Valuation

( Custom Law )
 INTRODUCTION
Most of the custom duties are ad valorem. So goods
have to be valued for purposes of assessment.
Normally, the price paid by the importer for the
goods imported into India is the value of goods
imported. But under the custom act,1962 the concept
of value has been treated separately. The duty is
payable on the basis of value of goods. Package
goods have to be assessed on the basis of their
maximum retail price declared on the package in so
far as change of countervailing duty is concerned.
(A) Tariff value fixed by the central government by
notification in the official gazette.
(B) ‘Value’ fixed under section 14(1) of the custom act,1962

(A) Tariff value. (section 14(2):In some cases, tariff values are
fixed by the central government from time to time for some
specified goods. Once the tariff value of any commodity is
fixed then the value for the determination of duty is not the
value under section14(1) but the tariff. The custom duty is
payable according to the tariff value fixed. Custom duty may
be a percentage which should be applied to the tariff value
for determination of duty.
(B) Value When Tariff Value Not Fixed: The value of the
imported goods and export goods shall be the transaction
value of such goods, as determined in accordance with the
rules made in this behalf.
 Customs value as per section 14 (1)
Customs Value fixed as per section 14(1) is the ‘Value’ normally
used for calculating customs duty payable (often
called ‘customs value’ or ‘Assessable Value'.)
Section 14 (1) provide following criteria for deciding ‘Value’ for
purpose of Customs Duty:
• Price at which such or like goods are ordinarily sold or offered
for sale
• Price for delivery at the time and place of importation or
exportation
• Price should be in course of International Trade
• Seller and buyer have no interest in the business of each other or
one
of them has no interest in the other
• Price should be sole consideration for sale or offer for sale
• Rate of exchange as on date of presentation of Bill of Entry as
fixed
by CBE&C (Board) by Notification should be considered.
 Methods of
valuation
1. Transaction value of imported goods

2. Transaction value of identical goods

3.Transaction value of similar goods

4. Deductive value

5. Computed value

6. Residual value
 No Restriction On The Disposition Or Use
There must be no restriction on the disposition or use of the goods by the buyer, other than
restrictions which:

— are imposed or required by law in the country of importation;

— are limited to the geographic area in which the goods may be resold;

— do not substantially affect the value of the goods.

Not Subject To Additional Conditions

The sale or price must not be subject to conditions or considerations for which a
value cannot be determined with respect to the goods being valued. Some examples
are provided in Annex I, Note to Article 1:1(b):

— the seller establishes the price of the imported goods on the condition that the
buyer will also buy other goods in specified quantities;

— the price of the imported goods is dependent upon the price or prices at which
the buyer sells other goods to the seller;

— the price is established on the basis of a form of payment extraneous to the

imported goods.
Full Prices, Unless...
No part of the proceeds of any subsequent resale,
disposal or use of the goods by the buyer will accrue
directly or indirectly to the seller, unless adjustment can
be made in accordance with provisions in Article 8.
Sufficient Information For Adjustments
Sufficient information is available to enable the specific adjustments
to be made under Article 8to the price paid or payable such as;
— commissions and brokerage, except buying commissions
— packing and container costs and charges
— assists
— royalties and license fees
— subsequent proceeds
— the cost of transport, insurance and related charges up to the place
of importation if the Member bases evaluation on a C.I.F. basis.
— but not: costs incurred after importation
Related parties
The definition of related persons is found in Article 15 of the
Agreement, which states that persons are to be deemed to be related
only if:
— they are officers or directors of one another's businesses;
— they are legally recognized partners in business;
— they are employer and employee;
— any person directly or indirectly owns, controls or holds 5 per cent
or more of the outstanding voting stock or shares of both of them;
— one of them directly or indirectly controls the other (the
Interpretative Note to Article 15provides that for the purposes of the
Agreement, one person shall be deemed to control another when the
former is legally or operationally in a position to exercise restraint or
direction over the latter. The note also states that “persons” includes a
legal person, where appropriate).
— both of them are directly or indirectly controlled by a third person;
or 
— they are members of the same family.
Buyer And Seller Not Related, Otherwise ...
The buyer and seller are not related, but even if
so, the use of the transaction value is
acceptable if the importer demonstrates that:

— the relationship did not influence the price,

or

— the transaction value closely approximates a

test value.
  
 Transaction Value of Identical Goods
[Rule 4]
When valuation method according to rule 3 cannot be adopted, this rule comes into
use. Identical goods are those goods which are same in all respects including
physical characteristics, quality etc. As the goods being valued except for minor
differences in appearance that do not effect the value of goods.

In applying this rule following conditions must be satisfied:-

i. The sale of identical goods should be at same commercial level and substantially
in the same quantities. If such sale can’t be found then both the factors could be
adjusted to arrive at a transaction value.
Eg: There is an import of 50 units of a commodity. Rule 4 is not applicable. And
the only identical import is of 1000 units and the seller gives discount if the sale
quantity is more. In such a situation, the value can be determined by referrig to the
seller’s price list.
ii. Where no sale referred(1), is found, 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 adjustments leads to an increase or decrease in the
value
2) Where the costs and charges referred to in sub rule(2) of rule 10
of these rules are included in the transaction value of identical
goods, an adjustment shall be made, if there are significant
differences in cost and charges between the goods being valued
and the identical goods in question arising from the differences
in distances and means of transport.
iii. If in applying this rate more than one transaction value is
arrived at, then the lowest of them will be accepted.
Identical goods
Same In Appearance Minor Difference Not
Affecting Value

Produced in the country in which imported

goods were imported

Produced by the same person who produced

in the imported goods

Goods for which design work undertaken in

India by buyer shall not be treated as
identical goods
Exceptions
Some exceptions are accepted, in particular:

— where there are no identical goods produced by the same person in

the country of production of the goods being valued, identical goods
produced by a different person in the same country may be taken into
account.
— minor differences in appearance would not preclude goods which
otherwise conform to the definitions from being regarded as identical.

The definition excludes imported goods which incorporate

engineering, artwork etc, provided by the buyer to the producer of
goods free of charge or at a reduced cost, undertaken in the country of
importation for which no adjustment has been made under Article 8.
  
Transaction Value of Similar Goods [Rule
5]
Rule 5 provides for transaction value of similar goods.
Similar goods means imported goods which although not like in all
respects have characteristics and like material which enable them to
perform some functions and make them commercially
interchangeable with the goods being valued.
All conditions applicable to the transaction value of identical goods
are applicable to similar goods.

In both cases of identical and similar goods if some engineering

work, development work, art work design work, etc. in connection
with the production of imported goods was done by the buyer
directly or indirectly in India free of charge or at a lower cost, then
the goods can’t be regarded as identical or similar goods.
 SIMILAR GOODS
Not alike in appearance

Produced in the country in which imported goods

were imported

Produced by the same person who produced imported

goods
(if not by the same person then produced by different
person)

Goods for which design work undertaken in India by

buyer shall not be treated as identical goods
Determination of value where value
cannot be determined under rules 3,4
and 5 [Rule 6]

If the value of imported goods cannot be determined

under the provisions of rules 3,4 and 5, the value shall
be determined under the provisions of rule 7, and
when the value cannot be determined under that rule,
under rule 8.

Provided that at the request of the importer, and with

the approval of the proper officer, the order of
 Deductive Value [Rule 7]
Rule 7 of Custom Valuation Rules provides that if the goods cannot
be valued according to the previous three methods, the Deductive
Value method should be adopted.

Following points demand consideration for valuating the goods:

(a) Goods sold in the condition as imported
If the goods imported are sold in the same condition in which
they were imported, then the value of imported goods or identical
goods or similar shall be based on the unit price at which the
imported goods or identical goods or imported similar goods are sold
in the greatest aggregate quantity to persons who are not related to
seller in India.
From the price obtained above, the following deductions shall be
made:
(a) Margin of Profit
(b) Transport, insurance and other taxes
(c) Custom duties and other taxes paid
So the name of deductive value is justified here, as the value is deducted from sale
price according to the procedure given above.

(b) Goods not sold in the condition as Imported:

If neither the imported goods nor identical goods or similar goods are sold in
India in the condition as imported then the value shall be based on the unit price at
which the goods after processing are sold in greatest aggregate quantity. In such a
case due allowance should be made for the value added by processing and also the
deductions as specified in the previous point

(c) price at or about the time of valuation:

Price at or about the time of valuation should be considered.
Rule 7(2) provides that if such price is not available, price at the date after
importation but within 90 days can be considered.
 Computed Value [Rule 8]
This is the fifth method of valuation. This method is the only exception to
the sequential order condition. This method can be used before deductive
value method if and only if he custom officer approves on the request of the
assessee.
Under this method the value is the sum of the following:
(a) Cost of value of materials and processing charges involved in producing
the imported goods.
(b) amount of profit and general expenses equal to reflected in sales of
goods of the same class or kind.
(c) the cast and value of all other expenses under Rule 10 i.e. transport,
insurance, loading and handling charges.
Computed value= (a)+(b)+(c)
Cost of commission and brokerage and packing cost has to be added.
Similarly development cost, engineering cost, tooling costs etc. has to be
added to the above three elements (a),(b) and (c) of cost.
 Distinction between Deductive
Value and Computed Value
• Deductive Value
•Rule 7Backward calculation- Start
from the sale price in India and go
back to import price in India.
•Assessable value is deduced
•No need for Rule 10(2) additions
•Encompasses identical and
similar goods.
• Computed Value
•Rule 8
•Forward calculation- Start from
the production cost in the
exporting country and end with
the import cost in India.
•Assessable value is calculated
•Rule 10(2) additions are required
Confines to imported goods.
 Residual Method [Rule 9]
This is the sixth and the last method of valuation. Where the value of
imported goods cannot be determined under any of the provisions of
the preceding rules, the value shall be determined using reasonable
means consistent with the provision of previous rules and Section
14(1).
This method is also compared to “Best Judgment Method” of Central
Excise and Income Tax Act.

Three basic conditions, features for the application of this Rule are:
(a) It was not possible to determine the value under any of the
preceding rules.
(b) The proper officer should be satisfied with the conditions.
(c) The value is then determined according to best judgment and
means consistent with the principles and general rules of these
Rules.
 Inclusions in custom value
(Rule 10)
Commission And Brokerage Except Buying
Commission: Rule 10(1) (a) provides that the
Commission and Brokerage except buying
commission is includible in price for custom
valuation.
Such a commission is payable by buyers to the
agents appointed by the sellers or the exporters for
creating demand in India of their goods.
Since the amount of commission is paid by the
buyer to agents of seller the amount of commission
is includible in the price paid by buyer for
imported goods.
 Cost of containers and cost of packing
Cost of containers in which the goods are
supplied to the buyer has to be included in the
price of the goods.
But one thing has to be kept in mind that the
cost of durable and reusable containers is not
to be added for custom valuation.
Similarly cost of packing, both material and
labour has to be added to price of goods.
Value of goods and services supplied by
buyer free of charge/ reduced cost
The value of goods supplied by buyer, directly or indirectly, free of
charge or at reduced cost to seller for use in connection with the
production and sale of imported goods, to the extent that such value
has not been included in the price actually paid or payable should be
included in the value of goods imported.
These goods may be:
Materials, components, parts and similar terms incorporated in
imported goods.
Tools, dies, moulds and similar items used in the production of
imported goods.
Materials consumed in the production of imported goods.
Cost of development work, art work, design work and plans and
sketches undertaken by buyer which is necessary for production of
imported goods is includible.
Royalties and licensee fee
Buyer may be required to pay the royalty and licence fee to the
seller, such expenses shall be added to transaction value
provided these are not already included.
Proceeds of subsequent resale
If the proceeds of subsequent sale or the part of the proceeds is
paid directly or indirectly to the seller then it is included in the
assessable value of the imported goods.
For example: Mr. A imports goods worth Rs. 10,000. on selling
these goods for Rs. 20,000/- in India he pays Rs. 1,500 to an
employee of the exporter. In this case there is an indirect
accrual of part of proceeds to the seller. Because such payment
if not made by buyer would have been made by seller. So Rs.
1,500 is includible.
Other payments made to exporter
If the buyer has made any payment to the exporter/seller or
to the third party on behalf of the seller, such payment
should be included. This is because the buyer is again
meeting an obligation of seller which otherwise is the
liability of the seller.
Cost of transport to the place of importation
The cost of transport from the country of exportation to the
place of importation should be included as per rules.
Landing charges/ loading and unloading charges
All the costs related with unloading or landing of imported
goods shall be included in value of goods as per rules.
Insurance cost
Insurance cost on goods imported shall be included. If such
cost is not ascertainable then such cost shall be 1.125% of
FOB value of goods. Insurance up to the place of
importation are includible.
Exclusions from custom
value
Commission, General Expenses And Profit
The commission paid or payable for sales
affected in India should be reduced from the
invoice value to arrive at customs value. Since
such customs relate to the period after import.
Similarly general expenses related to
imported goods after their importation should
be reduced from the invoice value. To arrive at
the custom value the profit element will be
reduced from invoice value.
Cost of transport and insurance after importation
Cost of transport and insurance after importation
does not form a part of total custom value. They are
exclusively deducted from custom value.
Duties and taxes in India
Local taxes and duties paid or payable after import in
India is not includible.
Demurrage charges payable to port trust
The importer due to some reasons may get delayed in
clearing his goods from port authorities. For this he
may has to bear demurrage charges. These
demurrage is not includible because these charges
relates to the period after importation.
Interest
Interest charged for delayed
payments after the permitted credit
period is not includible.
 Calculation of Assessable
Value Of Goods
Invoice/ purchase price of goods
Add:
Cost of services incurred by buyer but not included in price
payable
Commission brokerage except buying commission
××
Cost of container or package ××
Labour and material cost of packing ××
(B) Services and supplies rendered to exporter by importer [ Rule
10(1)(b)]

(i) Materials, components or parts incorporated in Imported ---

goods
(ii) Tools, dies, moulds etc. used for manufacture ---
(iii) Materials consumed in manufacture of imported goods ---
(iv) Engineering development Design work, artwork, sketches ---
and plans provided for production of imported goods
provided undertaken outside India but necessary for
production of imported goods
(C) Royalties & Licence fee paid to third party [Rule 10(1)(c)] ---

(D) Share to supplier for sales [Rule 10(1)(d)]

Value of proceeds of any subsequent resales/disposal/use of ---
goods accruing to the seller directly or indirectly
(E) Payments made by the buyer to a third party on behalf of seller ---
[Rule (10)(1)(e)] (like royality, licence fee etc.)

F.O.B/ transaction value ----

 F.O.B/Transaction value ---

Add: (a) Transport Cost ---

(b) Insurance cost

CIF Value In Foreign currency ---
CIF Value in Indian currency ---
[Foreign currency CIF Value × Exchange Rate]
(+) Landing/Handling charges @1% of CIF value ---

Payable Value ×××

 Notes
The following charges are not includible in value, if
they can be distinguished from price paid or payable
a) Erection, assembly etc .incurred after
incorporation.
b) Cost of transport after incorporation.
c) Duties & taxes in India.
Buying commission means fees paid by an importer to
his agent for the services of representing him abroad in
the purchase of the goods being valued and providing
information. Such commission is not related a
particular transaction and hence not added.
 Cost of freight (Transport cost) is calculated as per following:

Mode Of Transport Ascertainable Non-ascertainable

By Road Or By Sea Actuals 20% Of F.O.B Value
By Aircraft Actual Or 20% Of F.O.B., 20% Of F.O.B
Whichever Is Less

If insurance cost is not ascertainable, calculate insurance @

1.125% of F.O.B value.
Landing/handling charges @ 1% of C.I.F value irrespective of
actual expenditure.
Once CIF value is calculated, it should be converted into Indian
currency. Apply the following formula by using Exchange rate
notified by Central Government on the date of filling of bill of
Entry. (CBEC)
Education Cess on Customs Duty: Education
Cess is 2% of the aggregate duty of customs
(but excluding safe guard duty. Anti-Dumping
duty and Additional Custom Duty.
Finance Act, 2007 provides Secondary and
Higher Education Cess on imported goods @
1% calculated likewise.
Export goods- valuation of Assessment
The customs valuation (Determination of value of Export
Goods) Rules 2007 provide the methods of valuation of export
goods which are:
Transaction Value (Rule 3)
Comparative Value (Rule 4)
Computed Value (Rule 5)
Residual Value (Rule 6)
For export goods, F.O.B Value is the basis for valuation
normally. But if F.O.B Value is not available and CIF value is
available then from CIF value, port exportation charges i.e.
insurance and freight outward will be deducted.
 Rejection of declared value
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, or
in the absence of a response of such importer/exporter, 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.
At the request of an importer/exporter, the proper officer, shall
intimate the importer/exporter in writing the grounds for doubting
the truth or accuracy of the value declared in relation to goods
imported/exported and provide a reasonable opportunity of being
heard, before taking a final decision.