The Mumbai Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has upheld the declared transaction value of imported polyester chips ruling that customs department cannot reject the actual price paid by a subsequent importer merely because the goods were originally contracted at a higher price by another importer.
The bench of Ajay Sharma (Judicial Member) and Sanjiv Srivastava (Technical Member) dismissed the department’s appeal and affirmed that customs duty must be assessed on the genuine transaction value where the statutory conditions under Section 14 of the Customs Act, 1962 are fulfilled.
The dispute arose from the import of 200 bags containing 1,000 MTs of Polyester Chips Semi Dull Raw White A Grade from China. Initially, the goods were contracted by M/s Filatex (India) Ltd. at a price of USD 1,400 per MT. However, Filatex failed to clear the consignment and also refused to honour the Letter of Credit (LC), leaving the overseas exporter with unsold cargo lying at the Indian port.
Buy Now: 70+ Judgements Indirect Tax – July 2026 | E-Magazine
As the goods remained uncleared for several months, the exporter incurred substantial detention and demurrage charges while also facing deterioration of the cargo. Unable to find another buyer, the exporter entered into a fresh agreement with M/s Sun Tex in December 2008. Under this agreement, Sun Tex agreed to purchase the goods at USD 600 per MT, on the condition that it would bear all detention and demurrage charges, which alone amounted to approximately USD 505 per MT. Based on this agreement, Sun Tex filed its Bill of Entry in January 2009 by declaring the assessable value accordingly.
The Customs Department questioned the declared value on the ground that contemporaneous import prices were significantly higher. Rejecting the declared price under Rule 12 of the Customs Valuation Rules, the assessing authority enhanced the assessable value from USD 600 per MT to USD 1,400 per MT, relying on the price agreed under the original contract between the exporter and Filatex.
On appeal, however, the Commissioner (Appeals) set aside the enhancement, holding that the fresh agreement between the exporter and Sun Tex represented the genuine transaction value. The Revenue challenged this order before the Tribunal.
The department argued that the goods had already entered Indian territory in August 2008 and therefore the original contractual price of USD 1,400 per MT should continue to govern customs valuation. According to the Department, there was no legal provision permitting renegotiation of import value after the goods had landed in India. It also relied upon earlier judicial precedents involving revised prices agreed after importation to contend that the original international sale price alone should be accepted for valuation purposes.
The importer submitted that the earlier transaction with Filatex never culminated into a completed sale because the original importer neither honoured the Letter of Credit nor took delivery of the goods. Consequently, ownership remained with the overseas supplier, who subsequently entered into a completely fresh contract with Sun Tex. The importer argued that the parties were unrelated, the declared consideration represented the actual price paid, and none of the exceptions permitting rejection of transaction value under the Customs Valuation Rules were attracted.
The tribunal held that Section 14 of the Customs Act requires customs valuation to be based on the price actually paid or payable when goods are sold for export to India, provided the buyer and seller are unrelated and the price is the sole consideration.
The Tribunal observed that the earlier transaction with Filatex remained incomplete because no payment was made and no delivery of the goods took place. Since the original importer never acquired title to the goods, ownership continued to vest with the overseas exporter, who subsequently entered into a fresh sale with Sun Tex.
Accordingly, the Tribunal held that all the essential ingredients of “transaction value” under Section 14 stood satisfied only in the transaction between the exporter and Sun Tex.
The Bench further noted that the lower purchase price was commercially justified because the buyer had agreed to bear substantial detention and demurrage charges, and there was no evidence suggesting any hidden consideration or relationship between the parties. Therefore, Customs had no legal basis to discard the declared transaction value.
The appeal initially resulted in a split verdict. While the Judicial Member favoured acceptance of the declared transaction value, the Technical Member concluded that customs valuation should be based on the original contract price prevailing when the goods first entered Indian territorial waters.
The matter was referred to a Third Member.
The Third Member examined the amendments made to Section 14 by the Finance Act, 2007, which replaced the earlier concept of “deemed value” with the principle of transaction value. Relying on decisions of the Supreme Court, including Sanjivani Non-Ferrous Trading Pvt. Ltd., Eicher Tractors, and Chaudhary Ship Breakers, the Third Member held that customs authorities are bound to accept the actual transaction value unless they establish circumstances warranting its rejection under the Customs Valuation Rules.
Since the Department failed to prove that the declared price was influenced by any extraneous consideration or that the parties were related, the Third Member agreed with the Judicial Member that the declared value of USD 600 per MT represented the correct transaction value for customs purposes.
Following the majority opinion, CESTAT dismissed the Revenue’s appeal and upheld the order of the Commissioner (Appeals). The Tribunal confirmed that the customs duty was correctly assessable on the price actually paid by Sun Tex under the fresh international sale agreement, rather than on the abandoned contract price agreed between the exporter and the original importer.
Membership Required to Access Case Details & Order Copy
To view the complete Case Details and Download Order Copy, you must have an active membership. Please subscribe to continue.
