Value of Export Goods is FOB Value as per S. 14 of Customs Act: CESTAT sets aside Notice Issued in absence of Mis-declaration of Goods [Read Order]

The Hyderabad bench of the Customs, Excise and Service Tax Appellate Tribunal ( CESTAT ) has observed that value of export goods are transaction value as per Section 14 of Customs Act, 1962 and set aside the notice issued under customs act demanding penalty in absence of misdeclaration of goods.

Terapanth Foods Ltd and Shri Babulal Singhvi, the appellant challenged the order passed by the Commissioner of Customs ( Preventive ), V whereby he confirmed the proposals made in the show cause notice issued to them. The exporter is assailing the entire impugned order and Shri Babulal Singhvi is assailing the penalty imposed on him in the impugned order.

The exporter entered into a contract with M/s Swiss Singapore Overseas Enterprises Pvt Ltd., Singapore to export 50,000 Metric Tonnes of Iron Ore fines (Wet Metric Tonne Basis) (+/– 10% at seller’s option).  The contract provided for a price to be paid @ US$ 114.00 per Dry Metric Tonne of Iron Ore fines on CFR Main Port, China basis, on the basis of 61% Fe per US$103 per DMT CFR Main Port, China on the basis of 60% Fe Article 10 provided for price adjustment. 

As per Article 14B weighing was to be done at discharging port and as per Article 15 weight and moisture content was to be determined by CIQ.  The weight thus, determined shall be basis for final invoice.  Article 15 also provided the percentage of moisture loss at the time of loading and discharge will be ascertained at 105 cg.

It also provided for adjustment of the price based on the Fe content and the impurities based on the test report of a testing agency viz., CIQ, China. CFR ( also known as C&F ) is one of the standard agreements of trade where the price includes the cost of the goods as well as the cost of the freight upto the port indicated therein, but not the transit insurance.

Appellants paid customs duty of Rs. 94,86,065/- and provisional assessment was done after Appellants furnished the provisional duty bond and undertaking.  At the port of discharge Quality Certificate and Inspection certificate were issued by Entry-Exit Inspection and Quarantine of the People’s Republic of China, certifying FE content 60.40% and moisture 4.47% WMT 48,932 and 46,744.740 DMT.

Show Cause Notice based on DRI investigation was issued to the Appellants proposing to reject the FOB value of USD 40,40,922.20 exported  and to redetermine at USD 48,53,066.20 for 46,744.74 DMT of goods actually exported as per the final invoice, Confiscation of 46,744.74 DMT, Demand of differential customs duty of Rs. 19,06,508/- in terms of Section 28(1)/28(4) of the Customs Act, 1962. Further proposed the imposition of penalty under Section 114A of the Customs Act. 

It was alleged that with mutual understanding the appellant reduced the price by 16 USD PDMT than the actual negotiated FOB price it is urged that the buyer has retained the amount @ 16 USD per tonne as compensation for earlier exports made by the appellant and there was dispute between the parties with regard to quality and final price. 

It was stated that there is no evidence of contemporary export price for similar and identical export of goods to show that the export price of USD 114 PDMT was less than contemporary export price for similar/identical goods exported at the same point of time.  Further, there is no allegation that the foreign buyer paid any excess amount other than billed in the final invoice by the appellants.

Further submitted that the cost of freight and transit insurance are not part of transaction value at the port of export ( in India ) it includes only FOB ( Freight on Board ) value.  This is the value for the purpose of Section 14 and export duty must be calculated on this FOB value.  He further urgeD that the lab report of CRCL will prevail over the lab report at discharge port of the mutually agreed lab fixed by the parties. 

A two member bench of Mr Anil Choudhary, Member (Judicial) and Mr P V Subba Rao, Member ( Technical ) observed that as per Section 14 of the Customs Act, the value of export goods shall be the transaction value i.e. the price actually paid or payable for the goods when sold from India for delivery at the time and place of exportation ( FOB Value ).

Since no case of mis-statement or suppression is made out the Tribunal held that show cause notice issued under Section 28 is bad. Further modified the impugned order to the extent that the FOB value shall be the transaction value as finalised between the appellant and its overseas buyer but without deducting the amount of US$ 16 per MT which was the compensation paid by the appellant with respect to some past transactions.

The appeals were allowed and the impugned order was modified to the extent indicated above. The CESTAT remanded the matter to the Adjudicating Authority for the limited purpose of arithmetical calculation of the duty.

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