2025 (7) TMI 1347 - AT - Customs

Issuance of SCN without jurisdiction - recovery of duty - overvaluation of goods - rejection of assessable value and re-determination of value - obtaining DEPB scripts of a higher value than what it was entitled to - HELD THAT - There are no merit in the impugned order confirming the recovery of duty on the allegations of over-valuation. The case of the Revenue in a nutshell is that the importer/appellant had obtained DEPB scripts of a higher value than what it was entitled to. To arrive at this allegation the Department has alleged that the CAF and BAF are required to be deducted from CIF admittedly which was not done by the Appellant. The recovery of the above has been made by the Revenue under Section 28 of the Customs Act. On this aspect it is found that in various orders the Benches have held that the recovery of an alleged over valuation of DEPP is not permissible under Section 28 - reliance can be placed in TTK PRESTIGE LTD. VERSUS COMMISSIONER OF CUSTOMS BANGALORE 2005 (4) TMI 164 - CESTAT BANGALORE and SWATI INDUSTRIES VERSUS COMMISSIONER OF CUSTOMS AMRITSAR 2009 (6) TMI 871 - CESTAT NEW DELHI . Also it has been held in the above cases that the proper authority is the DGFT who alone can initiate any proceedings against the importer/appellant for recovery of DEPB credit claimed in excess and that the Customs Authorities cannot recover/realise the same under Section 28 ibid. It is a matter of record in this case on hand that though the Customs Authorities sought the intervention of DGFT alleging that the credit obtained at a higher rate by the Appellant but the DGFT did not accept the same and consequently they did not also initiate any proceedings. The impugned order deserves to be set aside - Appeal allowed.

Summary

ISSUES:

Whether the Customs Authorities have jurisdiction to issue Show Cause Notices and recover duty under Section 28 of the Customs Act for alleged over-valuation in DEPB claims.Whether Bunker Adjustment Factor (BAF) and Currency Adjustment Factor (CAF) charges form part of freight charges and are deductible from FOB value for determining export benefits.Whether the deduction of BAF and CAF from FOB value is justified when such charges are incurred subsequently and contingent in nature.Whether the Customs Authorities can impose penalty and confiscate goods under Section 113(h)(i) and Section 114A of the Customs Act based on alleged inflated freight declarations.Whether the Department must establish particulars of Bills of Entry with short assessment before demanding duty under Section 28.

RULINGS / HOLDINGS:

The Customs Authorities do not have jurisdiction to recover alleged over-valuation of DEPB credit under Section 28 of the Customs Act; the proper authority is the DGFT. Recovery under Section 28 is impermissible as DEPB credit is not a duty.BAF and CAF charges are "contingent charges, which do not form part of the freight charges" and thus cannot be deducted from the FOB value declared in shipping bills for export benefit calculation.There is "no basis whatsoever" to hold that the appellant deliberately inflated the FOB value or mis-declared it for obtaining excess DEPB benefit.The Department failed to provide "basic particulars" such as Bills of Entry evidencing short levy of duty; hence, confirming duty demand under Section 28 is not sustainable.Confiscation of goods and imposition of penalties under Sections 113(h)(i) and 114A are not upheld in absence of valid jurisdiction and established mis-declaration.

RATIONALE:

The Court relied on established precedents holding that DEPB credit is not a duty and that Customs Authorities lack jurisdiction to recover DEPB credit under Section 28; the Directorate General of Foreign Trade (DGFT) is the competent authority for such recovery.Precedents cited clarify that Customs Authorities may request DGFT to cancel DEPB scrips but cannot themselves recover duty from exporters who have transferred DEPB scrips.The legal framework distinguishes between freight charges and contingent charges such as BAF and CAF, which arise post-export and are not part of the freight cost declared at export time.The Court emphasized the necessity of detailed evidence, including Bills of Entry, to establish short levy of duty before confirming demands under Section 28.No dissent or doctrinal shift was indicated; the decision aligns with prior Tribunal rulings reinforcing the limits of Customs Authority jurisdiction over DEPB credit recovery.