FOB value and DFCE licence validity: customs could not sustain overvaluation, duty demand, confiscation or penalties.

Declared FOB value for export consignments was accepted because the department produced no reliable evidence of circular trading or overvaluation, and the record showed physical movement of goods, export realisation and Customs assessment at export. The distinction between FOB value and value addition under the foreign trade policy was treated as having been wrongly blurred, and the evidence cited did not establish repeated circulation of the same goods. DFCE licences were also treated as valid because the competent licensing authority had not cancelled them, and a later DGFT order had dropped cancellation proceedings on the same facts. On that basis, customs duty demand, confiscation and penalties were not sustainable.

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Issues: (i) Whether the declared FOB value of the export consignments could be rejected and the exports treated as involving circular trading or overvaluation. (ii) Whether the DFCE licences were invalid or fraudulently obtained so as to justify customs duty demand, confiscation and penalties.

Issue (i): Whether the declared FOB value of the export consignments could be rejected and the exports treated as involving circular trading or overvaluation.

Analysis: The Tribunal found that the department had not produced tangible evidence to show that the exported consignments were the same goods repeatedly circulated or that the declared export value was false. The record showed physical movement of goods, realization of export proceeds, and assessment of consignments by Customs at the time of export. The Tribunal held that the distinction between FOB value and value addition had been wrongly blurred, and that value addition under the foreign trade policy did not require the department to prove a direct correlation with processing in the manner alleged. It further held that the material relied upon, including statements and charts, did not establish circular trading, especially when the documentary record showed variations in lots, weight and quality.

Conclusion: The allegation of circular trading and overvaluation was not sustained, and the declared FOB value was accepted as correct, in favour of the assessee.

Issue (ii): Whether the DFCE licences were invalid or fraudulently obtained so as to justify customs duty demand, confiscation and penalties.

Analysis: The Tribunal noted that the licensing authority had not cancelled the DFCE licences and that a later order of the DGFT had dropped the cancellation proceedings on the same factual foundation. It held that, in the absence of cancellation or modification by the competent licensing authority, the Customs authorities could not deny the benefit of the licences on the premise that they were fraudulently obtained. Since the licences were treated as valid in law, the demand of duty, confiscation of goods and penalties could not be sustained. The Tribunal also relied on the settled position that the customs authorities could not reopen the licence issue once the licensing authority had not held the licences to be invalid.

Conclusion: The DFCE licences were not held to be invalid, and the duty demand, confiscation and penalties were not sustainable, in favour of the assessee.

Final Conclusion: The Tribunal upheld the adjudicating authority's order and rejected the revenue's challenge in entirety, leaving the import benefit under the DFCE licences undisturbed.

Ratio Decidendi: Where the department fails to prove circular trading or overvaluation by reliable evidence, and the competent licensing authority has not cancelled the export incentive licence, customs authorities cannot deny the benefit of the licence or sustain duty demand, confiscation or penalty on that basis.

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