc. The units were also
expected to maintain registers annexed to the Public Notice.
Copy of the Register Format has been annexed along with the
additional affidavit as Annexures A1, A2 and A3.
32. In the additional affidavit, it is incorporated that on
13.11.1997, a show cause-cum-demand notice was issued to
the respondent both under section 28 of the Customs Act,
1962 and in the terms of the bond executed by the
respondent. It has given the details of how the shortage of
gold in the stock was calculated. Column 1 of the table
indicates the year. Column 2 indicates the direct imports
made in the relevant year and column 3 indicates the
procurement from MMTC in that year. Column 4 which is
titled \023Total Weight\024, is the sum of columns 2 and 3 and it
denotes the total quantity imported (either directly or through
MMTC). Column 5 refers to \021Actual Weight of Export\022 \026 which
is the quantity of goods actually exported. Column 6 denotes
the claimed wastage which, as per the Handbook, is a deemed
export. The claim wastage figure in the table is taken from the
wastage claimed and recorded in the export registers. The
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unit had been claiming the maximum permissible wastage,
whereas it should have been claiming only actual wastage
upto the maximum permissible limit. Column 7 is the sum of
columns 4 and 5 and it denotes the total weight of export. The
difference between the total weight of quantity imported (in
column 4) and the total weight of export (in column 7) is the
closing balance or the book balance. This is reflected in
column 8. If this book balance is found lying with the unit as
physical stock, the shortage would be nil. However, if the
physical stock is less than the book balance, there will be a
corresponding shortage. It may be noted that the calculation
of closing balance or book balance is based on records
maintained by the respondent itself, as per the prescribed
registers. Column 9 represents the physical balance which is
found lying with the unit on inspection, to the extent that the
figure in column 9 is less than the figure in column 8, there is
a shortage and this is reflected in column 10. The shortage in
the case of the respondent was 6410.885 grams.
33. It is submitted in the affidavit that the total imports and
total exports are calculated (based on records maintained by
the respondent). If there is a gap between quantity imported
and quantity exported, it is the closing balance or book
balance. This is the quantity that the respondent should have
as physical stock. To the extent that the actual physical stock
is less than the book balance, there is a shortage. This
shortage is in excess of the permissible wastage because such
wastage was already counted as a deemed export. Duty would
have to be paid on such shortage.
34. It must be noted that the shortage detected on inspection
cannot be attributed to any particular year. The shortage is
calculated based on the difference between total closing
balance (for all the years taken collectively since inception of
the unit) and physical balance (which is the physical stock
lying with the unit at the time of inspection). Thus, a
comparison of closing balance and physical balance can only
indicate that as of the date of inspection, there had been
excess wastage above and beyond the maximum permissible
limit. The particular date/year in which the shortage occurred
is not determinable.
35. It is submitted that by not maintaining any \021Wastage
Account Registers\022, the respondent suppressed vital
information and thus, there is a clear case for invocation of
the extended period of limitation of five years under the
proviso to section 28(1) of the Customs Act, 1962. With
respect to the relevant date from which the limitation period
must commence, it is stated that section 28(3)(a) does not
apply. Section 28(3)(a) states that the relevant date means \023(a)
in case where duty is not levied, or interest not charged, the
date on which the proper officer makes an order for the
clearance of the goods\024. It is stated that the sub-section must
be interpreted to pre-suppose that duty was leviable at the
time of clearance. In the case of bonded goods, duty was not
payable at the time of clearance and the exemption from duty
was contemporaneous with the unit complying with the
conditions of the exemption notification. Only on inspection
when it was found that the respondent unit had shortage in
physical stock, that duty became leviable on the shortage
amount. As already indicated, the shortage/excessive wastage
may have occurred in any of the previous years. The year in
which the wastage took place cannot be ascertained nor can
the wastage be linked to specific bills of entry which were
cleared. Thus, the date of clearance of the goods cannot, in
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fact, be determined, rendering the application of section
28(3)(a) an impossibility. Sections 28(3)(b) and 28(3)(c) are
also inapplicable. Section 28(3)(d) states that the relevant
date means \023(d) in any other case, the date of payment or duty
or interest\024. As per this section, in the present case, since
duty is yet to be paid, there would effectively be no limitation
period. In any event, in the case of bonded goods, the
limitation period would not apply in the same manner as it
does to other goods. Both under section 72(1)(d) which deals
with warehousing bonds and section 143(3) which deals with
import of goods on execution of bond, there is no time limit for
the proper officer to make a demand in cases where the
conditions of the bond have been violated. In effect, bonded
goods stand on a different footing. The show cause-cum-
demand notice was made both under section 28 and the terms
of the bond. In calculating the limitation period, regard must
be taken to the fact that there are bonded goods. Even if the
provisions of section 28(3) were to be applied, it is submitted
that section 28(3)(d) is the only provision capable of
application and as per that sub-section there would be no
limitation period in cases where duty is yet to be paid.
Various benches of the Tribunal have passed orders holding
that in the case of bonded goods, the relevant date is date of
payment of duty. Thus, the present show cause-cum-demand
notices were not barred by limitation. It may also be noted
that the rate of duty applied to the goods and the valuation of
the goods is based on prevalent rates as on the date of the
inspection. In the alternative, therefore, the date of inspection
of stock and detection of shortage may be deemed to be the
date of clearance and the limitation period may be taken to
mean five years from such date. In this case too, the notices
are not barred by limitation.
36. The respondent contended that the shortage amount was
actually lying with the unit in the form of dust/scrap/slurry,
or had been sent for conversion into gold bars, as per the
prescribed procedure. It is submitted that the dust/scrap/
slurry which can be converted into gold bars is included in the
allowable wastage and not in addition to it. Wastage is
allowed up to permissible limits. If some of this wastage is
lying with the unit as dust/scrap/slurry, it may be converted
into gold bars and brought back to the unit. But the provision
for conversion of dust/scrap/slurry cannot be interpreted in a
manner where it allows for wastage beyond permissible limits.
The respondent\022s contention that there is a distinction
between recoverable and invisible loss, finds no support in the
applicable notifications and policies. As the order-in-original
has correctly noted, a percentage of gold cannot vanish as
such and, therefore, the allowable loss itself contemplates that
the wasted amount is lying with the unit in some other form.
To the extent that it can be re-converted into gold bars, the
notifications make certain enabling provisions. The
respondent has sought to exploit this liberty accorded to them
by the notification. Further, as stated earlier, the respondent
has not maintained the \021Wastage Account Registers\022, which
must form the basis of any claim of allowable loss. In such
circumstances, the non-maintenance of registers constitutes
suppression and creates suspicion about the conduct of the
respondent units.
37. In the said affidavit, it is incorporated that the
respondent unit has failed to maintain the requisite records
documenting wastage. Even if the maximum permissible
wastage was allowed to the respondent as a manufacturing
loss, there is still a shortage in the physical stock. Duty is
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payable on this shortage amount. The goods in question are
bonded goods and this must be borne in mind while
computing the limitation period that the limitation is not
applicable to bonded goods in the same manner as it does to
other goods.
38. We have heard Mr. Gopal Subramanium, the learned
Additional Solicitor General for the appellant and Mr. V.
Lakshmikumaran, the learned Advocate for the respondent at
length and critically analysed the cases cited by him in
support of his case.
39. We deem it appropriate to deal with the preliminary
objection regarding limitation raised by the respondent. The
respondent has drawn our attention to the findings of the
Commissioner of Customs in appeal. The relevant portion of
the findings reads as under:
\023No case of collusion, wilful mis-statement or
suppression of facts has been brought out in the
show cause notice.\024
40. According to the respondent, in this appeal and in all
connected appeals stock checking was carried out on
11.11.1995 and the show cause notice was issued after two
years i.e. on 13.11.1997 demanding duty and the penalty from
the respondent. The respondent submitted that the appellant
cannot take benefit of the extended period of limitation under
the proviso to section 28 of the Customs Act, 1962 in view of
the categoric findings of the Commissioner of Customs. The
respondent further submitted that the order of the
Commissioner of Customs had acquired finality because no
appeal was preferred against the said order of the
Commissioner of Customs. It was further submitted that the
Commissioner of Customs has specifically given findings
against the appellant and in favour of the respondent
regarding applicability of section 114A of the Customs Act,
1962. Those findings are reproduced as under:
\02316. I find that section 114A of Customs Act, 1962
has been invoked in the show cause notice without
giving any proper reasons thereof. No case of
collusion, wilful mis-statement or suppression of
facts has been brought out in the show cause notice
so as to invoke the provisions of section 114A of the
Customs Act, 1962. Therefore, I do not find that
this is a fit case for invoking section 114A of the
Customs Act, 1962.\024
41. The appellant in this appeal and connected appeals
cannot invoke the extended period of limitation in view of the
Commissioner\022s categoric findings that no case of collusion,
wilful misstatement or suppression of facts has been brought
out in the show cause notice so as to invoke the provisions of
section 114A of the Customs Act, 1962.
42. Penalty under section 114A is imposable only when the
demand is confirmed under the proviso to section 28(1) of the
Act. In view of the clear findings of the Commissioner that the
respondent-assessees are not guilty of suppression of facts or
are guilty of collusion or misstatement and, therefore, duty
cannot be imposed by invoking the extended period of
limitation. When the duty itself cannot be imposed, no order
of imposing the penalty under section 114A of the Customs
Act can be sustained.
43. Reliance has been placed on P & B Pharmaceuticals (P)
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Ltd. v. Collector of Central Excise (2003) 3 SCC 599. In this
case, the question was whether the extended period of
limitation could be invoked where the Department has earlier
issued show-cause notices in respect of the same subject-
matter. It has been held that in such circumstances, it could
not be said that there was any wilful suppression or
misstatement and that, therefore, the extended period under
Section 11-A could not be invoked.
44. This case was followed in the subsequent judgment of
this court in ECE Industries Ltd. v. Commissioner of
Central Excise, New Delhi (2004) 13 SCC 719. In this case,
this court again held that as there is no suppression, penalty
cannot be imposed.
45. This court relied on these judgments in the case of
Nizam Sugar Factory v Collector of Central Excise, A.P.
(2006) 11 SCC 573. In this case, this court again reiterated
the legal position and held that when there is no suppression
of facts, the department would not be justified in invoking the
extended period of limitation.
46. In view of the clear legal position crystallized by a series
of judgments that in case where the assessees are not guilty of
suppression of facts, collusion or wilful misstatement of facts,
therefore, the extended period of limitation cannot be invoked
under proviso to section 28(1) of the Customs Act, 1962 in the
instant appeal and the other connected appeals.
Consequently, this appeal and other connected appeals filed
by the appellant have to be dismissed being time barred.
47. Since this appeal and other connected appeals are
dismissed on the ground of limitation, therefore, we do not
deem it necessary to deal with the other submissions made by
the parties.
48. This appeal and other connected appeals filed by the
appellant are accordingly disposed of. The demand and
penalty raised against the respondent in this appeal and
against the other respondents in the connected appeals, if any,
are dropped. In the facts and circumstances of the case, we
direct the parties to bear their own costs.