Indian Customs valuation Rules are considered as an important provision in Customs law.
The rates of customs duties leviable on imported and export goods are:
- specific custom duties or
- ad valorem basis or
- on a specific cum ad valorem basis.
To know more about different types of duties levied by Indian customs, please read the article- “Modes and Types of Customs Duties leviable in India and Its Calculation”
The value of the goods becomes important when Customs duties are levied at ad valorem rates. Hence, it becomes essential to lay down in the law itself the broad guidelines for such valuation.
Valuation provisions are made to avoid arbitrariness and to ensure that there is uniformity in the application of principles.
In India, strictly by following the international valuation norms established by the World Trade Organization, the valuation rules are framed
Statutory Provisions concerning Customs Valuation
Section 14 of the Customs Act, 1962 lays down the very basis for the valuation of import and export goods. Accordingly, the following rules are framed to accommodate the above broad international norms:
- The Customs Valuation (Determination of Value of Imported Goods) Rules, 2007 and
- The Customs Valuation (Determination of Value of Export Goods) Rules, 2007
Section 14 of the Customs Act
Section 14 of the Customs Act states that the value of goods for assessment whose duty is chargeable on its value shall be the transaction value of such goods.
- As far as the import is concerned, when goods sold for delivery to India, the price paid or payable for the goods at the time and place of its importation or
- For export, the transaction value is, when sold for export from India for delivery the price received or receivable for the goods at the time and place of exportation.
Other conditions for valuation under this section
- The seller and the buyer of the goods are not related, that is, they shall have no interest in the business of each other.
- The price is the sole consideration for the sale or offer for sale.
- The rate of exchange which is in force for the day on which the Bill of Entry is presented for assessment shall be applicable for valuation. (Import invoices always shows the price in foreign currency)
In the case of imported goods, the transaction value shall include, in addition to the price as aforesaid, any amount paid or payable for:
- cost and services,
- commission and brokerage,
- design work,
- royalties and license fees,
- loading and unloading, and
- handling charges as specified
The Government is empowered to fix tariff values for any class of imported goods or export goods, considering the trend of value. The tariff value may be fixed for the class of goods in question or like goods.
In the event of any such tariff, value is fixed, the customs duty shall be compulsorily chargeable on such tariff value. The fixation of tariff value shall be published by Notification in the Official Gazette.
Section 14 of the Customs Act provides that for levy of duty, the transaction value shall be the value of imported goods or export goods were the buyer and seller are not related.
According to the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007, the buyer and seller are deemed to be related if:
- they are officers or directors of one another’s business;
- they are legally recognized partners in business;
- they are employer and employee;
- any person directly or indirectly owns, controls, or holds five present or more of the outstanding voting stock or shares of both of them;
- one of them directly or indirectly controlled by a third person;
- both of them are directly or indirectly control a third person; or
- they are members of the same family
Modes of Customs Valuation
Under the Act and the Rules, the customs value should be the “Transaction Value”, i.e., the price paid or payable after adjustment by valuation factors and subject to:
(a) compliance with the valuation conditions and
(b) the satisfaction of the customs authorities concerning the truth and accuracy of the Declared Value.
Generally, the customs valuation, except in specified circumstances, shall be based on the actual price of the goods to be valued. Such value is always shown on the invoice.
Certain adjustments are made in this value as per the Act and Rules which made the “transaction value”. This constitutes the first and foremost method of import valuation.
Other Modes of Valuation
The value of imported goods under the aforesaid rule shall be accepted only if, the buyer and seller are not related. Where buyer and seller are related, the transaction value shall be accepted provided that the relationship did not influence the price.
In the following circumstances, wherein a sale, the valuation has to be carried out by other methods.
- objective and quantitative data do not exist concerning the valuation factors or
- the valuation factors are not fulfilled or
- if the Customs authorities have doubts concerning the truth or accuracy of the value declared.
The other methods are exercised in the following hierarchical order:
- The transaction value of identical goods method
- The transaction value of similar goods method
- Deductive value method
- Computed value method; and
- Residual method
Identical Goods Method
In this method, the transaction value of identical goods shall be the value for assessment. Such identical goods shall be sold at or about the same time as that of the imported goods in question.
“Identical goods” means imported goods,
- which are similar in all respects, including physical characteristics, quality, and reputation as the goods being valued. However, a minor difference in appearance is exempted,
- produced in the same country and
- produced by the same person, or by a different person where no such goods are available.
However, the imported goods on which engineering work, design work, etc were undertaken in India by the buyer for free or for reduced cost and were imported for export purpose, such goods shall not be considered as “identical goods”.
Similar Goods Method
In this method, the transaction value of similar goods shall be the value for assessment. Provided, such similar goods are imported at or about the same time that of the goods in question.
Although not alike in all respects, “similar goods” are imported goods which:
- have like characteristics
- have like component materials
- perform the same functions
- can be commercially interchangeable with the goods being valued.
However, the imported goods on which engineering work, design work, etc were undertaken in India by the buyer for free or for reduced cost and were imported for export purpose, such goods shall not be considered as “similar goods”.
Deductive Value Method
In this method, the customs value is calculated based on the unit price of imported goods, identical goods, or similar goods sold in India. Such goods shall be sold at or about the time at which goods being valued are imported.
Where, however, such sales do not occur at or about the time of such importation, sales at the earliest date thereafter should be used. However, the sale occurred after 90 days shall not be considered. Also, the buyer and seller shall not be related.
Such valuation is subject to the following deductions:
- commissions usually paid or agreed to be paid or additions and expenses
- cost of transportation and insurance
- customs duties and other taxes
The unit price is defined as the price at which the greatest number of units sold at the first commercial level after importation at which such sales take place.
Computed Value Method
In this method, the valuation shall be based on the computed value. In the computing method, the sum of the following elements is calculated:
- the cost or value of materials used and fabrication or other processing employed in producing the imported goods,
- an amount for profit and general expenses,
- the cost or value of transportation, insurance, loading, unloading, and handling charges.
In exceptional circumstances, it may not be possible to determine the customs value of imported goods under any of the foregoing valuation methods.
In such an event, the value shall be determined using reasonable means consistent with the principles of all or any of the above rules.
Higher flexibility is seen in this method, as it is based on previous methods of computing Custom Duties.
In any case, the customs value ascertained should be fair, reasonable, uniform, and neutral. It should reflect commercial reality to the maximum possible extent.
Under the residual method, however, the customs value must not be based on:
- the selling price of goods produced in India;
- any system which approves the higher of two alternative values;
- the domestic market value of the goods of the country of exportation;
- the cost of production, other than as provided in the computed value method for identical or similar goods;
- prices for export to a country other than India;
- minimum customs value; or
- arbitrary or fictitious values.
General Principles concerning Various Methods of Valuation
- In the case of identical and similar goods method of valuation,
- The ‘provisionally assessed’ value of identical or similar goods shall not constitute the transaction value of the goods to be valued.
- The transaction value of identical or similar goods in a sale at the same commercial level and in the substantially same quantity as that of the imported goods shall be used to ascertain the value of such imported goods.
- Where freight and insurance are included in the value of identical or similar goods, adjustments of the same shall be made according to the difference in distance and means of transport of the imported goods.
- To determine the value of imported goods, where more than one transaction value of identical or similar goods is found, the lowest of such value shall be used.
The proper officer may under Rule 12 of the said Valuation Rules, 2007, reject the declared value as the transaction value. Thus, when such officer has reason to doubt the truth or accuracy of the value declared, he may call for more information/documents or other evidence to prove the truth or accuracy of the value declared.
The Explanation to Rule 12 clarifies that this rule does not, as such, provide a method for determination of value, and that it merely provides a mechanism and procedure for rejection of declared value in certain cases.
It also clarifies that the declared value shall be accepted upon the satisfaction of the proper officer after consultation with the importer.