Indirect Taxation
Customs Law –
Valuation of Imported Goods
Statement Showing Computation of CIF / Assessable Value of Imported Goods
|
Particulars |
Rs |
|
Value of Material (at ex-factory price) |
××× |
|
Add: Carriage / freight / insurance up to the port
(sea/air) of shipment in the exporter’s country |
××× |
|
Add: Charges for loading on to the ship at the
shipping port in the exporter’s country |
××× |
|
Free on Board (FOB) value as per the exporter |
××× |
|
Add: If not included in the above [Rule 10(1)] |
××× |
|
i) Commission and brokerage (except buying commissions)
|
××× |
|
ii) Packing cost (except cost of durable and returnable packing) |
××× |
|
iii) Cost of engineering, designing, development and plan
or sketches (Undertaken outside India) |
××× |
|
iv) Royalties and license fee |
××× |
|
v) Value of subsequent re-sale if payable to foreign
supplier |
××× |
|
vi) Value of material supplied by the buyer free of cost
|
××× |
|
FOB value as per the Customs |
××× |
|
Add: Cost of freight (if not specified @ 20% of FOB
value) [Rule 10(2)] |
××× |
|
Add: Ship demurrage charges on chartered vessels
[Rule 10(2)] |
××× |
|
Add: Lighterage or barge charges [Rule 10(2)] |
××× |
|
Add: Insurance (if not specified @1.125% of FOB
value) [Rule 10(2)] |
××× |
|
Cost, Insurance and Freight (CIF) / Assessable Value |
××× |
Important notes:
(1) Assessable Value of Imported
Goods = [Free On Board (FOB) + Insurance + Freight].
(2) Service charges paid to
canalizing agent: It is includible in the assessable value of imported goods
[Hyderabad Industries Ltd. v. UOI 2000 (115) ELT 593 (SC)]. Who is a canalizing
agent: He is not the agent of the importer nor does he represent the importer
abroad. He use to buy goods from foreign seller and subsequently sells to
Indian importer.
(3) Inspection / Certification
Charges: If contract specify for certification by the independent agency for
imported goods then charges incurred on such inspection are includible in
assessable value [Bombay Dyeing & Mfg. v. CC 1997 (90) ELT 276 (SC)].
(4) In the case of
goods imported by air where the cost of freight is specified or ascertainable,
such cost shall not exceed 20% of FOB value of the goods as per the customs. [Rule 10(2)]
(5)
In case of goods imported by sea stuffed in a
container for clearance at an Inland Container Depot or Container Freight
Station, the cost of freight incurred
in the movement of container from the port of entry to the Inland Container
Depot or Container Freight Station shall not be included in the cost of
freight. [Rule 10(2)]
(6)
Where the FOB value of the goods is not ascertainable,
the cost of freight shall be 20% of the FOB value of the goods plus cost of
insurance and the cost of insurance shall be 1.125% of the FOB value of the
goods plus cost of freight. [Rule 10(2)]
Mathematically,
i)
Freight = 20% × (FOB value + Cost of insurance)
ii)
Insurance = 1.125% × (FOB value + Cost of freight)
The Customs Valuation (Determination of Value of Imported Goods) Rules,
2007
Rule 3:
Transaction Value of import goods read with Rule 10:
This method is applicable only when importer satisfies
the following conditions:
1.
Seller should not have any control on the imported
goods.
2.
The sale price must be sole consideration.
3.
Sale proceeds should not be shared with exporter by
the importer after sale.
4.
The buyer and seller should not be related.
Rule 4:
Transaction value of Identical Goods
Identical goods means the goods must be same in all
respects, including physical quantity.
This method is applicable only when following
conditions are satisfied:
1)
Identical goods can be compared with the other goods
of the same country from which import takes place.
2) These goods must be valued at a
price which is produced by the same manufacturer.
3) If price is not available then
the price of other manufacturers of the same country is to be taken into
account.
4) If more than one value of
identical goods is available, lowest of such value should be taken.
Rule 7:
Deductive Method
Based on the request of the importer if the Customs
Officer approves, either deductive method or computed value method as the case
may be can be adopted for determining the assessable value.
In case of deductive method the valuation is done as follows:
Assessable value is calculated by
reducing the post-importation costs and expenses from this selling price.
Rule 8:
Computed Value Method
Under this method, the value of imported goods shall
be based on a computed value, which shall consist of the sum of:—
(a)
The cost or value of materials and fabrication or
other processing employed in producing the imported goods;
(b)
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; and
(c)
The cost or value of all other expenses under sub-rule
(2) of rule 10.
Customs Law
Valuation of Imported Goods
Selected Problems and Solutions
Illustration: 1
From the particulars given below, find out the assessable value of the
imported goods under the Customs Act, 1962.
|
Sl. No. |
Particulars |
US $ |
|
(i) |
Cost of the machine at the factory of the
exporting country |
10,000 |
|
(ii) |
Transport charges incurred by the exporter
from his factory to the port for shipment. |
500 |
|
(iii) |
Handling charges paid for loading the
machine in the ship |
50 |
|
(iv) |
Buying commission paid by the importer |
50 |
|
(v) |
Freight charges from exporting country to
India |
1,000 |
|
(vi) |
Exchange Rate to be considered 1$ = Rs 65 |
|
Illustration: 2
Compute the duty payable under the Customs
Act, 1962 for imported equipment based on the following information:
(i)
Assessable
value of the imported equipment US $10,100.
(ii)
Date
of Bill of Entry 25.4.2018 basic customs duty on this date 12% and exchange
rate notified by the Central Board of Excise and Customs Us $ 1 = Rs 65.
(iii)
Date
of Entry inwards 21.4.2018 Basic customs duty on this date 16% and exchange
rate notified by the Central Board of Excise and Customs US $ 1 = Rs 60.
(iv)
IGST
u/s 3(7) of the Customs Tariff Act, 1975: 12%.
(v)
Social
Welfare Surcharge @ 10% in terms of the Finance Act, 2018.
Make
suitable assumptions where required and show the relevant workings and round
off your answer to the nearest Rupee.
Illustration: 3
Liberty International Group has imported a
machine by air from United States. Bill of entry is presented on 18.07.2017.
However, entry inwards is granted on 7.08.2017. The relevant details of the
transaction are provided as follows:
|
CIF
value of the machine imported |
$ 13,000 |
|
Airfreight paid |
$ 2,800 |
|
Insurance charges paid |
$200 |
Rate of exchange as
|
Announced by |
As on 18.07.2017 |
As on 7.08.2017 |
|
CBIC |
1 US $ = Rs 66 |
1US $ = Rs 65.80 |
|
RBI |
1 US $ = Rs 66.10 |
1 US $ = Rs 66.10 |
Calculate the assessable value (in rupees) for the purposes of levy of customs
duty as well as total customs duty.
BCD = Nil. IGST = 18%
Make suitable assumptions wherever necessary.
Illustration: 4
Compute the assessable value and total customs duty payable under the
Customs Act, 1962 for an imported machine, based on the following information:
|
Particulars |
US$ |
|
(i)
Cost of the machine at the factory of the
exporter |
20,000 |
|
(ii)
Transport charges from the factory of exporter to
the port for shipment |
800 |
|
(iii)
Handling charges paid for loading the machine in
the ship |
50 |
|
(iv)
Buying commission paid by the importer |
100 |
|
(v)
Lighterage charges paid by the importer |
200 |
|
(vi)
Freight incurred from port of entry to Inland
Container depot |
1,000 |
|
(vii)
Ship demurrage charges |
400 |
|
(viii)
Freight charges from exporting country to India |
5,000 |
|
Date of bill of entry |
20.02.2018 (Rate BCD 20%; Exchange rate as
notified by CBIC Rs 60 per US $) |
|
Date of entry inward |
25.01.2018 (Rate of BCD 12%; Exchange rate
as notified by CBIC Rs 65 per US $) |
|
IGST payable u/s 3(7) of the Customs Tariff
Act, 1975 = 12% |
|
Also find the eligible input tax credit to the importer.
Illustration: 5
Gujarat Dry Fruits
Limited imported dry fruits and declared the value as under:
|
Date
of imports |
Quantity (MT) |
Declared value
per MT |
Country of
import |
|
November 20XX |
250 |
25,000 |
Egypt |
|
November 20XX |
150 |
25,000 |
Egypt |
It was found that imports
were also made by some other dealers as indicated below:
|
Date
of Imports And
Importer |
Quantity (MT) |
Declared Value Rs
per
MT |
Country of import |
|
September 20XX Mumbai International |
50 |
35,000 |
Dubai |
|
October 20XX Chennai Fruits Ltd |
20 |
40,000 |
Persia |
The Customs Department has sought to assess
the imports made by the Gujarat Dry Fruits Ltd. as Contemporaneous (Existing at or occurring in the same
period of time)
imports under section 14 read with Rule 4 of the Customs Valuation Rules, 2007.
Briefly examine whether the action proposed by the Department is correct.
Solution: 5
The goods are said to be identical only if the
goods to be valued have been produced in the same country, as per Rule- 4 of
the Customs Law. In the given question, the goods in question have been
imported from Egypt, while other importers have imported goods from other
countries. Therefore, the Customs Department’s action is not correct.
Illustration: 6
A consignment of 800
metric tonnes of edible oil of Malaysian origin was imported by a charitable
organization in India for free distribution to below poverty line citizens in a
backward area under the scheme designed by the Food and Agricultural
Organization. This being a special transaction, a nominal price of US$ 10 per
metric tonne was charged for the consignment to cover the freight and insurance
charges. The Customs House found out that at or about the time of import of
this gift consignment, there were following imports of edible oil of Malaysian
origin:
|
Sl. No. |
Quantity imported in metric tonnes |
Unit price in US $ (CIF) |
|
1. |
20 |
260 |
|
2. |
100 |
220 |
|
3. |
500 |
200 |
|
4. |
900 |
175 |
|
5. |
400 |
180 |
|
6. |
780 |
160 |
The rate of exchange on
the relevant date was 1 US $ = Rs 63.00 and the rate of basic customs duty was
15% ad valorem. There is no countervailing duty or special additional duty.
Calculate the amount of duty leviable on the consignment under the Customs Act,
1962 with appropriate assumptions and explanations where required.
Illustration: 7
A Ltd., sell in India from a price list which
grants favourable unit prices for purchases made in larger quantities.
|
Sale quantity |
Unit price in Rs (Exclusive of duties and
taxes) |
Number of sales |
|
1-10 units |
100 |
10 sales of 5 units, 5 sales of 3 units |
|
11-25 units |
95 |
5 sales of 11 units |
|
Over 25 units |
90 |
1 sale of 30 units, 1 sale of 50 units |
The selling price includes the following post
shipment expenses:
1.
Freight
from port to factory in India for Rs 24,000.
2.
Insurance
to cover transit damage from port to factory in India for Rs 6,000.
Number of units imported from high seas 5,000
units. Find the assessable value and total customs duty.
Note: BCD @12%.
Illustration: 8
X Ltd. imported 500 units of minerals from
High Seas for sale in India the selling price being exclusive of duties and
taxes. Freight from port to depot in India is Rs 10,150 and Insurance charge is
Rs 1,250.
|
Sale quantity |
Unit price (Rs) |
|
400 units |
100 |
|
300 units |
90 |
|
150 units |
100 |
|
500 units |
95 |
|
250 units |
105 |
|
350 units |
90 |
|
50 units |
100 |
Basic Customs Duty is 12% and Social Welfare
Surcharge is as applicable. Calculate total customs duty as per Rule 7 of
Customs Valuation (Determination of Value of Imported Goods) Rules, 2007.
Assume there is no IGST applicable for the product.
Illustration: 9
Following particulars are available in respect
of certain goods imported into India:
|
CIF value: |
US$ 10,000 |
|
Exchange rate: |
|
|
Notified by RBI |
Rs 60 = US $1 |
|
Notified by CBIC |
Rs 58 = US $1 |
Compute the following:
(a)
FOB
value as per customs,
(b)
Cost
of insurance,
(c)
Cost
of freight, and
(d)
Assessable
value in rupees as per the Customs Act, 1962 and the Customs Valuation
(Determination of Value of Imported Goods) Rules, 2007.
Illustration: 10
XYZ Industries Ltd., has imported certain
equipment from Japan at an FOB cost of 4, 00,000 Yen (Japanese). The other
expenses incurred by M/s. XYZ Industries in this connection are as follows:
(i)
Freight
from Japan to India Port 40,000 Yen.
(ii)
Insurance
paid to Insurer in India Rs 10,000.
(iii)
Designing
charges paid to Consultancy firm in Japan 60,000 Yen.
(iv)
M/s.
XYZ Industries had expended Rs 2, 00,000 in India for certain development
activities with respect to the imported equipment.
(v)
XYZ
Industries had incurred road transport cost from Mumbai port to their factory
in MP Rs 1, 30,000.
(vi)
The
CBIC had notified exchange rate of 1 Yen = Rs 0.69. The inter-bank rate was 1
Yen = Rs 0.70.
(vii)
M/s
XYZ Industries had effected payment to the Bank based on exchange rate 1 Yen =
Rs 0.71.
(viii)
The
commission payable to the import agent in India was 5% of FOB cost of the
equipment in Indian Rupees.
Compute
assessable value for the purposes of customs duty under the Customs Act, 1962.
Illustration: 11
BSA & Company Ltd. have imported a machine
from UK. From the following particulars furnished by them, arrive at the
assessable value for the purpose of customs duty payable:
|
(i) |
F.O.B. cost of the machine |
UK£ 10,000 |
|
(ii) |
Freight (air) |
UK£ 3,000 |
|
(iii) |
Engineering and design charges paid to a
firm in UK |
UK£ 500 |
|
(iv) |
License fee relating to imported goods
payable by the buyer as a condition of sale (% of FOB Cost) |
20% |
|
(v) |
Materials and components supplied by the
buyer free of cost valued |
Rs 20,000 |
|
(vi) |
Insurance paid to the insurer in India |
Rs 6,000
|
|
(vii) |
Buying commission paid by the buyer to his
agent in UK |
UK£ 100 |
Other Particulars:
(i)
Inter-bank
exchange rate as arrived at by the authorized dealer: Rs 72.50 per UK£.
(ii)
CBIC
had notified for purpose of Section 14 of the Customs Act, 1944, exchange rate
of Rs 70.25 per UK£.
(iii)
Importer
paid Rs 5,000 towards demurrage charges for delay in clearing the machine from
the Airport.
Illustration: 12
R
Ltd. has imported one machine from England. It has given the following
information:
|
(i) |
F.O.B. value of the machine |
UK£ 8,000 |
|
(ii) |
Freight paid (air) |
UK£ 2,500 |
|
(iii) |
Design and development charges paid in UK |
UK£ 500 |
|
(iv) |
Commission payable to local agent of
exporter in Indian Rupees (% of F.O.B. value of the machine) |
2% |
|
(v) |
Date of bill of entry (Rate BCD 10%;
Exchange rate as notified by CBIC 1 UK£ = Rs 100) |
24.10.2022 |
|
(vi) |
Date of entry inward (Rate of BCD 15%;
Exchange rate as notified by CBIC 1 UK£ = Rs 97) |
20.10.2022 |
|
(vii) |
IGST payable |
18% |
|
(viii) |
Insurance charges actually paid but details
not available. |
|
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