Amendment to Customs Valuation Rules, 2007 and Its Impact On Duty - Part 1
OCTOBER 11, 2017
By G Mohana Rao, Assistant Commissioner (Retd.)
THE Customs Valuation (Determination of Value of Imported Goods) Rules, 2007 have been amended vide Notification No. 91/2017-Customs dated 26th September, 2017. The crux of the issue is 'Place of Importation'.
Even though Section 14 discussed about the value of goods to be determined at the place of importation, the phrase "place of importation" was not defined. The WTO agreement directs that the members are free to define "place of importation" for themselves. One could define it as the point where the goods cross the land frontier for the first time or it could be defined as the point inside the country where the goods are brought for clearance for home consumption, say ICD.
This has now been defined in the Valuation Rules as:
"place of importation" means the customs station, where the goods are brought for being cleared for home consumption or for being removed for deposit in a warehouse;
Addition of landing charges of 1%: Another issue that was pending for clarity is Landing Charges. The presumptive methodology of taking landing charges at 1% when the actual landing charges were available was set aside by the Hon'ble Supreme Court in the case of M/s Wipro Ltd. - 2015-TIOL-79-SC-CUS. This is explicable as the valuation rules are premised on the transaction value concept i.e "the price actually paid or payable". Any presumptive method of valuation goes against the spirit of this principle. And, this creates tax follies, as well. For instance, in case of import of software worth Rs. 5 crores, the actual landing charges would be very minimal amounting to a few hundred rupees only, whereas the landing charges at 1% would be Rs. 5 lacs. A complete mismatch!
The judgment of M/s Wipro Ltd was delivered in April, 2015, however, the consequential amendment in the Customs Valuation Rules, took two years to materialise. The government has gone even one step further and has mandated that there will be no addition of 1% landing charges at the place of import. The word "at" in rule 10(2)(a) changes to "to". So, effectively, now, the assessable value shall exclude landing charges incurred at the port of import. Thus,the CIF value of the goods would be the assessable value of the imported goods as against the 'CIF plus 1%' earlier.
The Board Circular No. 39/2017-Customs dated 26th September, 2017 further explains that the phrase "loading, unloading and handling charges" appearing in the amended Rule 10 (2) (a) is to be understood as the loading and handling charges incurred at the load port. The only hitch could be in valuation of imports on 'Ex-works'basis. The landing charges at the load port need to be included in the value and an importer may have to provide evidence to the department to the effect that landing charges are indeed included in the freight amount and /or in the invoice value.
Impact On Transhipment: All costs associated with transport, loading, unloading, handling charges for transhipment of goods by road/ railways were earlier not included (but not so when the transport was by sea or air).But in terms of the amendment, the goods imported and transhipped by sea or air to another customs station in India, the cost of insurance, transport, loading, unloading, handling charges associated with such transhipment shall also be excluded .It is certainly a relief for the transhipment goods by air or sea and may boost cabotage transport within the country.
The new valuation law certainly bring relief to the importers in a great way. It reduces the import cost directly and indirectly.
However, one issue which remains still unresolved is determination of assessable value in respect of shipments having Inco-terms such as DDP (Delivered Duty Paid) cases.
And this I would dwell upon in the concluding part.
To be continued…
(The author is Partner, Elysian Tax Advisors, Mumbai and the views expressed above are strictly personal.)
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