The Central Board of Excise & Customs (CBEC) has once again tried to tame the field formations by directing that Additional/Joint Commissioners must approve all cases of verification of Present Market Value (PMV) of export goods under duty drawback claim.
Verifications must be carried out only where there is prima facie evidence to suggest overvaluation or specific information that the export value is being inflated to earn higher unintended duty drawback and not as a mater of routine.
Most duty drawback rates are notified on the basis of quantity exported. However, some items earn drawback as a percentage of FOB value of exports. In some cases duty drawback caps have been imposed. Yet, the Customs suspect that every exporter over-invoices to earn unintended duty drawback and start vexatious investigations.
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The law on export valuation is not necessarily helpful to the Customs. There are no rules for valuation of export goods. Section 14 of the Customs Act, 1962 is the only code and that provision enters the picture only when export goods are dutiable. Section 7 of the Foreign Exchange Management Act, 1999 has only a directory provision to file a declaration and there is no penal provision parallel to Section 67 of the repealed Foreign Exchange Regulation Act, 1973. Section 76(b) of the Customs Act, 1962 merely says that the drawback amount should not exceed the market value of the goods.
The case laws on the subject of export valuation are far from decisive. In the Lexus International case [1994 (89) ELT 228 (Cal.)], the Calcutta High Court held that over-invoicing of exports is no violation. The Supreme Court set aside the decision on technical grounds but without deciding whether a wrong declaration of value is an offence. The Tribunal followed the Lexus case in MVT International [2000 (117) ELT 258 (T-D)]. In the case of Shilpi Exports [1996 (83) ELT 302 (T)] and J.G.Exports [2000 (121) ELT 754 (T-LB)], the Tribunal held that Section 14 is not applicable to overvaluation of export goods. According to a reporter's brief [2000 (115) ELT A219] the SC dismissed the revenue appeal in the Shilpi Exports case.
On the other hand, some other Tribunal benches have held over-invoicing as an offence e.g. Galani Infin [2000 (118) ELT 360 (T)] and Om Prakash Bhatia [2001(127) ELT 81(T-LB)]. The Calcutta High Court also upheld similar views in Pankaj V. Sheth [1997 (90) ELT 31 (Cal.)] and Tosh & Sons (Cal.).
In the Om Prakash Bhatia case, the five-member Bench examined all previous case laws and over-ruled the decisions in MVT International and JG Exports. The SC has admitted the appeal against the Om Prakash Bhatia decision.
As usual, when the law was not conclusively in its favour, the CBEC took the law in its own hands and directed that PMV must be declared in all drawback shipping bills. That was licence enough for the field formations to hold up drawback claims on the grounds that PMV declared is incorrect. The CBEC had to reign in the field formations after exporters protested.
The Kelkar panel now wants introduction of Rules for valuation of exports. The CBEC seems determined to push through the Rules in this Budget, despite exporters