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. The provisions relating to customs valuation have been completely revamped by
introducing new section 14 w.e.f. 10-10-2007.

Tariff Value – Tariff Value can be fixed by CBE&C (Board) for any class of imported goods or export goods.
CBE&C should consider trend of value of such or like goods while fixing tariff value. Once so fixed, duty is
payable as percentage of this value. (The percentage applicable is as prescribed in Customs Tariff Act). Fixing
tariff value is not permitted under GATT convention. However, the provision of fixing tariff values has been
retained.
Tariff value for crude palm oil, RBD Palmolein, palm oil, crude soyabean oil and brass scrap has been fixed by
notification No. 36/2001-Cus (NT) dated 3-8-2001.

Essential Ingredients of Valuation Section 14
The essential ingredients of section 14 may be analysed as under :
(a) Section 14 would be applicable only when customs duty is chargeable on goods based on their value
either under the Customs Tariff Act, 1975 or under any other law for the time being in force.
(b) The value of goods under section 14(1) is deemed value.
(c) The assessable value will be price at which like goods are ordinarily sold.
(d) Where there is no sale price, the value shall be the price at which such or like goods are ordinarily
offered for sale.                                                                                                                                                                              (e) The terms of the price should be for delivery at the time and place of importation or exportation, as the
case may be.
(f) The sale or offer for sale should be in the course of international trade.
(g) There should be no mutuality of interest between the seller and the buyer.
(h) Price should be the sole consideration for sale or offer for sale.

Method of valuation
The Customs Valuation (Determination of Value of Imported Goods) Rules, 2007, based on WTO Valuation
Agreement (earlier GATT Valuation Code), consist of rules providing six 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 Vaue 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.

Transaction Value of Imported Goods
As per rule 3(1), value of imported goods shall be transaction value adjusted in accordance with provisions of
rule 10 [Rules effective from 10.10.2007].
As per rule 10 of Customs Valuation (Determination of Value of Imported Goods) Rules, 2007, various additions
like sales commission, cost of containers, cost of packing; cost of materials, components etc. or services
supplied by buyer; royalties payable, transport charges, insurance etc. are includible, if these do not already form
part of transaction value.

Rule 3(1) of Customs Valuation (Determination of Value of Imported Goods) Rules, 2007 is subject to rule 12,
which means that provisions of rule 12 overrides provisions of rule 3. As per rule 12 of Customs Valuation
(Determination of Value of Imported Goods) Rules, 2007, the value as declared by importer can be rejected by
Assessing Officer, if he has doubts about truth or accuracy of the value as declared. However, the Assessing
Officer has to give reasons for his doubts in writing and provide opportunity of personal hearing. Thus, it is not
obligatory on customs officer to accept the transaction value if he has reasons to doubt the truth or accuracy
of the same.

Transaction value can be rejected either for special circumstances as per section 14(1) or conditions as specified
in rule 3(2) of Customs Valuation (Determination of Value of Imported Goods) Rules, 2007.

Special circumstances as per section 14(1) – The ‘special circumstances’ in section 14(1) are (a) Buyer and seller should not be related and (b) Price should be the sole consideration for the sale. If these ‘special circumstances’ are not satisfied, transaction value can be rejected. Any other ‘special circumstances’ cannot be considered.

Conditions as per rule 3(2) – As per rule 3(2) of Customs Valuation (Determination of Value of Imported Goods)
Rules, 2007 [Earlier rule 4(2) of Customs Valuation Rules], transaction value can be accepted only if following
requirements are satisfied –

No restriction on buyer for disposal of goods – There are no restriction on buyer on disposition or use of goods
except the following: (a) restrictions prescribed by public authorities in India (b) restriction on geographical area
within which goods may be resold e.g. goods should not be sold outside particular State or outside India or (c)
restriction that does not materially affect value of goods – e.g. exporter puts a condition to importer of automobile
that car should not be exhibited before a particular date – illustration given in Interpretative Note to rule
3(2)(a)(iii). [rule 3(2)(a)] [earlier rule 4(2)(e) upto 10-10-2007]

Transaction Value of Identical Goods
Rule 4(l)(a) of Customs Valuation (Determination of Value of Imported Goods) Rules 2007 of Customs Valuation
Rules provide that if valuation on the basis of ‘transaction value’ is not possible, the ‘Assessable value’ will be
decided on basis of transaction value of identical goods sold for export to India and imported at or about the
same time.
Rule 4(1)(b) of Customs Valuation (Determination of Value of Imported Goods) Rules, 2007 provides that
transaction value of identical goods at the same commercial level and in substantially same quantity as the
goods being valued shall be used to determine value of imported goods.
If transaction value at different commercial level or in different quantities or both is available, suitable adjustments
can be made to take into account the difference.
Identical goods’ are defined under Rule 2(1)(d) of Custom Valuation (Determination of value of Imported
Goods) Rules, 2007 as those goods which fulfil all following conditions i.e. (i) the goods should be same in all
respects, including physical characteristics, quality and reputation; except for minor differences in appearance
that do not affect value of goods. (ii) the goods should have been produced in the same country in which the
goods being valued were produced. (iii) they should be produced by same manufacturer who has manufactured
goods under valuation – if price of such goods are not available, price of goods produced by another manufacturer
in the same country. — However, if engineering, development work, art work, design work, plan or sketch
undertaken in India were completed by the buyer on these imported goods free of charge or at reduced rate for
use in connection with the production and sale for export of these imported goods, these will not be ‘identical
goods’.

Transaction Value of Similar Goods
If first method of transaction value of the goods or second method of transaction value of identical goods
cannot be used, rule 5 (earlier rule 6) provide for valuation on basis of ‘Transaction value of similar goods
imported at or about the same time’.

What are Similar goods – Rule 2(1)(f) of Customs Valuation (Determination of Value of Imported Goods) Rules,
2007 [earlier rule 2(1)(e) upto 10-10-2007] define ‘similar goods’ as (a) alike in all respects, have like characteristics
and like components and perform same functions. These should be commercially inter-changeable with goods
being valued as regards quality, reputation and trade mark. (b) the goods should have been produced in the
same country in which the goods being valued were produced. (c) they should be produced by same manufacturer
who has manufactured goods under valuation – if price of such goods are not available, price of goods produced
by another manufacturer in the same country can be considered. -. However, if engineering, development
work, art work, design work, plan or sketch under-taken in India were completed by the buyer on these imported goods free of charge or at reduced rate for use in connection with the production and sale for export of these
imported goods, these will not be ‘similar goods’.

Deductive Value Method
Rule 7 of Customs Valuation (Determination of Value of Imported Goods) Rules, 2007 provide for the next i.e.
fourth alternative method, which is called ‘deductive method’.
This method should be applied if transaction value of identical goods or similar goods is not available; but these
products are sold in India. The assumption made in this method is that identical or similar imported goods are
sold in India and its selling price in India is available. The sale should be in the same condition as they are imported.
Assessable Value is calculated by reducing post-importation costs and expenses from this selling price. This is
called ‘deductive value’ because assessable value has to be arrived at by method of deduction.

Computed Value Method
If valuation is not possible by deductive method, the same can be done by computing the value under rule 8 of
Customs Valuation (Determination of Valuation of Imported Goods) Rules, 2007, which is the fifth method.
In this method, value is the sum of (a) Cost of value of materials and fabrication or other processing employed
in producing the imported goods (b) an amount for profit and general expenses equal to that usually reflected
in sale of goods of the same class or kind, which are made in the country of exportation for export to India. (c)
The cost of value of all other expenses under rule 10(2) i.e. transport, insurance, loading, unloading and handling
charges.

Residual Method
The sixth and the last method is called “residual method”. It is also often termed as ‘fallback method’. This is
similar to ‘best judgment method’ of the Central Excise, Income Tax and Sales Tax. This method is used in cases
where ‘Assessable Value’ cannot be determined by any of the preceding methods. While deciding Assessable
Value under this method, reasonable means consistent with general provisions of these rules should be the
basis and valuation should be on basis of data available in India. [Rule 9(1) of Customs Valuation (Determination
of Value of Imported Goods) Rules, 2007].

The value cannot exceed normal price – The value so determined cannot be more than the ‘normal price’ i.e. price
at which such or like goods are ordinarily sold or offered for sale for delivery at the time and place of importation
in course of International Trade, when seller and buyer have no interest in the business of each other or one of
them has no interest in the other and price should be sole consideration for sale or offer for sale [proviso to rule
9(1). There was no parallel proviso in earlier rule 8(1)].

Inclusions/Exclusions in Customs Value
• 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 uyer, royalty relating
to imported goods are addible.
• Interest on deferred payment, demurrage at port is not required to be added
• Value of computer software loaded on machine is to be added to value of machinery.
• Old machinery and old cars are valued on basis of depreciated value, though such method has no
sanction of law.

No other additions – No other addition shall be made to price paid or payable, except as provided for in rule 10
[rule 10(4) of Customs Valuation (Determination of Value of Imported Goods) Rules, 2007 (earlier rule 9(4)].
Interpretative Note to rule 3 (earlier rule 4) also clarifies that activities undertaken by buyer other than those
for which adjustments are provided in rule 10 (earlier rule 9) are not to be added, even though it may be
regarded as benefit to the seller.

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