CESTAT New Delhi Rejects Duty Demand Under Replenishment Scheme For Jewellery With 2.05% Norm

The New Delhi Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) on 30 June held that customs authorities cannot demand duty under the Replenishment Scheme when exported jewellery is manufactured through a fully mechanised process and the applicable value addition requirement stands at 2.05% under the Foreign Trade Policy, rather than 3.5%.

Judicial Member Ashok Jindal and Technical Member K. Anpazhakan allowed the appeals filed by State Trading Corporation of India Ltd. (STC), Venus Industries, and its partner Arun Kumar Agarwal, and set aside the customs duty demand, interest, and penalties. The Bench observed:

"As the facts of both the cases are identical and the processes carried out and the job charges paid were the same, we hold that the result of the said decision is equally applicable to the facts and circumstances of the instant case. We also find that the decision of CESTAT, Hyderabad, in the case of M/s. Diamond India Limited (supra) has been upheld by Hon'ble Telangana High Court. Thus, in view of the decision rendered by the Hon'ble Telangana High Court in the case of M/s. Diamond India Limited, we hold that the appellant M/s. Venus Industries has manufactured the jewellery through a 'fully mechanised' system and hence, the appellants were required to achieve a minimum value addition of 2.05% only. Thus, we do not find any merit in the contention of the Department that appellant M/s. Venus Industries had to achieve a value addition of 3.5%, for their entitlement under the Replenishment Scheme. Accordingly, we hold that the demand of customs duty confirmed in the impugned order is not sustainable."

The Department alleged that Venus Industries wrongly availed duty-free gold under the Replenishment Scheme after it failed to meet the higher 3.5% value addition requirement. It argued that the exporter did not manufacture the jewellery through a fully mechanised process and instead achieved only 2.05% value addition, which led to a customs duty demand of over Rs.3.68 crore against STC along with penalties on all appellants.

The Tribunal found that Venus Industries manufactured the jewellery through the same job worker using the same machinery and process examined earlier in Diamond India Ltd. by the Hyderabad Bench of the Tribunal. It noted that the Telangana High Court had upheld that ruling, which classified the process as fully mechanised and applied the same reasoning since the facts matched.

Further, the Bench held that the fully mechanised process required only 2.05% value addition and rejected the Department's claim that 3.5% applied in the present case. It therefore set aside the customs duty demand against STC.

It also found that the appellants disclosed all relevant particulars, including the 2.05% value addition, in shipping bills and provisional invoices. It held that the Department could not invoke the extended period of limitation because it did not establish suppression of facts or intent to evade duty.

On penalties, the Tribunal ruled that they could not survive because the Department relied mainly on the statement of the job worker, who it did not array as a party and whom it did not offer for cross-examination. It consequently set aside the penalties imposed on STC, Venus Industries, and its partner.

Accordingly, the CESTAT allowed all appeals with consequential relief.

Appearance for the Appellant: Shri N. Viswanathan, Advocate (for STC); Shri Rajesh Chhibber, Advocate (for Venus Industries and Arun Kumar Agarwal);

Appearance for the Respondent: Shri Rajesh Singh, Authorised Representative (for the Revenue).