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Dated: 11.04.2025

CESTAT Delhi Held that customs have no authority to alter declared export value unless fraud is established

The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), New Delhi, in Final Order No. 50472/2025 dated 09 April 2025, has quashed the re-determination of export goods’ FOB value by customs authorities. The tribunal also overturned associated confiscation and penalties imposed on M/s Kritika Enterprises, citing fundamental flaws in the interpretation and application of valuation provisions.

Case Background

M/s Kritika Enterprises, Noida, filed Shipping Bill No. 9826250 on 22.12.2018 to export oil filters with a declared FOB value of ₹1.36 crore. Customs alleged overvaluation to claim higher IGST refund and MEIS incentive, re-determined the value at ₹8.06 lakh, and imposed the following penalties:

• Confiscation under Section 113(i) of the Customs Act
• Redemption fine of ₹8 lakh
• Dual penalties of ₹12 lakh each under Section 114(iii) and 114AA

The order was upheld by the Commissioner (Appeals), prompting the appeal to CESTAT.

Key Legal Arguments by the Appellant

1. Violation of Section 124: No show cause notice or personal hearing provided.
2. Lack of Credible Valuation: Market enquiry was based solely on opinion from two local traders.
3. FOB Value as Transactional Value: Customs has no legal authority to redetermine a contractually agreed FOB value.
4. Misinterpretation of Rules: Re-determination under Rule 6 after rejecting declared value under Rule 8 was not justified.
5. Adequate Documentary Proof: Purchase records, vendor invoices, e-way bills, and payment details were submitted but not verified.

Tribunal’s Observations & Findings

• FOB is the contractual price, a part of INCOTERMS, and reflects the value agreed upon between buyer and seller.
• Customs may determine assessable value for duty purposes, but cannot override or alter FOB value unless proven false.
• Section 14 and Valuation Rules (2007) allow re-determination for assessment, not for contesting declared transaction values.
• Rule 6 revaluation based on vague market inquiry is unreliable.
• Exporters cannot be expected to anticipate rejection and guess what re-determined value the officer may assign.

“The exporter is only obliged to declare the transaction value. Any re-determined value, unless backed by conclusive evidence, cannot attract confiscation or penalty.”

CESTAT Verdict

The tribunal allowed the appeal in full and passed the following directions:

• Confiscation under Section 113(i) – Set aside
• Redemption fine under Section 125 – Quashed
• Penalties under Sections 114 and 114AA – Revoked
• FOB value re-determined by customs – Declared illegal and beyond authority

Implications of the Ruling

• Reinforces that FOB value is sacrosanct if supported by genuine transaction documents.
• Clarifies that customs cannot penalize exporters based solely on valuation disputes unless fraud is proven.
• Warns against over-reliance on non-transparent market inquiries.
• Supports India’s agenda of ease of exports and trade facilitation.

Conclusion

This CESTAT judgment is a landmark for exporters grappling with arbitrary re-determinations and penalties. It reiterates that transactional values must be respected unless irrefutable evidence proves misdeclaration. With this ruling, exporters now have a robust legal precedent to safeguard legitimate FOB declarations from unwarranted scrutiny.

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 Delhi

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