P P Jewellers & Diamonds Pvt. Ltd. Vs Commissioner of Customs (Preventive) (CESTAT Delhi)
The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Delhi, examined multiple appeals challenging an order dated 08.01.2024 passed by the Commissioner of Customs (Preventive), Jodhpur. The Commissioner had confiscated seized silver jewellery, confirmed a customs duty demand of ₹1,44,04,165 along with interest, and imposed penalties on an SEZ unit, associated entities, and several individuals.
Background of the Dispute
The SEZ unit was engaged in the manufacture and export of silver and gold jewellery. It had obtained a Letter of Approval for setting up a manufacturing unit in a Special Economic Zone and had executed Bond cum Legal Undertakings (BLUTs) as required under the SEZ framework.
According to the department, the unit imported gold and silver duty-free but diverted the imported material into the Domestic Tariff Area (DTA). The department also alleged that the unit lacked the machinery, facilities, and workforce necessary to manufacture the jewellery it claimed to have exported and that it had exported other goods in the guise of silver and gold jewellery.
The Commissioner accepted these allegations and concluded that customs duty had been evaded. Consequently, duty demands, confiscation, and penalties were imposed.
Tribunal’s Examination of Procurement Limits
One of the principal findings of the Commissioner was that the SEZ unit had exceeded the permissible procurement limits under the original BLUT.
The Tribunal noted that while the Commissioner considered only the BLUT executed for ₹25.37 lakh, the unit had subsequently executed another BLUT for ₹224.73 crore on 05.01.2016. This later BLUT had been accepted by the competent authority through a Letter of Acceptance dated 15.01.2016.
The Commissioner disregarded the later BLUT on the ground that it had been signed by an authorised signatory rather than the proprietor. However, the Tribunal observed that no objection had been raised when the BLUT was submitted and that formal approval had been granted by the competent authority.
The Tribunal held that once approval had been granted, the SEZ unit was entitled to act upon it. Activities undertaken pursuant to that approval could not subsequently be treated as illegal or unauthorised. The Tribunal also noted that the Commissioner had not recorded any finding that procurement limits would still have been exceeded if the later BLUT had been considered.
Accordingly, the Tribunal concluded that the finding regarding excess procurement was not justified.
Manufacturing Activity and Reliance on Statements
The Commissioner had relied on statements recorded under Section 108 of the Customs Act from certain employees and workers to conclude that manufacturing activities were not being carried out.
The Tribunal examined Sections 108 and 138B of the Customs Act and held that statements recorded under Section 108 cannot be relied upon unless the procedure prescribed under Section 138B is followed.
The Tribunal explained that statements become relevant for proving the truth of their contents only when statutory conditions are satisfied, including examination of the maker of the statement and determination of admissibility. Failure to comply with these requirements renders such statements unreliable for establishing facts.
The Tribunal also noted that statements of certain individuals had subsequently been retracted.
Therefore, reliance on those statements for concluding that no manufacturing activity had taken place was not sustainable.
Manufacturing Facilities and Hand-Made Jewellery
The Commissioner had concluded that the unit lacked the facilities required to manufacture the jewellery allegedly exported. Particular emphasis was placed on the absence of specialised chain-manufacturing machinery.
The Tribunal observed that the unit had consistently informed the department that it primarily manufactured hand-made jewellery and that chains were produced manually.
According to the Tribunal, the Commissioner had assumed that chain jewellery could only be manufactured through specialised machinery. No expert opinion had been obtained to support such an assumption.
The Tribunal found that hand-made chain jewellery is a traditional method of manufacture and that the absence of chain-manufacturing machines could not, by itself, establish that manufacturing activity had not occurred.
The Tribunal also noted that workers had stated during cross-examination that jewellery manufacturing was carried out and that they had acquired the necessary skills while working.
Accordingly, the Tribunal held that the absence of specialised machinery was insufficient to conclude that manufacturing activity never took place.
Alloy Procurement and NSDL Data
Another basis for the Commissioner’s findings was that NSDL records reflected procurement of only 8 kilograms of alloy, whereas the unit had allegedly exported much larger quantities of silver and gold jewellery.
The Commissioner considered this discrepancy as evidence that the jewellery could not have been manufactured.
The Tribunal disagreed. It accepted the contention that NSDL records were neither statutory nor exhaustive records of procurement and manufacturing activities.
The Tribunal observed that the unit had produced several records, including:
