Transaction value of rough diamonds cannot be rejected without reliable contemporaneous proof of misdeclaration and culpable conduct.

Declared transaction value of imported rough diamonds could not be rejected on the basis of a disputed expert panel report alone, where the record showed inconsistencies in the valuation exercise and no contemporaneous evidence of fake invoices or a relationship affecting price. On that basis, the alleged misdeclaration failed, and confiscation under Sections 111(d) and 111(m) of the Customs Act also fell away because no reliable proof of forgery, fabrication, or other legal contravention was established. For the same reason, personal penalties under Section 112 on the directors and proprietor could not survive absent proved culpable participation. The impugned order was set aside, with consequential relief.

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Issues: (i) whether the allegation of misdeclaration of value of the imported rough diamonds was sustainable; (ii) whether the goods were liable to confiscation under the Customs Act, 1962; and (iii) whether personal penalties on the directors and proprietor were sustainable.

Issue (i): whether the allegation of misdeclaration of value of the imported rough diamonds was sustainable

Analysis: The valuation adopted by the department rested entirely on the report of the GJEPC expert panel. The record, including the cross-examination of panel members, disclosed material inconsistencies on whether international comparable prices were examined, whether the whole consignment or only samples were inspected, whether all members were present, whether the country of origin mattered, and whether written valuation notes existed and were signed. The report was also found to be procedurally unreliable as it was not signed by all members and did not inspire confidence as a conclusive basis for rejecting the declared price. No contemporaneous evidence was produced to show that the invoices were fake, fabricated, or unsupported by any relationship between importer and supplier. In such circumstances, the declared transaction value could not be displaced on the basis of a discrepant expert opinion alone.

Conclusion: The allegation of misdeclaration of value was not established and was decided in favour of the appellants.

Issue (ii): whether the goods were liable to confiscation under the Customs Act, 1962

Analysis: Confiscation under Section 111(d) and Section 111(m) had been founded on the alleged overvaluation and on the supposed violation of the import conditions. Once the valuation foundation failed, the alleged misdeclaration and the resulting confiscatory consequences also failed. The Tribunal also held that the reference to the foreign trade declaration requirements could not sustain confiscation in the absence of proof that the appellants were the owners, had filed a Bill of Entry, or had committed any legally established contravention. The imported rough diamonds were accompanied by Kimberley Process Certificates, and there was no reliable evidence of forgery, fabrication, or deliberate wrongdoing attributable to the appellants.

Conclusion: The goods were not liable to confiscation under Section 111(d) or Section 111(m) of the Customs Act, 1962, and this issue was decided in favour of the appellants.

Issue (iii): whether personal penalties on the directors and proprietor were sustainable

Analysis: Penalty under Section 112 requires a legally sustainable basis for the alleged contravention and a finding of culpable participation. Since misdeclaration was not proved and the confiscation provisions did not survive, the foundation for penalty disappeared. The Tribunal further noted the absence of affirmative evidence attributing intentional misdeclaration, procurement of false certification, or any other actionable role to the appellants. In the absence of a proved contravention, the penal orders could not stand.

Conclusion: The penalties were unsustainable and were set aside in favour of the appellants.

Final Conclusion: The impugned order was set aside, the appeals succeeded, and the goods were directed to be released or re-exported in accordance with law, with consequential reliefs.

Ratio Decidendi: Transaction value cannot be rejected, and confiscation or penalty cannot be sustained, unless the department proves misdeclaration with reliable affirmative contemporaneous evidence rather than a disputed expert valuation alone.

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