Customs valuation rule on air imports limits freight to 20% of FOB value and bars penalty absent misdeclaration.

Where the relevant cost is ascertainable for air-imported goods, freight under Rule 9(2) of the Customs Valuation Rules is capped at 20% of the FOB value. On that basis, enhancement of value beyond the cap was not justified. The explanation for the invoice entry was accepted, and the finding that the import of second-hand capital goods was for actual use, without contravention of the EXIM policy or Handbook of Procedure, negatived any basis for misdeclaration. Confiscation and penalty were therefore unsustainable, and the impugned order was set aside with consequential relief.

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Issues: Whether, in valuing air-imported goods, freight could be restricted to 20% of the free on board value under Rule 9(2) of the Customs Valuation Rules; and whether confiscation and penalty were warranted when the import was for actual use and no contravention of the EXIM policy was found.

Analysis: The proviso to Rule 9(2) makes it clear that where the cost referred to in clause (a) is ascertainable, the freight element in the case of goods imported by air cannot exceed twenty per cent of the free on board value. Since the relevant cost was ascertainable, the freight had to be so restricted. The explanation regarding the invoice entry was accepted, and the finding of no contravention under the EXIM Policy and Handbook of Procedure for import of second-hand capital goods for actual use negatived any basis for alleging misdeclaration or imposing punitive consequences.

Conclusion: The enhancement of value and freight beyond the 20% cap was not justified, and confiscation and penalty were unsustainable.

Final Conclusion: The impugned order was set aside and the assessee obtained consequential relief.

Ratio Decidendi: Where the relevant cost is ascertainable in air imports, freight is capped at twenty per cent of FOB value under the valuation rule, and in the absence of contravention or misdeclaration, confiscation and penalty cannot be sustained.

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