"Rough Diamonds Exempted from Customs Duty: Section 14 of Customs Act Inapplicable"

Court Name : CESTAT Mumbai

Parties : Commissioner of Customs Vs Kiran Gems Pvt Ltd 

Decision Date : 22 June 2023

Judgement ref : Customs Appeal No. 87726 of 2022

USTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL MUMBAI

WEST ZONAL BENCH

CUSTOMS APPEAL NO: 87726 OF 2022

[Arising out of Order-in-Appeal No: MUM-CUSTM-APSC-APP-1374 to

1379/2022-23 dated 15th September 2022 passed by the Commissioner of

Customs (Appeals), Mumbai - III.]

Commissioner of Customs

Air Special Cargo

Awas Corporate Point, Makwana Lane,

Behind SM Centre, Andheri-Kurla Road, Andheri (E)

Mumbai - 400059 … Appellant

versus

Kiran Gems Pvt Ltd

FE-5011, Bharat Diamond Bourse, G Block,

Bandra Kurla Complex, Bandra (E), Mumbai 400 051. …Respondent

APPEARANCE:

Shri Sydney D’Silva, Additional Commissioner (AR) for the appellant

Shri Sujay Kantawala, Advocate for the respondent

WITH

CUSTOMS APPEAL NO: 87811 OF 2022

[Arising out of Order-in-Appeal No: MUM-CUSTM-APSC-APP-1374 to

1379/2022-23 dated 15th September 2022 passed by the Commissioner of

Customs (Appeals), Mumbai - III.]

Kiran Gems Pvt Ltd

FE-5011, Bharat Diamond Bourse, G Block,

Bandra Kurla Complex, Bandra (E), Mumbai 400 051. … Appellant

versus

Commissioner of Customs

Air Special Cargo

Awas Corporate Point, Makwana Lane,

Behind SM Centre, Andheri-Kurla Road, Andheri (E)

Mumbai - 400059 …Respondent

WITH

CUSTOMS APPEAL NO: 87812 OF 2022

[Arising out of Order-in-Appeal No: MUM-CUSTM-APSC-APP-1374 to

1379/2022-23 dated 15th September 2022 passed by the Commissioner of

Customs (Appeals), Mumbai - III.]

Vallabhbhai S Patel

Kiran Gems Pvt Ltd

FE-5011, Bharat Diamond Bourse, G Block,

Bandra Kurla Complex, Bandra (E), Mumbai 400 051. … Appellant

versus

Commissioner of Customs

Air Special Cargo

Awas Corporate Point, Makwana Lane,

Behind SM Centre, Andheri-Kurla Road, Andheri (E)

Mumbai - 400059 …Respondent

WITH

CUSTOMS APPEAL NO: 87813 OF 2022

[Arising out of Order-in-Appeal No: MUM-CUSTM-APSC-APP-1374 to

1379/2022-23 dated 15th September 2022 passed by the Commissioner of

Customs (Appeals), Mumbai - III.]

Mavbjibhai S Patel

Kiran Gems Pvt Ltd

FE-5011, Bharat Diamond Bourse, G Block,

Bandra Kurla Complex, Bandra (E), Mumbai 400 051. … Appellant

versus

Commissioner of Customs

Air Special Cargo

Awas Corporate Point, Makwana Lane,

Behind SM Centre, Andheri-Kurla Road, Andheri (E)

Mumbai - 400059 …Respondent

APPEARANCE:

Shri Sujay Kantawala, Advocate for the appellants

Shri Sydney D’Silva, Additional Commissioner (AR) for the respondent

WITH

CUSTOMS APPEAL NO: 87823 OF 2022

[Arising out of Order-in-Appeal No: MUM-CUSTM-APSC-APP-1374 to

1379/2022-23 dated 15th September 2022 passed by the Commissioner of

Customs (Appeals), Mumbai - III.]

Raviraj Anil Kumar

Uniface Diam DMCC, Dubai Unit No. 3596

DMCC, Business Centre, Level No. 1 Jewellery

& Gemplex 3 PO Box, Dubai, UAE 112930 … Appellant

versus

Commissioner of Customs

Air Special Cargo

Awas Corporate Point, Makwana Lane,

Behind SM Centre, Andheri-Kurla Road, Andheri (E)

Mumbai - 400059 …Respondent

AND

CUSTOMS APPEAL NO: 87824 OF 2022

[Arising out of Order-in-Appeal No: MUM-CUSTM-APSC-APP-1374 to

1379/2022-23 dated 15th September 2022 passed by the Commissioner of

Customs (Appeals), Mumbai - III.]

Kushal Kamles Patel

Uniface Diam DMCC, Dubai Unit No. 3596

DMCC, Business Centre, Level No. 1 Jewellery

& Gemplex 3 PO Box, Dubai, UAE 112930 … Appellant

versus

Commissioner of Customs

Air Special Cargo

Awas Corporate Point, Makwana Lane,

Behind SM Centre, Andheri-Kurla Road, Andheri (E)

Mumbai - 400059 …Respondent

APPEARANCE:

Ms Lakshmi Menon, Advocate with Shri Akshay Deokule, Advocate for the

appellants Shri Sydney D’Silva, Additional Commissioner (AR) for the respondent

CORAM:

HON’BLE MR C J MATHEW, MEMBER (TECHNICAL)

APPEARANCE:

Ms Lakshmi Menon, Advocate with Shri Akshay Deokule, Advocate for the

appellants Shri Sydney D’Silva, Additional Commissioner (AR) for the respondent

CORAM:

HON’BLE MR AJAY SHARMA, MEMBER (JUDICIAL)

FINAL ORDER NO: A / 85978-85983 /2023

DATE OF HEARING: 27/04/2023

DATE OF DECISION: 22/06/2023

PER: C J MATHEW

The order impugned before us is significantly humungous. But

then so is the order-in-original that is the fount of the grievance of M/s

Kiran Gems P Ltd, S/Shri Vallabhai Patel, Mavjibhai S Patel, Raviraj

Anil Kumar Vakani and Kushal Kamlesh Patel, as well as that of

Commissioner of Customs (Airport Special Cargo), Chhatrapati

Shivaji Maharaj International Airport (CSMIA), Mumbai, all of whom

are disappointed by the outcome of proceedings before Commissioner

of Customs (Appeals), Mumbai -III and are in appeal before us. For

comparison, in the Bible, an 800,000 word composition by several

contributors, is the New Testament, comprising 200,000 words and,

just about half of which is the word count in the order of Joint

Commissioner, (Airport Special Cargo), Chhatrapati Shivaji Maharaj

International Airport (CSMIA), Mumbai to sustain confiscating

‘rough diamonds’ imported against bills of entry no.

2673556/02.04.2019 and 2812593/12.04.2019. The factual matrix,

therefore, cannot but be as vast and as complex enough for holding

interest.

2. The two consignments of 62,837 carats and 76,195.45 carats,

valued at ₹ 49,21,80,126.88 and ₹ 119,24,42,649.19 respectively,

imported by M/s Kiran Gems P Ltd from M/s Unifacet Diam, DMCC,

Dubai were declared to be in conformity with description

corresponding to tariff item 7102 3100 in First Schedule to Customs

Tariff Act, 1975 upon presentation at Precious Cargo Customs

Clearance Centre (PCCCC), Bharat Diamond Bourse (BDB) but, on

examination, were observed to consist of parcels, some of which were

marked as ‘rejections’ from ‘Al Rosa’ mine, besides not matching the

quantities declared in the bills of entry which were, of themselves,

inconsistent with the details in the accompanying invoices, packing

lists and Kimberley Process Certificates (KPC) and, therefore, seized

under section 110 of Customs Act, 1962 on 4th April 2019 and 22nd

April 2019. The adjudicating authority found the Kimberley Process

Certificates (KPC) to be in order. However, the ‘rough diamonds’

were ordered to be confiscated under section 111(m) of Customs Act,

1962 on account of assessable value having been revised to ₹

26,16,99,645.22 and ₹ 94,24,99,507.50 by recourse to rule 9 of

Customs Valuation (Determination of Value of Imported Goods)

Rules, 2007 but allowed to be redeemed, under section 125 of

Customs Act, 1962, on payment of fine of ₹ 2,00,00,000 and ₹

8,00,00,000 respectively and to be re-exported subject to conforming

of declarations therein in accord with the examination report in

addition to acceding to drawal of representative samples from each

consignment over which no claim would ever be preferred. The first

appellate authority upheld all of these except the conditions prescribed

for re-export for want of such authority in section 125 of Customs

Act, 1962. In addition, penalty of ₹ 4,00,00,000 on M/s Kiran Gems P

Ltd, of ₹ 1,00,00,000 each on S/Shri Mavjibhai S Patel and

Vallabbhai S Patel, Managing Director and Chairman & Director of

M/s Kiran Gems P Ltd, and ₹ 50,00,000 and ₹ 25,00,000 respectively

on S/Shri Kushal Kamlesh Patel and Raviraj Anilkumar Vakani,

owner of M/s Unifacet Diam Dubai and General Manager of M/s

Unifacet Diam Dubai, under section 112(a) of Customs Act, 1962

were left untouched by the first appellate authority as were penalties

of ₹ 50,00,000 each on S/Shri Mavjibhai S Patel and Vallabbhai S

Patel, Managing Director and Chairman & Director of M/s Kiran

Gems P Ltd, and ₹ 25,00,000 and ₹ 15,00,000 respectively on S/Shri

Kushal Kamlesh Patel and Raviraj Anilkumar Vakani, owner of M/s

Unifacet Diam Dubai and General Manager of M/s Unifacet Diam

Dubai, under section 114AA of Customs Act, 1962.

3. Appeal of Commissioner of Customs (Airport Special Cargo),

Chhatrapati Shivaji Maharaj International Airport (CSMIA), Mumbai

against discarding of proposal for confiscation under section 111(d) of

Customs Act, 1962, and consequent grant of redemption on payment

of fine, was rejected by the first appellate authority for not having

been subject to review, the essential pre-requisite for filing of appeal

against its own order, within the time stipulated in section 129DD of

Customs Act, 1962. Concomitantly, the additional grounds sought to

be incorporated in that appeal were, for not having been included in

the determination by the competent authority in the review preceding

the appeal itself, also not entertained. The appeal of Revenue, though

seeking also to agitate grievance against the order-in-original, is about

the rejection of their appeal by the first appellate authority. It has been

brought to our attention that the sole relief granted in the impugned

proceedings, viz., the setting aside of conditions for re-export, is not a

cause of grievance at this stage.

4. It would appear that the voluminous findings of the original

authority are, therefore, only about the composition of lots/parcels and

the reasoning for recourse to the ‘residual method’ of valuation after

rejecting the declared value under rule 12 of Customs Valuation

(Determination of Value of Imported Goods) Rules, 2007. It does not

require restating that there is no duty liability involved in the dispute

as no duty is leviable on import of ‘rough diamonds’ and it would also

appear that the concern of customs authorities is ‘hawala/money

laundering’, otherwise known as ‘round tripping’, and vulnerability of

the trade in ‘rough diamonds’, particularly channeling of ‘conflict

diamonds’ and as ‘medium’ in illicit remittance, which inevitably pass

through customs jurisdictions enabling the spotlight to be turned on

the perpetrators in that brief window of processing for clearance. We

have no doubt that more power to the pursuit of ‘larger good’ does

have a touch of noble ideals but it just happens that the ‘larger good’

is not the domain of any of the compartments in a national

administration in which each performs such tasks as are assigned by

the national administration in the interests of the ‘larger good’ which

is best served by effective discharge of that assigned task. Customs

law is about import-export and jurisdictionally operated within the

procedure prescribed in section 47 and section 50 of Customs Act,

1962; to venture beyond is to step into the unknown and the

unauthorized that may only trip up those tasked with authority to do

so.

5. On scrutiny of the grounds of appeal filed by Revenue, and

ignoring the cavil about the findings of the original authority which,

admittedly, were not considered on merit by the first appellate

authority, it would appear to be limited to coverage of ‘nullfication of

time between 15th March 2020 and 28th February 2022’ by the

Hon’ble Supreme Court in Re: Cognizance for Extension of

in order dated 10th January 2022 that, according to

jurisdictional Committee of Commissioners, encompassed anything to

do with appeals, and adjudication, before judicial and quasi-judicial

authorities. There is no justification offered therein for the Tribunal to

entertain pleas for relief that goes beyond the bounds of the order of

the first appellate authority who had no jurisdiction, after rejection of

appeal of Commissioner of Customs (Airport Special Cargo),

Chhatrapati Shivaji Maharaj International Airport (CSMIA), to

consider imposition of detriment on the importer and appellantindividuals that the adjudicating authority had not. We are, therefore,

constrained to limit our consideration to subjecting the finding of the

first appellate authority, that review is an administrative exercise,

separate of appeal, prescribed in section 129D of Customs Act, 1962

which did not enjoy the latitude afforded by the order of the Hon’ble

Supreme Court supra, to the test of legal and proper. Should it be

found not to be so, we shall have no option but to restore that appeal

back to the first appellate authority which would also require that the

other appeals be deferred till the outcome of such remand be known.

It is, therefore, of essence that the appeal of Revenue be decided first

and within the limited scope of our remit.

6. Incidentally, the discarding of the additional ground is referred

to, peripherally, in the same appeal and sought to be justified, even if

as supplementary review, by reliance on the decisions of the Hon’ble

High Court of Madras in Commissioner of Customs, Tuticorin v.

Madura Coats Pvt Ltd [2013-TIOL-1208-HC-MAD-CUS], of the

Tribunal in Commissioner of Customs (Export), Goa v. Vinka

Industries and ors [2016-TIOL-60-CESTAT-MUM] and of the

Hon’ble High Court of Delhi in Commissioner of Service Tax v. Japan

Airlines International Co Ltd [2015-TIOL-1645-HC-DEL-ST-LB] all

dealing with nature of review power and amenability to correctives.

7. The first appellate authority has examined the special law

enacted for review of departmental adjudication and departmental

appellate orders for mounting challenge, and not over grievance, for

lack of being legal and proper. Accordingly, section 129D of Customs

Act, 1962 is not just about appeal which initiates jurisdiction over a

dispute for Commissioner (Appeals) or the Tribunal, as the case may

be, as available to the assessee or other affected person but also

precursor to appeal for ensuring that application of mind, and not

knee-jerk reaction to unfavourable outcome, informs the decision to

pursue appellate remedies. The statutory ‘time-limit’ enabled for

completion of the process is three months which may, for sufficient

reason, be extended by another thirty days by Central Board of Excise

& Customs (CBEC) and, thereafter, another one month is available for

filing of the appeal itself. Not only are these time-lines separate and

distinct from that available to assessee or other affected person but, as

pointed by the first appellate authority, the segregation is ample

manifest of legislative intent to treat these as two distinct

contingencies; hence the claim of the jurisdictional Committee that all

of that is the time facilitated for appeal and, thereby, within the ambit

of the order of the Hon’ble Supreme Court does not resonate with us.

The first appellate authority has concluded that the ‘nullification’

would apply to the time taken between conclusion of review and

action thereafter for implementing the outcome of review but not to

modify the time allowed for review.

8. It has been noted by the first appellate authority that the

Hon’ble High Court of Bombay, in re Vinka Industries, had held

review to be an administrative mechanism. We find no reason to

disagree with that conclusion and, more so, as the decision of a Larger

Bench of Hon’ble High Court of Delhi in re Japan Airline

International Co Ltd, cited by Revenue in support of correctives made

to decisions in review, has arrived at much the same conclusion.

Therefore, the administrative character of the review procedure laid

down in law is not a stand that Revenue can now seek to dispute. The

order of the Hon’ble Supreme Court, as the apex judicial authority, is

limited to its remit of supervision over appellate and adjudicatory

forums, of all hues and shades in such a suo moto cognizance of

disruption in this most unusual period in human history that, in some

way or other and for an extended time, impeded external interface

with public institutions. The same cannot be said to have intruded

upon internal administrative arrangements; on the contrary, while the

public at large were, more or less, sequestered at their homes,

officialdom were accorded exclusive access to public transport

systems, even skeletal as they may have been, for keeping the

administrative machinery operational. Therefore, even

circumstantially, there is no claim for Revenue to propose that the

special context which prompted the Hon’ble Supreme Court was no

less relevant to them. In any case, the Hon’ble Supreme Court cannot,

except when called upon to in the course of litigation, have intended

to intervene in administrative domain of the executive. No other

justification has made appearance in the grounds furnished by the

jurisdictional Committee of Commissioners and, hence, we have no

reason to conclude that the disposal of appeal filed by Commissioner

of Customs before the first appellate authority was not legal and

proper.

9. On that conclusion, it must also be stated that the doctrine of

merger has, effectively, erased the order of the original authority and

only the order of the first appellate authority is available for pursuing

before the Tribunal. The proposals discarded by the original authority

do not survive and, as held by the Hon’ble Supreme Court in AV

Papayya Sastry v. Government of Andhra Pradesh [(2007) 4 SCC

‘38…… All orders passed by the courts/authorities below,

therefore, merge in the judgement of this Court and after such

judgment, it is not open to any party to the judgement to

approach any court or authority to review, recall or

reconsider the order.’

as the essence of the doctrine that, at every stage of appellate

hierarchy, applies insofar as orders of lower forums are concerned.

Hence, the discarding of the proposals for confiscation under section

111(d) of Customs Act, 1962 and for denial of the option of

redemption are, after the refusal of the first appellate authority to

admit the appeal of Commissioner of Customs, no longer available for

agitating before the Tribunal. The sole possible cavil was the dilution

of the condition by sole relief obtained by appellants from the first

appellate authority but even that has passed by for not having been

disputed in the appeal before us.

10. The cavil against rejection of the plea for bringing in additional

grounds before first appellate authority is, with reiteration of

correctness of the order of dismissal of appeal of Commissioner of

Customs, now academic. In any case, the decisions relied upon by the

jurisdictional Committee of Commissioners have approved of the

proposition that review process does not ever attain finality but not

forever by allowing the limitation in section 129D to be stretched by

or for accommodating such correctives before the first appellate

authority vested with very limited power to condone delays in filing

appeals or applications. This proceeding is, thus, restricted to the pleas

of the importer and the appellant-individuals.

11. All that remains for resolution in the dispute is that of valuation

of impugned goods. Value, at the best of times, is difficult to ascertain

for, ultimately, it remains a buyer-seller transaction and their mutual

agreement on the price to be paid. More so, in a commodity such as

‘rough diamonds’ which is surrendered to Man by Mother Earth and,

in the nature of all primary produce that is, generally, not used as

such, ‘price discovery’ is a complex tangle of factors. Insofar as these

goods, as presented for clearance, are concerned, its appearance is

highly deceptive and contingent upon skill in cutting to reveal

capability of capturing light for reflecting it back. Value of the

impugned consignment was ascertained on three different occasions.

The first, by a ‘panel member’ that took place on 2nd April 2019,

certified the declared value to be ‘fair’ but the one undertaken by

Committee of Panel Members, as certified in reports of 3rd April 2019

and 15th April 2019, elicited values, of ₹ 41.55 crores and ₹ 113.68

crores respectively, that are marginally lower than that declared at the

time of import. The reliability of report, consequent upon a further

examination by Mr Surajratan Agrawal, an Income Tax Departmentapproved valuer, undertaken on 18th September 2019 at the request of

the investigators and accepted by the adjudicating authority, is at the

core of the controversy. Needless to say, it is the persistence in

seeking out certifications until an acceptable one had been elicited that

is a cavil of the appellants and the whole of it resting on deviation

from procedure devised by customs authorities in view of the

peculiarities of the trade, such as limited stylized expertise, preference

for secrecy and the locii of players in the diamond industry. Thus,

value, in addition to compliance with Rules notified under the

prescription in section 14 of Customs Act, 1962, must also adhere to

the process of ascertainment, save by ‘transaction value’ of ‘identical’

or ‘similar’ – effectively inapplicable to ‘rough diamonds’ – goods,

spelt out in instructions intended for Bharat Diamond Bourse (BDB).

The foundation of this administrative instrument is ‘identity’ of

consignment and ‘anonymity’ of the importer.

12. We find that the submission of doubts cast on the presence of

Mr Prakash Vaghani, an employee of the importer, at the last

examination, sought to be buttressed by requests for crossexamination of several of the persons in attendance then and demands

for video footage from surveillance cameras, emanates from the first

of the underlying pillars. Yet another critical aspect was the rationale

adopted by the original authority for rejection of the first report, i.e.,

disclosure of identity of importer, which the first appellate authority

found to be bemusing as the mandated presence of representative of

importer in such proceedings itself assures revelation. The first

appellate authority, referring to paragraph 14 of the said instructions,

also pointed out that it is only in certain specified contingencies that

customs authorities could discard report of GJEPC-approved ‘panel of

experts’ for undertaking further ascertainment. It would also appear to

us that this micro-management of assessment was caused by

‘unfortunate events’ of July 2018 – whatever those be – to accord

credibility to this ‘sub rosa’, as it were, process.

13. The first appellate authority appears to be proficient in

‘dialectics’ which, as seen from the disposal of two issues raised by

appellants - limited cross-examination permitted and serial resort to

valuers in breach of instructions on examination procedure – before

her, is not to be faulted but suitability for deployment in determination

of legal and proper is in question. It was concluded that a

representative of each of the institutions concerned with examination

had been subjected to requirement of section 138B of Customs Act,

1962 which sufficed to overcome any threshold objection to

repudiation of that which had been permitted by the predecessor

‘incumbent in office’ empowered to adjudicate and that,

notwithstanding the impropriety of seeking third examination, the

difference in value elicited by the ‘proper’ second examination

justifies confiscation under section 111(m) of Customs Act, 1962 for,

thereby, not disturbing the order itself. In our view, invoking of

Customs Valuation (Determination of Value of Imported Goods)

Rules, 2007 thus in appellate jurisdiction, by confining the testing of

adjudicatory determination of value not by aptness of substituted

value of the impugned goods to rule 3(4) of Customs Valuation

(Determination of Value of Imported Goods) Rules, 2007 but only for

validating rejection of declared value goes against the grain of

Explanation.- (1) For the removal of doubts, it is hereby

declared that:-

(i) This rule by itself does not provide a method for

determination of value, it provides a mechanism and

procedure for rejection of declared value in cases where

there is reasonable doubt that the declared value does not

represent the transaction value; where the declared value is

rejected, the value shall be determined by proceeding

sequentially in accordance with rules 4 to 9…..’

in rule 12 of Customs Valuation (Determination of Value of Imported

Goods) Rules, 2007. The impugned order has failed to approve,

modify or reject the value adopted by the adjudicating authority by

recourse to the said Rules. An appellate authority steps into the shoes

of the adjudicating authority in merit review and not as an external

examiner evaluating the term paper of a graduate student. Hence the

finding in the impugned order that

‘In view of above discussions, though I note there are

procedural violations by the AA, yet those are not having

major bearings negatively on the appellant. As no duty is

applicable on impugned goods, the RF under section 125 will

depend upon the value re-determined of the goods. As

department never relied upon the report of the 2nd Panel

Members and said report will not affect impugned order

except having some bearing on the quantum of the RF. I

proceed further with the 3rd report as the base of the order

only considering that it actually helped the appellant in

getting lesser RF and they will not be aggrieved with the

lesser RF imposed on them on the basis of the 3rd report

relied upon by the department. Thus by saying so, I find

myself in agreement with the AA as far as Order part is

concerned. …’ (emphasis supplied) is not only in breach of mandate devolving on appellate authority but also fatal to the consequent detriments.

14. Repelling the allegation that the some prior arrangement,

arising out of personal relationship between the owners of the

importer and supplier entities, Mr Sujay Kantawala, Learned Counsel

for importer, denied any connections and, submitting that such

relationship even if evidenced would not have sufficed for discarding

value unless in accordance with rule 3(2) and rule 3(3) of Customs

Valuation (Determination of Value of Imported Goods) Rules, 2007,

he also drew attention to the findings in the impugned order which,

with reference to economics of the purported transaction, cast doubts

on ‘round tripping’ as the motive for the alleged overvaluation.

Furthermore, he contended that, with the stringent procedures of

public notice no. 30/2018 dated 19th December 2018, any attempt at

‘misdeclaration’ would be 14. Repelling the allegation that the some prior arrangement, arising out of personal relationship between the owners of the

importer and supplier entities, Mr Sujay Kantawala, Learned Counsel

for importer, denied any connections and, submitting that such

relationship even if evidenced would not have sufficed for discarding

value unless in accordance with rule 3(2) and rule 3(3) of Customs

Valuation (Determination of Value of Imported Goods) Rules, 2007,

he also drew attention to the findings in the impugned order which,

with reference to economics of the purported transaction, cast doubts

on ‘round tripping’ as the motive for the alleged overvaluation.

Furthermore, he contended that, with the stringent procedures of

public notice no. 30/2018 dated 19th December 2018, any attempt at

‘misdeclaration’ would farthest from the minds of any entity

importing through Precious Cargo Customs Clearance Centre

(PCCCC) of Bharat Diamond Bourse (BDB). Both Learned

Authorized Representative and he elaborated upon Kimberly Process

International Certification scheme, the internationally acknowledged

system for auditing of ‘rough diamonds’ established for cleaning up

the transborder trade in that prized commodity.

15. From their elucidation, we gather that the regime was

established in 2003, following the Fowler Report and resolution

adopted at the World Diamond Congress at Antwerp in July 2000,

with contracting States agreeing to implement safeguards on shipment

of ‘rough diamond’ from mines to the buyers engaged in cutting and

polishing of the stones by taking responsibility for verifying

provenance from country of export and certifying provenance upon

export from the country for satisfaction of authorities of the next

country in the chain. The threshold implementation by the contracting

States envisages integrity of ‘chain of possession’ through audit of

warranty declaration on sales invoice and acceptance of consignments

only in sealed condition accompanied by prescribed certificate. Thus,

it would appear that the efficacy of the scheme rests upon the selfinterest of the authorities in the country of export to remain within the

‘trade route’ of this lucrative article. It is not in dispute that the

impugned consignments were accompanied by Kimberly Process

Certificates (KPC) issued by the competent authority in Dubai and

there is no evidence on record to conclude that the authorities at that

end were less than diligent in administering the process; nor was any

attempt made to verify any suspicion thereto from the issuing

authority. It is, therefore, not surprising that the original authority

rendered the crucial finding that the certification was valid for the

consignments as received.

16. Though the declared classification has been referred to, and

discussed with reference to the representative samples drawn by the

expert valuers, and concluded thereto on conformity with

prescriptions, nothing turns on that for any detriment under section

111 of Customs Act, 1962 directly; indeed, that was not an aspect

agitated in appeal of importer before the first appellate authority. That,

however, caused alarm for consequence on the value declared in the

bills of entry and the impugned order has taken note of

‘(iii) The proper officer shall have the powers to raise doubts

on the truth or accuracy of the declared value based on

certain reasons which may include –

(a) the significantly higher value at which identical or similar

goods imported at or about the same time in comparable

quantities in a comparable commercial transaction were

assessed;

(b) the sale involves an abnormal discount or abnormal

reduction from the ordinary competitive price;

(c) the sale involves special discounts limited to exclusive

agents;

(d) the misdeclaration of goods in parameters such as

description, quality, quantity, country of origin, year of

manufacture or production;

(e) the non-declaration of parameters such as brand, grade,

specifications that have relevance to value;

(f) the fraudulent or manipulated document’ (emphasis supplied in impugned order) in Explanation (1) below rule 12 of Customs Valuation

(Determination of Value of Imported Goods) Rules, 2007 as enabling

recourse to rule 12, thereby, with notice, as intended therein, having

been communicated in the show cause notice leading to adjudication

and culminating thereafter by the impugned order. From this, it can be

clearly deduced that classification itself was not an issue with the

lower authorities except insofar as it enabled invoking of rule 12 and,

thereupon, rule 9, of Customs Valuation (Determination of Value of

Imported Goods) Rules, 2007. We have already made our

observations supra about the catalytical, even if pivotal as such

generally are, role of rule 12 of Customs Valuation (Determination of

Value of Imported Goods) Rules, 2007 in valuation – not as an end in,

or of, itself – of imported goods by recourse to enumerated methods.

We may also add to it, at this stage, with the observation that reliance

upon the text of that rule is valid only within the context of the rubric

in the Explanation.

17. These appeals, thus, are concerned only with the validity of

resort to rule 9, as the only available option, and resort, for want of

any other option, to rule 3(4) of Customs Valuation (Determination of

Value of Imported Goods) Rules, 2007. Our concern is more with a

legal conundrum that transcends procedural closure and deserves no

little attention. Before doing so, and indeed for ascertaining

conformity of adopted valuation, such as it is in the light of

reservations in the impugned order noted supra, with rule 9 of

Customs Valuation (Determination of Value of Imported Goods)

Rules, 2007, we turn to the rival submissions.

18. Learned Counsel for the appellants submitted that the

reasonable belief that impelled more than routine intrusion into the

import was the stated belief of overvaluation and not on account of

any doubts about compliance with Kimberley Process Certification

(KPC) which, he implied, was an afterthought pursuant to the scrutiny

by the expert valuers. He pointed out that the lower authorities had,

themselves, admitted to the instructions in the public notice having

been compromised by revelation of identity of the importer and

alluded to the possibility of prejudiced reporting of contents as valuers

were also in the trade. He placed particular emphasis on appreciation

of the statement of Mr Surajratan Agrawal of 6th September 2019

alongside the record of his cross-examination before the adjudicating

authority within the prescription of section 114 of Indian Evidence

Act, 1872, Learned Counsel also urged us to take note of the

discrepancies in the panchanama of 18th September 2019 that would

unravel the truth or lack in the contention of the investigators that

representative of the importer was present during the proceedings. We

were also taken through several portions of the order of the original

authority that, according to him, manifested motivated action against

the importer borne by unwarranted presumption of wrong-doing.

19. Reliance was placed on the decision of the Tribunal in ST

Enterprises and M/s Ayush Business Overseas v. Commissioner of

Customs (Chennai VII) [2021 (378) ELT 514 (Tri-Chennai)] to

sustain the contention that classification incorporated in documents of

foreign supplier are not binding on the importer, in Sirthai Superware

India Ltd v. Commissioner of Customs, Nhava Sheva-III [2020 (371)

ELT 324 (Tri-Mum)] to contend that claim for a particular

classification would not absolve the assessing officer of primary

responsibility to ascertain the appropriate classification and in

Advanced Spectra Tek Private Limited v. Commissioner of Customs

(ACC & I), Mumbai [2019 (369) ELT 871 (Tri. Mumbai)] on the

limitations of section 111 of Customs Act, 1962.

20. Ms Lakshmi Menon, Learned Counsel for the appellants from

outside India, pointed out to us that the charge of having abetted in

acts that rendered the goods liable for confiscation is extra

jurisdictional overreach as any offence committed in the country,

insofar as clearance of imported goods are concerned, would, by

default, be invoked against suppliers and expressed concern that such

was not the intent of law. She emphasized that the only document that

formed the basis of the adjudication, viz. the Kimberley Process

Certificates (KPC), had been found to be in order by the original

authority. She contended that the decision of the Tribunal in Sahil

Diamonds Pvt Ltd v. Commissioner of Customs, Ahmedabad [2010

(250) ELT 310 (Tri-Ahmd)] holding that

‘9. It stand contended before us that there is no evidence

produced by the department to show that invoices issued by

the foreign supplier was either fabricated or fake or that any

relationship existed between foreign supplier and the

appellant. The Commissioner has only relied upon the report

of the third panel and the retracted statements of the Director

of the appellant-company. Relying upon the decision in the

case of M/s. Mahalaxmi Gems v. CC, Mumbai, 2002 (144)

ELT 548 (Tri-Mum) as confirmed by the Hon’ble Supreme

Court in 2008 (231) ELT 198 (S.C.), he submits that the

transaction value cannot be rejected merely on the basis of

report given by the trade panel constituted by the department

in the absence of any evidence to show the violations of Rule

4(2) of the Customs Valuation Rules, 1988. The Hon’ble

Supreme Court while upholding the Tribunal’s judgment has

observed that where the department failed to show any

contemporaneous evidence and has failed to show that the

invoices are fabricated/fake or any relationship existed

between the importer and exporter, the transaction value

cannot be rejected based upon the (sic) any expert panel

report.’ applies squarely in their matter too.

21. Narrating the factual backdrop, Learned Authorized

Representative submitted that the two bills of entry were filed for

consignments of ‘rough diamonds’ said to be leviable to ‘nil’ duty

corresponding to tariff item 7102 3100 of First Schedule to Customs

Tariff Act, 1975 and comprising 23 nos and 70 nos parcels that, on

examination, were found to be mixed with ‘industrial diamonds’

which would render tariff item 7102 1000 of First Schedule to

Customs Tariff Act, 1975, corresponding to ‘unsorted’ diamonds to be

more appropriate that, even admittedly without duty liability, would,

nevertheless, be reason enough to discard the declared value.

According to him, immediately after India contracted with other

participating States for ‘policing’ of ‘rough diamonds’, circular no.

53/2003-Cus dated 23rd June 2003, issued by Central Board of Excise

and Customs (CBEC), imposed stipulations to align customs

procedures for clearance of ‘rough diamonds’ with paragraph 2.2 of

the Export Import Policy (EXIM) prevailing then and he drew

attention to paragraph no. 3, 6 and 7 therein to emphasize that

absolute confiscation must follow in such circumstances. Learned

Authorized Representative highlighted the inconsistency in documents

in support of his proposition that goods should have been absolutely

confiscated. He also pointed out that it was insistence on the part of

the importer that the diamonds were of ‘gem’ quality which

necessitated the ‘panchanama’ that is now sought to be discredited. It

was argued by him that due weightage should be accorded to the

format of certificate issued by the Gem and Jewelery Export

Promotion Council (GJEPC) before adjudging the acceptability of

certificate produced by the importer.

22. We have no doubt about the intention of circular no. 53/2003-

Cus dated 23rd June 2003 of Central Board of Excise and Customs

(CBEC) in aligning customs procedure to conform to the global

crusade against ‘conflict diamonds’ but such a peremptory direction

which deprives an adjudicating authority of inherent latitude in

exercising powers conferred statutorily is certainly poor, even if wellintentioned, execution of such intent. After all, statutory exercise of

power, in adjudication process, is also an acknowledged check on

policy formulation that transcends legislative intent which should

have been reasonably overcome, in overriding circumstances for

conformity with the comity of nations, only by amendments in statute.

A circular of an attached office of the Central Government to its

subordinate formations is not to be presumed as articulation even of

policy intent let alone legislative intent when it circumscribes

statutory conferment. In the light of failure to contest the easing of

restrictions on re-export, the argument of Learned Authorized

Representative for absolute confiscation is unacceptable.

23. Considering the attention paid to resort to rule 9 of Customs

Valuation (Determination of Value of Imported Goods) Rules, 2007,

we must tarry awhile on that even if, to us, that is of peripheral

relevance. From a plain reading of‘……

(2) No value shall be determined under the provisions of

this rule on the basis of -

(i) the selling price in India of the goods produced in

India;

(ii) a system which provides for the acceptance for

customs purposes of the highest of the two alternative

values;

(iii) the price of the goods on the domestic market of the

country of exportation;

(iv) the cost of production other than computed values

which have been determined for identical or similar

goods in accordance with the provisions of rule 8;

(v) the price of the goods for the export to a country other

than India;

(vi) minimum customs values; or

(vii) arbitrary or fictitious values.’ in rule 9 of Customs Valuation (Determination of Value of Imported Goods) Rules, 2007, it cannot but escape our attention that it is not a free flowing empowerment but one designed to be consistent with rule 3 of Customs Valuation (Determination of Value of Imported Goods) Rules, 2007 and, in addition, to be irrefutably in conformity with stipulations supra. From the reports of the expert valuers, we are unable to ascertain that conformity; indeed, we note that in crossexamination at the adjudication stage, Mr Surajratan Agrawal was

disinclined to disclose the manner in which the suggested value could

be justified lest it compromise his professional and commercial

interest. The lack of credibility of such reports cannot be overstated

ever.

24. It is quite possible that purposeful misdeclaration of value by

importers of articles, such as ‘rough diamonds’, may warrant recourse

to rule 9 of Customs Valuation (Determination of Value of Imported

Goods) Rules, 2007 but the peculiarities of a trade upon which

customs officials may be entirely dependent for expertise and whose

activities may, even validly, be veiled under layers of secrecy may not

be found by assessing officers to be of concern but the law cannot be

ignored. That supervisory level of customs officialdom may have

found it necessary to bypass impediments to proper resort to rule 9 of

Customs Valuation (Determination of Value of Imported Goods)

Rules, 2007 does not make up for that want of credibility. It is the

remit of the administration to find a solution but the solution,

whatever that may be, should conform to the law – a law of valuation

that was devised by them to be congruent with multilateral

engagement. We cannot carve out exceptions to the law and, if at all,

such opinion is to be relied upon, the valuer must, unequivocally, be

prepared to narrate, and stand by, the justifications for such value.

Absent that, substituted value will fail the test of law, as it does in the

present dispute, and will have to be held as untenable even at the cost

of declaring such instructions, if any, as not implementable.

25. Even as we hold so, another aspect, alluded by us supra, is of

overwhelming concern. The orders of the lower authority appear to

show concern about compliance with section 46 of Customs Act,

1962, as rightly should be, for, in matters of clearance of goods by an

importer, that is the ‘starter’s pistol, so to speak, which brings the

importer in contact with customs law. In relation to such imported

goods, that initiates the implementation of Customs Act, 1962 and,

hence, of consequence, it is the conclusion of the process by

‘47. Clearance of goods for home consumption.

(1) Where the proper officer is satisfied that any goods

entered for home consumption are not prohibited goods and

the importer has paid the import duty, if any, assessed

thereon and any charges payable under this Act in respect of

the same, the proper officer may make an order permitting

clearance of the goods for home consumption:

that renders a finality to the filing of bill of entry and it is, thereby,

that the ‘proper officer’ therein is vested with authority to grant

clearance, upon which the goods cease to be ‘imported’ for purposes

of Customs Act, 1962; such ‘proper officer’ is permitted to interfere

with clearance only if the appropriate duty has not been paid and/or

the goods are subject to some prohibition.

26. It is not the case of the lower authorities that any prohibition,

‘under Customs Act, 1962 or any other law for the time being in

force’, stood in the way of clearance for home consumption upon

assessment of bill of entry; a subsequent proceeding under Customs

Act, 1962 cannot rest upon a prohibition that, at the time of clearance,

was not in existence for resort to section 124 of Customs Act, 1962

proposing confiscation of goods under section 111 of Customs Act,

1962. Nor is it the case of the lower authorities that duty was to be

collected or was short-collected on clearance for invoking section 28

of Customs Act, 1962. There is, thus, no scope for barring clearance

for home consumption. The sole bar, as we can garner, is the finding

that the goods were subjected to re-determination of value, arising

from rejection of declared value under rule 12 of Customs Valuation

(Determination of Value of Imported Goods) Rules, 2007, even if for

no purpose other than as a puzzle to be solved for it has been held that

no duty liability arises either. To postulate that empowerment to

confiscate, under section 111(m) of Customs Act, 1962, on the ground

that misdeclaration of value empowers resort to valuation provisions

of the statute, intended for specific purpose, is to put the cart before

the horse and effect before cause.

27. The process that commenced with filing of bill of entry, under

section 46 of Customs Act, 1962, acknowledges the importer in

relation to the imported goods for further action thereto and requires

section 17 of Customs Act, 1962, as the mechanism, to enable closure

under section 47 of Customs Act, 1962. The determination of duty

liability calls for application of the charging provision in

‘(1) Except as otherwise provided in this Act, or any other

law for the time being in force, duties of customs shall be

levied at such rates as may be specified under the Customs

Tariff Act, 1975 (51 of 1975), or any other law for the time

being in force, on goods imported into, or exported from,

India.’ of section 12 of Customs Act, 1962 that, necessarily and save for

exception therein which is not an issue here, has, in the first instance

to proceed to First Schedule to Customs Tariff Act, 1975 for

ascertainment of rate of duty liability - ad valorem or specific - as

Customs Tariff Act, 1975 authorizes. The next step of

‘14. Valuation of goods. (1) For the purposes of the Customs

Tariff Act, 1975 (51 of 1975), or any other law for the time

being in force, the value of the imported goods and export

goods shall be the transaction value of such goods’

arises only if, for the purposes of Customs Tariff Act, 1975, duty is to

be determined on basis of value, with the Customs Valuation

(Determination of Value of Imported Goods) Rules, 2007 to be

resorted to in accordance therewith, and not in any other

circumstances.

28. The orders of the lower authorities leave no room for doubt that

there is no difference in rate of ‘nil’ duty, corresponding to either of

the tariff items – declared or substituted – in dispute, with the

implication that the Customs Tariff Act, 1975 is not germane to the

impugned goods. It is also not the case of the lower authorities that

any other law, requiring declaration of ‘value’ in bill of entry for any

purpose other than assessment to duty, has been breached insofar as

the present dispute in concerned. In such circumstances, section 14 of

Customs Act, 1962, or any Rules framed thereunder, is not of

relevance to the impugned goods. Consequently, the Customs

Valuation (Determination of Value of Imported Goods) Rules, 2007

cannot be brought to bear on the impugned goods. The valuation is

purely academic and we, thus, reiterate our earlier observation that

agencies of the State must restrict their statutory intervention only

within the intent of the statute. Any excess of that will not only

imperil their action but also have consequences in law.

29. For the present, we stop with the consequence of action being

imperiled to set aside the impugned order and allow the appeals of

importer and the individual-appellants with consequential relief. The

importer may, if it chooses to, exercise right to re-export without any

restraint on the goods subject to compliance with section 50 of

Customs Act, 1962. Upon seeking of re-export, the goods shall be

released to them within a period of one month. The appeal of

Revenue, devoid of merit and substance, is dismissed.

(Order pronounced in the open court on 22/06/2023)

(AJAY SHARMA)

Member (Judicial)

(C J MATHEW)

Member (Technical)