Composite export valuation and customs duty cannot rest on artificial segregation or unproven rejection of declared transaction value.

A composite export consignment of iron ore fines with a limited lump component could not be artificially split for higher customs duty where the dominant character remained fines and the contractual tolerance formed part of the commercial arrangement. The declared export transaction value also could not be rejected merely on contemporaneous export prices, because the price was contractually negotiated, supported by invoices and bank realisation, and the compared exports were not shown to be truly comparable under the valuation rules. In the absence of a lawful basis to discard the declared price, re-determination of FOB value was unsustainable.

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Issues: (i) Whether iron ore fines containing some iron ore lumps could be artificially segregated for levy of higher basic customs duty on the lump component. (ii) Whether the declared export transaction value could be rejected and re-determined on the basis of contemporaneous export prices.

Issue (i): Whether iron ore fines containing some iron ore lumps could be artificially segregated for levy of higher basic customs duty on the lump component.

Analysis: The consignment was a composite export of iron ore fines with only a limited percentage of lumps, and the lump content was within the commercial tolerance contemplated in the contract and accepted by the authorities below to a substantial extent. The duty issue turned on whether the mixture could be split into separate categories for taxation, although the goods were exported as one bulk consignment. The Tribunal relied on the settled view that a mixed consignment cannot be broken up artificially for levy purposes where the dominant character remains that of fines and the contractual tolerance and realization mechanism are part of the commercial arrangement.

Conclusion: The higher duty could not be sustained on an artificial segregation of lumps from the composite consignment, and the levy had to follow the rate applicable to iron ore fines.

Issue (ii): Whether the declared export transaction value could be rejected and re-determined on the basis of contemporaneous export prices.

Analysis: The declared price was negotiated under contract and was supported by the invoices and bank realisation certificates showing the amount actually received. There was no finding of related-party dealing, suppression of consideration, or other substantial basis to discard the transaction value. The contemporaneous exports relied upon by the Department were not shown to be truly comparable in quantity, destination, quality factors, or other relevant adjustments required under the export valuation rules. In the absence of a legally sustainable rejection of transaction value, re-determination on a higher contemporaneous rate was not justified under Section 14 of the Customs Act and the export valuation rules.

Conclusion: The transaction value could not be rejected, and the re-determination of export FOB value was unsustainable.

Final Conclusion: The appeals succeeded, the impugned order was set aside to the extent challenged, and the duty demand based on both artificial segregation and re-determination of value failed.

Ratio Decidendi: A composite export consignment cannot be artificially segregated for duty merely because it contains a minor lump component, and declared export transaction value supported by actual realization cannot be displaced without a substantial, rule-compliant basis showing true comparability and lawful rejection of the declared price.

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