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.

Thanks for your Attention