CESTAT Delhi- Honest Valuation Error Not Penalized

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Dated: 28.05.2025

CESTAT Delhi- Honest Valuation Error Not Penalized

The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Principal Bench, New Delhi has allowed a group of appeals filed by M/s Delphi Automotive Systems Pvt. Ltd., along with its directors and employees, setting aside a customs duty demand of ₹25,53,891 and penalties imposed under Sections 114A and 114AA of the Customs Act, 1962.

The Tribunal held that the valuation error—treating Ex-Works prices as FOB for air imports—was a genuine mistake and not a willful misstatement. Hence, the extended limitation period and penalties were held to be inapplicable.

Case Background

Appellant: Delphi Automotive Systems Pvt. Ltd. & its Directors
Nature of Imports: Goods imported by air on Ex-Works basis
Dispute: Incorrect computation of transport cost under Rule 10(2) of the Customs Valuation Rules, 2007
Duty Demanded: ₹25.53 lakh
Penalties: Under Sections 114A and 114AA
Relevant Provisions:
- Section 14 of Customs Act, 1962 (Valuation)
- Rule 10(2) of Valuation Rules (Inclusion of freight & insurance)
- Fifth proviso to Rule 10(2) (Air freight cap at 20% of FOB value)

Key Issue: Ex-Works Value Mistaken as FOB

Delphi imported goods on an Ex-Works basis, but inadvertently declared the Ex-Works value as FOB value. Consequently:

Only 20% of the Ex-Works value was added as air freight instead of 20% of correct FOB value (which should include local transport to the port of export).
This led to under-calculation of assessable value and customs duty.

However, all documents were provided to customs officers at the time of import, including invoices and airway bills clearly showing Ex-Works pricing.

CESTAT Observations and Findings

Assessment was Done by Customs Officers Themselves
- Bills of Entry were not self-assessed; they were examined and cleared by officers.
- All relevant documents were submitted—there was no concealment or suppression.
No Evidence of Collusion or Fraud
- The Tribunal found no allegation of collusion with officers.
- Mistake was made both by the importer and customs staff during assessment.
Extended Limitation Period Not Invokable
- No “willful suppression” or “intent to evade” was proven.
- Hence, proviso to Section 28 (for invoking extended limitation) was held inapplicable.
Penalties Not Sustainable
- Since the extended period itself was wrongly invoked, the entire demand and penalties were quashed.

Tribunal Verdict

“It was evidently an honest mistake on the part of the officers as well as the appellants. Hence, the extended period of limitation and penalties cannot be sustained.”

All appeals allowed
Order-in-Original dated 30.04.2014 set aside
Duty demand and penalties fully quashed
Consequential relief granted

Legal Takeaway

Valuation under Rule 10(2) must be precise, especially for air imports with Ex-Works terms.
Penalty and extended demand provisions require a higher threshold—willful default, not clerical error.
Importers are protected where transparency exists, and documentation is fully disclosed.

Conclusion

This ruling is a strong precedent in favour of importers facing technical valuation disputes, particularly where there is no fraudulent intent. It underscores the importance of clear documentation, good faith compliance, and legal safeguards against arbitrary penalty proceedings.

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Source: CESTAT

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