Valuation under the customs act, 1962

Question 1

What is the meaning F.O.B value and what are it’s components?

Answer 1

Technically there is not much of a difference between FAS and FOB cost
FOB means the stage at which the goods are placed on board the conveyance carrying the vessel.
It can be said to include FAS + loading charges + export duty/cess.

Question 2

What is the meaning of the C.I.F value (cost insurance freight)?

Answer 2

It is the cost at which the goods are delivered at the Indian port (F.O.B. +Insurance + Freight).

It covers cost of goods. Sometimes there is referred as CFC also.

Question 3

According the provisions of rule 10 - cost and services, how the value of goods as per section 14(1) of the customs act, 1962 be determined? and what are the various scenarios predicted under the rule and the action aforesaid?

Answer 3

the value of the imported goods shall be the value of such goods, and shall include –

(a) the cost of transport, loading, unloading and handling charges associated with the delivery of the imported goods to the place of importation;
(b) the cost of insurance to the place of importation:

However, where the cost referred to in clause (a) is not ascertainable, such cost shall be 20% of the free on board value of the goods:

Further that where the free on board value of the goods is not ascertainable but the sum of free on board value of the goods and the cost referred to in clause (b) is ascertainable, the cost referred to in clause (a) shall be 20% of such sum:

Where the cost referred to in clause (b) is not ascertainable, such cost shall be 1.125% of free on board value of the goods:

Where the free on board value of the goods is not ascertainable but the sum of free on board value of the goods and the cost referred to in clause (a) is ascertainable, the cost referred to in clause (b) shall be 1.125% of such sum

Question 4

According to rule 10 - cost and service, when the goods are imported by air, what should be the value under clause (a) and clause(b) aforesaid?

Answer 4

In the case of goods imported by air, where the cost referred to in clause (a) is ascertainable, such cost shall not exceed 20% of free on board value of the goods:

Question 5

According to rule 10- value and services when the goods are imported by sea or air and transshipped to another customs station within India?

Answer 5

In the case of goods imported by sea or air and transshipped to another customs station in India, the cost of insurance, transport, loading, unloading, handling charges associated with such transshipment shall be excluded - This treatment is the same across and the board and will not undergo any changes.

The cost of transport of the imported goods referred to in clause (a) includes the ship demurrage charges on charted vessels, lighterage or barge charges

Question 6

What are the currency conversion rates that are required to be used as per the provisions of section 14?

Answer 6

For the purpose of customs valuation, “rate of exchange” means the rate of exchange-

(i) determined by the Board, or
(ii) ascertained in such manner as the Board may direct,

for the conversion of Indian currency into foreign currency or foreign currency into Indian currency. Thus, for the purpose of valuation under customs laws, rate notified by CBIC (Board) shall be taken into account.

The CBIC notifies the rates periodically, generally every fortnight. There are separate rates for imported goods (selling rate) and export goods (buying rate).

Question 7

According to rule 10- cost and services, while computing the transaction value, what shall be added to the price actually paid or payable for the imported goods?

Answer 7

In determining the transaction value, there shall be added to the price actually paid or payable for the imported goods:

(a) the following to the extent they are incurred by the buyer but are not included in the price actually paid or payable for the imported goods, namely:-
(i) commissions and brokerage, except buying commissions;
(ii) the cost of containers which are treated as being one for customs purposes with the goods in question;
(iii) the cost of packing whether for labour or materials.

Question 8

What is the transaction value for export of goods under section 14(1)?

Answer 8

In case of export goods, the transaction value shall be
• the price actually paid or payable for the goods
• when sold for export from India
• for delivery at the time and place of exportation
• where the buyer and seller of the goods are not related and
• price is the sole consideration for the sale.

For import of the goods, the similar principles shall be applied with appropriate modifications as necessary.

Question 9

What are the relevant conversion dates for the currency conversion rates for computing the assessable value of imported and exported goods as per the provisions of section 14?

Answer 9

For imported goods, the conversion in value shall be done with reference to the rate of exchange prevalent on the date of filing bill of entry under section 46.

For export goods, the conversion in value shall be done with reference to the rate of exchange prevalent on the date of filing shipping bill (vessel or aircraft) or bill of export (vehicle) under section 50.

Question 10

According to the provisions of section 16, for export of goods, what is the date for determination of “rate” - this is different from the currency conversion date, of duty and tariff value?

Answer 10

In case of goods entered for export under Section 50 (irrespective of the mode of transport) – the relevant date is the date of the ‘let export’ order of the proper officer permitting export and loading of cargo on board under section 51.

In case of any other goods – the relevant date is the date of payment of duty.

However, the provisions do not apply to baggage and imports by post.

Note: In none of the cases, it is mentioned that the relevant date is the date of filing of shipping bill or bill of entry etc.

Question 11

What are the important provisions of rule 4 in identification of transaction value of identical goods?

Answer 11

As an example of this, if the imported goods being valued consist of a shipment of 10 units and the only identical imported goods for which a transaction value exists involved a sale of 500 units, and it is recognized that the seller grants quantity discounts

the required adjustment may be accomplished by resorting to the seller’s price list and using that price applicable to a sale of 10 units

This does not require that a sale had to have been made in quantities of 10 as long as the price list has been established as being bona fide through sales at other quantities

In the absence of such an objective measure, however, the determination of a value under the provisions of rule 4 is not appropriate.

Question 12

According to the provisions of section 15, for import of goods, what is the date for determination of “rate” - this is different from the currency conversion date, of duty and tariff value?

Answer 12

For goods entered for home consumption under section 46

For goods imported by vehicle at land customs station – the relevant date is the date of filing the B/E under section 46 or date of arrival of vehicle, whichever is later.

For goods imported by a vessel at a customs port – the relevant date is the date of filing the B/E under section 46 or date of entry inwards to vessel under section 31, whichever is later.

For goods imported by aircraft at a customs airport – the relevant date is the date of filing the B/E under section 46 or date of arrival of aircraft, whichever is later

Goods cleared from a warehouse under section 68

the relevant date is the date on which a bill of entry for home consumption in respect of such goods is presented.

In the case of any other goods

the relevant date is the date of payment of duty.

These provisions relating to determination of relevant date do not apply to baggage and imports by post, in which sections 78 and 83 apply respectively.

Question 13

According to rule 10 - cost and services, what is the important wording used “ as a condition for sale of the imported goods” how does this affect the cost allocation to the imported goods?

Answer 13

In determining the transaction value, there shall be added to the price actually paid or payable for the imported goods:

The value, apportioned as appropriate, of the following goods and services where supplied directly or indirectly by the buyer free of charge or at reduced cost for use in connection with the production and sale for export of imported goods, to the extent that such value has not been included in the price actually paid or payable, namely

Question 14

An importer after having entered into contract of import of goods under section 14, and while the goods are still in transit, there was price re negotiation and the price was reduced as a result before the goods arrived in India. Now on what price the customs duty is required to be paid? the original contract price or the re negotiated price?

Answer 14

As per section 14 of the Customs Act, the transaction value of the goods is the price actually paid or payable for the goods at the time and place of importation

The ‘place of importation’, as observed by the Supreme Court in the case of Garden Silk Mills Ltd Versus Union of India 1993 (113) E.L.T. 358 (S.C) means the place where the imported goods reach the landmass of India in the Customs area of the port, airport or land customs station, or if they are consumed before reaching the landmass of India, the place of consumption.

Since the prices were re negotiated before they become part of the landmass of India(ie) place of importation, the re negotiated price shall be applicable.

The same shall also be made applicable to demurrage charges on chartered vessels, lighterage charges or barge charges where the big mother vessels cannot enter the harbour for any reason and goods are brought to the docks by smaller vessels like barges, small boats, etc

cost incurred by the importer for bringing the goods to the landmass or place of consumption, such as lighterage charges, barge charges will also be included in the cost of transportation.

Question 15

In determining computed value under Rule 8 - amount for profit and general expenses and Rule 7 - Deductive value - commission usually paid or agreed to be paid or the additions usually made for profits and general expenses in connection with sales in India of imported goods of the same class or kind;, what is the meaning of the term same class or Kind in relation to computation of the respective amount under these rules?

Answer 15

sales for export to India of the narrowest group or range of goods, which includes the goods being valued, for which the necessary information can be provided, should be examined

As per rule 2(1)(c) of Customs Valuation (Determination of Value of Imported Goods) Rules, 2007, goods of the same class or kind, means imported goods that are within a group or range of imported goods produced by a particular industry or industrial sector and includes identical goods or similar goods.

Question 16

What are the provisions of Rule 8 - computed value and how it affects the valuation of the imported goods?

Answer 16

Subject to the provisions of rule 3, the value of imported goods shall be based on a computed value, which shall consist of the sum of:-

(a) the cost or value of materials and fabrication or other processing employed in producing the imported goods - This only applies when exporter and importer are related for the proper officer to get this info effectively
(b) an amount for profit and general expenses equal to that usually reflected in sales of goods of the same class or kind as the goods being valued which are made by producers in the country of exportation for export to India;
(c) the cost or value of all other expenses under sub-rule (2) of rule 10.

See detailed notes as to the specifics of rule 8 in Page 4.33, which is not so important from exam point of view.

Question 17

What is the assessable value in case of sale of warehoused goods before being cleared for home consumption? should be taken as the price at which the original importer has sold the goods, before a Bill of Entry for home consumption is filed?

Answer 17

Section 14 of the Customs Act provides that the value of the imported goods is the transaction value of goods. Transaction value is defined to mean the price actually paid or payable for the goods when sold for export to India for delivery at the time and place of importation.

In the instant case, the goods are sold after being warehoused, therefore, it cannot be said that export of goods is not complete and thus the sale of warehoused goods cannot be considered a sale for export to India.

Hence, the price at which the imported goods are sold after warehousing them in India does not qualify to be the transaction value as per section 14.

However, it may be noted that Section 3(8A) of the Customs Tariff Act 1975 -the value of such goods for the purpose of calculating the integrated tax shall be higher of last transaction value or the initial import value, whichever is higher.

Question 18

Whether the commission paid to the canalizing agent be included in the assessable value of the exports under section 14?

Answer 18

Since the canalizing agent is not the agent of the importer nor does he represent the importer abroad, purchases in bulk by canalizing agency from foreign seller and subsequent sale by it to Indian importer on high seas sale basis are independent of each other.

Hence, the commission or service charges paid to the canalizing agent are includible in the assessable value as these cannot be termed as buying commission.

Hyderabad Industries Ltd. v. UOI 2000 (115) ELT 593 (SC)

Question 19

What happens to the price vis a vis the assessable value of imports under a contract of consignment which was supposed to be shipped in a particular month, but was extended by mutual agreement and goods were shipped at a later month at old price even when the price in the international market for such goods has increased significantly?

Answer 19

The facts of the given case are similar to the case of CCus., Vishakhapatnam v. Aggarwal Industries Ltd. 2011 (272) E.L.T. 641 (SC).

The Supreme Court pointed out that the commodity involved had volatile fluctuations in its price in the international market, but having delayed the shipment; the supplier did not increase the price of the commodity even after the increase in its price in the international market.

Further, there was no allegation regarding the supplier and importer being in collusion. Thus, the appeal was allowed in the favour of the assessee and the contract price was accepted as the ‘transaction value’.

Question 20

In relation to import of goods, what are the chief reasons on the basis of which the proper officer can raise doubts on the truth or accuracy of the declared value?

Answer 20

The proper officer shall have the powers to raise doubts on the truth or accuracy of the declared value based on certain reasons which may include–

(a) the significantly higher value at which identical or similar goods imported at or about the same time in comparable quantities in a comparable commercial transaction were assessed;
(b) the sale involves an abnormal discount or abnormal reduction from the ordinary competitive price;
(c) the sale involves special discounts limited to exclusive agents;
(d) the misdeclaration of goods in parameters such as description, quality, quantity, country of origin, year of manufacture or production;
(e) the non declaration of parameters such as brand, grade, specifications that have relevance to value;
(f) the fraudulent or manipulated documents.

Question 21

According to rule 10(1)(b)(iv) what are the additions prescribed to the assessable value?

Answer 21

data readily available in the buyer’s commercial record system should be used in so far as possible.

For those elements supplied by the buyer which were purchased or leased by the buyer, the addition would be the cost of the purchase or the lease

it is possible that a firm which imports a variety of products from several countries maintains the records of its design centre outside the country of importation - allocate accurately cost attributable to given products.

In cases where the production of the element in question involves a number of countries and over a period of time, the adjustment should be limited to the value actually added to that element outside the country of importation - This is very important due to the fact that when charges are for the work done in India, then the same will not be included for the purposes of arriving at the assessable value.

Question 22

Can rule 4 - Transaction value of comparable goods be applied by the proper officer on the basis of computer printouts which evidences different values in comparison to the declared value by the assessee? and what is the position when opportunity for reviewing those print outs were not given to the assessee by the proper officer?

Answer 22

The facts of the given case are similar to the case of Gira Enterprises v. CCus. 2014 (307) ELT 209 (SC) decided by the Supreme Court. In the instant case, the Supreme Court observed that since Revenue did not supply the copy of the computer printout, which formed the basis of the conclusion that the appellants under-valued the imported goods

the appellants obviously could not and did not have any opportunity to demonstrate that the transactions relied upon by the Revenue were not comparable transactions

The Supreme Court held that mere existence of alleged computer printout was not proof of existence of comparable imports. Even if assumed that such printout did exist and content thereof were true, such printout must have been supplied to the appellant and they should have been given reasonable opportunity to establish that the import transactions were not comparable.