CESTAT Flags Upholds Declared FOB Value But Restores Penalty For Mis-Declaration of Fabric and Corrects Drawback/ROSCTL Benefits

The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Principal Bench, New Delhi, has partially allowed the customs department’s appeal in the matter concerning Ludhiana-based exporter and flagged the mis-declaration of fabric; upholds declared Free on Board (FOB) value but restores penalty and corrects drawback/rosctl benefits. The bench of Justice Dilip Gupta (President) and P. V. Subba Rao (Technical Member) reaffirmed that the massive downward revision of the declared export value was unjustified, yet it simultaneously held that the exporter had mis-declared the fabric composition of the garments, which required correction of export incentive claims and restoration of penalty. The bench addressed fundamental issues relating to export valuation, accuracy of declarations and compliance with Drawback and ROSCTL schemes. The case arose from four shipping bills filed on October 7, 2023 for the export of knitted garments to Dubai. Although the goods appeared consistent with the packing list and invoices, Customs Preventive officers detained the consignments on the suspicion that they were overvalued. Samples were tested at the Central Revenue Control Laboratory (CRCL), which confirmed that the garments were made of a polyester–cotton blend, contrary to the exporter’s declaration of 100 percent cotton. This finding had direct implications for determining the applicable serial numbers and rates under the Drawback and ROSCTL schedules. The Joint Commissioner consequently re-determined the value of the goods, ordered their confiscation, imposed penalties, and revised incentive entitlements. The Commissioner (Appeals) later overturned the entire order, finding that the valuation had been tampered with without following the mandatory procedure and that the receipt of full export payment through Bank Realisation Certificates validated the declared Free on Board (FOB) value. The Revenue challenged this decision before CESTAT. Upon examination, the Tribunal agreed that the department had failed to comply with Rule 8 of the Export Valuation Rules, which requires the proper officer to first record specific reasons for doubting the declared value and seek additional information from the exporter before rejecting the transaction value. Since no such procedure was followed and because the supplier’s confirmation and BRCs supported the pricing, the Tribunal held that the declared FOB value could not be discarded. It also clarified that export prices may legitimately exceed domestic market prices and that market enquiries cannot override objective evidence. However, the Tribunal noted that the Commissioner (Appeals) had entirely overlooked the proven mis-declaration of fabric composition. The CRCL report, which the exporter did not dispute, demonstrated that the goods were not made of 100 percent cotton. This necessitated correction of the applicable serial numbers under the Drawback and ROSCTL schedules. The Tribunal therefore restored the re-determination of these benefits by the Joint Commissioner. On the issue of confiscation, the Tribunal clarified that although seizure is not always mandatory for confiscation under Section 113, the redemption fine imposed in this case could not be sustained because the goods had already been exported and the bond executed at the time of provisional release did not obligate the exporter to pay fine in lieu of confiscation. With respect to penalties, the Tribunal held that Section 114AA does not depend on confiscation but requires proof of a knowing mis-statement. Since intention was not established, the penalty under this provision could not be revived. However, the Tribunal restored the penalty of Rs. 2 lakh under Section 114(iii), finding that mis-declaration of fabric composition rendered the goods liable to confiscation even if confiscation did not ultimately take place. CESTAT upheld the declared FOB value, restored the correct classification of export incentives due to mis-declaration, reinstated the Section 114(iii) penalty, and rejected the redemption fine and Section 114AA penalty. The ruling reinforces that while Customs authorities must strictly follow statutory procedures before questioning declared values, exporters must ensure that all product and incentive-related declarations accurately reflect the goods being exported. Case Details Case Title: Commissioner Of Customs Versus M/s Om Udyog Case No.: Customs Appeal No. 51341 Of 2025 Date: 26.11.2025 Counsel For Appellant: Rajesh Singh, Authorized Representative Counsel For Respondent: Prem Ranjan Kumar, Advocate Click Here To Read Order Read More: Free-Supply Materials Can’t Be Included in Taxable Value Of Construction Services: CESTAT

CESTAT Flags Upholds Declared FOB Value But Restores Penalty For Mis-Declaration of Fabric and Corrects Drawback/ROSCTL Benefits

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