© COPYRIGHT 2012, LAKSHMI KUMARAN & SRIDHARAN, ATTORNEYS By: G. S HIVADASS Executive Partner Lakshmi Kumaran & Sridharan, Attorneys

2 © COPYRIGHT 2012, LAKSHMI KUMARAN & SRIDHARAN, ATTORNEYS TOPICS COVERED IN THIS PRESENTATION  Valuation under Customs Law  Transaction Value Method  Import Valuation  Export Valuation

VALUATION UNDER CUSTOM LAW

4 © COPYRIGHT 2012, LAKSHMI KUMARAN & SRIDHARAN, ATTORNEYS VALUATION UNDER CUSTOM LAW  Sec 2(41) - ‘Value’ – means value determined in accordance with S.14  New S.14 applicable since 2007  Two methods of valuation  Tariff Value Method – Sec 14(2)  Transaction Value Method – Sec 14(1)  Customs Valuation Rules  Customs Valuation (Determination of Value of Imported Goods) Rules, 2007  Customs Valuation (Determination of Value of Export Goods) Rules, 2007

5 © COPYRIGHT 2012, LAKSHMI KUMARAN & SRIDHARAN, ATTORNEYS TRAIFF VALUE METHOD  Ad valorem duties to be calculated on tariff values fixed by the Board  Tariff values can be fixed for any class of imported or export goods  Notified in the official gazette  Notification No. 36/2001-Cus. (N.T.), dated

TRANSACTION VALUE METHOD

7 © COPYRIGHT 2012, LAKSHMI KUMARAN & SRIDHARAN, ATTORNEYS EVOLUTION S. 14 and Customs Valuation Rules based on 1.GATT Article VII – Valuation for Customs Purposes – lays down general principles of valuation (presently, the WTO Valuation Agreement) 2.Agreement on Implementation of Art.VII of GATT- Multilateral agreement for – A fair, uniform and neutral system of valuation – System consistent with commercial practices

8 © COPYRIGHT 2012, LAKSHMI KUMARAN & SRIDHARAN, ATTORNEYS Article 1 of Implementation Agreement  Customs value of imported goods shall be “Transaction Value” provided –  No restrictions as to the disposition of goods by buyer  No consideration for which value cant be determined  The buyer and seller are not related

9 © COPYRIGHT 2012, LAKSHMI KUMARAN & SRIDHARAN, ATTORNEYS SECTION 14 “ …..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 :…”

10 © COPYRIGHT 2012, LAKSHMI KUMARAN & SRIDHARAN, ATTORNEYS INGREDEINTS OF TRANSACTION VALUE 1 price actually paid or payable for the goods 2 sold for export to India/from India 3 for delivery at the time and place of importation/exportation, 4 where the buyer and seller of the goods are not related and 5 price is the sole consideration for the sale

11 © COPYRIGHT 2012, LAKSHMI KUMARAN & SRIDHARAN, ATTORNEYS CONDITIONS FOR ACCEPTING TRANSACTION VALUE  Section 14 (1)& Rule 3(2)  Buyer and seller should not be related  Price should be the sole consideration for the sale  No restriction on buyer for disposal of goods; which substantially affect the value of goods  Sale should not be subject to conditions of which value cannot be determined  No further consideration to seller of which adjustment cannot be made

12 © COPYRIGHT 2012, LAKSHMI KUMARAN & SRIDHARAN, ATTORNEYS PRICE ACTUALLY PAID OR PAYABLE  Total payment made by the buyer to or for the benefit of the seller  Payment need not merely be transfer of money  May be made directly or indirectly – e.g. settlement by buyer of a debt owed by seller  Indirect payment – those that can be adjusted under Rule 10  Only payments which relate to imported goods – e.g. flow of dividends from buyer to seller that do not relate to imported goods.

13 © COPYRIGHT 2012, LAKSHMI KUMARAN & SRIDHARAN, ATTORNEYS SOLD FOR EXPORTATION  There must be a sale for export to the country of importation (India)  Sale can be made in high seas to be imported into India  Advisory Opinion 14.1: only transaction involving an actual international transfer of goods  Applicable when goods are cleared from a bonded warehouse to the DTA  Charges after importation should not be included in the customs value.

14 © COPYRIGHT 2012, LAKSHMI KUMARAN & SRIDHARAN, ATTORNEYS PRICE IS THE SOLE CONSIDARATION  If there is other consideration, it should be added to the transaction value Activities on account of buyer for which adjustment is not provided in rule 10 – not to be added to price If price is subject to a condition for which value cannot be determined – T.V. is rejected.

15 © COPYRIGHT 2012, LAKSHMI KUMARAN & SRIDHARAN, ATTORNEYS INCLUSION TO THE ASSESSABLE VALUE RULE 10 OF CVR 2007  Rule 10 – cost and services to be included if not already included in the price paid or payable  10(1)(a) - Incurred by the buyer for the imported goods  Commissions and brokerage except buying commissions  Cost of containers being one with the goods  Labour and material cost for packing

16 © COPYRIGHT 2012, LAKSHMI KUMARAN & SRIDHARAN, ATTORNEYS SUPPLIES BY THE BUYER 10(1) (b)  Goods and services supplied by buyer directly or indirectly  Free of cost or at reduced cost  For use in connection with production and sale for export of imported goods  Materials, components, parts  Tools, moulds, dies  Materials consumed in the production  Engineering, plans, sketches undertaken elsewhere other than in India and necessary for the production of imported goods

17 © COPYRIGHT 2012, LAKSHMI KUMARAN & SRIDHARAN, ATTORNEYS ROYALTIES AND LICENSE FEES 10 (1) (c)  Royalties and License fee related to the imported goods;  Required to be paid by the buyer directly or indirectly;  As a condition of sale of the goods being valued.  Include payments in respect to IPRs  Doesn’t include payment for the right to reproduce in India  Payments for the right to distribute or resell in India, includible only if a condition of sale  Payments towards process to be undertaken post importation includible if a condition of sale (Explanation) – e.g. fees towards technical know-how for using the product in India

18 © COPYRIGHT 2012, LAKSHMI KUMARAN & SRIDHARAN, ATTORNEYS OTHER PAYMENTS MADE TO THE SELLER  10(1)(d)  Value of any part of the proceeds of any;  Subsequent resale, disposal or use of imported goods that;  Accrues directly or indirectly to the seller.  E.g. Distributor/agent imports goods and once he sells these goods in India, proceeds are payable to the foreign seller.  10(1)(e)  Payments made or to be made  As a condition of sale of imported goods  By the buyer to the seller or a third party to satisfy an obligation of the seller.

19 © COPYRIGHT 2012, LAKSHMI KUMARAN & SRIDHARAN, ATTORNEYS FOR DELIVERY AT THE TIME AND PLACE OF IMPORTATION  Rule 10(2) – Value of the goods for delivery at the time and place of importation  Includes  Cost of transport to the place of importation, including ship demurrage charges  Loading and unloading charges associated with the delivery at the place of importation  The cost of insurance  Rules provide for additions as a percentage of FOB value in case the costs are unascertainable

20 © COPYRIGHT 2012, LAKSHMI KUMARAN & SRIDHARAN, ATTORNEYS OTHER ADDITIONS  Rule 10(4) – no other additions shall be made in determining T.V. except as provided for in Rule 10.  Rule 10(3) – Additions shall be made on the basis of objective and quantifiable data

21 © COPYRIGHT 2012, LAKSHMI KUMARAN & SRIDHARAN, ATTORNEYS EXCLUSION FROM ASSESSABLE VALUE  Following charges are to be excluded – Interpretative Note to R.3  Erection, testing and commissioning charges – port importation expenses  Cost of transport after importation  Duties and taxes in India  Payments that do not relate to imported goods  Bank charges for bank services

22 © COPYRIGHT 2012, LAKSHMI KUMARAN & SRIDHARAN, ATTORNEYS REJECTION OF DECLARED VALUE  Rule 11 – importer or his agent has to furnish a declaration – detailed disclosure relating value of imported goods  Proper officer – truth and accuracy of information furnished  Wrong declaration is an offence  Rule 12 – value declared can be rejected-AO has doubts regarding the truth or accuracy  Rule 3(4) – if value cannot be determined under Rule 3 – determined by proceeding sequentially through Rule 4-9

23 © COPYRIGHT 2012, LAKSHMI KUMARAN & SRIDHARAN, ATTORNEYS TRANSACTION VALUE OF DECLARED GOODS- RULE 4  If Rule 3 value is unacceptable, value of imported good;  T.V. of identical goods  Sold for export to India  Imported at or about the same time as that of the goods being valued  Goods in comparison shouldn’t have been provisionally assessed  Rule 4(3) – More than one T.V. of Identical goods, lowest of such value should be taken

24 © COPYRIGHT 2012, LAKSHMI KUMARAN & SRIDHARAN, ATTORNEYS TRANSACTION VALUE OF DECLARED GOODS- RULE 4  Identical goods fulfill the following criteria – Rule 2(1)(d)  Goods should be same in all respects  Should have been produced in the same country  Should be produced by the same manufacturer unless unavailable;  Should have been imported from the same country  Sale should be at the same commercial level  If at different commercial level, due account to adjustment and demonstration of difference

25 © COPYRIGHT 2012, LAKSHMI KUMARAN & SRIDHARAN, ATTORNEYS TRANSACTION VALUE OF SIMILAR GOODS  If Rule 3 or rule 4 value cannot be accepted; T.V. of similar goods imported at or about the same time  Goods in comparison shouldn’t have been provisionally assessed  Distinction regards identical goods – in case of similar goods, it is enough if they like characteristics and perform same function

26 © COPYRIGHT 2012, LAKSHMI KUMARAN & SRIDHARAN, ATTORNEYS TRANSACTION VALUE OF SIMILAR GOODS  Similar goods fulfill the following criteria – Rule 2(1)(d)  Goods should be alike in all respects – commercially interchangeable  Should have been produced in the same country  Should be produced by the same manufacturer unless unavailable;  Should have been imported from the same country  Sale should be at the same commercial level  If at different commercial level, due account to adjustment and demonstration of difference

27 © COPYRIGHT 2012, LAKSHMI KUMARAN & SRIDHARAN, ATTORNEYS RULE 6  If the value can’t be determined under Rules 3, 4 and 5  the value shall be deductive under rule 7,  otherwise, computed value under rule 8.  At the request of the importer + approval of the proper officer, Rule 8 can be used first

28 © COPYRIGHT 2012, LAKSHMI KUMARAN & SRIDHARAN, ATTORNEYS DEDUCTIVE VALUE- RULE 7  When Rule 3, 4 and 5 not acceptable/available – but products are sold in India  A.V. calculated by reducing post-importation costs and expenses from the selling price  Price only after processing of imported goods- processing costs to be deducted  Price at or about the time goods are being valued  If not, date within 90 days of importation

29 © COPYRIGHT 2012, LAKSHMI KUMARAN & SRIDHARAN, ATTORNEYS COMPUTED VALUE- RULE 8  Computed value shall consist of the sum of:  the cost or value of materials for producing imported goods;  amount for profit and general expenses usually reflected in sales of similar goods;  the cost or value of all other expenses under sub-rule (2) of rule 10  Used in cases of buyer and seller being related and producer supplies necessary costing

30 © COPYRIGHT 2012, LAKSHMI KUMARAN & SRIDHARAN, ATTORNEYS RESUDIAL METHOD- RULE 9  A best judgment method – where value cannot be determined under preceding rules  Reasonable means consistent with the principles and general provisions of these rules and available data  The value arrived shall not exceed price of like goods sold for import to India

31 © COPYRIGHT 2012, LAKSHMI KUMARAN & SRIDHARAN, ATTORNEYS PROHIBITIONS IN DETERMINING THE VALUE  Use of selling price in India of goods produced in India  System of accepting highest of the alternatives  Price of goods prevalent in the country of exportation  Price of goods for export to a country other than India  Minimum customs values  Arbitrary or fictitious value

32 © COPYRIGHT 2012, LAKSHMI KUMARAN & SRIDHARAN, ATTORNEYS RELATED PARTY- RULE2(2)  Officers or directors of each other’s business  Legally recognized partners in business  Employer-Employee  Any person directly or indirectly owning, controlling or holding 5% or more of the stock or share of both the parties  One of them controls the other or both controlled by a third person or together they control a third person - directly or indirectly  Members of the same family.  Subject to their falling within the above criteria- sole agent or sole concessionaire or sole distributor of the other shall be deemed to be related.  Persons include “legal persons”.

33 © COPYRIGHT 2012, LAKSHMI KUMARAN & SRIDHARAN, ATTORNEYS VALUATION OF RELATED PARTY TRANSACTIONS RULE 3(3)  Rule 3(3)(a) – Transaction Value to be accepted where relationship do not influence the price.  Rule 3(3)(b) – Importer to demonstrate that declared value closely approximates to one of the following values at or about the same time:  The transaction value of identical goods, or of similar goods, in sales to unrelated buyers in India;  The deductive value for identical goods or similar goods;  The computed value for identical goods or similar goods.  Where T.V. cannot be applied – sequential application of R.4-9

EXPORT VALUATION

35 © COPYRIGHT 2012, LAKSHMI KUMARAN & SRIDHARAN, ATTORNEYS VALUATION OF EXPORTS  Based on Transaction Value – S.14 and  Customs Valuation (Determination of Value of Export Goods) Rules, 2007  If conditions of T.V. are not met, valuation as per Rules  Rule 3(2) of Export Valuation Rules – T.V. to be accepted even if buyer and seller are related – but price not influenced  Valuation under the Rules – if T.V. not possible – sequentially through rule 4 – 6

36 © COPYRIGHT 2012, LAKSHMI KUMARAN & SRIDHARAN, ATTORNEYS VALUATION OF EXPORTS  Export Value by Comparison – Rule 4  T.V. of Goods of like kind and quality – identical or similar – commercially interchangeable – R.2(1)(a)  Exported at or about the same time  To other buyers in the same destination country  If not, another destination country is considered  Computed Value – Rule 5 if R.4 is inapplicable – on the basis of  Cost of production of export goods  Charges for deign or brand  An amount towards profit  Residual Method – Rule 6 when R.4 & 5 inapplicable  Best judgment method similar to import valuation

IMPORT PROCEDURE

38 © COPYRIGHT 2012, LAKSHMI KUMARAN & SRIDHARAN, ATTORNEYS IMPORT PROCEDURE  Person in charge of Conveyance – Import manifesto (IGM) submitted – ‘entry inwards’ granted  Self Assessment based on RMS in respect of specified importers  IEC code number from DGFT prior to filing BoE  Importer – Submission of Bill of Entry with relevant docs – contains description, value, quantity, exemption notification, classification – Sec 46  White Bill of Entry - home consumption - cleared on payment of customs duty  Yellow Bill of Entry – warehousing - ‘into bond Bill of Entry’ as bond is executed – no duty is paid and imported goods are transferred to warehouse  Green Bill of Entry - clearance from warehouse on payment of customs duty - ex-bond clearance.

39 © COPYRIGHT 2012, LAKSHMI KUMARAN & SRIDHARAN, ATTORNEYS IMPORT PROCEDURE  Bill of Entry is noted - Goods are assessed to duty, examined and pre-audit is carried out - Customs duty is paid after assessment.  Rate of customs duty on the day of noting  Self Assessment under Section 17  Payment under protest  Provisional assessment – Section 18  On importer’s request if unable to make SA  Deemed necessary to carry out tests  Necessary to make further enquiry  Final Assessment – difference paid or refund

40 © COPYRIGHT 2012, LAKSHMI KUMARAN & SRIDHARAN, ATTORNEYS IMPORT PROCEDURE  Out of customs charge for clearance issued  After that, port dues, demurrage and other charges are paid and goods are cleared.  Goods can be disposed of if not cleared from port within 30 days – Sec 48

41 © COPYRIGHT 2012, LAKSHMI KUMARAN & SRIDHARAN, ATTORNEYS SELF ASSESSMENT PROCEDURE Introduced during Budget speech ALL IMPORTERS/EXPORTERSAlready prevalent in Excise & Service TaxExtended to CustomsTrade Facilitation MeasureProcedure is same for exports & importsTo quicken the clearance of cargo

42 © COPYRIGHT 2012, LAKSHMI KUMARAN & SRIDHARAN, ATTORNEYS NEED FOR SELF ASSESSMENT  To reconcile 2 conflicting interests (Customs Checks vs. Faster Clearance)  To allow release of the goods on the basis of self- assessment  Without examination of the goods – Green Channel  To enable the importer to have possession of the goods  Also interests of the government are protected by resorting to On-Site Post Clearance Audit (OSPCA) Underlying Reason

43 © COPYRIGHT 2012, LAKSHMI KUMARAN & SRIDHARAN, ATTORNEYS CHANGES INTRODUCED IN SELF ASSESSMENT Sub- Section Old SectionNew Section (1)PO to assess the goods importedSelf Assessment by Importer (2)Verification to be done by POPO may verify the self-assessment of such goods (3)PO may ask for documents for the purpose of assessing duty PO may ask for documents for the purpose of Verification of Self assessment (4)prior to the examination or testing PO may permit to be assess duty on the basis of the statements made in the entry and the documents produced Re-assessment of goods if on verification self assessment found to be wrong (5)Speaking order if assessment done by PO different from assessment sought by importer/exporter Speaking order if re-assessment done by PO different from self assessment done by importer/exporter (6)Not thereAudit of self assessment where re- assessment not done

44 © COPYRIGHT 2012, LAKSHMI KUMARAN & SRIDHARAN, ATTORNEYS FLOW OF SELF ASSESSMENT An importer / exporter SHALL Self Assess the Duty PO may VERIFY the SA by examination & Testing PO may require the importer / exporter to produce documents On verification of SA, if SA NOT DONE correctly SA is DONE correctly PO MAY RA the duty If RA is contrary to SA If importer/exporter accept RA (writing) If importer/exporter not accept No issue of Formal Order Speaking Order to be passed with in 15 days from date of RA

45 © COPYRIGHT 2012, LAKSHMI KUMARAN & SRIDHARAN, ATTORNEYS IMPACT OF SELF ASSESSMENT In case of No SA done SA done + RA is required under Section 17 Importer / exporter can opt for PA by PO PA gets converted into FA PA gets converted into RA Key: PA – Provisional Assessment; RA - Re-Assessment SA – Self Assessment PARA 7 OF THE CIRCULAR 17/2011-CUS

46 © COPYRIGHT 2012, LAKSHMI KUMARAN & SRIDHARAN, ATTORNEYS PROVISIONAL ASSESSMENT- S.18  Unable to make SA + requests in writing to PO or  PO deems it necessary for the imported goods to be tested or  Importer produced documents + for further enquiry or  Documents not produced/Information not provided + further enquiry  Customs (Provisional Duty Assessment) Regulations, 2011 which supersedes 1963 Regulations

EXPORT PROCEDURE

48 © COPYRIGHT 2012, LAKSHMI KUMARAN & SRIDHARAN, ATTORNEYS EXPORT PROCEDURE  Loading in conveyance after ‘Entry Outward’ is sanctioned  Person in charge of conveyance submission of ‘Export Manifest’  Exporter to obtain IEC number from DGFT - registered with Export Promotion Council if export benefits claimed  Export is required to submit Shipping Bill with required documents for obtaining permission to export.  Shipping Bill for export of goods under claim for duty drawback  Shipping Bill for export of dutiable goods - this should be yellow colour  Shipping bill for export of duty free goods - it should be white colour  shipping bill for export of duty free goods ex-bond - i.e. from bonded store room - it should be pink colour  Shipping Bill for export under DEPB scheme - Blue colour.

49 © COPYRIGHT 2012, LAKSHMI KUMARAN & SRIDHARAN, ATTORNEYS EXPORT PROCEDURE  FEMA formalities - GR/SDF/Softex form is required to be submitted.  The shipping bill is noted, goods are assessed and examined. Export duty is paid, if applicable.  Customs check for advance licenses, restriction and prohibitions  If export is under export incentives, relevant documents are checked and certified. Then proof of export is obtained on ARE-1  Conveyance can leave only after ‘Let Export’ order is issued.

© COPYRIGHT 2012, LAKSHMI KUMARAN & SRIDHARAN, ATTORNEYS