Isgec Heavy Engineering Ltd. Vs Commissioner of Customs (Export) (CESTAT Delhi)
Conclusion: FOB value was the product of negotiations and deliberations between the parties to the contract, which value could not be modified by any stranger to the contract by virtue of the principle of “privity of contract”. The FOB value of the individual components declared by the assessee, therefore, could not have been rejected.
Held: Assessee was engaged in manufacture and export of heavy engineering goods such as boilers and sugar plants, entered into lump-sum contracts with foreign buyers and exported goods through partial shipments under irrevocable letters of credit, the department alleged overvaluation of exported goods. The declared Free on Board (FOB) values in the shipping bills were higher than the values shown in ARE-1 forms by supporting manufacturers. Consequently, the declared FOB values were rejected under rule 8 of the 2007 Valuation Rules and re-determined under rule 5, resulting in reduction of duty drawback and imposition of fine and penalties under sections 113, 114, and 114AA of the Customs Act. Assessee contended that the goods were sold under lump-sum contracts, and the FOB value declared represented the true transaction value, which included legitimate cost components such as marketing, transportation, inspection, warranty, design, and profit margin. The entire export proceeds had been received in foreign exchange. The issue before the bench was whether the FOB value could be modified by a stranger to the contract. It was held that neither the Drawback Rules nor the Drawback Notification made any specific reference to the 2007 Customs Valuation Rules for determining the quantum of drawback. The bench stated that drawback was disbursed on account of export of goods and realization of export proceeds. Therefore, the 2007 Customs Valuation Rules for redetermination of value of subject goods could not be applied and assessee would be eligible to avail duty drawback on the FOB value indicated on the shipping bills. The values declared in the shipping bills had been rejected solely on the ground that there was a difference in the values of individual components as declared by assessee in the shipping bills and the corresponding ARE-1 prepared by the supporting manufactures. There was no other evidence that was relied upon furnished to corroborate this allegation. The transaction value of the goods under section 14 of the Customs Act was the FOB value declared in the shipping bills, stated the Tribunal. The bench opined that the FOB value declared by the assessee could not have been rejected.
