- 1. CUSTOMS VALUATION IMPORT AND EXPORTK.VAITHEESWARAN ADVOCATE
& TAX CONSULTANT Flat No.3, First Floor, 402, Front Wing,No.9,
Thanikachalam Road, House of Lords, T. Nagar, 15/16, St. Marks
Road,Chennai - 600 017.Bangalore 560 001Mobile: 98400-96876 E-mail
: [email protected] K.Vaitheeswaran
2. SECTION 14Value shall be the transaction value that isto say
the price actually paid or payable whenthe goods are sold for
export to India.For delivery at the time and place ofimportation or
as the case may be for exportfrom India for delivery at the time
and placeof exportation 3. SECTION 14Buyer and seller are not
related.Price is the sole consideration for the sale subject
toother conditions as may be specified in the RulesTransaction
value shall include in addition to theprice amounts for costs and
services, license fees,cost of transportation to the place of
importation,insurance, loading, unloading and handling chargesto
the extent and the manner specified in theRules. 4. SECTION 14
Rules may provide for(ii) Circumstances determining
relationship.(iii)Method of valuation when there is no sale or when
parties are related or price is not the sole consideration or any
other case.(iv)Manner of acceptance or rejection of value, where
the officer has reason to doubt the accuracy of value. 5.
IMPORTValuation Rules are based on GATT(now WTO) Rules.Originally
framed in 1988.Major change to Rule 4 in 2001.Customs Valuation
(Determination ofValue of Imported Goods) Rules, 2007introduced
from 10.10.2007. 6. CHANGES IN DEFINITIONSTransaction value means
the valuereferred to in Section 14.Under the old Rules transaction
value isthe value determined under Rule 4. 7. VALUATION
RULESMethods are to be applied in a sequentialorder.When the first
method is not applicable, thesecond method has to be applied and so
onso forth.If transaction value is rejected by theDepartment,
Department has to gosequentially and cannot straightway adoptthe
residual method. 8. RULE 3Value shall be transaction value subject
toadjustmentsValue of imported goods shall be accepted
providedthat(i) there are no restrictions as to disposition or
use(excluding territorial / legal / minor)(ii) price is not subject
to some condition orconsideration for which value cannot be
determined(iii) no part of the subsequent sale proceeds accrueto
the seller.(iv) buyer and seller are not related. 9. RULE 3Where
buyer and seller are related,price can still be accepted if it
isdemonstrated that the relationship hasnot influenced the price.
10. RULE 4 IDENTICAL GOODSIdentical goodsTransaction valueShall not
include provisionally assessed valuesSame commercial level / same
quantityAdjustments for differencesAdjustments for differences in
transportationcostsWhen multiple values are available lowest tobe
adopted. 11. RULE 5 SIMILAR GOODSSimilar goodsTransaction
valueShall not include provisionally assessed valuesSame commercial
level / same quantityAdjustments for differencesAdjustments for
differences in transportationcostsWhen multiple values are
available lowest tobe adopted. 12. RULE 6Where value cannot be
determinedunder Rule 3 or Rule 4 or Rule 5 thenvalue has to be
determined under Rule7.At the request of the importer and withthe
approval of the proper officer, Rule8 can be applied first and then
Rule 7can be applied. 13. RULE 7 DEDUCTIVE VALUESale price in
IndiaDeductions for commission, transport,insurance and associated
costs in India,duties and taxes on import / sale.Where there is
manufacture and salededuction for value addition shall be
given.Sale must happen within 90 days after importfor this Rule to
operate. 14. RULE 8 COMPUTED VALUEValue shall consist of the sum
of(a) cost or value of materials and fabricationor other processing
employed in producingthe imported goods.(b) profit and general
expenses in respect ofgoods of same class.(c) transportation,
loading and insurance. 15. RULE 9 RESIDUAL METHODWhere value cannot
be determined under thepreceding rules, it shall be determined
usingreasonable means consistently the principles andgeneral
provisions of these rules and on the basis ofdata available.Value
shall not exceed the price at which suchor like goods or ordinarily
sold or offered forsale for delivery at the time and place
ofimportation when the seller and buyer has nointerest in the
business of each other and priceis the sole consideration. 16. RULE
9No value shall be on the basis of- Selling price of goods produced
in India- Highest of two alternative values- Domestic price in the
country of export- Export price to another country- Cost of
production- Minimum customs values- Arbitrary or fictitious values
17. RULE 10 COST AND SERVICESThe following shall be added to price
paid orpayable provided it is not already included.- Commissions
and brokerage other thanbuying commission- Cost of packing- Cost of
containersGoods and services supplied free of costs bythe buyer or
at a concessional rate. 18. RULE 10 COST ANDSERVICESRoyalty and
license fee related to importedgoods that the buyer is required to
paydirectly or indirectly as a condition ofsale.Value of any part
of proceeds of anysubsequent resale or disposal.Other payments made
by the buyer to selleror third party to satisfy obligation of
seller. 19. RULE 10 ROYALTY & LICENSE FEEAn explanation
provides that where royalty orlicense fee or any other payment for
aprocess whether patented or otherwiseis includable, such charges
shall beadded to price paid or payablenotwithstanding the fact that
suchgoods may be subjected to the saidprocess after importation of
such goods.Board Circular dated 09.10.2007 refers topost
importation activity, like running ofmachinery when the process is
put to use. 20. RULE 10 ROYALTY & LICENSE FEEBoard Circular
states that the explanation has been added inthe context of Supreme
Court judgment in the case of JKCorporation.J.K. Corporation Ltd.
(2007) 208 ELT 485, a collaborationagreement was entered into with
a foreign company and as perPart-A of the agreement a lumpsum
payment of US Dollars14,00,000 was made for the supply of license,
knowhow, andtechnology. Under Part-B of the agreement the price of
theforeign equipment was said to be US Dollars 34,86,000 +
DM12,00,000 + Yen 88,50,00,000. The Supreme Court held thatno part
of the know-how fee was relevant for the fabrication ofthe plant or
machinery or its design. The amount paid underPart-A was towards
services to be offered for the mattersspecified. The value of
license and technical know-howcannot be included in the value of
goods. 21. RULE 10 ROYALTY & LICENSE FEEDisputes are likely and
old decisionscould be questioned.Mahindra & Mahindra (1999) 76
ELT481 (SC) Royalty for know-how hasno bearing as transactions
areindependent. 22. RULE 10 ROYALTY &LICENSE FEEThe Supreme
Court in the case of CC Vs. FerodoIndia Pvt. Ltd. (2008) 224 ELT 23
has held thattechnical knowhow costs and payment of royalty canbe
included in the price of imported goods only if thepayment
constitutes a condition pre-requisite for thesupply of imported
goods. If the payment has nonexus with the working of the imported
goods thensuch payment is not includable in the value. 23. RULE 10
ROYALTY & LICENSE FEEThe Supreme Court in the case of Bombay
Dyeing andManufacturing (1997) 90 ELT 276 has held that expensesin
connection with dismantling of old machinery to facilitatetransport
including inspection charges is includable in the value.In the case
of Toyota Kirloskar Motor Pvt. Ltd. (2007) 213ELT 4, capital goods
and parts were imported from Toyota andthe question was whether
royalty and know-how fees should beincluded or not in the value.
The Supreme Court held thatpayments for post import activities
cannot be included. Amountspayable for as a condition of import of
goods for motorsgoverning the manufacturing activities are distinct
and suchpayments are not related to the import of capital
goods.Amounts cannot be included. 24. RULE 10 ROYALTY &LICENSE
FEEIn the case of Matsushita Television and Audio (I) Ltd.
(2007)211 ELT 200, the The Department while valuing the goods added
acertain percentage taking into account the royalty payment.
TheSupreme Court held that in terms of the agreement, the net
factorysales price is defined to mean the sale prices to
customersincluding the cost of bought out components and the cost
ofimported goods. In terms of Rule 9 of the Valuation Rules,
1988only such royalty relatable to imported goods and which is a
conditionof sale of such goods can be added to the declared price.
In theinstant case, it is clear that the royalty is payable on the
sale priceincluding the cost of imported goods. In other words,
thepayment under the agreement was not only in connection
withproduction of goods but also to imported components and
thereforethe Departments contention is correct. 25. RULE 10 ROYALTY
&LICENSE FEEIn the case of CCE Vs. Living Media India
Ltd.(2011) 271 ELT 3, the Supreme Court held thatcassettes are
brought into India as pre-recordedcassettes which carry the music
or song of an artist.There is an agreement as per which royalty
paymentis towards the money due to the artists. Royaltybecomes
payable on distribution of cassettes andsuch royalty is payable on
the entire shipment lessrecords returned. Royalty is a condition of
sale andwould form part of value. 26. RULE 10(2)Cost of
transportLoading, unloading and handling
chargesInsuranceExplanation provides that cost of transport
ofimported goods includes ship demurragecharges on chartered
vessels, lighterage orbarge charges.Supreme Court in the case of
Ispat Industries(2006) 202 ELT 561 had held that
transportationcharges for use of barges for carrying cargo
frommother vessel to jetty cannot be added to value sincecost of
transport is already included MimansaPrinciples/Guna as subordinate
and Pradhan as 27. RULE 10(2)Supreme Court in the case of IOC
(2004) 165 ELT257 had confirmed that demurrage should not
beincluded in value since there was a Board Circular tothat effect
in 1991.The new explanation will increase the valuesince all these
charges will now have to beadded.Board Circular dated 09.10.2007
clarifies that shipdemurrage charges paid by importer for detention
ofship in the harbour before touching the landmass atthe docks has
to be included in the value. 28. OTHER RULESRule 11 deals with
declarationRule 12(1) deals with rejection ofdeclared
value.Explanation to Rule 12 29. Explanation to Rule 12Rule does
not provide for a method ofvaluation.Where declared value is
rejected value shallbe determined by proceeding in accordancewith
Rule 4 to Rule 9Officer has powers to raise doubts on truth
oraccuracy of declared value based on certainreasons which may
include 30. Explanation to Rule 12Significantly Higher Value at
which identical or similargoods imported in comparable quantity
incomparable commercial transactions were assessed.Abnormal
discount or abnormal reduction fromordinary competitive
price.Special discounts limited to exclusive agents.Mis-declaration
of origin, quality, quantity, etc.parameters.Non-declaration of
parameters such as brand, grade,specifications that have relevance
to value.Fraudulent or manipulated documents. 31. BOARD CIRCULAR
DT.12.2.2008Transaction value under Rule 3 has to be rejected
byre-determining value of secondhand machinery underRule 9.No
difficulty to reject where the documents such ascertificates,
invoice, etc. are manipulated orfraudulently obtained or there is
mis-declaration inrespect of particulars such as model, year
ofmanufacture, etc. 32. BOARD CIRCULAR DT.12.2.2008Rule 12 can be
applied in appropriate cases. As an illustration ifthe declared
value of the second hand machinery is much belowthe value arrived
at by the depreciation method on the basis ofthe certified price of
the new machinery in the year of itsmanufacture, the officer may
have reason to doubt the truth oraccuracy of the declared value and
can ask for furtherinformation and explanation. If the reasonable
doubt persiststhe declared value can be rejected under Rule 12 and
value canbe re-determined by factoring depreciation.Even in respect
of other imported goods, the re-determinationof value would be
similar as in the case of second handmachinery. 33. VALUATION OTHER
CASE LAWSThe Supreme Court in the case of Hewlett PackardIndia
Sales (P) Ltd. (2007) 215 ELT 484 hasheld that pre-loaded operating
system (software)recorded in Hard Disc Drive in the laptop forms
anintegral part of the laptop. Without operatingsystem, like
Windows, the laptop cannot work.Computer cannot open without
operating system.When a laptop is imported with in-built
pre-loadedoperating system recorded on Hard Disc Drive, thesaid
item forms an integral part of the laptop. 34. VALUATION OTHER CASE
LAWSThe Supreme Court in the case of CC Vs.Competent Business
Machines (2009) 236 ELT629 has held that where the assessee had
importedsecond hand photocopier machines with theChartered
Engineers report stating that the machineswere old and obsolete,
there is no material on recordfor the Department to enhance value.
The websiteinformation relied upon by the Department is inrespect
of another model of photocopying machines. 35. VALUATION STANDING
ORDERSSecond hand printers and Copiers Order to regulateprocedure
for engaging a chartered engineer forvaluation and duties
pertaining to assessment is validand cannot be challenged under
Article 226 VinayAuto Copier Machine Vs. UOI (2011) 274 ELT33
(Mad).Furniture - Valuation based on standing order whichdirects
60% deduction from MRP for the purpose ofarriving at value ignoring
the negotiated pricebetween the parties is not valid Life
StyleInternational Pvt. Ltd. Vs. UOI (2011) 271 ELT190 (Bom) 36.
CONTEMPORANEOUS IMPORTSDepartments point ofDecisionreferencePrices
on the internet No investigation to demonstrate import of identical
goods at higher prices not valid BC TradingPrices in foreign
journals Not valid Varsha plasticsPrices in internationalSpices
imported at USD 2600market weekly bulletinsPMT. International price
was USD 5500 to 6500. No evidence for pricing except contract. SC
accepted Departments valuation based on weekly of spices market
which indicated higher prices Radhey Shyam Ratanlal . 37.
CONTEMPORANEOUS IMPORTSDepartments point of reference
DecisionPrices in London Metal Exchange Department demanded
additionalduty on the ground that prices onthe London Metal
Exchange wasmore than the declared price on theday of import. SC
held that theorder of the Tribunal had noreference to
contemporaneousimports even at the stage ofadjudication, so
valuation based ondeclared prices need not beinterfered with Prabhu
DayalPrem Chand. 38. CONTEMPORANEOUSIMPORTSDepartments point of
reference DecisionPrices of goods imported by the As many goods
were imported bysame importer the same importer, it was foundthat
the value of similar goods werehigher than declared goods of
samespecifications. SC held thereforeadoption of the deemed value
bythe customs is correct Lan EsedaIndustries Ltd. 39. EXPORTExport
Valuation Rules for the first time.Transaction value as per Section
14.Definition of related person.Value of export goods shall be
thetransaction value.If value cannot be determined, it shallbe
determined by proceedingsequentially through Rule 4 to Rule 6. 40.
RULE 4 EXPORT VALUATION RULES On transaction value of goods of like
kind and quality. Exported at or about the same time. To buyers in
the same destination country of import or in its absence, another
destination country with adjustments. Adjustments for difference in
dates, levels, quantity, quality, composition, design, freight,
insurance has to be done. 41. OTHER RULESComputed value which shall
include cost ofproduction, charges for design or brand andamount
towards profit.Where Rule 5 fails, residual method would beapplied
through Rule 6Rule 8 provides for rejection of declaredvalue.
Doubts can be raised if there issignificant variation in value,
export value issignificantly higher compared to marketvalue, there
is mis-declaration, etc. 42. SPECIAL VALUATION BRANCHSVB operates
at Metros to investigate related partytransaction.Definition of
related person.Questionnaire.1% extra deposit.5% extra deposit of
duty if details not furnishedwithin 30 days of receipt of
questionnaireInvestigation and finalization of assessment within
4months and deposit should be discontinued if notfinalized. (Board
Circular 23.02.2001) 43. CONCLUSIONTransfer pricing and
customs.Service Tax and Customs.GST 44. Thank you K.
VAITHEESWARANAdvocate & Tax Consultant Flat No.3, First Floor,
402, Front Wing,No.9, Thanikachalam Road, House of Lords, T. Nagar,
15/16, St. Marks Road,Chennai - 600 017.Bangalore 560 001Mobile:
98400-96876 E-mail : [email protected] K.Vaitheeswaran