CESTAT New Delhi Sets Aside Duty Demand and Penalties On Ranbaxy In Ex-Works Valuation Dispute

On 24 April, the New Delhi Bench of the Customs, Excise & Service Tax Appellate Tribunal (CESTAT) set aside the customs duty demand, invocation of the extended limitation period, and penalties imposed on Ranbaxy Laboratories Ltd. (now Sun Pharmaceutical Industries Ltd.) and customs broker Schenker India Pvt. Ltd.

A Bench comprising President Justice Dilip Gupta and Technical Member P.V. Subba Rao held that although the importer incorrectly declared ex-works price as FOB value in Bills of Entry, the error arose from oversight and no material established any intention to evade customs duty. It observed:

“There is nothing on record to show that either the importer or the officers or the customs broker had any intention to evade duty or reduce the liability of duty. Since the entire period of demand was within the extended period of limitation it needs to be set aside. Consequently, the penalty also needs to be set aside.”

The Tribunal examined whether customs duty short payment arising from incorrect valuation of imported goods could justify invocation of the extended limitation period, and whether penalties under Sections 114A, 114AA, and 112 of the Customs Act were sustainable.

The importer had filed 173 Bills of Entry between 2009 and 2011 for pharmaceutical imports by air cargo. Although the goods were purchased on an ex-works basis, the importer reflected the ex-works value as FOB value in the Bills of Entry.

The Department alleged that this misdeclaration impacted the computation of freight, as air freight addition is capped at 20% of FOB value under the Customs Valuation Rules. It contended that freight should have been computed on the actual FOB value after adding local transport cost from factory to export port, resulting in short payment of duty.

The Directorate of Revenue Intelligence issued a show cause notice, and the adjudicating authority confirmed differential duty of over Rs. 10 lakh. It also imposed an equal penalty under Section 114A along with additional penalties under Sections 114AA and 112 on both the importer and the customs broker.

The Tribunal, while agreeing with the Department's interpretation that freight should be computed on FOB value rather than ex-works value, held that no evidence demonstrated deliberate suppression, misstatement, or fraud.

It further clarified that a mere incorrect declaration in Bills of Entry does not automatically justify invoking the extended five-year limitation under Section 28 of the Customs Act. The Department must establish collusion, wilful misstatement, or suppression of facts with intent to evade duty, which was absent in the present case.

The Bench also noted that for a substantial part of the disputed period, self-assessment provisions were not in force and customs officers themselves assessed the Bills of Entry. It observed that any oversight, if at all, occurred not only on the part of the importer but also at the level of the assessing officers.

Accordingly, the CESTAT allowed both appeals and set aside the impugned orders, granting consequential relief to the appellants.

Appearance for the Appellant: Shri B.L. Narasimhan, Ms. Anjali Singh and Shri Ashwani Bhatia, 

Appearance for the Department: Shri Girijesh Kumar and Shri Rajesh Singh, Authorized Representative for the Department