Valuation of import goods - Desirable clarity in new provisions!
By J M Kishore
THE laws relating to valuation of import and export goods have undergone a sea change in the year 2007. During the Budget 2007, the Government initiated action by proposing amendments to the Section 14 of The Customs Act, 1962 which deals with valuation of Import and Export goods. This followed by draft notifications of valuation rules for both import and export goods in the month of March 2007. Everyone connected with import and export activity appreciated the sincere efforts of the law-making authorities for throwing open the draft rules so as to elicit public response. Within six months, after considering various suggestions from trade as well as from the department, The Customs Valuation (Determination of Price of Imported Goods) Rules, 2007 and The Customs Valuation (Determination of Value of Export Goods) Rules, 2007 were notified vide CN 94/2007 (NT) and vide CN 95/2007 (NT) respectively on 13.09.2007. These Rules shall come into force from 10.10.2007. It is also to be noted that three days earlier, i.e, on 10.09.2007. The Central Government, vide CN 93/2007(NT), appointed 10.10.2007 as the date on which the provisions of Section 94, Section 95 and Section 113 of the Finance Act,2007 shall come into force. These Sections of the Finance Act 2007 are statutory amendments relating to provisions of valuation of goods in Section 2, Section 14 and Section 156 of The Customs Act, 1962. Thus, 10 th October 2007 would be the D-day from which the valuation laws relating to import and export goods see the light in India.
As far as Import valuation is concerned, apparently, intention of the Government is to remove the contradiction of deemed value and transaction value in the Section 14 of The Customs Act, 1962. By proposing the new rules in the place of existing Valuation Rules 1998, it is expected that litigation in valuation matters may subside.
SECTION 14 of The customs Act, 1962 - clear and effective
Hitherto, the concept of "deemed value" was holding a place on top. The price of imported goods was dependent on aspects such as
The price at which such or like goods are sold/offered,
The price at which the goods are sold /offered ordinarily in the course of international trade,
The sale/offer at the time and place of importation or exportation,
The seller and the buyer have no interest in the business of each other; or even one of them has no interest in the business of the other, and
price is the sole consideration for the sale or offer for sale .
Now, there is no place for this deemed value and the "transaction value" takes primary position. The amended Section 14(1) makes it very clear that "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..." .
Perfect link between the statute and the Rules
One must sincerely appreciate the law making authorities for taking all possible precautions in drafting the statute, especially in perfectly linking the same to the Valuation Rules . As per the first provision of the Section 14(1), transaction value shall also include ,"any amount paid or payable for costs and services including commissions and brokerage, engineering, design work, royalties and license fees, costs of transportation to the place of importation, insurance, loading, unloading and handling charges to the extent and in the manner specified in the rules made in this behalf. The second provision in Sub-section (1) of Section 14 specify that the Rules made in this behalf may provide for certain aspects such as related parties, manner of determination of value ,acceptance or rejection of the declared values. Thus there is ample clarity in the law for the method of valuation, acceptance, rejection and determination. The Customs Valuation (Determination of Value of Export Goods) Rules, 2007 are notified "in exercise of the powers conferred by section 156 read with section 14 of the Customs Act, 1962". Thus , a perfect and legal link is provided to the statutory provisions relating to Valuation. It is to be noted that the existing Customs Valuation (Determination of Price of Imported Goods) Rules, 1988 do not have this link to Section 14 of the Customs ACT,1962 .
Definition for "TRANSACTION VALUE" - change in wording-meaning remains the same
In the old Rules, "Transaction value" is defined at Rule 2(f) as the value determined in accordance with Rule 4 of the Customs Valuation (Determination of Price of Imported Goods) Rules, 1988. This Rule 4, stipulates that " transaction value" shall be the price " actually paid or payable " for the goods when sold for export to India. The new amended Section 14(1) of The Customs Act,1962 indicates that the transaction value is the price actually paid or payable. In view of this, The Customs Valuation (Determination of Value of Export Goods) Rules, 2007 , under Rule 2(g), define the transaction value as "the value referred to in sub-section (1) of Section 14 of The Customs Act,1962".
Rules pruned - words corrected
Rule 3 and Rule 4 of The Customs Valuation (Determination of Price of Imported Goods) Rules, 1988 specify " Determination of the method of valuation" and "Transaction value". The new 2007 Rules prune both these rules and now, the Rule 3 contains both the aspects of determination of the method of valuation as well as transaction value. In the valuation Rules, 1988, there was an error in one of the provisions which stipulated the circumstances under which the transaction value can not be accepted. The Rule 4(2)(f) of these rules specify that ;
the transaction value is to be accepted provided,
"the sale or price is not subjected to same condition or consideration for which a value cannot be determined in respect of goods being valued." The word "same" in the above provision should have been mentioned as "some" as the word "same" does not give proper meaning required . In fact, the GATT Valuation Rules, which are basis for our valuation Rules contained the word correctly as "some" where as Customs Valuation (Determination of Price of Imported Goods) Rules, 1988, for all these years show the word as 'same". On a simple reading, though the word 'same' or 'some' appears to cause no problem, it is better that it should be corrected as every word in the rules may have its own importance. This un-noticed error is now corrected and Rule 3(2)(b) of the new Rules is properly worded now. This indicates that a lot of care has been taken in drafting and that's really appreciable.
Transaction value of the identical goods/similar goods - provisionally assessed values not to be taken
Provision to the Rule 4(1)(a) specify that "Provided that such transaction value shall not be the value of the goods provisionally assessed under section 18 of the Customs Act, 1962."
Provisional assessment under Section 18 of the Customs Act,1962 is resorted on three occasions.
- Where production of documents/information is necessary
- Where Chemical or other test is required to be done
- Where proper officer deems it necessary to make further enquiry for assessment.
Thus, it is not always necessary for valuation purpose alone the provisional assessment is resorted. There may be a few other requirements such as end use verification ,classification dispute, provisional anti dumping duty levy etc. Values of identical goods which are assessed for these other purposes need not be excluded for consideration/comparison under Rule 4 of the The Customs Valuation (Determination of Value of Export Goods) Rules, 2007. Only those provisional assessments, which have been done for the purposes of verification of value alone may be considered for exclusion for the comparison. For this purpose, NIDB data capturing should be modified so that the data shown under provisional assessment category indicates the reason for provisional assessment. Similarly, in case of comparison with the values of contemporary similar goods under Rule 5 of the new rules also, provisional assessments done for valuation purposes alone should be considered for exclusion. Since the Rules 4 and 5 do not specifically mention this, possibility of cropping up of litigation in this area can not be rules out.
Further, it is also felt that system assessed values under RMS/ACP should also merit exclusion from consideration for comparison.
RESIDUAL METHOD OF VALUATION - NOT SO EASY NOW
Rule 9 of The Customs Valuation (Determination of Value of Export Goods) Rules, 2007 deals with residual method which is also known as best judgment method in valuation. It stipulates that "where the value cannot be determined under the provisions of any of the preceding rules, the value shall be determined using reasonable means consistent with the principles and general provisions of these rules and on the basis of data available in India.
This determination is subject to a new and important condition that " the value so determined shall not exceed the price at which such or like goods are ordinarily sold or offered for sale for delivery at the time and place of importation in the course of international trade, when the seller or buyer has no interest in the business of other and price is the sole consideration for the sale or offer for sale." This provision was not there in the earlier Rules. but becomes now, a part of the residual method. However, the other conditions such as selling price of Indian produced goods not to be taken, export price of the goods to a country other than India shall not be taken, arbitrary or fictitious values not to be taken.etc continue to be covered under the Rule 9 in the new Rules.
COST AND SERVICES -Rule 10
Apart from the price actually paid or payable for the imported goods, certain specified costs and services have been mentioned in the Section 14(1) of the Customs Act,1962. This addition is mandatory as per Rule 3 of the Rules also. The explanation under Rule 10(2)specify that " the cost of transport of the imported goods referred to in clause (a) includes the ship demurrage charges on charted vessels, lighterage or barge charges.". Though Board circular No. 26/2006-Cus., dated 26-9-2006 clarified the matter, it is legally correct to have the provision in the Valuation Rules itself. It is an excellent provision and a long awaited one. One provision that is conspicuous by its absence in the explanation may be that about "despatch money ". The demurrage or dispatch moneys are in the nature of penalties or rewards by virtue of a contracted charterer agreement between the carrier and the charterer. While the demurrage money is considered as the actual amount borne by the importer, and forms part of the assessable value, the dispatch money, being a sum in the nature of reward may have to be considered for exclusion from the assessable value.
RULE 12 - PROVISIONS FOR REJECTION OF DECLARED VALUE -APT AND EFFECTIVE
Provisions in this Rule 12 are very clear.
- This rule by itself does not provide a method for determination of value.
- It provides a mechanism and procedure for rejection of declared value
It can be noted that determination method of valuation under Rule 3(1) itself gives primary power to the provisions of Rule 12. The transaction value is thus subject to Rule 12 provisions. The explanation provided for removal of doubts is apt. Sub-rule (ii) of Rule 12(2) casts an obligation on the on the proper officer to accept the declared value where he is satisfied about the truth and accuracy of the value declared after the enquiry in consultation with the importers.
Reasons to doubt the truth and accuracy of the declared value - not limited!
"The proper officer shall have the powers to raise doubts based on certain reasons which may include". These wording in the provision makes it clear that the reasons for raising doubts are not really limited. Existence of significantly higher values for comparison is a stronger one. NIDB DATA available for officers would be of immense help in this aspect. Abnormal and special discounts offered may not be considered. Misdeclaration of parameters such as description,quantity, quality, country of origin etc can also be reasons for doubting the truth of declared values. Interestigly, Non-declaration of parameters also would be a reason for doubting. These provisions, being very effective would be really helpful for the government to halt the duty evasion attempts by unscrupulous traders.
GRAPHICAL PRESENTATION OF VALUATION RULES
I have attempted to make a graphical presentation of both The Customs Valuation (Determination of Value of Import Goods) Rules, 2007 (dowload excel file) and The Customs Valuation (Determination of Value of Export Goods) Rules, 2007 (dowload excel file). The presentation is not certainly comprehensive but may help all the concerned to gain an idea about the methods of valuation. I would be grateful if any suggestions/corrections are made.
(The author is working with the Department and the views expressed are personal)