Valuation for Customs Duty

Value for purpose of Customs Act

· Customs duty is payable as a percentage of ‘Value’ often called ‘Assessable Value’ or ‘Customs Value'. The Value may be either (a) ‘Value’ as defined in section 14(1) of Customs Act or (b) Tariff value prescribed under section 14(2) of Customs Act (section amended w.e.f. 10-10-2007)

· Transaction value at the time and place of importation or exportation, when price is sole consideration and buyer and sellers are unrelated is the basic criteria for ‘value’ u/s 14(1) of Customs Act. Thus, CIF value in case of imports and FOB value in case of exports is relevant.

· In case of high sea sale, price charged by importer to assessee would form the assessable value and not the invoice issued to the importer by foreign supplier. – National Wire v. CC 2000(122) ELT 810 (CEGAT) * Godavari Fertilizers v. CC (1996) 81 ELT 535 (CEGAT).

· Rate of exchange will be as determined by CBE&C or ascertained in manner determined by CBE&C.

· Valuation for customs is required to be done as per provisions of Customs Valuation (Determination of Value of Imported Goods) Rules, 2007

· CIF value of goods plus 1% landing charges is the basis for deciding ‘Assessable Value’.

· Commission to local agents, packing cost, value of goods and toolings supplied by buyer, royalty relating to imported goods are addible.

· Interest on deferred payment, demurrage and value of computer software loaded is not to be added.

· Old machinery and old cars are often valued on basis of depreciated value, though such method has no sanction of law.

20.3-1 Additions to ‘Customs Value’

Rule 10 of Customs Valuation (Determination of Value of Imported Goods) Rules, 2007 [Rule 9 upto 10-10-2007] provide that following cost and services are to be added, if these are not already included in the invoice price. –

· Commission and brokerage, except buying Commission, if not already included in the invoice price [rule 10(1)(a)(i)].

· Cost of container which are treated as being one with the goods for customs purposes, if not already included in the invoice price [rule 10(1)(a)(ii)].

· Cost of packing whether labour or materials, if not already included in the invoice price [rule 10(1)(a)(iii)].

· Materials, components, tools, dies, moulds, and consumables used in production of imported goods, supplied by buyer directly or indirectly, free of charge or at reduced cost, to the extent not already included in price [rule 10(1)(b)(i), (ii) and (iii)]

· Engineering, development, art work, design work, plans and sketches undertaken elsewhere than in India and necessary for production of imported goods, to the extent not already included in price [rule 10(1)(b)(iv)].

· Royalties and license fees relating to imported goods that buyer is required to pay, directly or indirectly, as a condition of sale of goods being valued [rule 10(1)(c)]

· Value of proceeds of subsequent resale, disposal or use of goods that accrues directly or indirectly to seller (i.e. to foreign exporter) [rule 10(1)(d)]

· All other payments made as condition of sale of goods being valued made directly or to third party to satisfy obligation of seller, to the extent not included in the price [rule 10(1)(e)]

· Cost of transport upto place of importation [rule 10(2)(a)]

· Loading, unloading and handling charges associated with delivery of imported goods at place of importation [These are termed as landing charges and are to be taken as 1%] [rule 10(2)(b)]

· Cost of insurance [rule 10(2)(c)]

The additions should be on the basis of objective and quantifiable data [rule 10(3) of Customs Valuation (Determination of Value of Imported Goods) Rules, 2007 (earlier rule 9(3)].

No other additions - No other addition shall be made to price paid or payable, except as provided for in rule 10.

Royalty payment un-connected with imported goods not to be added - UOI v. Mahindra and Mahindra Ltd. 76 ELT 481 = 1995 AIR SCW 1519 (SC) * S D Technical Service v. CC 2003 (155) ELT 274 = 56 RLT 970 (CEGAT 3 member bench).

Barging/lighterage charges includible – explanation to rule 10(2) (w.e.f. 10-10-2007)

Landing charges of 1% of CIF value to be added - Rule 10(2)(b).

Ship demurrage includible w.e.f. 10-10-2007 - explanation to rule 10(2)

20.3-2 Exclusions from Assessable Value

Interpretative Note to rule 3 of Customs Valuation (Determination of Value of Imported Goods) Rules, 2007provide that following charges shall be excluded :

 (a) Charges for construction, erection, assembly, maintenance or technical assistance undertaken after importation of plant, machinery or equipment

 (b) Cost of transport after importation

 (c) Duties and taxes in India

Other payments from buyer to seller that do not relate to imported goods are not part of the customs value.

Demurrage charges payable to port trust authorities for delay in clearing goods are not to be added . - Deepak Fertilisers v. CC 1989(41) ELT 550 (CEGAT) * Hindustan Lever v. UOI 2002(142) ELT 33 (Cal HC). [However, ship demurrage is includible w.e.f. 10-10-2007].

Ship demurrage includible w.e.f. 10-10-2007 - explanation to rule 10(2)

20.3-3 Methods of Valuation

The methods of valuation for customs methods are as follows -

· Transaction Value of Imported goods [Section 14(1) and Rule 3(1)]

· Transaction Value of Identical Goods [Rule 4]

· Transaction Value of Similar Goods [Rule 5]

· Deductive Value which is based on identical or similar imported goods sold in India [Rule 7]

· Computed value which is based on cost of manufacture of goods plus profits [Rule 8]

· Residual method based on reasonable means and data available [Rule 9]

Methods to be applied sequentially - These methods are to be applied in sequential order, i.e. if method one cannot be applied, then method two comes into force and when method two also cannot be applied, method three should be used and so on. The only exception is that the ‘computed value’ method may be used before ‘deductive value’ method, if the importer requests and Assessing Officer permits.

20.3-4 Rejection of' Value' - Importer has to declare 'value' of goods. If the assessing officer has reason to doubt about truth or accuracy of the value declared by the importer, he can ask the importer to submit further information and evidence. If the customs officer still has reasonable doubt, he can reject the 'value' as declared by the importer. [rule 12(1) w.e.f. 10-10-2007 – earlier rule 10A(1) of Customs Valuation Rules added w.e.f. 19-2-1998]. If the importer requests, the assessing officer has to give reasons for doubting the truth or accuracy of value declared by importer. [rule 12(2) of Customs Valuation (Determination of Value of Imported Goods) Rules, 2007 – earlier rule 10A(2) of Customs Valuation Rules upto 10-10-2007].

Rule 12 is only mechanism to reject the declared value – As per explanation (1)(i) to rule 12, the Rule 12 does not provide any method for determination of value. It only provides mechanism to reject declared value, where there is reasonable doubt. If transaction value is rejected, valuation has to be done as per rule 4 to 9 [Explanation (1)(i) to rule 12 of Customs Valuation (Determination of Value of Imported Goods) Rules, 2007].

20.3-5 Export Goods - Valuation for Assessment

Customs value of export goods is to be determined under section 14 of Customs Act, read with Customs Valuation (Determination of Value of Export Goods), Rules, 2007. Transaction value at the time and place of exportation, when price is sole consideration and buyer and sellers are unrelated is the basic criteria If there is no sale or buyer or seller are related or price is not the sole consideration, value of the goods will be determined as per Valuation Rules [Clause (ii) of second proviso to section 14(1)].

Valuation when buyer and seller are related – Definition of related person as per rule 2(2) of Customs Valuation (Determination of Value of Export Goods) Rules, 2007 is same as per definition of rule 2(2) of Customs Valuation (Determination of Value of Imported Goods) Rules, 2007.

As per rule 3(2) of Customs Valuation (Determination of Value of Export Goods) Rules, 2007, the transaction value, the transaction value will be accepted as ‘value’ even if buyer and seller are ‘related’, if the relationship has not influenced price.

Valuation if value cannot be determined on basis of transaction value – If valuation is not possible on basis of transaction value, valuation will be done by proceeding sequentially through rules 4 to 6 [Rule 3(3) of Customs Valuation (Determination of Value of Export Goods) Rules, 2007].

The methods are - Export value by comparison on the basis of transaction value of ‘goods of like kind and quality’ exported at or about the same time to other buyers in same destination country [Rule 4}, Computed value on basis of cost of production plus profit [Rule 5] and Residual method using reasonable means consistent with principles and general provisions of rules [Rule 6].

Rejection of value as declared by exporter - As per rule 7 of Customs Valuation (Determination of Value of Export Goods) Rules, 2007, the exporter has to file declaration about full 'value' of goods. If the assessing officer has doubts about the truth and accuracy of 'value' as declared, he can ask exporter to submit further information, details and documents. If the doubt persists, the assessing officer can reject the value declared by importer. [rule 8(1) of Customs Valuation (Determination of Value of Export Goods) Rules, 2007]. If the exporter requests, the assessing officer has to give reasons for doubting the value declared by exporter. [rule 8(2)].

Rule 8 is only mechanism to reject the declared value – As per explanation (1)(i) to rule 8, the Rule 8 does not provide any method for determination of value. It only provides mechanism to reject declared value, where there is reasonable doubt.

Declared value shall be accepted if assessing officer is satisfied about truth and accuracy of the declared value [Explanation (1)(ii) to rule 8 of Customs Valuation (Determination of Value of Export Goods) Rules, 2007 ].