By TIOL News Service

MUMBAI, JAN 08, 2016: THE DRI received intelligence about over-valuation of rough diamonds imported from Dubai/Hong Kong by certain parties in India stated to be working in conjunction with a syndicate based in Dubai. The intelligence indicated that most of the firms of the syndicate had establishments both at Mumbai and Surat and on import the said consignments were cleared at ‘nil' rate of duty under Notification No. 21/2002-Cus. dated 1.3.2002 as amended. The said consignments were allegedly meant for laundering money and money remitted overseas against such consignments werehawala payments either to cover the differential cost of the other imports or to park money abroad for other unlawful activities.

On the above intelligence, consignment of rough diamonds which had arrived by Emirates Flight dated 18.05.2003 were identified and marked for investigation. Enquiry with Bharat Diamond Bourse, Mumbai revealed that the said consignment comprised of 26 individual consignments consisting 33 packages, and consigned to different parties at Mumbai. Out of the aforesaid 26 consignments, 13 consignments (consisting of 20 packages) were already examined and cleared by the customs. The remaining 13 consignments were lying in the custody of Custodian, MMTC Ltd. The said 13 remaining consignments were detained under detention memo dated 21.5.2003 for the purpose of verification of the value of the imported rough diamonds.

On 18.6.2003, under a Panchnama, examination of the consignments was done by Customs and the expert panel nominated by the GJEPC in presence of DRI officers. The value ascertained was as follows:-

The rough diamonds were seized immediately on 8.7.2003. Statements of various individuals were recorded.

A SCN was issued after investigation proposing therein as to why the diamonds contained in 13 consignments should not be confiscated absolutely under Section 111(d) and Section 111(m) of the Customs Act, 1962 and why penalty should not be imposed on the appellants.

The Commissioner of Customs, CSI Airport, Mumbaion 11.03.2005 upheld the allegations and confiscated the rough diamonds absolutely and imposed penalties.

The Tribunal remanded the case on the ground that the minutes of valuation were not signed by all the members of the expert panel of the Gem and Jewellery Export Promotion Council and the importers were not allowed to cross examine the members of the expert panel before the case was decided.

The denovo adjudication produced similar results and the appellants are before the CESTAT for the second time.

When the appeal was heard there was a difference of opinion. We reported this order as 2013-TIOL-2372-CESTAT-MUM.

Thereafter, the matter trudged via rectification application wherein also there as a difference of opinion and the matter came to be referred to the same Third Member who was to resolve the initial difference. The matter also went to the Supreme Court but the Civil Appeal was withdrawn; thereafter to the High Court and when the appeals, reference and rectification applications were set aside with consent of both sides and it was directed that these appeals be decided afresh expeditiously.

In the above backdrop the appeals were heard in September 2015 and an order was passed recently. Case laws, by the dozen, were cited by both sides.

After considering the elaborate submissions, the Bench observed thus -

Valuation report by GJEPC Panel- veracity

+ In the cross examination of the members of the expert panel, the members namely, Shri.Sudhir Mehta and Shri.Nilesh Shah have stated that neither the import price of the identical goods in the course of international trade was ascertained or compared nor any reference was made to any international publication giving the prices of rough diamonds in the course of international trade. Other members of the expert panel Shri. Rupen Kothari and Shri. Amrish Parikh have also stated that no reference was made to any international publication for ascertaining price of identical goods in course of international trade.

+ In the cross examination of the members of the expert panel,Shri.Amrish Parikh stated that entire consignment was examined whereas Shri. Nilesh Shah stated that only a portion of lots was examined. From these inconsistencies of the examination, it is not clear whether the various members had given the values based on examination of entire consignment or only a portion thereof. In this situation, the valuation report cannot be accepted as a conclusive and correct. It is also noticed that there are also inconsistencies in the statements of members of expert panel on the very basic aspect whether all the members were present at the time when examination was carried out and when the report was being prepared.

+ As regards country of origin of the diamonds Shri.DilipLakhi has stated that the valuation was done on the basis of country of origin of diamonds. Shri. Amrish Parikh stated that country of origin was ascertained but that is not important for arriving at the correct value. Shri. Mehul Shah stated that country of origin was verified from the invoice. Shri. Sudhir Mehta stated that country of origin makes very small difference to the value and that he found out country of origin by looking at the diamonds. Shri. Rupen Kothari has stated that country of origin makes no difference to the value and that the country of origin was not ascertained. Shri. Nilesh Shah has stated that they asked the country of origin but they were not told about that. Therefore in view of above inconsistent stand taken by different members of the panel there is no unanimity on the issue whether the country of origin is relevant to the value of rough diamonds or otherwise.

+ Shri. DilipLakhi has stated that value of each lot was given on the spot to the officers whereas Shri. Bakul Mehta has stated that the value was noted down on rough paper and back up paper would be with the council. He stated that he had not met any panel members for preparing the report. Shri. Amrish Parikh and Shri. Mehul Shah have said that written note of the value was made by each panel member which was given to the Customs.

+ The DRI in the their letter dated 30/8/2004 mentioned that pages 41-44 in the sets of the documents provided with the show cause notice and categorically stated that no other documents such as work sheet etc. for valuation has been received from GJEPC Mumbai. On the contrary Shri.Nilesh Shah stated that the members make a written note of the value which they keep themselves. We also observed that the valuation report does not bear the signature of the members of the expert panel like Shri. Mehul Shah has not signed the valuation report. Shri. DilipLakhi has also not signed valuation. We also noticed serious discrepancy that in the case of Rainbow exports the panchanama was drawn at 1400 hrs on 18/6/2003 whereas valuation was carried out at 1200 Hrs on 18/6/2003 as appearing in the valuation report. This clearly shows that the valuation was not carried out in the presence of Panchas.

+ There are several serious inconsistencies in the version of the members of the expert panel and moreover the report was not signed by all the members of the expert panel. In light of above serious discrepancies, the valuation report given by the panel of GJEPC cannot be considered as reliable and on the basis of such discrepant report valuation of rough diamonds arrived at is not acceptable.

+ Adjudicating authority has heavily relied upon the valuation report of GJEPC and since the same is under serious doubt due to various discrepancies the whole foundation of valuation made out in the show cause notice gets demolished.

+ In the present case the panel of members has not been constituted in accordance with such standing orders (issued by the Commissioner of Customs Airport). We do not find any explanation given as why in the present case the panel was not constituted in accordance with such standing orders. Therefore in defiance of the standing order the members of expert panel who examined the diamonds in the present case are held to be not qualified government approved valuers of diamonds. In view of the above observations we are of the view that the valuation report given by the expert panel of GJEPC is unacceptable.

+ In the present case there is no evidence that the invoice issued by supplier are either fake or fabricated or that there exist any relationship between supplier and the importer.

+ Valuation enhanced on the basis of opinion of experts cannot be held to be in accordance with settled law on the issue inasmuch as transaction value has to be first rejected by adopting suitable mode for revising the valuation of the goods under consideration. In the present case also Adjudicating authority has not adopted any suitable mode for rejecting the transaction value and straight away relied upon the GJEPC report.

Alleged Violation of Rule 11 of FTDR

++ The words "any other documents prescribed under the Customs Act, 1962" (in rule 11 of FTDR) refers only to the documents to be submitted at any customs port which are of the same nature as the Bill of Entry prescribed under section 46 or the shipping bill prescribed under section 50, such as declaration by owner of baggage prescribed in section 77, or label or declaration accompanying goods imported or exported by post prescribed under section 82 of the Customs act, 1962. In the instant case the Commissioner has erred in treating the KPC, issued by the overseas supplier as a document prescribed under the Customs Act, 1962 to arrive at an erroneous finding that Rule 11 of FTDR Rules was violated. The KPC is not a document, such as Bill of Entry, which is prescribed under the Act. The requirement of imports of rough diamonds being accompanied by a KPC flows from Chapter 2 of the Foreign Trade Policy and it is not a document prescribed under the Customs Act, 1962. The department could not show any provision under the Customs Act, 1962, which prescribes submission of KPC as a declaration by the importer.

++ Moreover, the Appellants were not the owner of the goods. It is seen that the case of the respondent is that the Appellant Companies had made applications to the GJEPC for validation of the KPC received from the overseas supplier required for the import of rough diamonds. It is undisputed that thereafter, neither the appellants claimed ownership over the goods, nor paid to the supplier, nor did they file a bill of entry. Moreover, where no Bill of Entry is filed, there is no declaration of value in terms of Sec. 14 of the Act.

++ Therefore, we do not find merit in the contention raised by the Departmental Representative that the invoice, in which the alleged overvalued price was also mentioned, is a document prescribed under the Act.

++ The making of application to GJEPC, at best can be an act of preparation for imports, which cannot render the appellants liable for any confiscatory or penalty consequences.

++ Since KPC is a document issued by the overseas supplier and verified at their end, even if any mis-declaration is found in the KPC, in absence of any specific allegation and finding in regard to any role attributed to the appellants for procuring such KPC, intentional mis-declaration for imposition of penalty cannot be attributed to the Appellants. In any event the KPCs in question cannot be considered as non-est.

Allegation of havala payment & Money laundering:

++ 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.

Conclusion:

There is no mis-declaration of the value of the rough diamonds in question. Therefore, the goods are not liable for confiscation under Section 111(d) or 111(m) of the Customs Act, 1962. Consequently, no penalty can be imposed on the appellants. Accordingly, confiscation of goods is set aside, consequently, the goods are allowed to be released/re-exported , in accordance with law.

The order was set aside and the appeals were allowed with consequential relief.

(See 2016-TIOL-87-CESTAT-MUM)