CESTAT Bengaluru: BCD on DTA Clearances by EOUs Cannot Be Based on MRP, Must Follow Customs Valuation Rules

January 21, 2026 : The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Bengaluru has delivered an important ruling on the valuation of Basic Customs Duty (BCD) payable on Domestic Tariff Area (DTA) clearances made by 100% Export Oriented Units (EOUs). The Tribunal held that BCD on such clearances cannot be assessed on the basis of Maximum Retail Price (MRP) after allowing abatement, and must instead be determined strictly in accordance with the Customs Valuation Rules, 2007.

The decision was rendered by a Bench comprising Dr. D.M. Misra, Judicial Member, and Pullela Nageswara Rao, Technical Member. The Tribunal set aside multiple orders confirming differential duty demands, interest, and penalties, and remanded the matter to the adjudicating authority for fresh adjudication.

Background of the dispute

The case arose out of audit objections for the financial years 2010–11 and 2011–12. The assessee, a 100% EOU engaged in the manufacture of pharmaceutical products, exported nearly 80% of its production, while the remaining 20% was cleared into the DTA, mainly to its holding company.

Initially, the assessee discharged both BCD and Countervailing Duty (CVD) on DTA clearances by adopting a valuation based on MRP minus admissible abatement. However, from February 2012 onwards, the assessee revised its approach. Under the revised methodology, BCD was paid on the transaction value, that is, the invoice price charged to the holding company, while CVD continued to be paid on an MRP-based valuation.

This change triggered objections from the Department. The Revenue alleged that since the buyer was a related party, the declared transaction value could not be accepted without documentary evidence demonstrating that the price was not influenced by the relationship. It was also alleged that the revised valuation method led to a significant reduction in duty liability. On this basis, show cause notices were issued demanding differential duty along with interest and penalties. These demands were confirmed by the adjudicating authorities and upheld in appeal, leading to the batch of appeals before the Tribunal.

Core issue before the Tribunal

The central question before the Tribunal was whether BCD on DTA clearances made by a 100% EOU should be computed on the basis of MRP minus abatement or on transaction value determined under the Customs Valuation Rules, 2007, particularly when the sales are made to a related party.

Findings and legal reasoning

The Tribunal examined the statutory framework governing DTA clearances by EOUs, especially the proviso to Section 3(1) of the Central Excise Act, 1944, which treats such clearances as deemed imports. It noted that once DTA clearances are treated as imports, valuation must necessarily follow Section 14 of the Customs Act, 1962, read with the Customs Valuation Rules, 2007.

On this basis, the Tribunal categorically held that Section 4A of the Central Excise Act, which provides for MRP-based valuation, has no application in determining customs duties on deemed imports by EOUs. The Bench emphasised that what is not permissible directly under the customs valuation framework cannot be introduced indirectly by borrowing MRP-based concepts for computing BCD.

At the same time, the Tribunal did not accept the assessee’s transaction value outright. It observed that the transactions were admittedly between related parties, and the assessee had not produced sufficient evidence to conclusively establish that the declared price was uninfluenced by the relationship. Relying on the Supreme Court’s ruling in CCE v. Morarjee Brembana Ltd., the Tribunal held that in such circumstances, valuation must be carried out by sequential application of Rules 4 to 8 of the Customs Valuation Rules, 2007, based on available facts and evidence.

Outcome

In conclusion, the Tribunal held that:

• BCD cannot be assessed on the basis of MRP minus abatement for DTA clearances by EOUs.
• MRP-based valuation under Section 4A of the Central Excise Act cannot be applied, even indirectly, for computing customs duties.
• Where the buyer is a related party, the assessable value must be determined strictly by applying the Customs Valuation Rules in sequence, after examining evidence.

Accordingly, all impugned orders confirming duty demands, interest, and penalties were set aside, and the matter was remanded for de novo adjudication. The adjudicating authority was directed to re-determine the assessable value in accordance with the Customs Valuation Rules after giving the assessee a fair opportunity to produce supporting documents. The Tribunal clarified that it was not expressing any final opinion on the correctness of the transaction value declared by the assessee.

The appeals were thus allowed by way of remand.