CUSTOMS VALUATION (DETERMINATION OF VALUE OF EXPORT GOODS) RULES, 2007 - AN OVERVIEW

[Mr. M. GOVINDARAJAN]

     Sec. 14 of Customs Act, 1962 ('Act' for short) deals with valuation of goods.   Sec. 14(1) provides that for the purposes of Customs Tariff Act, 1975 or any other law for the time being in force, the value of 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, the 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 to other conditions as may be specified in the rules made in this behalf.    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.

Notwithstanding anything contained in Sec.14 (1) of the Act, 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 exported 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.

     Sec. 156(a) of the Act gives powers to the Central Government to make rules consistent with the Act in regard to the manner of determining the transaction value of the imported goods and export goods under Sec. 14(1).

     In exercise of the above said powers the Central Government made 'Customs Valuation (Determination of Value of Export Goods) Rules, 2007. ('Rules' for short).  These rules came into force with effect from 10^th day of October 2007 and apply only to the export goods.

Determination of the method of Valuation:

     Unless rejected by the proper Officer under Rule 8, the value of export of goods shall be the transaction value.  The transaction value means the value of export goods within the meaning of Sec. 14(1) of the Act (as discussed in the first para).  The transaction value shall be accepted even where the buyer and seller are related, provided that the relationship has not been influenced the price.  If the value cannot be determined as stated above the value shall be determined by the following methods:

• Value by comparison;
• Computed value method;
• Residual method.

Meaning for the term 'related':

     For the purposes of these rules, the persons shall 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 five per cent or more of the outstanding voting stock or shares of both of them;
• One of them directly or indirectly controls the other;
• Both of them are directly or indirectly controlled by a third person;
• Together they directly or indirectly control a third person; or
• They are members of the same family.

Determination of export value by comparison:

     The value of the export goods shall be based on the transaction value of goods of the kind and quality (means export goods which are identical or similar in physical characteristics, quality and reputation as the goods being valued, and perform the same functions or the commercially interchangeable with the goods being valued, produced by the same person or a different person) exported at or about the same time to other buyers in the same destination country of importation or in its absence another destination country of importation adjusted in accordance with the following procedure:

     The proper Officer shall make such adjustments as appear to him reasonable, taking into consideration the relevant factors, including-

• Difference in the dates of exportation;
• Difference in commercial levels and quantity levels;
• Difference in composition, quality and design between the goods to be assessed and the goods with which they are being compared;
• Difference in domestic freight and insurance charges depending on the place of exportation.

Determination of export value by Computed Value Method:

     If the value cannot be determined under the method value by comparison, it shall be based on a computed value, which shall include the following:

• Cost of production, manufacture or processing of export goods;
• Charges, if any, for the design or brand;
• An amount towards profit.

Determination of export value by Residual Method:

     If the export value cannot be determined by any of the above methods it shall be  determined using reasonable means consistent with the principles of general provisions of these rules provided that local market price of the export goods may not be the only basis for determining the value of export goods.

Declaration by the exporter and rejection of declared value:

     The exporter shall furnish a declaration relating to the value of export goods in the manner specified in this behalf.  Where the proper officer has reason to doubt the truth of accuracy of the value declared in relation to any export goods, he may ask the exporter 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 exporter, the proper officer still has reasonable doubt about the truth or accuracy of the value so declared, the transaction value shall be deemed to have not been determined in accordance with these rules.  But before taking a final decision the exporter shall be given a reasonable opportunity of being heard.

     The proper officer shall have the power to raise doubts on the declared value based on certain reasons which may include-

• The significant variation in value at which goods of like kind and quality exported at or about the same time in comparable quantities in a comparable commercial transaction were assessed;
• The significantly higher value compared to the market value of goods of like kind and quality at the time of export;
• The misdeclaration of goods in parameters, such as description, quality, quantity, year of manufacture or production.

The declared value shall be accepted where the proper officer is satisfied about the truth or accuracy of the declared value after the inquiry in consultation with the exporter.

     The Rules provide that it is not a method of determination of value but 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 proceedings sequentially in accordance with the rules.