CESTAT Kolkata Overturns Customs Duty Demand in Valuation and Limitation Dispute

ALO Law Office- IDT Tax I Arbitration I Litigation

Date: 03.04.2026

CESTAT Kolkata Overturns Customs Duty Demand in Valuation and Limitation Dispute

The Customs, Excise, and Service Tax Appellate Tribunal (CESTAT), Kolkata, recently delivered a significant judgment in the case of M/s Rimjhim Ispat Ltd. vs. Commissioner of Customs (Preventive), Kolkata. ​ The case revolved around the inclusion of freight and insurance charges in the assessable value of imported goods under Rule 10(2) of the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007. ​ The tribunal’s decision, pronounced on March 25, 2026, has clarified key aspects of customs valuation and the application of extended periods of limitation under the Customs Act, 1962. ​

Case Background

M/s Rimjhim Ispat Ltd., a manufacturer of iron and steel products based in Uttar Pradesh, imports Ferro Silicon from Bhutan for its production processes. ​ These imports are made through the Land Customs Station (LCS) at Jaigaon, located at the Indo-Bhutan border. ​ The goods are invoiced on a Free on Board (FOB) basis, which the appellant argued was equivalent to the Cost, Insurance, and Freight (CIF) value due to the unique geographical proximity of the Bhutanese export point (Phuentsholing Customs Station) and the Indian import point (Jaigaon Customs Station). ​

The dispute arose when the Commissioner of Customs (Preventive), Kolkata, issued an Order-in-Original (No. ​ 10/Cus/CC(P)/WB/2023-24 dated October 31, 2023), directing the reassessment of the imported goods. ​ The order mandated the inclusion of 20% of the FOB value as freight charges and 1.125% of the FOB value as insurance charges in the assessable value. ​ This resulted in a demand for Rs. ​ 1,08,49,409/- in differential Integrated Goods and Services Tax (IGST), along with interest and an equal amount of penalty under Section 114A of the Customs Act. ​

Key Issues in the Case

The case revolved around two primary issues:

1. Inclusion of Freight and Insurance Charges in Assessable Value ​

The Revenue argued that the inclusion of freight and insurance charges was mandatory under Rule 10(2) of the Customs Valuation Rules, 2007. ​ The appellant contended that the FOB value was effectively the CIF value due to the absence of a no-man’s land between the Bhutanese and Indian borders. ​ They argued that no additional transportation or insurance costs were incurred during the import process. ​

2. Invocation of Extended Period of Limitation ​

The Revenue issued a show-cause notice on June 7, 2022, alleging suppression and willful misstatement by the appellant regarding the assessable value of the imported goods. ​ The appellant argued that the extended period of limitation was not applicable, as they had disclosed all relevant information in the invoice and Bill of Entry. ​ They claimed the case was based on a difference in interpretation rather than deliberate suppression. ​

Arguments Presented

Appellant’s Arguments

1. FOB vs. CIF Value: The appellant argued that the FOB value was effectively the CIF value due to the geographical proximity of the export and import points. ​ They claimed that no transportation or insurance costs were incurred between the Phuentsholing Customs Station in Bhutan and the Jaigaon LCS in India. ​
2. No-Man’s Land: The appellant emphasized that there was no no-man’s land between the two borders, and the goods were directly transported from the Bhutanese exporter to the Indian importer without any transit time or additional costs. ​
3. Extended Limitation Period: The appellant contended that the extended period of limitation was not applicable, as they had disclosed all relevant information in the invoice and Bill of Entry. ​ They argued that the case was based on a difference in interpretation rather than suppression or willful misstatement. ​
4. Revenue Neutrality: The appellant highlighted that the case was revenue-neutral, as they were eligible to claim credit for any duty paid on transportation and insurance costs. ​

Revenue’s Arguments

1. Mandatory Inclusion of Freight and Insurance: The Revenue argued that the inclusion of freight and insurance charges was legally mandated under Rule 10(2) of the Customs Valuation Rules, 2007. ​ They contended that the appellant failed to add 20% of the FOB value as freight charges and 1.125% as insurance charges. ​
2. Suppression and Misstatement: The Revenue alleged that the appellant had deliberately misdeclared the assessable value by not including transportation and insurance costs, thereby evading IGST. ​

Tribunal’s Observations

The tribunal carefully analyzed the arguments and evidence presented by both parties. ​ The key observations were:

1. FOB vs. CIF Value: The tribunal acknowledged the appellant’s argument that the FOB value was equivalent to the CIF value due to the geographical proximity of the export and import points. ​ However, it noted that the appellant failed to provide sufficient documentary evidence to substantiate this claim. ​ The tribunal emphasized that oral arguments and assumptions were insufficient to meet legal requirements. ​
2. Extended Limitation Period: The tribunal held that the extended period of limitation under Section 28(4) of the Customs Act could only be invoked in cases of deliberate default. ​ It found that the appellant had disclosed all relevant information in the invoice and Bill of Entry, including the FOB value and the mention of NIL freight charges. ​ The tribunal concluded that the Revenue failed to establish suppression or willful misstatement on the part of the appellant. ​
3. Revenue Neutrality: The tribunal noted that the case was revenue-neutral, as the appellant was eligible to claim credit for any duty paid on transportation and insurance costs. ​ This further weakened the Revenue’s claim of suppression or willful misstatement. ​

Final Decision

The tribunal allowed the appeal filed by M/s Rimjhim Ispat Ltd. and set aside the order of the lower authority. ​ It concluded that the extended period of limitation was not applicable and that the inclusion of freight and insurance charges in the assessable value was not justified in the absence of concrete documentary evidence. ​

Implications of the Ruling

This landmark judgment has significant implications for importers and the customs authorities:

1. Clarity on Customs Valuation Rules: The ruling provides clarity on the application of Rule 10(2) of the Customs Valuation Rules, particularly regarding the inclusion of freight and insurance charges in the assessable value. ​
2. Strict Interpretation of Suppression: The tribunal’s emphasis on the need for concrete evidence to establish suppression or willful misstatement sets a precedent for future cases. ​
3. Revenue Neutrality Considerations: The judgment highlights the importance of considering revenue neutrality in cases involving alleged duty evasion. ​

Conclusion

The CESTAT’s decision in the case of M/s Rimjhim Ispat Ltd. underscores the importance of transparency, proper documentation, and adherence to customs valuation rules. ​ It also serves as a reminder to customs authorities to exercise caution when invoking extended periods of limitation and alleging suppression or willful misstatement.

Source: CESTAT Kolkata

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