Circular No. 7/ 2003-Cus
5th February 2003

F.No.605/147/2002-DBK
Government of India
Ministry of Finance & Company Affairs
Department of Revenue

Sub: Admissibility of drawback and Market verification for ascertaining the present market value under Drawback Scheme -reg.

            Attention is invited to Board’s Circular No.26/2001-Cus dated 24.4.2001 which was issued in the wake of various cases of over-valuation under the Drawback scheme reported by the DRI and field formations. In order to curb such practice, Government through this circular laid down that the exporters should declare the present market value (PMV) of the goods in every case. Further, if during examination, it was suspected that the values are on the higher side or the goods appear to be sub-standard then the sample shall be drawn with the approval of the Assistant Commissioner and careful market verification may be carried out.

2.         It is alleged that the field officers at various ports have adopted different procedures for determining /comparison of the invoiced rates with the prevalent market rates. This is leading to the harassment of the Trade and also having adverse impact on the exports.

3.        The issue has been examined. There is no doubt that as a general rule, FOB value of the exports should be the basis for extending the drawback benefits since FOB value is recognised for export transactions both in the Customs Act, 1962 as well as in the Duty Drawback Schedule where the rates have been expressed as a percentage of the f.o.b. values. The duty drawback rates are computed by taking into account the average duty incidence suffered on the inputs used in the manufacture of the export products. In order to prevent the exporters from earning unintended benefits, most of the entries in the Drawback Schedule have specific rates of drawback.. In some other cases, where the rates have been expressed as a percentage of f.o.b. value and the commodities are considered prone to over-valuation, duty drawback caps have been imposed. Notwithstanding above measures, several instances of deliberate over-invoicing have been brought to the notice of the Board by the Customs Commissionerates. Board is also aware of the landmark judgements of CEGAT’s Larger bench in the matter of Om Prakash Bhatia Vs. Commissioner of Customs,Delhi vide 2001(127)ELT.81, wherein Hon’ble CEGAT held that Section 14 of the Customs Act would apply to export valuation. In coming to the above decision, Hon’ble CEGAT inter alia relied upon similar judgement of Calcutta High Court in the matter of Pankaj V. Seth vide 1997(90) ELT 31.

4.         In cases of specific information that the FOB value declared is inflated or there is prima-facie evidence to suggest such over-valuation, the field formations should resort to market verification to ascertain the correct market price of the goods. In addition to above, market verification can also be initiated on the basis of intelligence or where the intelligence is gathered in respect of consignments entered for export to sensitive destinations and/or where the goods are sub-standard and it appears that the acceptance of the declared value would result in accrual of substantial unintended drawback benefits. But all such cases should be taken up for verification only with the approval of the Additional/Joint Commissioner of Customs in charge of Exports or Preventive.

5.         In those cases where it is conclusively proved through verification that the FOB value had been artificially inflated/ manipulated by the exporter to avail of unintended higher drawback benefits, the cases shall be investigated and decided on merits in terms of section 14 and 113 read with sections 76(1)(b) and 114 of the Customs Act, 1962.

6.         It must be ensured that the market verifications are not resorted to in a routine manner and should be undertaken only on the basis of information/intelligence and/or prima-facie evidence which should be first recorded and, thereafter, orders of Additional Commissioner/Joint Commissioner or in their absence Commissioner’s be obtained to do market verification. Administrative authorities should also ensure that market verifications are expeditiously concluded and no harassment is caused to the Trade nor are any exports held up.

7.         Suitable public notices for information of the Trade and standing orders for guidance of the staff may kindly be issued accordingly.

8.         The receipt of this Circular may kindly be acknowledged.