Customs Assessment under the Provisions of Customs Valuation Sections, Rules, and Regulations.

[YAGAY andSUN]

Customs assessment refers to the process of determining the customs value of goods imported into a country for the purpose of calculating the applicable customs duties and taxes. The assessment is a critical process for both customs authorities and importers, ensuring that duties are applied fairly and correctly based on the true value of the imported goods.

In India, the customs valuation process is governed by the Customs Act, 1962, Customs Valuation (Determination of Value of Imported Goods) Rules, 2007, and other relevant regulations. These provisions are in line with the World Trade Organization (WTO) Agreement on Customs Valuation (the Agreement), which aims to ensure a transparent and standardized system of customs valuation.

The customs authorities use several rules and methodologies to assess the value of imported goods. Let’s break down how Customs Assessment is evaluated under these provisions.

1. Legal Framework for Customs Valuation

The key provisions for customs valuation in India are derived from:

• Customs Act, 1962 (Section 14): This section empowers the Central Government to frame rules to determine the value of imported and exported goods for the purpose of assessing customs duties.
• Customs Valuation (Determination of Value of Imported Goods) Rules, 2007: These rules provide the detailed framework for determining the customs value of goods and specify the methods to be used.
• Customs (Import of Goods at Concessional Rate of Duty) Rules, 2017: These rules govern the importation of goods at concessional rates of duty under various schemes.

The WTO Agreement on Customs Valuation (also known as the "Kyoto Convention") serves as the international foundation, promoting transparency and predictability in customs valuation practices globally.

2. Methods of Customs Valuation

The valuation process uses a hierarchical system of methods to determine the customs value of imported goods. These methods are followed in a prescribed order, and if one method is not applicable, the next one in line can be used.

Method 1: Transaction Value Method

• Definition: The most widely used method is the transaction value method (Section 14 of the Customs Act and Rule 3 of the Customs Valuation Rules). This method calculates the customs value based on the price actually paid or payable for the goods when sold for export to India.
• Inclusions: The transaction value includes the price of the goods and additional costs such as:
  • Freight charges
  • Insurance
  • Handling charges
  • Commission and packing costs

• Conditions: For the transaction value to be accepted, the transaction must be a genuine sale, and there should be no conditions or restrictions attached that affect the value.

Method 2: Transaction Value of Identical Goods

• Definition: If the transaction value of the goods cannot be determined, the transaction value of identical goods is used (Rule 4 of the Customs Valuation Rules). Identical goods refer to goods that are:
  • Commercially interchangeable with the goods in question.
  • Manufactured in the same country and sold in the same quantity to the importing country.

• Adjustment: If the identical goods are sold at a price that includes differences in costs, these must be adjusted for proper valuation.

Method 3: Transaction Value of Similar Goods

• Definition: If the valuation cannot be determined through the identical goods method, the next step is to use the transaction value of similar goods (Rule 5). Similar goods refer to those that are:
  • Closely resemble the goods being valued.
  • Have similar characteristics, composition, and performance.

• Conditions: Adjustments may be made to account for differences in the commercial value of similar goods as compared to the goods being imported.

Method 4: Deductive Value Method

• Definition: If the first three methods are not applicable, the deductive method is used (Rule 6). Under this method, the customs value is based on the unit price at which the imported goods are sold in the domestic market after importation.
• Key Considerations:
  • The price at which the goods are sold.
  • Adjustments must be made for costs like transportation, commissions, and any other costs incurred after the importation of goods.
  • The deductive method relies on information like the selling price in the domestic market, but only after the goods are sold in the country.

Method 5: Computed Value Method

• Definition: If none of the previous methods is applicable, the computed value method (Rule 7) can be used. This method calculates the value based on the cost of production or manufacture of the goods, adding an appropriate profit margin.
• Components:
  • The cost of materials used in manufacturing the goods.
  • The cost of labor and overheads.
  • Profit added to the cost of production or manufacturing.

Method 6: Fall-Back Method

• Definition: As a last resort, if the above methods cannot be used or are insufficient, the fall-back method (Rule 8) can be employed. This method allows for the use of reasonable methods consistent with the principles of the WTO Agreement.
• Application: The fall-back method is used when no direct transaction value is available, and it may involve adjustments based on general market practices, depending on the specific situation.

3. Additional Considerations and Adjustments

While applying the above methods, certain adjustments may be necessary to arrive at the correct customs value. These include:

Inclusion of Additional Costs

Certain costs must be added to the price paid for the goods to arrive at the transaction value, such as:

• Freight: Shipping costs from the exporting country to the port of entry.
• Insurance: Costs associated with insuring the goods during transit.
• Packing: Charges related to the packaging of goods.
• Handling charges: Costs associated with handling the goods during importation.

Exclusion of Non-Includable Items

Some elements are excluded from the customs value calculation, such as:

• Post-importation costs like distribution costs, which arise after the goods enter the country.
• Seller’s profit margin if not already accounted for under the agreed price.

4. Role of Customs Authorities in Assessment

Customs authorities are responsible for verifying the customs value declared by the importer. The customs officers may:

• Request documents: These may include invoices, purchase orders, contracts, and payment records.
• Check for discrepancies: The authorities compare the declared value with market prices and similar goods.
• Conduct investigations: In cases where the value is suspected to be misdeclared or artificially manipulated, customs authorities have the right to conduct further investigations.

In cases of under-valuation or incorrect classification of goods, customs authorities can adjust the declared value and impose additional duties, fines, or penalties.

5. Dispute Resolution and Appeal

If the importer disagrees with the assessment of customs value, they can:

• Request a re-assessment from the customs authorities.
• Appeal the decision to the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT), or other relevant legal bodies.

The WTO’s Dispute Settlement Mechanism (DSM) can also be used in case the matter involves international trade violations.

6. Conclusion

The customs valuation process is a key aspect of international trade, ensuring that customs duties are levied fairly and consistently. It relies on a structured and systematic set of methods, with the transaction value method being the most commonly used, followed by alternative methods like deductive, computed, or fall-back methods.

Both importers and customs authorities must adhere to these valuation rules and guidelines to ensure compliance with the law, transparency in the process, and fair trade practices.