Smuggled Goods Not Imported for Exemption: Customs Duty Ruling

The Supreme Court held that smuggled goods cannot be considered as imported goods for the purpose of granting exemption under Notification No. 247/76-Cus., dated 2-8-1976. Consequently, the Tribunal's decision to grant exemption on smuggled diamonds was overturned. The Tribunal concluded that the settlement under Kar Vivad Samadhan Scheme (KVSS) did not cover the duty, and the appellant must pay the duty to redeem the goods. The goods were classified under Heading No. 71.02 of the Customs Tariff, and the relevant date for duty calculation is the date of payment of the redemption fine. The appeal was disposed of, holding the appellants liable to pay customs duty on the confiscated diamonds.

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Issues Involved:
1. Whether the benefit of the exemption notification was rightly granted.
2. The impact of the Kar Vivad Samadhan Scheme (KVSS) on the release of the confiscated diamonds.
3. Whether the Baggage Rules were correctly applied for determining the duty payable.

Issue-wise Detailed Analysis:

1. Exemption Notification:
The Supreme Court held that smuggled goods cannot be considered as imported goods for the purpose of granting exemption under Notification No. 247/76-Cus., dated 2-8-1976. The Court stated, "It would be antithetic to consider that 'smuggled goods' could be read within the definition of 'imported goods' for the purpose of the Act." Consequently, the Tribunal's decision to grant exemption on smuggled diamonds was overturned.

2. Kar Vivad Samadhan Scheme (KVSS):
The appellant argued that no duty was determined in the original order dated 3-12-1992, making it not a "tax arrear" under Section 87(m) of the Finance Act, 1998. They claimed that the KVSS settlement covered only the fine and penalty, not the duty. The Tribunal noted that the designated authority's final settlement certificate stated that the declarant could redeem the goods on payment of duty at the appropriate rate. The Bombay High Court had also held that duty must be paid in addition to the redemption fine. The Tribunal concluded that the settlement under KVSS did not cover the duty, and the appellant must pay the duty to redeem the goods.

3. Application of Baggage Rules:
The Tribunal found that the goods were not conclusively proven to be imported as baggage. The statement that the diamonds were imported "personally or through carriers by air and by other means" was deemed hearsay. The Tribunal held that the goods could not be classified under Chapter 98.03 as baggage due to the lack of evidence and the Supreme Court's ruling that smuggled goods cannot be treated as imported goods. Instead, the goods were classified under Heading No. 71.02 of the Customs Tariff.

Relevant Date for Duty Calculation:
The Tribunal determined that the relevant date for duty calculation is the date of payment of the redemption fine, which is when the option to redeem the goods was exercised. The duty should be computed based on the value of Rs. 88,20,050/- as determined by the Commissioner and at the tariff rate applicable under CTH No. 71.02 at the time of redemption.

Conclusion:
The appellants are liable to pay customs duty on the confiscated diamonds at the tariff rate applicable under Heading No. 71.02 on the date of payment of the redemption fine, in addition to the fine and penalty settled under the KVSS. The appeal was disposed of accordingly.

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