By:
G. SHIVADASS
Executive Partner
Lakshmi Kumaran & Sridharan, Attorneys
© COPYRIGHT 2012, LAKSHMI KUMARAN & SRIDHARAN, ATTORNEYS
TOPICS COVERED IN THIS PRESENTATION
 Valuation under Customs Law
 Transaction Value Method
 Import Valuation
 Export Valuation
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VALUATION UNDER
CUSTOM LAW
VALUATION UNDER CUSTOM LAW
 Sec 2(41) - ‘Value’ – means value determined in accordance with S.14
 New S.14 applicable since 2007
 Two methods of valuation
 Tariff Value Method – Sec 14(2)
 Transaction Value Method – Sec 14(1)
 Customs Valuation Rules
 Customs Valuation (Determination of Value of Imported Goods)
Rules, 2007
 Customs Valuation (Determination of Value of Export Goods)
Rules, 2007
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TRAIFF VALUE METHOD
 Ad valorem duties to be calculated on tariff
values fixed by the Board
 Tariff values can be fixed for any class of
imported or export goods
 Notified in the official gazette
 Notification No. 36/2001-Cus. (N.T.), dated
3.8.2001
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TRANSACTION
VALUE METHOD
EVOLUTION
• S. 14 and Customs Valuation Rules based on
1. GATT Article VII – Valuation for Customs Purposes
– lays down general principles of valuation
(presently, the WTO Valuation Agreement)
2. Agreement on Implementation of Art.VII of GATTMultilateral agreement for
– A fair, uniform and neutral system of valuation
– System consistent with commercial practices
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Article 1 of Implementation Agreement
 Customs value of imported goods shall be
“Transaction Value” provided –
 No restrictions as to the disposition of goods
by buyer
 No consideration for which value cant be
determined
 The buyer and seller are not related
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SECTION 14
“ …..the value of the imported goods and export goods shall be the
transaction value of such goods, that is to say, the price
actually paid or payable for the goods when sold for export to India
for delivery at the time and place of importation, or as the case may
be, 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 subject to such other
conditions as may be specified in the rules made in this behalf :…”
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INGREDEINTS OF TRANSACTION VALUE
1
• price actually paid or payable for the goods
2
• sold for export to India/from India
4
• for delivery at the time and place of
importation/exportation,
• where the buyer and seller of the goods are
not related and
5
• price is the sole consideration for the sale
3
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CONDITIONS FOR ACCEPTING TRANSACTION VALUE
 Section 14 (1)& Rule 3(2)
 Buyer and seller should not be related
 Price should be the sole consideration for the sale
 No restriction on buyer for disposal of goods; which substantially
affect the value of goods
 Sale should not be subject to conditions of which value cannot be
determined
 No further consideration to seller of which adjustment cannot be
made
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SOLD FOR EXPORTATION
 There must be a sale for export to the country of
importation (India)
 Sale can be made in high seas to be imported into India
 Advisory Opinion 14.1: only transaction involving an
actual international transfer of goods
 Applicable when goods are cleared from a bonded
warehouse to the DTA
 Charges after importation should not be included in the
customs value.
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PRICE IS THE SOLE CONSIDARATION

If there is other consideration, it should be
added to the transaction value
• Activities on account of buyer for which
adjustment is not provided in rule 10 – not to be
added to price
• If price is subject to a condition for which value
cannot be determined – T.V. is rejected.
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INCLUSION TO THE ASSESSABLE VALUE
RULE 10 OF CVR 2007

Rule 10 – cost and services to be included if not
already included in the price paid or payable
 10(1)(a) - Incurred by the buyer for the imported
goods
 Commissions
commissions
and
brokerage
except
buying
 Cost of containers being one with the goods
 Labour and material cost for packing
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SUPPLIES BY THE BUYER 10(1) (b)
 Goods and services supplied by buyer directly or indirectly
 Free of cost or at reduced cost
 For use in connection with production and sale for export of
imported goods
 Materials, components, parts
 Tools, moulds, dies
 Materials consumed in the production
 Engineering, plans, sketches undertaken elsewhere other than in
India and necessary for the production of imported goods
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ROYALTIES AND LICENSE FEES 10 (1) (c)
 Royalties and License fee related to the imported goods;
 Required to be paid by the buyer directly or indirectly;
 As a condition of sale of the goods being valued.
 Include payments in respect to IPRs
 Doesn’t include payment for the right to reproduce in India
 Payments for the right to distribute or resell in India, includible
only if a condition of sale
 Payments towards process to be undertaken post importation
includible if a condition of sale (Explanation) – e.g. fees towards
technical know-how for using the product in India
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OTHER PAYMENTS MADE TO THE SELLER
 10(1)(d)
 Value of any part of the proceeds of any;
 Subsequent resale, disposal or use of imported goods that;
 Accrues directly or indirectly to the seller.
 E.g. Distributor/agent imports goods and once he sells these
goods in India, proceeds are payable to the foreign seller.
 10(1)(e)
 Payments made or to be made
 As a condition of sale of imported goods
 By the buyer to the seller or a third party to satisfy an obligation
of the seller.
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FOR DELIVERY AT THE TIME AND PLACE OF
IMPORTATION
 Rule 10(2) – Value of the goods for delivery at the time
and place of importation
 Includes
 Cost of transport to the place of importation,
including ship demurrage charges
 Loading and unloading charges associated with the
delivery at the place of importation
 The cost of insurance
 Rules provide for additions as a percentage of FOB value
in case the costs are unascertainable
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OTHER ADDITIONS
 Rule 10(4) – no other additions shall be made in
determining T.V. except as provided for in Rule 10.
 Rule 10(3) – Additions shall be made on the basis of
objective and quantifiable data
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EXCLUSION FROM ASSESSABLE VALUE
 Following charges are to be excluded – Interpretative
Note to R.3
 Erection, testing and commissioning charges – port
importation expenses
 Cost of transport after importation
 Duties and taxes in India
 Payments that do not relate to imported goods
 Bank charges for bank services
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REJECTION OF DECLARED VALUE
 Rule 11 – importer or his agent has to furnish a
declaration – detailed disclosure relating value of
imported goods
 Proper officer – truth and accuracy of information
furnished
 Wrong declaration is an offence
 Rule 12 – value declared can be rejected-AO has doubts
regarding the truth or accuracy
 Rule 3(4) – if value cannot be determined under Rule 3 –
determined by proceeding sequentially through Rule 4-9
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TRANSACTION VALUE OF DECLARED GOODS- RULE 4
 If Rule 3 value is unacceptable, value of imported good;
 T.V. of identical goods
 Sold for export to India
 Imported at or about the same time as that of the
goods being valued
 Goods in comparison shouldn’t have been provisionally
assessed
 Rule 4(3) – More than one T.V. of Identical goods, lowest
of such value should be taken
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TRANSACTION VALUE OF DECLARED GOODS- RULE 4
 Identical goods fulfill the following criteria – Rule 2(1)(d)
 Goods should be same in all respects
 Should have been produced in the same country
 Should be produced by the same manufacturer unless
unavailable;
 Should have been imported from the same country
 Sale should be at the same commercial level
 If at different commercial level, due account to
adjustment and demonstration of difference
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TRANSACTION VALUE OF SIMILAR GOODS
 If Rule 3 or rule 4 value cannot be accepted; T.V. of
similar goods imported at or about the same time
 Goods in comparison shouldn’t have been provisionally
assessed
 Distinction regards identical goods – in case of similar
goods, it is enough if they like characteristics and perform
same function
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TRANSACTION VALUE OF SIMILAR GOODS
 Similar goods fulfill the following criteria – Rule 2(1)(d)
 Goods should be alike in all respects – commercially
interchangeable
 Should have been produced in the same country
 Should be produced by the same manufacturer unless
unavailable;
 Should have been imported from the same country
 Sale should be at the same commercial level
 If at different commercial level, due account to adjustment and
demonstration of difference
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RULE 6
 If the value can’t be determined under Rules 3, 4 and 5
 the value shall be deductive under rule 7,
 otherwise, computed value under rule 8.
 At the request of the importer + approval of the proper
officer, Rule 8 can be used first
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DEDUCTIVE VALUE- RULE 7
 When Rule 3, 4 and 5 not acceptable/available – but
products are sold in India
 A.V. calculated by reducing post-importation costs and
expenses from the selling price
 Price only after processing of imported goods- processing
costs to be deducted
 Price at or about the time goods are being valued
 If not, date within 90 days of importation
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COMPUTED VALUE- RULE 8
 Computed value shall consist of the sum of:
 the cost or value of materials for producing imported
goods;
 amount for profit and general expenses usually
reflected in sales of similar goods;
 the cost or value of all other expenses under sub-rule
(2) of rule 10
 Used in cases of buyer and seller being related and
producer supplies necessary costing
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RESUDIAL METHOD- RULE 9
 A best judgment method – where value cannot be
determined under preceding rules
 Reasonable means consistent with the principles
and general provisions of these rules and
available data
 The value arrived shall not exceed price of like
goods sold for import to India
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PROHIBITIONS IN DETERMINING THE VALUE
 Use of selling price in India of goods produced in
India
 System of accepting highest of the alternatives
 Price of goods prevalent in the country of exportation
 Price of goods for export to a country other than India
 Minimum customs values
 Arbitrary or fictitious value
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RELATED PARTY- RULE2(2)








Officers or directors of each other’s business
Legally recognized partners in business
Employer-Employee
Any person directly or indirectly owning, controlling or holding
5% or more of the stock or share of both the parties
One of them controls the other or both controlled by a third
person or together they control a third person - directly or
indirectly
Members of the same family.
Subject to their falling within the above criteria- sole agent or
sole concessionaire or sole distributor of the other shall be
deemed to be related.
Persons include “legal persons”
.
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VALUATION OF RELATED PARTY TRANSACTIONS
RULE 3(3)
 Rule 3(3)(a) – Transaction Value to be accepted where relationship
do not influence the price.
 Rule 3(3)(b) – Importer to demonstrate that declared value closely
approximates to one of the following values at or about the same
time:

The transaction value of identical goods, or of similar goods, in
sales to unrelated buyers in India;

The deductive value for identical goods or similar goods;

The computed value for identical goods or similar goods.
 Where T.V. cannot be applied – sequential application of R.4-9
© COPYRIGHT 2012, LAKSHMI KUMARAN & SRIDHARAN, ATTORNEYS
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EXPORT VALUATION
VALUATION OF EXPORTS
 Based on Transaction Value – S.14 and
 Customs Valuation (Determination of Value of Export
Goods) Rules, 2007
 If conditions of T.V. are not met, valuation as per Rules
 Rule 3(2) of Export Valuation Rules – T.V. to be accepted
even if buyer and seller are related – but price not
influenced
 Valuation under the Rules – if T.V. not possible –
sequentially through rule 4 – 6
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VALUATION OF EXPORTS
 Export Value by Comparison – Rule 4
 T.V. of Goods of like kind and quality – identical or
similar – commercially interchangeable – R.2(1)(a)
 Exported at or about the same time
 To other buyers in the same destination country
 If not, another destination country is considered
 Computed Value – Rule 5 if R.4 is inapplicable – on the
basis of
 Cost of production of export goods
 Charges for deign or brand
 An amount towards profit
 Residual Method – Rule 6 when R.4 & 5 inapplicable
 Best judgment method similar to import valuation
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IMPORT PROCEDURE
IMPORT PROCEDURE
 Person in charge of Conveyance – Import manifesto (IGM) submitted –
‘entry inwards’ granted
 Self Assessment based on RMS in respect of specified importers
 IEC code number from DGFT prior to filing BoE
 Importer – Submission of Bill of Entry with relevant docs – contains
description, value, quantity, exemption notification, classification – Sec 46
 White Bill of Entry - home consumption - cleared on payment of
customs duty
 Yellow Bill of Entry – warehousing - ‘into bond Bill of Entry’ as bond is
executed – no duty is paid and imported goods are transferred to
warehouse
 Green Bill of Entry - clearance from warehouse on payment of customs
duty - ex-bond clearance.
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IMPORT PROCEDURE
 Bill of Entry is noted - Goods are assessed to duty,
examined and pre-audit is carried out - Customs duty is
paid after assessment.
 Rate of customs duty on the day of noting
 Self Assessment under Section 17
 Payment under protest
 Provisional assessment – Section 18
 On importer’s request if unable to make SA
 Deemed necessary to carry out tests
 Necessary to make further enquiry
 Final Assessment – difference paid or refund
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IMPORT PROCEDURE
 Out of customs charge for clearance issued
 After that, port dues, demurrage and other charges are
paid and goods are cleared.
 Goods can be disposed of if not cleared from port within
30 days – Sec 48
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SELF ASSESSMENT PROCEDURE
Introduced during Budget speech 2011-2012
ALL IMPORTERS/EXPORTERS
Already prevalent in Excise & Service Tax
Extended to Customs
Trade Facilitation Measure
Procedure is same for exports & imports
To quicken the clearance of cargo
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NEED FOR SELF ASSESSMENT
Underlying Reason
 To reconcile 2 conflicting interests (Customs Checks vs.
Faster Clearance)
 To allow release of the goods on the basis of selfassessment
 Without examination of the goods – Green Channel
 To enable the importer to have possession of the goods
 Also interests of the government are protected by
resorting to On-Site Post Clearance Audit (OSPCA)
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CHANGES INTRODUCED IN SELF ASSESSMENT
SubSection
Old Section
New Section
(1)
PO to assess the goods imported
Self Assessment by Importer
(2)
Verification to be done by PO
PO may verify the self-assessment of such
goods
(3)
PO may ask for documents for the PO may ask for documents for the purpose of
purpose of assessing duty
Verification of Self assessment
(4)
prior to the examination or testing PO Re-assessment of goods if on verification self
may permit to be assess duty on the assessment found to be wrong
basis of the statements made in the
entry and the documents produced
(5)
Speaking order if assessment done by Speaking order if re-assessment done by PO
PO different from assessment sought different from self assessment done
by
by importer/exporter
importer/exporter
(6)
Not there
Audit of self assessment
assessment not done
where
re-
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FLOW OF SELF ASSESSMENT
An importer / exporter SHALL Self Assess the Duty
PO may VERIFY the SA by examination & Testing
PO may require the importer / exporter to produce documents
On verification of SA , if
SA NOT DONE correctly
PO MAY RA the duty
SA is DONE correctly
If RA is contrary to SA
If importer/exporter accept RA (writing)
No issue of Formal Order
If importer/exporter
not accept
Speaking Order to be passed with in
15 days from date of RA
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IMPACT OF SELF ASSESSMENT
In case of
No SA done
SA done + RA is
required under Section 17
Importer / exporter can opt for PA by PO
PA gets converted into FA
PA gets converted into RA
Key:
PA – Provisional Assessment; RA - Re-Assessment
SA – Self Assessment
PARA 7 OF THE CIRCULAR 17/2011-CUS
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PROVISIONAL ASSESSMENT- S.18
 Unable to make SA + requests in writing to PO or
 PO deems it necessary for the imported goods to be
tested or
 Importer produced documents + for further enquiry or
 Documents not produced/Information not provided +
further enquiry
 Customs (Provisional Duty Assessment) Regulations,
2011 which supersedes 1963 Regulations
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EXPORT PROCEDURE
EXPORT PROCEDURE
 Loading in conveyance after ‘Entry Outward’ is sanctioned
 Person in charge of conveyance submission of ‘Export Manifest’
 Exporter to obtain IEC number from DGFT - registered with Export
Promotion Council if export benefits claimed
 Export is required to submit Shipping Bill with required documents
for obtaining permission to export.
 Shipping Bill for export of goods under claim for duty drawback
 Shipping Bill for export of dutiable goods - this should be yellow
colour
 Shipping bill for export of duty free goods - it should be white
colour
 shipping bill for export of duty free goods ex-bond - i.e. from
bonded store room - it should be pink colour
 Shipping Bill for export under DEPB scheme - Blue colour.
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EXPORT PROCEDURE
 FEMA formalities - GR/SDF/Softex form is required to
be submitted.
 The shipping bill is noted, goods are assessed and
examined. Export duty is paid, if applicable.
 Customs check for advance licenses, restriction and
prohibitions
 If export is under export incentives, relevant documents
are checked and certified. Then proof of export is
obtained on ARE-1
 Conveyance can leave only after ‘Let Export’ order is
issued.
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© COPYRIGHT 2012, LAKSHMI KUMARAN & SRIDHARAN, ATTORNEYS