Recent Changes in Customs Valuation System S. Dutt Majumdar Dg-DRI
Adoption of WTO (Then GATT) Valuation code in 1988 • Inherent contradictions between ‘Deemed Value’ concept of Section 14 and ‘Transaction Value’ concept of Valuation Rules. • Reconciliation by Tribunal decisions and Supreme Court judgment in Eicher Tractor case.
Two Supreme Court Judgments in 2006 & 2007 • Ispat Industries relating to Barge charges • J.K. Corporation relating to Royalty • Effect of the two Judgments • ‘Deemed Value’ concept of the Act will prevail over ‘Transaction Value’ concept of the Rules. • International Commitment at stake • Thus arose the need for amending Section 14.
Main features of amended Section 14 • Complete alignment with Transaction Value concept of the Rules. • Important elements of Valuation Rules conceptually captured in the Section. • Mandates framing of Export Valuation Rules. • Covers non-dutiable goods as well.
Main features of amended Valuation Rules • Erstwhile Rules 3 & 4 merged. • Renumbering of the Rules and change of certain titles. • Amendment in the proviso to the Residual Method of Rule 8 • embargo not to go beyond the deemed value.
Main features of amended Rules (Contd..) • Two Explanations added in erstwhile Rule 9 • One regarding Royalty related to post - importation process • Other regarding Cost of Transportation relating to barge charges, ship demurrage charges etc. • Explanation added to erstwhile Rule 10A.
Main features of amended Rules (Contd..) • Main elements in Explanation to Rule 10A • Not a method of determination of value. • Illustrative reasons which might lead to doubts. • Positive assertion to accept value, when satisfied.
Export Valuation Rules • Controversies about valuation of export goods • Whether erstwhile Sec. 14 applicable for duty free export goods. • Contradictory judicial pronouncements. • Amended Sec 14 – No clause regarding dutiable goods • It also provides for framing rules for valuation of export goods.
Main features of Export Valuation Rules (Contd..) • Format similar to that of import valuation rules • Rule 2 provides definition for ‘Goods of like kind and quality’ ‘Transaction Value’ and ‘ Related Persons. • Rule 3 – Transaction Value Method subject to Rule 8 (Rejection of Declared Value)
Main features of Export Valuation Rules (Contd..) • Rule 4, 5 & 6 are alternative methods of valuation. • Rule 4 - Comparison Method - Main Elements. • Comparison with ‘Transaction Value’ of goods of like kind and quality. • Exported at or about the same time. • To other buyer in same destination country. • To other buyer in another destination subject to certain adjustments.
Main features of Export Valuation Rules (Contd..) • Rule 5 - Computed Value Method – Main Elements • Cost of Production / processing. • Charge for the Design or Brand • Profit • Rule 6 - Residual Method • Importance of Proviso ‘Local Market Price may not be the only basis’.
Main features of Export Valuation Rules (Contd..) • Rule 7 - Format of Declaration. • Rule 8 - Rejection of Declared Value. • Counterpart of Rule 10A. • Clarification through Explanation • Not a method of valuation. • Illustrative Reasons which could lead to doubts. • Positive assertion to accept declared value, if satisfied.
Board’s Circulars on Both Import and Export Highlights of clarifications on Import Rules • Proviso to Rule 4 & 5 keeping value of provisionally assessed goods outside the purview of comparison • Clarification regarding explanations relating to Royalty and certain Transportation Costs. • Clarification regarding explanation to Rule 12 (erstwhile Rule 10A)
Highlights of Board’s Clarifications on Export Valuation Rules • Transaction Value to be accepted even when buyer and seller are related, provided price is not influenced. • During the course of enquiry arising out of doubt about declared value, export to be allowed normally. • In case of serious violation, goods to be detained only after Commissioner’s approval.
Highlights of Clarifications on Export Rules (Contd..) • Procedure for applying Rule 8 elaborated at Para 7. • Decision to initiate investigation on value at the level of Joint / Addl. Commissioner only. • Instructions regarding application of Rule 4 (Comparison Method) detailed at Para8. • While applying Rule 5 (Computed Method), due consideration for cost certificates by Cost Accountant / Chartered Accountant. • Purpose of introducing Export Valuation Rules explained at Para 10.
Concluding Remarks • Customs Valuation System working well in India. • Recent changes likely to reduce litigation. • Amended provisions being applied well without any difficulty.