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Dated: 10.03.2025

CESTAT New Delhi rules- Valuation under the Customs Act is only for duty determination and not for altering the FOB value

The Customs, Excise & Service Tax Appellate Tribunal (CESTAT), New Delhi, in its judgment dated March 7, 2025, ruled in favor of M/S JBN Apparels Pvt. Ltd., M/S Aastha Apparels Pvt. Ltd., and M/S JBB Apparels Pvt. Ltd., setting aside the Customs Department’s attempt to modify the FOB (Free on Board) value of export goods and re-determine export incentives.

Case Background:

1. Exporters Filed Shipping Bills for Apparel Exports

• The three companies exported garments through the Inland Container Depot (ICD), Tughlakabad.
• The Directorate of Revenue Intelligence (DRI) suspected overvaluation of the exported goods to claim higher export incentives, including Drawback, MEIS (Merchandise Exports from India Scheme), and ROSL (Refund of State Levies).
• The goods were seized but later provisionally released against bonds and bank guarantees.

2. Customs Investigation & Lower Authority Decisions

• The Joint Commissioner of Customs examined the case and dropped all proceedings, accepting the declared FOB values and ordering the release of bonds and bank guarantees.
  • The Customs Department appealed the decision before the Commissioner (Appeals), arguing:
    • There was no physical movement of goods from Punjab to Delhi.
  • • The companies supplying the goods were non-existent.
    • The exported goods were overvalued by 169-200 times based on a DRI investigation.
• The Commissioner (Appeals) partly modified the order, accepting the FOB values but remanding the matter for re-determination of export incentives.

Key Legal Questions:

1. Can Customs Authorities Re-determine FOB Value?

• The tribunal ruled that FOB value is a contractual agreement between the exporter and the overseas buyer.
• No Customs officer has the legal authority to modify or reject the FOB value.
• Valuation under the Customs Act is only for duty determination, not for altering the FOB value.

2. Can Customs Authorities Change the Basis of Export Incentives?

• Export incentives (Drawback, MEIS, ROSL) are determined as a percentage of FOB value, as per the Foreign Trade Policy (FTP).
• The Customs Department cannot replace FOB value with another “assessable value” to alter incentive calculations.
• The Central Government, not Customs officers, decides the basis for export incentives under the Foreign Trade (Development & Regulation) Act, 1992.

3. Was the Investigation & DRI’s Role Justified?

• The DRI’s directive requiring a “No Objection Certificate (NOC)” before releasing export benefits was improper, as it interfered with a quasi-judicial process.
• The Tribunal criticized the investigation, noting that suspicion cannot replace concrete evidence.

CESTAT’s Final Decision:

1. The FOB values declared by the exporters were upheld.
2. The Customs Department had no power to modify the FOB value or re-determine export incentives.
3. The appeal of the exporters was allowed, and the Revenue’s appeal was dismissed.
4. The original decision of the Joint Commissioner was restored, ensuring that the exporters receive export benefits as per the declared FOB values.

Significance of the Judgment:

• Reaffirms that Customs officers cannot arbitrarily modify FOB values.
• Ensures that export incentives are determined strictly as per the Foreign Trade Policy.
• Prevents excessive interference by enforcement agencies like DRI in trade-related adjudication.
• Protects exporters from wrongful denial of legitimate benefits under Indian trade laws.

In case you face any issues related to Indirect Tax-Customs, GST, Foreign Trade Policy (FTP), Arbitration matters and Central Licensing and related advisory matters in India then please feel free to get in touch with SJ EXIM Services.

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Source: CESTAT New Delhi

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