Introduction to Customs Duty and rules for valuation

1. Dr. Sunilraj. N.V

2.  Customs duty is a kind of indirect tax which
is levied on goods of international trade.
Duties levied in relation to imported goods
are referred to as import duty and duties
levied on the export goods are called export
duty.
 The levy and rate of customs duty in India are
governed by Customs Act 1962 And Customs
Tariff Act 1975.

3.  Section 12 of the customs Act often known as
charging section provides that duties of
customs shall be levied at such rates as may
be specified in the Customs Tariff Act 1975
or any other law for the time being in force,
on goods imported into, or exported from,
India.

4.  The primary purpose of customs duty is to
raise revenue, safeguard domestic business,
jobs, environment and industries etc. from
predatory competitors of other countries.
 Moreover, it helps reduce fraudulent activities
and circulation of black money.

5.  Since the implementation of India’s new
taxation system, GST, integrated goods and
value-added service tax (IGST) is being
charged on the value of any imported goods.
 Under IGST, all products and services are
taxed under four basic slabs of 5 percent, 12
percent, 18 percent, and 28 percent.

6.  Two cases
 1. Goods cleared for home consumption
 2. Goods cleared for warehousing and later
cleared for home consumption
1. Goods cleared for
home consumption
When the goods reach the
customers barriers and
bill if entry for home
consumption is filed
2. Goods cleared for
warehousing and later
cleared for home
consumption
Import take place when
the goods are cleared
from warehouse

7.  Export of goods takes place when the goods
cross the territorial waters of India.
 If ship sinks within the territorial waters, export is
not complete.
 However, duty is to be collected before ship
leaves the port.

8. Type of goods Relevant Date
a. If goods are entered for
Home Consumption
Date of Presentation of Bill of Entry; or
Date of entry Inwards of the vessel or date
of arrival of Aircraft or vehicle, whichever
is later.
b. If goods are cleared from
a warehouse
Date of presentation of Ex-Bond Bill of
Entry for Home Consumption.
c. In case of any other goods Date of Payment of Duty

9. 1. Date of determination of Rate of duty and
tariff valuation of exported Goods [Section 15
of Customs Act, 1962] (Other than Baggage
and export by Post).
Type of goods Relevant Date
a. If goods are entered
for Export:
Date on which the Proper
Officer makes an order
permitting clearance and
loading of the goods under that
section.
b. In case of any other
goods
Date of Payment of Duty

10.  The Central Government may, by notification
in the Official Gazette, prohibit either
absolutely or subject to such conditions (to
be fulfilled before or after clearance) as may
be specified in the notification, the import or
export of goods of any specified description.

11.  1. The maintenance of the security of India;
 2. The maintenance of public order and standards of
decency or morality;
 3. The prevention of smuggling;
 4. The prevention of shortage of goods of any description;
 5. The conservation of foreign exchange and the
safeguarding of balance of payments;
 6. The prevention of injury to the economy of the country
by the uncontrolled import or export of gold or silver;
 7. The prevention of surplus of any agricultural product or
the product of fisheries;
 8. The maintenance of standards for the classification,
grading or marketing of goods in international trade;

12.  9. The establishment of any industry;
 10. The prevention of serious injury to domestic
production of goods of any description;
 11. The protection of human, animal or plant life or health;
 12. The protection of national treasures of artistic, historic
or archaeological value;
 13. The conservation of exhaustible natural resources;
 14. The protection of patents, trade marks and copyrights;
 15. The prevention of deceptive practices;
 16. The carrying on of foreign trade in any goods by the
State, or by a Corporation owned or controlled by the State
to the exclusion, complete or partial, of citizens of India;

13.  17. The fulfillment of obligations under the Charter of the United
Nations for the maintenance of international peace and security;
 18. The implementation of any treaty, agreement or convention with
any country;
 19. The compliance of imported goods with any laws which are
applicable to similar goods produced or manufactured in India;
 20. The prevention of dissemination of documents containing any
matter which is likely to prejudicially affect friendly relations with
 21. Any foreign State or is derogatory to national prestige;
 22. The prevention of the contravention of any law for the time being
in force; and
 23. Any other purpose conducive to the interests of the general
public.

14.  The terms "Prohibited Goods" have been
defined in sub-section 33 of Section 2 of the
Customs Act as meaning "any goods the
import or export of which is subject to any
prohibition under the Customs Act or any
other law for the time being in force“.

15. Valuation of customs duty may be on the basis
of tariff value or on the basis of transaction
value.
 Tariff value
The Central Government has been empowered
to fix values, under sub-section (2) of Section 14
of the Customs Act, 1962 for any product which
are called Tariff Values. If tariff values are fixed
for any goods, ad valorem duties are to be
calculated with reference to such tariff values.

16.  Rule 4(i) thereof states that 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. it
includes all payments made as a condition of
sale of the imported goods by the buyer to
the seller such as commission, brokerage,
license fees, royalties, cost of transportation
etc.

17.  The sale is in the ordinary course of trade under fully competitive
conditions;
 The sale does not involve any abnormal discount or reduction from
the ordinary competitive price;
 The sale does not involve special discounts limited to exclusive
agents;
 Objective and quantifiable data exist with regard to the adjustments
to be made under Rule 9;
 There are no restrictions concerning the disposition or use of the
goods by the buyer (subject to certain exceptions);
 The sale or price is not subject to some condition or consideration;
 No part of the proceeds of the goods (by resale, disposal or use)
after importation accrues to the seller;
 Buyer and seller are not related, and if related, the relationship
should not have influenced the price.

18.  Valuation Factors (see Rule 9) are the various
elements (dutiable factors), which should be
added while determining the Customs value.
The factors should be added to the extent
they are not already included in the price
actually paid or payable (invoice value).

19.  Commissions and brokerage, except buying commissions;
 The cost of containers which are treated as being one for Customs
purposes
 The cost of packing
 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 the imported goods, to the extent that such
value has not been included in the price actually paid or payable:-
eg.
Material, components, parts and similar items incorporated in
the imported goods;
Tools, dies, moulds and similar items used in the production of
the imported goods; etc.

20.  Royalties and license fees related to goods being
valued
 The value of any part of the proceeds of any
subsequent resale, disposal or use of the goods that
accrues directly or indirectly to the seller;
 Advance payments;
 Freight charges up to the place of importation; if cost
of transportation is not known, then it will be deemed
to be 20% of the FOB value.
 Loading, unloading and handling charges associated
with transporting the goods;
 Insurance.- if cost of insurance is not known, then it
will be deemed to be 1.125% of the FOB value.

21. The following charges are not to be
added for the purposes of determining the
Customs value provided they are clearly
distinguishable and separately declared in
the commercial invoice:-
 Buying commission:
 Interest charges for deferred payment;
 Post-importation charges (e.g. inland
transportation charges, installation or
erection charges, etc.);
 Duties and taxes payable in India.

22.  When you cannot use transaction value, you
must use an established value for duty of
identical goods. Identical goods are
considered the same in all respects as the
goods being appraised. They have one
exception however and that is for minor
differences in appearance. These differences
cannot affect the value of the goods. For
goods to qualify, production would have to
be in the same country as the identical
goods.

23.  When you cannot use transaction and
identical goods, you must use an established
value for duty of similar goods. For goods to
qualify, the value of goods must be:
 Closely resembling the similar goods
 Capable of performing the same function
 Commercially interchangeable
 Produced in the same country and by the
same manufacturer as the similar goods

24.  The deductive value method is used in those
cases where the conditions of the transaction
involving the imported goods are such that
the importer cannot determine the value for
duty under any of the previous methods of
valuation. The price per unit is the price at
which the greatest number of units is sold.

25.  Computed value
The computed value is the cost of production,
profit and general expenses of the imported
goods.
 Residual method
The residual method does not identify
specific requirements for determining a value
for duty. Instead, the value is based on one of
the other methods (considered in sequence).
It also requires the least amount of
adjustment. The value must be fair market,
and reflect commercial reality.

26.  The assessable value of the goods is
determined in accordance with the provisions
of section 14 of the customs Act, 1962.
Assessed value is the total value of goods
includes the cost of products, transportation
cost up to the buyer’s location and insurance.

27.  1. Determine the assessable value of goods
 2. Convert the foreign exchange value of
imported goods into Indian currency.
 3. Compute the customs duty.

28.  The customs duties are usually calculated on
Ad valorem basis on the value of the goods.
The value of goods is calculated according to
the regulations stated under Rule 3(i) of the
Customs Valuation Rules, 2007.

29.  Customs duty can also be calculated by using
the customs duty calculator that is available on
the CBEC website. As part of the computerised
and electronic service drive in the year 2009,
India started a web-based system known as
ICEGATE. ICEGATE is the abbreviation of Indians
Customs Electronic Commerce/Electronic Data
Interchange gateway. It provides a platform for
the calculation of duty rates, import-export
goods declaration, shipping bills, electronic
payment, verification of import and export
licenses.

30.  The Indian classification of the Customs Duty is
based on the Harmonized Commodity
Description (HS) and Coding system. The HS
codes are of 6 digits.
 The IGST that applies to all imports and exports
is charged on the value of the good along with
the primary customs duty on the good. The
structure is as follows:
 Value of the imported goods+ Basics Customs
Duty + Social Welfare Surcharge = Value based
on which IGST is calculated

31. Thank You