In an appeal relating to the import of duty-free gold by HDFC, as a nominated agency and the subsequent diversion of such gold by the jeweller, the New Delhi Customs Excise and Service Tax Appellate Tribunal (CESTAT) ruled that the appellants, being nominated agencies, are liable to pay customs duty, which has been appropriated from the security deposited by the jeweller. At the same time, the Tribunal set aside the confiscation of duty-free gold, nullified the redemption fine, and quashed the penalty imposed under Section 112(a) of the Customs Act.
The Tribunal found that the appellants imported gold under the policy framework of FTP, Customs Act, Notifications, Circulars, and RBI guidelines, executing bonds to ensure export of jewellery made from the imported gold. Further, the bonds secured the customs duty liability, and the appellants recovered the equivalent amounts from the jeweller as margin money.
Since there was no evidence of collusion or wilful misstatement by the appellants, the Tribunal refuted the contention of the adjudicating authority that failure of the appellants to exercise due diligence in verifying shipping bills would amount to participation in fraud. Consequently, no penalty under Section 112(a) can be imposed on the appellants, who had deposited the customs duty before the issuance of the show cause notice, leading to cancellation of the bonds.
The Division Bench comprising Binu Tamta (Judicial Member) and Sanjiv Srivastava (Technical Member) observed that importation of gold falls within the purview of prohibited items under Section 2(33) of the Customs Act as it is classified in the ‘restricted’ category of goods, and the Government of India, through RBI, has introduced a policy permitting duty free import of gold through nominated agencies and authorized banks, regulated under the Customs Act, Notifications, FTP, and HBP, to streamline supply of precious metals for exports and prevent divergent practices.
The Bench explained that the Notification 57/2000 exempts gold, silver, and platinum from customs duty when imported under the ‘Export Against Supply by Nominated Agencies’ scheme, provided the importer executes a bond undertaking to export the imported metals in the form of jewellery within a stipulated period, failing which duty becomes payable on the quantity not exported.
The Bench referred to the Circulars No.28/2009 and 27/2016, which prescribe and simplify the procedure for nominated agencies to supply duty-free gold, ensuring compliance with the FTP and RBI guidelines. Essentially, the legal framework makes the liability to pay customs duty primarily on the nominated agencies, who execute bonds equivalent to the duty and secure themselves through agreements with exporters, including margin money arrangements, such that the government dues are protected while facilitating export.
The Bench also found that the appellants, being nominated agencies, executed agreements and bonds with the jeweller, indemnifying them against any liability arising from non-export or diversion of gold, with the mechanism ensuring that customs duty is secured even in the event of pilferage or diversion. The Tribunal thus clarified that the Customs duty is a charge in rem, attaching to the imported goods and arising regardless of the identity of the importer, subsequent owner, or third party, and must be paid before clearance for home consumption, as reflected under Sections 12, 47, 2(14), and 2(23) of the Customs Act.
Briefly, the duty-free gold was procured by a jeweller, who was required to export the jewellery within 90 days of purchase, but the gold was diverted into the domestic market without payment of applicable customs duty, violating the exemption notification. The proprietor of the jeweller entered into agreements with the nominated agencies (HDFC) to obtain duty-free gold, while her husband, as power of attorney holder, actively managed business operations and orchestrated the transactions.
Since the jeweller’s modus operandi involved fabricating multiple triplicate copies of the same customs-assessed manual shipping bills, a show-cause notice was issued demanding customs duty along with interest and penalties on the importers. Upon adjudication, the authority confirmed customs duty liability on the appellants, imposed interest and penalties, and held the imported gold liable for confiscation with an option for a redemption fine.
Appearances:
Senior Advocate Aditya Sain, along with Advocates B L Narasimhan, Anurag Kapoor, Kaushal Jaisalmeria, Abhiram P R, Inderajit Mohanty, Tarang Agarwal, Ayush Khan, and Arjun Raghvendra, for the Appellants/ Taxpayer
Advocates Ranjan Prakash and Rajesh Singh, for the Respondent/ Revenue
