CESTAT Kolkata Clarifies Scope of Valuation Rule 10(2) and Limits of Extended Limitation

ALO Law Office- IDT Tax I Arbitration I Litigation

Date: 27.03.2026

CESTAT Kolkata Clarifies Scope of Valuation Rule 10(2) and Limits of Extended Limitation

The Customs, Excise, and Service Tax Appellate Tribunal (CESTAT), Kolkata, recently delivered a significant judgment in the case of Customs Appeal No. ​ 75332 of 2024, involving M/s. ​ Jindal Nickel & Alloys Ltd. and the Commissioner of Customs (Preventive), Kolkata. ​ This case revolved around the inclusion of freight and insurance charges in the assessable value of imported goods and the invocation of the extended limitation period under Section 28(4) of the Customs Act, 1962. ​ The tribunal’s decision has set a precedent for similar cases in the future.

Background of the Case

M/s. Jindal Nickel & Alloys Ltd., a trader and importer of goods, imports Ferro Silicon and Magnesium Ferro Silicon from Bhutan through the Land Customs Station (LCS) at Jaigaon, located at the Indo-Bhutan border. ​ The dispute arose when the Commissioner of Customs (Preventive), Kolkata, issued an Order-in-Original (No. ​ 09/Cus/CC(P)/WB/2023-24 dated 31.10.2023), directing the re-assessment of the imported goods. ​ The order mandated the inclusion of freight charges (20% of the Free on Board (FOB) value) and insurance charges (1.125% of the FOB value) in the assessable value, as per Rule 10(2) of the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007. ​

The department alleged that the appellant had misared the assessable value of the goods by excluding freight and insurance charges, resulting in a short payment of Integrated Goods and Services Tax (IGST) amounting to ₹83,43,639 during the period July 2017 to June 2018. ​ Consequently, the department imposed a penalty of an equal amount under Section 114A of the Customs Act, 1962, and demanded the recovery of the evaded IGST along with interest under Section 28AA. ​

Key Issues in the Case

The case revolved around two primary issues:

1. Inclusion of Freight and Insurance Charges in Assessable Value: The department argued that the appellant failed to include freight and insurance charges in the assessable value, as mandated by Rule 10(2) of the Customs Valuation Rules. ​ The appellant contended that the FOB value declared in the invoice was equivalent to the Cost, Insurance, and Freight (CIF) value, as there was no transportation cost or insurance required between the Bhutan Customs Station at Phuentsholing and the Indian LCS at Jaigaon. ​
2. Invocation of Extended Limitation Period: The department invoked the extended limitation period under Section 28(4) of the Customs Act, alleging suppression and willful misstatement by the appellant. ​ The appellant argued that they had disclosed all relevant information in the invoice and Bill of Entry, and the case was one of interpretation rather than suppression. ​

Tribunal’s Observations and Judgment

Merits of the Case ​

The tribunal examined the appellant’s claim that the FOB value was equivalent to the CIF value due to the absence of transportation costs and insurance between the two borders. ​ While the appellant argued that the goods were invoiced on an FOB basis, which included transportation costs within Bhutan, the tribunal noted that the appellant failed to provide documentary evidence to substantiate this claim. ​ The tribunal emphasized that oral arguments alone could not establish the equivalence of FOB and CIF values. ​

The tribunal also highlighted the terms and conditions printed on the invoice-cum-challan, which indicated that the goods were dispatched at the buyer’s risk and the seller’s responsibility ceased once the goods left the factory premises. ​ This supported the department’s claim that transportation and insurance costs were incurred and should be included in the assessable value as per Rule 10(2) of the Valuation Rules. ​

Extended Limitation Period ​

The tribunal scrutinized the department’s invocation of the extended limitation period under Section 28(4) of the Customs Act. ​ It noted that the appellant had clearly declared the FOB value and indicated NIL freight charges in the Bill of Entry. ​ The tribunal held that the charge of suppression or willful misstatement could not be substantiated, as the appellant had disclosed all relevant information in the invoice and Bill of Entry. ​ The tribunal emphasized that the extended limitation period could only be invoked in cases of deliberate default or willful intent to evade duty, which was not evident in this case. ​

Revenue Neutrality

The tribunal also considered the revenue neutrality of the case, noting that the appellant was eligible to avail credit for any duty paid on transportation and insurance costs. ​ This further supported the appellant’s argument that there was no intention to evade duty. ​

Final Decision

After considering the arguments and evidence presented by both parties, the tribunal ruled in favor of the appellant. It set aside the order of the lower authority and allowed the appeal on the grounds of limitation. ​ The tribunal concluded that the extended period of limitation was not applicable, as the department failed to establish suppression or willful misstatement by the appellant. ​

Key Takeaways

1. Importance of Documentary Evidence: The tribunal emphasized the need for documentary evidence to substantiate claims regarding the equivalence of FOB and CIF values. ​ Oral arguments alone are insufficient to meet legal requirements. ​
2. Strict Interpretation of Suppression: The tribunal reiterated that suppression or willful misstatement must be proven with clear evidence of deliberate intent to evade duty. ​ Mere non-payment or incorrect statements cannot be equated with suppression. ​
3. Revenue Neutrality: The tribunal highlighted that cases involving revenue neutrality, where the appellant is eligible to claim credit for the duty paid, are less likely to be considered as deliberate evasion. ​
4. Extended Limitation Period: The judgment clarified that the extended limitation period under Section 28(4) of the Customs Act can only be invoked in cases of deliberate default or suppression, not for mere errors or misinterpretations. ​

Conclusion

The decision in Customs Appeal No. ​ 75332 of 2024 serves as a crucial precedent for importers and the customs department alike. ​ It underscores the importance of proper documentation, the need for clear evidence in cases of alleged suppression, and the significance of revenue neutrality in determining the intent behind duty evasion claims. This judgment is a reminder of the importance of adhering to legal provisions while also ensuring that enforcement actions are based on solid evidence and not mere assumptions.

Source: CESTAT Kolkata

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