2024 (4) TMI 248 - AT - Customs

Iron ore export valuation must follow contractual terms and transaction value, not department-imposed alternative reports

Terapanth Foods Ltd. Versus Commissioner of Customs, Vijayawada And Shri Babulal Singhvi Director Versus Commissioner of Customs, Vijayawada

CESTAT Hyderabad held that export goods valuation must be based on transaction value between parties as per their contract terms. The appellant's iron ore ... Valuation of export goods on which duty has to be paid - iron ores - modification of transaction value between the buyer and seller based on the test report of the chemical examiner of CRCL when the price should be finalised as per the test report of CIQ as per the agreement between the buyer and seller - inclusion of additional consideration for sale. HELD THAT:- The value for the purpose of determining the duty is the transaction value subject to four conditions (a) that the sale is for delivery at the time and place of exportation; (b) buyer and seller are not related; (c) price is the sole consideration for sale; and (d) subject to other conditions which may be specified by the Rules. The proviso to this section indicates that in case of imported goods, the value of commissions and few other charges have to be included. However, it does not provide for inclusion of commissions in case of exports. The Customs Export Valuation Rules do not provide for addition of any amount to the negotiated price (Transaction Value) or any reduction from it where the parties are not related and the price is at arm’s length. If the transaction value has to be determined as per the contract based on the test report of CIQ, it has to be determined so. The test report by CRCL is not relevant to determining the transaction value. It is not for the department to substitute the requirement of test report of CIQ in the contract between the importer and its overseas supplier with the test report of CRCL. The export price is the transaction value subject to adjustment as per the clause in the contract between the parties. It is also found that it is not the case of Revenue that the appellant received anything over and above the transaction value or the amount mentioned in the final invoice on the basis of test report i.e. certification of quantity and quality at the discharge port, on the basis of report of the mutually agreed laboratory. Reduction of US$16 per MT from the invoice - HELD THAT:- Any compensation paid for any purpose under some other contracts, needless to say, cannot modify the transaction value in this contract. Therefore, the transaction value must be determined without deducting this amount of US$ 16 per MT. Since this compensation has been deducted from the invoice value, it must be added to determine the correct FOB value of the goods. The impugned order is accordingly modified to the extent that the FOB value shall be the transaction value as finalised between the appellant and its overseas buyer but without deducting the amount of US$ 16 per MT which was the compensation paid by the appellant with respect to some past transactions. Since the invoices have deducted this amount, the same needs to be added so that the correct FOB value is determined - There is no case to impose any penalty on the appellant and accordingly all penalties are set aside. The matter is remanded to the Adjudicating Authority for the limited purpose of arithmetical calculation of the duty - appeal allowed. Issues Involved:1. Classification of Iron Ore particles.2. Finalization of Provisional Assessment.3. Determination of Transaction Value.4. Imposition of Penalty.Summary:Classification of Iron Ore Particles:The Tribunal addressed the classification of Iron Ore particles under Tariff item No. 26011130, considering particles of size more than 10 mm as Iron Ore Fines. Consequently, the demand of Rs. 7,21,149/- for classifying the goods as Iron Ore Lumps was dropped.Finalization of Provisional Assessment:U/s 18 of the Customs Act, 1962, the provisional assessment of Shipping Bill No. 312/10-11 was finalized, demanding Customs duty of Rs. 8,16,059/-. Interest on this amount was also demanded u/s 18(3) of the Customs Act, 1962.Determination of Transaction Value:The Tribunal examined the transaction value of the export goods and concluded that the export price should be based on the transaction value agreed upon in the contract between the exporter and the overseas buyer, which was supported by the CIQ report. The Tribunal held that the test report by CRCL was not relevant for determining the transaction value. However, the deduction of US$ 16 per MT from the invoice as compensation for previous consignments was not accepted, and this amount was added back to determine the correct FOB value.Imposition of Penalty:The Tribunal found no case of fraud or misdeclaration. Consequently, the penalties imposed on the exporter and the Director u/s 114A and 114(ii) of the Customs Act, 1962 were set aside. The show cause notice issued u/s 28 was deemed invalid as the final assessment was yet to be made.Conclusion:The appeals were allowed, and the impugned order was modified to reflect the correct FOB value without the deduction of US$ 16 per MT. The matter was remanded to the Adjudicating Authority for arithmetical calculation of the duty. No penalties were upheld.