2025 (10) TMI 501 - AT - Customs

FOB transaction value declared by exporter cannot be re-determined to justify confiscation; penalties under Sections 113(i),114(i),114AA,125 unsustainable

CESTAT held that FOB transaction value declared by the exporter cannot be re-determined by the proper officer so as to render the exports liable to ... Overvaluation of export garments to fraudulently avail drawback at higher rate by the appellant - FOB values declared by the appellant were rejected by the Additional Commissioner - FOB value of the export goods can be re-determined by the proper officer under Customs Valuation (Determination of Value of Export Goods) Rules, 2007 based on the examination of goods or not - liability of confiscation of export goods which do not correspond to the value finally determined by the proper officer - redemption fine and penalty. Whether the FOB value of the export goods can be re-determined by the proper officer under Customs Valuation (Determination of Value of Export Goods) Rules, 2007 based on the examination of goods? - HELD THAT:- It is found that the Free on Board or FOB is one of the INCOTERMS- which are used in international commerce. These terms decide the costs, risks and liabilities of the buyer and the seller in any transaction. If goods are sold on FOB basis, the seller is responsible until the goods are put on Board the vessel or aircraft. All costs and risks thereafter are on the buyer’s account - Similarly if the goods are sold on C & F basis, the seller shall, in addition to the FOB value, be also responsible for the freight of the goods up to the destination. If goods are sold on CIF basis, the seller’s responsibilities will also include the transit insurance. In other words, the cost of the goods, the freight and transit insurance upto destination are on the seller’s account. It must be noted that drawback and other export incentives come with a responsibility on the exporter to bring in remittance of the value of the export goods. This responsibility of the exporter will also be as per the transaction value (FOB, C&F or CIF) and not as per the value determined by the Customs Officer - It has been decided in a series of orders of this Tribunal that the FOB value of export goods cannot be re-determined by the proper officer. Liability of the export goods to confiscation - HELD THAT:- It is clear that if the goods do not correspond in value or in any other particular with the entry made under the Act, they will be liable to confiscation. The “entry made under this Act” for exports is the Shipping Bills. The question which arises is what value the exporter can and must declare in the Shipping Bills. It is undisputed that the exporter had declared in these Shipping Bills the transaction value as per the invoices. It is not a case where any parallel set of invoices or the actual transaction value was discovered which was different from the declared value. The case of the department is that the value of the export goods was much higher than the market value of the goods in domestic market and also much higher than the price at which the exporter had procured the goods and, therefore, the value can be re-determined by the officer under the Export Valuation Rules. It is true that it is open to the officer to re-determine the value under Export Valuation Rules. However, if it is held that goods will become liable to confiscation if the declaration in the Shipping Bill by the exporter does not correspond to the value which the officer may ultimately decide, it will result in absurd consequences because it is impossible for the exporter to anticipate if the proper officer would accept the transaction value as the value under section 14 or if he would reject the transaction value and re-determine the value following some other method and if so, what value he would determine. Levy of penalties - HELD THAT:- The exporter had declared the transaction value and there is no dispute about it. Simply because the officer determined some other value different from the transaction value, the export goods will not be liable to confiscation under section 113(i) of the Act. The penalty under section 114(i) is for acts or omissions which rendered the goods liable to confiscation under section 113. Since the confiscation cannot be sustained, neither can the penalty under section 114(i). Penalty under section 114AA is knowingly or intentionally making false statements and declarations in transactions under the Act. The appellant had correctly declared his transaction value on FOB basis. Therefore, penalty under section 114AA also cannot be sustained. The confiscation of the goods under section 113(i), redemption fine under section 125 and the penalties under section 114(i) and 114AA cannot be sustained. The impugned order is set aside - Appeal allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether the Free on Board (FOB) value of export goods can be re-determined by the proper officer under the Customs Valuation (Determination of Value of Export Goods) Rules, 2007 (Export Valuation Rules) on the basis of examination of goods and related inquiries. 2. Whether export goods become liable to confiscation under section 113(i) of the Customs Act, 1962 where the value declared in the Shipping Bill (transaction/FOB value) does not correspond to the value subsequently re-determined by the proper officer under the Export Valuation Rules. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Re-determination of FOB value by the proper officer Legal framework: FOB, C&F and CIF are INCOTERMS and constitute transaction values-i.e., the price paid or payable by the buyer to the seller as consideration for goods under the relevant commercial terms; drawback is payable as a percentage of FOB value; Export Valuation Rules permit the proper officer to re-determine value under certain conditions (rule 8 permitting rejection of transaction value). Precedent treatment: The Tribunal has in a series of orders held that the FOB value of export goods cannot be re-determined by the proper officer; the judgment refers to one such recent order of the Tribunal following that view. Interpretation and reasoning: The Court reasons that INCOTERMS allocate costs, risks and liabilities between buyer and seller and determine the transaction price (FOB/C&F/CIF). These transaction values arise from parties' negotiation and cannot be altered by a stranger to the contract, including a Customs officer. Drawback and export-remittance obligations are tied to the transaction value actually declared (FOB/C&F/CIF) and not to any value subsequently re-determined by the officer. While the Export Valuation Rules allow the officer to re-determine value, that power does not operate so as to supplant the commercial transaction value for purposes of drawback entitlement and exporter's foreign exchange obligations. Ratio vs. Obiter: Ratio - The Court's operative ruling is that FOB value, being the transaction value, is not susceptible to modification by the proper officer for purposes of drawback and remittance obligations; the officer's re-determination does not displace the exporter's declaration where no parallel or suppressed invoice set is found. Obiter - Illustrative examples concerning hypothetical USD amounts and discussion of INCOTERMS nuances serve explanatory purposes but do not expand legal obligations beyond the ratio. Conclusion: The FOB value declared by the exporter in the Shipping Bill (transaction value) must be respected for payment of drawback and remittance obligations; the proper officer cannot, by re-determination under the Export Valuation Rules, alter the exporter's entitlement to drawback calculated on the declared FOB. Issue 2 - Confiscation under section 113(i) where declared value differs from officer's re-determined value Legal framework: Section 113(i) makes liable to confiscation any goods entered for exportation which do not correspond in respect of value or in any material particular with the entry made under the Act (the Shipping Bill). Rule 8 of the Export Valuation Rules permits rejection of the transaction value by the proper officer. Precedent treatment: The Tribunal's earlier orders (referenced collectively) treat the proposition that mere divergence between declared transaction value and an officer's subsequently re-determined value cannot automatically render goods liable to confiscation where the exporter has declared transaction value honestly and no alternate real transaction value is discovered. Interpretation and reasoning: The Court emphasizes that the exporter's Shipping Bill must reflect the transaction value; nothing in section 14 or the Export Valuation Rules provides the exporter with power to self-reject that declared transaction value. If the declared value is the bona fide transaction value, the exporter cannot be expected to anticipate whether or how the officer might later reject it and re-determine value. To treat the goods as liable to confiscation simply because the officer determines a different value would produce absurdity and unfairness, as it would punish honest declaration and place exporters at the mercy of a post-hoc administrative valuation. Confiscation under section 113(i) therefore requires that the goods not correspond with the entry in a manner that shows the entry itself was false or incorrect in a material respect (for example, where a different/set of invoices or suppressed transactions demonstrate falsity), not merely because an officer applies valuation rules to arrive at a different figure. Ratio vs. Obiter: Ratio - Confiscation under section 113(i) cannot be sustained solely because the officer re-determined value different from the declared transaction (FOB) value; where the declared transaction value is bona fide and no evidence of alternative actual value exists, confiscation is not permissible. This ratio carries direct dispositive effect on penalties tied to confiscation. Obiter - Observations about the logical impossibility for exporters to predict administrative valuation outcomes and examples of consequence are explanatory. Conclusions: Confiscation under section 113(i) and consequential redemption fine under section 125 cannot be sustained where the exporter declared the transaction (FOB) value and no parallel or true transaction value contrary to that declaration is proved. Penalty under section 114(i), which presupposes acts rendering goods liable to confiscation under section 113, likewise cannot be sustained in such circumstances. Penalty under section 114AA for knowingly or intentionally making false statements also cannot be sustained when the exporter correctly declared the transaction value on FOB basis. Remedial disposition and cross-references The Court (The Tribunal) set aside the confiscation, redemption fine and penalties imposed where they were founded solely on the officer's re-determination of value differing from the declared transaction value; the appeal was allowed with consequential relief. See Issue 1 for the treatment of drawback entitlement and remittance obligations; see Issue 2 for the scope of confiscation and related penalties.