Air freight costs under Rule 10 limited to 20% of FOB value for customs duty assessment

CESTAT New Delhi allowed appellant's appeal by way of remand regarding 70 self-assessed Bills of Entry. The tribunal held that additional amount paid as "Add.Recov.Freight" represented air freight costs, not other includable expenses. Since invoices were raised on CPT basis for ship transport but goods were actually air-freighted, the CPT price effectively became FOB value. Under Rule 10 of Customs Valuation Rules 2007, only 20% of FOB value for air freight can be included in assessable value. Matter remanded to original authority for re-determination of duty liability accordingly.

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Issues Involved:

1. Entitlement to the benefit of the fifth proviso to Rule 10 of the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007.
2. Inclusion of "Add. Recov. Freight" in the assessable value.
3. Determination of FOB value for the purpose of customs duty assessment.

Issue-wise Detailed Analysis:

1. Entitlement to the Benefit of the Fifth Proviso to Rule 10:

The primary issue is whether the appellant is entitled to the benefit of the fifth proviso to Rule 10 of the Customs Valuation Rules, which limits the inclusion of air freight to 20% of the FOB value in the assessable value. The appellant argued that they imported cigarettes on a CPT basis, expecting them to be shipped by sea. However, due to disruptions caused by the COVID pandemic, they were forced to import the goods by air, incurring additional freight costs. The appellant contended that only 20% of the FOB value should be included in the assessable value for air freight, as per the rule.

The Tribunal found that the appellant's claim was valid, as the additional freight costs were indeed incurred due to the change from sea to air transport. The Tribunal concluded that the appellant was entitled to the benefit of the fifth proviso, allowing only 20% of the FOB value to be included in the assessable value.

2. Inclusion of "Add. Recov. Freight" in the Assessable Value:

The appellant included an amount termed "Add. Recov. Freight" in the value declared in the Bills of Entry. This amount was an additional cost incurred due to air freight. The Revenue argued that this amount was not solely for freight and could not be limited to 20% of the FOB value.

The Tribunal examined the invoices and found that the "Add. Recov. Freight" was indeed related to the additional air freight costs. The Tribunal rejected the Revenue's contention that this amount was not for freight, stating that if it were not for freight, it should not be included in the assessable value at all. The Tribunal determined that this amount should be limited to 20% of the FOB value for duty assessment purposes.

3. Determination of FOB Value:

The Tribunal addressed the challenge of determining the FOB value since the invoices were raised on a CPT basis. The appellant argued that the CPT value was intended for sea transport, and the additional air freight cost was an unforeseen expense due to the pandemic. The Tribunal accepted the appellant's explanation and decided that the CPT value effectively became the FOB value due to the circumstances.

The Tribunal instructed that the assessable value should be recalculated by restricting the inclusion of the "Add. Recov. Freight" to 20% of the CPT value shown in the invoices, thereby determining the duty payable correctly.

Conclusion:

The Tribunal allowed all the appeals, remanding the matter to the original authority to reassess the duty payable on all the Bills of Entry in accordance with the findings. The Tribunal's decision emphasized the proper application of the Customs Valuation Rules, ensuring that only the permissible amount of air freight is included in the assessable value, thus granting the appellant relief from excess duty payments.

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