2016 (1) TMI 552 - AT - Customs

Over-valuation of rough diamonds imported from Dubai/Hong Kong - consignments were cleared at nil rate of duty under Notification No. 21/2002-Cus. dated 1.3.2002 as amended. - Allegation that the said consignments were meant for laundering money and money remitted overseas against such consignments were hawala payments either to cover the differential cost of the other imports or to park money abroad for other unlawful activities. Held that - Initially in the show cause notice the DRI has alleged that the overvaluation of the rough diamonds is for the purpose of money laundering, remittance of money overseas to cover the differential cost of other imports or to park money abroad for other unlawful activities. However in the entire investigation, not a tip of evidence in support of this allegation was adduced. There is no evidence of laundering of money, parking or to cover the differential cost of other imports or any unlawful activities unearthed on the part of appellants. This also makes the case of the appellant strong that the value declared by them is solely for the purpose of remittance towards the import of rough diamonds. There is no mis-declaration of the value of the rough diamonds in question - since mis-declaration of value is not established. It is not required to consider whether the mis-declaration of value would render the goods as prohibited goods . - Confiscation and penalty set aside - Decided in favor of appellants.

Issues Involved:
1. Allegation of mis-declaration of value.
2. Liability of imported rough diamonds for confiscation under the Customs Act, 1962.
3. Liability of Directors for penalties under the Customs Act, 1962.

Detailed Analysis:

1. Allegation of Mis-declaration of Value:
The case revolves around the allegation that rough diamonds imported by various firms were highly overvalued. The Directorate of Revenue Intelligence (DRI) seized the consignments based on intelligence indicating overvaluation and potential money laundering activities. The valuation was conducted by an expert panel from the Gem & Jewelry Export Promotion Council (GJEPC), which determined values significantly lower than those declared by the importers. However, the Tribunal found numerous inconsistencies in the valuation process, including discrepancies in the statements of panel members and the lack of reference to international prices or publications. The Tribunal noted that the valuation report was not signed by all panel members and contained serious discrepancies, making it unreliable. Consequently, the Tribunal concluded that the mis-declaration of value was not established, citing the Supreme Court's decision in Mahalaxmi Gems, which held that transaction value must be accepted unless proven otherwise by contemporaneous evidence.

2. Liability of Imported Rough Diamonds for Confiscation:
The Tribunal examined whether the imported rough diamonds were liable for confiscation under Sections 111(d) and 111(m) of the Customs Act, 1962. The Commissioner had ordered absolute confiscation based on the GJEPC's valuation report and alleged mis-declaration. However, the Tribunal found that the valuation report was flawed and unreliable. Additionally, the Tribunal noted that the importers had not filed Bills of Entry, and there was no evidence of money laundering or other unlawful activities. The Tribunal also referred to the Supreme Court's decision in South India Television, which clarified that the value to be declared is the value in the Bill of Entry, and in the absence of a Bill of Entry, the invoice cannot be considered a document prescribed under the Customs Act. Therefore, the Tribunal held that the diamonds were not liable for confiscation under the cited sections.

3. Liability of Directors for Penalties:
The Tribunal considered whether the Directors of the importing firms were liable for penalties under Section 112(a) of the Customs Act, 1962. The Commissioner had imposed personal penalties on the Directors based on the alleged mis-declaration. However, since the Tribunal found that the mis-declaration of value was not established and the goods were not liable for confiscation, it concluded that the penalties imposed on the Directors were unwarranted. The Tribunal cited the decision in Suraj Diamonds, which held that no penalty can be imposed if the import of rough diamonds is exempt from duty and there is no mis-declaration.

Conclusion:
The Tribunal set aside the impugned order, allowing the appeals with consequential reliefs. The rough diamonds were allowed to be released or re-exported, and the penalties imposed on the Directors were annulled. The decision emphasized the need for reliable and consistent evidence in cases of alleged mis-declaration and reinforced the principle that transaction value must be accepted unless disproven by contemporaneous evidence.

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