Chapter: 2.4.1 Valuations of Goods

Customs value
Customs value as calculated as per section 14(1) is the 'value' normally used for calculating customs duty payable. As per section 14(1) 'value' for the purpose of customs duty is the

a. Price at which such or like goods are ordinarily sold or offered for sale and the
b. Price is for delivery at the time and place of importation and such
c. Price is in course of international trade, where
d. Neither seller nor buyer has interest in the business of the other or one of them has no interest in the business of the other and the,
e. Price is the sole consideration for sale or offer for sale.

The price mentioned above has to be computed for customs duty purpose at the rate of exchange, as on date of submission of bill of entry, as fixed by the Central Government. As per the provisions contained in section 141A) of the Act, the 'price' referred to above, in case of imported goods has to be determined in accordance of the Customs Valuation Rules, 1988. Subject to three conditions laid down in section 14~1) of Customs Act, 1962, of time, place and special circumstances, price of imported goods is to be determined in terms of provisions contained in section 141A) and in accordance with the provisions contained in Valuation Determination of Price of Imported Goods) Rules, 1988. The 'Special Circumstances' have been statutorily provided in Rule 4~2) and in the absence of these exceptions it is mandatory for customs authorities to accept the price actually paid or payable for the goods in a particular transaction. Valuation Rule 4~2) deals with the extraordinary or special circumstances under which the transaction value of the goods cannot be accepted. They are as follows:

a. The sale is not in the ordinary course of trade under fully competitive conditions.
b. The sale involves any abnormal discount or reduction from the ordinary competitive price.
c. The sale involves special discount limited to exclusive agents.
d. Non-existence of objective and quantifiable data with regard to the adjustments required to be made, under the provisions of rule 9, to the transaction value.
e. Restrictions of a non-statutory nature or non-commercial nature on the disposition or use of the goods after import, which substantially affect the value of the goods.
f. Sale or price being subject to some condition or consideration for which a value cannot be determined.                                                .
g. There exists an additional consideration, direct or indirect.
h. Buyer and seller are related and the relationship has influenced the price. The assessable value has to be adjusted where the buyer has undertaken some value-adding activities in relation to the goods, and such activities fall under the adjustments provided under rule 9 of the valuation rules. If no such adjustment is provided in rule 9, and the activities of the buyer are on his own account; i.e., they do not result in an indirect payment to the seller even though they result in a benefit to the seller, then the assessable value need not be adjusted. Costs for construction, erection, assembly, maintenance or technical assistance undertaken after the import of goods like plant, machinery or equipment should be distinguished, in the contract or invoice, to ensure that these costs are not included in the assessable value. The onus is now on the customs department to prove that the invoice price is not genuine or that the price is unbelievably or ridiculously low. The department cannot plead that it has discharged the onus by merely producing the manufacturer's price list or quotation or published prices or computer print outs of previous imports by other importers as evidence of the so called ordinary international price. The department must establish the existence of special circumstances mentioned in the law. If they (revenue authorities do not establish this by leading adequate evidence, they will have to accept the transaction value under rule 4(1). The transaction value need not be uniform for all customers It has been consistently held by the Hon'ble Supreme Court that all customers have bargaining power and as long as the discount is based on commercial considerations, the same is permissible and the assessable shall be net of discount. According to Rule 5 of the Valuation Rules, the transaction value to be determined on the basis of identical goods imported into India at the same time. Rule 6 allows this on the basis of the value of similar goods imported into India at the same time.

The CEGAT laid down in the Hydro Krimp case that comparable goods should be of same quality and specification and from same manufacturer and country of production. They should be roughly in the same quantity. The imports should belong to the same commercial world.

Rule 7 of the Valuation Rules allows the value to be determined on the basis of deductive method in cases where there are no contemporaneous imports. Here also the decision of the CEGAT is relevant. The deductive value is based on the unit price at which the imported goods or identical goods or similar imported goods are sold in the greatest aggregate quantity to- unrelated persons in India. The following deductions are available:

i. 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. 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 goods. Alternatively, computed value may be determined under rule 7A. It consists of the following:

a. the cost or value of material 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 relevant expenses.

In a case, where the value cannot be determined by any of the aforesaid rules, then resort will be made to Rule 8, Residual Method, under which the value shall be determined using reasonable means constituent with the principles and the general provisions of the rule.