Customs Officer Is A Stranger To Contract Of Sale, Cannot Re-Determine FOB Value: CESTAT

The Free on Board or (FOB )is one of the INCOTERMS – which are the terms used in international commerce. The INCOTERMS make the costs, risks and liabilities of the buyer and seller explicit. If the goods are exported on FOB basis, the seller is responsible until the goods are put on Board the vessel or aircraft. All costs and risks up to loading the goods on to the ship or aircraft are on the seller‟s account. The seller is free once the goods are put on board. The costs and risks associated with transportation to the destination, etc., are all on account of the buyer.

The Tribunal noted that only the buyer and the seller who are parties to the contract can decide the transaction value of the goods. No other person, including the custom officers can determine or re-determined the transaction value whether it is on FOB basis, CIF basis, C&F basis or otherwise.

The Tribunal further opined that unless there is documentary evidence that the FOB value declared in the Shipping Bill is not correct and the true FOB value is something else as per the documents, the declared FOB value has to be accepted. The Customs Act and Rules cannot be applied to re-determine the FOB value.

The Bench of Dilip Gupta (President) and P.V. Subba Rao (Technical) has stated that, “At the time the Shipping Bill, neither the exporter nor even the officer can indicate what the re determined value would be. Therefore, the only obligation on the exporter is to correctly declare the transaction value in the Shipping Bill.”

The issue before the bench was what is the meaning of FOB value and whether the customs officers have the right to re-determine it under the Customs Act and Customs Rules.

In this case, the assessee filed Shipping Bill to export Oil Filters declaring Free on Board (FOB). It paid IGST and did not claim any rebate of State levies but claimed Merchandise Exports Incentive Scheme (MEIS).

The consignment was examined by the customs officers and the goods were alleged to have been over-valued to claim higher IGST refund/MEIS. It was detained through a memorandum.

The Additional Commissioner, Customs rejected the declared FOB value the FOB value and re-determined it. Also, he confiscated the goods. Aggrieved by the decision of Additional Commissioner, the assessee filed an Appeal before Commissioner (Appeals), who rejected the appeal and upheld the order of the Additional Commissioner. The assessee has challenged the order passed by the Commissioner (Appeals) before the Tribunal

The assessee contended that the confiscation of the export goods and imposition of penalties are contrary to Section 124 of the Customs Act because the Order was passed without issuing a show cause notice and granting personal hearing on the ground that the exporter had waived the show cause notice as well as personal hearing.

Whereas it was contended by the department that as the assessee had mis-declared the value of the export goods, they were held liable for confiscation under Section 113 and redemption fine was imposed as goods had already been exported after being provisionally released. Therefore, there is no infirmity in the imposition of redemption fine.

The Tribunal observed that the FOB value in the case is the transaction value. The officers had no right to change the transaction (FOB) value of the goods. So, the order of the Additional Commissioner and Commissioner (Appeals) reducing the FOB value was not correct.

The Tribunal opined that “since the assessee has to only declare the transaction value and has neither any obligation nor power under the law to re-determine the Value under some other method, and further since he has no obligation whatsoever under the law to predict what value the proper officer may determine, the assessee had not mis-declared the value in the Shipping Bill.”

In view of the above, the Tribunal allowed the appeal.

Counsel for Appellant/ Assessee: B. Venugopal

Counsel for Respondent/ Department: Shashi Kant Sharma

Case Title: M/s Kritika Enterprises Versus Commissioner of Customs (Appeals)

Case Number: Customs Appeal No. 51722 OF 2022