2025 (4) TMI 528 - AT - Customs

Determination of customs duty - rejection of declared FOB value - delaration of high value in the shipping bill so as to claim excess benefit of MEIS and IGST refund - redetermination of value under Rule 6 and Rule 8 of the Customs Valuation (Determination of Value of Export Goods) Rules 2007 read with Section 14 of the Customs Act 1962 - HELD THAT - Section 14 of the Customs Act provides that for the purpose of Customs Tariff Act 1975 or any other law for the time being in force the value of the imported goods and export goods shall be the transaction value of such goods but it provides for some exceptions. These exceptions include the conditions under which the transaction value can be rejected and the value can be re-determined as per rules. It needs to be noted that the Customs Tariff Act and the schedules thereunder determine the amount of duty payable. As per Section 12 of the Customs Act duties of customs shall be levied at such rates as may be specified under the Customs Tariff Act 1975 or any other law for the time being in force on goods imported into or exported from India. Duties on most goods are charged on ad-valorem basis and therefore the value of the goods is important. Section 14 provides for determining the value and also provides for the Government to make Rules for the purpose. The Customs Valuation (Determination of Value of Export Goods) Rules 2007 have been framed under Section 14 of the Act to determine the export value of the goods. Rule 3 provides that the value shall be the transaction value subject to Rule 8. Rule 8 provides for rejection of the declared value under certain conditions. Rules 4 to 6 provide for re-determination of value if the transaction value is rejected under Rule 8. In this case the Additional Commissioner rejected the value under Rule 8 and re-determined the value under Rule 6. However no export duty is chargeable on the goods. Therefore re-determination of value under Section 14 and the Valuation Rules is irrelevant. The confiscation of the goods under Section 113 (i) and consequential imposition of redemption fine cannot be sustained and need to be set aside - Penalty under Section 114 is attracted if the export goods are confiscated. Since in this case confiscation under Section 113 itself cannot be sustained penalty under Section 114 also cannot be sustained. The case of the department is that the appellant had knowingly declared wrong value and hence penalty is imposable. As discussed above since the appellant 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 appellant had not mis-declared the value in the Shipping Bill. Therefore penalty under Section 1114AA is not imposable on the appellant. Conclusion - i) The re-determination of the FOB value by the Additional Commissioner is without any authority of law and it has been wrongly upheld by the Commissioner (Appeals) in the impugned order. ii) The finding that the goods were liable to confiscation under Section 113(i) and the redemption fine imposed are liable to be set aside. iii) The penalties under Section 114 and 114AA are also liable to be set aside. The impugned order is set aside - appeal allowed.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment are:

(i) Whether the customs officers have the authority to re-determine the Free on Board (FOB) value of export goods under the Customs Act and the Customs Valuation (Determination of Export Goods) Rules, 2007.

(ii) Whether the confiscation of goods and imposition of penalties under Sections 113, 114, and 114AA of the Customs Act, 1962, were justified.

(iii) Whether the principles of natural justice were violated due to the lack of a show cause notice and personal hearing.

2. ISSUE-WISE DETAILED ANALYSIS

Issue (i): Authority to Re-determine FOB Value

- Relevant Legal Framework and Precedents: Section 14 of the Customs Act, 1962, and the Customs Valuation (Determination of Export Goods) Rules, 2007, particularly Rules 6 and 8, govern the valuation of export goods. The FOB value is the transaction value agreed upon by the buyer and seller.

- Court's Interpretation and Reasoning: The Court emphasized that the FOB value is the transaction value, which customs officers cannot re-determine. Section 14 and the Valuation Rules empower officers to determine the assessable value for duty purposes, not to alter the transaction value.

- Key Evidence and Findings: The appellant declared an FOB value based on transaction terms, while the customs officer re-determined it using market opinions, which the Court found inappropriate.

- Application of Law to Facts: The Court held that the customs officers overstepped their authority by re-determining the FOB value, as the transaction value is a matter between the buyer and seller.

- Treatment of Competing Arguments: The appellant argued that the re-determination was based on insufficient evidence, while the Revenue claimed it was necessary due to overvaluation. The Court sided with the appellant, emphasizing the sanctity of the transaction value.

- Conclusions: The re-determination of the FOB value was without legal authority and was set aside.

Issue (ii): Confiscation and Penalties

- Relevant Legal Framework and Precedents: Sections 113, 114, and 114AA of the Customs Act, 1962, deal with confiscation and penalties for mis-declaration of goods.

- Court's Interpretation and Reasoning: The Court found that confiscation under Section 113(i) requires a mis-declaration of the transaction value, not a re-determined value by customs officers. Penalties under Sections 114 and 114AA depend on valid confiscation.

- Key Evidence and Findings: The appellant declared the transaction value, which was not proven incorrect by documentary evidence. The re-determined value was not a valid basis for confiscation.

- Application of Law to Facts: The Court concluded that since the transaction value was correctly declared, confiscation and penalties were unjustified.

- Treatment of Competing Arguments: The Revenue argued for confiscation based on re-determined value, while the appellant maintained the transaction value's correctness. The Court ruled in favor of the appellant.

- Conclusions: Confiscation and penalties were set aside as they were based on an incorrect premise.

Issue (iii): Principles of Natural Justice

- Relevant Legal Framework and Precedents: Section 124 of the Customs Act mandates a show cause notice and personal hearing unless waived.

- Court's Interpretation and Reasoning: The Court noted that the appellant waived the show cause notice and hearing, thus no violation of natural justice occurred.

- Key Evidence and Findings: The appellant's waiver was documented, and the Court found no procedural impropriety.

- Application of Law to Facts: The waiver was valid, and the process followed was legally sound.

- Treatment of Competing Arguments: The appellant's claim of involuntary waiver was dismissed due to lack of evidence.

- Conclusions: No violation of natural justice principles was found.

3. SIGNIFICANT HOLDINGS

- The Court held that the FOB value is the transaction value agreed between the buyer and seller, and customs officers have no authority to re-determine it.

- Confiscation and penalties under Sections 113, 114, and 114AA are contingent on mis-declaration of the transaction value, not on a re-determined value.

- The appeal was allowed, and the impugned order was set aside, providing consequential relief to the appellant.