Supreme Court Issues Notice In Challenge To CESTAT Ruling That Customs Cannot Alter FOB Value Of Goods

The Supreme Court recently issued notice on an appeal filed by the Commissioner of Customs (Appeals) against a ruling of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), New Delhi, which held that Customs officers cannot alter the Free on Board (FOB) value agreed upon between a buyer and seller.

A Bench of Justice Pamidighantam Sri Narasimha and Justice Alok Aradhe directed that the matter be heard along with a connected appeal.

The tribunal had framed the issue succinctly: “The question which arises is what is the FOB value and if it can be re-determined by the Customs Officers. FOB value is not defined in the Act."

Allowing the appeals filed by Jayantah Trading Company and its proprietor, Sunil Kumar, CESTAT ruled that no provision under the Customs Act empowers officers to change the transaction 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," the tribunal held.

The department had alleged that the exporter overvalued garments to claim higher duty drawback and export incentives. The adjudicating authority reduced the declared FOB value, ordered confiscation of goods, and imposed fines and penalties. The Commissioner (Appeals) upheld that decision.

CESTAT set aside the order. It drew a distinction between transaction value and assessable value under Section 14 of the Customs Act. While officers may determine assessable value for the purpose of levying duty in accordance with valuation rules, they cannot rewrite the contractual price agreed upon between buyer and seller, the tribunal held.

It further ruled that export incentives payable as a percentage of FOB value cannot be recalculated on the basis of a value re-determined by a customs officer.

The Revenue has now challenged that interpretation before the Supreme Court.

For Appellant: ASG N venkataraman, Advocates Gurmeet Singh Makker, AOR, Aditya Sharma,V.c. Bharathi, Navanjay Mahapatra, Disha Thakkar, Ishaan Sharma