Recovery of alleged excess DEPB credit cannot be carried out by Customs authorities under Section 28 of the Customs Act, 1962, as the jurisdiction to recover or cancel such credit lies solely with the Director General of Foreign Trade (DGFT).

Per M. Ajit Kumar,

These appeals arise out of three different Orders in Appeal (impugned Orders), and the issue being common, they were heard together and are disposed by this common order.

Factual Matrix

2. The appellants are manufacturers of viscose yarn and cotton blends and availed export incentives under the Duty Entitlement Pass Book (DEPB) Scheme. During scrutiny of their export documents, the DRI found that, in respect of certain exports made on CIF basis, the freight actually paid to the liners was higher than the freight declared in the shipping bills, resulting in inflation of the FOB value and consequential availment of excess DEPB benefits. The lower authority, after rejecting the declared value and redetermining the same, ordered confiscation of the goods under Section 113(h) and (i) of the Customs Act, 1962, demanded the differential duty with interest under Section 28AB and imposed penalties under Section 114A . The appeals filed before the Commissioner (Appeals) were dismissed. Hence, the present appeals.

3. The Ld. Advocate Ms. Nivedita Mehta appeared for the appellants and Ld. Authorized Representative Smt. Anandalakshmi Ganeshram, appeared for the respondent.

Submissions made by the Appellant

3.1 Ms. Nivedita Mehta the Ld. Counsel for the appellants submitted as follows:

A. Background of the dispute

The Appellants are engaged in the manufacture and export of viscose yarn and cotton blends, predominantly through Tuticorin Port. The exports were made on CIF basis, and the FOB value for DEPB purposes was arrived at by deducting the freight and insurance components from the CIF value. The Department alleges that the Appellants ought also to have deducted the Currency Adjustment Factor (CAF), Bunker Adjustment Factor (BAF) and ocean freight, while determining the FOB value. On this basis, it is alleged that the Appellants obtained DEPB scrips in excess of their entitlement. BAF represents compensation subsequently recovered by shipping lines/freight forwarders for unforeseen increases in freight costs, such as fuel price escalation or route diversions, while CAF represents compensation for unforeseen fluctuations in foreign exchange rates. Both charges arise only subsequently, often after the goods reach the destination, and could not reasonably have been anticipated by the exporter while filing the shipping bill. The Appellants submit that the demand raised on this basis is unsustainable both on jurisdiction and on merits.

B. Issue covered by the Tribunal’s decision

At the outset, the Appellants submit that the issue is squarely covered in their favour by M/s. Cheran Spinners Ltd. & Anr. Vs Commissioner of Customs, Tuticorin, Final Order Nos. 40752-40753/2025 dated 22.07.2025, wherein, on an identical issue concerning deduction of CAF and BAF for determination of FOB value and recovery of alleged excess DEPB benefit under Section 28 , the Tribunal held that such recovery under Section 28 was not permissible.

C. Demand under Section 28 is without jurisdiction

The Appellants submit that Section 28 can be invoked only for recovery of duty allegedly short-levied or short-paid from the person liable to pay such duty. The present demand, however, relates to alleged excess DEPB credit obtained on exports and subsequently utilised by the transferees for payment of import duty. The Appellants are exporters and are not the importers in respect of the imports against which the alleged short levy is sought to be recovered. Further, the validity and extent of credit available under a DEPB scrip issued by the DGFT cannot be unilaterally