Answers to Unsolved Practical Examples in ‘Indirect Taxes'

Question 1 Compute the Customs duty liability as per the provisions of the Customs Act, 1962, from the following information. Make suitable assumptions and indicate the same in your answer: Product Imported - ‘X’ Total FOB Value of the goods - US $ 74000 Quantity Imported - 100 MTs. Ocean freight - US $ 10000 Insurance - US $ 740 Landing charges - 1% of CIF value Exchange rate - 1 US $ = Rs. 37 Date of presentation of Bill of Entry - 28.02.2002 Date of Entry Inwards of the Vessel - 03.03.2002 - . - . - . - . - . - Customs duty Rates on 28-2-2002 - (i) Basic Customs Duty 25% (ii) Education Cess - 2% (iii) Countervailing Duty (Additional Duty) 12%. - . - . - Customs duty rates on 3.3.2002 - (i) Basic Customs Duty 20% (ii) Education Cess 2% (iii) Countervailing Duty (Additional Duty) 8%.Special CVD under section 3(5) of Customs Tariff Act is applicable. How much Cenvat can be availed by importer, if he is manufacturer. - . - . - . - Will your answer change if the actual cost of Freight and Insurance is not available ? (ICWA Inter - December 1997).

Answer 1 – Though Bill of Entry was presented earlier, entry inward was granted later. Hence, rate relevant will be as on 3.3.2002 i.e. Basic 20%, Special CVD 4% and CVD 8%.

If actual cost of freight and insurance is not available, it should be taken as 20% of FOB and 1.125% of FOB respectively. Hence, freight will have to be taken as US $ 14,800 and insurance as US $ 832.50. Thus, CIF value will be US $ 89,632.50. Student can calculate customs duty payable on that basis.

A manufacturer can avail Cenvat credit of duty as specified in columns D (i.e. CVD), E (education cess of excise) and I i.e. Spl CVD.

Question 2 Compute (keeping in mind the provisions of the Customs Act, 1962 and Customs Tariff Act, 1975), the total customs duty payable by an importer on goods ‘X’ imported by sea into India, from the following details. You may, wherever appropriate, make suitable assumptions, indicating the same in your answer. - * Value of Goods (FOB) $ 1,000 (Dollars) * Weight of Goods 1,000 Kg * Freight Charges $ 100 (Dollars) * Insurance Charges $ 20 (Dollars) * Handling Charges Rs. 200 * Exchange Rate 4 Dollars = Rs. 100 * Date of Presentation of Bill of Entry - 4.5.2005 * Date of Entry Inwards of Vessel - 1.5.2005 Rates of Customs Duty on 1.5.2005 - * Basic 20% Adv. * Education Cess -2% * Additional (CVD) 15%. * Rates of Customs Duty on 4.5.2005 - * Basic 15% Adv. * Education cess -2%* Additional (CVD) 16%. - . - Note : Special CVD under section 3(5) of Customs Tariff Act is applicable. No other particulars are relevant. How much Cenvat can be availed by importer, if he is manufacturer (CA Final - November 1996 adopted).

Answer 2 - CIF Value is US $ 1,120 [1,000 + 100 + 20]. In Rupees, it will be Rs 28,000 @ Rs 25 per dollar. Add handling charges of Rs 200. [It is presumed that these are ‘landing charges’ and hence separate landing charges are not added]. Thus, Customs Value (Assessable Value) is Rs 28,200.

A manufacturer can avail Cenvat credit of duty as specified in columns D (i.e. CVD), E (education cess of excise) and I i.e. Spl CVD.

Question 3 Some spares were imported by air from Germany at CIF value of 1,200 DM, which included air freight of 380 DM and insurance charges of 20 DM. If exchange rate is 23.40 Rs. = 1 DM, find the Customs Value. Rate of customs duty is 20%, and education cess is 2%. Excise duty chargeable on similar goods in India is 16% as per tariff rate. However, as per an exemption notification, the effective rate of excise duty is 8%. Special CVD under section 3(5) of Customs Tariff Act is applicable. Find the customs duty payable. How much Cenvat can be availed by importer, if he is manufacturer.

Answer 3 – Since actual freight exceeds 20%, it has to be limited to 20% for valuation. Now, FOB Value is DM 800 [CIF – Freight – Insurance]. Add freight DM 160 [20% of DM 800] and insurance DM 20 [Actual]. Thus, CIF price for valuation purposes is DM 980/-. Convert in Rs @ Rs 23.40 = 1 DM. Thus, CIF in Rs is 22,932.00. Add 1% landing charges (Rs 229.32) to get Assessable Value of Rs 23,161.32.

A manufacturer can avail Cenvat credit of duty as specified in columns D (i.e. CVD), E (education cess of excise) and I i.e. Spl CVD.

Question 4 An importer has imported a machine from Japan at FOB cost of 9,00,000 Yens. Other details are as follows :

(a) Freight from Japan to Indian port was 18,000 Yens.

(b) Transit insurance charges were 1% of FOB value.

(c) Design and development charges of 90,000 Yens were paid to a consultancy firm in Japan for design of machinery.

(d) Packing charges of 22,000 Yen were charged extra.

(e) Rs. 20,000 were spent in design cost on machine in India.

(f) An amount of 98,500 Yen was payable to Japanese manufacturer towards charges for installation and commissioning the machine in India.

(g) Rate of exchange as announced by RBI was : 1 yen = Rs. 0.309

(h) Rate of exchange as announced by Central Government by notification under section 14 (3) (a) (i) : 1 Yen = 0.302 Rs

(i) Customs duty was 20% and education cess was 2%. Excise duty on similar machinery in India would be 16%. Special CVD under section 3(5) of Customs Tariff Act is applicable.

Find the customs duty payable. How much Cenvat can be availed by importer, if he is manufacturer.

Answer 4 – Design charges of Rs 20,000 are not includible in Assessable Value, but design charges paid abroad are includible. Erection and commissioning charges are not includible. Relevant rate of exchange is 1 Yen = Rs 0.302. Hence, duty payable is calculated as follows -