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2023 (6) TMI 1012 - AAR - CustomsValuation of imported goods - imported goods were sold to unrelated buyers in India at a higher price - whether the value arrived by using the new process is acceptable as Customs Value on which Customs Duty is required to be paid in terms of Section 14 of the Customs Act, 1962 read with the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007. HELD THAT - The CBIC has issued a Circular no. 5/2016 dated 9.02.2016 on the issue of Procedure for investigation of related party import cases and other cases by the Special Valuation Branches . On examination of the contents of the application as well as arguments put forth during the course of hearing I find that the CBIC Circular No. 5/2016-Customs dated 9th February, 2016 is relevant for all related party transactions Moreover, CBIC circular 5/2016 dated 09.02.2016, as stated in para 2 therein, has taken cognisance of WCO's Guide to Customs Valuation and Transfer Pricing (June 2015) which recognises TPuS method, however there is no separate dispensation provided in the CBIC circular to this method in related party transaction cases. This CBIC circular remains applicable on equal footing to the importer following TPus method as per WCO guide as well as to any other related party importer. It is observed that the Rule 10 of CVR, 2007 stipulates addition of price elements on account of certain goods and/or services to the transaction value ill the correct transaction value. CBIC Circular provides that the transactions where any payments are sought to be made which are in the nature of instances given at (a) (Rule 10(1) (c)), (b) (Rule 10(1)(d)) and (c) (Rule 10 (1)(e)) above, shall be examined with respect to the need for S VB investigations. The applicant has stated that they are not making any such payments (in the form of royalty, license fee etc.) which are required to be added in order to arrive at the transaction value - the application of Rule 10 is not warranted due to absence of financial flows on account of any such cost elements. TPuS method clearly shows that the proposed transaction value is sum total of manufacturing cost (direct cost indirect cost) and administrative expenses, other expenses and profit represented by CAR indicating absence of any financial flows which can fall under the scope of Rule 10(1)(c), Rule 10(1)(d) and Rule 10 (1)(e). The applicant's proposed valuation method, Transfer Pricing System and Steering Concept (TPuS) method also known as Resale Price method/Resale Minus method, for determination of transaction value under Section 14 of the Customs Act 1962 for goods proposed to be imported from the related party suppliers, after compliance with the procedure prescribed in the CBEC (now CBIC) Circular No. 5/2016 Customs from F. No. 465/12/2010-Cus V dated 09/02/2016 on the issue of Procedure for investigation of related party import cases and other cases by the Special Valuation Branch , is consistent with Rule 3 as well as Rule 7 of the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007 - This ruling will apply prospectively only to the TPuS method proposed to be adopted by the applicant for transaction value determination w.e.f. 1 st May 2023.
Issues Involved:
1. Acceptability of the Transfer Pricing System and Steering Concept (TPuS) method for determining customs value. 2. Compliance with Section 14 of the Customs Act, 1962, and the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007 (CVR, 2007). 3. Applicability of Rule 3(3)(a), Rule 4, Rule 5, Rule 7, and Rule 10 of CVR, 2007. 4. Provisional assessment and finalization of customs duty. Detailed Analysis: Issue 1: Acceptability of the Transfer Pricing System and Steering Concept (TPuS) method for determining customs value. The applicant proposed using the TPuS method, also known as the Resale Price Method or Resale Minus Method, to determine the customs value of goods imported from related parties. Under TPuS, the customs value is based on the manufacturing cost plus a Commercial Adjustment Rate (CAR). The CAR is calculated by deducting all costs and a target EBIT from the sales value charged to unrelated buyers in India. The ruling concluded that the TPuS method is consistent with Rule 7: Deductive Value Method of the CVR, 2007, as both methods involve deductive computations from the same benchmark price and similar price elements. Issue 2: Compliance with Section 14 of the Customs Act, 1962, and the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007 (CVR, 2007). The ruling examined whether the TPuS method complies with Section 14 of the Customs Act, 1962, which governs the valuation of goods for customs purposes. Section 14 stipulates that the value of imported goods shall be the transaction value, i.e., the price actually paid or payable for the goods when sold for export to India. The ruling found that the TPuS method ensures recovery of all costs and profit, thereby complying with the provisions of Section 14 and Rule 3(3)(a) of the CVR, 2007. Issue 3: Applicability of Rule 3(3)(a), Rule 4, Rule 5, Rule 7, and Rule 10 of CVR, 2007. - Rule 3(3)(a): The ruling stated that the TPuS method complies with Rule 3(3)(a), which requires that the transaction value be accepted if the relationship between the buyer and seller did not influence the price. The TPuS method demonstrated that the price is adequate to ensure recovery of all costs and profit, indicating that the relationship did not influence the price. - Rule 4: The ruling agreed with the applicant's contention that Rule 4, which is based on the transaction value of identical goods, is not feasible as the imported goods are customized and enjoy a distinct brand value. - Rule 5: Similarly, the ruling found that Rule 5, based on the transaction value of similar goods, is not applicable as the imported goods cannot be compared with any other products due to their unique brand value. - Rule 7: The ruling confirmed that the TPuS method is consistent with Rule 7: Deductive Value Method, as both methods involve deductive computations from the same benchmark price and similar price elements. - Rule 10: The ruling found that the application of Rule 10 is not warranted as the applicant is not making any payments (e.g., royalty, license fee) that need to be added to the transaction value. Issue 4: Provisional assessment and finalization of customs duty. The ruling noted that since all elements of the transaction value cannot be definitively determined at the time of import, the assessment should be provisional. The applicant proposed to make adjustments to the declared price (transaction value) after the end of the financial period and discharge the remaining customs duty and other liabilities accordingly. Conclusion: The ruling concluded that the TPuS method for determining the transaction value of goods imported from related parties is consistent with Section 14 of the Customs Act, 1962, and the CVR, 2007. The ruling will apply prospectively to the TPuS method proposed to be adopted by the applicant for transaction value determination from 1st May 2023. The applicant must comply with the procedure prescribed in the CBEC (now CBIC) Circular No. 5/2016 Customs dated 09/02/2016 for related party transactions.
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