9911796707🚨 Important Update for Our Users
We are transitioning to our new and improved portal - www.taxtmi.com - for a better experience.
Follow us:
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2025 (6) TMI 1285 - AT - CustomsMis-declaration and mis-classification of export goods - rejection and redetermination of FOB value declared of the goods - confiscation - redemption fine - penalty - duty drawback and other export incentives pending disbursal should appropriated against the fine and penalties - entire case of the department rests on the allegation that the Jayantah had over-valued the export goods - HELD THAT - It refers to the Free on Board value agreed to between the buyer and the seller of the goods. It is the transaction value for the goods. It is the price which the buyer agrees to pay the seller for the goods without including the costs of transportation and transit insurance. FOB is one of the INCOTERMS i.e. international commercial terms which are the universally understood standards to determine the risks and responsibilities and liabilities of the buyers and sellers. If goods are sold on FOB basis the seller is free from all his responsibilities once the goods are put on board the ship or aircraft. If goods are sold on C F basis the seller is also responsible for the transport of the goods upto the place of destination. However the seller is not responsible for any risk which may occur during the transportation. If the goods are sold on CIF basis the seller is responsible for delivery of the goods including the cost of transportation and transit insurance upto the port of delivery. The transaction value shall be the assessable value on which duty should be determined-whether it is import duty or export duty. However there are circumstances under which the transaction value can be rejected by the Customs Officers and the value can be re-determined as per the Valuation Rules adopting other methods. What needs to be noted is that if the transaction value is rejected and the value is re-determined by the officer he is not changing and he cannot change the transaction value. All he is doing is refusing to accept the transaction value as the assessable value and is determining the assessable value through some other method. If the drawback and other export incentives must be paid on the FOB value or on the value re-determined by the officer? - HELD THAT - A doubt may arise as to why drawback and other export incentives have been made payable as a percentage of the FOB value and not on the basis of the assessable value under the Act which is basis for determining the duty. The reason for this is self-evident. Drawback and other export incentives are given to encourage exporters to export and to obtain remittances of sale proceeds - In fact the drawback rules provide that if the remittance is not received the drawback can be recovered. Similarly in some schemes like Merchandise Export from India Schemes MEIS the exporter is required to apply for the scrip along with bank relieasing certificate showing that the remittance has been received. In other words neither the transaction value (FOB value) nor the obligation on the exporter to realize remittance of the FOB value can be modified by any customs officer. Therefore export incentives also need to be paid accordingly as per rules. In this case the Commissioner (Appeals) specifically recorded in the impugned order that the exporter had realized remittance as per FOB value of the goods but dismissed this fact on the ground that the foreign remittance does not establish that the declared value was true - the Commissioner (Appeals) committed a grave error in this respect. What is declared is the FOB value and what is realized is the FOB value and not some value determined by the Customs Officer. The FOB value cannot be re-determined by any Customs Officer. Conclusion - i) The Customs authorities had no jurisdiction or authority to re-determine the FOB value which is the transaction value agreed between buyer and seller. The re-determination of FOB value by the Additional Commissioner was without legal authority and the impugned order upholding such re-determination was unsustainable. ii) The confiscation of goods imposition of redemption fine penalties and appropriation of export incentives against such penalties based on the re-determined FOB value were all set aside. The impugned order which is based on re-determination of FOB value cannot be sustained. The impugned order is set aside - Appeal allowed.
The core legal questions considered by the Tribunal in this appeal are as follows:
(i) Whether the goods exported were mis-declared or mis-classified under the Customs Tariff Act, 1975; (ii) Whether the Free on Board (FOB) value declared by the exporter should be rejected and re-determined under Rule 6 of the Customs Valuation (Determination of Export Goods) Rules, 2007; (iii) Whether the goods should be confiscated under Sections 113(i) and (ii) of the Customs Act, 1962; (iv) Whether redemption fine in lieu of confiscation should be imposed under Section 125 of the Customs Act; (v) Whether penalties under Sections 114 and 114AA of the Customs Act should be imposed on the exporter and its proprietor; (vi) Whether export incentives such as duty drawback and other pending incentives should be appropriated against the fine and penalties. The principal issue revolves around the legality and correctness of the re-determination of the FOB value of the exported goods by Customs authorities and the consequent confiscation, fines, and penalties imposed. Issue-wise Detailed Analysis: 1. Mis-declaration or Mis-classification of Goods The Customs authorities alleged that the exporter mis-declared and mis-classified the goods, specifically men's manmade fiber Jersey, changing the classification from CTH 611 03010 to 610 79 990. The Directorate of Revenue Intelligence (DRI) conducted a market inquiry which suggested that the goods were sub-standard and over-valued. The Additional Commissioner confirmed the mis-classification and upheld the re-classification in the order-in-original. The Tribunal did not extensively dwell on this issue but accepted the classification as per the Additional Commissioner's findings, focusing instead on the valuation and related consequences. 2. Rejection and Re-determination of FOB Value under Customs Valuation Rules The crux of the dispute lies in whether the Customs authorities had the power to reject the declared FOB value and re-determine it under Rule 6 of the Customs Valuation (Determination of Export Goods) Rules, 2007 read with Section 14 of the Customs Act, 1962. Legal Framework and Precedents: Section 14 of the Customs Act provides that the value of export goods shall be the transaction value, i.e., the price actually paid or payable for the goods when sold for export, provided the buyer and seller are unrelated and the price is sole consideration. The Valuation Rules specify the procedure for rejection of declared value and re-determination by Customs officers when there is reason to doubt the truth or accuracy of the declared value. Court's Reasoning: The Tribunal emphasized that FOB value is the transaction value agreed between buyer and seller, representing the price at which goods are sold for export, excluding transportation and insurance costs. FOB is an internationally recognized commercial term (INCOTERM) defining the seller's and buyer's responsibilities and liabilities. The Tribunal held that the transaction value (FOB) cannot be altered by any third party, including Customs officers or DRI. The power under Section 14 and the Valuation Rules is to determine the assessable value for duty purposes and not to modify the transaction value itself. The Tribunal illustrated this with an example where the transaction value remains the contract price between buyer and seller, while the assessable value for duty may be re-determined by Customs. Thus, the re-determination of FOB value by the Additional Commissioner was held to be without authority of law. The Tribunal found that the Commissioner (Appeals) erred in upholding this re-determination. 3. Confiscation of Goods and Imposition of Redemption Fine The Additional Commissioner ordered confiscation of goods under Sections 113(i) and (ii) and imposed a redemption fine under Section 125 of the Customs Act. These actions were predicated on the re-determination of FOB value and the finding of mis-declaration. The Tribunal implicitly rejected the confiscation and redemption fine orders since they flowed from the invalid re-determination of FOB value. Without a valid basis to reject the declared value, the foundation for confiscation and fines collapses. 4. Imposition of Penalties under Sections 114 and 114AA Penalties were imposed on the exporter and its proprietor for alleged mis-declaration and violation of Customs provisions. These penalties were linked to the alleged over-valuation and mis-classification. The Tribunal found that since the re-determination of FOB value was invalid, the basis for penalties was also undermined. The penalties imposed on the exporter and proprietor could not be sustained. 5. Appropriation of Pending Export Incentives against Fines and Penalties The Additional Commissioner ordered recovery of redemption fine and penalties from the pending duty drawback and export incentives. The Tribunal examined whether such export incentives could be adjusted against fines and penalties. The Tribunal held that export incentives such as duty drawback are payable on the FOB value, which is the transaction value. Since the FOB value cannot be re-determined by Customs officers, the incentives must be paid as per the declared FOB value and cannot be appropriated against fines and penalties based on an invalid valuation. The Tribunal noted that export incentives are designed to encourage exports and are linked directly to the remittance of sale proceeds by the exporter. The exporter's obligation to realize remittance corresponds to the transaction value, not any re-determined assessable value. The Tribunal observed that the Commissioner (Appeals) had recorded that the exporter had realized remittance as per the declared FOB value but dismissed this fact. The Tribunal found this to be a grave error, reinforcing that the declared FOB value and actual remittance are controlling for export incentives. Conclusions on Issues: The Tribunal concluded that the Customs authorities had no jurisdiction or authority to re-determine the FOB value, which is the transaction value agreed between buyer and seller. The re-determination of FOB value by the Additional Commissioner was without legal authority and the impugned order upholding such re-determination was unsustainable. Consequently, confiscation of goods, imposition of redemption fine, penalties, and appropriation of export incentives against such penalties based on the re-determined FOB value were all set aside. Significant Holdings: "It is a universally known principle that a stranger to the contract cannot change the terms of contract. If the buyer and seller agree to a particular price on FOB basis, no stranger to the contract including the Customs Officers, DRI etc., have any locus standi to modify the FOB value." "No power has been conferred under the Customs Act or Rules on any officer to change the transaction value. Therefore, the FOB value of the exported goods, which is the transaction value, cannot be modified by any officer." "The re-determination of FOB value by the Additional Commissioner is without any authority of law. The Commissioner (Appeals) erred in upholding such re-determination of FOB value." "If the drawback schedule provides for payment of drawback as a percentage of FOB value, it should be paid so. No officer has the power to modify the drawback schedule in any particular case and hold that it shall, instead, be paid on some value determined by him/her." "The remittance which the exporter is obliged to obtain is the price for which the exporter had sold the goods. There is a direct nexus between the drawback and other export incentives and the receipt of remittance." "What is declared is the FOB value and what is realized is the FOB value and not some value determined by the Customs Officer. The FOB value cannot be re-determined by any Customs Officer." The Tribunal set aside the impugned order and allowed the appeals with consequential relief, thereby restoring the declared FOB value as the correct transaction value for export incentives and disallowing confiscation, fines, and penalties imposed on the basis of re-determined value.
|
