FOB Value Agreed Between Buyer and Seller Cannot Be Changed by Customs Authorities: CESTAT [Read Order]

The Delhi Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) ruled that the FOB (Free on Board) value agreed between the buyer and the seller cannot be changed by Customs authorities, even if a re-determination is made for assessing duty.

Jayantah Trading Co., the appellant, is an exporter of readymade garments. The Directorate of Revenue Intelligence investigated the appellant on suspicion of exporting substandard garments and overvaluing them to claim excess duty drawback and export incentives.

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Based on this, the department issued a show cause notice proposing to reclassify goods, re-determine the FOB value from Rs. 2.49 crore to Rs. 61.93 lakh, confiscate goods, impose redemption fine and penalties, and adjust pending duty drawback and export incentives against these penalties.

The department’s counsel argued that the appellant had overvalued its export goods to claim higher incentives and justified the re-determination of FOB value based on market inquiries under the Customs Valuation Rules, read with Section 14 of the Customs Act, 1962. They further argued that the re-determined value should be the basis for calculating duty drawback and export incentives.

The appellant’s counsel argued that FOB value represents the transaction value agreed between the buyer and the seller, and Customs officers have no authority to modify this value for the purpose of determining export incentives. The counsel pointed out that the appellant had received full remittance matching the declared FOB value, proving the genuineness of transactions, and argued that the penalties and adjustments made by the department were unlawful.

The two-member bench comprising Justice Dilip Gupta (President) and P.V. Subba Rao (Technical Member) observed that Customs authorities can re-determine assessable value for the purpose of duty calculation under the Customs Valuation Rules and Section 14 but they do not have the power to alter the transaction value agreed between the buyer and the seller.

The tribunal explained that the transaction value remains valid for calculating duty drawback and export incentives, and Customs officers cannot substitute it with a value determined by them. The tribunal held that since Jayantah Trading Co. had received full remittance at the declared FOB value, the re-determination of the FOB value and the subsequent penalties and adjustments were unsustainable.

The tribunal set aside the impugned orders and allowed the appeal, granting consequential relief to Jayantah Trading Co. and its proprietor.

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