New Customs Valuation Rules

[Dinesh Kumar Agrawal]

Section 14 of the Customs Act, 1962 was amended by the Finance Act, 2007 wherein, complying with the GATT Valuation Code, primacy of the transaction value was accepted and the concept of deemed value was negated. Further, provisions of Section 14 were explicitly made applicable to valuation of export goods also. Now, the Central Government has notified new customs valuation rules for import and export vide Notification No 94 & 95/2007-Cus (NT) both dated 13 September 2007 which will come into effect from 10 October 2007.

The Customs Valuation (Determination of Value of Imported Goods) Rules, 2007:

The provisions of the old Customs Valuation (Determination of Value of Imported Goods) Rules, 1988 has been retained substantially in the new Customs Valuation (Determination of Value of Imported Goods) Rules, 2007 with slight modification having almost nil impact on the valuation method. Salient differences between the old rules and the new rules are enumerated below:

Ø Rules have been re-numbered. Now, Rule 3 is transaction value (old Rule 4), Rule 4 is transaction value of identical goods (old Rule 5), Rule 5 is transaction value of similar goods (old Rule 6), Rule 7 is deductive value (no change), Rule 8 is computed value (old Rule 7A) and Rule 9 is residual method (old Rule 8). Like wise Rule 10 pertains to cost and services (old Rule 9) and Rule 12 pertains to rejection of declared value(Old Rule 10A)

Ø Following conditions of old Rule 4(2) of the transaction value has not been incorporated under Rule 3 of the new rules

(a)  the sale is in the ordinary course of trade under fully competitive conditions;

(b) the sale does not involve any abnormal discount or reduction from the ordinary competitive price;

(c) the sale does not involve special discounts limited to exclusive agents;

(d) objective and quantifiable data exist with regard to the adjustments required to be made, under the provisions of rule 9, to the transaction value

Aforesaid conditions were included in the old rules in 2001 but were not part of the GATT code. However, condition (b) and (c) has been incorporated at Rule 12 as grounds to raise doubts about truth or accuracy of the declared value.

Ø Value of identical or similar goods will not include value of the provisionally assessed goods under section 18 of the Customs Act.

Ø  Value determined under Rule 9 can not be more than 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. It is worth to note that the concept of deemed value in the erstwhile Section 14 of the Customs Act has been brought back in the residual method of valuation.

Ø An explanation has been inserted under Rule 10 as per which the royalty, licence fee or any other payment for a process, whether patented or otherwise, is includible referred to in clauses (c) and (e), such charges shall be added to the price actually paid or payable for the imported goods, notwithstanding the fact that such goods may be subjected to the said process after importation of such goods.

Ø Another explanation has been added to Rule 10 to clarify that the cost of transport of the imported goods includes the ship demurrage charges on charted vessels, lighterage or barge charges.

Ø An explanation has been added to Rule 12 to clarify that this rule by itself does not provide a method for determination of value, but provides a mechanism and procedure for rejection of declared value in cases where there is reasonable doubt that the declared value does not represent the transaction value; where the declared value is rejected, the value shall be determined by proceeding sequentially in accordance with rules 4 to 9.

Ø  Rule 12 provides some grounds, interalia, misdeclaration of goods in parameters such as description, quality, quantity, country of origin, year of manufacture or production or non declaration of parameters such as brand, grade, specifications that have relevance to value as sufficient reasons to doubt the accuracy of the transaction value.

The Customs Valuation (Determination of Value of Export Goods) Rules, 2007

There was no valuation rules for export goods as the Customs Valuation Rules or GATT valuation code were meant only for imported goods. A large number of cases of overvaluation of export goods to avail unintended export benefit have necessitated amendment of Section 14 of the Customs Act to include export valuation within its ambit and notification of the export valuation rules. Salient features of the rules are hereunder:

Ø Rules lay down different methods of valuation of export goods. Transaction value under Rule 3, comparative value under Rule 4, computed value under Rule 5 and residual value under Rule 6 are recognised as methods of valuation.

Ø Transaction value is acceptable under Rule 3

Ø Transaction value can be rejected under Rule 8 if the exporter is unable to satisfy about the truth and accuracy of the declared value to the officers who has raised doubts based on grounds, interalia, significant variation in value of comparable goods or misdeclaration of goods in parameters such as description, quality, quantity, year of manufacture or production

Ø In case transaction value is rejected, value will be determined through Rule 4 to 6 proceeding sequentially.

Ø Under Rule 4 the value will be determined based on the value of like goods with adjustments for factors like difference in the date of export, commercial levels and quantity, etc.

Ø Under Rule 5, the value will be determined based on the cost of production, charges for designs and brands and will include reasonable profits.

Ø Under Rule 6, the value will be determined by using reasonable means consistent with the principles and general provisions of these Rules, provided that local market price of export goods may not be the only basis for determining the value of export goods.