The Delhi Bench of Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has set aside penalties and fines imposed on Isgec Heavy Engineering Ltd., holding that Customs Department cannot alter the Free on Board (FOB) value of exported goods that has been contractually agreed upon between the exporter and foreign buyer.
The bench of Justice Dilip Gupta (President) and Hemambika R. Priya (Technical Member) has observed that the duty drawback scheme operates on the FOB value of exports, not on any value re-determined by Customs officers. Since Isgec had received full export proceeds and justified the differential values through documented costs, the charge of overvaluation was unsustainable.
The appellant/assessee, Isgec, a Noida-based engineering firm engaged in the manufacture and export of boilers and sugar plants, had exported heavy engineering goods through 16 shipping bills. The goods were seized by Customs on the allegation that the values declared in the shipping bills were higher than those reflected in the corresponding ARE-1 forms filed by supporting manufacturers.
The Joint Commissioner (Exports) had, in 2015, held that Isgec had intentionally overvalued exports to claim excess duty drawback. The total declared FOB value of ₹6.9 crore was re-determined to ₹3.42 crore under Rule 5 of the Customs Valuation (Determination of Value of Export Goods) Rules, 2007. Consequently, the duty drawback claim of ₹16.07 lakh was reduced to ₹7.77 lakh. A fine of ₹35 lakh and penalties under Sections 114 and 114AA of the Customs Act, 1962 were also imposed.
The Commissioner (Appeals) later upheld this decision in September 2019, prompting Isgec to approach the Tribunal.
The appellant contended that it had entered into lump-sum contracts with multiple foreign buyers for turnkey projects. Exports were made in partial shipments with payments against irrevocable Letters of Credit (LCs), and the entire export price was duly remitted by the buyers. The difference between the ARE-1 and shipping bill values arose due to additional costs such as design, inspection, warranty, transportation, insurance, overheads, and profit margin. Customs authorities had no legal power to re-determine the FOB value or alter contractual export pricing.
The appellant argued that the duty drawback entitlement must be computed on the FOB value declared in shipping bills, as prescribed under the Customs, Central Excise Duties and Service Tax Drawback Rules, 1995 and the Drawback Notification No. 68/2011-Cus (N.T.).
The department contended that FOB values in shipping bills were substantially higher than the values reflected in ARE-1 Forms filed by supporting manufacturers. Goods under 16 shipping bills were seized under section 110 of the Customs Act on suspicion of over-valuation and potential excess duty drawback claim. The appellant accepted the mistake of over-valuation and asked for the determination of drawback on the All-Industry Rate value as the FOB value.
The issue raised was whether the appellant had overvalued the export goods in order to avail higher duty drawback.
The tribunal has held that the appellant exported garments under various shipping bills. On an allegation that Jayantah over-valued the goods in order to avail inadmissible duty drawback, a show cause notice was issued for re-determining the FOB value of the goods. The adjudicating authority re-determined the value of the goods and also imposed penalties.
Case Details
Case Title: Isgec Heavy Engineering Ltd. Versus Commissioner of Customs (Export)
Case No.: CUSTOMS APPEAL NO. 50025 OF 2020
Date: 16.10.2025
Counsel For Appellant: B.L. Narasimhan
Counsel For Respondent: AR Rakesh Kumar
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