Valuation for custom duty

Customs Duty is normally payable as a percentage of the value of goods imported or exported. This value is known as the assessable value or customs value. Such value may be either :-

1. Tariff value as prescribe under section 14(2) of the Customs Act, 1962 :
   Tariff value may be fixed by the Central Government for any goods or class of goods. For this purpose, the government considers the trends in value of such goods or like. Once the value is fixed, duty is payable as a percentage of this value at rates prescribed in the Customs Tariff Act, 1975.
2. Value as defined under section 14 (1) of the Customs Act, 1962 :

Generally customs duty is payable on the value as determined under section 14 (1). The Central Government has made Customs Valuations (Determination of Price for Imported Goods) Rules, 1988 for the purpose of determination of Customs value. The following criteria are normally considered for determining customs value :-

1. Price at which such or like goods are ordinarily sold or offered for sale.
2. Price for delivery at the time of importation and exportation. The price at the time and place of importation must be considered for determining the customs value. All expenses upto the destination of goods including freight, transit insurance, unloading and handling charges are to be considered.
3. Price should be in the course of international trade.
4. Seller and buyer should have no interest in the business of each other.
5. Price should be the sole consideration for sale or offer for sale.
6. Rate of exchange as on the date of presentation of bill of entry as fixed by the Central Government must be considered. Foreign Exchange rate as applicable at the time of presentation of the bill of entry as prescribe by the central government must be considered. This rate may or may not be the market rate prevailing on that date. The relevant date for determining foreign exchange rate is the date of presentation bill of entry.

Important provisions for valuation of imports

Certain costs and expenses are to be considered in determining the customs value. Some cost services are added to the price paid or payable if these are already not included in the invoice price. These are discussed below :

Commissions : Commission and brokerage except buying commission is includable. Buying commission means fees paid by an importer to his agent for the service of representing him abroad in purchase of the goods being valued.

Commission to local agent : Foreign Exporters may appoint a local agent in India for business promotion activities in India for a commission in Indian rupees payable directly by the Indian importers. Such commission is includable for valuation.

Packing cost : Costs of primary packing is includable for valuation purposes. eg Cost of containers treated as a part of goods. However, cost of reusable containers for packing goods for convenience of transport is not to be considered for customs valuation if the importer executes a bond for re-exporting such containers within six months of import.

Goods supplied by buyer : If the foreign exporter has supplied goods free of cost or at a reduced cost for the purposes of production or export of goods, cost of such goods must be included for custom valuation.

Services rendered by buyer : Expenses incurred for Development Work,Art Work, Designing, Plans and Sketches undertaken by the buyer necessary for production of imported goods is includible if such work is undertaken outside India.

Royalties and license fees : If the buyer has paid royalties and license fees separately in connection with the imported goods, they are includable unless they are already included in the selling price. Royalties includes payments for patents, trademarks and copyrights.

However they do not include charges for the right to reproduce goods in India should not be added and payments made by importer for the right to distribute or resell imported goods if such expenses are not a condition for export to India.

Value of subsequent resale : If any part of the sales proceeds on resale of imported goods is payable to the foreign exporter, directly or indirectly, such part of the sale proceeds are includible.

Other payments made to seller : If an importer has, directly or indirectly, made payments to the seller as a condition of sale, such payments are included for customs valuation.

Cost of transport upto port : Cost of transport from the exporting country to India is included in determining customs value. However cost of transport within India is not to be considered.

Landing charges : Cost of unloading and handling charges in connection with the imported goods are to be considered in determining customs value.

Insurance cost : Insurance charges on goods during transit are to be added. If such expenses cannot be clearly ascertained, then an ad hoc amount of 1.125% of the value of goods is to be added.

Exclusions from customs value

The following expenses are not to be considered for determining customs value :-

1. Expenses for erection, assembly and commissioning plant in India after importation, maintenance or technical assistance undertaken after importation of plant in India, etc
2. Transportation expenses after import into India
3. Duties and taxes in India.
4. Other payments from buyers to sellers that do not relate to the imported goods.

Other relevant provisions of valuation rules

1. There should be not be any restriction on the buyer on use or disposal of goods. However, restrictions imposed by the law of India or restrictions on geographical areas within which goods may be resold or restriction which does not affect materially the value of goods are not to be considered for this purpose.
2. Sale should be unconditional.
3. The seller must not be entitled to any additional consideration for the goods.
4. Buyer and seller should not be related. However, if it is proved that the relationship has not affected the selling price or that the price is similar to identical or similar goods sold to unrelated buyers in India, then such relationship is to be ignored.

Related persons means any of the following persons :-

1. Officers or directors of each other are business.
2. Legally recognized partners in business.
3. Employer and employee.
4. Any person who, directly or indirectly, owns or holds 5 % or more of shares of both of them.
5. One of them controls, directly or indirectly, the other.
6. Both of them are controlled, directly or indirectly, by a third person.
7. Together, they control a third person, directly or indirectly.
8. Both are the members of the same family.

Where valuation on the basis of transaction of import value is not possible or practicable, the customs value must be determined on the basis of transaction value of identical goods sold for export into India and imported at or about the same time after making suitable adjustments for the differences between the goods, differences in the commercial quantity of goods imported, cost of transportation, etc.Identical goods mean goods which fulfill all the following conditions:

1. They are same in all respect including physical qualities and reputation, expect for minor differences in appearance that do not materially affect the value of goods.
2. They have been produced in the same country in which the imported goods have been are produced.
3. They should be produced by the same manufacturer who has produced the imported goods.

Where valuation on the basis of transaction of import value as well as on the basis of transaction of import of identical goods is not possible or practicable, the customs value must be determined on the basis of transaction value of similar goods sold for export into India and imported at or about the same time after making suitable adjustments for the differences between the goods, differences in the commercial quantity of goods imported, cost of transportation, etc. Similar goods means goods which are alike in all respects, have like characteristics and like components and perform the same function and are commercially inter-changeable with goods being valued as regards quality, reputation and trade mark.

Valuation by deductive value

This method is used for valuation if none of the above methods are found possible or practicable. Customs value is calculated by deducting port-importation expenses from the selling price of the goods in question. Such expenses include :-

1. Selling commission, marketing, advertisement and publicity expenses in India
2. Transport and insurance within India.
3. Customs duty, sales tax and other taxes levied in India.

Declaration by importer

The Importer or his authorised agent must furnish a declaration giving complete details of the imported goods along with relevant documents and proof in support of his valuation. The Customs Officer has the right to satisfy himself as to the truth and accuracy of statements and documents furnished by the importer or his agent. Penal provisions are attracted in case or wrongful declaration.