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Customs Valuation of Imports - Related Party Transaction

CA. SRIKANTHA RAO T 
on 02 May 2014

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The opening up of the Indian economy around two decades ago followed by some of the Multinational Corporations setting up manufacturing units in the country brought into focus the provisions pertaining to valuation of goods imported into India. The need for this arose as quite often these units in India imported components or raw materials from outside India utilising the manufacturing capabilities elsewhere instead of sourcing the same from suppliers within India either due to quality issues or due to plain unavailability of critical materials/components within the country as well as pricing related issues at times.

While the imports later facilitated manufacturing operations within the country, the declaration of the value of the goods in question that were being imported was an issue the Revenue Authorities were concerned with. The concern was to ensure that the goods were not being undervalued as imports in general were subject to payment of duties of customs. Consequently, the Authorities started looking at the price payable by the importer for the goods in question that were imported as well as the forms of payment to the foreign supplier.

While the Customs law provided for levying duty on deemed value for quite sometime, since May 2007 we have had the concept of transaction value in respect of imported goods i.e. price actually paid or payable for the imports. The law however provides for certain scenarios where the transaction value could be rejected and also specifies the manner in which the appropriate value could be determined where transaction value is found to be unsuitable.      

If we were to refer Section 14(1) of the Customs Act 1962, the transaction value for the imported goods would be relevant to determine customs duty liability. This in other words refers to the price actually paid or payable for the goods when imported into India. One of the conditions for acceptance of transaction value is that the buyer and the seller should not be related. In addition to this, the price declared or indicated should be the sole consideration for the sale to India. The said Section is reproduced below for sake of convenience –

“(1) For the purposes of the Customs Tariff Act, 1975, or any other law for the time being in force, 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:

Provided that such transaction value in the case of imported goods shall include, in addition to the price as aforesaid, any amount paid or payable for costs and services, including commissions and brokerage, engineering, design work, royalties and licence 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:

Provided further that the rules made in this behalf may provide for, -

(i) the circumstances in which the buyer and the seller shall be deemed to be related;

(ii) the manner of determination of value in respect of goods when there is no sale, or the buyer and the seller are related, or price is not the sole consideration for the sale or in any other case;

(iii) the manner of acceptance or rejection of value declared by the importer or exporter, as the case may be, where the proper officer has reason to doubt the truth or accuracy of such value, and determination of value for the purposes of this section:

Provided also that such price shall be calculated with reference to the rate of exchange as in force on the date on which a bill of entry is presented under section 46, or a shipping bill of export, as the case may be, is presented under section 50.”

A review of the contents of the said Section quoted above would reveal that the same provides for a mechanism for framing Rules which would indicate the process to be followed to determine value of goods when the buyer and seller are related apart from the circumstances in which the buyer and seller would be deemed to be related. The said provision would have to be read with Section 156 (2)(a) of the Act which empowers the Central Government to make Rules which may provide for the manner of determining the transaction value of imported goods and export goods under sub-section (1) of Section 14.

The Central Government has consequently framed the Customs Valuation (Determination of Price of Imported Goods) Rules 2007 to deal with valuation issues. Rule 2(2) of the said Rules deals with related party relationship and goes thus –

“For the purpose of these rules, persons shall be deemed to be "related" only if –

i. they are officers or directors of one another's businesses;   

ii. they are legally recognised partners in business;  

iii. they are employer and employee;    

iv. any person directly or indirectly owns, controls or holds five per cent or more of the outstanding voting stock or shares of both of them;         

v. one of them directly or indirectly controls the other;

vi. both of them are directly or indirectly controlled by a third person;  

vii. together they directly or indirectly control a third person; or          

viii. they are members of the same family.”  

Where any of the aforesaid conditions are satisfied in terms of the relationship between the buyer and seller, the two would be deemed to be related thereby enabling the Authorities to probe the accuracy of the price declared for imports.  In the context of a corporate entity, the question of relationship comes into play where both the buyer and seller being corporate entities are controlled directly or indirectly by a third person or have five percent or more of their stocks or shares held by another or where one of them directly or indirectly controls the other or together they control a third person.

Where the entities in question are found to be related, the Customs Authorities would have the power under law to refer the valuation issue to the Special Valuation Branch which would then try to ascertain the veracity of the value declared.

The issue of probing the value declared by importer and referral to the Special Valuation Branch (SVB) of Customs was dealt with by CBEC in its Letter No. 001/98 dated 01.01.1998 in reply to representations from trade and industry regarding inordinate delays in the finalisation of cases involving related personal transactions, had clarified thus in Paragraph 3 –

“In examining whether a prima facie case exists for investigation by the SVB, the following criteria should be applied:-

(a) Where the importer provides evidence to the effect that the goods under assessment have been obtained at the same price by unrelated buyers or where the importer is able to demonstrate that the price for the said goods closely approximates to one of the following values ascertained at or about the same time -

(i) the transaction value of identical goods, or of similar goods, in sales to unrelated buyers in India;

(ii) the deductive value for identical goods or similar goods; and

(iii) the computed value for identical or similar goods.

The concerned Assessment Group will proceed to determine the value for the goods under assessment as declared by the importer without any reference to SVB.”

The contents of the aforesaid letter were however reviewed through issue of a Circular 11/2001 – Cus. Dated 23rd February 2001. While the need for referral to SVB was once again reiterated to be based on importer’s ability to demonstrate declared value approximating to any of the values as indicated above in Paragraph 3 of the earlier letter, the criterion for charging extra duty deposit was clarified in Paragraph 9 to be now based on the importer’s ability to fill up a questionnaire to be sent to him the format of which was indicated in Annex-A to the said Circular. The clarification was that where the importer is not able to furnish a complete reply to the questions set out within 30 days of receipt of questionnaire by him, the extra duty deposit would be increased to 5% till date of receipt of complete reply by the Department.   

Rule 12 (1) of the said Rules allows the concerned officer to reject the declared value as transaction value and to proceed with valuation as prescribed in the said Rules. The said Rule is reproduced below –

“(1) When the proper officer has reason to doubt the truth or accuracy of the value declared in relation to any imported goods, he may ask the importer of such goods to furnish further information including documents or other evidence and if, after receiving such further information, or in the absence of a response of such importer, the proper officer still has reasonable doubt about the truth or accuracy of the value so declared, it shall be deemed that the transaction value of such imported goods cannot be determined under the provisions of sub-rule (1) of rule 3.

(2) At the request of an importer, the proper officer, shall intimate the importer in writing the grounds for doubting the truth or accuracy of the value declared in relation to goods imported by such importer and provide a reasonable opportunity of being heard, before taking a final decision under sub-rule (1).”

The explanation to the said Rule clarifies the intent of the rule and indicates the circumstances in which declared value could be rejected –

“(1) For the removal of doubts, it is hereby declared that:-  

(i) This rule by itself does not provide a method for determination of value, it 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.

(ii) The declared value shall be accepted where the proper officer is satisfied about the truth and accuracy of the declared value after the said enquiry in consultation with the importers.

(iii) The proper officer shall have the powers to raise doubts on the truth or accuracy of the declared value based on certain reasons which may include-

(a) the significantly higher value at which identical or similar goods imported at or about the same time in comparable quantities in a comparable commercial transaction were assessed;

(b) the sale involves an abnormal discount or abnormal reduction from the ordinary competitive price;

(c) the sale involves special discounts limited to exclusive agents;

(d) the mis-declaration of goods in parameters such as description, quality, quantity, country of origin, year of manufacture or production;

(e) the non-declaration of parameters such as brand, grade, specifications that have relevance to value;

(f)  the fraudulent or manipulated documents.”

The aforesaid reasons for rejection of declared value are only indicative since the word “may” is used and are not intended to be exhaustive and conclusive. The officer concerned would however be required to strictly follow the procedure laid down in Rule 12 as confirmed by the Bombay High Court in Forbo Siegling Movement Systems India Pvt. Ltd. & Anr. Versus Union of India & Ors. (2013 (6) TMI 244 Bombay High Court).

Where the procedures under Rule 12 of the said Rules are not followed by the Proper Officer, the assessee/importer would be in a position to challenge the basis for his conclusion. In so far as related party relationship and acceptance of transaction value itself in such a scenario is concerned, Rule 3(2)(d) of the said Rules makes it clear that the same would be accepted as long as the buyer and seller are not related, or where the buyer and seller are related, the transaction value is acceptable for customs purposes under provisions of sub-rule (3) i.e. where the relationship has not influenced the price.

In Pushpanjali Silks (P) Ltd Vs Commissioner of Customs Chennai (2009 (238) ELT 0135 (Tri-Chennai)), the Tribunal has confirmed that the onus was on the Department to establish that the declared value was depressed for non-commercial reasons and for that reason the value was unacceptable. Where evidence of such depression was not available and importer was found to have established rapport with its supplier for getting competitive prices, based on volumes involved, the transaction value could not be rejected.

In a sale between related persons, the transaction value shall be accepted, whenever the importer demonstrates that the declared value of the goods being valued, closely approximates to one of the following values ascertained at or about the same time.

i. the transaction value of identical goods, or of similar goods, in sales to unrelated buyers in India;

ii. the deductive value for identical goods or similar goods;

iii. the computed value for identical goods or similar goods:

In applying the values used for comparison, due account shall be taken of demonstrated difference in commercial levels, quantity levels, adjustments in accordance with the provisions of rule 10 and cost incurred by the seller in sales in which he and the buyer are not related;”

Where the transaction value cannot be determined as indicated above, the value would have to be determined by proceeding sequentially through Rules 4 to 9. This principle of sequential application of Rules has also been upheld by the Honorable Supreme Court in Eicher Tractors Ltd. Vs Commissioner of Customs Mumbai (2000 (11) TMI 139 – Supreme Court). We would now proceed to look at the contents of Rules 4 to 9 dealing with various aspects of valuation.

But before we could move to individual methods, we would have to review contents of Rule 10 which require certain additions to the price actually paid or payable for the valuation of imported goods. Sub-rule (1) of Rule 10 is reproduced below in this regard - 

“(a) the following to the extent they are incurred by the buyer but are not included in the price actually paid or payable for the imported goods, namely:-

i. commissions and brokerage, except buying commissions;

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;

(b) The value, apportioned as appropriate, of the following goods and services where supplied directly or indirectly by the buyer free of charge or at reduced cost for use in connection with the production and sale for export of imported goods, to the extent that such value has not been included in the price actually paid or payable, namely:-

i. materials, components, parts and similar items incorporated in the imported goods;                  

ii. tools, dies, moulds and similar items used in the production of the Imported goods;                   

iii. materials consumed in the production of the imported goods;                  

iv. engineering, development, art work, design work, and plans and sketches undertaken elsewhere than in India and necessary for the production of the imported goods;

(c) royalties and licence fees related to the imported goods that the buyer is required to pay, directly or indirectly, as a condition of the sale of the goods being valued, to the extent that such royalties and fees are not included in the price actually paid or payable;

(d) The value of any part of the proceeds of any subsequent resale, disposal or use of the imported goods that accrues, directly or indirectly, to the seller;

(e) all other payments actually made or to be made as a condition of sale of the imported goods, by the buyer to the seller, or by the buyer to a third party to satisfy an obligation of the seller to the extent that such payments are not included in the price actually paid or payable.”

The amounts falling within the purview of clauses (c) and (e) above would be included even if linked to a process carried out post importation of the goods in question. Rule 10(2) deals with certain costs in relation to imports which would be forming part of the value of imported goods. These are as follows –

i. the cost of transport of the imported goods to the place of importation;

ii. loading, unloading and handling charges associated with the delivery of the imported goods at the place of importation; and

iii. the cost of insurance:

For the purpose of adding the aforesaid costs, where the cost of transport referred to in clause (i) is not ascertainable, such cost shall be twenty per cent of the free on board value of the goods. The charges referred to in clause (ii) shall be fixed at one per cent of the free on board value of the goods plus the cost of transport referred to in clause (i) plus the cost of insurance referred to in clause (iii). Moreover, where the cost referred to in clause (iii) is not ascertainable, such cost shall be 1.125% of free on board value of the goods.

In the case of goods imported by air, where the cost referred to in clause (i) is ascertainable, such cost shall not exceed twenty per cent of free on board value of the goods. All the additions to the price actually paid or payable shall be made under this rule i.e. Rule 10 on the basis of objective and quantifiable data alone.

Transaction value of identical goods

Rule 4 deals with transaction value of identical goods. The term “identical goods” has been defined u/r 2(1)(d) to mean imported goods –

i. which are same in all respects, including physical characteristics, quality and reputation as the goods being valued except for minor differences in appearance that do not affect the value of the goods;   

ii. produced in the country in which the goods being valued were produced; and                         

iii. produced by the same person who produced the goods, or where no such goods are available, goods produced by a different person,

but shall not include imported goods where engineering, development work, art work, design work, plan or sketch undertaken in India were completed directly or indirectly by the buyer on these imported goods free of charge or at a reduced cost for use in connection with the production and sale for export of these imported goods;”   

The value of imported goods shall be the transaction value of identical goods sold for export to India and imported at or about the same time as the goods being valued. The value for comparison would however not include value determined on provisional basis u/s 18 of the Act. In order to consider the transaction value of identical goods, the transaction value of identical goods in a sale at the same commercial level and in substantially the same quantity as the goods being valued, is to be taken.

Where this is not available, the transaction value of identical goods sold at a different commercial level or in different quantities or both, adjusted to take account of the difference attributable to commercial level or to the quantity or both, shall be used, provided that such adjustments shall be made on the basis of demonstrated evidence which clearly establishes the reasonableness and accuracy of the adjustments, whether such adjustment leads to an increase or decrease in the value.

In applying this rule, if more than one transaction value of identical goods is found, the lowest such value shall be used to determine the value of imported goods. Where the costs and charges referred to in sub-rule (2) of rule 10 are included in the transaction value of identical goods, an adjustment shall be made, if there are significant differences in such costs and charges between the goods being valued and the identical goods in question arising from differences in distances and means of transport.

Transaction value of similar goods

Under this Rule i.e. Rule 5, the value of imported goods shall be the transaction value of similar goods sold for export to India and imported at or about the same time as the goods being valued. The value for comparison would however not include value determined on provisional basis u/s 18 of the Act. In order to consider the transaction value of similar goods, the transaction value of similar goods in a sale at the same commercial level and in substantially the same quantity as the goods being valued, is to be taken.

Where this is not available, the transaction value of similar goods sold at a different commercial level or in different quantities or both, adjusted to take account of the difference attributable to commercial level or to the quantity or both, shall be used, provided that such adjustments shall be made on the basis of demonstrated evidence which clearly establishes the reasonableness and accuracy of the adjustments, whether such adjustment leads to an increase or decrease in the value.

In applying this rule, if more than one transaction value of similar goods is found, the lowest such value shall be used to determine the value of imported goods. Where the costs and charges referred to in sub-rule (2) of rule 10 are included in the transaction value of similar goods, an adjustment shall be made, if there are significant differences in such costs and charges between the goods being valued and the similar goods in question arising from differences in distances and means of transport.

The term “similar goods” in Rule 2(1)(f) has been defined to mean imported goods –

i. which although not alike in all respects, have like characteristics and like component materials which enable them to perform the same functions and to be commercially interchangeable with the goods being valued having regard to the quality, reputation and the existence of trade mark;  

ii. produced in the country in which the goods being valued were produced; and    

iii. produced by the same person who produced the goods being valued, or where no such goods are available, goods produced by a different person, 

but shall not include imported goods where engineering, development work, art work, design work, plan or sketch undertaken in India were completed directly or indirectly by the buyer on these imported goods free of charge or at a reduced cost for use in connection with the production and sale for export of these imported goods;     

Deductive value

Where the value cannot be determined under any of the aforesaid Rules i.e. Rule 3 or 4 or 5, the value would have to be determined in accordance with Rule 7 and when that is also not possible, in accordance with Rule 8 going by the provisions of Rule 6. However, it would be possible for the importer to request the Proper Officer to apply Rules 7 and Rule 8 in reverse order. i.e. Rule 8 being given priority over Rule 7 on availability of the required details for its application.

Rule 7 deals with deductive value and is reproduced below for the sake of convenience –

“(1)  Subject to the provisions of rule 3, if the goods being valued or identical or similar imported goods are sold in India, in the condition as imported at or about the time at which the declaration for determination of value is presented, the value of imported goods shall be based on the unit price at which the imported goods or identical or similar imported goods are sold in the greatest aggregate quantity to persons who are not related to the sellers in India, subject to the following deductions : —

i. either the commission usually paid or agreed to be paid or the additions usually made for profits and general expenses in connection with sales in India of imported goods of the same class or kind;

ii. the usual costs of transport and insurance and associated costs incurred within India;

iii. the customs duties and other taxes payable in India by reason of importation or sale of the goods.

(2)  If neither the imported goods nor identical nor similar imported goods are sold at or about the same time of importation of the goods being valued, the value of imported goods shall, subject otherwise to the provisions of sub-rule (1), be based on the unit price at which the imported goods or identical or similar imported goods are sold in India, at the earliest date after importation but before the expiry of ninety days after such importation.

(3) (a) If neither the imported goods nor identical nor similar imported goods are sold in India in the condition as imported, then, the value shall be based on the unit price at which the imported goods, after further processing, are sold in the greatest aggregate quantity to persons who are not related to the seller in India.

(b) In such determination, due allowance shall be made for the value added by processing and the deductions provided for in items (i) to (iii) of sub-rule (1).”

A reference to interpretative notes to Rule 7 would help us in understanding the nature of deductions available from the sale price in order to determine the import value for levying customs duties. The phrase “profit and general expenses” should be taken as referring to whole going by note 6 of interpretative notes to Rule 7. The figure for the purposes of this deduction should be determined on the basis of information supplied by or on behalf of the importer unless his figures are inconsistent with those obtaining in sales in India, of imported goods of the same class or kind. Where the importer's figures are inconsistent with such figures, the amount for profit and general expenses may be based upon relevant information other than that supplied by or on behalf of the importer.

The "general expenses" include the direct and indirect costs of marketing the goods in question. Local taxes payable by reason of the sale of the goods for which a deduction is not made under the provisions of rule 7(l)(iii) shall be deducted under the provisions of rule 7(l)(i).

In determining either the commissions or the usual profits and general expenses under the provisions of rule 7(1), the question whether certain goods are "of the same class or kind" as other goods must be determined on a case-by-case basis by reference to the circumstances involved. Sales in India, of the narrowest group or range of imported goods of the same class or kind, which includes the goods being valued, for which the necessary information can be provided, should be examined going by note 9 of interpretative notes to Rule 7. For the purposes of rule 7 goods of the same class or kind" includes goods imported from the same country as the goods being valued as well as goods imported from other countries. 

Where the method in rule 7(3) is used, deductions made for the value added by further processing shall be based on objective and quantifiable data relating to the cost of such work. Accepted industry formulas, recipes, methods of construction, and other industry practices would form the basis of the calculations.

It is recognized that the method of valuation provided for in rule 7(3) would normally not be applicable when, as a result of the further processing, the imported goods lose their identity. However there can be instances where, although the identity of the imported goods is lost, the value added by the processing can be determined accurately without unreasonable difficulty. On the other hand, there can also be instances where the imported goods maintain their identity but form such a minor element in the goods sold in the country of importation that the use of this valuation method would be unjustified. In view of the above, each situation of this type must be considered on a case-by-case basis going by note 12 of Interpretative notes to Rule 7.    

The principle of valuation based on sale price of importer in the event of valuation not being possible under other Rules has also been upheld by the Tribunal in Endress + Hauser Flowtec (I) Pvt. Ltd Vs CCE Aurangabad (2008 (11) TMI 159 CESTAT Mumbai).

Computed Value

A reference to Rule 8 which deals with computed value indicates that the same goes thus –

“Subject to the provisions of rule 3, the value of imported goods shall be based on a computed value, which shall consist of the sum of:-

a. the cost or value of materials and fabrication or other processing employed in producing the imported goods;

b. an amount for profit and general expenses equal to that usually reflected in sales of goods of the same class or kind as the goods being valued which are made by producers in the country of exportation for export to India;

c. the cost or value of all other expenses under sub-rule (2) of rule 10.”

A review of the various Rules indicate that where the buyer and seller happen to be related parties and the price of identical goods or similar goods is not available for the purpose of comparison of the value declared on imported goods, valuation would have to be based either on deductive value approach or computed value basis. Where the importer is in a position to furnish the details required under Rule 8 i.e. in terms of cost of processing in country of export to India as well as the profit margins prevailing thereat, he could seek application of Rule 8 instead of Rule 7 which deals with deductive value.

In adopting Rule 8 for valuation, the Proper Officer would be required to follow the interpretative notes to Rule 8 in this regard. The relevant notes are reproduced below –

“1. As a general rule, value of imported goods is determined under these rules on the basis of information readily available in India. In order to determine a computed value, however, it may be necessary to examine the costs of producing the goods being valued and other information which has to be obtained from outside India. Furthermore, in most cases, the producer of the goods will be outside the jurisdiction of the proper officer. The use of the computed value method will generally be limited to those cases where the buyer and seller are related, and the producer is prepared to supply to the proper officer the necessary costings and to provide facilities for any subsequent verification which may be necessary.

2. The "cost or value" referred to in clause (a) of rule 8 is to be determined on the basis of information relating to the production of the goods being valued supplied by or on behalf of the producer. It is to be based upon the commercial accounts of the producer, provided that such accounts are consistent with the generally accepted accounting principles applied in the country where the goods are produced.”

The concept of “amount for profit and general expenses” to be added under Rule 8(b) indicated earlier has been clarified by Note 4 of Interpretative Notes to Rule 8. As per the note, the "amount for profit and general expenses" referred to in clause (b) of rule 8 is to be determined on the basis of information supplied by or on behalf of the producer unless the producer's figures are inconsistent with those usually reflected in sales of goods of the same class or kind as the goods being valued which are made by producers in the country of exportation for export to India.

It should be noted as per Note 5 of interpretative notes in this context that the "amount for profit and general expenses" has to be taken as a whole. It follows that if, in any particular case, producer's profit figure is low and his general expenses are high, the producer's profit and general expenses taken together may nevertheless be consistent with that usually reflected in sales of goods of the same class or kind. Such a situation might occur, for example, if a product were being launched in India and the producer accepted a nil or low profit to offset high general expenses associated with the launch.

Where the producer can demonstrate a low profit on his sales of the imported goods because of particular commercial circumstances, his actual profit figures should be taken into account provided that he has valid commercial reasons to justify them and his pricing policy reflects usual pricing policies in the branch of industry concerned. Such a situation might occur for example, where producers have been forced to lower prices temporarily because of an unforeseeable drop in demand, or where they sell goods to complement a range of goods being produced in India and accept a low profit to maintain competitiveness. Where the producer's own figures for profit and general expenses are not consistent with those usually reflected in sales of goods of the same class or kind as the goods being valued which are made by producers in the country of exportation for export to India, the amount for profit and general expenses may be based upon relevant information other than that supplied by or on behalf of the producer of the goods.

The Proper Officer would be in a position to rely on international prices published in foreign trade journals to have an idea as to the valuation that could be adopted with regard to the imported goods. This aspect has been confirmed by the Honorable Supreme Court in Varsha Plastics (P) Ltd Vs UOI (2009 (2) TMI 40 Supreme Court of India) wherein it was held thus –

“The availability of evidence of contemporaneous import of the same goods obviously provides the best guide for determination of value of the import of goods but in the absence of evidence of contemporaneous import, reference to foreign journal for finding out correct international price of imported goods may not be irrelevant because ultimately the Assessing Authority has to determine value of the imported goods, at which such goods are sold or offered for sale in the course of international trade at the time of importation.”

The term "general expenses" referred to in clause (b) of rule 8 covers the direct and indirect costs of producing and selling the goods for export which are not included under clause (a) of rule 8. Whether certain goods are "of the same class or kind" as other goods or not is a question which must be determined on a case-by-case basis with reference to the circumstances involved. In determining the usual profits and general expenses under the provisions of rule 8, sales for export to India of the narrowest group or range of goods, which includes the goods being valued, for which the necessary information can be provided, should be examined. For the purposes of rule 8 "goods of the same class or kind" must be from the same country as the goods being valued.

Residual Method

As per Rule 9, where the value of imported goods 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 the aforesaid rules and  on the basis of data available in India; however, 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.

Where the importer is not in a position to furnish the details required under Rule 8, Rule 7 would have to be adopted by the Proper Officer which would imply valuation based on the sale price charged by the importer for sale of the goods imported to unrelated buyers in India or where such sale price is not available, on the basis of the price charged for identical goods or similar goods if sold around the time when declaration for determination of value of imported goods is filed. The guiding price would be the one at which the greatest aggregate quantities of goods are sold post importation, in India.

Till such time the valuation issue could be finalised by the Proper Officer, importers in general would be in a position to seek benefit of extra duty deposit at a reduced rate of 1% rather than 5%. The view that benefit of reduced rate can be given to applicants if the required details are furnished has been confirmed by the Bombay High Court in Cargotec India Private Ltd. & Boehringer Ingelhem India Private Ltd Vs UOI & Another (2014 (1) TMI 15 – Bombay HC).

Importers are advised to exercise caution in the event of procurements from companies falling within the Group or which happen to be related parties/entities as these transactions could be probed by the Revenue Authorities. As long as the basis for charging consideration by foreign vendor is available and the price is found not to be influenced by relationship between parties and is found to be fixed as per well established commercial practices, the importer should not be having any issue with regard to valuation. 

By CA Srikantha Rao T


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