Valuation of import and export

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Detailed Explanation of Valuation of Import and Export

1. Legal Framework

WTO Agreement on Customs Valuation (ACV):

  • Overview: The WTO's ACV is a set of guidelines designed to standardize how countries determine the value of imported goods. It aims to ensure fair and consistent valuation practices across member countries.
  • Implementation in India: India adopted these guidelines in August 1988, aligning its customs valuation practices with international standards.

Customs Act, 1962:

  • Section 2(41): Defines the 'value' of goods in relation to customs duties.
  • Section 14(1): Establishes that the customs value of goods should be the price at which the goods are sold or offered for sale in the international market, provided that the sale is not influenced by the relationship between buyer and seller.

2. Valuation Methods

Primary Method: Transaction Value

  • Definition: The transaction value is the price actually paid or payable for the goods when sold for export to the importing country.
  • Adjustment Factors:
    • Commissions and Brokerage: Except buying commissions.
    • Cost of Containers: If included with the goods.
    • Packing Costs: Both labor and materials.
    • Materials and Services Provided by Buyer: Includes components, tools, engineering, and design work provided free or at a reduced cost.
    • Royalties and License Fees: Related to the goods and must be paid directly or indirectly.
    • Value of Subsequent Proceeds: If any part of the proceeds from resale accrues to the seller.
    • Freight, Insurance, and Handling: Costs up to the place of importation.
  • Conditions: For transaction value to be acceptable:
    • Sale must be in the ordinary course of trade.
    • No abnormal discounts or reductions.
    • No special discounts for exclusive agents.
    • No restrictions on the use or disposition of the goods.
    • Price should not be influenced by any conditions or considerations.
    • Buyer and seller should not be related, or if related, their relationship should not affect the price.

Secondary Methods (Used if Transaction Value is Not Applicable):

  • Transaction Value of Identical Goods:
    • Basis: Valuation of identical goods imported at or around the same time. The goods must be the same in all respects, including physical characteristics and quality.
  • Transaction Value of Similar Goods:
    • Basis: Valuation of similar goods imported at or around the same time. The goods should have similar characteristics and use but not be identical.
  • Deductive Value Method:
    • Basis: Based on the selling price of the imported goods (or similar goods) in the importing country after deducting expenses such as selling costs, profits, and applicable duties.
  • Computed Value Method:
    • Basis: Derived from the cost of production, including materials, fabrication, and processing costs, plus an allowance for profit and general expenses. This method includes all dutiable factors.
  • Fallback Method:
    • Basis: Flexible application of previous methods to ensure compliance with the basic principles of valuation. This method is used when other methods cannot be applied.

Rule 10A:

  • Purpose: Provides a procedure to reject the declared transaction value if there is reasonable doubt about its accuracy or truthfulness.
  • Application: Customs authorities can request additional information or evidence to justify the declared value. If the importer fails to provide adequate evidence, the declared value can be rejected, and valuation can be done using any of the subsequent methods.

National Import Data Base (NIDB):

  • Function: An electronic database that provides historical import data. It helps customs officers compare declared values with prices from previous transactions to detect undervaluation.

Export Value Information:

  • Purpose: Customs can seek information about export values from the exporting country to verify the accuracy of declared import values and identify potential undervaluation.

3. Additional Provisions

Tariff Values:

  • Definition: Fixed values set by the government for certain goods (e.g., crude palm oil, brass scrap) to address significant price fluctuations and economic impact.
  • Application: Used to calculate ad-valorem duties based on the fixed tariff values rather than the transaction value.

e-Sanchit:

  • Overview: A digital platform launched by CBIC for submitting customs-related documents online.
  • Benefits: Reduces the need for physical document submission, streamlines the customs clearance process, and minimizes physical interaction between customs agencies and trade participants.

Valuation Declaration:

  • Requirements: Importers must declare detailed information about the goods, including descriptions, specifications, and the basis of valuation. This information is provided alongside the entry declaration (Bill of Entry) and is integrated into electronic declarations for EDI processing.

This comprehensive approach ensures fair, transparent, and consistent valuation of goods in line with international trade practices and legal requirements.