CESTAT Upholds Declared FOB Value But Restores Penalty For Mis-Declaration of Fabric and Corrects Drawback/ROSCTL Benefits
Pranav B Prem
The Principal Bench of the Customs, Excise & Service Tax Appellate Tribunal (CESTAT), New Delhi has partially allowed the customs department’s appeal in a dispute involving export valuation and incentive claims raised against Ludhiana-based exporter M/s Om Udyog. While upholding the declared Free on Board (FOB) value of the exported knitted garments, the Tribunal restored the penalty imposed under Section 114(iii) of the Customs Act and directed correction of the Drawback and ROSCTL incentives on account of admitted mis-declaration of fabric composition.
The case stemmed from four shipping bills filed on 7 October 2023 for export of men’s knitted garments to Dubai. During preventive examination, customs officers detained the consignments on suspicion of overvaluation. Subsequent lab reports from the Central Revenue Control Laboratory (CRCL) confirmed that the garments were made of a polyester-cotton blend, contrary to the exporter’s declaration of 100 percent cotton. While the goods were released for export on bond, the Joint Commissioner later re-determined the value of the goods, confiscated the export consignments, imposed penalties under Sections 114(iii) and 114AA, and revised the Drawback and ROSCTL incentive rates on the basis of the blended fabric composition.
On appeal, the Commissioner (Appeals) set aside the entire order, finding that the undervaluation findings were based on a market enquiry conducted without adherence to Rule 8 of the Export Valuation Rules, and that receipt of full export proceeds through Bank Realisation Certificates validated the declared FOB value. The Revenue challenged this decision before the CESTAT.
After reviewing the record, the Tribunal agreed that the customs authorities failed to follow the statutory procedure for rejecting the declared value under Rule 8, as no reasons were recorded, no additional information was sought from the exporter, and the transaction value was discarded without fulfilling the mandatory prerequisites. Since supplier confirmations and Bank Realisation Certificates supported the transaction value, the Tribunal held that the declared FOB value could not be interfered with. It also noted that export prices may legitimately exceed domestic market prices and that market enquiries cannot override documentary evidence when the transaction value stands supported.
However, the Tribunal found that the Commissioner (Appeals) had ignored the proven mis-declaration of fabric composition. As the CRCL report was undisputed and accepted by the exporter, the Tribunal held that the correct serial numbers under the Drawback and ROSCTL schedules must be applied to reflect the blend of polyester and cotton rather than 100 percent cotton as declared. This error made it necessary to restore the re-determination of export incentive entitlements carried out by the Joint Commissioner.
On the issue of confiscation and redemption fine, the Tribunal clarified that even though export goods were liable to confiscation due to mis-declaration, no fine could be sustained as the goods had already been exported under provisional release and the bond executed did not bind the exporter to pay fine in lieu of confiscation.
Regarding penalties, the Tribunal declined to restore the penalty imposed under Section 114AA because the record did not establish that the mis-declaration of fabric composition was done knowingly or intentionally, which is a necessary element under that provision. However, the Tribunal held that penalty under Section 114(iii) remained valid because mis-declaration of the nature of the fabric rendered the goods liable to confiscation under Section 113, and actual confiscation is not a prerequisite for imposing such a penalty. Consequently, the penalty of ₹2 lakh originally imposed by the Joint Commissioner under Section 114(iii) was restored.
In conclusion, the Tribunal upheld the declared FOB value and affirmed that revaluation was unjustified, restored the correction of Drawback and ROSCTL benefits due to fabric mis-declaration, reinstated the ₹2 lakh penalty under Section 114(iii), and refused to revive the redemption fine and Section 114AA penalty. The appeal filed by the customs department was therefore partly allowed.
Appearance
Counsel For Appellant: Rajesh Singh, Authorized Representative
Counsel For Respondent: Prem Ranjan Kumar, Advocate
Cause Title: Commissioner Of Customs Versus M/s Om Udyog
Case No: Customs Appeal No. 51341 Of 2025
Coram: Hon’ble Mr. Justice Dilip Gupta (President), Hon’ble Mr. P.V. Subba Rao [Member (Technical)]
