IGST short-payment claim on freight and insurance rejected; CIF/FOR import value accepted, duty demand and penalty cancelled

CESTAT Kolkata allowed the appeal, holding that the allegation of short-payment of IGST on freight, insurance and landing charges was unsustainable. Based on the distributorship agreement and supporting certificates, the Tribunal found that import prices from Bhutan were on CIF/FOR terms and already included transportation, insurance, loading, forwarding and landing costs. Therefore, the assessable value declared in the Bills of Entry was correct, and the demand of differential duty with interest was set aside. The Tribunal further held that there was no suppression or misstatement, as all material facts were disclosed and corroborated by third-party evidence, and accordingly, it also set aside the penalty.

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1. ISSUES PRESENTED AND CONSIDERED

1.1 Whether freight, insurance and landing charges were in fact excluded from the assessable value declared in the relevant Bills of Entry, justifying the demand of differential IGST and interest.

1.2 Whether the ingredients for invoking the extended period under Section 28(4) of the Customs Act, 1962, on the basis of alleged suppression of facts or misstatement, were satisfied.

1.3 Whether imposition of penalty under Section 114A of the Customs Act, 1962, was legally sustainable in the facts and circumstances.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Alleged non-inclusion of freight, insurance and landing charges in assessable value

Interpretation and reasoning:

2.1 The Tribunal examined the "Distributorship Agreement - Export Market" dated 01.01.2018 between the exporter and the appellant. Article 02(a) explicitly provided that the product price to the buyer is inclusive of transportation and insurance cost up to the buyer's destination, thereby indicating that the invoice values were on CIF/FOR terms and already subsumed such elements.

2.2 The Tribunal noted that similar agreements were in place prior to 01.01.2018, supporting continuity of this pricing structure for the entire period in dispute.

2.3 The Tribunal further considered a certificate from TCI Freight, Jaigaon, stating that the transporter had an agreement with the exporter and did not charge the appellant any freight transportation or insurance charges, corroborating that the appellant did not incur such costs separately.

2.4 A letter dated 30.04.2024 from the exporter, addressed to the customs authority, clarified that the prices charged to the appellant were "all inclusive of the cost incurred," reinforcing that freight and insurance components were embedded in the invoiced value.

2.5 On this evidentiary basis, the Tribunal found no merit in the allegation that freight, insurance and landing cost had been excluded from the assessable value declared in the Bills of Entry.

2.6 The Tribunal also took note that, in an appeal of another similarly placed importer, the same Commissioner (Appeals) had accepted an identical agreement and held that the invoices were on CIF terms with no short levy, thereby underscoring the consistency of contractual and commercial arrangements.

Conclusions:

2.7 The Tribunal held that the demand of differential duty and the consequential interest, raised on the premise of non-inclusion of freight, insurance and landing charges, was unsustainable and liable to be set aside.

Issue 2: Validity of invoking extended period under Section 28(4) based on suppression/misstatement

Interpretation and reasoning:

2.8 The notice under Section 28(4) was premised on alleged suppression of facts and misstatement regarding non-inclusion of freight, insurance and landing charges in 27 Bills of Entry (and landing cost in 3 Bills of Entry).

2.9 The Tribunal found, on facts, that all imports from Bhutan were in FOR terms and that the invoice prices were inclusive of transportation, insurance, loading and forwarding charges, as evidenced by the Distributorship Agreement, the transporter's certificate and the exporter's clarificatory letter.

2.10 In light of these documents, the Tribunal held that there was no concealment or misstatement; the declared values correctly reflected the full contractual price inclusive of the impugned elements, and there was no separate or undisclosed cost component.

Conclusions:

2.11 The Tribunal concluded that the allegation of suppression of facts or misstatement was not established and the foundational requirement for invoking Section 28(4) was absent.

Issue 3: Justification for penalty under Section 114A

Interpretation and reasoning:

2.12 Penalty under Section 114A was imposed coextensively with the duty demand confirmed under Section 28(4), on the basis of alleged suppression and wilful misstatement.

2.13 The Tribunal reiterated that, since the imports were on FOR/CIF terms and all costs (including freight, insurance, loading and forwarding) were already embedded in the invoiced/declared value, there was no suppression or misstatement by the appellant.

2.14 The Tribunal relied on the contractual agreement, transporter's certificate, and exporter's letter as sufficient proof negating any fraudulent intent or deliberate evasion.

Conclusions:

2.15 Holding that the essential ingredients for imposition of penalty under Section 114A were not satisfied, the Tribunal set aside the penalty in full.

2.16 Consequently, the entire impugned order, including the duty demand, interest and penalty, was set aside and the appeal allowed with consequential relief according to law.

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