2021 (10) TMI 391 - AT - Customs

Re-classification of imported goods - cut and polished diamonds - enhancement of value by recourse to rule 9 of Customs Valuation (Determination of Value of Imported Goods) Rules, 2007 - confiscation - redemption fine - penalty - HELD THAT - In terms of N/N. 12/2012-Cus dated 17th March 2012, both rough diamonds and diamonds including lab grown diamonds semi processed, half cut or broken are exempted from duty on import. The goods were entered for import on the claim for classification against heading no. 7102 3100 of First Schedule to Customs Tariff Act, 1975 attracting nil rate of duty but was ordered for re-classification against heading no. 7102 3910 of First Schedule to Customs Tariff Act, 1975 with duty liability of 2% for demanding differential duty. The impugned order is categorical in its finding of reclassification that the reports of Gemological Institute of India and Trade Panel Members as well as that of GIA India Pvt Ltd were clear that the goods did not conform to the declaration. It is also seen that the circular no. 35/2009-Cus dated 29th December 2009 of Director General of Export Promotion was discarded. While the impugned goods may not be rough diamonds as mined and may have undergone working before its import, the reports do not conclusively establish that these were cut and polished diamonds on which duty liability was to be fastened - It does not appeal to reason that intention of evading duty of mere ₹1,03,817 prompted misdescription in the bill of entry. Coupled with the inadequate evidence of the goods conclusively being cut and polished diamonds , this strikes at the very foundation of the proceedings initiated against the appellant and the culmination thereof. Appeal allowed - decided in favor of appellant.

Summary

Issues:
Re-classification of imported diamonds as cut and polished, duty liability, confiscation of goods, imposition of penalties, reliance on Gemological Institute of India report, application of Customs Valuation Rules, consideration of circulars, reliance on Supreme Court decision, classification under Customs Tariff Act, reliance on Kimberly Process Certificate, justification for reclassification, export of goods after working, eligibility for drawback of duties, misdescription in bill of entry.

Analysis:
The appeal challenged the re-classification of 15 rough diamonds as cut and polished diamonds, leading to an increase in value and imposition of duty liability. The dispute arose from the Commissioner's order dated 23rd April 2013, which also involved the confiscation of goods under section 111(m) of the Customs Act, 1962, with redemption allowed on payment of a fine. Penalties under sections 112 and 114A of the Customs Act were also contested.

The appellant argued that the diamonds were crafted into brilliant cut round diamonds and exported, discrediting the reclassification. The reliance on Gemological Institute of India's report and Trade Panel Members' findings was questioned, citing decisions from previous Tribunal cases. The appellant also challenged the application of rule 9 of the Customs Valuation Rules without considering other prescribed methods and the lack of evidence to dispute the declared value. Circulars from the Directorate General of Export Promotion were highlighted, along with a Supreme Court decision.

The Authorized Representative defended the impugned order, emphasizing that the Kimberly Process Certificate's description was insufficient evidence of the diamonds' condition. The reclassification was based on the Gemological Institute of India and Trade Panel Members' reports, which indicated non-conformity with the declaration. Circulars related to the classification of rough diamonds were considered in the decision-making process.

The order noted that while the imported diamonds may have been worked on before import, conclusive evidence of them being cut and polished was lacking. The appellant's claim of exporting the stones after final cutting and polishing, making them eligible for duty drawback, was not refuted. The misdescription in the bill of entry was deemed insufficient to establish an intention to evade duty, undermining the proceedings against the appellant.

Ultimately, the Tribunal set aside the impugned order and allowed the appeal, emphasizing the lack of conclusive evidence supporting the reclassification and duty liability. The decision was pronounced in open court on 06/10/2021.