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of <h1>Exporter's declared transaction value upheld under Customs Act Section 14; confiscation and penalties set aside</h1> <h3>M/s Modak Dyeing & Printing Co. Pvt. Ltd. Versus Commissioner of Customs, New Delhi</h3> The CESTAT held that under section 14 of the Customs Act and the Valuation Rules, if the transaction value declared by the exporter in the shipping bill ... Scope of “value” under section 14 of the Customs Act and the Valuation Rules and of the FOB value - rejection of transaction value - redetermination of value - what will happen if the transaction value is rejected by the officer under the Valuation Rules and the value is re-determined under the Valuation Rules? - HELD THAT:-From 10.10.2007, the Valuation Rules provided for rejection of transaction value and it‘s re-determination of value through some other methods by the proper officer. If the proper officer so re-determines the value, it shall be the value, otherwise, the value shall be the transaction value. At the time the exporter filed the shipping bills, the only value available was the transaction value. This is the only value which is humanly possible to declare in the Shipping Bills. If the transaction value is ‘X‘ as can be seen from the records, but the exporter declares it as ‘Y‘, the goods will be liable to confiscation under section 113(i) of the Act. They will not be liable to confiscation under section 113 (i) if the exporter declares ‘X‘ in the Shipping Bill and thereafter, the proper officer re-determines the value as, say, ‘Z‘. Needless to say that drawback is usually a percentage of the transaction value (FOB value) depending on the type of goods. Let‘s take it as say, 15%, for example. If the market price of the goods is say Rs. 100/- and the FOB value (transaction value) is Rs. 200/-, drawback will be available @ 15% of Rs. 200/- (the FOB value) or Rs. 30/- and not 15% of Rs. 100/- (the market value) or Rs. 15/- - However, if the transaction value (FOB value) is so high, that the drawback due on the goods exceeds the market value of the goods, then, as per section 76(1) (b), no drawback shall be allowed. In this example, if the FOB value (transaction value) is, say Rs. 660/- the drawback @15% thereon will be Rs. 99/- which will be allowed because it is less than the market price of Rs. 100/. However, if the FOB value (transaction value) is Rs. 700/-, drawback due thereon @ 15% shall be Rs. 105/- and the market price of the goods is only Rs. 100/- which is less than the drawback due (Rs. 105/-). Therefore, as per section 76(1) (b), no drawback shall be allowed. Evident from this section is that no drawback will be allowed unless the amount of drawback which will be due on the goods itself is more than the market value of the goods. As long as the drawback due is less than the market value, it is payable. It is equally evident that the transaction value (FOB value) on which drawback has to be paid need not be the same as the market value of the goods. The re-determination of the FOB value of the goods, confiscation of the goods under Section 113 (i), the redemption fine imposed under Section 125 and the penalty imposed under Section 114A cannot be sustained and need to be set aside. The impugned order is set aside - appeal allowed. ISSUES: Whether the declared FOB (Free On Board) value of export goods can be rejected and re-determined under the Customs Valuation (Determination of Value of Export Goods) Rules, 2007 (Valuation Rules).Whether the proper officer's rejection of the transaction value affects the contractual transaction value between buyer and seller.Whether export goods are liable to confiscation under Section 113(i) of the Customs Act, 1962 when the declared value corresponds to the transaction value but is re-determined by the authorities.Whether penalties and redemption fines under Sections 114(iii), 114AA, and 125 of the Customs Act are sustainable when the transaction value is re-determined.Whether Section 14 of the Customs Act and the Valuation Rules apply to export benefits such as drawback, Refund of State Levies (ROSL), Merchandise Exports from India Scheme (MEIS), and IGST refund.The legal effect of over-invoicing or inflated declared export value in relation to export benefits and customs law.The relevance and applicability of market value versus transaction (FOB) value for export valuation and drawback eligibility under Section 76 of the Customs Act.The scope and interpretation of 'value' under the Customs Act before and after amendment effective 10.10.2007. RULINGS / HOLDINGS: The declared FOB value is the transaction value agreed between buyer and seller and cannot be altered by any customs officer; however, the proper officer may reject the declared value for assessment purposes and re-determine the assessable value under the Valuation Rules.Rejection of the declared transaction value under the Valuation Rules does not change the actual transaction value or the contractual obligations between buyer and seller; the transaction value remains the price actually paid or payable.Export goods are liable to confiscation under Section 113(i) only if the value declared in the shipping bill differs from the transaction value; if the declared value corresponds to the transaction value, but is subsequently re-determined by customs, confiscation is not sustainable.Penalties under Sections 114(iii), 114AA and redemption fines under Section 125 imposed solely on the basis of re-determination of value without misdeclaration of transaction value cannot be upheld and are liable to be set aside.Section 14 of the Customs Act and the Valuation Rules govern the determination of assessable value for customs duty but do not affect export benefits such as drawback, ROSL, MEIS, and IGST refund, which are calculated as a percentage of the FOB (transaction) value declared by the exporter.Over-invoicing or inflated declared export values aimed at claiming excess export benefits constitute illegal or unauthorized foreign currency transactions and may attract appropriate action, but such overvaluation alone does not justify confiscation if the declared value is the true transaction value.Market value of goods in the domestic market is distinct from the transaction (FOB) value for export; drawback eligibility under Section 76(1)(b) depends on whether the market price is less than the drawback amount due, not on the transaction value.Prior to 10.10.2007, 'value' under Section 14 meant the price at which goods are ordinarily sold in international trade; post amendment, it means the transaction value, i.e., the price actually paid or payable for export/import where buyer and seller are unrelated and price is sole consideration. RATIONALE: The Court applied the statutory framework under the Customs Act, 1962, particularly Sections 14, 113, 114, 114AA, 125, and 76, and the Customs Valuation (Determination of Value of Export Goods) Rules, 2007.It distinguished between the 'transaction value' (contractual price) and the 'assessable value' (value determined for customs duty assessment) clarifying that customs authorities can reject declared value for assessment but cannot alter the contractual transaction value.The Court relied on the legislative amendments effective from 10.10.2007 which introduced transaction value as the basis for valuation and empowered authorities to reject declared values and re-determine assessable values under prescribed rules.It interpreted Section 113(i) narrowly, holding that confiscation applies only if the declared value itself is false or different from the transaction value, not when customs re-determines value post-declaration.The judgment clarified that export benefits such as drawback and MEIS are linked to the transaction (FOB) value, not to the assessable value re-determined by customs, and that market value is relevant only for determining drawback eligibility under Section 76(1)(b).The Court distinguished this case from precedent involving different facts where the exporter failed to declare correct value and agreed to forgo drawback, emphasizing that such facts were not present here.The Court noted that over-invoicing may amount to illegal foreign currency transactions and justify penalties but does not justify confiscation or redemption fines when the declared value is the actual transaction value.The Court emphasized the statutory requirement under Section 18 of the Foreign Exchange Regulation Act, 1973 and related notifications requiring exporters to declare true export value and affirm receipt of full payment, reinforcing the primacy of transaction value declaration.No dissent or doctrinal shift was indicated; the decision follows established principles with clarification on the interplay between transaction value, assessable value, and export benefits.
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