Customs Officer Not Empowered To Interfere With FOB Value Of Goods: CESTAT
Pranav B Prem
In a significant ruling, the Delhi Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) clarified that the Free on Board (FOB) value of export goods, as mutually agreed between an exporter and a foreign buyer, is sacrosanct and cannot be modified by customs officers. The Tribunal ruled that the Customs Act does not empower any officer to alter the FOB value, which forms the basis for calculating export incentives.
The ruling came in appeals filed by M/s Aastha Apparels Pvt. Ltd., M/s JBN Apparels Pvt. Ltd., and M/s JBB Apparels Pvt. Ltd., challenging the order of the Commissioner (Appeals), who had accepted their declared FOB values but remanded the matter for redetermination of export incentives.
Background and Allegations
The appeals stem from export consignments of garments filed at the Inland Container Depot (ICD), Tughlakabad by the three appellants. A letter forwarded by the Directorate of Revenue Intelligence (DRI) to the Principal Commissioner of Customs, ICD TKD, conveyed concerns raised by the Income Tax Department about a sudden surge in exports and the receipt of incentives such as Drawback, the Merchandise Exports from India Scheme (MEIS), and the Refund of State Levies (ROSL) Scheme during 2017-18.
The Income Tax authorities alleged that the exporters had overvalued their goods to claim excessive incentives, and that the firms from whom the goods were purchased did not exist as per Punjab GST authorities. Acting on these inputs, officers of the Special Intelligence and Investigation Branch (SIIB) conducted physical examinations of the shipments. Despite the goods matching the shipping bills, they were seized on suspicion of overvaluation and later released provisionally against bond.
Samples were reportedly taken to local markets for valuation, and statements were recorded during the inquiry. However, the exporters voluntarily waived their right to a Show Cause Notice and submitted written responses during personal hearings.
Order by Joint Commissioner
The Joint Commissioner, after evaluating the submissions and evidence, passed an Order-in-Original dropping all proceedings against the appellants. He found no legal basis to reject the declared FOB values or deny incentives based on the same.
Commissioner's Partial Relief and Remand
The Revenue appealed against the Joint Commissioner’s order. The Commissioner (Appeals) upheld the FOB values declared in all eight shipping bills and ordered the release of the bonds and bank guarantees. However, he remanded the matter to the Joint Commissioner to re-determine the admissible export benefits, citing the Income Tax investigation findings and the alleged fictitious nature of the suppliers.
CESTAT's Final Ruling
The Tribunal, comprising Justice Dilip Gupta (President) and P.V. Subba Rao (Technical Member), allowed the appeals and set aside the remand. It held unequivocally that the FOB value is a transaction value agreed between the exporter and the overseas buyer and cannot be altered by any Customs officer.
Quoting directly from the order: “FOB is one of the internationally accepted terms of commerce known as INCOTERMS... Once the goods are put on board the vessel, all risks and costs are borne by the importer. The transaction value is the price actually paid or payable, and under Section 14 of the Customs Act, it is this value that should be adopted.”
The Tribunal emphasized that none of the provisions of the Customs Act empower Customs officers to interfere with the transaction value, whether it is FOB, C&F, or CIF. It observed: “No officer has the power to modify the transaction value between buyer and seller... There is no legal basis for the Commissioner (Appeals) to direct redetermination of export incentives based on a value other than the declared FOB.”
Significance of FOB Value in Export Incentives
The Tribunal underlined that all three incentive schemes—Drawback, MEIS, and ROSL—are computed as a percentage of the FOB value. Hence, tampering with the FOB value would directly affect the quantum of legitimate incentives available to exporters.
The Drawback scheme, operated by the Customs Department, refunds duties suffered during manufacturing, calculated as a percentage of FOB.
The MEIS, operated by the Director General of Foreign Trade (DGFT), incentivizes merchandise exports also as a percentage of FOB.
The ROSL scheme, likewise operated by DGFT, reimburses State levies based on the FOB value.
Verdict
The CESTAT restored the Order-in-Original passed by the Joint Commissioner and rejected the Revenue’s contention for revaluation or re-computation of incentives. The Tribunal held that once the goods were examined and matched with the declarations, and there being no evidence of misdeclaration or misdescription, the FOB value had to be accepted. The order concluded: “The FOB value declared by the exporters must be accepted, and no Customs officer has the authority to interfere with it or to order payment of incentives based on any other value.”
Appearance
Shri Mukeshwar Nath Dubey, Mohd. Faraz Aneez, Shri P. Pathak and Shri Ajay Kumar, Advocates – for the appellant
Shri Shashi Kant Sharma, Authorized Representative (DR) – for the Department
Cause Title: M/S JBN Apparels Pvt Ltd V. Commissioner Of Customs-New Delhi
Case No: Customs Appeal No. 50127 Of 2024
Coram: Hon'ble Mr. Justice Dilip Gupta [President], Hon'ble Mr. P. V. Subba Rao [Member ( Technical )]
[Read/Download order]
