Deduction of Air Freight element from f.o.b. value – regarding - Customs - 074/02

Circular No.74/2002-cus 8 th November, 2002 F.No.609/37/99-DBK Government of India Ministry of Finance Department of Revenue Sub: Deduction of Air Freight element from f.o.b. value – regarding. Apparel Export Promotion Council (AEPC) has represented that Customs authorities have initiated recovery proceedings in respect of certain garment exporters on the premise that they have wrongfully availed excess drawback on consignments, on the f.o.b. value including the element of air freight which otherwise merited deduction. 2. AEPC on the contrary has asserted that the contracts/LC have been on freight collect basis with the terms of shipment by sea. However, in few cases only, due to production constraints and other unavoidable circumstances, the exporters were compelled to airlift the shipments and have borne the air freight independently without affecting the f.o.b. value of the goods. AEPC has thus contended that there is no wrongful availment of drawback.. 3. The issue has been examined. It is clarified that if the buyer and the seller have contracted the goods on f.o.b. basis and the same is reflected in the contract and the LC, it is immaterial that the exporter has shipped the goods by sea or by air. If the freight is on collect basis and the exporter is paying more as air freight due to the exigency of the situation without affecting the f.o.b., it would not be justified to re-work the drawback amount by deducting the freight element from the contracted f.o.b. value. 4. This applies to all kinds of commodities. All pending cases of the parties may be decided accordingly. 5. Suitable public notices for information of the trade and standing orders for guidance of the staff may kindly be issued accordingly. 6. The receipt of this Circular may kindly be acknowledged.