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Century Metal Recycling Pvt. Ltd. vs Union Of India on 17 May, 2019-Customs valuation matter
The legal provisions enshrined in the Indian Customs Act, 1962 related to determining the value of the Imported or exported goods is very clear and unambiguous. However, there has been multiple instances where Importers and Exporters face valuation related challenges, and the shipment clearance gets delayed at ports of Import or Export in India.
In the case of Century Metal Recycling Pvt Ltd Vs Union of India, the appellants, coerced and intimated, had no option but to give in and issue a letter of consent agreeing to assessment/valuation by the customs authorities to avoid delay in clearance, levy of demurrage, ground rent and container detention charges, etc. It is also alleged that the respondents without observing and contrary to the mandate of Section 14 of the Act discard the declared transactional value and recompute the consignment value in view of the Valuation Alert dated 1st December 2016 issued by the Central Board of Excise and Customs (‘the Board’, for short).
Here are the detailed and comprehensive legal provisions related to valuation under Customs Act in India.
Applicable provisions and rules under customs act for valuation:
- Section 12: Dutiable Goods
- Section 14: Valuation of Goods
- Customs Valuation (Determination of Value of Imported Goods) Rules, 2007 (CV Rules)
Section 12. Dutiable goods:
(1) Except as otherwise provided in this Act, or any other law for the time being in force, duties of customs shall be levied at such rates as may be specified under 1 [the Customs Tariff Act, 1975 (51 of 1975)], or any other law for the time being in force, on goods imported into, or exported from, India.
(2) The provisions of sub-section (1) shall apply in respect of all goods belonging to Government as they apply in respect of goods not belonging to Government.
Section 14. Valuation of goods:
(1) For the purposes of the Customs Tariff Act, 1975 (51 of 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:
(iv) the additional obligations of the importer in respect of any class of imported goods and the checks to be exercised, including the circumstances and manner of exercising thereof, as the Board may specify, where, the Board has reason to believe that the value of such goods may not be declared truthfully or accurately, having regard to the trend of declared value of such goods or any other relevant criteria]
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.
(2) Notwithstanding anything contained in sub-section (1), if the Board is satisfied that it is necessary or expedient so to do, it may, by notification in the Official Gazette, fix tariff values for any class of imported goods or export goods, having regard to the trend of value of such or like goods, and where any such tariff values are fixed, the duty shall be chargeable with reference to such tariff value.
Explanation . – For the purposes of this section –
(a) rate of exchange” means the rate of exchange –
(i) determined by the Board, or
(ii) ascertained in such manner as the Board may direct, for the conversion of Indian currency into foreign currency or foreign currency into Indian currency;
(b)”foreign currency” and ”Indian currency” have the meanings respectively assigned to them in clause (m) and clause (q) of section 2 of the Foreign Exchange Management Act, 1999 (42 of 1999).
Customs Valuation (Determination of Value of Imported Goods) Rules, 2007:
Rule 10. Cost and services. — (1) In determining the transaction value, there shall be added to the price actually paid or payable for the imported goods, — (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. Explanation. — Where 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.
Note to rule 10 In
rule 10(1)(a)(i), the term “buying commissions” means fees paid by an importer to his agent for the service of representing him abroad in the purchase of the goods being valued.
- There are two factors involved in the apportionment of the elements specified in rule 10(1)(b)(ii) to the imported goods – the value of the element itself and the way in which that value is to be apportioned to the imported goods. The apportionment of these elements should be made in a reasonable manner appropriate to the circumstances and in accordance with generally accepted accounting principles.
- Concerning the value of the element, if the importer acquires the element from a seller not related to him at a given cost, the value of the element is that cost. If the element was produced by the importer or by a person related to him, its value would be the cost of producing it. If the element had been previously used by the importer, regardless of whether it had been acquired or produced by such importer, the original cost of acquisition or production would have to be adjusted downward to reflect its use in order to arrive at the value of the element.
- Once a value has been determined for the element it is necessary to apportion that value to the imported goods. Various possibilities exist. For example, the value might be apportioned to the first shipment if the importer wishes to pay duty on the entire value at one time. As another example, the importer may request that the value be apportioned over the number of units produced up to the time of the first shipment. As a further example, he may request that the value be apportioned over the entire anticipated production where contracts or firm commitments exist for that production. The method of apportionment used will depend upon the documentation provided by the importer.
- As an illustration of the above, an importer provides the producer with a mould to be used in the production of the imported goods and contracts with him to buy 10,000 units. By the time of arrival of the first shipment of 1,000 units, the producer has already produced 4,000 units. The importer may request the proper officer of customs to apportion the value of the mould over 1,000 units, 4,000 units or 10,000 units.
- Additions for the elements specified in rule 10(1)(b)(iv) should be based on objective and quantifiable data. In order to minimise the burden for both the importer and proper officer of customs in determining the values to be added, data readily available in the buyers commercial record system should be used in so far as possible.
- For those elements supplied by the buyer which were purchased or leased by the buyer, the addition would be the cost of the purchase or the lease. No addition shall be made for those elements available in the public domain, other than the cost of obtaining copies of them.
- The case with which it may be possible to calculate the values to be added will depend on a particular firm’s structure and management practice, as well as its accounting methods.
- For example, it is possible that a firm which imports a variety of products from several countries maintains the records of its design centre outside the country of importation in such a way as to show accurately the costs attributable to a given product. In such cases, a direct adjustment may appropriately be made under the provisions of rule 10.
- In another case, a firm may carry the cost of the design centre outside the country of importation as a general overhead expense without allocation to specific products. In this instance, an appropriate adjustment could be made under the provisions of rule 10 with respect to the imported goods by apportioning total design centre costs over total production benefiting from the design centre and adding such apportioned cost on a unit basis to imports.
- Variations in the above circumstances will, of course, require different factors to be considered in determining the proper method of allocation.
- In cases where the production of the element in question involves a number of countries and over a period of time, the adjustment should be limited to the value actually added to that element outside the country of importation.
- The royalties and licence fees referred to in rule 10(1)(c) may include among other things, payments in respect to patents, trademarks and copyrights. However, the charges for the right to reproduce the imported goods in the country of importation shall not be added to the price actually paid or payable for the imported goods in determining the customs value.
- Payments made by the buyer for the right to distribute or resell the imported goods shall not be added to the price actually paid or payable for the imported goods if such payments are not a condition of the sale for export to the country of importation of the imported goods.
As per Section 14 (1) of the Customs Act, 1962, the value of the imported goods and export goods shall be the transaction value of such goods, that is, 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. In short, transaction value is the basis for payment of customs duties on imported goods and the price actually paid or payable for the goods sold is the transaction value.
As per Rule 3 of Customs Valuation (Determination of Value of Imported Goods) Rules, 2007 (in short “CV Rules”) the value of imported goods shall be the transaction value adjusted in accordance with provisions of Rule 10 but subject to Rule 12 which states that if the proper officer has reason to doubt the truth or accuracy of the value declared in relation to any imported goods, he may seek documents or information and the importer has to demonstrate the accuracy of declared value.
Rule 10 (1) (a) of CV Rules mandates inclusion of the following items to the extent they are incurred by the buyer but are not included in the price actually paid or payable for the imported goods:
- commissions and brokerage, except buying commissions;
- 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
Rule 10(4) provides that no addition shall be made to the price actually paid or payable in determining the value of the imported goods except as provided for in this rule.
Based on the above provisions, it is clear that Sec. 14 of the Customs Act provides a clear mandate to accept transaction value where buyer and seller are not related and price is the sole consideration. If the parties are related, the Customs Act mandates determination of assessable value to ensure that relationship has not been influenced leading to under-valuation of the imported goods and consequently resulting in short payment of duty.
Rule 12. Rejection of declared value:
(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).
(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 misdeclaration 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.”
Section 14 has to be read with Rule 12 of the 2007 Rules: Rule 12 uses the expression ‘the proper officer has reason to doubt the truth or accuracy of the value declared in relation to the imported goods’. This expression is distinctly different from the words and preconditions imposed for rejecting the declared transactional value under the repealed Customs Valuation (Determination of Price of Imported Goods) Rules, 1988 (‘the 1988 Rules’, for short) and the pre-amended Section 14(1) of the Act which were considered and interpreted by this Court in Eicher Tractors Limited, Haryana v. Commissioner of Customs, Mumbai2.
In fact, the judgment in Eicher Tractors Limited (supra) had not considered Rule 10-A of the 1988 Rules enforced with effect from 19th February, 1998 as the imports therein related to the year 1993. Rule 10-A brought the concept of ‘reason to doubt the declared value’ in place of special or extraordinary circumstances particularised in Rule 4(2) of the 1988 Rules. However, the interpretation given to Section 14(1) in Eicher Tractors Limited (supra) as to the meaning of the word ‘payable’ used therein would be still applicable.
The word ‘payable’ used in Section 14(1) refers to the particular transaction and the payability in respect of ‘the transaction’. It refers to the notional value, albeit the transaction value as declared in the bill of entry plus the amount which has to be added in terms of Rule 10 of the 2007 Rules. 8. This Court in M/s Sanjivini Non-Ferrous Trading Pvt. Ltd. (supra), while interpreting the provisions of Section 14 and Rules 3, 4 and 12 of the 2007 Rules, had held as under:
The law, thus is clear. As per Sections 14(1) and 14(1-A), the value of any goods chargeable to ad valorem duty is deemed to be the price as referred to in that provision. Section 14(1) is a deeming provision as it talks of ‘deemed value’ of such goods. Therefore, normally, the Assessing Officer is supposed to act on the basis of price which is actually paid and treat the same as assessable value/transaction value of the goods.
This, ordinarily, is the course of action which needs to be followed by the Assessing Officer. This principle of arriving at transaction value to be the assessable value applies. This is also the effect of Rule 3(1) and Rule 4(1) of the Customs Valuation Rules, namely, the adjudicating authority is bound to accept price actually paid or payable for goods as the transaction value. Exceptions are, however, carved out and enumerated in Rule 4(2). As per that provision, the transaction value mentioned in the Bills of Entry can be discarded in case it is found that there are any imports of identical goods or similar goods at a higher price at around the same time or if the buyers and sellers are related to each other.
In order to invoke such a provision it is incumbent upon the Assessing Officer to give reasons as to why the transaction value declared in the Bills of Entry was being rejected; to establish that the price is not the sole consideration; and to give the reasons supported by material on the basis of which Assessing Officer arrives at his own assessable value.” The Division Bench has quoted the following sub-para from Commissioner of Customs, Calcutta v. South India Television (P) Ltd.3:
Section 14(1) speaks of “deemed value”. Therefore, invoice price can be disputed. However, it is for the Department to prove that the invoice price is incorrect. When there is no evidence of contemporaneous imports at a higher price, the invoice price is liable to be accepted. The value in the export declaration may be relied upon for ascertainment of the assessable value under the Customs Valuation Rules and not for determining the price at which goods are ordinarily sold at the time and place of importation.
The requirements of Rule 12, therefore, can be summarized as under:
(a) The proper officer should have reasonable doubt as to the transactional value on account of truth or accuracy of the value declared in relation to the imported goods.
(b) Proper officer must ask the importer of such goods further information which may include documents or evidence;
(c) On receiving such information or in the absence of response from the importer, the proper officer has to apply his mind and decide whether or not reasonable doubt as to the truth or accuracy of the value so declared persists.
(d) When the proper officer does not have reasonable doubt, the goods are cleared on the declared value.
(e) When the doubt persists, sub-rule (1) to Rule 3 is not applicable and transaction value is determined in terms of Rules 4 to 9 of the 2007 Rules.
(f) The proper officer can raise doubts as to the truth or accuracy of the declared value on ‘certain reasons’ which could include the grounds specified in clauses (a) to (f) in clause (iii) of the Explanation.
(g) The proper officer, on a request made by the importer, has to furnish and intimate to the importer in writing the grounds for doubting the truth or accuracy of the value declared in relation to the imported goods. Thus, the proper officer has to record reasons in writing which have to be communicated when requested.
(h) The importer has to be given opportunity of hearing before the proper officer finally decides the transactional value in terms of Rules 4 to 9 of the 2007 Rules.
Proper Officers under The Indian Customs Act, 1962
CBIC vide Notification No. 105/2022-Customs (N.T.) dated December 9, 2022, amended the earlier issued Notification No. 26/2022-Customs (N.T.) dated March 31, 2022, issued by the Department of Revenue, Ministry of Finance, Government of India.
CBIC vide Notification No. 26/2022-Customs (N.T.) dated March 31, 2022, assigned the officers mentioned in the column (2) of the table provided in the Notification and the officers above in the rank to the assigned officers, as the proper officers in relation to various functions under the Customs Act, 1962.
Download the Relevant Documents below:
- Hon’ble Supreme Court of India Order Copy: SCI Court Copy-Century Metal Recycling Pvt Ltd vs Union of India May 2019
- Circular 38/2016 dtd 22nd August 2016: Revised-circular-38-2016
- Notification No. 24/2022-Customs NT: NT 24-2022
- Notification No. 26/2022-Customs NT: NT 26-2022
- Notification No. 105/2022-Customs NT: NT 105-2022
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The views expressed in the update are strictly personal, based on our understanding of the underlying law. We are not responsible for any injury, loss or cost arising to any person who refers this update and acts or refrains from any act accordingly. We would suggest that a detailed legal advice must be sought before relying on this update.
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