Valuation under the Customs Act, 1962 – CA Final IDT Study Material is designed strictly as per the latest syllabus and exam pattern.
Valuation under the Customs Act, 1962 – CA Final IDT Study Material
Question 1.
Examine the validity of the following statements with reference to the Customs Act, 1962:
(i) Service charges paid to canalizing agent are not includible in the assessable value of imports.
(ii) Inspection charges are not includible in the assessable value of the imported goods if contract does not specify for certification by an independent agency.
[May 2013, 3 Marks]
Answer:
(i) The statement is not valid
- Since canalizing agent is not the agent of the importer nor does he represent the importer abroad.
- Purchases by canalizing agency from foreign seller and subsequent sale by it to Indian importer are independent of each other.
- Hence, the service paid to canalizing agent cannot be termed as buying commission.
Therefore, the commission or service charges paid to the canalizing agent are includible in the assessable value. [Hyderabad Industries Ltd. v. 1/0/2000 (115) E.L.T. 593 (S.C.)].
(ii) The statement is valid
As per Rule 10(1) of the Customs (Determination of Value of Imported Goods) Rules, 2007 only the payments actually made as a condition of sale of the imported goods by the buyer to the seller are includible in the assessable value.
- Thus, if there is no requirement in the contract for independent inspection and
- The inspection is carried out by foreign supplier on its own and
- Is not required for the purpose of fulfilling the condition of the contract, then
- charges incurred on such inspection are not includible in assessable value
[Bombay Dyeing & Mfg. v. CC 1997 (90) E.L.T. 276 (S.C.)]
Question 2.
The importer entered into contract for supply of crude sunflower seed oil @ U.S. $ 435 C.I.F./ Metric ton. Under the contract, the consignment was to be shipped in the month of July, 2017. The period was extended by mutual agreement and goods were shipped on 5th August, 2018 at old agreed prices. In the meanwhile, the international prices had gone up due to volatility in the market and other imports during August, 2018 were at higher prices. Department sought to increase the assessable value on the basis of the higher prices as contemporaneous imports.
Decide whether the contention of the department is correct. You may refer to decide case law, if any, for your decision. [May 2013, 3 Marks]
Answer:
No, the contention of the Department is not Correct.
The facts of the given case are similar to the case of CCus. Vishakhapatnam v. Aggrawal Industries Ltd. 2011 (272) E.L.T. 64 (S.C.). The Supreme Court, in the instant case, observed that since the contract entered into for supply of crude sunflower oil @ US $ 435 CIF/ metric ton could not be performed on time, the extension of time for shipment was agreed upon by the contacting parties.
The Supreme Court pointed out that the commodity involved had volatile fluctuation in its price in the international market, but having delayed the shipment; the supplier did not increase the price of the commodity even after the increase in its price in the international market.
Further, these was not allegation the supplier and importer being in collusion. Thus, the appeal was allowed in the favour of the assessee and the contract price was accepted as the ‘transaction value’.
Question 3.
XYZ Industries Ltd., has imported certain equipment from Japan at an FOB cost of 2,00,000 Yen (Japanese). The other expenses incurred by M/s XYZ Industries in this connection are as follows:
(i) Freight from Japan to Indian port: 20,000 yen
(ii) Insurance paid to Insurer in India: 10,000
(iii) Designing charges paid to Consultancy firm in Japan: 30,000 yen
(iv) M/s XYZ Industries had expended ₹ 1,00,000 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 Karnataka: 30,000
(vi) Central Board of Indirect Taxes and Customs had notified for purpose of Sec. 14(3) of the Customs Act, 1962 exchange rate 1 yen = 1.3948.
(vii) M/s XYZ Industries had effected payment of the Bank based on exchange rate 1 Yen = 0.4150
(viii) The commission payable to the agent in India was 5% of FOB cost of the equipment in Indian Rupees.
Arrive at the assessable value for purposes of Customs duty under the Customs Act, 1962 providing brief flotes whenever required with appropriate assumptions. [May, 2008]
Answer:
Computation of assessable value
| Particulars | Amount |
| FOB Value given in question | 2,00,000 yen |
| Add: Designing charges | 30,000 yen |
| Add. Freight upto the place of Importation | 20,000 |
| Total (A) | 2,50,000 yen |
| Value in Yen converted into Indian Rupees | 98,700 |
| (At the CBIC notified Rate 0.3948) (Yen 2,50,000 × 0.3948) | |
| Add: Insurance (Actual) | 10,000 |
| Add : Commission to Agent (596 of FOB) (Yen 2,50,000 × 0.3948 × 596) | 3,948 |
| CIF in INR | 1,12,648 |
| Assessable Value u/s 14(1) | 1,12,648 |
Working Notes:
- Designing charges will be includible in the value of imported goods.
- Local transportation charges will not be included for the purpose of computation of Av.
Question 4.
From the following particulars determine the assessable value of the Imported equipment
giving explanation for each Item:
(i) FOB cost of equipment (Japanese Yen) 2,00,000 Yen
(ii) Freight charges In Japanese Yen 20,000 Yen
(iii) Charges for development connected to equipment paid In India 60,000
(iv) Insurance charges paid in India for transportation from Japan 15,000
(v) Commission payable to agent In India 15,000
Exchange rate as per RBI Is 1 Yen = 0.45
Exchange rate as per CBIC is 1 Yen = 0.50 [May 2009, 5 Marks]
Answer:
Statement Showing Computation of Assessable Value as per Section 14 of Customs Act, 1962
| Particulars | Amount |
| FOB value given in question | 2,00,000 yen |
| Add: Freight | 20,000 yen |
| Total | 2,20,000 yen |
| Total sum in Indian Rupees | 1,10,000 |
| (Yen 2,20,000 × 0.50 Notified rate by CBIC) | |
| Add: Insurance (Actual Expenditure) | 15,000 |
| Add: Commission | 15,000 |
| (We presume it is not a buying commission) | |
| CIF in Indian Rupees | 1,40,000 |
| Total Assessable Value | 1,40,000 |
Question 5.
T Ltd. Imported some goods from LMP Inc. of United States by air freight. You are required to compute the value for purposes of customs duty under the Customs Act, 1962 from the following particulars:
| CIF value | US$ 6,000 |
| Freight paid | US$ 2,000 |
| Insurance cost | US$700 |
The bank had received payment from the Importer at the exchange rate of US$ 1 =46 while the CBIC notified exchange rate on the relevant date was US$ 1 = 45.5 (Make suitable assumptions where required and provide brief explanations to your answer). [Nov. 2010, 5 Marks]
Answer:
Computation of Assessable value for Customs purpose
| PARTICULARS | AMOUNT |
| CIF value | 6000 US $ |
| Less: Freight | 2000 US $ |
| Less: Insurance | 700 US $ |
| FOB value | 3300 US $ |
| Add: Freight (20% of FOB value) [Note 1] | 660 US $ |
| Add: Insurance (actual) | 700 US $ |
| CIF for customs purpose | 4660 US $ |
| Exchange rate as per CBIC [Note 2] | ₹ 45.50 per US $ |
| Assessable value (₹ 45.50 × 4660 US $) | ₹ 2,12,030 |
Working Notes:
1. If the goods are imported by air, the freight cannot exceed 20% of FOB price [Fifth proviso to rule 10(2) of the Customs (Determination of Value of Imported Goods) Rules, 2007],
2. Rate of exchange determined by CBIC is considered [clause (a) of the explanation to section 14 of the Customs Act, 1962].
Question 6.
Compute the assessable value of the machine imported by M/s. Exports India Pvt. Ltd., under the Customs Act, 1962.
| US$ | |
| FOB price of the machine | 10,000 |
| Air freight paid | 2,500 |
| Insurance for transit of machine | Not Ascertainable |
| Cost of development work in India | 40,000 |
| Local agent’s commission | 10,000 |
| Cost of local transport | 5,000 |
Answer:
Computation of assessable value as per Section 14 of Customs Act, 1962
| Particulars | Amount (₹) |
| FOB price of the machine
($ 10,000 × Rate Notified by CBIC) [$ 10,000 × 45] |
4,50,000 |
| Add : As per Rule 10(1) of Import Valuation Rules, 2007 | 10,000 |
| (i) Local agent commission (WN 1) 10,000 | |
| (ii) Cost of development work in India [As per Rule 10(1)] | |
| Value as per Customs | 4,60,000 |
| Add : As per Rule 10(2) of Import Valuation Rules, 2007 | |
| (i) Air Freight | |
| a. [Actual or 20% of FOB Whichever is less] | 92,000 |
| b. (20% of 4,60,000) | |
| (ii) Insurance [1.125% of FOB] = (1.125% of 4,60,000) | 5175 |
| CIF value/Assessable value | 5,57,175 |
Working Notes:
1. We presume local agent commission is related to FOB Value.
2. Cost of local transport is not includible in assessable value as it is a post importation activity.
3. No landing charges should be added for CIF value [Rule 10(2)].
Question 7.
Determine the assessable value for the purpose of Customs Act, 1962 from the following information in respect of import of a Machine from UK:
| (i) FOB Value | £ 6,000 |
| (ii) Air Freight | £ 1,500 |
| (iii) Design and development charges paid in UK | 500 |
| (iv) Design and development charges paid in India | 10,000 |
| (v) Commission paid to local agents 1% of FOB Value | |
| (vi) Date of Bill of Entry 10-4-2018 | |
| (Exchange rate notified by CBIC £ 1 = 70) | |
| (vii) Date of entry Inward 20-4-18 |
(Exchange rate notified by CBIC £ 1 = 65)
Insurance charges are not ascertainable.
Make assumptions where required and provide suitable explanations. [Nov 201 1,5 Marks]
Answer:
Computation of assessable value as per Section 14 of Customs Act, 1962
| Particulars | Amount |
| FOB price of the machine | £ 6000 |
| Add : As per Rule 10(1) of Import Valuation Rules, 2007 | |
| (i) Local agent commission (1% of £ 6000) | £ 60 |
| (ii) Cost of Design and Development Charges Paid in UK [As per Rule 10(1)] | £ 500 |
| Value as per Customs | £ 6,560 |
| Add : As per Rule 10(2) of Import Valuation Rules, 2007 | |
| (i) Air Freight | |
| a. [Actual or 20% of FOB Whichever is less] | £ 1321 |
| (20% of £ 6,560) | |
| (ii) Insurance [1.125% of FOB] = (1.125% of £ 6,560) | £73.8 |
| CIF value/Assessable value | £ 7954.8 |
| Assessable value (₹) £ 7954.8 × ₹ 70 (WN 1) | 5,56,836 |
Working Note
1. Exchange Rate of ₹ 70 notified by the CBIC on the date of presentation of bill of entry has been considered for currency conversion purposes as per Sec. 14 of the Customs Act, 1962
2. Design & development charges paid in India have not been considered on the presumption that the same have been paid, for design & development work undertaken in India. Rule 10(1)(b) of the Customs Valuation Rules provides for inclusion of only those design & development charges which have been paid for design & development work undertaken elsewhere than in India.
Question 8.
PQR Industries Ltd., has imported certain equipment from Japan at an FOB cost of 2,00,000 yen (Japanese). The other expenses incurred by M/s. PQR Industries Ltd. in this connection are as follows:
(i) Freight from Japan to Indian Port : 20,000 yen
(ii) Insurance paid to insurer in India (for the importation of the machine) : 10,000
(iii) Designing charges paid to consultancy in Japan : 30,000 yen
(iv) M/s. PQR Industries Ltd. had expended 1,00,000 in India for certain developmental activities with respect to the imported machine.
(v) PQR Industries Ltd. had incurred road transport cost from Mumbai port to their factory in Karnataka. 30,000
(vi) CBIC had notified for purposes of Sec. 14 of the Customs Act, 1962 exchange rate of 1 yen = 0.3948. The interbank exchange rate as announced by the authorized dealer was 1 yen = 40
(vii) M/s. PQR Industries Ltd. had effected payment based on exchange rate 1 yen = 0.4150
(viii) The commission payable to the agent in India was 5% of the FOB cost of the equipment in Indian rupees.
Arrive at the assessable value for purposes of valuation under the Customs Act, 1962 with brief notes wherever necessary for each of the adjustments at (i) to (viii) above. [May 2012, 5 Marks]
Answer:
Computation of assessable value as per Section 14 of Customs Act, 1962
| PARTICULARS | AMOUNT |
| FOB Value | ¥ 2,00,000 |
| Add: Design and development charges [Note 2] | ¥ 30,000 |
| Total | ¥ 2,30,000 |
| Total in rupees @ ₹ 0.3948 per pound [Note 1 ] | ₹ 90804 |
| Add: Local agency commission [Note 6] (5% of ¥2,00,000) = ¥ 10,000 × ₹ 0.3948 | ₹ 3948 |
| FOB value as per Customs | ₹ 94752 |
| Add: Freight (¥ 20,000 × 0.3948) | ₹ 7896 |
| Add: Insurance @ 1.125% of customs FOB [Note 5] | ₹ 10,000 |
| CIF Value | ₹ 112648 |
| Assessable value (rounded off) | ₹ 112648 |
Notes:
(1) As per Section 14 of the Customs Act, 1962 Rate of exchange notified by the CBIC has been considered.
(2) Value of design work undertaken elsewhere than in India is includible in the value of the imported goods.
(3) Value of development work undertaken in India is not includible in the value of the imported goods. Hence, ₹ 1,00,000 expended in India for development activities have not been considered.
(4) Only the cost of transport of the imported goods up to the place of importation is includible for the purpose of valuation. Thus, transport Cost from Mumbai port (place of importation) to the factory in Karnataka has not been included in the assessable value.
(5) Insurance of the machine is includible in the assessable value.
(6) Any Commission except Buying Commission will be included in the Assessable Value as per Rule 10(1) of Import Valuation Rules, 2007.
(7) No landing charges are to be added to the CIF value to amendment in Rule 10(2) of Valuation Rules.
Question 9.
M/s. Foreign Trade International Ltd. have imported one machine from England. They have given the following particulars:
(i) FOB value of Machine : £ 8,000
(ii) Air freight paid £ 2,500
(iii) Design and development charges paid in England : £ 500
(iv) Commission @ 2% of F.O.B. value paid to local agent in Indian Currency.
(v) Date of Bill of Entry is 24-10-2017 [rate of basic Customs Duty is 20%. Exchange rate as notified by C.B.I.C. is 68 per Sterling Pound]
(vi) Date of arrival of aircraft is 20-10-2017 when rate of basic Customs Duty was 18%, exchange rate as notified by C.B.I.C. was 70 per Sterling Pound.
(vii) Integrated tax leviable under Sec. 3(7) of Customs Tariff Act, 1975 is 12%.
(viii) Insurance charges, though actually paid, details are not available.
Compute the assessable value and determine the Customs Duty payable by M/s. Foreign Trade International Ltd. Give brief notes also wherever necessary.
Answer:
Computation of assessable value as per Section 14 of Customs Act, 1962
| Particulars | Amount |
| FOB Value | £ 8000 |
| Add : As per Rule 10(1) of Import Valuation Rules, 2007 | |
| (i) Local agent commission (2% of £ 8000) | £ 160 |
| (ii) Cost of Design and Development Charges Paid in England [As per Rule 10(1)] | £ 500 |
| Value as per Customs | £ 8660 |
| Add : As per Rule 10(2) of Import Valuation Rules, 2007 | |
| (i) Air Freight | |
| a. [Actual or 2096 of FOB whichever is less] | £ 1732 |
| (20% of £ 8660) | |
| (ii) Insurance [1.125% of FOB] = (1.125% of £ 8,660) | £ 97.425 |
| CIF value/Assessable value | £ 10489.425 |
| Assessable value (₹) £ 10489.425 × ₹ 68 (Note 2) (Rounded off) | 713281 |
Computation of customs Duties As per customs Tariff Act, 1975
| Particulars | Amount (₹) |
| Assessable value (rounded off) | ₹ 713281 |
| Add: Basic custom duty @ 2096 [Note 3] | ₹ 1,42,656 |
| Add: Social Welfare Surcharge @ 1096 on ₹ 1,42,656 | ₹ 14,266 |
| Total value for levy of Integrated Tax u/s 3(7) | ₹ 8,70,203 |
| Add: Integrated tax leviable under section 3(7) @1296 | ₹ 104424 |
| Total duty and integrated tax payable (Rounded off) (₹ 142656 + ₹ 14266 + ₹ 104424) |
₹ 261346 |
Notes:
1. As per Rule 10 of the Customs (Determination of Value of Imported Goods) Rules, 2007:
- if the goods are imported by air, the freight cannot exceed 20% of FOB price.
- insurance charges are to be taken at 1.125% of FOB price if actual charges are not known.
- the commission paid to local agent is ineludible as it is not a buying commission.
2. The rate of exchange notified by the CBIC on the date of presentation of bill of entry has been considered [Sec. 14 of the Customs Act, 1962].
3. Rate of duty prevalent on date of presentation of bill of entry, which later than the date of arrival of the aircraft, has been considered [Sec. 15 of the Customs Act, 19621.
Question 10.
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. FOB cost of the machine | 10,000 U.K. Pounds |
| ii. Freight (air) | 3,000 U.K. Pound |
| iii. Engineering and design charges paid to a firm in UK | 500 U.K. Pounds |
| iv. License fee relating to imported goods payable by the buyer as a condition of sale | 20% of F.O.B. cost |
| v. Materials and components supplied by the buyer free of cost valued | 20,000 |
| vi. Insurance paid to the insurer in India | 6,000 |
| vii. Buying commission paid by the buyer to his agent in UK | 100 U.K. Pounds |
Other Particulars:
| i. | Inter-bank exchange rate as arrived by the authorized dealer: 72.50 per U.K. Pound |
| ii. | CBIC had notified for purpose of Sec. 14 of the Customs Act, 1944, Exchange rate of 70.25 per U.K. Pound. |
| iii. | Importer paid 5,000 towards demurrage charges for delay in clearing the machine from the Airport |
[Make suitable assumptions wherever required and show workings with explanations) [May 2013, 5 Marks]
Answer:
Computation of assessable value of machine Imported by BSA & Co.
| PARTICULARS | AMOUNT |
| Price of the machine | £ 10,000 |
| Add: Engineering and design charges paid in UK [Note 1] | £500 |
| Add: Licence fee relating to imported goods payable by the buyer as a condition of sale (20% of Price of machine) [Note 1] | £ 2,000 |
| Total | £ 12,500 |
| Value in Indian currency [£12,500 × ₹ 70.25] [Note 2] | ₹ 8,78,125 |
| Add: Materials and components supplied by the buyer free of cost [Note 1] | ₹ 20,000 |
| FOB (As per Customs) | ₹ 8,98,125 |
| Add: Freight (20% of 898125) [Note 3] | ₹ 1,79,625 |
| Add: Insurance paid to the insurer in India [Note 1 ] | ₹ 6,000 |
| CIF value | ₹ 10,83,750 |
| Assessable value (rounded off) | ₹ 10,83,750 |
Working Notes:
1. Engineering and design charges paid in UK, licence fee relating to imported goods payable by the buyer as a condition of sale, materials and components supplied by the buyer free of cost and actual insurance charges paid are all ineludible in the assessable value [Rule 10 of the Customs (Determination of Value of Imported Goods) Rules, 2007].
2. As per Explanation to section 14(1) of the Customs Act, 1962, assessable value should be calculated with reference to the rate of exchange notified by the CBIC.
3. If the goods are imported by air, the freight cannot exceed 20% of FOB price [Fifth proviso to rule 10(2) of the Customs (Determination of Value of Imported Goods) Rules, 2007].
4. Buying commission is not included in the assessable value [Rule 10(1)(a) of the Customs (Determination of Value of Imported Goods) Rules, 2007].
5. Only ship demurrage charges on chartered vessels arc included in the cost of transport of the imported goods. Thus, demurrage charges for delay in clearing the machine from the Airport will not be includible in the assessable value [Explanation to Rule 10(2) of the Customs (Determination of Value of Imported Goods) Rules, 2007]
Question 11.
A machine was originally imported from Japan at 250 lakh in August, 2017 on payment of all duties of customs. The said machine was exported (sent-back) to supplier for repairs in January, 2018 and re-Imported without any re-manufacturing or re-processing in October 2018 after repairs. Since the machine was under warranty period, the repairs were carried out free of cost.
However, the fair cost of repairs carried out (including cost of material < 6 lakh) would have been 9 lakh. Actual insurance and freight charges (to and fro) were 3 lakh. The rate of basic customs duty is 10% and rate of IGST on like article is 12%
Compute the amount of customs duty payable (If any) on re-import of the machine after repair. The ownership of the machine has not been changed during the period. (Ignore GST compensation cess) [Nov. 2014, 5 Marks]
Answer:
As per Notification No. 46/2017 Cus. dated 30-6-2017 Duty of customs which would be leviable if the value of re-imported goods after repairs were made up of the fair cost of repairs carried out including cost of materials used in repairs (whether such costs are actually incurred or not), insurance and freight charges, both ways. However, following conditions need to be satisfied for availing this concession:
(a) goods must be re-imported within 3 years, extendable by further 2 years, after their exportation;
(b) exported goods and the re-imported goods must be the same;
(c) ownership of the goods should not change.
Since all the conditions specified above are fulfilled in the given case, the customs duty payable on re-imported goods will be computed as under:
| Particulars | Amount (₹) |
| Value of goods re-imported after exports
[₹ 9 lakh (including cost of materials) + ₹ 3 lakh] |
12,00,000 |
| (A) Add: Basic customs duty @ 10% | 1,20,000 |
| (B) Add: Social Welfare Surcharge @ 10% on ₹ 1,20,000 | 12,000 |
| Value for computing integrated tax under section 3(7) of Customs Tariff Act, 1975 | 13,32,000 |
| (C) Integrated tax @ 12% (₹ 13,32,000 × 12%) | 1,59,840 |
| Customs duty and integrated tax payable [(A) + (B) + (C)] | 2,91,840 |
Question 12.
Maxiline Corp., not being an EOU, had imported technical instruments from USA for ₹ 180 lakh on payment of duty. It had to subsequently send back the same to the supplier for repair. The supplier has agreed to provide discount of 50% of the fair cost of repairs, resulting in Maxiline Corp. paying USD 15,000.
Following further particulars are available:
| Particulars | Date | Rate of Duty | Inter Bank Exchange rate | Rate notified by CBEC |
| Bill of Entry | 21-02-2018 | 20% | 60 | 62 |
| Aircraft arrival | 26-02-2018 | 15% | 62 | 61 |
IGST u/s 3(7) of Customs Tariff Act, 1975 -12%.
| Outwards (Amt. in ₹) | Inwards (Amt. in ₹) | |
| Insurance | 20,000 | 30,000 |
| Air Freight | 80,000 | 1,20,000 |
Other details available on records:
(a) Goods are re-imported within 3 years of despatch for repair.
(b) Both the exported and imported goods are the same.
(c) There is no change in the ownership of technical instruments.
(d) The export is not from a public/private warehouse and repairs does not amount to manufacture.
Determine total duty payable with appropriate notes for your computation. [May 2018, 5 Marks]
Answer:
As per Notification No. 46/2017-Cus. dated 30-6-2017 Duty of customs which would be leviable if the value of re-imported goods after repairs were made up of the fair cost of repairs carried out including cost of materials used in repairs (whether such costs are actually incurred or not), insurance and freight charges, both ways. However, following conditions need to be satisfied for availing this concession:
(a) goods must be re-imported within 3 years, extendable by further 2 years, after their exportation;
(b) exported goods and the re-imported goods must be the same;
(c) ownership of the goods should not change.
Since all the specified conditions are fulfilled in the given case, total duty payable will be computed as under:
Computation of total duty payable by Maxiline Corp.
| Particulars | Amount (₹) |
| Fair cost of repairs (in dollars) = $15,000/50% | $ 30,000 |
| Fair cost of repairs (in rupees) = $30,000 × ₹ 62 [Note-1] | 18,60,000.00 |
| Add: Inward and outward insurance [₹ 20,000 + ₹ 30,000] | 50,000.00 |
| Add: Inward and outward air freight [₹ 80,000 + ₹ 1,20,000] | 2,00,000.00 |
| Assessable Value | 21,10,000.00 |
| Add: Basic customs duty (BCD) @15% [Note-2] | 3,16,500.00 |
| Add: Social Welfare Surcharge | 31650.00 |
| Value for computing IGST | 21,10,000.00 |
| IGST @ 12% | 2,94,978.00 |
| Total duty and tax payable= [₹ 3,16,500 + ₹ 31,650 + ₹ 2,94,978] | 6,43,128 |
Notes:
1. Rate of exchange notified by the CBIC on date of presentation of bill of entry would be the applicable rate in terms of third proviso to section 14(1) of the Customs Act, 1962.
2. Rate of duty is the rate in force on date of presentation of bill of entry or arrival of aircraft, whichever is later in terms of proviso to section 15(1) of the Customs Act, 1962.
Examiner’s Comment
Most of the examinees committed mistake by wrongly considering fair cost of repairs to be $ 15,000 instead of $ 30,000 resulting into incorrect computation of total duty payable by Maxiline Corp.
Question 13.
(1) Vishal Industries imported goods from U.S.A., CA.F. value bearing US $ 2600. Air freight 500 US $. insurance cost 100 US $. landing charges are not ascertainable
(2) Date of bill of entry is 25-9-2018 and basic custom duty on this date is 10% and exchange rate notified by Central Board of Excise and Customs in US $ 1 = 62
(3) Date of entry inward is 21-10-2018. Basic customs duty on this date is 20% and exchange rate notified by Central Board of Excise and Customs is US $ 1 = 60
(4) Integrated tax payable u/s 3(7) of the Customs Tariff Act is 12%, Social Welfare Surcharge is 10% on duty. Compute the assessable value and amount of total customs duty payable under the Customs Act, 1962
Make suitable assumptions, where required. Working notes should form part of your answer (Ignore GST compensation cess) [May 2015, 5 Marks]
Answer:
Computation of assessable value and customs duty payable:
| CIF Value | US $ 2,600 | |
| Less Air Freight | US $ 500 | |
| Less Insurance Charge | US $ 100 | US $ 600 |
| FOB Value (As per Customs) | US $ 2,000 | |
| Add: | ||
| i. Air Freight restricted to 20% of FOB Value | US $ 400 | |
| ii Actual Insurance Charges | US $ 100 | |
| CIF Value/Assessable Value | US $ 2,500 | |
| Assessable value in Indian ₹ (US$ 2,500 × 62) | ₹ 1,55,000 | |
Computation of imported cost and customs duty (Amounts in ₹ ) :
| Particulars | Amount |
| Assessable Value | 1,55,000 |
| (A) Add: Basic Customs duty (a> 20% of Assessable Value (20% of 1,55,000) | 31,000 |
| (B) Add: Social Welfare Surcharge @ 10% of A (10% of 31,000) | 3,100 |
| (C) Total value for levy of Integrated Tax u/s 3(7) of CTA, 1975 | 1,89,100 |
| (D) Add: Integrated tax under section 3(7) @ 12% of C (12% of 1,89,100) | 22,692 |
| Total cost of imported goods | 2,11,792 |
| Total Customs Duty [A+B+D](Rounded off) | 56,792 |
Note: Integrated tax leviable under section 3(7) of the Customs Tariff Act, 1975 is levied on the sum total of the assessable value of the imported goods, customs duties and applicable Social Welfare Surcharge.
Question 14.
15,000 Chalices were imported for charitable distribution in India by XY Charitable Trust. The Trust did not pay either for the cost of goods or for the design and development charges, which was borne by the supplier Customs officer computed its FOB value at USD 20,000 (including design and development charges), which was accepted by the Trust Other details obtained were as follows:
| Particulars | Amount | ||
| 1. Freight paid (air) (in USD) | 4,500 | ||
| 2. Design & Development charges paid in USA (USD) | 2,500 | ||
| 3. Commission payable to an agent in India (in ₹) | 12,500 | ||
| 4. Exchange rate and rate of basic duty notified by CBIC is as follows: | |||
| Date of Bill of Entry | BCD | Exchange Rate in ₹ | |
| 08-09-2018 | 20% | 60 | |
| 30-09-2018 | 10% | 62 | |
| While the inter-bank rate was 1 USD = 63 | |||
| 5. Integrated tax payable u/s 3(7) of the Customs Tariff Act, 1975 | 12% | ||
| 6. Social Welfare Surcharge as applicable | |||
Compute the Assessable value and amount of total customs duty payable under the Customs Act, 1962. Make suitable assumptions where required Wrong notes should form part of your answer. (Ignore GST Compensations cess) [Nov. 2015, 5 Marks]
Answer:
Computation of total customs duty and integrated tax payable
| PARTICULARS | AMOUNT |
| FOB value computed by Customs Officer (including design and development charges) | 20,000 US $ |
| Exchange rate [Note 1] | ₹ 60 per $ |
| FOB value computed by Customs Officer (in rupees) | 12,00,000 |
| Add: Commission payable to agent in India | 12,500 |
| FOB value as per customs | 12,12,500 |
| Add: Air freight (₹ 12,12,500 × 20%) [Note 2] | 2,42,500 |
| Add: Insurance (1.125% of ₹ 12,12,500) [Note 3] | 13,640.63 |
| CIF value for customs purposes | 14,68,640.63 |
| Assessable value | 14,68,640.63 |
| Add: Basic custom duty @ 1096 (₹ 1468640.63 × 1096) – rounded off [Note 4] | 1,46,864.06 |
| Add: Social Welfare surcharge @ 10% on ₹ 146864.06 rounded off | 14,686.04 |
| Total | 16,30,190.73 |
| Integrated tax leviable under section 3(7) of Customs Tariff Act, 1975 @ 12% (₹ 1630190.73 × 12%) [Rounded off] [Note 5] | 1,95,622.89 |
| Total customs duty and integrated tax payable (₹ 146864.06 + ₹ 14686.04 + ₹ 195622.89) |
3,57,173 |
NOTES:
1. Rate of exchange notified by CBIC on the date of filing of bill of entry has to be considered [Third proviso to section 14 of the Customs Act, 1962].
2. In case of goods imported by air, freight cannot exceed 20% of FOB value [fifth proviso to rule 10(2) of the Customs (Determination of Value of Imported Goods) Rules, 2007].
3. Insurance charges, when not ascertainable, have to be included @ 1.125% of FOB value of goods [Third proviso to rule 10(2) of the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007].
4. Rate of duty will be the rate in force on the date of presentation of bill of entry or on the date of arrival of the aircraft, whichever is later [Proviso to section 15 of the Customs Act, 1962],
5. Integrated tax leviable under section 3(7) of the Customs Tariff Act, 1975 is levied on the sum total of the assessable value of the imported goods, customs duties and applicable social welfare surcharge.
Question 15.
Mr. Backpack imported goods from a UK supplier by air was contracted CIF basis. However, there were changes in prices the international market between date of contract and actual importation. As result of several negotiations, the parties agreed for a negotiated price payable as follows:
| Particulars | Contract Price (£) | Changed Price (£) | Negotiated Price (£) |
| CIF Value | 5,000 | 5,800 | 5,500 |
| Air Freight | 300 | 800 | 500 |
| Insurance | 500 | 650 | 600 |
Other details for computing assessable value and duty payable are as ‘tabled below:
| Particulars | Amount |
| Vendor inspection charges (not required for making the goods ready for shipment) | £600 |
| Commission payable to local agent 1% of FOB in local currency |
| Date of Bill of Entry | Basic Customs Duty | Exchange rate in (notified by CBIC) |
| 18-02-2018 | 10% | 102 |
| Date of arrival of aircraft | Basic Customs Duty | Exchange rate in (notified by CBIC) |
| 15-02-2018 | 15% | 98 |
Inter-bank rate 1 UK Pound = 106
Compute the assessable value and calculate basic customs duty payable by Mr. Backpack [May 2016, 5 Marks]
Answer:
Computation of total customs duty payable
| PARTICULARS | AMOUNT |
| CIF value (negotiated price) [Note-1] | £ 5,500 |
| Less: Air freight | £500 |
| Less: Insurance | £600 |
| FOB value | £ 4,400 |
| Add: Vendor inspection charges [Note-2] | Nil |
| FOB value as per Customs | £ 4,400 |
| Add: Freight [Note-3] | £500 |
| Add: Insurance [Note-4] | £600 |
| £ 5,500 | |
| Value in rupees [5,500 × ₹ 102] [Rate of CBIC on the date of filing of Bill of Entry] | ₹ 5,61,000.00 |
| Add: Commission payable to local agent [1% of FOB value] [Note-6] = (US $ 4,400 × ₹ 102) × 1% | ₹ 4,488.00 |
| Total | ₹ 5,65,488.00 |
| Assessable value | ₹ 5,65,488.00 |
| Add: Basic custom duty @ 10% [Note-6] – rounded off | ₹ 56,548.80 |
| Social Welfare Surcharge (10% of ₹ 56,548.80) [rounded off] | ₹ 5,655.00 |
| Customs duty payable [rounded off] | ₹ 62,203.00 |
Notes:
1. In this case, since the contract was re-negotiated and the importer paid the re-negotiated price, the transaction value would be such re-negotiated price and not the contract price.
2. Charges of vendor inspection on the goods carried out by foreign supplier on his own and not required for making the goods ready for shipment, are not includible in the assessable value of the imported goods [Bombay Dyeing & Mfg. v. CC 1997 (90) ELT 276 (SC)].
3. Actual amount incurred towards freight will be considered since freight is not more than 20% of FOB value [Fifth proviso to rule 10(2) of Customs Valuation Rules].
4. Actual insurance charges paid are includible in the assessable value as per rule 10(2)(b) of the Customs Valuation Rules.
5. Commission paid to local agent (since it is not buying commission) is includible in the assessable value on the presumption that local agent has been appointed by the exporter [Rule 10(1)(a)(i) of the Customs Valuation Rules],
6. As per proviso to section 15 of the Customs Act, 1962, rate of duty will be the rate in force on the date of presentation of bill of entry or on the date of arrival of the aircraft, whichever is later.
Question 16.
F. Ltd. imported a machine from UK in May, 18. The details in this regard are as under :
i. FOB value of the machine: 10000 UK Pound
ii. Freight (AIR): 3000 UK Pound
iii. Licence fee, the buyer was required to pay in UK: 400 UK Pound
iv. Buying commission paid in India 20,000
v. Date of bill of entry 20-5-2018 and the rate of exchange notified by CBIC on this date was 99.00 per one pound. Rate of BCD was 7.5%
vi. Date of arrival of aircraft was 25-5-2018 and the rate of exchange notified by CBIC on this date was 98.50 per pound and rate of BCD was 10%
vii. Integrated tax leviable under section 3(7) of Customs Tariff Act, 1975 is 12.5% (ignore GST Compensation cess)
viii. Insurance premium details were not available.
You are required to compute the assessable value of the machine for valuation of customs duty and the total duty payable. You may make suitable assumptions wherever required [Nov. 2016 5 Marks]
Answer:
Calculation of Assessable value and total duty payable by Mr. Backpack:
| Particulars | Amount | |
| FOB value | £10,000 | |
| Add: Charges for costs and services as per Rule 10(1) i.e. | ||
| Licence fees | £400 | |
| Customs FOB value | £ 10,400 | |
| Add: Air freight (20% of customs FOB or Actual whichever is less) [As per Rule 10(2)] | £2,080 | |
| Add: Insurance (Actual is not available, so 1.125%) [As per Rule 10(2)] | £117 | |
| CIF Value | £12,597 | |
| CIF Value in Indian rupees i.e. 12,597 @ 99 (Working Note 3) | ₹ 12,47,103 | |
| Assessable value | ||
| Add: Basic Custom Duty @10% | [A] | ₹ 1,24,710.30 |
| Add: SWS [@ 10% of 1,24,710.30] | [B] | ₹ 12,471.03 |
| Total value for IGST | ₹ 13,84,284.33 | |
| IGST @ 12.5% of 13,84,284.33 [Working Note 4] | [C] | ₹ 1,73,035.54 |
| Total duty and integrated tax payable (A+B+C) | ₹ 3,10,216.87 | |
Working Notes:
- Licence fees will be included in FOB value as per Rule 10(1) of valuation Rules.
- Buying commission is excluded as per Rule 10(1).
- Rate of Exchange (Rate of Notified by CBIC on the date of filing of Bill of Entry) and Rate of duty have been ascertained as per Sections 14 & 15 of Customs Act, respectively.
- Integrated tax leviable under section 3(7) of the Customs Tariff Act, 1975 is levied on sum total of the assessable value of the imported goods customs duties and applicable Social Welfare Surcharge.
Question 17.
M/s. AMTL Ltd., Kolkata imported CNC Grinding machine from Catalyst Inc. USA, complete with accessories and spares in October 2018 for use in the manufacture of high precision micro tools. Basic cost of machine with accessories US $ F.O.B. 50,000. Catalyst Inc. supplied one extra set of accessories valued at US $ 2000 free of cost to over for transit damage.
Other details available were as follows:
| Particulars | Amount |
| 1. Warranty Cost payable to Catalyst Inc. (Not included in the cost of the Machine Le. US $ 50000) | US $ 4,500 |
| 2. Design and Development charges paid in USA (not included in the cost of the Machine i.e. US $ 50000) | US $6,000 |
| 3. Licence Fee, AMTL is required to pay in USA | US $ 1,000 |
| 4. Value of Drawings supplied by AMTL Ltd. Kolkata free of cost and is necessary for customising machine to the needs of AMTL Ltd. Kolkata | US$ 1,000 |
| 5. Freight by AIR | US$ 15,000 |
| 6. Buying Commission paid to Indian Agent in India | 3,00,000 |
Bill of Entry presented on 10-11-2018 and the rate of exchange notified by CBIC on this date was 66.25 per US $ and rate of BCD was 7.5%. Date of arrival of aircraft was 6-11-2018 and rate of exchange notified by CBIC on this date was 66.50 per US $ and rate of BCD was 7.5%, Machine was insured but insurance premium was not shown/available in/from the invoice.
From the above particulars, compute the assessable value for purpose of customs duty payable. Make suitable assumptions wherever required.
Working notes should form part of your answer.
Note: Customs duty calculation need not be shown. [May 2017, 5 Marks]
Answer:
Calculation of Assessable Value (As per the Customs Act, 1962)
| Particulars | Amount | |
| FOB Value | $ 50,000 | |
| Add: As per Rule 10(1) of Import Valuation Rules, 2007 | ||
| i Design and Development Charges | $ 6000 | |
| ii License fee AMTL | $ 1000 | |
| iii Value of Drawing supplied by Purchaser | $ 1000 | $ 8000 |
| FOB as per Customs | $ 58000 | |
| Add: As per Rule 10(2) of Import Valuation Rules, 2007 | ||
| i. Air Freight [Actual or 20% of FOB Whichever is less] (20% of $ 58,000) | $ 11600 | |
| ii Insurance [1.125% of FOB] = (1.125% of $ 58000) | $ 652.5 | |
| CIF value/Assessable value | $ 70252.5 | |
| Assessable value $ 70252.5 × ₹ 66.25 [As per Section 14 Exchange Rate (Rate of CBIC prevailing on the date of filing of Bill of Entry)] |
₹ 4654228 | |
Question 18.
Pyramid Expo Ltd. has exported some goods by air. The FOB price of goods exported is US $ 50.000. The shipping bill was presented electronically on 7-3-2019 and Let Export Order passed by proper officer on 19-4-2019. The rate of exchange notified by CBIC on 7-3-2019 and 19-4-2019 are 1 US$ 65 and 1 US $ = 64 respectively.
Compute the export duty payable by Pyramid Expo with the help of following details provided.
| Particulars | Date | Rate of Duty |
| Presentation of shipping bill | 7-3-2019 | 12% |
| Let Export order | 19-4-2019 | 10% |
[Nov. 2017, 4 Marks]
Answer:
Computation of Export Duty
| Particulars | Amount (US $) |
| Assessable Value | 50,000 |
| Amount | |
| Assessable Value = US $ 50,000 × 65 (Working Note 1) | 32,50,000 |
| Export duty @ 10% (Working Note 2) | 3,25,000 |
Working Notes:
1. As per Section 14(1) of the Customs Act, 1962 the transaction value ie., FOB price of export goods is considered as assessable value has to be calculated with reference to the rate of exchange notified by CBIC on date of presentation of shipping bill of export.
2. The rate of duty prevalent on the date of let export order is considered for computing export duty vide Section 16(1)(a) of the Customs Act, 1962.
Question 19.
Niketan Industries Ltd., New Delhi has imported certain machine (by sea) from Japan.
From the following particulars furnished by it, work out the assessable value of the machine and customs duty payable by Niketan Industries Ltd. with appropriate working notes:
| Particulars | Amount in (₹) |
| i. CIF value of the machine | 4,23,379.69 |
| ii. Freight incurred from port of entry to Inland Container depot | 25,000.00 |
| iii. Unloading and handling charges paid at the place of importation | 40,000.00 |
| iv. Designing charges paid to Consultancy firm in Mumbai | 10,000.00 |
| 1. Basic Customs Duty leviable | 10% ad valorem |
| 2. Integrated tax leviable under section 3(7) of the Customs Tariff Act, 1975 is 18%. | |
| 3. Note: Ignore GST Compensation Cess. | |
[May 2018, 4 Marks]
Answer:
Computation of Assessable Value and customs Duty payable
| Particulars | Amount | |
| CIF value of the machine | 4,23,379.69 | |
| Freight incurred from port of entry to inland container depot [Working Note 1] | — | |
| Unloading and handling charges paid at the place of importation [Working Note 2] | — | |
| Designing charges paid to Consultancy firm in Mumbai [Working Note 3] | — | |
| Assessable Value | 4,23,379.69 | |
| Add : Basic custom duty @ 10% | [A] | 42,337.97 |
| Add: Social welfare surcharge @ 10% of BCD | [B] | 4,233.80 |
| Total value for charge of IGST | 4,69,951.46 | |
| IGST @ 18% u/s 3(7) of Customs Tariff Act, 1965 | [C] | 84,591.26 |
| Total customs duties (A+B+C) | 1,31,163 | |
Working Notes:
- As per Rule 10(2)(a) of Import Valuation Rules, 2007 Freight incurred from port of entry to England Container Depot specifically excluded.
- Unloading or handling “at” the place of importation is not includible in value. Only charges “up to” i.e., prior to the place of importation are includible in value.
- As per Rule 10( 1)(b), engineering, development, art work and plans and sketches undertaken elsewhere than in India are includible; since design is carried out in India, hence, not includes.
Examiner’s Comment
Most of the examinees were ignorant about the treatment of unloading and handling charges paid at the place of importation. They were not aware that only charges incurred for delivery of goods “to” the place of importation are includible in the transaction value vide rule 10(2)(a) of Customs Valuation (Determination of Value of Imported Goods) Rules, 2007. Further, they also wrongly added landing charges to the CIF value of machine.
Question 20.
Jolly overseas Ltd. of Hyderabad has imported a machine from UK (England) through the sea route by a vessel. The details of the import transaction are as follows:
| Particulars | Amount in UK (£) |
| (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 | 600 |
| (iii) Handling charges paid for loading the machine on the ship at the port of exportation | 500 |
| (iv) License fee relating to the imported goods payable by the importer as a condition of sale | 900 |
| (v) Actual freight charges from the port of export to the port of import are not ascertainable | |
| (vi) Actual insurance charges paid | 200 |
| (vii) Landing charges paid at the place of Importation are not ascertainable | —– |
| (viii) Handling charges associated with the delivery of the imported goods at the place of importation | 15,000 |
The following exchange rates are available.
| Dated | Exchange rate on that day: | |
| (i) Bill of entry: | 21-1-2019 | (a) Notified by CBEC 1 UK £ = 101 (b) prescribed by RBI 1 UK £=100 |
| (ii) Entry inward: | 26-1-2019 | (a) Notified by CBEC 1 UK £ = 102 (b) prescribed by RBI 1 UK £ = 103 |
Compute the assessable value of the machine (In rupees) for the purpose of levy of Customs Duty. [Nov. 2018, 5 Marks]
Answer:
Computation of assessable value of machine
| Particulars | Amount in UK (£) |
| Cost of the machine at the factory of the exporter | 20,000 |
| Add: Licence fee relating to the imported goods payable by the importer as a condition of sale [Note 1] | 900 |
| Add: Cost of transport, loading, unloading and handling charges associated with the delivery of the imported goods to the place of importation [20% of £22,000] [Note 2] (It includes all cost of transportations, loading, unloading and handling expenditure from the factory of exporter to the place of importation) |
4,400 |
| Insurance charges | 200 |
| CIF value | 25,500 |
| Add: Landing charges paid at the importation and handling charges associated with the delivery of the imported goods at the place of importation [Note 3] | Nil |
| Assessable value | 25,500 |
| Assessable value In Indian rupees @ 101/per £ [Note 4] | 25,75,500 |
Notes:
1. As per rule 10 of the Customs Valuation (Determination Imported Goods) Rules, 2007-
Licence fees related to the imported goods payable as a condition of the sale of the goods being valued is includible in the assessable value.
2. As per rule 10 of the Customs Valuation (Determination Imported Goods) Rules, 2007-
The cost of transport, loading, unloading and handling charges associated with the delivery of the imported goods to the place of the importation are includible in the assessable value.
Where such cost is not ascertainable, it shall be 20% of the free on board (FOB) value of the goods.
FOB value will be sum total cost of machine, transport charges from factory to port of exportation, handling charges at the port of exportation and license fee paid as a condition of sale of imported goods, which will be £22,000 (€20,000 + £600 + 500+£900]
3. As per rule 10 of the Customs Valuation (Determination Imported Goods) Rules, 2007-
Only charges incurred for delivery of goods “to” the place Importation are includible in the transaction value. The loading, unloading and handling charges associated with the delivery of the Imported goods at the place of importation are not to be added to the CIF value of the goods.
4. As per Section 14 of the Customs Act, 1962, the rate of exchange notified by the CBIC on the date of presentation of bill of entry is to be considered for the purpose of conversion of assessable value into Indian currency.
Examiner’s Comment
Some examinees were not aware that notional landing charges are no longer required to be added to the CIF value of machine.
Question 21.
ABC Industries Ltd. of Mumbai imported one machine through vessel from Japan, in the month of September, 2018. The following particulars are made available:
| Particulars | Amount in Japanese Yen (¥) |
| (i) Cost upto port of exportation incurred by exporter | 6,00,000 |
| (ii) Loading charges at port of exportation | 25,000 |
| (iii) Freight charges from port of export to port of import in India. | 1,00,000 |
Following additional amounts paid by ABC Industries Ltd.:-
| Particulars | Amount in Japanese Yen (¥) |
| (i) Designing charges, necessary for such machine, paid to consultancy firm in New Delhi | 8,00,000 |
| (ii) Commission paid (not the buying commission) to local agent of exporter, | 1,25,000 |
| (iii) Actual landing charges paid at the place of importation | 15,000 |
| (iv) Actual insurance charges paid to the place of importation are not ascertainable. | – |
| (v) Lighterage charges paid at the port of importation | 20,000 |
Other Information :
- Rate of basic customs duty is 10%
- Rate of social welfare surcharge is 10%
- Integrated tax leviable under section 3(7) of Customs Tariff Act, 1975 is 12%.
- Ignore GST compensation cess.
- Rate of exchange to be taken is 1 Japanese Yen (¥) = ₹ 0.65
Arrive at the total customs duty, including integrated tax payable under section 3(7) of the Customs Tariff Act, 1975 with appropriate working notes. [May 2019, 5 Marks]
Answer:
Computation of assessable value of the imported goods
| Japanese Yen | |
| Cost upto port of exportation | 6,00,000 |
| Add: Loading charges at the port of exportation [Note-1] | 25,000 |
| Total in Japanese Yen | 6,25,000 |
| Amount | |
| Total in Indian rupees @ ₹ 0.65 per Japanese Yen | 4,06,250.00 |
| Add: Commission paid to local agent of exporter [Note-3] | 1,25,000.00 |
| FOB value as per customs | 5,31,250.00 |
| Add: Freight charges from port of export to port of import in India [Note-1] [1,00,000 Japanese Yen × 0.65 = ₹ 65,000] | 65,000.00 |
| Add: Lighterage charges paid by the importer at port of importation [Note-1] | 20,000 |
| Add: Insurance charges @ 1.125% of FOB [₹ 5,31,250 × 1.125%] [Note-4] | 5,976.56 |
| CIF value | 6,22,226.56 |
| Assessable Value (rounded off) | 6,22,227 |
| Add: Basic customs duty @ 10% of ₹ 6,22,227(rounded off) | 62,223 |
| Add: Social welfare surcharge @ 10% of ₹ 62,223(rounded off) | 6,222 |
| Total | 6,90,672 |
| Add: Integrated tax @ 12% of ₹ 6,90,672 (rounded off) | 82,881 |
| Total custom duty and integrated tax payable (rounded off) (BCD + SWS + IGST) |
1,51,326 |
Notes:
(1) [Rule 10(2) of the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007 (CVR)] : The cost of transport, loading, unloading and handling charges associated with the delivery of the imported goods to the place of importation are includible in the assessable value
The cost of transport of imported goods referred above includes the ship demurrage charges on charted vehicles, lighterage or barge charges.
(2) As per Rule 10(1) of the CVR, 2007: Design and engineering work is includible in the assessable value only when the same is undertaken elsewhere than in India and necessary for the production of the imported goods.
(3) As per Rule 10(1) of the CVR, 2007: Buying commission is not included in the assessable value. Commission paid to local agent of exporter is includible in the assessable value since it is not buying commission.
(4) As per Rule 10(2) of the CVR, 2007: If insurance cost is not ascertainable, the same shall be added @ 1.125% of FOB value of the goods.
(5) As per Rule 10(2) of the CVR, 2007 : Cost of insurance, transport, loading, unloading, handling charges associated with transshipment of imported goods to another customs station in India is not included in the assessable value .
Question 22.
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 importation of this gift consignment there were following imports of edible oil of Malaysian origin:
| 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 $ = ₹ 70.00 and the rate of basic customs duty was 10% ad valorem. Ignore Integrated tax and GST Compensation Cess. Calculate the amount of duty leviable on the consignment under the Customs Act, 1962 with appropriate assumptions and explanations, where required. [Nov 2008]
Answer:
DETERMINATION OF TRANSACTION VALUE OF THE SUBJECT GOODS: In the instant case, while determining the transaction value of the goods, following factors need consideration:
1. In the given case, US$10 per metric tonne has been paid only towards freight and insurance charges and no amount has been paid or payable towards the cost of goods. Thus, there is no transaction value for the subject goods. Consequently, we have to look for transaction value of identical goods under rule 4 of Customs Valuation (Determination of Value of Imported Goods) Rules, 2007 [Customs Valuation (DVIG) Rules, 2007].
2. Rule 4(1 )(a) of the aforementioned rules provides that subject to the provisions of rule 3, 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 the six imports given during the relevant time, the goods are identical in description and of the same country of origin.
3. Further, clause (b) of rule 4(1) of the said rules requires that the comparable import should be at the same commercial level and in substantially same quantity as the goods being valued. Since, nothing is known about the level of the transactions of the comparable consignments, it is assumed to be at the same commercial level.
4. As far as the quantities are concerned, the consignments of 20 and 100 metric tonnes cannot be considered to be of substantially the same quantity. Hence, remaining 4 consignments are left for our consideration.
5. However, the unit prices in these 4 consignments are different. Rule 4(3) of Customs Valuation (DVIG) Rules, 2007 stipulates that in applying rule 4 of the said rules, if more than one transaction value of identical goods is found, the lowest of such value shall be used to determine the value of imported goods. Accordingly, the unit price of the consignment under valuation would be US $ 160 per metric tonne.
Computation Of Amount Of Duty
| Payable CIF Value of 800 Metric Tonnes (800 tonnesX US $ 160 per tonne) | US $ 1,28,000 |
| CIF Value (in Rupees) [At the exchange rate of $ 1 = ₹ 70] | ₹ 89,60,000 |
| Assessable Value | ₹ 89,60,000 |
| 10% of Ad Valorem duty on ₹ 89,60,000 | ₹ 8,96,000 |
| Add: Social Welfare Surcharge @ 10% (rounded off) | ₹ 89,600 |
| Total custom duty payable | ₹ 9,85,600 |
Question 23.
M/s IES Ltd. (Assessee) imported certain goods at US $ 20 per unit from an exporter, who was holding 30% equity in the Share Capital of the importer company. Subsequently the assessee entered into an agreement with the same exporter to import the said goods in bulk at US $ 14 per unit.
When imports at the reduced price were effected pursuant to this agreement of the Department rejected the transaction value stating that the price was influenced by the relationship and completed the assessment on the basis of transaction value of the earlier imports i.e. at US $ 20 per unit under Rule 4 of the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007, viz. transaction value of identical goods. State briefly whether the Departments action is sustainable in law with reference to decided cases, if any. [Nov. 2008, 5 Marks]
Answer:
The action taken by Department is not correct, which can be supported by following reasons :
(i) Importer-exporters are not relative: Here exporter holds 30% equity shares in the share capital of the importer company but importer doesn’t hold shares in the exporter company. The relationship between two artificial entities in deemed to be Present:
- When one entity holds 51% or more equity shares into other entity or
- One entity directly or indirectly controls other.
- Here, the holding is just 30%, so the importer and exporter are not related person.
(ii) Transaction Value = Assessable Value: When importer and exporter are not related person and price is the sole consideration, department can’t reject the T.1v. and claim that price is influence further the present import is a bulk import i.e. for huge quantity and price reduction is justified here.
Hence, Department action is not sustainable in Law.
Question 24.
Kaveri Enterprises imported some goods from Italy. On the basis of certain information obtained through computer printouts from the Customs House, Department alleged that during the period in question, large number of consignments of such goods were imported at much higher price than the price declared by Kaveri Enterprises.
Therefore, Department valued such goods on the basis of transaction value of identical goods as per Rule 4 of the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007 and demanded the differential duty along with penalty and interest from the Kaveri Enterprises.
However, Department did not provide these printouts to Kaveri Enterprises. Kaveri Enterprises contended that Department’s demand was without any basis in law, without any legally admissible evidence and opposed to the principles of natural justice as the computer printouts which formed the basis of such demand had not been supplied to them. Resultantly, they had no means of knowing as to whether any imports of comparable nature were at the relevant point of time.
You are required to examine the contention of Kaveri Enterprises, with the help of a decided case law, if any. [May 2016, 4 Marks]
Answer:
The fact of the given case is based on the decision of Supreme Court in M/s. Gira Enterprises & Another (S.C.) 2014.
The hon’ble Supreme Court in the above case observed that the action of the revenue claiming further duty, interest and penalty are not sustainable under law for two reasons:
1. There is no plausible proof from the Department; mere existence of an alleged computer printout is not proof of the existence of comparable imports.
2. Assuming such a printout exists and the contents thereof are true, the question still remains whether the transaction evidenced by the said computer printout are comparable to the transactions of the appellant. The appellant will have to be given reasonable opportunity to establish that the transactions are not comparable.
Question 25.
A Malaysian company donated 1,000 metric tons of palm oil to a charitable trust in India for free distribution to the poor and the needy citizens. The trust in India had to meet the expenditure towards freight and insurance only which came to US $ 20 per metric ton. The Custom Department found that at or about the same time of importation of this consignment, there were following imports of palm oil of Malaysian origin into India.
| Quantity imported in metric tons | Unit price in US Dollars(CIF) |
| 1. 500 | 400 |
| 2. 900 | 350 |
| 3. 780 | 300 |
The rate of exchange on the relevant date was 1 US $ = ₹ 65 and the rate of customs duty was 20% ad valorem. Calculate the amount of customs duty payable on the consignment under the Customs Act, 1962 with appropriate assumptions and explanations. It would be sufficient if only basic customs duty is calculated. [Nov. 2018 (Old) 5 Marks]
Answer:
Statutory Provision:
In the given case, there is no transaction value for the subject goods. Therefore, value has to be determined in accordance with rule 4 of Customs Valuation (Determination of Value of Imported Goods) Rules, 2007.
As per Rule 4
1. Where T.V. of imported goods is rejected then such goods shall be valued at par with the identical goods, imported at or about the same time in same or closest quantity at a same Commercial Level.
2. Adjustments are allowed to be made for
a. Time gap
b. Quantity difference
c. Difference of commercial level
Notes: After determining comparable values, the lowest of them shall be adopted.
In the given case:
The consignment of 500 tonnes cannot be considered to be of substantially the same quantity. Hence, remaining 2 consignments will only be relevant.
If more than one transaction value of identical goods is found, the lowest of such value shall be used to determine the value of imported goods.
Accordingly, the unit price of the consignment under valuation would be US $ 300 per metric tonne.
Computation of amount of duty payable
| Particulars | Amount ₹ |
| CIF value of 1000 metric tonnes [1,000 × $ 300] | US $ 3,00,000 |
| CIF Value (in Rupees) at the exchange rate of $ 1 = ₹ 65 | 1,95,00,000 |
| Assessable value | 1,95,00,000 |
| Customs duty @ 20% | 3,90,000 |
Examiner’s Comment
Many Candidates did not arrive at the correct transaction value of identical goods and mistakenly took the unit price of the consignment under valuation to be US $ 350 per metric tonne.
Question 26.
Mr. X imported certain goods from a related person Mr. 0 of US and transaction value has been rejected. Rules 4 and 5 of the Import Valuation Rules are found in applicable, as no similar/ identical goods are imported in India. Mr. X furnishes cost related data of imports and requests Customs Authorities to determine value accordingly as per Rule 8. The relevant data are:
(1) Cost of materials incurred by Mr. Q $ 2000
(2) Fabrication charges incurred by Mr. Q $ 1000
(3) Other chargeable expenses incurred by Mr. Q $ 400
(4) Other indirect costs incurred by Mr. Q $ 250
(5) Freight from Mr. Q’s factory to US port $ 250
(6) Loading charges at US port $ 100
(7) Normal net profit margin of Mr. Q is 20% of FOB
(8) Air freight from US port to Indian port $ 1,500
(9) Insurance from US port to Indian port $ 50
(10) Exchange Rate 70 per $
The Customs Authorities are of the opinion that since value as per rule 7 can be determined at, 4,00,000, there is no need to apply rule 8.
Can the request of Mr. X be legally acceptable? If so compute the Assessable value under the Customs Act, 1962. [Nov 2019, 5 Marks]
Answer:
As per rule 6: Change of Order
1. If the value of imported goods cannot be determined under the provisions of rules 3, 4 and 5, then the value shall be determined under provisions of rules 7 and 8.
2. At the request of importer, and with the approval of the proper officer, the order of applicability of rules 7 and 8 can be reversed.
As per rule 8: Computed Value
- If valuation is not possible by deductive method, computing the value can be used.
- This method can be used before deductive value method. If Customs Officer approves,
- In this method, value is the sum of –
(a) Cost of Value of materials, labour and processing charges for producing the imported goods.
(b) Amount of General expenses and profit.
(c) The cost or value of all other expenses under rule 10: transport, insurance, loading, unloading and handling charges.
| 1. Cost of materials incurred by Mr. Q | $ | 2000 |
| 2. Fabrication charges incurred by Mr. Q | $ | 1000 |
| 3. Other chargeable expenses incurred by Mr. Q | $ | 400 |
| 4. Other indirect costs incurred by Mr. Q | $ | 250 |
| 5. Freight from Mr. Q’s factory to US port | $ | 250 |
| 6. Loading charges at US port | $ | 100 |
| Total cost incurred by Mr. 0 | $ | 4000 |
| 7. Normal net profit margin of Mr. Q [20% of FOB or 25% of cost = 25% of $ 4,000] |
$ | 1000 |
| FOB price | $ | 5000 |
| 8. Air fright from US port to Indian [Air freight cannot exceed 20% of FOB, hence, restricted to 20% of $ 5000] [rule 10(2) (a)] ($1000 – $250 – $100) | $ | 650 |
| 9. Insurance from US port to Indian port [Rule 10(2)(&)] | $ | 50 |
| CIF/Assessable Value under Customs | $ | 5700 |
| 10. Exchange rate | $ | ₹ 70 |
| Assessable Value under Customs | 3,99,000 |
Question 27.
Write a brief note on the ‘residual method’ of determination of value of imported goods under the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007. [Nov. 2009, 2 Marks]
Answer:
Rule 9: Residual Method
- Similar to ‘best judgment method’.
- This method can be considered if valuation is not possible by rules 3 to 8.
- Mix of the all other rules and general provisions of all rules.
- Assessment will be done based on with available data in India.
Residual Value Cannot Be Determined On The Basis Of:
- Sale price in India of the goods produced in India.
- Sale price of the goods on the domestic market of the Country of Exportation;
- Sale price of the goods for the export to a Country other than India;
- Cost of production of identical or similar goods if that is not computed as per provisions of Rule 8 (ie. if it does not cover all the elements as mentioned in Rule 8):
- A system which provides for the acceptance, for customs purposes, of the highest of the two alternative values;
- Minimum customs values; or
- Arbitrary or fictitious Values.
Question 28.
Explain briefly with respect to the provisions of the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007 the chief reasons for which the proper officer could raise doubts on the truth accuracy of the declared value? [May 2015, 4 Marks]
Answer:
As per Explanation to Rule 12 of the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007: The importer is required to make a declaration that the details furnished by him are Correct.
If the Customs Officer is not satisfied, he may reject the Value declared by the importer but before rejection, he shall give an opportunity of making representation to the importer.
The proper officer can raise doubts on the truth or accuracy of the declared value based on certain reasons, which may include followings:
- significantly higher value at which identical or similar goods imported at or about the same time in comparable quantities in a comparable commercial transaction, were assessed;
- sale involves an abnormal discount or abnormal reduction from the ordinary competitive price;
- sale involves special discount limited to exclusive agents;
- mis-declaration of goods in parameters such as description, quality, quantity, country of origin, year of manufacture or production;
- non-declaration of parameters such as brand, grade, specifications that have relevance to value;
- fraudulent or manipulated documents.
Question 29.
Compute export duty from the following data:
1. FOB price of goods : US $ 1,00,000.
2. ShippIng bill presented electronically on 26-02-2019, for export on 4-03-2019.
3. Proper officer passed order permitting clearance and loading of goods
4. Rate of exchange and rate of export duty are as under:
| Rate of Exchange | Rate of Export Duty | |
| On 26-02-2019 | 1 US $ = 55 | 10% |
| On 4-03-2019 | 1 US $= 56 | 8% |
5. Rate of exchange is notified for export by Central Board of Excise and Customs. (Make suitable assumptions wherever required and show the workings.) [Nov. 2013, 5 Marks]
Answer:
Computation of Export Duty
| PARTICULARS | AMOUNT |
| FOB price of goods [Note 1 ] | $ 1,00,000 |
| Value in Indian currency (US $ 1,00,000 × ₹ 55) [Note 2] | ₹ 55,00,000 |
| Export duty @ 8% [Note 3] | 4,40,000 |
NOTES:
1. As per section 14(1) of the Customs Act, 1962, assessable value of the export goods is the transaction value of such goods which is the price actually paid or payable for the goods when sold for export from India for delivery at the time and place of exportation.
2. As per third proviso to section 14(1) of the Customs Act, 1962, assessable value has to be calculated with reference to the rate of exchange notified by the CBIC on the date of presentation of shipping bill of export.
3. As per section 16(1 )(a) of the Customs Act, 1962, in case of goods entered for export, the rate of duty prevalent on the date on which the proper officer makes an order permitting clearance and loading of the goods for exportation, is considered.
Question 30.
Determine the Assessable value under customs law of an imported machine based on the following information.
| (1) Cost of machine(Contract price = 1,00,000, Revised price = 2,00,000 Negotiated & Agreed price 1,50,000) | |
| (2) Freight from the factory of the exporter to the port for shipment | 20,000 |
| (3) Freight incurred from port of entry to inland container depot | 60,000 |
| (4) Handling charges paid for loading the machine in the ship | 5,000 |
| (5) Demurrage charge paid at port | 30,000 |
| (6) Buying commission paid by importer | 50,000 |
| (7) Commission paid to local agent appointed by exporter | 1,000 |
| (8) Vendor inspection charges (not required under contract) | 8,000 |
[May 2019, 5 Marks]
Answer:
Computation of assessable value as per Section 14 of Customs Act, 1962
| Particulars | Amount (₹) |
| Cost of Machine (Transaction value is a value) | 1,50,000 |
| Add : Local agent commission (It is not a Buying Commission) | 1000 |
| Add : Cost of transport, loading, unloading and handling charges associated with the delivery of the imported goods to the place of importation- 20% of FOB [Working Note 2] | 35,200 |
| Add : Insurance [1.125% of FOB] = (1.125% of ₹ 1,76,000) | 1,980 |
| CIF value/Assessable value | 1,88,180 |
Notes:
1. As per Rule 10(2) of the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007 : The cost of transport, loading, unloading and handling charges associated with the delivery of the imported goods to the place of importation are includible in the assessable value. Further, where such cost is not ascertainable, it shall be 20% of the free on board (FOB) value of the goods which would also include demurrage charges. It has been assumed that the demurrage charges have been paid at the port of importation.
2. FOB value will be sum total cost of machine, freight from factory of exporter to port for shipment, handling charges paid for loading the machine in the ship and commission paid to local agent appointed by exporter, which will be ₹ 1,76,000 [(₹ 1,50,000 + ₹ 20,000 + ₹ 5000 + ₹ 1,000)].
3. As per Rule 10(2) of the Customs Valuation Determination of Value of Imported Goods) Rules, 2007: Freight incurred from port of entry to Inland Container depot is not includible in assessable value
4. As per Rule 10(1) of the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007: Only the payments actually made as a condition of sale of the imported goods by the buyer to the seller are includible in the assessable value. Vendor inspection charges not required under contract are thus, not includible in the assessable value.
Note: In the above answer, demurrage charges have not been added separately in the cost of transport, loading, unloading and handling charges by taking a view that where unascertainable cost of transport etc. has been computed as 20% of FOB value, the same includes all elements of costs of transport.
However, it is also possible to take an alternative view that actual demurrage charges should be separately added in the cost of transport by virtue of explanation to rule 10(2) of the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007 irrespective of whether the cost of transport has been computed as 20% of FOB value or on the basis of actual values.