The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Mumbai, has ruled that Customs authorities cannot reject the declared CIF transaction value of imported goods merely because an upstream FOB value appearing in a foreign supplier’s invoice or a Non-GMO certificate is identical to the CIF price declared by the importer.
The bench of Ajay Sharma (Judicial Member) and A.K. Jyotishi (Technical Member) has observed that a Non-GMO certificate is a regulatory document meant to establish the characteristics of the goods and cannot be treated as a customs valuation document. In the absence of evidence showing additional payment, reimbursement of freight, flow-back of funds or any other consideration beyond the declared invoice price, the Customs Department cannot substitute an upstream FOB value for the importer’s CIF transaction value.
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The appeals arose from an Order-in-Original passed by the Principal Commissioner of Customs (NS-I), Jawaharlal Nehru Customs House, Nhava Sheva. The adjudicating authority had rejected the declared transaction value of fresh Royal Gala apples imported from Brazil and redetermined their assessable value under the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007.
I.G. International is engaged in the import, export and trading of fresh fruits. Between March 2020 and May 2023, it imported Royal Gala apples originating in Brazil and classifiable under Customs Tariff Heading 08081000.
The imports were made under an annual commercial agreement with Blue Whale SAS, France, on Cost, Insurance and Freight, or CIF, terms with Nhava Sheva as the destination. Under the agreement, responsibility for arranging and bearing freight and insurance rested with the French supplier, while the importer paid the agreed CIF invoice price.
Blue Whale had procured the apples from Agropecuaria Schio LTDA, Brazil. The Indian importer maintained that it had no contractual relationship, tripartite arrangement or direct dealing with the Brazilian supplier. Its only commercial transaction was the purchase from Blue Whale on CIF terms.
The Directorate of Revenue Intelligence initiated an investigation on the allegation that the importer had misdeclared the assessable value of the apples to evade customs duty.
According to the Department, the importer had declared the FOB value appearing in the Brazilian supplier’s upstream invoice to Blue Whale as the CIF value before Indian Customs without adding the actual freight and insurance expenses.
During the investigation, searches were conducted at the importer’s premises and statements of 24 persons were recorded under Section 108 of the Customs Act, 1962. Fresh apples covered by 33 Bills of Entry and packed in 149 containers were seized in May 2023.
The perishable goods were subsequently released provisionally after the declared value was enhanced by 21.125%. The importer paid customs duty of approximately ₹10.94 crore on the provisionally enhanced assessable value of around ₹21.89 crore. It also deposited ₹7 crore during the investigation without admitting any liability, primarily to secure the release of the perishable consignments.
A show cause notice dated March 25, 2025, proposed to increase the assessable value of imports covered by non-provisionally assessed Bills of Entry from approximately ₹140.14 crore to ₹172.25 crore.
On this basis, the Department proposed a differential customs duty demand of approximately ₹16.05 crore by invoking the extended limitation period under Section 28(4) of the Customs Act.
For the 33 provisionally assessed Bills of Entry, the Department proposed final assessment at approximately ₹24.91 crore, resulting in a further net duty demand of around ₹1.51 crore. The notice also proposed confiscation of the goods under Section 111(m) and penalties under Sections 112(a), 112(b) and 114A of the Customs Act.
The valuation exercise was partly based on the FOB figures mentioned in Non-GMO certificates issued by Brazilian authorities for compliance with food safety requirements. Customs added freight charges obtained from shipping-line invoices and notional insurance calculated at 1.125% of the FOB value.
The adjudicating authority substantially confirmed the proposals in the show cause notice, prompting the importer and its director to approach the CESTAT.
CIF Value Already Included Freight and Insurance
The Tribunal noted that Section 14(1) of the Customs Act, read with Rule 3(1) of the Customs Valuation Rules, makes the price actually paid or payable for goods sold for export to India the primary basis of customs valuation.
Rule 10(2) permits freight and insurance to be added only to the extent that those costs are not already included in the price paid or payable.
The Bench observed that when a contract is genuinely concluded on CIF terms, the price paid by the buyer ordinarily includes the cost of freight and insurance up to the place of importation. A further addition can be made only where the Department establishes that the price, despite being described as CIF, did not actually include those elements.
In the present case, the invoices issued by Blue Whale described the transactions as CIF and recorded Nhava Sheva as the destination. Statements obtained from the shipping lines confirmed that freight was prepaid abroad by Blue Whale. The freight invoices were also raised by Mediterranean Shipping Company France SAS on Blue Whale and not on the Indian importer.
The Tribunal found no evidence that the importer had paid freight or insurance separately to any shipping company, insurer or foreign supplier.
The Bench further noted that the Department had failed to establish that the importer paid any amount over and above the CIF value shown in the commercial invoices.
The CA-certified reconciliation of remittances showed that payments made to the French supplier did not exceed the declared assessable value. The remittances were, in fact, marginally lower during the relevant periods because of exchange-rate fluctuations.
There was also no evidence of off-invoice consideration, reimbursement of freight or insurance, or flow-back of funds.
The Tribunal said the fact that Blue Whale sold the apples to the Indian importer at a CIF price identical to the FOB price at which it had purchased the goods from the Brazilian supplier did not, by itself, establish undervaluation.
A foreign intermediary was not prohibited from reselling goods at or close to its procurement price. The intermediary could absorb the freight and insurance expenses as part of its commercial arrangement, margin or bundled pricing structure.
The Tribunal held that the Department could not assume that freight and insurance were excluded merely because the upstream FOB figure and downstream CIF value were numerically similar.
The CESTAT emphasised that the transaction between the Brazilian producer and the French intermediary was commercially distinct from the transaction between the French supplier and the Indian importer.
For customs valuation purposes, the relevant transaction was the sale by Blue Whale to the Indian importer for export to India. The value involved in an earlier transaction between two foreign entities could not automatically replace the price paid by the Indian importer to its own overseas supplier.
The upstream FOB figure only established the price at which the Brazilian supplier sold the apples to Blue Whale. It did not establish what amount the Indian importer paid or was required to pay beyond the declared CIF invoice value.
The Tribunal observed that Rule 12 of the Valuation Rules permits rejection of the declared value where the proper officer has reasonable doubt about its truth or accuracy. However, the existence of reasonable doubt cannot be equated with proof of undervaluation.
Once Customs seeks to reject the declared transaction value and replace it with another value, it must produce cogent and reliable evidence that the declared price does not represent the price actually paid or payable.
Rejecting the Department’s reliance on Non-GMO certificates, the Tribunal held that such certificates are issued for an entirely different regulatory purpose.
A Non-GMO certificate may establish that a particular consignment has been certified as non-genetically modified. It may also help identify the goods, invoice, quantity or shipment. It does not, however, establish the market price of the goods, the premium attributable to their Non-GMO status, the price of comparable goods sold for export to India or the consideration actually paid by the importer.
The certificate also does not indicate commercial-level adjustments, quantity adjustments or any other quantifiable element contemplated by the Customs Valuation Rules.
The Bench ruled that an ancillary regulatory document could not be elevated above the primary commercial invoice and used to determine the assessable value merely because it contained an incidental FOB figure.
The FOB value shown in the certificates related, at best, to the upstream sale between the Brazilian supplier and Blue Whale. The importer was not a party to that transaction.
The Tribunal also found the Department’s valuation methodology internally inconsistent.
For two of the three periods covered by the proceedings, Customs relied upon the FOB figures mentioned in the Brazilian supplier’s export invoices. For the intervening period, it relied upon figures appearing in the Non-GMO certificates.
The Department then added the actual shipping-line freight payable by Blue Whale and a notional insurance component to those figures.
According to the Bench, this exercise did not determine the importer’s transaction value under Rule 3(1). Instead, it reconstructed the value using the procurement economics of the importer’s foreign seller.
The Tribunal reiterated that any addition under Rule 10 must be based on objective and quantifiable data. Customs had not identified any specific freight or insurance amount paid or payable by the Indian importer that had escaped inclusion in the declared CIF price.
The Revenue also relied upon statements recorded under Section 108 of the Customs Act, including the statements of the importer’s director and shipping manager.
The Tribunal held that these statements could not substitute for positive evidence of additional consideration or flow-back.
The director’s statement that duty “prima facie” appeared not to have been paid on freight and insurance was merely an inference drawn when certain documents were shown to him during examination. It did not establish, without independent corroboration, that the CIF invoice price actually excluded freight and insurance.
The witnesses had consistently denied the existence of a tripartite arrangement or direct dealing between the importer and the Brazilian supplier. They maintained that the importer’s only transaction was its CIF purchase from Blue Whale.
The Tribunal held that even if the statements raised suspicion, suspicion could not bridge the fundamental evidentiary gap between the Brazilian upstream transaction and the Indian importer’s purchase from the French supplier.
The CESTAT also rejected the invocation of the extended limitation period under Section 28(4) of the Customs Act.
The importer had furnished the commercial invoices, Bills of Lading, packing lists, certificates of origin and phytosanitary certificates at the time of assessment. The CIF term was disclosed on the face of every invoice, and the Department could not point to any concealed import document.
The Tribunal held that the dispute was essentially about the proper valuation methodology—whether an upstream FOB value in a third-party document could override a disclosed CIF transaction value.
Such a difference over valuation methodology could not be treated as collusion, wilful misstatement or suppression of facts with an intention to evade duty. Consequently, the extended period was unavailable, and the demand falling beyond the normal limitation period was time-barred.
After holding that the declared transaction value could not be rejected, the Tribunal also set aside the confiscation ordered under Section 111(m).
There was no allegation that the importer had misdeclared the description, classification, quantity or country of origin of the apples. The goods were freely importable and had already been released and consumed.
The redemption fine and penalties under Sections 112(a), 112(b) and 114A were also set aside. The Bench noted that the penalties rested on the same allegation of undervaluation that the Department had failed to prove.
The Tribunal further took note of the importer’s cooperation during the investigation, including the voluntary deposit of ₹7 crore and payment of enhanced duty of approximately ₹10.94 crore during provisional assessment. The Bench found this conduct inconsistent with the allegation of deliberate customs duty evasion.
The CESTAT set aside the adjudication order and granted consequential relief in accordance with law.
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