3 VALUATION RULES FOR CUSTOMS DUTY i TERMS USED IN COMMERCIAL PARLANCE voice a een a rea js the basic commercial document showing particulars regar ding description of goods : @ quantity and unit price e discounts and net price @ names of consignor and consignee e payment particulars : © contract or acceptance of order on the basis of which the goods are supplied. (2) Packing Specification Giving particulars of the contents of each of the package in the consignment. (8) Certificate of Origin Acertificate issued by the competent authority in the country of manufacture giving the extent of the manufacture in that country. (4) Bill of Lading A negotiable document given by the carriers of the cargo giving particulars of : (a) Port of shipment; (b) No. of packages covered by the consignment; (c) Marks and numbers on the package; (d) Name of the vessel in which the goods have been dispatched; (e) Name of the consignee of the goods; (f) Whether the freight has been prepaid or is to be collected at the destination. (5) Air Consignment Note It is a document corresponding to Bill of Lading, in the case of cargo imported or exported by air. (6) Indent It is a document showing the particulars of the consignment for which the buyer as placed an order with the supplier. It normally gives particulars about : (i) Full description of the goods; (ii) Unit price; (iii) Mode of payment; (iv) Quantity required; (v) Delivery instructions.> / f, 6 MONET YT Ge Attn w The avin of Vass as dui VALUATION RULES FOR CUSTOMS DUTY us uty bt, pe (ice TTT NTT aR dh pathetor qxG ( Quotation Jtisa document, which indicates the price, the terms and other conditions on which spe seller is willing to supply goods to the buyer. @ Letter of Credit This is an instrument delivered by the bank intimating the seller that the buyer yesinstructed the bank and the bank will according to these instructions pay the seller ofthe goods. apy chant Sh? Mate’s Receipt afi 7% a , Areceipt given by the First mate of the conveyance certifying the total quantity of the consignment received on board the vessel or the aircraft. Abill of lading is issued on surrender of the mate's receipt. Tap ner wget Pr (10) Boat/Lighterage Charge cay gered Dae ae Some times the vessel is unable to get a berth alongside ds quay in the harbour, | ‘The goods are then transported from the ship to the shore by boats/lighters. ques oo ‘TECHNICAL TERMS RELATING TO VALUE IN AO THE COURSE OF IMPORT OR EXPORT za (1) Ex-Factory Price : It is the price of the goods as comes out of the factory. Tt includes cost of production and manufacture’s margit of profit. (2) RAS (Free Alongside! is the cost at wl the export goods are delivered alongside the ship, ready for shipment. It includes ex-factory + local freight + local taxes. (3) FO.B. (Free on Board) : Technically there is not much of a difference between FAS and FOB cost. FOB means the stage at which the goods are placed on board She conveyance carrying the vesse]. TT can be said to include FAS + loa¢ ‘charges + expo) Qs duty cess. pes ono (4) CLE. (Cost Insurance Freight) : It is the cost at which the goods deliv a at the Indian port. It covers cost of goods. Sometimes there is referred as CFC also. ‘Most of the custom duties are ad valorem. So goods have to be valued for purposes of assessment. Normally, the price paid by the Importer for the goods imported into India is the value of goods imported. But under the Customs Act, 1962 the concept of value has been treated separately. The duty is payable on the basis of “value of goods”. Such a value can be either : (A) Tariff value fixed by the Central Government by notification in the Official Gazette. (B) ‘Value’ fixed under section 14(1) of the Custom Act, 1962. (A) Tariff Value [Section 14(2)] Tn some cases, Tariff values are fixed by the Central Government fiom time to ihe “for some specified goods. Once the Tariff value of any commodity is fixed then the value for the determination of duty is tae Tari va Custom duty may be a percentage which shot ‘applied to the Tariff value for determination of duty. (B) Value when Tariff Value is not fixed [Section 14(1)] The value of the imported \d exported goods sh: is ’ of such goods, as di ied in accordance with the rules made in this behalf. [Section 14C(1)]20 CUSTOMS DUTY sisi “Transaction value’ in the case of imported goods shall include, in addition to the price actually paid or payable for the goods when sold for export out of India, any amount that the buyer is liable to pay for costs and services, including commissions and brokerage, assists, engineering, design work, royalties and licence fees, costs of transportation to the place of importation, insurance, and handling charges. Such price shall be calculated with reference to the rate of exchange as in force on the date on which a bill of entry or a shipping bill or bill of export, is presented. VALUATION OF IMPORTED GOODS For the purpose of determining the custom duty, the value of such goods shall be deemed to be the price at which such goods (or like goods) are ordinarily sold for delivery at the time and place of importation or exportation in international trade. The necessary condition is that the seller and the buyer have no interest in the business of each other and the price is the sole consideration for the sale. The above value is determined in accordance with the Custom Valuation (Deter- mination of Price of Imported Goods) Rules, 2007. Accordingly when the goods are sold for the purpose of export to India, then the value of such imported goods will be the price actually paid or payable called Transaction Value. TREATMENT OF LOADING, UNLOADING AND HANDLING CHARGES Hon'ble Supreme Court rule in the case of M/s Wipro Ltd. [ELT-177 (SC)] that landing charges to be added to the value of goods, should be based on actual charges incurred, and not a notional charge of 1% as has been provided in the Rule 10(2). - sy Therefore, amendment now carried out to the Customs Valuation Rules: A The loading, unloading and handling charges associated with the delivery of the imported goods at the place of importation shall no longer be added to the CIF value of the goods. (Circular No. 39/2017 Cus - dated 26.9.2017) TRANSACTION VALUE Transaction value is the price actually paid or payable for the goods when sold for export into India, adjusted in accordance with provisions of the Valuation Rules. Conditions subject to which transaction values acceptable The transaction value of the imported goods shall be accepted as the Assessable Value only if the following conditions are fulfilled : (a) The sale is in the ordinary course of trade under fully competitive conditions. (b) The sale does not involve any abnormal discount or reduction from ordinary competitive price. (c) The sale does not involve any special discount limited to exclusive agents. (d) No part of the proceeds of any subsequent resale, disposal or use of the goods by the buyer flows back directly or indirectly to the seller. (e) The sale price is not subject to any condition or consideration for which a value cannot be determined. (f) The buyer and seller must not be related person. Following expenses, if not already included, to be included in the value of the imported goods : i: (i) Commission and Brokerage : But it will not include the buying commission, i.e., the commission paid by the importer to his agent abroad for determining the price of the goods.VALUATION RULES FOR CUSTOMS DUTY Zl Gi) Packing Cost : It will in ii i G Serial aa eho ba oe of container, value of the other packing (ji) Value of the goods and services provided by the Importer : If the importer has provided to the exporter, the following things, either free of cost or at a subsidised rate and their value is not included in the price of the imported goods, the reasonable price of these things will be included in the value of the imported goods : (a) Materials, Comiponents and Parts. (b) . TootsDies, Moulds, ete. (c) Goods consumed in the production of imported goods. (@) Expenditure, incurred outside India, on the design and development of the product. (iv) Royalty and Licence Fees Payable in relation to the imported goods. (v) Share in the Sale Price of the imported goods, payable to the exporter (seller) either directly or indirectly. (vi) Cost of Transport upto the place of importation. If the cost of transportation is not known then it will be deemed to be 20% of the FOB value. If the goods are imported through Air transport, and the transport cost is unknown then lower of the two figures will be considered the transport cost : (a) Actual transport cost (b) 20% of FOB vatee-— (vii) Cost of Insurance : Insurance Premium 0} foods upto the place of importa- tion. If the cost of Insurance is not known then 1.125% of the FOB value will be taken as insurance cost. * (viii) The loading, unloading and handling charges associated with delivry of im- ported goods (called landing charges) shall no longer be added to the CIF value, of the goods. As amended by Circular No. 39/2017 - Cus - Dated 269.2017 9% IDENTICAL GOODS AND SIMILAR GOODS \ cv Identical Goods “Identical goods” means imported goods : (a) Which are same in all respects, including physical characteristics, quality and reputation as the goods being valued except for minor difference in appearance spt for minor difference in appearance that do not affect the value of goods; (b) Produced in the country in which the goods being valued were produced; and (c) Produced by the same person who produc or where no su ods Similar goods are available, goods produ a different person, “gimilar goods” means imported goods : aaa (a) Which although not alike in all respects, have like characteristics and like component materials which enable them to perform the same Function and *° be commercially interchangeable with the goods being valued having re; ation-a nce of trade mark; ee (b) Produced in the country in which the goods being valued were produced; and (c) Produced by the same person who produced the goods being valued, or where no such goods are available, goods produced by a different person,CUSTOMS DUTY 22 e ‘Transaction Value of Identical Goods/Similar Goods : (Rule 4(1) Tf it is not possible to_asce1 pe Customs Import Valuation Rules, 2007 then, the value the: value of is ff Conditions : The Transaction Value of Identical Goods/Similar Goods will be us in determining the value of imported goods only if such goods fulfil the followin; conditions : (1) They are in sale at the same commercial level; and (2) They are in substantially the same quantities as the goods being valued. However, adjustments will be made on the basis of demonstrated evidence in orde: to account for differences in prices arising due to sales at different commercial levels or in different quantities or both, whether such adjustment leads to an increase or decrease in the value. DEDUCTIVE VALUE, COMPUTED VALUE, RESIDUAL METHOD OF VALUATION Deductive Value If the value of imported goods cannot be determined under the provisions of rules to 5, the value shall be determined under provisions of Rule 7 (Deductive Value) or, when the value cannot be determined under Rule 7, under Rule 8 (Computed Value). However, at the request of the importer, and with the approval of the proper officer, the order of application or Rules 7 and 8 shall be reversed. Method of valuation and computation of Deductive Value : Unit price at which the imported goods or identical or similar imported goods are sold in the greatest aggregate quantity Less : The following deductions on account of post importation costs or expenses : (a) Commissions; or Selling expenses, general expenses and selling profits 00 (b) Transport, insurance and associated costs within India. - (c) Customs duties, sale tax and other taxes levied in India. OY Deductive Value Balancing Computed Value The computed valuation method is suitable when the producer is willing to give necessary costing data-along with subsequent clarifications, as and when required. Method of computation of Computed Value : Computed value is the stim total of the production/processing cost of the imported goods, the usual profit and general expen- ses, and the costs and charges of producer of exporter country. (a) Production/Processing cost of imported goods xox | (b) ‘Add : Usual profit margin and general expenses : by producer in the country of exportation for export to India. 0K | | (©) Add : The cost of transport, the cost of insurance, and the loading and | unloading and handling charges. ina xox | Computed Value| sx _| Residual Value According to this method, value i ined using reasonable means consisten hthe pris e d general provisions and the data available. However, che e the value so determinVALUATION RULES FOR CUSTOMS DUTY 23 jnarily sold or i i of importation in iy course of internatic us, the value of imported goods determined to the greatest extent possible be on previously determined customs values, but a reasonable flexibility in the application of such methods would be allowed. ASSESSABLE VALUE The Assessable Value of the goods (i.e., imported goods or export goods) is determined in accordance with the provisions of Section 14 of the Customs Act, 1962_ Where a duty of customs is chargeable on any goods by reference to their value, the value of such i i like goods are ordinarily sold, or offered for sale, for deli i i ition/ex- portation in the course of international trade, where : (a) the seller and the buyer have no interest in the business of each other; or has : busi £ the other: (b) one of them 0 i and the price is the sole consideration for the sale or offer for sale. The ‘price’ referred ws 14(1) is to be calculated with reference tothe rate of exchan, as in force on the date on which a bill of entry is presented, or a shipping bill/bill of export is presentedt—$@$ @ @ <<< Important Ingredients of Assessable Value (1) Assessable value is deemed value : The legislative intent is clear price of the goods. lone be regarded as the _ e for the se of calculating duty. a (2) Value shall be the price at which such or like goods are ordinarily sold : The price that is relevanti is i rice of the goods under. consideration is not available. (3) The price should be such that it is for delivery : ‘Delivery’ means the point of. time when imported goods can be phy ically delivered to importer or rt (4) gale should be in the course of international trade : The price, which is to be consi i i i le. The price of th goods in the domestic market in the country of importation does not have any bearing on valuation. (5) The seller and the buyer should not hae.interest in the business of each other : ‘The buyer and seller should be unrelated person. (6) The price should be the sole consideration for the sale : In case the price is not the sole consideration of sale, then, any other consideration that is flowing” directly or int je seller of the goods re value of the goods. a (1) Price is calculated with reference to rate of exchange : The ‘price’ is to be calculated with referencs in force on the date on which a bill of entry, or a shipping bill or bill of export is presented. i goods reach the pl hot included24 CUSTOMS DUTY Similarly cost_incurrad-on-the-erection, assembling of the-machinory, on th maintenance or on the technical assistance after the goods reach the place of importa. tion in India are also noti i ssable value. Determination of Tariff Value by Board Ifthe Board deems fit, it may, through a notification, determine the Tariff Value of the import or export of any class of goods. The provision of fixing tariff value has been retained, though rarely used. Conversion of Foreign Currency into Indian Currency When goods are imported the invoice is usually in the foreign currency but import duty is to be calculated in Indian Currency (i.e., Rupee). For this purpose following rate of exchange will be applicable : (a) The rate of exchange determined by the Board; or (b) The rate of exchange determined by the method laid down by the Board. Though foreign exchange rates are highly volatile yet the numerical problems have been solved considering prevalent average rate to signify a general rate to a common man. QUESTIONS Long Answer Type Questions 1. How would you determine the Assessable Value of goods for computation of customs duty? 2. What do you understand by “Transaction Value” of imported goods? Briefly outline the adjustments to be made to arrive at such value. 3. Explain the different methods of determination of price of imported goods under the Custom Valuation (Determination of Price of Imported Goods) Rules, 2007. 4. Write short notes on : (@) Tariff Value (b) Identical Goods (©) Computed Goods (a) Deduetive Value (©) Transaction Value of Identical Goods.4 COMPUTATION OF ASSESSABLE VALUE AND CALCULATION OF CUSTOMS DUTY Following procedure is adopted for determining the customs duty on the imported goods : 1. Determining the Assessable Value of goods. : ante ting the foreign exchange value of the imported goods into Indian Currency i.., 8. 3. Computing the Customs Duty. (@ COMPUTATION OF ASSESSABLE VALUE OF GOODS z z 1, Purchase Price of Goods XXX 2. Commission and Brokerage (except buying Commission) xx 3. Cost of Packing xXx 4, Material and Services provided by the Importer xx 5. Royalty and Licence Fee XX __(4) Xxx FOB Value of Goods ‘Sub-Total 6. Transportation Cost (upto 20% of F.0.B. Value) xx 7. Insurance Premium (upto 1.125% of F.0.B. Value) xx xxx ‘Assessable Value being CIF Value of Goods XxX Assessable Value of Goods in Foreign Total Currency x Rate of Exchange x Rate of Exchange Assessable Value of Goods in Indian Currency Ag ascertained (I) COMPUTATION OF CUSTOMS DUTY Particulars ‘Amount ‘Assessable Value of imported goods | rox ‘Add : (1) Basic Custom Duty @ 10% (Assessable Value x 10%) wa (2) Social Welfare Surcharge (10% of Basic Custom Duty) WW Sub-total 7K (8) Integrated tax w/s 3(7) of C.T.A 1975 say @ 12% we (Sub Total x 12%) Grand Total 70K ‘Total Customs Duty (1) + (2) + (3) as above (Ignoring GST Compensation Ces). Illustration 1 p08 An Indian dealer imported 30 machines from America @ 200 dollars per machine. However the following expenses are not included init: 9 (@ Packing charges 10 dollars per machin 3u0*!0 et rob Gi) Transportation charges tolndian Bags 100 dollars gt cog GUS dd ofrSe a aa SA ae E > Kp Kon 2 a wo ¢ customs Rw ° ove x i ye Te Gii) Transit insurance premium 30 dollars jy pe (iv) Brokerage (excluding buying commission) 60 dollars: que eons The dealer incured the following expenses after delivery atthe port 0 (i) Transportation charges from port to his godown 7 oe wo ae Gi) Insurance premium % 500. (ii) Octroi & 2,000. i Compute assessable value to determine Customs Duty. Exchange rate is 1 dollar =z 69, Solution Computation of Assessable Value | (Exchange Rate 1 dollar = % 60) lars | Cost of Machines (30 x 200) 6,000 3,60,000 Packing chi ‘3g x10) 300 18,000 Brokerage ne } 60 3,600 FOB Value 3,81,600 Add : Transportation charges 100 6,000 Insurance premium 30 1,800 Assessable Value being CIF Value 3,89,400 ‘Loading, unloading and handling charges (Not to be added now, as amended by Circular No. 39/2017 dated 26.9.2017) Ni Assessable Value 00 Note : Expenses incurred after taking the goods from Indian port are not jncluded in the value of goods. Illustration 2 at An Indian dealer imported goods worth 10,000 dollars. However, the following expenses are not included in it : @ Buying Commission paid to an agent of Indian dealer 200 dollars... ii) Packing charges—Containers 500 dollars; other Packing materials 100 dollars; Labour, 1 elanga 900 tases fr abhor Pasng mater 200 dollars Labo g ii) Transportation charges to Indian Port, age (iv) Transit insurance premium, |; \aS{0 ‘0 Compute Assessable Value to determine customs Duty. Exchange rate : @ Declared by the R.B1. € 60.20 per dollar; i) Notified by the Board ¢ 60 per dollar. Solution Computation of Assessable Value (Exchange Rate 1 dollar = 60) Dollars z Cost of goods 10,000 ——6,00,000 Buying commission S = Packing charges 900 FOB Value 10,900 Add : Transportation charges (20% of FOB Value) Value Insurance Premium (1.125% of FOB Value) Assessable Value being CIF Value Loading, unloading and handling charges (Not to be added now, as amended by Circular No. 39/2017 dated 26.9.2017) Assessable Value Notes :1. Commission on the purchase of goods is not to be included in the Assessable Value of goods, 2. If transportation cost is not given then it will be taken as 20% of FOB value. 3. Ifthe amount of Insurance Premium is not given then it wll be taken as 1.125% of the FOB Value.COMPUTATION OF ASSESSABLE... —— .CUSTOMS DUTY iastration 3 Val i gable Value of the maghine for Customs Duty : 27 dian im) is ‘An Indian imported a machine from London, from the following information determine the (i) Costofmachine * b (ii) Pas es (0 eo! ii) Transportation charges by air ashott wt 6 Commission paid to th broker arranged the deal ,00 i A i) Insurance premium eee ee ry : (vii) Transportation charges from aij i (viii) Rate of exchange £ 1=% 90. facto | Solution Computation of Assessable Value of Machine | (Exchange Rate £ 1=% 90) £ g Cost of Machine 10,000 9,00,000 Commission 100 9,000 Packing charges 500 45,000 FOBValue 10,600 —_—9,54,000 Add : Transportation charges (Max. 20% of FOB Value) 2,120 1,90,800 Insurance premium 500 45,000 Assessable Value being CIF Value 13,220 11,89,800 Loading, unloading and handling charges (Not to be added now, as amended by Circular No. 39/2017 dated 26.9.2017) Assessable Value Notes : 1. Expenses for assembling the Machine are not included in Assessable Value. 2. Transportation charges from Airport to factory and insurance premium have not been included in the Assessable Value. 3. Both these cost incurred from the factory of the exporter hence not a part of assessable value, 4. Airport is restricted upto 20% of FOB value. Illustration 4 ‘A company imported a machine from Europe. From the following information determine the Assessable Value for Customs Duty : . Cost of Machine, but it does not include The im si exporter for the machine. pe a Installation charges of machine in tory wor cy . Packing charges -Y — ‘fransportation charges / PEAS KpP se 10. Exchange rate declared by the Board % 70.per Euro. 41. Exchange rate declared by the R.B.I. % 71 per Euro. Solution Computation of Assessable Value of Machine (Exchange Rate Euro Cost of Machine 25,000 Goods supplied by Importer _ Design & development charges 5,000 Packing charges i 500 FOBValue 25,000 Euro It wal sed in manufacturing the machine. 21,00,000t'1” 2 incurred outside IndidT S000 Euro Design and development expen: a Pesan ar fee paid to exporter after import of machine ou Aw 2 4000 Euro f onthe to fo vee 50,000 500 Euro . 00 Euro Insurance premium paid in India” agi bhen Euro Transportation and insurance charges from port to factory CRorOrr % 10,000 1 Euro = 70) z 17,50,000 1,00,000 22,35,000 + ee a28 CUSTOMS DUTY ‘Add : Transportation charges 1,000 70,000 Insurance premium 500 _ 35.000 Assessable Value being CIF Value 33,40,000 Handling charges (Not to be added now, as amended by Circular No, 39/2017 dated 26.9.2017) Nil Assessable Value 23,40,000 ‘Transport incurred after the entry of the is in India, expenses on installation of the cee machine remmieal Soret toch in isoessoble Value - Illustration 5 & ‘An importer has imported a machine at invoice price of 16, 000 dollars. From the following information determine the assessable valye of the machine for Custom Duty : (i) Packing charges 800 dollars. (i) Transport charges by air 4,800 dollars. (ii) Insurance Premium 1,050 dollars. (iv) Transportation charges from Indian airport to godown & 8,000." mo (e) Commission paid tothe broker of exporter who arranged the deal 190 dollars(° Exchange Fate notified by the Board 1 dollar = % 60. Solution Computation of Assessable Value Dollars Invoice Value of machine 16,000 Packing charges 800 Brokerage commission 190 *FOBValue ‘16,890 Add : Freight (20% of FOB value) diua) sce let? - 31398 Insurance aang! 1,050 Asemabls Valu being CIF Value ZLAS8 CIF value in ¢ (21,438 x 60) 12,86,280 Landing charges (Not to be added now, as amended by Circular No. 39/2017 dated 26.9.2017) Nil S Assessable Value 12,8680 Illustration 6 Amaterial was imported by air at CIF price of 5,000 US$. Freight paid was 1,500 US$ and insurance cost was 500 US$. The banker realized the payment from importer at the exchange rate of & 61 per dollar. Central Board of Indirect Taxes and Customs notified the exchange rate as % 60 per USS, Find the value of the material for the purpose of levying duty. Solution Computation of Assessable Value Particulars US$ CIF value 5,000 Less : Freight (1,500 Less : Insurance (© _500 Therefore, FOB value 3,000 Assessable value for Customs purpose FOB value , rt we or 3,000 Add :Freight (20% of FOB value) (Note-1] [00 0° 600 ‘Add : Insurance (actual) 500 CIF for customs purposing Assessable Value 4,100 Landing charges (Not to be added now, as amended by Circular No, 39/2017 dated 26.9.2017) Nil Value for customs purpose 4100 Exchange rate as per CBITC [Note-2] =60 per “Assessable value (% 60x 4,100 US $) = 2,46,000COMPUTATION OF ASSESSABLE, 1. If the goods are imported by ai we S.CBIT&C notified rate to bean a 29 the freight cannot exceed 20% of FOB price. msi L. ion 7 mm the particulars gi a Grams Act 1962, 07 below find out the Assessable Value of the imported goods under (i) Cost of the machine at the factory of the exporter 10,000 i) Transport charges from the fa Gi 0 tory of exporter to the port for shipment (ii) Handling charges paid for loading the machine inthe ship {-F2¢ 7 6) Buying commission pid by the importer 7 (v) Freight charges from export iay 1,000} (vi) Exchange rate tobe considered 189 60 (vii) Actual insurance charges pai : paid are not ascertainabl Solution . Computation of Assessable Value of the imported goods i) Cost of the machine at the factory (ii) ‘Transport charges up to port Gii) Handling charges at the port (iv) Freight charges up to India (v) Insurance charges @ 1.125% of FOB [Note-1] ‘Assessable Value being CIF Value 11,669 CIF in Indian rupees @t 60/ per $ 3 7,00,140 Landing charges @ 1% of CIF (Not to be added now, as amended by Circular No. 39/2017 dated 26.9.2017) Nil Assessable Value 7,00,140 Notes: 1. Insurance charges and landing charges have been included @ 1.125% of FOB value of goods and 1% of CIF value of goods respectively. 2. Buying commission is not to be included in the assessable value. Illustration @) ABC & Company Ltd. has imported a machine from U.K. From the following particulars furnished by it, arrive at the Assessable Value for the purpose of customs duty payable. FOB I er ayer Yee Amount (£) 6) Price of the machine oe.) so tenet 10,000 GG Breight ain gop fob © 3,000 (ii) Engineering and design charges paid to a firm in U.K. fo ado 500 (iv) License free relating to imported goods payable by the/.0!020% of Price of machine buyer as a condition of sale ¢o (v) Materials and components supplied in UK by the buyer free of cost valued at % 20,000 gad creas” (Qh) Insurance paid to the insurer in India 26,000 a (vii) Buying commission paid by the buyer to his agentin U.K. \[- £100 Other particulars : . @) Inter-bank exchange rate : ¥ 98 per U.K. Pound udod gn Gi) CBITC had notified exchange rate of ¥ 100 per U.K. Pound. -\ ant Ly heh (ii) Importer paid % 5,000 towards demurrage charges for delay in clearing the ma from the Airport. — oa (Make suitable assumptions wherever required and show workings with explanations)CUSTOMS DUTY 30 ——_—_—_. Solution Computation of Assessable Value of Machine imported by ABC & Co. Amount £ Price of the machine 10,000 ‘Add : Engineering and design charges paid in UK [Note 1] 500 LGzene fee relating to imported mods payable bythe buyer asa condition of sale (20% of Price of machine) [Note 1] 2,000 Total 12,500 Amount (2) Value in Indian currency [£12,500 x 100] [Note 2] 12,50,000 Add : Materials and components supplied by the buyer free of cost [Note 1] 20,000 FOB 12,70,000 Add : Freight [Note 3] 2,54,000 Insurance paid to the insurer in India [Note 1] 6,000 Assessable Value being CIF Value —_15,30,000 Landing charges (Not to be added now, as amended by Circular No. 39/2017 dated 26.9.2017) Assessable value 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 includible in the assessable value. 2. Assessable value should be calculated with reference to the rate of exchange notified by the CBIT&C. 8. Lf the goods are imported by air, the freight cannot exceed 20% of FOB price. 4. Buying commission is not included in the assessable value. 5. Only ship demurrage charges on chartered vessels are 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 ‘value. COMPUTATION OF CUSTOMS DUTY Illustration 9 From the following particulars calculate the Customs Duty payable : @) Assessable Value of imported goods % 5,00,000. Gi) Basic Customs Duty payable @ 10%. (iii) Integrated Tax u/s 3(7) of Customs Tariff. 1975 @ 12% (ignore GST Compensation Te il Bed SUG tah = il Solution Computation of Customs Duty Payable z Basic Customs Duty on 7 5,00,000 @ 10% of Assessable Value 50,000 Social Welfare Surcharge @ 10% of Basic Custom Duty 5,000 Add ; Integrated Tax ws 3(7) of Customs Tariff Act on 7 5,00,000 + 50,000 + 5,000 @ 12% 66,600 Total Customs Duty Payable —_1,21,600 Illustration 10 = From the following particulars calculate the Customs Duty payable : (@) Assessable Value of imported goods & 2,00,000. (ii) Basic Customs Duty payable @ 10%. ii) Integrated ‘Tax u/s 3(7) of Customs Tariff Act, 1975 is 12% (ignore GST CompensationCOMPUTATION OF ASSESSABLE. CUSTOMS DUTY 31 solution Computation of Customs Duty Payable Basic Customs Duty on & 2,00,000 @ 10% of Assessable Value Add : Social Welfare Surcharge @ 10% of Basic Custom Duty Add : Integrated Tax w/s 3(7) of Customs Tariff Act on & 2,00,000 + 20,000 + 2,000 = 2,22,000 @ 12% Total Customs Duty Payable lustration({1) Assessable value of an imported product is ¥ 40,000. Basic customs duty is 10%. Integrated ‘Tex ws 3(7) of Customs Tariff Act is 12% leviable. Find the total Custom Duty Payable (ignore GST Compensation Cess). Solution Computation of Customs Duty Payable z Basic Customs Duty on % 40,000 @ 10% 4,000 Add : Social Welfare Surcharge @ 10% of Basic Custom Duty 400 Add : Integrated Tax w/s 3(7) of Customs Tariff Act, 1975 (% 40,000 + 4,000 + 400) x 12% 5,328 ‘Total Customs Duty Payable 9,728 Tlustration(12) ' From the following information determine the Customs Duty payable : (CIF value of goods imported % 5,00,000 (ii) Rate of Basic Customs Duty 10% (ii) Integrated Tax ws 3(7) of Customs Tariff Act, 1975 12% (iv) Ignore Compensation Cess. Solution (A) Computation of Assessable Value of Goods z CIF Value being Assessable Value 5,00,000 Handling charges (Not to be added now, as amended by Circular No. 39/2017 dated 26.9.2017) Nil Assessable Value _5,00,000 (B) Computation of Customs Duty Payable () Basic Customs Duty on 5,00,000 @ 10% 50,000 (ii) Social Welfare Surcharge @ 10% of Basic Custom Duty 00 5,000 (ii) Integrated Tax w/s 3(7) of Customs Tariff Act (X 5,00,000 + 50,000) x 12% _ 66,600 Total Customs Duty Payable _1,21,600 Illustration 13 From the following particulars calculate the Customs Duty payable : (i) Assessable Value of imported goods & 1,50,000. AK (i) Basic Customs Duty payable @ 10%. ie cyl” Rey ii) Integrated Tax w/s 3(7) of Customs Tariff Act 18%. aye . (iv) The exporting country has subsidized the seller % 30,000. ead’ q (v) Ignore Compensation Cess. wu 4, DHCUSTOMS DUTY 32 —— Solution Computation of Customs Duty Payable z Basic Customs Duty on & 1,50,000 @ 10% 15,000 ‘Add : Social Welfare Surcharge @ 10% of Basic Custom Duty 11500 ‘Add : Integrated Tax ws 3(7) of Customs ‘Tariff Act (1,50,000 + 15,000 + 1,500) x 18% 29,970 jual to subsidy 30,000 : iling Dut subsi . ee ‘Total Customs Duty Payable 76,470 Illustration 14 X Co. imported goods from America, From the following informations determine the Customs Duty payable 6) Cost of goods / $15,000 ii) Packing charges $3,000 ii) Paid commission in India to the broker who arranged the/ 0 : deal abroad » v ‘210,000 (iv) Freight from America to Indian port ( $2,000 (v) Insurance premium: $1,000 (vi) Exchange rate : (a) Declared by the Board —1 dollar = 40,00 (b) Declared by the R.B.I. 1 dollar = % 60.50 10% (vii) Rate of Basic Customs Duty Integrated Tax w/s 3(7) of Customs Tariff Act, 1975 @ 12%. (ix) Ignore Compensation Cess under GST. Solution (A) Computation of Assessable Value of Machine (Exchange Rate : 7 dollar = % 60) z 1. Cost of goods 15,000 9,00,000 2. Packing charges 3,000 ——_1,80,000 3. Commission — 10,000 FOB Value 10,90,000 Add : Freight 2,000 1,20,000 1,000 60,000 Assessable Value being CIF Value —_12,70,000 Loading, unloading and handling Charges (Not to be added now, as amended by Circular No. 39/2017 dated 26.9.2017) Assessable Value Insurance premium Nil (B) Computation of Customs Duty Payable z Basic Customs Duty on 12,70,000 @ 10% 1,27,000 ‘Add : Social Welfare Surcharge @ 10% of Basic Custom Duty 12,700 Add : Integrated Tax w/s 3(7) of Customs Tariff Act, 1975 (12,70,000 + 1,27,700 + 12,700) x 12% i 1,69,164 Total Customs Duty Payable 308,864 Illustration 15 ‘An importer has imported raw material from America at a cost of 50,000 dollars. Other details are as follows : 1. Goods were packed for which packing charges were charged $5,000 2. Goods were stuffed in returnable container, price of container is $2,000COMPUTATION OF ASSESSABLE... CUSTOMS DUTY 33 —, Insurance charges t $250 4, Sea freight charges “ $ 4,000 5, Importer had paid commission to broker in America who arranged the transaction $500 6, Rate of Exchange 1 dollar = = 60 7. Customs duty 10% 8, Integrated Tax ws 3(7) of Customs Tariff Act, 1975 12% Find the customs duty payable (Ignore Compensation Cess under GST). Solution Computation of Assessable Value (Exchange rate 1 dollar = % 60) $ z Cost of goods includi i 50,000 30,00,000 Packing charges aaeee 5,000 _3,00,000 Commission _”’30,000 FOB Value 33,30,000 Add : Insurance 15,000 Freight --2,40,000 Assessable Value being CIF Value 35,85,000 Handling charges (Not to be added now, as amended by Circular No. 39/2017 dated 26.9.2017) ‘Assessable Value Computation of Customs Duty Payable 1. Basic Customs Duty (35,85,000 @ 10%) ‘Add : Social Welfare Surcharge @ 10% of Basic Custom Duty 2. Integrated Tax ws 3(7) of Customs Tariff Act, 1975 (85,85,000 + 3,58,500 + 35,850) x 12% ‘Total Customs Duty Payable g Note : Cost of container shall not be included in assessable value, since it is not an essential packing to make goods marketable. Iustration 16 An Indian importer imported raw materials for 5,000 dollars. Following informations are available : (i) Packing charges of goods 120 dollars. (i) Goods were stuffed in container (returnable) price of the container is 400 dollars. (ii) Insurance Premium 50 dollars. (iv) Sea freight 160 dollars. (v) Importer had paid commission of 100 dollars to a broker who arranged the transaction. (vi) Dollar Rate is ¥ 60 = 1 dollar. (vii) Basic customs duty is 10%. (viii) Integrated Tax u/s 3(7) of Customs Tariff Act, 1975 @ 12%. Find out the assessable value of imported goods and customs duty payable (Ignore Compensation Cess under GST). Solution Computation of Assessable Value (Exchange Rate 1 Dollar = ? 60) $ z Purchase price of goods , 5,000 —_-3,00,000 Add : Packing charges 120 7,200CUSTOMS DUTY 34 Returnable containers (Not added in assessable value) faa iets ® FOB Value 5220 3.13.20 i 160 9,600 Add : Sea freight Y Insurance Premium 50 3,000 Assessable Value being CIF Value 5430 3,25,800 dling charges (Not to be added now, Rel gyecnaneed by Circular No. 39/2017 dated 26.9.2017) Nil Assessable Value 3.95.80 Computation of Customs Duty Payable z 1, Basic Customs Duty @ 10% on % 3,25,800 32,580 ‘Add : Social Welfare Surcharge @ 10% of Basic Custom Duty 3.258 2, Integrated Tax ws 3(7) of Customs Tariff Act, 1975 (3,25,800 + 82,580 + 3,258) x 12% 43,397 Total Customs Duty Payable 79,335 Note : Value of returnable container shall not be included in assessable value, since it returned. Therefore, does not. effect the cost of import. QUESTIONS 1, Explain the items includable in determining Assessable Value under Customs Duty Act. 2, Explain valuation rules under Custom Duty. PRACTICAL QUESTIONS 1, From the following particulars determine the Assessable Value of the imported machine from Japan. 1. FOB cost of machine yen 2,00,000 2. Freight charge ‘yen 20,000 3. Development charges paid in India 60,000 4. Insurance charges paid in India for transportation from Japan / 15,000 5. Commission payable to agent in India / % 15,000 RBI exchange rate 1 yen =% 0.45 4 6, CBITC exchange rate 1 yen ¥ 0.50 Ory Wn . Loading charges : 1% CIF cost: \ 19 Ans. Assessable Value & 1,40,000. 2. Compute Assessable Value of a machine imported from USA from the following particulars : 1. FOB value of the machine USD 4,000 2. Accessories compulsory supplied with the machine USD 1,000 3. Airfreight USD 1,200 4, het charges-Actual not available 5. mits commission paid in India 9,300 6. Transportation charges from Indian Aitport to factory = 4,000 Exchange Rate - 1 USD = ® 60 Ans. Assessable Value & 3,72,675. . 8. ABC Lid. imported a machine from USA. Compute Assessable Value of the some from the following details : 1. FOB value of the machine USD 15,000 2. Air freight paid USD 4,000 3. Transit insurance of the machine unascertainable 4. Cost of design work done in India % 45,000 5. Indian local agent's commission 2 15,000 6. Cost of transport from port to factory 25,000 Exchange Rate 1 USD = 60 Ans. Assessable Value f 11,05,140. w