2025 (7) TMI 1725 - AT - Customs

Higher customs duty on iron ore lumps denied without solid evidence under transaction value rules

M/s Atha Mines Pvt Ltd. Versus Commissioner of Customs Visakhapatnam– CUS And M/s Khatau Narbheram & Co. Versus Commissioner of Customs Visakhapatnam– CUS

The CESTAT Hyderabad allowed the appeal, setting aside the order to the extent of re-determining the transaction value and applying a higher customs duty ... Valuation of export duty - rejection and re-determination of the transaction value - enhancement of declared transaction value based on contemporaneous export for the purpose of export duty or otherwise - correctness in applying the higher customs duty @ 15% in respect of lumps component of the ore, which has been exported without segregating the same into ores fines and lumps - HELD THAT:- In this case, prices were determined based on the negotiation between the appellants and the foreign buyers in terms of sale agreement. It is also noted that in the following cases, the transaction value mentioned in the Bill of Entries cannot be discarded without any substantial basis and it can be discarded only when import of identical goods or similar goods at a higher price at around the same time is proved by the Department. There are also force in the contention of the appellant that merely because export of identical or similar goods were at a slightly higher price by other customers, the value declared by the appellant would not be liable for re-determination in terms of the judgment in the case of Devika Trading Pvt Ltd. [2003 (11) TMI 213 - CESTAT, MUMBAI] - it is also found that there is no evidence on record or alleged by the Department that the appellant had received consideration more than what has been declared in the invoice or that the appellant in the overseas buyers are related parties. It is also on record that the appellant realised the amount from the buyers as per the BRC and on the said value has discharged duty. It is found from the impugned order that it does not mention quantity of goods exported in respect of shipping bills relied upon for the purpose of contemporaneous prices and therefore the submission of the appellant that in the case of export of small quantity, the prices are likely to be higher in comparison with bulk export. Further, there is no information on record about the destination of exports nor any documentary evidence exists that the original declared transaction value was rejected and the value was re-determined based on contemporaneous export of the same grade and that same redeemed value has now been applied in the present case - there cannot be any justification for charging higher rate of duty on iron ore lump in excess of 5% in each consignment when admittedly they were part of the same bulk iron ore which was predominantly iron ore fine. The lump contents are varying from 9.26% to 10.38%. Similar issue was for consideration before the Tribunal in the case of Daksh Minerals Vs CCT [2024 (5) TMI 1155 - CESTAT HYDERABAD] wherein, it was held that consignment of iron ore fine having certain percentage of iron ore lumps also has to be treated as iron ore fines only and cannot be artificially segregated into iron ore fines and lumps for the purpose of levying export duty. Thus, in terms of the contract between appellant and the foreign buyer there was a penalty clause for having iron ore lump (iron ore above 10mm) in excess of 10% and the penalty has also been imposed and the same was deducted from the consideration. Therefore, when the contract itself provided for tolerance waiver upto 10% there is no reason for Department not to accept the same. Further, in so far as the application of the contemporaneous FOB value for the re- determination of the export FOB, it is found that it suffers from various infirmities in terms of statutory provisions, as also the fact that there is no allegation that the exporter has received any amount over and above than what has been realised by them in terms of BRC and the commercial invoices and therefore the duty should have been demanded only in terms of the amount actually realised. It is noted that there is no evidence that they have received anything extra over and above the amount realised and admittedly the correct duty had been discharged on said value except to the extent of applying high rate of duty for certain amount of iron ore lump, which is already said is not correct. The impugned order is set aside to the extent appealed against by the appellant - Appeal allowed. ISSUES: Whether the Department's rejection and re-determination of the declared transaction value for export duty purposes is legal and proper.Whether Basic Customs Duty (BCD) @ 15% is correctly imposed on 'Iron Ore Lumps (more than 10mm)' when exported as part of a mixture with iron ore fines without segregation. RULINGS / HOLDINGS: On valuation, the Court held that the transaction value declared by the exporter cannot be rejected without substantial basis and that 'transaction value is the primary basis for valuation of export goods' as per Section 14 of the Customs Act and Rule 3(1) of the Valuation Rules; mere existence of contemporaneous exports at higher prices does not justify re-determination without compliance with Rule 4 of Export Valuation Rules.On classification and duty rate, the Court ruled that 'there cannot be any artificial segregation of iron ore lump and iron ore fine in a composite mixture for the purpose of levying export duty' and that the entire consignment containing iron ore lumps within tolerance limits must be treated as iron ore fines, attracting the lower duty rate applicable to fines rather than the higher 15% BCD on lumps. RATIONALE: The Court applied the statutory framework under Section 14 of the Customs Act and the Export Valuation Rules, particularly Rule 3(1) and Rule 4, emphasizing that transaction value is the primary basis for export valuation and that re-determination requires strict compliance with valuation rules including adjustments for differences in quality, quantity, and commercial terms.The Court relied on precedent including judgments holding that transaction value cannot be discarded without proof of higher prices for identical or similar goods at about the same time and destination, and that valuation must reflect actual consideration realized as evidenced by Bank Realization Certificates.The Court followed prior Tribunal authority rejecting artificial segregation of iron ore lumps and fines for duty purposes, recognizing that a mixture with lumps within contractual tolerance must be classified uniformly as iron ore fines.The Court noted absence of evidence that the exporter received any amount over and above the declared and realized value, and found the Department's reliance on contemporaneous export values flawed due to lack of examination of contract terms, export quantities, destination, and quality parameters.The Court distinguished certain High Court decisions cited by the Department on the basis that they involved different factual scenarios (e.g., ROM ore with declared lump and fines proportions) and did not address classification of mixtures under interpretative rules.The Court rejected the Department's reliance on Section 19 of the Customs Act for classification, clarifying that Section 19 applies to goods consisting of a set of articles, not to mixtures of substances like iron ore lumps and fines.