Customs Officers Cannot Alter FOB Value as It Reflects Buyer-Seller Agreement: CESTAT [Read Order]

The Delhi Bench of Customs,Excise and Service Tax Appellate Tribunal(CESTAT)  held that customs officers cannot alter the FOB value of export goods, as it reflects the transaction value mutually agreed upon between the buyer and seller.

Mahajan Fabrics Private Limited,appellant-assessee,filed a shipping bill on 22.12.2018 at ICD Tughlakabad to export 598 cartons of readymade garments. The declared FOB value was Rs. 4.25 crore, with claims for drawback of Rs. 10.63 lakh and ROSL of Rs. 5.07 lakh.

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The SIIB officers suspected overvaluation to claim excess export incentives. After a market inquiry on 11.12.2018, they found the goods were overvalued. The declared value was rejected under Rule 8, and the value was re-determined as Rs. 2.09 crore under Rule 6 of the Valuation Rules, read with Section 14 of the Customs Act.

The Additional Commissioner passed an order on 28.12.2018, reducing the value, limiting the drawback and ROSL to the revised amount, and confiscating the goods with an option to redeem them on payment of Rs. 4 lakh fine.

The Commissioner (Appeals) later upheld this order. The assessee then appealed before the tribunal.

The two member bench comprising Justice Dilip Gupta(President) and P.V Subba Rao(Technical  Member) heard the counsel for the assessee and the authorized representative for the department and reviewed the records.

The main issue was whether the Commissioner (Appeals) was correct in upholding the Additional Commissioner’s order that re-determined the FOB value of the export goods under Rule 6 of the Valuation Rules and Section 14 of the Customs Act, 1962. It also considered if the Commissioner (Appeals) rightly upheld that drawback and ROSL should be paid on the value determined by the Additional Commissioner, and whether the confiscation, redemption fine, and penalty were justified.

The tribunal referred to a recent decision in Customs Appeal No. 50127 of 2024, which clarified that FOB value means the transaction value agreed upon by the buyer and seller for export goods. Customs officers had no power to alter this FOB value because it represented the contract price.

Section 14 of the Customs Act and related Valuation Rules allowed officers to reject declared values for assessing customs duties but did not allow them to change the actual transaction value (FOB).

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Export incentives like drawback and ROSL were to be paid as a percentage of the FOB value as notified by the government. No officer had authority to order these incentives based on any value other than the FOB value.

The appellate tribunal found that the Additional Commissioner erred in re-determining the FOB value and in ordering drawback and ROSL based on a different value. The confiscation and penalties were also questioned on this basis.

In conclusion, the bench held that only the transaction value agreed between buyer and seller could be treated as FOB value, and export incentives must be paid accordingly.

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The Additional Commissioner was not part of the contract and had no right to change the FOB value. He could not order drawback or ROSL payments based on his own value instead of the government-notified FOB value. The orders for confiscation, fines, and penalties were based on this wrong valuation and could not be upheld. The Commissioner (Appeals) had supported these orders, but that was set aside. The appeal was allowed.

To Read the full text of the Order CLICK HERE

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