animeshtax law

8/19/2019 Animeshtax Law

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DR. RAM MANOHAR LOHIYA NATIONAL LAW

UNIVERSITY LUCKNOW

Law of Taxation-II

Topic Va!"ation of #oo$% "n$&' c"%to(% !aw

SU)MITTED TO* SU)MITTED )Y*

M'. Ani! Sain Ani(&%+ Sin#+

VIII S&(&%t&'

Ro!! No. ,

S&c-A

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TABLE OF CONTENTS

INTRODUCTION

Concept of valuation of goods

Concept of indirect tax and valuation of goods

Customs valuation of imported goods

CONCLUSION

BIBLIOGR!"#

INTRODUCTION

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The valuation system described in these Instructions must be used in assessing ad valorem

Common Customs Tariff 1duties (i.e. duties paid as a percentage of the value of goods being

imported) and other duties such as anti!dumping duty. The legislation governing the "aluation of

imported goods is set out in #rticles 2$ to %& of Council 'egulation and in #rticles 11 to 1$1a

of Commission 'egulation. These #rticles give effect to the #greement on the Implementation

of #rticle "II of the eneral #greement on Tariffs and Trade (#TT).

In the case of goods released for free circulation after being assigned a different customs!

approved treatment or use for e*ample temporary importation the relevant instructions relating

to that treatment or use should be consulted. The valuation of motor vehicles for "ehicle

'egistration Ta* purposes is set out in the instructions relating to that ta*.

The manner in +hich duties of customs are charged on goods imported into India (import duty)

or goods e*ported from India (e*port duty) is basically either by +ay of ,

(a) # specific duty based on the -uantity of the goods lie 's. 1/// per metric ton of steel or

(b) #d valorem namely e*pressed as percentage of the value of the goods i.e. /0 ad

valoremetc.

The disadvantage +ith a specific rated levy is that the revenue to the overnment remains fi*ed

unless there is variation in the -uantum of total imports and e*ports. The continuous up+ard

trend in the price of goods has suggested that the overnment is losing increase in its revenue by

not follo+ing ad valorem basis of duties.

CONCET O/ VALUATION O/ 0OODS

1inters #lan. Common 3*ternal Tariff. (1444).

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5ection 2(1) of the Customs #ct 14&2 defines value in relation to any goods 2 as the value

thereof determined in accordance +ith the provisions of sub!section (1) or sub!section (2) of

section 1.

5ome of the values commonly no+n to the public are6

(i) Cost price to the manufacturer6 It is the total cost incurred by the manufacturer of an article or

product in producing or manufacturing the product.

(ii) 5ale price of the manufacture6 It is the price at +hich the manufacturer is selling the goods to

the buyer.

(iii) There are t+o sale prices namely

(a) # domestic sale price

(b) #n e*port price in the course of international trade.

(iv) In the course of sale there are t+o situations namely +holesale transactions and retail trade.

Thus +e have (a) hole sale price and (b) retail price

(v) The sale may be on do+n right cash basis or payment on delivery of the goods or the title

documents or deferred payment say either on installments or after %/ or 4/ days. Thesesituations

give rise to (a) cash price7 (b) payment by sight draft7 (&/ or 4/ days draft).

(vi) There are situations +here the manufacturer himself may not be e*porting the goods in the

course of international trade. This gives rise to the concept of suppliers. #s a result +e have

supplier8s price.

(vii) In the course of international trade +here the buyer is in another country the seller has

often to resort price list or catalogues. This is in turn gives rise to list price.

(viii) There is al+ays a negotiation bet+een the buyer and the seller. The contracted price is

arrived at by giving discounts to the list price. 5uch discounts are given for various

considerations. e have therefore terms lie

(i) Trade discount

(ii) 9uantity discount

(iii) Prompt payment cash discount

(iv) :;c discount

(v) 5pecial discount

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(i*) There are situations +here the goods are defective sub , standard or there is a glut of stoc

and the goods have to be sold at the best price available. This yields disposal price.

(*) The price may vary from consignment from consignment even though there may not be any

underhand dealing in the transaction. 5uch a price is called transaction value.

(*i) There may be a clear understanding bet+een the overseas seller and the Indian buyer of the

goods. They may have a special relationship such as7 the Indian buyer may be the sole selling

agent for the goods of the overseas seller.


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person having or o+ning the goods. The charge of ta* attaches to the goods. ?nless the ta*

liability is discharged the goods are not allo+ed to proceed further. It becomes therefore

necessary for the importer +ho desires to tae clearance of the goods into to+n for home

consumption to discharge the duty liability. 5imilarly in case of baggage the passenger cannot

tae his goods unless the duty liability is discharged. The essence is simple. :ie articles in

similar situations should attract the same burden.

#s a corollary it follo+s that

(i) There should be uniformity in ta* , burden.

(ii) 5ince the rate of duty is already fi*ed for lie goods the value of goods should be uniform

for all imports ; e*ports for lie good at the same time and place.

(iii) The value of the goods should be pro*imate to the point of ta*ation i.e. in the case of import

the value at the point of import is relevant.

(iv) "ariations in the price;agreed in each transaction on account of factors other than in the

course of normal international +holesale trade should be ad@usted.

VALUATION O/ 0OODS )ASED ON SECTION ,2

5ection 1 of the Customs #ct 14&2 prescribes the mode of computing the value of imported or

e*port goods for the purpose of payment of customs duty. Prior to 1/.1/.2//A the sub!section

(1) of old section 1 of the Customs #ct 14&2 provided that valuation of goods should be based

on the concept of Bdeemed value8.


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The provisions of section 1 are discussed belo+6 !

Transaction value

(i) 5ub!section (1) lays do+n that for the purposes of the Customs Tariff #ct 14A> or any other

la+ for the time being in force the value of the imported goods and e*port goods shall be the

transaction value of such goods.

(ii) In case of e*port goods the transaction value shall be

• the price actually paid or payable for the goods

• +hen sold for e*port from India

• for delivery at the time and place of e*portation

• +here the buyer and seller of the goods are not related and

• price is the sole consideration for the sale.


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• handlingcharges to the e*tent and in manner specified in the rules made in this behalf.

(iv) 5uch rules may provide for6

(a) The circumstances in +hich the buyer and the seller shall be deemed to be related7

(b) The manner of determination of value in respect of goods +hen 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 case7

(c) The manner of acceptance or re@ection of value declared by the importer or e*porter as the

case may be +here the proper officer has reason to doubt the truth or accuracy of such value

and determination of value for the purposes of this section.

(v) Dor imported goods the conversion in value shall be done +ith reference to the rate of

e*change prevalent on the date of filing bill of entry under section &.

CUSTOMS VALUATION *DETERMINATION O/ VALUE O/

IMORTED 0OODS

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R"!& 3 D&t&'(ination of t+& (&t+o$ of 4a!"ation*

(1) 5ub@ect to rule 12 the value of imported goods shall be the transaction value ad@usted in

accordance +ith provisions of rule 1/.

(2) "alue of imported goods under sub!rule (1) shall be accepted6

Provided that!

(a) There are no restrictions as to the disposition or use of the goods by the buyer other than

restrictions +hich ,

(i) #re imposed or re-uired by la+ or by the public authorities in India7 or

(ii) :imit the geographical area in +hich the goods may be resold7 or

(iii) o not substantially affect the value of the goods7

(b) The sale or price is not sub@ect to somecondition or consideration for +hich a value cannot be

determined in respect of the goods being valued7

(c) Eo part of the proceeds of any subse-uent resale disposal or use of the goods by the buyer

+ill accrue directly or indirectly to the seller unless an appropriate ad@ustment can be made in

accordance +ith the provisions of rule 1/ of these rules7 and (d) the buyer and seller are not

related or +here the buyer and seller are related that transaction value is acceptable for customs

purposes under the provisions of sub!rule (%) belo+.

(%) (a) here the buyer and seller are related the transaction value shall be accepted provided

that the e*amination of the circumstances of the sale of the imported goods indicate that the

relationship did not influence the price.

(b) In a sale bet+een related persons the transaction value shall be accepted +henever the

importer demonstrates that the declared value of the goods being valued closely appro*imates to

one of the follo+ing 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

India7

(ii) The deductive value for identical goods or similar goods7

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

Provided that in applying the values used for comparison due account shall be taen of

demonstrated difference in commercial levels -uantity levels ad@ustments in accordance +ith

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the provisions of rule 1/ and cost incurred by the seller in sales in +hich he and the buyer are not

related.

(c) 5ubstitute values shall not be established under the provisions of clause (b) of this sub!rule.

() If the value cannot be determined under the provisions of sub!rule (1) the value shall be

determined by proceeding se-uentially through rule to 4.

R"!& 2 T'an%action 4a!"& of i$&ntica! #oo$%

(1) (a) 5ub@ect to the provisions of rule % the value of imported goods shall be the transaction

value of identical goods sold for e*port to India and imported at or about the same time as the

goods being valued. Provided that such transaction value shall not be the value of the goods

provisionally assessed under section 1$ of the Customs #ct 14&2.(b) In applying this rule the transaction value of identical goods in a sale at the same commercial

level and in substantially the same -uantity as the goods being valued shall be used to determine

the value of imported goods.

(c) here no sale referred to in clause (b) of sub!rule (1) is found the transaction value of

identical goods sold at a different commercial level or in different -uantities or both ad@usted to

tae account of the difference attributable to commercial level or to the -uantity or both shall be

used provided that such ad@ustments shall be made on the basis of demonstrated evidence +hich

clearly establishes the reasonableness and accuracy of the ad@ustments +hether such ad@ustment

leads to an increase or decrease in the value.

(2) here the costs and charges referred to in sub!rule (2) of rule 1/ of these rules are included

in the transaction value of identical goods an ad@ustment shall be made if there are significant

differences in such costs and charges bet+een the goods being valued and the identical goods in

-uestion arising from differences in distances and means of transport.

(%) In applying this rule if more than one transaction value of identical goods is found the

lo+est such value shall be used to determine the value of imported goods.

R"!& 5 T'an%action 4a!"& of %i(i!a' #oo$%

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(1) 5ub@ect to the provisions of rule % the value of imported goods shall be the transaction value

of similar goods sold for e*port to India and imported at or about the same time as the goods

being valued. Provided that such transaction value shall not be the value of the goods

provisionally assessed under section 1$ of the Customs #ct 14&2.

(2) The provisions of clauses (b) and (c) of sub!rule (1) sub!rule (2) and sub!rule (%) of rule

shall mutatis mutandis also apply in respect of similar goods.

R"!& 6 D&t&'(ination of 4a!"& w+&'& 4a!"& cannot 7& $&t&'(in&$ "n$&' '"!&% 38 2 an$ 5

If the value of imported goods cannot be determined under the provisions of rules % and > the

value shall be determined under the provisions of rule A or +hen the value cannot be determined

under that rule under rule $. Provided that at the re-uest of the importer and +ith the approval

of the proper officer the order of application of rules A and $ shall be reversed

R"!& 9 D&$"cti4& 4a!"&

(1) 5ub@ect to the provisions of rule % 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 +hich the declaration

for determination of value is presented the value of imported goods shall be based on the unit

price at +hich the imported goods or identical or similar imported goods are sold in the greatest

aggregate -uantity to persons +ho are not related to the sellers in India sub@ect to the follo+ing

deductions6 F

(i) 3ither the commission usually paid or agreed to be paid or the additions usually made for

profits and general e*penses in connection +ith sales in India of imported goods of the same

class or ind7

(ii) The usual costs of transport and insurance and associated costs incurred +ithin India7

(iii) The customs duties and other ta*es 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 sub@ect

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other+ise to the provisions of sub!rule (1) be based on the unit price at +hich the imported

goods or identical or similar imported goods are sold in India at the earliest date after

importation but before the e*piry of ninety days after such importation.

(%) (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 +hich the imported

goods after further processing are sold in the greatest aggregate -uantity to persons +ho are not

related to the seller in India.

(b) In such determination due allo+ance shall be made for the value added by processing and

the deductions provided for in items (i) to (iii) of sub!rule (1).

R"!& : Co(p"t&$ 4a!"&

5ub@ect to the provisions of rule % the value of imported goods shall be based on a computed

value +hich shall consist of the sum of6!

(a) The cost or value of materials and fabrication or other processing employed in producing the

imported goods7

(b) #n amount for profit and general e*penses e-ual to that usually reflected in sales of goods of

the same class or ind as the goods being valued +hich are made by producers in the country of

e*portation for e*port to India7

(c) The cost or value of all other e*penses under sub!rule (2) of rule 1/.

R"!& R&%i$"a! (&t+o$

(1) 5ub@ect to the provisions of rule % +here 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 +ith the principles and general provisions of these rulesand on the

basis of data available in India. Provided that the value so determined shall not e*ceed the price

at +hich such or lie goods are ordinarily sold or offered for sale for delivery at the time and

place of importation in the course of international trade +hen the seller or buyer has no interest

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in the business of other and price is the sole consideration for the sale or offer for sale.

(2) Eo value shall be determined under the provisions of8 this rule on the basis of F

(i) The selling price in India of the goods produced in India7

(ii) # system +hich provides for the acceptance for customs purposes of the highest of the t+o

alternative values7

(iii) The price of the goods on the domestic maret of the country of e*portation7

(iv) The cost of production other than computed values +hich have been determined for identical

or similar goods in accordance +ith the provisions of rule $7

(v) The price of the goods for the e*port to a country other than India7

(vi) Ginimum customs values7 or

(vii) #rbitrary or fictitious values.

R"!& ,; Co%t an$ S&'4ic&%

(1) In determining the transaction value there shall be added to the price actually paid or payable

for the imported goods6

(a) The follo+ing to the e*tent they are incurred by the buyer but are not included in the price

actually paid or payable for the imported goods namely6!

(i) Commissions and broerage e*cept buying commissions7

(ii) The cost of containers +hich are treated as being one for customs purposes +ith the goods in

-uestion7

(iii) The cost of pacing +hether for labor or materials.

(b) The value apportioned as appropriate of the follo+ing goods and services +here supplied

directly or indirectly by the buyer free of charge or at reduced cost for use in connection +ith the

production and sale for e*port of imported goods to the e*tent that such value has not been

included in the price actually paid or payable namely6!

(i) Gaterials components parts and similar items incorporated in the imported goods7

(ii) Tools dies molds and similar items used in the production of the Imported goods7

(iii) Gaterials consumed in the production of the imported goods7

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(iv) 3ngineering development art +or design +or and plans and setches undertaen

else+here than in India and necessary for the production of the imported goods.

(c) 'oyalties and :icense fees related to the imported goods that the buyer is re-uired to pay

directly or indirectly as a condition of the sale of the goods being valued to the e*tent that such

royalties and fees are not included in the price actually paid or payable7

(d) The value of any part of the proceeds of any subse-uent resale disposal or use of the

imported goods that accrues directly or indirectly to the seller7

(e) #ll 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 e*tent that such payments are not included in the price actually paid or payable.

(%) #dditions to the price actually paid or payable shall be made under this rule on the basis of

ob@ective and -uantifiable data.

() Eo addition shall be made to the price actually paid or payable in determining the value of

the imported goods e*cept as provided for in this rule.

R"!& ,, D&c!a'ation 7< t+& I(po't&'*

The importer % or his agent shall furnish ,

(a) # declaration disclosing full and accurate details relating to the value of imported goods7 and

(b) #ny other statement information or document including an invoice of the manufacturer or

producer of the imported goods +here the goods are imported from or through a person other

than the manufacturer or producer as considered necessary by the proper officer for

determination of the value of imported goods under these rules.

%Hoshi 'aesh Gohan (2//4) International usiness =*ford ?niversity Press Ee+ elhi and

Ee+ Jor

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http://en.wikipedia.org/wiki/Rakesh_Mohan_Joshihttp://en.wikipedia.org/wiki/Rakesh_Mohan_Joshi


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(2) Eothing contained in these rules shall be construed as restricting or calling into -uestion the

right of the proper officer of customs to satisfy himself as to the truth or accuracy of any

statement information document or declaration presented for valuation purposes.

(%) The provisions of the Customs #ct 14&2 relating to confiscation penalty and prosecution

shall apply to cases +here +rong declaration information statement or documents are furnished

under these rules.

R"!& ,= R&>&ction of $&c!a'&$ 4a!"&

hen the proper officer has reason to doubt the truth or accuracy of the value declared in

relation to any imported goods he may as 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 %.

(2) #t the re-uest of an importer the proper officer shall intimate the importer in +riting 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 taing a final decision

under sub!rule (1).

3*planation.!

(1) Dor the removal of doubts it is hereby declared that6,

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

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mechanism and procedure for re@ection of declared value in cases +here there is reasonable

doubt that the declared value does not represent the transaction value7 +here the declared value

is re@ected the value shall be determined by proceeding se-uentially in accordance +ith rules

to 4.

(ii) The declared value shall be accepted +here the proper officer is satisfied about the truth and

accuracy of the declared value after the said en-uiry in consultation +ith the importers.

(iii) The proper officer shall have the po+ers to raise doubts on the truth or accuracy of the

declared value based on certain reasons +hich may include ,

(a) The significantly higher value at +hich identical or similar goods imported at or about the

same time in comparable -uantities in a comparable commercial transaction +ere assessed7

(b) The sale involves an abnormal discount or abnormal reduction from the ordinary

competitive price7

(c) The sale involves special discounts limited to e*clusive agents7

(d) The misdeclaration of goods in parameters such as description -uality -uantity

country of origin year of manufacture or production7

(e) The non declaration of parameters such as brand grade specifications that have

relevance to value7

(f) The fraudulent or manipulated documents.

eutsch Gorton. 3-uity e-uality and need6 hat determines +hich value +ill be used as the

basis of distributive @usticeK. Journal of Social issues %1.% (14A>)6 1%A!14.

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CONCLUSION

The royalties and license fees referred to in rule 1/(l) may include among other things paymentsin respect to patents trademars and copyrights.


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)I)LIO0RAHY

==L5 '3DD3'3

•5inghania and 5inghania Ta*mann8s uide to Income Ta* Ath3d. MEe+ elhi6 Ta*manP?:IC#TI=E 2/12N

• Lailash'ai Ta*ation :a+ 4th3d. MDaridabad6 #llahabad :a+ #3ECJ 2/11N

• Customs #ct 14&2.

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