The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), New Delhi, has set aside a Commissioner’s order that had rejected export values, denied e Duty Entitlement Passbook (DEPB) Scheme benefits, ordered confiscation of exported goods, demanded customs duty, and imposed penalties exceeding ₹110 crore.
The bench of Dr. Rachna Gupta (Judicial Member) and P.V. Subba Rao (Technical Member) has observed that once shipping bills are assessed, Let Export Orders (LEOs) are issued, and goods are exported, customs authorities cannot subsequently modify those assessments except through legally prescribed mechanisms.
The dispute arose from exports made between December 2010 and January 2011 under the DEPB Scheme. Mungad Strips & Alloy Pvt. Ltd. exported goods declared as “Aluminium Alloy Conductors” and “Cross Linking Agent,” while Jiji Industries Ltd. exported “Aluminium Alloy Conductors.” Based on the declared Free on Board (FOB) values, the companies obtained DEPB scrips issued by the Directorate General of Foreign Trade (DGFT).
Subsequently, investigations were initiated by the Directorate of Revenue Intelligence (DRI) and the Directorate General of Central Excise Intelligence (DGCEI), which alleged that the export consignments had been grossly overvalued to secure higher DEPB benefits. According to the Revenue, goods declared at values ranging from approximately ₹700 per kg to ₹2,000 per kg were actually worth around ₹180 per kg.
Based on these allegations, a show cause notice was issued in December 2015. The Commissioner of Customs, Indore, later rejected the declared export values, re-determined the value under Rule 8 of the Customs Valuation (Determination of Value of Export Goods) Rules, 2007, altered the description of exported goods, denied DEPB benefits, ordered recovery of customs duty allegedly foregone through DEPB utilization, and imposed penalties of ₹60 crore on Jiji Industries and ₹50 crore on Mungad Strips under Section 114AA of the Customs Act.
A central issue before the Tribunal was whether customs authorities could revisit and modify export assessments after the goods had already been exported.
The Tribunal observed that under the Customs Act, assessment of export goods is completed when the proper officer assesses the shipping bill and grants clearance for export under Section 51. Once goods leave India, they cease to be “export goods” within the meaning of Section 2(19) of the Customs Act. Consequently, there can be no further assessment of those goods.
The Bench emphasized that completed assessments can only be modified through specific statutory mechanisms such as appeals, provisional assessment finalization, amendment of documents under Section 149, correction of clerical errors under Section 154, or proceedings under Section 28 where applicable. None of those routes had been followed in the present case.
Accordingly, the Tribunal held that the Commissioner lacked authority to alter the assessments contained in the shipping bills after export had already taken place.
The Tribunal also rejected the Commissioner’s reasoning for denying DEPB benefits.
It noted that DEPB scrips are issued by the DGFT as a percentage of the FOB value of exports and not on the basis of assessable value determined by customs authorities under valuation rules. The Bench drew a distinction between “transaction value” agreed between exporter and overseas buyer and the “assessable value” determined for customs purposes. Even if customs authorities reject a declared value for assessment purposes, the contractual FOB value between buyer and seller remains unchanged.
The Tribunal observed that export incentive schemes are linked to realization of foreign exchange based on the declared transaction value. Since DEPB benefits are administered by the DGFT and not by customs authorities, customs officials had no authority to deny DEPB benefits or seek recovery of duty merely because they re-determined the export value under valuation rules.
Another important aspect of the ruling concerns confiscation proceedings under Section 113 of the Customs Act.
The Commissioner had held that the exported goods were liable to confiscation under Sections 113(d) and 113(i). However, the Tribunal found that Section 113 applies only to “export goods,” meaning goods that are yet to be taken out of India. Once goods have been exported, they move outside the territorial jurisdiction of the Customs Act and cease to be “export goods.”
The Bench therefore ruled that confiscation of goods already exported was legally unsustainable and beyond the scope of the statutory provision.
Since the Tribunal concluded that the duty demand itself was not maintainable, it also set aside the penalties imposed under Section 114A, which are dependent upon a sustainable demand under Section 28 of the Customs Act.
The Tribunal further held that penalties under Section 114AA could not survive merely because customs authorities disagreed with the declared value. The exporters had declared their transaction values and claimed to have realized export proceeds accordingly. Re-determination of value by customs authorities did not automatically establish false declarations warranting penal action.
Holding that the impugned order could not be sustained “from any angle,” the Tribunal set aside the Commissioner’s order insofar as it applied to Mungad Strips & Alloy Pvt. Ltd. and Jiji Industries Ltd. Both appeals were allowed with consequential relief.
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