CESTAT New Delhi Sets Aside ₹1.44 Crore Customs Duty Demand Against Bharti Gems, PP Jewellers

On 3 June, the New Delhi Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) set aside a customs duty demand of Rs.1.44 crore, along with confiscation of goods and penalties imposed on P P Jewellers & Diamonds Pvt. Ltd., Bharti Gems, Its My Name Pvt. Ltd. and related parties, holding that the Customs Department failed to prove diversion of duty-free imported gold and silver or any fraudulent export activity.

President Justice Dilip Gupta and Technical Member P.V. Subba Rao allowed all seven appeals and quashed the order passed by the Commissioner of Customs (Preventive), Jodhpur. The Bench held:

“This finding of the Commissioner is not justified. The Commissioner could not have shifted the onus on the appellant to substantiate that the goods were examined. It was for the officers to have examined the goods and the department cannot be permitted to urge that since the goods were not examined, the appellant exported goods other than gold and silver jewellery articles.”

Bharti Gems, a Special Economic Zone (SEZ) unit based in Jaipur, imported 1,098 kg of silver and 35 kg of gold between November 2015 and January 2017 without paying customs duty for manufacturing and export purposes. It exported 1,149.5 kg of silver jewellery and 37.5 kg of gold jewellery.

The Department alleged that Bharti Gems lacked adequate machinery and skilled manpower to manufacture jewellery and instead diverted imported precious metals into the domestic market while exporting other goods in the guise of jewellery.

The Commissioner of Customs (Preventive), Jodhpur, confirmed a duty demand of Rs.1.44 crore along with interest, ordered confiscation of seized silver jewellery, and imposed penalties on Bharti Gems, P P Jewellers, Its My Name Pvt. Ltd. and several employees.

The Tribunal held that the Department based its case mainly on assumptions and statements recorded under Section 108 of the Customs Act, 1962, and it found that the mandatory requirements under Section 138B for relying on such statements were not followed, making them inadmissible.

It further held that the Commissioner wrongly ignored an additional Bond-cum-Legal Undertaking accepted by the competent SEZ authority in January 2016. The Bench also observed that the SEZ authority had granted approval, and Bharti Gems acted within that approval, so authorities could not later treat its activities as unauthorised. It stated:

“This finding of the Commissioner is not justified. The Commissioner could not have shifted the onus…”

The Bench rejected the Department's claim that jewellery manufacturing could not take place without specialised machinery. It held that hand-made jewellery production constitutes a recognised industry practice and noted that the Department failed to produce expert evidence to the contrary.

It also held that the SEZ Act and Rules do not prohibit procurement of raw materials free of cost from overseas entities, nor do they render manufacturing activity invalid merely because units operate under contractual arrangements. It found the distinction drawn between “manufacture” and “manufacturing services” artificial.

Concluding that the Department failed to prove diversion of imported gold and silver, export of non-jewellery goods, or evasion of customs duty, the Bench set aside the duty demand, confiscation order, and all penalties imposed on the appellants.

Accordingly, CESTAT allowed all seven appeals and quashed the impugned order.

For Appellant: Yuvraj Sharma, Bhumika Popli and Shruti Agarwal, advocates

For Respondent: Bhagwat Dayal, authorized representatives