Under CFR Terms, Freight Costs Are Already Included in the Customs Value of Goods
⚖️ Ukraine | Customs Disputes | Customs Valuation | CFR (Incoterms 2010)
Case Details
Case No.: 825/2410/16
Administrative Proceedings No.: К/9901/45590/18
Court: Supreme Court, Administrative Cassation Court
Decision Date: 16 June 2023
Case Category: Customs Law / Administrative Disputes
Subject Matter: Determination of Customs Value of Imported Goods
Sub-Subject: CFR (Incoterms 2010) / Freight Costs / Transaction Value / Customs Value Adjustment
Claimant: Semenivska Manufaktura Private Enterprise
Defendant: Chernihiv Customs of the State Fiscal Service
Foreign Supplier: CHANGXING YUSEN TEXTILE CO., LTD (China)
Contract: No. US23-916 dated 23 September 2016
Delivery Terms: CFR Chornomorsk (Incoterms 2010)
Goods: Fabrics made of synthetic non-textured yarns, dyed fabrics and articles of base metals
Key Issue: Whether transportation costs must be added separately to the price actually paid or payable when determining the customs value of goods imported into Ukraine under CFR (Cost and Freight) Incoterms 2010 terms
Outcome: The Supreme Court held that where goods are supplied under CFR terms, transportation costs to the named port of destination are already included in the invoice value of the goods. They therefore must not be added again to the price actually paid or payable when calculating customs value. The Court upheld the cancellation of the customs authority’s decision adjusting the declared customs value.
Background of the Dispute
Semenivska Manufaktura imported goods into Ukraine under a contract concluded with the Chinese company CHANGXING YUSEN TEXTILE CO., LTD.
In November 2016, the company imported a consignment consisting of fabrics and articles of base metals. The customs value was declared under the primary valuation method — the transaction value of the imported goods. Вставлений текст markdown
Chernihiv Customs questioned the declared value.
Among other issues, the customs authority argued that the documents submitted by the declarant did not contain sufficient information concerning transportation costs. It also questioned the cost calculation submitted by the importer and noted that the declared customs value was lower than the customs value previously accepted for similar goods.
The customs authority consequently rejected the declared transaction value and determined the customs value using the fallback method. Вставлений текст markdown
The importer challenged both the customs valuation adjustment and the refusal card.
The courts of first instance and appeal ruled in favour of the importer, concluding that the documents submitted for customs clearance sufficiently established the price and conditions of supply. Chernihiv Customs subsequently brought a cassation appeal before the Supreme Court.
The Transaction Value Is the Primary Method of Customs Valuation
The Supreme Court began with the general rules governing customs valuation under the Customs Code of Ukraine.
Under Article 49, the customs value of goods crossing the customs border is the value used for customs purposes and is based on the price actually paid or payable for the goods.
Article 57 establishes several methods for determining the customs value of imported goods.
The primary method is the transaction value method — the price under the contract relating to the imported goods.
Secondary valuation methods may be used only where the customs value cannot properly be determined using the preceding method. Вставлений текст markdown
Accordingly, customs authorities cannot simply abandon the transaction value because another valuation method produces a higher figure.
There must be legally sufficient grounds for concluding that the declared transaction value cannot reliably be established.
When Can Customs Request Additional Documents?
The Court also addressed the circumstances in which customs authorities may require an importer to submit additional documents.
The declarant bears responsibility for substantiating the declared customs value and must provide the documents required under Article 53 of the Customs Code.
However, the customs authority's power to demand additional documentation is not unlimited.
Additional documents may be requested where there are substantiated doubts concerning the reliability of the information supplied — for example, where the documents are incomplete, contain discrepancies or fail to establish the numerical components of the customs value.
The authority should request documents capable of resolving the particular doubts concerning the declared value, rather than automatically demanding every document mentioned in Article 53.
Transportation Costs Are Added Only If They Are Not Already Included
Article 58(10) of the Customs Code identifies costs that must be added to the price actually paid or payable when calculating customs value if those costs have not already been included in the price.
These may include transportation and insurance costs.
The qualification is essential.
The existence of transportation expenses does not automatically mean that they must be added separately to the invoice price.
The first question is whether the contractual price already incorporates those expenses.
Article 53 similarly requires transportation documents establishing the cost of carriage where, under the applicable delivery terms, transportation expenses are not included in the price of the goods.
The Goods Were Supplied on CFR Chornomorsk Terms
The parties' contract provided that deliveries would be governed by Incoterms 2010, with the specific quantity, assortment and delivery terms for each consignment determined by the relevant invoice.
The invoice for the disputed consignment specified:
CFR Chornomorsk — Cost and Freight.
The courts therefore had to determine the significance of the CFR term when calculating the customs value of the imported goods.
What Does CFR Mean Under Incoterms 2010?
Under CFR (Cost and Freight) Incoterms 2010, the seller is responsible for paying the costs and freight necessary to transport the goods to the named port of destination.
At the same time, the allocation of transportation costs must be distinguished from the transfer of risk.
Under CFR, the risk of loss or damage passes from seller to buyer in accordance with the applicable Incoterms rule, even though the seller remains responsible for paying the freight necessary to transport the goods to the named destination.
The Supreme Court therefore distinguished between:
who bears the transportation cost, and
who bears the risk associated with the goods during transportation.
The fact that risk may pass to the buyer before the goods arrive at the destination does not mean that freight costs cease to form part of the price payable under CFR terms.
Freight Was Already Included in the Invoice Price
This distinction was decisive.
The Supreme Court agreed with the lower courts that delivery on CFR Chornomorsk terms meant that transportation costs to the port of destination — freight — were already incorporated into the invoice value of the goods.
The evidence supported that conclusion.
The supplier expressly confirmed in its letter of 25 October 2016 that the cost of maritime transportation had been included in the price stated in the invoice.
The supplier's cost calculation also demonstrated that freight formed part of the price of the goods. Вставлений текст markdown
Accordingly, there was no missing transportation component that needed to be added separately when calculating customs value.
Freight Cannot Be Added Twice
The Supreme Court formulated the practical consequence directly.
Where goods are supplied under CFR (Incoterms 2010) terms, transportation expenses are already included in the invoice value.
Therefore, when determining customs value, those expenses are not added again to the price actually paid or payable. Вставлений текст markdown
Adding freight separately in those circumstances would effectively count the same transportation expense twice.
For importers, the delivery term specified in the contract and invoice is therefore directly relevant to identifying which costs are already incorporated into the transaction value.
Separate Insurance Costs Were Not Required in This Case
Customs also argued that the buyer should have insured the goods after the risk had passed to it.
The courts established, however, that neither the supplier nor the declarant had incurred additional insurance or forwarding expenses in connection with the imported goods.
This was supported by correspondence from both the supplier and the importer and was consistent with the other documents submitted during customs clearance. Вставлений текст markdown
The mere allocation of risk under CFR terms therefore did not establish the existence of an additional insurance expense that had to be incorporated into customs value.
A Lower Customs Value Than Similar Goods Is Not Enough
The customs authority also relied on the fact that the importer had declared a lower customs value than values previously accepted for identical or similar goods.
The Supreme Court rejected this as a sufficient basis for adjusting the declared value.
A difference between the declared customs value and information contained in customs databases may justify closer scrutiny of the transaction.
It does not, by itself, prove that the declared transaction value is inaccurate.
Only where the examination reveals legally relevant deficiencies — such as discrepancies, indications of falsification or missing information necessary to establish the value — may the authority proceed on that basis and require additional evidence.
The Importer Provided Sufficient Evidence of the Customs Value
The importer had submitted the contract, invoice, packing list, shipping specification and other documents required for customs clearance.
It additionally provided international transport documents, bills of lading, cost calculations, supplier correspondence and other supporting evidence.
The courts found no discrepancies in the numerical information establishing the components of the customs value. Вставлений текст markdown
The Supreme Court therefore agreed that the documentation was sufficient to substantiate the declared transaction value.
The customs authority had not established adequate grounds for rejecting the primary valuation method and replacing it with the fallback method.
The Supreme Court's Decision
The Supreme Court dismissed the cassation appeal of Chernihiv Customs.
It upheld the judgment of the Chernihiv District Administrative Court of 24 January 2017 and the ruling of the Kyiv Administrative Court of Appeal of 4 April 2017.
As a result, the decision adjusting the customs value and the customs refusal card remained cancelled. Вставлений текст markdown
The central rule emerging from the judgment is clear:
Where goods are supplied under CFR (Incoterms 2010), freight costs to the named port of destination are already included in the invoice price and must not be added separately to the price actually paid or payable when determining customs value.
Why This Decision Matters
The judgment provides practical guidance for businesses importing goods into Ukraine under CFR terms.
It confirms that customs valuation must reflect the actual contractual structure of the transaction. Customs authorities should not treat freight as an additional component merely because transportation costs ordinarily form part of customs value.
The decision is particularly relevant where:
goods are imported into Ukraine under CFR terms;
the seller pays freight to the named port of destination;
freight is already incorporated into the invoice price;
customs requests separate evidence of transportation costs;
customs seeks to add freight separately to the declared transaction value;
the authority questions the declared value because comparable imports were cleared at higher values;
customs proposes replacing the transaction value method with a secondary or fallback method; or
an importer challenges a customs valuation adjustment or refusal card.
Lions Lawyers' Analysis
The practical importance of this judgment lies in the distinction between cost allocation under Incoterms and the separate calculation of customs value under Ukrainian customs law.
Incoterms do not themselves determine customs value. They do, however, establish which costs the contractual price is intended to cover. That information must then be considered when applying the Customs Code.
Under CFR, freight to the named port of destination is borne by the seller and incorporated into the commercial structure of the price. If the documentary evidence confirms that freight has already been included in the invoice price, adding the same expense again for customs valuation purposes would artificially increase the customs value.
The judgment also demonstrates why the contractual delivery term should not be considered in isolation. The invoice, contract, bill of lading, supplier correspondence and cost calculations should consistently demonstrate the agreed pricing structure.
For foreign exporters supplying goods to Ukrainian customers, consistency between the contract, Incoterms rule, invoice and transportation documentation can substantially reduce the risk of disputes during customs clearance.
The judgment is equally important for importers facing comparisons with customs databases. A higher customs value for similar goods may prompt additional scrutiny, but it does not automatically establish that the transaction value declared in a particular import is incorrect.
Lions Lawyers advises Ukrainian and international clients on customs and international trade matters in Ukraine, including customs valuation, Incoterms, import documentation, customs value adjustments, classification disputes and challenges to decisions of Ukrainian customs authorities. We provide full-service legal representation as well as standalone legal opinions, enabling clients to assess their existing strategy and, where appropriate, identify alternative legal approaches.
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