Customs Valuation (Determination Of Prices Of Imported Goods) Rules 1988.
CUSTOMS VALUATION (DETERMINATION OF PRICE OF IMPORTED GOODS)
RULES, 1988
Short title, commencement and application
Definitions.
Determination of the method of valuation
Transaction value
Transaction value of identical goods
Transaction value of similar goods
Determination of value when transaction value is not available
Deductive value
Computed value.
Residual method
Cost and services
Declaration by the importer
Rejection of declared value
Settlement of dispute
Interpretative Notes
General Note :
Use of generally accepted accounting principles
Notes to Rules
Note to Rule 2
Note to Rule 4
Price actually paid or payable
Rule 4(2)(a) (iii
Rule4(2)(b)
Rule 4(3)
Rule 4(3)(b)
Notes to Rule 5
Note to Rule 6
Note to Rule 7
Note to Rule 7A
Note to Rule 8
Identical goods
Similar goods
Deductive method
Note to Rule 9
Rule 9(l)(b)(ii)
Rule 9(l)(b)(iv)
Rule 9(l)(c)
Rule 9(3)
CUSTOMS VALUATION (DETERMINATION OF PRICE OF IMPORTED GOODS)
RULES, 1988
Notification No. 51/88-Cus. (NT.), dated 18th July, 1988 as
amended by Notifications No. 53/88-Cus. (N.T.), dated 10-8-1988;No. 71/89-Cus.
(N.T.), dated . 19-12-1989; No. 39/90-Cus. (N.T.), dated 5-7-1990; No.
44/90-Cus. (N.T.), dated 3-8-1990;No. 67/91-Cus. (NT.), dated 1-10-1991 and No.
26/95-Cus. (N.T.), dated 24-4-1995 and No. 10/98-Cus.(N.T.), dated 19-2-1998
In exercise of the powers conferred by Section 156 of the Customs Act, 1962
(52 of 1962), read with Section 22 of the General Clauses Act, 1897, (10 of
1897), and in supersession of the Customs Valuation Rules, 1963 except as
respect things done or omitted to be done before such supersession, the Central
Government hereby makes the following rules, namely: -
- Short title, commencement and application. -
- These rules may be called the Customs Valuation (Determination of
Price of Imported Goods) Rules, 1988.
- They shall come into force on the 16th August, 1988.
- They shall apply to imported goods where a duty of customs is
chargeable by reference to their value.
- Definitions. —
- In these rules, unless the context otherwise requires, —
- "computed value" means the value of imported goods determined in
accordance with rule 7A of these rules;
(aa) "deductive value" means the value determined in accordance with
rule 7 of these rules;
- "goods of the same class or kind", means imported goods that are
within a group or range of imported goods produced by a particular
industry or industrial sector and includes identical goods or
similar goods;
- "identical goods" means imported goods -
- which are same in all respects, including physical
characteristics, quality and reputation as the goods being
valued except for minor differences in appearance that do not
affect the value of the goods;
- produced in the country in which the goods being valued were
produced; and
- produced by the same person who produced the goods, or where
no such goods are available, goods produced by a different
person, but shall not include imported goods where engineering,
development work, art work, design work, plan or sketch
undertaken in India were completed directly or indirectly by the
buyer on these imported goods free of charge or at a reduced
cost for use in connection with the production and sale for
export of these imported goods;
- "produced" includes grown, manufactured and mined;
- "similar goods" means imported goods -
- which although not alike in all respects, have like
characteristics and like component materials which enable them
to perform the same functions and to be commercially
interchangeable with the goods being valued having regard to the
quality, reputation and the existence of trade mark;
- produced in the country in which the goods being valued were
produced; and
- produced by the same person who produced the goods being
valued, or where no such goods are available, goods produced by
a different person, but shall not include imported goods where
engineering, development work, art work, design work, plan or
sketch undertaken in India were completed directly or indirectly
by the buyer on these imported goods free of charge or at a
reduced cost for use in connection with the production and sale
for export of these imported goods;
- "transaction value" means the value determined in accordance
with Rule 4 of these rules.
- For the purpose of these rules, persons shall be deemed to be
"related" only if -
- they are officers or directors of one another's
businesses;
- they are legally recognised 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;
- 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.
Explanation I. - The term "person" also includes legal persons.
Explanation II. - Persons who are associated in the business of one
another in that one is the sole agent or sole distributor or sole
concessionaire, however described, of the other shall be deemed to
be related for the purpose of these rules, if they fall within the
criteria of this sub-rule.
- Determination of the method of valuation. —For the
purpose of these rules, -
- the value of imported goods shall be the transaction value;
- if the value cannot be determined under the provisions of clause (i)
above, the value shall be determined by proceeding sequentially through
Rules5 to 8 of these rules.
- Transaction value. —
- The transaction value of imported goods shall be the price actually
paid or payable for the goods when sold for export to India, adjusted in
accordance with the provisions of Rule 9 of these rules.
- The transaction value of imported goods under sub-rule (1) above
shall be accepted:
Provided that -
- there are no restrictions as to the disposition or use of the
goods by the buyer other than restrictions which -
- are imposed or required by law or by the public authorities
in India; or
- limit the geographical area in which the goods may be
resold; or
- do not substantially affect the value of the goods;
- the sale or price is not subject to same condition or
consideration for which a value cannot be determined in respect of
the goods being valued;
- 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 an appropriate adjustment can be made in accordance
with the provisions of Rule 9 of these rules; and
- the buyer and seller are not related, or where the buyer and
seller are related, that transaction value is acceptable for customs
purposes under the provisions of sub-rule (3) below.
-
- Where the buyer and seller are related, the transaction
value shall be accepted provided that the examination of the
circumstances of the sale of the imported goods indicate that the
relationship did not influence the price.
- In a sale between related persons, the transaction value shall
be accepted, whenever the importer demonstrates that the declared
value of the goods being valued, closely approximates to one of the
following values ascertained 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.
Provided that in applying the values used for comparison, due
account shall be taken of demonstrated difference in commercial
levels, quantity levels, adjustments in accordance with the
provisions of Rule 9 of these rules and cost incurred by the
seller in sales in which he and the buyer are not related;
- substitute values shall not be established under the provisions
of clause (b) of this sub-rule.
- Transaction value of identical goods. —
-
- Subject to the provisions of Rule 3 of these rules, the
value of imported goods shall be the transaction value of identical
goods sold for export to India and imported at or about the same
time as the goods being valued.
- In applying this rule, the transaction value of identical goods
in a sale at the same commercial level and in substantially the same
quantity as the goods being valued shall be used to determine the
value of imported goods.
- Where no sale referred to in clause (b) of sub-rule (1) of this
rule, 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 adjustment leads to an increase or
decrease in the value.
- Where the costs and charges referred to in sub-rule (2) of Rule
9 of these rules are included in the transaction value of identical
goods, an adjustment shall be made, if there are significant
differences in such costs and charges between the goods being valued
and the identical goods in question 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 lowest such value shall be used to
determine the value of imported goods.
- Transaction value of similar goods. —
- Subject to the provisions of Rule 3 of these rules, the value of
imported goods shall be the transaction value of similar goods sold for
export to India and imported at or about the same time as the goods
being valued.
- The provisions of clauses (b) and (c) of sub-rule (1), sub-rule (2)
and sub-rule (3), of Rule 5 of these rules shall, mutatis mutandis, also
apply in respect of similar goods.
6A. Determination of value when transaction value is not available.
- If the value of imported goods cannot be determined under the provisions of
rules 4, 5 and 6, the value shall be determined under the provisions of rule 7
or, when the value cannot be determined under that rule, under rule 7A :
Provided that at the request of the importer, and with the approval of the
proper officer, the order of application of rules 7 and 7A shall be reversed.
- Deductive value.—
- Subject to the provisions of Rule 3 of these rules, 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 which the
declaration for determination of value is presented, the value of
imported goods shall be based on the unit price at which the imported
goods or identical or similar imported goods are sold in the greatest
aggregate quantity to persons who are not related to the sellers in
India, subject to the following deductions : —
- either the commission usually paid or agreed to be paid or the
additions usually made for profits and general expenses in
connection with sales in India of imported goods of the same class
or kind;
- the usual costs of transport and insurance and associated costs
incurred within India;
- the customs duties and other taxes payable in India by reason of
importation or sale of the goods.
- 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, subject otherwise to
the provisions of sub-rule (1) of this rule, be based on the unit price
at which the imported goods or identical or similar imported goods are
sold in India, at the earliest date after importation but before the
expiry of ninety days after such importation.
-
- 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 theunit price at which the imported
goods, after further processing, are sold in the greatest aggregate
quantity to persons who are not related to the seller in India.
- In such determination, due allowance shall be made for the value
added by processing and the deductions provided for in items (i) to
(iii) of sub-rule (1) of this rule.
7A. Computed value. — Subject to the provisions of Rule 3,
the value of imported goods shall be based on a computed value, which shall
consist of the sum of:-
- the cost or value of materials and fabrication or other processing
employed in producing the imported goods;
- an amount for profit and general expenses equal to that usually
reflected in sales of goods of the same class or kind as the goods being
valued which are made by producers in the country of exportation for export
to India;
- the cost or value of all other expenses under sub-rule (2) of rule 9 of
these rules.
- Residual method. —
- Subject to the provisions of Rule 3 of these rules, where 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 with the principles and general provisions of these rules and
sub-section (1) of Section 14 of the Customs Act, 1962 (52 of 1962) and on
the basis of data available in India.
- No value shall be determined under the provisions of' this rule on the
basis of —
- the selling price in India of the goods produced in India;
- a system which provides for the acceptance for customs purposes of the
highest of the two alternative values;
- the price of the goods on the domestic market of the country of
exportation;
(iii a) the cost of production other than computed values which have been
determined for identical or similar goods in accordance with the provisions
of rule 7A;
- the price of the goods for the export to a country other than India;
- minimum customs values; or
- arbitrary or fictitious values.
- Cost and services. —
- In determining the transaction value, there shall be added to the price
actually paid or payable for the imported goods, —
- the following cost and services, to the extent they are incurred by the
buyer but are not included in the price actually paid or payable for the
imported goods, namely:-
- commissions and brokerage, except buying commissions;
- the cost of containers which are treated as being one for customs
purposes with the goods in question;
- the cost of packing whether for labour or materials;
- the value, apportioned as appropriate, of the following goods and
services where supplied directly or indirectly by the buyer free of charge
or at reduced cost for use in connection with the production and sale for
export of imported goods, to the extent that such value has not been
included in the price actually paid or payable, namely:-
- materials, components, parts and similar items incorporated in the
imported goods;
- tools, dies, moulds and similar items used in the production of the
imported goods;
- materials consumed in the production of the imported goods;
- engineering, development, art work, design work, and plans and sketches
undertaken elsewhere than in India and necessary for the production of the
imported goods;
- royalties and licence fees related to the imported goods that the buyer
is required to pay, directly or indirectly, as a condition of the sale of
the goods being valued, to the extent that such royalties and fees are not
included in the price actually paid or payable;
- the value of any part of the proceeds of any subsequent resale, disposal
or use of the imported goods that accrues, directly or indirectly, to the
seller;
- all 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 extent that such
payments are not included in the price actually paid or payable.
- For the purposes of sub-section (1) and sub-section (1A) of Section 14
of the Customs Act, 1962 (52 of 1962) and these rules, the value of the
imported goods shall be the value of such goods, for delivery at the time
and place of importation and shall include -
- the cost of transport of the imported goods to the place of importation;
- loading, unloading and handling charges associated with the delivery of
the imported goods at the place of importation; and
- the cost of insurance :
Provided that —
- where the cost of transport referred to in clause (a) is not
ascertainable, such cost shall be twenty per cent of the free on board value
of the goods;
- the charges referred to in clause (b) shall be one per cent of the free
on board value of the goods plus the cost of transport referred to in clause
(a) plus the cost of insurance referred to in clause (c);
- where the cost referred to in clause (c) is not ascertainable, such
cost shall be 1.125% of free on board value of the goods;
Provided further that in the case of goods imported by air, where the cost
referred to in clause (a) is ascertainable, such cost shall not exceed
twenty per cent of free on board value of the goods :
Provided also that where the free on board value of the goods is not
ascertainable, the costs referred to in clause (a) shall be twenty per cent
of the free on board value of the goods plus cost of insurance for clause (i)
above and the cost referred to in clause (c) shall be 1.125% of the free on
board value of the goods plus cost of transport for clause (iii) above.
- Additions to the price actually paid or payable shall be made under this
rule on the basis of objective and quantifiable data.
- No addition shall be made to the price actually paid or payable in
determining the value of the imported goods except as provided for in this
rule.
- Declaration by the importer. —
- The importer or his agent shall furnish -
- a declaration disclosing full and accurate details relating to the value
of imported goods; and
- any other statement, information or document including an invoice of the
manufacturer or producer of the imported goods where 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.
- Nothing contained in these rules shall be construed as restricting or
calling into question 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 Act, 1962 (52 of 1962) relating to
confiscation, penalty and prosecution shall apply to cases where wrong
declaration, information, statement or documents are furnished under these
rules.
10A. 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 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 value of such imported goods cannot be determined under the
provisions of sub-rule (1) of Rule 4.
- At the request of an importer, the proper officer, shall intimate the
importer in writing 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 taking a final decision under
sub-rule (1).
- Settlement of dispute.—In case of dispute between the importer and the
proper officer of customs valuing the goods, the same shall be resolved
consistent with the provisions contained in sub-section (1) of Section 14 of
the Customs Act, 1962 (52 of 1962).
- Interpretative Notes. — The interpretative notes specified in the
Schedule to these rules shall apply for the interpretation of these rules.
The Schedule
(See Rule 12)
Interpretative Notes
General Note :
Use of generally accepted accounting principles
- "Generally accepted accounting principles" refers to the recognized
consensus or substantial authoritative support within a country at a
particular time as to which economic resources and obligations shall be
recorded as assets and liabilities, which changes in assets and liabilities
should be recorded, how the assets and liabilities and changes in them
should be measured, what information should be disclosed and how it should
be disclosed and which financial statements should be prepared. These
standards may be broad guidelines of general application as well as detailed
practices and procedures.
Notes to Rules
Note to Rule 2
In Rule 2(2)(v), for the purposes of these rules, 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.
Note to Rule 4
Price actually paid or payable
The price actually paid or payable is the total payment made or to be
made by the buyer to or for the benefit of the seller for the imported goods.
The payment need not necessarily take the form of a transfer of money. Payment
may be made by way of letters of credit or negotiable instruments. Payment may
be made directly or indirectly. An example of an indirect payment would be the
settlement by the buyer, whether in whole or in part, of a debt owed by the
seller.
Activities undertaken by the buyer on his own account, other than those for
which an adjustment is provided in Rule 9, are not considered to be an indirect
payment to the seller, even though they might be regarded as of benefit to the
seller. The costs of such activities shall not, therefore, be added to the price
actually paid or payable in determining the value of imported goods.
The value of imported goods shall not include the following charges or costs,
provided that they are distinguished from the price actually paid or payable for
the imported goods:
- Charges for construction, erection, assembly, maintenance or technical
assistance, undertaken after importation on imported goods such as
industrial plant, machinery or equipment;
- The cost of transport after importation;
- Duties and taxes in India.
The price actually paid or payable refers to the price for the imported
goods. Thus the flow of dividends or other payments from the buyer to the
seller that do not relate to the imported goods are not part of the customs
value.
Rule 4(2)(a) (iii)
Among restrictions which would not render a price actually paid or payable
unacceptable are restrictions which do not substantially affect the value of the
goods. An example of such restrictions would be the case where a seller requires
a buyer of automobiles not to sell or exhibit them prior to a fixed date which
represents the beginning of a model year.
Rule4(2)(b)
If the sale or price is subject to some condition or consideration for
which a value cannot be determined with respect to the goods being valued, the
transaction value shall not be acceptable for customs purposes. Some examples of
this include:
- The seller establishes the price of the imported goods on 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 of the imported goods sells other goods to the seller of the
imported goods;
- the price is established on the basis of a form of payment extraneous to
the imported goods, such as where the imported goods are semifinished goods
which have been provided by the seller on condition that he will receive a
specified quantity of the finished goods.
However, conditions or considerations relating to the production or
marketing of the imported goods shall not result in rejection of the
transaction value. For example, the fact that the buyer furnishes the seller
with engineering and plans undertaken in India shall not result in rejection
of the transaction value for the purposes of Rule 4. Likewise, if the buyer
undertakes on his own account, even though by agreement with the seller,
activities relating to the marketing of the imported goods, the value of
these activities is not part of the value of imported goods nor shall such
activities result in rejection of the transaction value.
Rule 4(3)
- Rule 4(3)(a) and Rule 4(3)(b) provide different means of establishing
the acceptability of a transaction value.
- Rule 4(3)(a) provides that where the buyer and the seller are related,
the circumstances surrounding the sale shall be examined and the transaction
value shall be accepted as the value of imported goods provided that the
relationship did not influence the price. It is not intended that there
should be an examination of the circumstances in all cases where the buyer
and the seller are related. Such examination will only be required where
there are doubts about the acceptability of the price. Where the proper
officer of customs has no doubts about the acceptability of the price, it
should be accepted without requesting further information from the importer.
For example, the proper officer of customs may have previously examined the
relationship, or he may already have detailed information concerning the
buyer and the seller, and may already be satisfied from such examination or
information that the relationship did not influence the price.
- Where the proper officer of customs is unable to accept the transaction
value without further inquiry, he should give the importer an opportunity to
supply such further detailed information as may be necessary to enable him
to examine the circumstances surrounding the sale. In this context, the
proper officer of customs should be prepared to examine relevant aspects of
the transaction, including the way in which the buyer and seller organize
their commercial relations and the way in which the price in question was
arrived at, in order to determine whether the relationship influenced the
price. Where it can be shown that the buyer and seller, although related
under the provisions of Rule 2(2), buy from and sell to each other as if
they were not related, this would demonstrate that the price had not been
influenced by the relationship. As an example of this, if the price had been
settled in a manner consistent with the normal pricing practices of the
industry in question or with the way the seller settles prices for sales to
buyers who are not related to him, this would demonstrate that the price had
not been influenced by the relationship. As a further example, where it is
shown that the price is adequate to ensure recovery of all costs plus a
profit which is representative of the firm's overall profit realized over a
representative period of time (e.g. on an annual basis) in sales of goods of
the same class or kind, this would demonstrate that the price had not been
influenced.
- Rule 4(3)(b) provides an opportunity for the importer to demonstrate
that the transaction value closely approximates to a "test" value previously
accepted by the proper officer of customs and is therefore acceptable under
the provisions of Rule 4. Where a test under rule 4(3)(b) is met, it is not
necessary to examine the question of influence under Rule 4(3)(a). If the
proper officer of customs has already sufficient information to be
satisfied, without further detailed inquiries, that one of the tests
provided in Rule 4(3)(b) has been met, there is no reason for him to require
the importer to demonstrate that the test can be met. In Rule 4(3)(b) the
term "unrelated buyers" means buyers who are not related to the seller in
any particular case.
Rule 4(3)(b)
A number of factors must be taken into consideration in determining whether one
value "closely approximates" to another value. These factors include the nature
of the imported goods, the nature of the industry itself, the season in which
the goods are imported, and whether the difference in values is commercially
significant. Since these factors may vary from case to case, it would be
impossible to apply a uniform standard such as a fixed percentage, in each case.
For example, a small difference in value in a case involving one type of goods
could be unacceptable while a large difference in a case involving another type
of goods might be acceptable in determining whether the transaction value
closely approximates to the "test" values set forth in Rule 4(3)(b).
Notes to Rule 5
- In applying rule 5, the proper officer of customs shall, wherever
possible, use a sale of identical goods at the same commercial level and in
substantially the same quantities as the goods being valued. Where no such
sale is found, a sale of identical goods that takes place under any one of
the following three conditions may be used:
- a sale at the same commercial level but in different quantities;
- a sale at a different commercial level but in substantially the same
quantities; or
- a sale at a different commercial level and in different quantities.
- Having found a sale under any one of these three conditions adjustments
will then be made, as the case may be, for :
- quantity factors only;
- commercial level factors only; or
- both commercial level and quantity factors.
- For the purposes of Rule 5, the transaction value of identical imported
goods means a value, adjusted as provided for in rule 5(l)(b) and (c) and
rule 5(2) which has already been accepted under Rule 4
- A condition for adjustment because of different commercial levels or
different quantities is that such adjustment, whether it leads to an
increase or a decrease in the value, be made only on the basis of
demonstrated evidence that clearly establishes the reasonableness and
accuracy of the adjustment, e.g. valid price lists containing prices
referring to different levels or different quantities. As an example of
this, if the imported goods being valued consist of a shipment of 10 units
and the only identical imported goods for which a transaction value exists
involved a sale of 500 units, and it is recognised that the seller grants
quantity discounts, the required adjustment may be accomplished by resorting
to the seller's price list and using that price applicable to a sale of 10
units. This does not require that a sale had to have been made in quantities
of 10 as long as the price list has been established as being bona fide
through sales at other quantities. In the absence of such an objective
measure, however, the determination of a value under the provisions of rule
5 is not appropriate.
Note to Rule 6
- In applying Rule 6, the proper officer of customs shall, wherever
possible, use a sale of similar goods at the same commercial level and in
substantially the same quantities as the goods being valued. For the purpose
of Rule 6, the transaction value of similar imported goods means the value
of imported goods, adjusted as provided for in rule 6(2) which has already
been accepted under Rule 4.
- All other provisions contained in note to rule 5 shall mutatis mutandis
also apply in respect of similar goods.
Note to Rule 7
- The term "unit/price at which ... goods are sold in the greatest
aggregate quantity" means the price at which the greatest number of units is
sold in sales to persons who are not related to the persons from whom they
buy such goods at the first commercial level after importation at which such
sales take place.
- As an example of this, goods are sold from a price list which grants
favourable unit prices for purchases made in larger quantities.
| Sale quantity |
Unit Price |
Number of sales |
Total quantity sold at each price |
| 1-10 units |
100 |
10 sales of 5 units,
5 sales of 3 units |
65 |
| 11-25 units Over 25 units |
95 |
5 sales of 11 units |
55 |
| |
90 |
1 sale of 30 units,
1 sale of 50 units |
80 |
The greatest number of units sold at a price is 80, therefore, the unit
price in the greatest aggregate quantity is 90.
- As another example of this, two sales occur. In the first sale 500 units
are sold at a price of 95 currency units each. In the second sale 400 units
are sold at a price of 90 currency units each. in this example, the greatest
number of units sold at a particular price is 500, therefore, the unit price
in the greatest aggregate quantity is 95.
- A third example would be the following situation where various
quantities are sold at various prices.
-
| Sales |
| Sale Quantity |
Unit price |
| 40 units |
100 |
| 30 units |
90 |
| 15 units |
100 |
| 50 units |
95 |
| 25 units |
105 |
| 35 units |
90 |
| 5 units |
100 |
-
| Sales |
| Total Quality sold |
Unit price |
| 65 |
90 |
| 50 |
95 |
| 60 |
100 |
| 25 |
105 |
In this example, the greatest number of units sold at a particular price
is 65, therefore, the unit price in the greatest aggregate quantity is
90.
- Any sale in India, as described in paragraph 1 above to a person
who supplies directly or indirectly free of charge or at reduced cost for
use in connection with the production and sale for export of the imported
goods any of the elements specified in Rule 9(l)(b), should not be taken
into account in establishing the unit price for the purposes of Rule 7.
- It should be noted that "profit and general expenses" referred to in
rule 7(1) should be taken as a whole. The figure for the purposes of this
deduction should be determined on the basis of information supplied by or on
behalf of the importer unless his figures are inconsistent with those
obtaining in sales in India, of imported goods of the same class or kind.
Where the importer's figures are inconsistent with such figures, the amount
for profit and general expenses may be based upon relevant information other
than that supplied by or on behalf of the importer.
- The "general expenses" include the direct and indirect costs of
marketing the goods in question.
- Local taxes payable by reason of the sale of the goods for which a
deduction is not made under the provisions of rule 7(l)(iii) shall be
deducted under the provisions of rule 7(l)(i).
- In determining either the commissions or the usual profits and general
expenses under the provisions of rule 7(1), the question whether certain
goods are "of the same class or kind" as other goods must be determined on a
case-by-case basis by reference to the circumstances involved. Sales in
India, of the narrowest group or range of imported goods of the same class
or kind, which includes the goods being valued, for which the necessary
information can be provided, should be examined. For the purposes of Rule 7
goods of the same class or kind" includes goods imported from the same
country as the goods being valued as well as goods imported from other
countries.
- For the purposes of rule 7(2) the "earliest date" shall be the date by
which sales of the imported goods or of identical or similar imported, goods
are made in sufficient quantity to establish the unit price.
- Where the method in rule 7(3) is used, deductions made for the value
added by further processing shall be based on objective and quantifiable
data relating to the cost of such work. Accepted industry formulas, recipes,
methods of construction, and other industry practices would form the basis
of the calculations.
- It is recognized that the method of valuation provided for in rule 7(3)
would normally not be applicable when, as a result of the further
processing, the imported goods lose their identity. However there can be
instances where, although the identity of the imported goods is lost, the
value added by the processing can be determined accurately without
unreasonable difficulty. On the other hand, there can also be instances
where the imported goods maintain their identity but form such a minor
element in the goods sold in the country of importation that the use of this
valuation method would be unjustified. In view of the above, each situation
of this valuation method would be unjustified. In view of the above, each
situation of this type must be considered on a case-by-case basis.
Note to Rule 7A
- As a general rule, value of imported goods is determined under these
rules on the basis of information readily available in India. In order to
determine a computed value, however, it may be necessary to examine the
costs of producing the goods being valued and other information which has to
be obtained from outside India. Furthermore, in most cases, the producer of
the goods will be outside the jurisdiction of the proper officer. The use of
the computed value method will generally be limited to those cases where the
buyer and seller are related, and the producer is prepared to supply to the
proper officer the necessary costings and to provide facilities for any
subsequent verification which may be necessary.
- The "cost or value" referred to in clause (a) of rule 7A is to be
determined on the basis of information relating to the production of the
goods being valued supplied by or on behalf of the producer. It is to be
based upon the commercial accounts of the producer, provided that such
accounts are consistent with the generally accepted accounting principles
applied in the country where goods are produced.
- The "cost or value" shall include the cost of elements specified in
clauses (1)(a)(ii) and (1)(a)(iii) of rule 9. It shall also include the
value, apportioned as appropriate under the provisions of the relevant note
to rule 9, of any element specified in rule 9(l)(b) which has been supplied
directly or indirectly by the buyer for use in connection with the
production of the imported goods. The value of the elements specified in
rule 9(l)(b)(iv) which are undertaken in India shall be included only to the
extent that such elements are charged to the producer. It is to be
understood that no cost or value of the elements referred to in this
paragraph shall be counted twice in determining the computed value.
- The "amount for profit and general expenses" referred to in clause(b) of
rule 7A is to be determined on the basis of information supplied by or on
behalf the producer unless the producer's figures are inconsistent with
those usually reflected in sales of goods of the same class or kind as the
goods being valued which are made by producers in the country of exportation
for export to India.
- It should be noted in this context that the "amount for profit and
general expenses" has to be taken as a whole. It follows that if, in any
particular case, producer's profit figure is low and his general expenses
are high, the produer's profit and general expenses taken together may
nevertheless be consistent with that usually reflected in sales of goods of
the same class or kind. Such a situation might occur, for example, if a
product were being launched in India and the producer accepted a nil or low
profit to offset high general expenses associated with the launch. Where the
producer can demonstrate a low profit on his sales of the imported goods
because of particular commercial circumstances, his actual profit figures
should be taken into account provided that he has valid commercial reasons
to justify them and his pricing policy reflects usual pricing policies in
the branch of industry concerned. Such a situation might occur for example,
where producers have been forced to lower prices temporarily because of an
unforeseeable drop in demand, or where they sell goods to complement a range
of goods being produced in India and accept a low profit to maintain
competitivity. Where the producer's own figures for profit and general
expenses are not consistent with those usually reflected in sales of goods
of the same class or kind as the goods being valued which are made by
producers in the country of exportation for export to India, the amount for
profit and general expenses may be based upon relevant information other
than that supplied by or on behalf of the producer of the goods.
- The "general expenses" referred to in clause (b) of rule 7A covers the
direct and indirect costs of producing and selling the goods for export
which are not included under clause (a) of rule 7A.
- Whether certain goods are "of the same class or kind" as other goods
must be determined on a case-by-case basis with reference to the
circumstances involved. In determining the usual profits and general
expenses under the provisions of rule 7A, sales for export to India of the
narrowest group or range of goods, which includes the goods being valued,
for which the necessary information can be provided, should be examined. For
the purposes of rule 7A "goods of the same class or kind" must be from the
same country as the goods being valued.
Note to Rule 8
- Value of imported goods determined under the provisions of Rule 8 should
to the greatest extent possible, be based on previously determined customs
values.
- The methods of valuation to be employed under rule 8 may be those laid
down in rules 4 to 7A, inclusive, but a reasonable flexibility in the
application of such methods would be in conformity with the aims and
provisions of rule 8.
- Some examples of reasonable flexibility are as follows :
- Identical goods. - The requirement that the
identical goods should be imported at or about the same time as the
goods being valued could be flexibly interpreted; identical imported
goods produced in a country other than the country of exportation of the
goods being valued could be the basis for customs valuation; customs
values of identical imported goods already determined under the
provisions of rules 7 and 7A could be used.
- Similar goods. - The requirement that the similar
goods should be imported at or about the same time as the goods being
valued could be flexibly interpreted; similar imported goods produced in
a country other than the country of exportation of the goods being
valued could be the basis for customs valuation; customs values of
similar imported goods already determined under the provisions of rules
7 and 7A could be used.
- eductive method. - The requirement that the goods
shall have been sold in the "condition as imported" in rule 7(1) could
be flexibly interpreted; the ninety days requirement could be
administered flexibly.
Note to Rule 9
In rule 9(l)(a)(i), the term "buying commissions" means fees paid by an importer
to his agent for the service of representing him abroad in the purchase of the
goods being valued.
Rule 9(l)(b)(ii)
- There are two factors involved in the apportionment of the elements
specified in rule 9(l)(b)(ii) to the imported goods - the value of the
element itself and the way in which that value is to be apportioned to the
imported goods. The apportionment of these elements should be made in a
reasonable manner appropriate to the circumstances and in accordance with
generally accepted accounting principles.
- Concerning the value of the element, if the importer acquires the
element from a seller not related to him at a given cost, the value of the
element is that cost. If the element was produced by the importer or by a
person related to him, its value would be the cost of producing it. If the
element had been previously used by the importer, regardless of whether it
had been acquired or produced by such importer, the original cost of
acquisition or production would have to be adjusted downward to reflect its
use in order to arrive at the value of the element.
- Once a value has been determined for the element it is necessary to
apportion that value to the imported goods. Various possibilities exist. For
example, the value might be apportioned to the first shipment if the
importer wishes to pay duty on the entire value at one time. As another
example, the importer may request that the value be apportioned over the
number of units produced up to the time of the first shipment. As a further
example, he may request that the value be apportioned over the entire
anticipated production where contracts or firm commitments exist for that
production. The method of apportionment used will depend upon the
documentation provided by the importer.
- As an illustration of the above, an importer provides the producer with
a mould to be used in the production of the imported goods and contracts
with him to buy 10000 units. By the time of arrival of the first shipment of
1000 units, the producer has already produced 4,000 units. The importer may
request the proper officer of customs to apportion the value of the mould
over 1,000 units, 4,000 units or 10,000 units.
Rule 9(l)(b)(iv)
- Additions for the elements specified in rule 9(l)(b)(iv) should be based
on objective and quantifiable data. In order to minimise the burden for both
the importer and proper officer of customs in determining the values to be
added, data readily available in the buyer's commercial record system should
be used in so far as possible.
- For those elements supplied by the buyer which were purchased or leased
by the buyer, the addition would be the cost of the purchase or the lease.
No addition shall be made for those elements available in the public domain,
other than the cost of obtaining copies of them.
- The case with which it may be possible to calculate the values to be
added will depend on a particular firm's structure and management practice,
as well as its accounting methods.
- For example, it is possible that a firm which imports a variety of
products from several countries maintains the records of its design centre
outside the country of importation in such a way as to show accurately the
costs attributable to a given product. In such cases, a direct adjustment
may appropriately be made under the provisions of rule 9.
- In another case, a firm may carry the cost of the design centre outside
the country of importation as a general overhead expense without allocation
to specific products. In this instance, an appropriate adjustment could be
made under the provisions of rule 9 with respect to the imported goods by
apportioning total design centre costs over total production benefiting from
the design centre and adding such apportioned cost on a unit basis to
imports.
- Variations in the above circumstances will, of course, require different
factors to be considered in determining the proper method of allocation.
- In cases where the production of the element in question involves a
number of countries and over a period of time, the adjustment should be
limited to the value actually added to that element outside the country of
importation.
Rule 9(l)(c)
- The royalties and licence fees referred to in rule 9(l)(c) may include
among other things, payments in respect to patents, trademarks and
copyrights. However, the charges for the right to reproduce the imported
goods in the country of importation shall not be added to the price actually
paid or payable for the imported goods in determining the customs value.
- Payments made by the buyer for the right to distribute or resell the
imported goods shall not be added to the price actually paid or payable for
the imported goods if such payments are not a condition of the sale for
export to the country of importation of the imported goods.
Rule 9(3)
Where objective and quantifiable data do not exist with regard to the
additions required to be made under the provisions of rule 9, the transaction
value cannot be determined under the provisions of rule 4. As an illustration of
this, a royalty is paid on the basis of the price in a sale in the importing
country of a litre of a particular product that was imported by the kilogram and
made up into a solution after importation. If the royalty is based partially on
the imported goods and partially on other factors, which have nothing to do with
the imported goods (such as when the imported goods are mixed with domestic
ingredients and are no longer separately identifiable, or when the royalty
cannot be distinguished from special financial arrangements between the buyer
and the seller), it would be inappropriate to attempt to make an addition for
the royalty. However, if the amount of this royalty is based only on the
imported goods and can be readily quantified, an addition to the price actually
paid or payable can be made.