2025 (7) TMI 1468 - AT - Customs

Over-valuation of export goods - garments exported claiming export benefits under Drawback and Duty Exemption Passbook Scheme DEPB - rejection of declared FOB values - re-determination of FOB values u/s 14 of the Customs Act 1962 - HELD THAT - Duty has to be paid on the assessable value determined as per section 14 of the Act and the Valuation Rules. Drawback DEPB and other export benefits on the other hand are generally notified as a percentage of the FOB value and are not notified as percentage of assessable value. The reason for this distinction is evident. Export incentives are given to encourage exporters to export goods and to realize foreign exchange. The exporter s obligation to realize foreign exchange is based on the transaction value and so are the export incentives. If the proper officer of Customs rejects the transaction value and re-determines the value under section 14 and Valuation Rules the transaction value (FOB value) will not change. The exporter still has to receive remittance as per his transaction value and will be entitled to export incentives as a percentage of the transaction value. In the investigations DRI examined the goods investigated and came to the conclusion that the FOB value of the export goods was much lower than what was declared. This conclusion was based on the officers assessment and the market surveys. What needs to be noted is that market survey can indicate the local market price of such goods in India but it cannot change the transaction value (FOB value) agreed to between the overseas buyer and exporter. Nothing in the Act requires the exporter to export goods at domestic market prices or the overseas buyers to buy at such prices. The Commissioner passed the impugned order under the wrong presumption that he had power to re-determine the FOB value of the export goods. No such power is conferred on the Commissioner or any officer under the Act. A stranger to any contract including any Customs officer cannot change the FOB value of the goods. The order of recovery of drawback and DEPB benefits confiscation of goods and imposition of penalties all flow from the re-determination of the FOB value of the exported goods and therefore also cannot be sustained. Since the impugned order has been passed without any authority of law it is not necessary to go into the other submissions made by both sides - the impugned order is set aside - appeal allowed.

Summary

ISSUES:

Whether the Commissioner or any customs officer has the power to re-determine the FOB value of exported goods under the Customs Act, 1962.Whether the FOB value, being the transaction value agreed between buyer and seller, can be altered by any person other than the contracting parties.Whether the assessable value determined under Section 14 of the Customs Act and Customs Valuation (Determination of Value of Export Goods) Rules, 2007 affects the FOB value used for export benefits such as drawback and DEPB.Whether export incentives based on FOB value can be recalculated by Customs officers on the basis of any value other than the FOB value.Whether confiscation, recovery of excess drawback/DEPB benefits, and penalties imposed based on re-determined FOB value are sustainable in law.

RULINGS / HOLDINGS:

The Commissioner or any customs officer does not have the power to re-determine the FOB value of exported goods; the FOB value is the transaction value agreed between the buyer and seller and cannot be altered by any stranger to the contract, including customs officers.Section 14 of the Customs Act and the Valuation Rules empower the proper officer to reject the declared transaction value for assessment of customs duty and determine an assessable value by alternative methods, but this does not change the FOB value itself.Export incentives such as drawback and DEPB, which are notified as a percentage of the FOB value, must be paid based on the actual FOB value; no Customs officer has the authority to compute these benefits on any other value determined by them.Confiscation of goods, recovery of excess drawback or DEPB benefits, and imposition of penalties premised on re-determination of FOB value lack legal basis and are unsustainable.

RATIONALE:

The Court applied the statutory framework of the Customs Act, 1962, particularly Sections 2(2), 14, 75, 75A, 113, and 114, and the Customs Valuation (Determination of Value of Export Goods) Rules, 2007, to distinguish between transaction value (FOB value) and assessable value for customs duty purposes.It emphasized that FOB value is a term derived from INCOTERMS and represents the price agreed between exporter and overseas buyer, ending the seller's responsibility once goods are loaded on board the vessel or aircraft.The Court relied on precedent that Customs officers cannot interfere with or modify the contractually agreed FOB value, as it is outside their jurisdiction and not subject to reassessment under the Customs Act.The decision reaffirmed that export incentives are linked to FOB value as notified by the Central Government, and Customs officers must adhere to these notifications and the Foreign Trade Policy framed under the Foreign Trade (Development and Regulation) Act, 1992.The Court rejected the departmental practice of using market surveys or officer assessments to re-determine FOB value for the purpose of recalculating export benefits, marking a doctrinal clarification that the valuation for duty assessment and valuation for export incentives are distinct and governed differently.