The Delhi Bench of Customs, Excise and Service Tax Appellate Tribunal (CESTAT) in the case of IPM India Wholesale Trading Private Limited Versus Principal Commissioner Of Customs restricted addition of amount shown under ‘add.recov.freight’ in assessable value to 20% of Carriage Paid To (CPT) value shown in invoices.
The bench of Justice Dilip Gupta (President) and P. V. Subba Rao (Technical Member) has observed that it is not towards air freight and air freight has already been included in the CPT price, then, this amount cannot be included in the assessable value at all as there is no assertion by either side that it represents some other cost which is includable in the assessable value as per rule 10. This will reduce the duty payable on the goods.
The appellant/assessee imports and sells cigarettes. It imported MARLBORO GOLD brand cigarettes manufactured by Philip Morris Philippines Manufacturing Inc. from Philip Morris Products S.A. Switzerland.
According to the appellant, it had entered into an agreement with PMPSA who bought cigarettes from PMPI and sold to the appellant but shipped the cigarettes directly from PMPI in the Philippines to the appellant in India. PMPI raised an invoice on PMPSA while PMPSA raised an invoice on the appellant.
The appellant stated that it bought cigarettes on ‘Carriage Paid To’ (CPT) basis from PMPSA which, as per the internationally accepted terms of trade called as INCOTERMS, means the seller will be responsible to supply the goods and to arrange for and pay for the freight.
CPT is the same as INCOTERM Costs & Freight (C&F). According to the appellant, during COVID pandemic, the shipping lines and routes were disrupted and therefore, it could not ship cigarettes and therefore, imported them through air cargo incurring much higher cost towards the freight over and above the price which it had paid to PMPSA for the cigarettes on CPT basis.
On a specific query from the bench, learned counsel for the appellant clarified that although the appellant’s agreement was for price on CPT basis but no shipping had to be arranged (because it had imported them by air), no reduction was made towards the cost of shipping and the appellant paid the full amount and paid an additional amount to its supplier towards air freight.
This additional amount is shown in the invoices of its supplier PMPSA as “Add. Recov. Freight”. PMPI showed this additional amount in its invoices raised on PMPSA which, in turn, showed it in its invoices raised on the appellant.
It needs to be pointed out that while PMPI billed PMPSA in US$, PMPSA, in turn, invoiced the appellant in equivalent Indian Rupees.
The appellant self-assessed the imported goods including the additional amount paid as ‘Add.Recov.Freight’ in the value in the Bills of Entry. Later, realising that air-freight could not have been included in the value beyond 20% of the FOB value as per the fifth proviso to Rule 10 of the Customs Valuation (Determination of value of Imported goods) Rules, 2007 and the additional amount paid towards air freight was much more, it filed appeals to the Commissioner (Appeals) seeking modification of its self-assessment.
The issue raised was whether the appellant is entitled to the benefit of the fifth proviso to rule 10 of the Valuation Rules or not. If the appellant is entitled to the benefit of this proviso, then only air freight incurred by it to the extent of 20% of FOB value can be included in the assessable value and accordingly, the duty needs to be reassessed in all the 70 Bills of Entry.
The tribunal held that value on CPT basis was for transport by ship and although the goods were not transported by ship but were flown through air cargo for which an additional amount was paid, the appellant had paid the full amount indicated as CPT for the cigarettes to PMSA. If that be the case, the price has effectively been increased and the so called CPT price has become the defacto FOB price. The addition of the amount shown under ‘Add.Recov.Freight’ in the assessable value may be restricted to 20% of the CPT value shown in the invoices.
The tribunal allowed all the appeals and remand the matter to the original authority for re-determining the duty payable on all the Bills of Entry.
Case Details
Case Title: IPM India Wholesale Trading Private Limited Versus Principal Commissioner Of Customs
Case No.: Customs Appeal No. 52319 Of 2022
Date: 10/12/2024
Counsel For Appellant: B.L. Narasimhan
Counsel For Respondent: S.K. Rahman
