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AV of imported goods - inclusion of packing & labeling costs

AUGUST 20, 2014

By Neeraj Prasad

LABELING and re-packing of goods imported into the country at the port or warehouses (bonded as well as non-bonded) before the first point of independent sales is a common place practice, many a time in violation of the extant legal provisions. In this regard attention of the readers is invited to Board's Circular No. Circular No. 19/2011-Customs dated15/04/2011.The preamble of the circular states that: representations have been received about difficulties being faced by importers in carrying out labeling of certain commodities which are small sized and sensitive to heat and dust in CFSs prior to clearance of the same under the provisions of DGFT Notification No.44 (RE-2000)/1997-2002 dated 24.11.2000. The problem is further compounded due to shortage of space in various CFSs.

The Circular goes on to clarify that: CBEC has decided to extend the facility of labeling on imported goods in Bonded warehouses subject to certain procedural conditions.

The Circular further states: As the activity of labeling and re-labeling including declaration of Retail Sale Price (RSP) on goods amounts to manufacture in terms of section 2(f) of the Central Excise Act, 1944, if the same is carried out on goods warehoused, it would be considered as manufacturing operations having been undertaken in bond / warehouse and accordingly, the provisions of ‘Manufacture and Other Operations in Warehouse Regulations, 1966' would apply on those goods. Importers can, therefore, avail the facility of carrying out labeling in warehouse after following above procedure and the provisions of ‘Manufacture and Other Operations in Warehouse Regulations, 1966(para 5).

The usual gaze of the Department on such labeling and re-packing of goods imported into the country at the port or warehouses (bonded as well as non-bonded) before the first point of independent sales, is on the issue of manipulation of MRP leading to evasion of CVD. But what is the implication of the labeling and packing cost incurred in warehouses (whether bonded on not), or carried out at ports?

In this regard attention of the readers is invited to Rule 10 of the Customs Valuation Rules 2007 which states that (1) In determining the transaction value, there shall be added to the price actually paid or payable for the imported goods,-

(ii) the cost of containers which are treated as being one for customs purposes with the goods in question;

(iii) the cost of packing whether for labour or materials.

Re-iterating the implications of Rule 10 it is crystal clear that, cost of containers which are treated as being part of goods for customs purposes are includible in the assessable value (eg. packing materials are classified along with that article). Similarly, cost of packing-both labour and material is to be included. This principle stands upheld in Garden Silk Mills Ltd. V. UOI 2002-TIOL-19-SC-CUS (SC 3 member bench).

The provisions of Legal Metrology Act, 2009 and the rules made there-under which covers manufacturers, dealers (wholesale or retail) as well as importers and exporters prescribes the basic requirements on labeling and marking on traded goods.; and it clearly states that every package must bear a label securely affixed thereto, a definite, plain and conspicuous declaration on the "Principal Display Panel", the name and complete address of the manufacturer/packer, common or generic name of the commodity, net quantity (in standard units), month and year of manufacture or pre-packaging, the retail sale etc. In addition, all import consignments are required to bear the name and address of importers also.

Similar provisions existed in the preceding Act and rules of the Weight and Measures, in tune of which DGFT notification 44(RE)/24.11.2000 was issued,which states:

- The following shall be added after paragraph 4 of Chapter 1A: General notes regarding import policy, of ITC (HS) Classifications of Export and import Items, 1997-2002.

- All such packaged products, which are subject to provisions of the Standards of Weights and Measures (Packaged Commodities) Rules, 1977 when produced/packed/sold in domestic market, shall be subject to compliance of all the provisions of the said rules, when imported into India. The compliance of these shall be ensured before the import consignment of such commodities is cleared by Customs for home consumption. All pre-packaged commodities, imported into India, shall in particular carry the following declarations:

(a) Name and address of the importer;

(b) Generic or common name of the commodity packed;

(c) Net quantity in terms of standard unit of weights and measures. If the net quantity in the imported package is given in any other unit, its equivalent in terms of standard units shall be declared by the importer;

(d) Month and year of packing in which the commodity is manufactured or packed or imported;

(e) Maximum retail sale price at which the commodity in packaged form may be sold to the ultimate consumer. This price shall include all taxes local or otherwise, freight, transport charges, commission payable to dealers, and all charges towards advertising, delivery, packing, forwarding and the like, as the case may be.

In a subsequent circular [DGFT Policy Circular No. 38(RE-2001)/1997-2002, dated 22.01.2001] it was further clarified that:

The labeling requirements, as mentioned in para 4 of the Notification, shall be applicable only on imports of those pre-packaged commodities, which are intended for retail sale. Since import of raw material, components, bulk imports etc., would invariably undergo further processing or assembly before they are sold to consumers, these imports shall not invite the application of labeling requirements as per para 4 of the Notification.

Thus, from a harmonious reading of the above mentioned provisions of Customs Valuation Rules 2007,Weight and Measures Act and Rules/Legal Metrology Act and Rules, and DGFT notifications it is abundantly clear that packing and labeling cost in the case of imported goods covered under the ambit of pre-packaged commodities after they have landed in the country, which were otherwise required to be imported in labeled and packed condition before the first point of independent sales, is required to be included in the customs assessable value. But is it happening?? Such packing and labeling activity before the first point of independent sale, will not be covered under the post-importation expenditure clause, and it would tantamount to indirect flow back to the overseas supplier, for had the goods been imported pre-packaged and labeled, surely the cost of it would under normal circumstances be a part of its invoice value!!

(About the author - Neeraj Prasad, IRS (C&CE) is Additional Commissioner, Service Tax Commissionerate, New Delhi and the views expressed are strictly personal and do not reflect the stand of the Department.)

(DISCLAIMER: The views expressed are strictly of the author and Taxindiaonline.com doesn't necessarily subscribe to the same. Taxindiaonline.com Pvt. Ltd. is not responsible or liable for any loss or damage caused to anyone due to any interpretation, error, omission in the articles being hosted on the site..)

 


 RECENT DISCUSSION(S) POST YOUR COMMENTS
   
 
Sub: RSP based valuation of imported goods

Sir,
It seems that the proviso to Section 3 of the Customs Tariff Act,1975,read with notification issued under Section 4A of Central Excise Act,1944 provides for the valuation of imported goods on which it is mandated to declare RSP,for the purpose of levying CVD.

Posted by rrkothapally rrkothapally
 

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