Classification of drilled diamonds as worked goods sustained confiscation, while penalty was set aside and fine reduced

Drilling of imported diamonds was treated as "working" of precious stones under Heading 71.02(5), because the Explanatory Notes recognise drilling as a working process. The goods were therefore not unworked or uncut diamonds under Heading 71.02(2), and the import licence did not cover them. On that classification, confiscation was sustained. However, the penalty was set aside because the classification issue was debatable, and the redemption fine was reduced as excessive in the circumstances.

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Issues: Whether drilled diamonds imported as rough diamonds were classifiable as "worked" diamonds under Heading 71.02(5) of the Customs Tariff Schedule, and whether the consequential confiscation, redemption fine, and penalty were sustainable.

Analysis: The classification turned on whether drilling constituted "working" of diamonds. The Explanatory Notes to the Customs Cooperation Council Nomenclature specifically treat drilling as one of the processes by which precious and semi-precious stones are worked. On that basis, drilled diamonds could not be treated as unworked or uncut diamonds under Heading 71.02(2). Since the goods were correctly classifiable as worked diamonds, the import licence did not cover them and confiscation followed. The redemption fine was considered excessive in the circumstances, and the penalty was found unjustified because the classification issue was debatable.

Conclusion: The drilled diamonds were rightly treated as worked diamonds under Heading 71.02(5); confiscation was sustained, the penalty was set aside, and the redemption fine was reduced.

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