• Dated 07^th November, 2025

FOB Value Declared by Exporter Cannot Be Re-determined by Customs Authorities in Absence of Legal Authority: CESTAT

Brief Facts

M/s Jayantah Trading Co., an exporter of readymade garments, and its proprietor Sunil Kumar were investigated by the DRI on allegations of exporting sub-standard garments and overvaluing them to claim inadmissible duty drawback and export incentives. Pursuant to this, a show cause notice dated 05.04.2018 was issued proposing reclassification, re-determination of FOB value from ₹2,49,90,427/- to ₹61,93,360/-, confiscation under Section 113, and imposition of fines and penalties under Sections 125, 114, and 114AA of the Customs Act, 1962. The Additional Commissioner, by order dated 08.12.2020, confirmed all proposals of the SCN. On appeal, the Commissioner (Appeals), New Delhi upheld the original order, leading to further appeal before the CESTAT.

Assessee's Contention

The appellants, had argued that the declared FOB value represented the actual transaction value mutually agreed between the buyer and seller, fully supported by foreign exchange remittance through banking channels. They further contended that Customs authorities have no legal power to alter this contractually binding value, as a stranger to the contract cannot modify its terms. Referring to Section 14 of the Customs Act, they emphasized that transaction value is the price actually paid or payable and cannot be arbitrarily changed. They asserted that no statutory provision empowers officers to modify the FOB value of exports. Since full foreign remittance corresponding to the declared value was received, the appellants maintained that the re-determination of value was unauthorized and sought setting aside of the impugned orders.

Department's Contention

The Department, based on intelligence from the DRI, alleged that M/s Jayantah Trading Co. had overvalued sub-standard readymade garments in various export consignments to fraudulently claim higher duty drawback and export incentives. Acting on this information, the DRI conducted an investigation and market inquiry, concluding that the declared FOB value of ₹2.49 crore was highly inflated and should be revised to ₹61.93 lakh. Consequently, a show cause notice dated 05.04.2018 was issued proposing reclassification of the goods, rejection of declared FOB values, and re-determination of export benefits.

The SCN alleged:

1. misdeclaration and misclassification under the Customs Tariff Act, 1975,
2. inflated FOB values in violation of Rule 6 of the Export Valuation Rules, 2007 read with Section 14 of the Customs Act,
3. confiscation under Section 113, imposition of fines and penalties under Sections 125, 114, and 114AA, and
4. adjustment of pending export incentives. The department maintained that the inflated values warranted revaluation and penal action under the Customs law.

Decision

The Hon'ble CESTAT set aside the order of the Commissioner (Appeals) – New Delhi and allowed the appeals filed by M/s Jayantah Trading Co. and its proprietor Sunil Kumar. The Tribunal held that customs authorities had no legal authority to re-determine the FOB value, as it represents the transaction value mutually agreed upon between the buyer and seller. It observed that both the declared and realized values were the same, and any revaluation by Customs was unauthorized. Consequently, all findings of confiscation, fines, penalties, and appropriation of export benefits based on such revaluation were held invalid, and the appeals were allowed with consequential relief.

BTA's Comment

In this case, the Hon'ble Tribunal held that the FOB (Free on Board) value agreed between exporter and buyer is the valid transaction value, and Customs authorities have no legal power to alter or re-determine it. Even if the authorities doubt overvaluation, they can only assess duty differently - not change the contractual value itself. Since the exporter had received full foreign remittance as per the declared FOB value, the Hon'ble Tribunal set aside the order of confiscation, penalties, and re-determination of incentives, reinforcing the principle that transaction value cannot be arbitrarily modified by customs officials.

Case Reference: M/s Jayantah Trading Co. Vs Commissioner of Customs (Appeals) - New Delhi (Final Order No's. 50871-50872 /2025) decided by Hon'ble CESTAT on 06.06.2025.

Author: Harsh Kr. Gupta

Edited by: Saket Shaw