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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.