Pranav B Prem

The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Hyderabad Bench, has held that Customs authorities cannot revalue iron ore exports on the basis of differences in moisture content when the transaction value and final payment between the contracting parties remain undisputed. The Bench comprising Angad Prasad (Judicial Member) and A.K. Jyotishi (Technical Member) ruled that once the declared transaction value per metric tonne has been accepted and verified through banking and contractual documentation, any recomputation of quantity or value based on moisture variations has no legal justification under the Customs Act, 1962.

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Background

The appellant, M/s Feegrade & Co. Pvt. Ltd., had exported iron ore fines under contracts providing that the final price and quantity would be determined by the China Inspection and Quarantine (CIQ) test results at the discharge port. The export assessments were kept provisional pending receipt of the CIQ reports. Upon finalisation, the Customs Department relied instead on reports from the Central Revenue Control Laboratory (CRCL), which showed a lower moisture content than CIQ results. This substitution effectively altered the quantity of dry material and reduced the refund claim of the exporter.

Feegrade argued that the Department’s action was contrary to both the contractual terms and the Export Valuation Rules, as the CIQ analysis had been agreed upon as final between the buyer and seller. The appellant maintained that the price realised matched the Bank Realisation Certificate (BRC) and the final commercial invoices, leaving no basis for Customs to question the transaction value. It contended that in ad valorem export duties, any recomputation of value based on moisture percentage was legally impermissible.

Findings of the Tribunal

The Tribunal found that the transaction value was never disputed by the Department. It observed that Customs had no authority to substitute the CIQ findings with its own laboratory report in the absence of valid reasons for rejecting the declared value. “When the transaction value and payment are accepted, the Department cannot alter the assessable value merely on account of moisture variation,” the Bench observed. “Since export duty is ad valorem, the question of recomputing value on the basis of moisture content does not arise.”

The Tribunal emphasised that the CIQ analysis formed an integral part of the commercial contract and was binding on both parties. Ignoring these contractual terms amounted to a violation of the agreed pricing mechanism. The Bench further noted that Customs could not replace CIQ results with CRCL data without following the statutory procedure of rejecting the declared value under the Customs Valuation (Determination of Value of Export Goods) Rules, 2007.

Refund Entitlement and Revenue Deposit

The Tribunal also held that the 20% deposit made by Feegrade during the period of provisional assessment constituted a revenue deposit, not a payment of duty. As such, the exporter was entitled to a refund with interest under Section 18(4) of the Customs Act, 1962, if any excess amount was found to have been paid after the finalisation of assessment.  “The 20% deposit during provisional assessment was a revenue deposit and not duty. The appellant is entitled to refund with applicable interest,” the order stated.

Tribunal’s Directions

Accordingly, the Hyderabad Bench allowed the appeals filed by Feegrade and directed the Visakhapatnam Customs Department to:

• Recalculate the refund amount based on the accepted transaction value, ignoring moisture-based recomputation; and

• Pay statutory interest on the admissible refund within two months of the order, in compliance with Section 18(4) of the Customs Act.

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By declaring moisture-based revaluation invalid, the CESTAT reaffirmed that once the transaction value and export proceeds are verified and accepted, Customs authorities cannot alter the valuation based on internal laboratory tests or physical variations in moisture. The order, which disposes of a batch of connected appeals, reinforces the principle that export valuation must rest on contractual and transactional evidence, not post facto technical reinterpretations by the Department.The appeals were allowed by remand, with consequential reliefs to be granted in accordance with law.

Appearance

Shri S.C. Choudhury, Advocate for the Appellants.
Shri K. Sreenivasa Reddy, Authorised Representative for the Respondent.

Cause Title: M/s Feegrade And Co Pvt Ltd. Versus Customs Commissioners 

Case No: Customs Appeal No. 20970 of 2015

Coram: Angad Prasad (Judicial Member), A.K. Jyotishi (Technical Member)