Customs Officer being Stranger to Sale Contract cannot re-determine FOB Value: CESTAT [Read Order]

Recently, the New Delhi Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) has held that only parties to a contract of sale — namely, the buyer and seller — have the authority to determine the transaction value of goods. The Tribunal categorically stated that customs officers or any other third party cannot re-determine the Free on Board (FOB) value declared in the shipping documents without concrete documentary evidence.

FOB is one of the recognized INCOTERMS used in international trade, which clearly delineates the responsibilities, costs, and risks between the buyer and the seller. Under FOB terms, the seller’s responsibility ends once the goods are loaded onto the shipping vessel or aircraft. Beyond that point, all costs and liabilities fall on the buyer.

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The Tribunal emphasized that unless there is documentary proof indicating that the FOB value declared in the Shipping Bill is inaccurate, customs authorities are bound to accept the declared value. It further clarified that the Customs Act and the Rules do not authorize customs officials to alter the transactional value agreed upon by the contracting parties — whether the export is made on FOB, CIF, or C&F basis.

The ruling came in a case where an exporter had filed a Shipping Bill for exporting oil filters, declaring an FOB value and paying IGST without claiming state levies, while availing benefits under the Merchandise Exports Incentive Scheme (MEIS). Customs officials alleged overvaluation of goods to secure higher IGST refunds and MEIS incentives, leading to the detention of goods and re-determination of the FOB value by the Additional Commissioner. The goods were also confiscated.

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The exporter challenged the decision, arguing that the confiscation and penalties were imposed without following due process, including the issuance of a show cause notice and personal hearing, contrary to Section 124 of the Customs Act.

In its judgment, the CESTAT Bench comprising President Justice Dilip Gupta and Technical Member P.V. Subba Rao found no basis for the re-determined value, noting that neither the exporter nor customs officers can predict or declare any alternate transactional value at the time of filing the Shipping Bill.

The Tribunal concluded that there was no misdeclaration by the exporter and allowed the appeal, setting aside the orders of both the Additional Commissioner and the Commissioner (Appeals).

To Read the full text of the Order CLICK HERE

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