Legal principle

The FOB/transaction value of exported goods cannot be modified by any customs officer; re-determination under the Valuation Rules only fixes the assessable value, and drawback payable as a percentage of FOB must be computed on the transaction value, not on any officer-determined value.

Court decision

The Tribunal set aside the Commissioner (Appeals) order dated 20.09.2019 and allowed the appeal, holding that the declared FOB value could not be rejected, that the fine under section 125 and the penalties under sections 114 and 114AA could not be sustained, and decided in favour of the appellant.

Facts

Isgec Heavy Engineering Ltd., a manufacturer-exporter of heavy engineering goods such as boilers and sugar plants, exported goods under lumpsum contracts with foreign buyers in partial shipments, with a broad billing break-up approved by the buyers rather than item-wise contract values. Goods under 16 shipping bills were seized because component values declared in ARE-1 forms by supporting manufacturers were lower than the FOB values declared in the shipping bills. A show cause notice dated 06.05.2014 proposed rejection of the declared value of Rs. 6,90,25,291 under rule 8 and re-determination to Rs. 3,42,39,898 under rule 5 of the 2007 Export Valuation Rules, reduction of drawback from Rs. 16,07,372 to about Rs. 7,77,336, confiscation under sections 113(d) and 113(i), and penalties under sections 114 and 114AA. The Joint Commissioner imposed a fine of Rs. 35,00,000 under section 125 in lieu of confiscation plus penalties under sections 114 and 114AA, and the Commissioner (Appeals) upheld that order on 20.09.2019, prompting the further appeal to the Tribunal.

Key provisions

• Section 114AA, Customs Act, 1962 — Penalty for use of false and incorrect material
• Section 114, Customs Act, 1962 — Penalty for attempt to export goods improperly etc
• Section 14, Customs Act, 1962 — Valuation of goods
• Section 113(i), Customs Act, 1962 — Confiscation of goods attempted to be improperly exported
• Rule 5, Customs Valuation (Determination of Value of Export Goods) Rules, 2007 — Computed value method
• Section 125, Customs Act, 1962 — Option to pay fine in lieu of confiscation
• Section 50(2), Customs Act, 1962 — Entry of goods for exportation
• Section 75, Customs Act, 1962 — Drawback on imported materials used in the manufacture of goods which are exported
• Section 110, Customs Act, 1962 — Seizure of goods, documents and things