Customs, Excise & Service Tax Appellate Tribunal (CESTAT), New Delhi: In an appeal filed against the order passed by Commissioner of customs, the two-member Bench of Rachna Gupta (Judicial Member) and P.V. Subba Rao (Technical Member)* setting aside the order stated that in accordance with Section 76 (1) (b) of the Customs Act, 1962 (Customs Act), “No drawback due will be payable unless the amount of drawback which will be due on the goods itself, exceeds the market value of the goods”. The Tribunal held that as long as the drawback due is less than the market value of the goods, it is payable. The Tribunal further stated that the transaction value (FOB value) on which drawback has to be paid need not be the same as the market value of the goods.
Background:
The Appellant filed two shipping bills for export of goods and declared free on- Board value (FOB value) of Rs. 4,10,52,321 in bills which was about Rs. 274.13 per piece. Receiving intelligence these goods were overvalued in order to claim excess benefits of drawback, Refund of State Levies (ROSL), Merchandise Exports from India Scheme (MEIS) & IGST refund, the Special Intelligence and Investigation Branch of the Commissionerate (SIIB) examined the goods under a panchnama. The officers conducted market enquiry to determine the market price of export goods and concluded the value between Rs. 45 to 65.
A show cause notice was issued to the appellant proposing to reject the FOB value declared by the appellant under Rule 8 of the Customs Valuation (Determination of Value of Export Goods) Rules, 2007 (Valuation Rules) and re-determine their value under Rule 6 of the Valuation Rules. It was also proposed by them to confiscate the export goods under Section 113 (i) of the Customs Act and impose penalties under Section 114 (iii) and 114-AA of the Customs Act. These proposals were confirmed by Joint Commissioner and he imposed redemption fine in lieu of confiscation in accordance with Section 125 of the Act and penalties under Section 114 (iii) and Section 114-AA of the Customs Act. The decision was upheld by Commissioner of Customs (Appeals), New Delhi.
Appellant challenged that the re-determination of the value of the goods and the finding that the goods had been grossly over-valued in order to avail higher export benefits under MEIS and Drawback Schemes.
Analysis, Law and Decision:
The Tribunal noted that Section 14 of the Customs Act is meant for the purpose of Customs Tariff Act or any other law for the time being in force. It should be the transaction value of such goods, i.e., the price paid or payable for goods for export from India at the time and place of exportation. The Valuation Rules provide for conditions under which the transaction value can be rejected and the value can be determined by the officer following some other method. The Tribunal pointed out that the term FOB value is not defined in the Customs Act. It refers the transaction value where the exporter is ”free” once the goods are put on board the vessel or aircraft. It can thus be defined as the transaction value. “All costs and risks associated with the goods thereafter, are on the buyer’s account”.
The Tribunal stated that in rejecting transaction value under the valuation Rules, the proper officer does not change the transaction value but only refuses to accept the transaction value as the assessable value under Section 14 of the Customs Act and the Valuation Rules. The value determined by the officer will be the assessable value on which the export duty has to be paid. Similarly, if the transaction value on imported goods is rejected and the value is re-determined, then the value so re-determined by the proper officer will be the assessable value on which the duty should be paid. Transaction value cannot be varied by any officer as it is a product of negotiation and the subject of contract between the buyer and the seller. No stranger to the contract including any customs officer can change it.
The Tribunal pointed out that in the instant case there was no export duty on the goods which have been exported. Unlike the customs duty, which is determined on the assessable value, export benefits under drawback and MEIS are given as a percentage of the FOB value and not a percentage of the assessable value. Therefore, it is inconsequential whether the assessable value is re-determined by the proper officer or not when no export duty is to be paid. The export benefits will continue to be available as a percentage of the FOB value which is the transaction value. Perusing the Joint Commissioner’s order, the Tribunal noted that it was not explicit in the order if he re-determined the assessable value under Section 14 and the Export Valuation Rules or if he re-determined the FOB value.
The Tribunal explained that export goods are liable to confiscation if they do not correspond in value to the entry made under the Customs Act, i.e., the shipping Bill. “While the exporter can declare the transaction value which is the assessable value under Section 14, the proper officer has right to reject the transaction value and re-determine it following some other method”. The exporter has no right to reject his own transaction value or to re-determine the value following some other method. The only value which an exporter can reasonably be expected to declare in his shipping bill is his transaction value.
The Tribunal noted that from 10-10-2007, the Valuation Rules provided for rejection of transaction value and its re-determination of value through some other methods by the proper officer. If the proper officer re-determines the value, it shall be the transaction value. At the time the exporter filed the shipping bills, the only value available was the transaction value. The Tribunal held that goods would be liable to confiscation Section 113 (i) of the Customs Act when exporter declared its value different from its actual value and not in such case where the proper officer re-determines the value of goods. The Tribunal further noted that in accordance with Section 76 (1) (b) of the Customs Act the transaction value of the export goods need not be the market value of such goods in domestic market. The Tribunal stated that drawback is usually a percentage of the transaction value (FOB Value) depending on the type of goods. However, if the FOB value is so high that the drawback due on the goods exceeds the market value of the goods, then, as per Section 76 (1) (b), no drawback should be allowed.
The Tribunal held that in accordance with Section 76 (1) (b) of the Customs Act no drawback will be payable unless the amount of drawback that will be due on the goods itself, is more than the market value of the goods. It was further held that re-determination of the FOB value of the goods, confiscation of the goods under Section 113 (i) of the Customs Act, the redemption fine imposed under Section 125 of the Customs Act and the penalty imposed under Section 114-A of the Customs Act was held to be unsustainable. The Tribunal thus set aside the impugned order.
[Modak Dyeing & Printing Co. (P) Ltd. v. CCE, 2025 SCC OnLine CESTAT 2157]
*Order by: P.V. Subba Rao (Technical Member)
Advocates who appeared in this case:
For Appellant(s): R.K. Hasija, Advocate
For Respondent(s): Rajesh Singh, Authorised Representative