The Delhi Bench of Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that no stranger to the contract, including any Customs officer has any right to interfere with the FOB value of goods.
The bench of Justice Dilip Gupta (President) and P. V. Subba Rao, (Technical Member) has observed that FOB value is the transaction value, i.e., the price paid or to be paid for the goods as decided between the exporter and the overseas buyer. The Customs Act does not empower any officer to modify the FOB value of goods.
The three exporters filed the shipping bills to export garments in the Inland Container Depot, Tughlakabad. The officers of the Directorate of Revenue Intelligence forwarded to the Principal Commissioner of Customs, ICD, TKD a letter sent by the Deputy Director of Income Tax (Investigation) New Delhi. In this letter, Income Tax reported that there was a surge in export activity and receipt of drawback, Merchant Exports Incentives Scheme (MEIS) and Refund of State Levies Scheme (ROSM) Scheme during 2017-18.
The drawback is a scheme by which the Customs Department refunds to the exporter the taxes incurred in manufacture of the exported goods. This is done on an average basis as per the drawback schedule in which the exporters are paid a certain percentage of Free on Board value of exports as drawback.
The MEIS scheme is an incentive scheme operated by the Director General of Foreign Trade under the Foreign Trade Policy which also gives an incentive for merchandise export as a percentage of FOB value.
The ROSL scheme is also operated by the DGFT under which amounts are paid as a percentage of the FOB value towards reimbursement of state levies incurred on the exported goods.
In other words, all the three schemes – one operated by the department by the Customs and two operated by the DGFT – provide incentives for exports as a percentage of FOB value.
Acting on the letter of the DRI, the officers of Special Intelligence and Investigation Branch of ICD, TKD examined the export goods covered by three shipping bills of M/s Aastha Apparels Pvt. Ltd. and two shipping bills of M/s JBN and found that the goods and their details matched with the shipping bills. The officers of ICD Pipava examined the goods covered by three shipping bills filed by M/s JBB and also found the goods matched with the declaration.
However, on the suspicion that the goods were overvalued, they were seized and later provisionally released on bond and were allowed to be exported. Samples of the seized goods were taken to the market to enquire about their value. Summons were issued and statements were recorded and proceedings were initiated on the suspicion that the goods were overvalued.
The appellants had waived the requirement of show cause notice but made written submissions and attended personal hearings. After considering the submissions, the Joint Commissioner passed the Order in Original dropping all proceedings.
The department filed appeals before the Commissioner (Appeals) on the grounds that the investigations by income tax showed four export firms including the three appellants herein were involved in trade related money laundering without proper stock in books of account and manipulated purchase bills. The companies from whom they had claimed to have purchased the export goods were found not to exist by the Punjab GST authorities.
The Commissioner (Appeals) passed the impugned order accepting the valuation in respect of all the shipping bills and releasing the bonds and bank guarantees pertaining to redemption fine and penalty. However, he ordered that admissible export benefits in the 8 shipping bills need to be re-determined based on the investigation and the evidence available with the exporters and for that purpose remanded the matter to the Joint Commissioner.
The court held that the exporters had overvalued their goods so as to claim excess export benefits. The department wants the FOB values to be re-determined and accordingly the export incentives to be recomputed.
What is FOB value?
All three export benefits in question in these appeals are to be paid as the percentage of the FOB value of the goods. FOB is one of the internationally accepted terms of commerce known as INCOTERMS which determine the rights and liabilities of the buyer and seller in a transaction.
If goods are agreed to be sold on FOB basis, the exporter is free once the goods are put on board the vessel and all risks and costs associated with transporting them up to destination thereafter is on account of the importer.
Similarly, C & F is an INCOTERM in which in addition to the value of the goods the cost of freight is also to be borne by the exporter and CIF is a term under which the cost, freight as well as the transit insurance are to be borne by the exporter.
Business contracts are entered into under FOB, C&F or CIF basis or as per as per any other INCOTERMS. For instance, for a consignment, the parties may agree the goods will be sold for US$ “X” on FOB basis and that settles the rights and liabilities of the buyer and seller in the transaction. In short, FOB value is the transaction value of the goods agreed to between the buyer and the seller.
The tribunal held that the FOB value cannot be modified by anyone including any Customs officer. Nothing in the Customs Act confers any power on anyone to modify the transaction value between the buyer and seller- be it FOB, C&F or CIF or on any other terms.
The CESTAT set aside the order and restored the order of the Joint Commissioner upholding the declared FOB values with the modification that the FOB values stand accepted because the officer had no power to modify the FOB values nor any power to direct that the export incentives should be paid on some other values.
Case Details
Case Title: M/S JBN Apparels Pvt Ltd Versus Commissioner Of Customs-New Delhi
Case No.: Customs Appeal No. 50127 Of 2024
Date: 07/03/2025
Counsel For Appellant: Mukeshwar Nath Dubey
Counsel For Respondent: Shashi Kant Sharma
