CESTAT Rules Assessable Value Must Be CIF with Air Freight Limited to 20% of FOB, Not Ex-Works [Read Order]

The New Delhi Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) ruled that assessable value must be based on CIF, with air freight limited to 20% of the FOB value, and not on ex-works prices.

Delphi Automotive Systems Pvt. Ltd., the appellant, imported goods under invoices issued on an ex-works basis. In the Bills of Entry filed, the ex-works price was wrongly declared as the FOB value. Since the goods were transported by air, the cost of air freight was calculated as 20% of the ex-works price instead of 20% of the FOB value.

This led to a short levy of duty amounting to Rs. 25,53,891. The Commissioner of Customs (Preventive), New Delhi, confirmed the duty demand and imposed penalties on the appellant company, its directors and employees, and associated logistics providers.

The appellant’s counsel argued that the error was a genuine mistake and not willful mis-statement. They submitted that all invoices clearly showed “ex-works” basis, and airway bills separately reflected the cost of local transport and freight. At the relevant time, there was no self-assessment, and all Bills of Entry were assessed by customs officers who had access to the same documents.

The counsel argued that since no facts were concealed and all documents were placed before the department, the extended period of limitation under section 28 of the Customs Act could not be invoked, and penalties under sections 114A and 114AA were not sustainable.

The revenue counsel argued that the appellants had mis-declared the ex-works value as FOB value to reduce their duty liability. It was argued that importers commonly deal with ex-works contracts and normally add local transport charges separately to arrive at FOB value.

The revenue pointed out that Delphi Automotive Systems had full knowledge of the nature of its invoices and payments and yet chose not to declare the values correctly. On this basis, the revenue submitted that the mis-statement was willful and penalties were justified.

The two-member bench comprising Justice Dilip Gupta (President) and P.V. Subba Rao (Technical Member) examined the case. The tribunal observed that the duty must be levied on CIF value, and for imports by air, the cost of transport is restricted to 20% of the FOB value.

The tribunal observed that in this case ex-works prices were treated as FOB, which was incorrect and led to undervaluation. The tribunal also observed that all the Bills of Entry were assessed by officers of customs, who had access to the invoices and airway bills showing the true basis of the transaction. There was no evidence of collusion or concealment.

The tribunal pointed out that both the appellants and the assessing officers treated ex-works values as FOB values out of an honest mistake. The tribunal explained that since there was no willful mis-statement or suppression of facts, the extended period of limitation under section 28 could not be invoked. As the entire demand fell within the extended period, the duty demand and penalties could not be sustained.

The appeals were allowed, and the impugned order was set aside with consequential relief to the appellants.

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