Chapter 5 VALUATION

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Table of Content
Sections Descriptions Rules Descriptions Rules Descriptions

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Customs Valuation Customs Valuation (Determination of Price of Customs Valuation (Determination of Price of
Imported Goods)Rule, 2007 Export Goods)Rule, 2007
14(1) Transaction Value of Imported
Goods & Export Goods 2(1)(d) Identical Goods 2(1)(a) Goods of like kind and quality
2(1)(f) Similar Goods 2(2) Related
Proviso 14(1) Relevant Date for Exchange Rate
2(2) Related 3 Determination of method of valuation
14(2) Tariff Value 3 Determination of the method of valuation - 4 Determination of export value by comparison
14(3) Exchange Rate by CBEC Transaction Value 5 Computed value method
4 Transaction value of identical goods 6 Residual Method
5 Transaction value of similar goods 7 Declaration by the exporter
6 Determination of value where value cannot be 8 Rejection of declared value
determined under rules 3,4 and 5
7 Deductive Value
8 Computed Value
9 Residual Method
10 Cost and services - Adjustment in Transaction
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Value
11 Declaration by the importer
12 Rejection of declared value
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 VALUATION
under the customs act, 1962
Duties of customs on imported goods or export goods is chargeable in following manner
1. A Specific duty: It is based on some measurement or quantities.

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2. Ad-valorem duty: It is levied as percentage of value of goods i.e. 15 % ad- valorem.

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SEC 2(41) CONCEPT OF VALUE
Section 2(41) of the Custom Act,1962, defines value in relation to any goods as the value thereof determined in accordance
with the provision of section 14(1) or Section 14(2)

TECHNICAL TERMS RELATING TO VALUE IN THE COURSE OF IMPORT OR EXPORT

(1) Ex-Factory Price It is the price of the goods as comes out of the factory. It includes cost of production and
manufacturer's margin of profit.
(2) F.A.S ( Free Alongside) It is the cost at which the export goods are delivered alongside the ship, ready for shipment.
It includes ex- factory +local freight + local taxes.
(3) F.O.B. (Free on Board) Technically there is not much of a difference between FAS and FOB cost. FOB means the
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stage at which the goods are placed on board the conveyance carrying the vessel. It can be
said to include FAS + loading charges + export duty cess.
(4) C.I.F. (Cost Insurance It is the cost at which the goods are delivered at the Indian port. It covers cost of goods.
Freight) Some times there is referred as CFC also

PRICING SYSTEM IN INTERNATIONAL MARKET

S CUSTOM
CUSTOM S

F.O.B. ?

(Free on Board)
USA
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?
Exporter ? Customs
Port
C.I.F.
?
(Cost Insurance
?
Freight

Ex-Factory F.A.S.
Price (Free Alongside)

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 SEC 14: VALUATION OF GOODS
SEC 14(1) TRANSACTION VALUE
For the purposes of the Customs Tariff Act, 1975 , or any other law for the time being in force, the value of the
imported goods and export goods shall be the transaction value of such goods, that is to say,

► The price actually paid or payable for the goods when sold for

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● Export to India for delivery at the time and place of importation(for imported goods) , or
● Export from India for delivery at the time and place of exportation(for exported goods) ,
► Where the buyer and seller of the goods are not related and
► Price is the sole consideration for the sale
► Subject to such other conditions as may be specified
in the rules made in this behalf

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Provided that such transaction value in the case of imported
goods shall include, in addition to the price as aforesaid, any amount paid or payable for costs and services, including
● commissions and brokerage,
● engineering, design work,
● royalties and licence fees,
● costs of transportation to the place of importation, CUSTOMS
● insurance, VALUATION
● loading, unloading and handling charges to the extent (DETERMINATION OF
and in the manner specified in the rules made in this behalf: VALUE OF IMPORTED
GOODS) RULES, 2007
Provided further that the rules made in this behalf may provide for,
I) The circumstances in which the buyer and the seller shall be deemed to be related;
ii) The manner of determination of value in respect of goods when there is no sale, or the buyer and the seller are related,
or price is not the sole consideration for the sale or in any other case;
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iii) The manner of acceptance or rejection of value declared by the importer or exporter, as the case may be, where the
proper officer has reason to doubt the truth or accuracy of such value, and determination of value for the purposes of this
section:
NOTES:
1. 'The price actually paid or payable' is the total payment made or to be made by the buyer to or for the benefit of the
seller of imported goods.
2. Post importation Expenses-The value of imported goods shall not include the following charges or costs, because
they are distinguished from the price actually paid or payable for the imported goods & all charges or costs are post
importation expenses.
► Charges for construction, erection, assembly, maintenance, or technical assistance
► Cost of transport after importation
► Duties and Taxes in India

CONVERSION DATES FOR FOREIGN EXCHANGE RATE

(i) For imported goods, the conversion in value shall be done with reference to the rate of exchange prevalent on the date
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of filing bill of entry under section 46.

(ii) For export goods, the conversion in value shall be done with reference to the rate of exchange prevalent on the date of
filing shipping bill (vessel or aircraft) or bill of export (vehicle) under section 50.
CURRENCY CONVERSION RATE
(I) The rate of exchange is notified by three agencies-
E the Central Board of Indirect Taxes and Customs (Board),
E the Reserve Bank of India and
E the Foreign Exchange Dealers' Association of India.
For the purpose of customs valuation, “rate of exchange” means the rate of exchange-
(I) determined by the Board, or
(ii) ascertained in such manner as the Board may direct,
for the conversion of Indian currency into foreign currency or foreign currency into Indian currency. Thus, for the purpose of
valuation under customs laws, rate notified by CBIC (Board) shall be taken into account.
The CBIC notifies the rates on a monthly basis applicable from the first day of the month. There are separate rates for goods
(selling rate) and export goods (buying rate).
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 Lets understand relevant date for duty rate & exchange rate
Sr. Relevant date for duty Relevant date for
Particulars
No. under sec 15 and 16 Exchange Rate

1. If goods entered for home consumption

a. B/E presented after Entry inward Date of B/E Date of B/E

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b. B/E presented before Entry inward Date of Entry inward Date of B/E

2. If goods cleared from a warehouse Date of Ex-bond B/E Date of Into bond B/E

3. If goods entered for export under section 50 Date of let Export Order Date of Shipping Bill or

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Bill of Export

SEC 14(2) TARIFF VALUE

It provides that the Board may fix tariff values for any class of imported goods or export goods, having regard to the trend of value
of such or like goods by notification in the Official Gazette if it is satisfied that it is necessary to do so.
Where any such tariff values are fixed, the duty shall be chargeable with reference to such tariff value. Provisions of sub-
section (2) have an overriding effect on the provisions of sub-section (1).

Question:-
Mr. X has imported the gold from U.S. following are the details:
Quantity of gold 20,000 grams
Date of arrival of vessel 14/02/2020
Date of entry inward granted 15/02/2020
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Date of bill of entry presented 14/02/2020

Particular Value Rate

Tariff value 14/02/2020 409 Per 10 gram 10%
15/02/2020 410 per 10 gram 11%
Calculate the value.

Answer:-
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 VALUATION

SEC 14(1) TRANSACTION VALUE SEC 14(2) TARIFF VALUE

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Imported goods Export goods Notwithstanding anything contained in sub-
The value of imported goods shall Value of export goods shall be the section 14(1), if the Board is satisfied that it is
be the transaction value of transaction value of such necessary or expedient so to do, it may, by
such goods i.e. to say: goods i.e. to say: notification in the Official Gazette, fix tariff
Ø Price actually paid or Ø Price actually paid or values for any class of imported goods or

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payable for goods when sold payable for goods when sold export goods, having regard to the trend of
for export to India. for export from India. value of such or like goods, and where any
Ø For delivery at the time & Ø For delivery at the time & such tariff values are fixed, the duty shall be
place of importation. place of exportation. chargeable with reference to such tariff
Ø Where the buyer & seller of Ø Where the buyer & seller of value.
the goods are not related. the goods are not related.
Ø Price is sole consideration Ø Price is sole consideration
for sale. for the sale.
Ø Subject to such other Ø Subject to such other
conditions as may be conditions as may be
specified in the rules made specified in the rules made
in this behalf. in this behalf.
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Meaning of Price actually paid or payable for goods when sold
CASE List Adjustment Price Additional Points T.V. REMARK
price actually
paid or
payable
1 Rs. Normal Rs. 80 Rs. 80 Price after discount will be considered
100 discount offered as T.V.
Rs.20
2 Rs. Rs. 100 Cost of production of Export Rs. 100 T.V. is price actually paid or payable
100 goods is Rs 150 by importer & cost of goods is not
relevant
3 Rs. Rs. Price of identical goods Rs. 100 T.V. is price actually paid or payable
100 100 prevailing in the market Rs by importer & price of like goods is
150. not relevant
4 Rs. Rs. Contract for Rs 100 entered Rs. 100
between buyer and seller T.V. is price actually paid or payable
100 100
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was before 6 month. On by importer & price of like goods is

date of importation price of not relevant
Identical goods prevailing
is Rs. 200
5 Rs. Exclusive Rs 60 Buyer is asked not to Rs 60 T.V. is price actually paid or payable
100 discount or disclose the specially
reduction given reduced price to any other by importer subject to other
to buyer of Rs. party in India conditions in rule
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6 Rs. A b n o r m a l Rs 20 Rs 20
T.V. is price actually paid or payable
100 discount of Rs. 80
is given to buyer
by importer subject to other
to clear the dead conditions in rule
stock.

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 CUSTOMS VALUATION (DETERMINATION OF PRICE OF IMPORTED GOODS) RULE, 2007
RULE 3 TRANSACTION VALUE

RULE 3(1) RULE 3(2)

T.V. & Adjustments Conditions for T.V.

SUBJECT TO RULE 12, the value of imported (Example 1)

Transaction Value of imported shall be

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goods shall be the TRANSACTION VALUE accepted subject to following conditions
adjusted in accordance with provisions of Q. a seller requires a buyer of automobiles
RULE 10. a) There are no restrictions as to the not to sell or exhibit them prior to
disposition or use of the goods by the fixed date which represent the
RULE 12 buyer other than restrictions which - beginning of a model year
Rejection of F Are imposed or required by law or A. Restriction of seller regarding exhibition

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Transaction Value by the public authorities in India; or of goods does not substantially
F Limit the geographical area in affect the value, hence TV is
which the goods may be resold or acceptable.
RULE 10: ADJUSTMENT IN T.V.
F Do not substantially affect the
value of the goods; Q. Machine is sold at a nominal price on a
condition that the buyer uses it only
RULE 10(1) RULE 10(2) (See Example 1)
for a charitable purpose
a) C o m m i s s i o n & a) Cost of A. Restriction regarding use of goods for
brokerage transportation Ÿ b) The sale or price is not subject to charitable use substantially affect
b) C o s t o f G o o d s o r b) Cost of some condition or consideration the value and hence TV is not
service supplied by Insurance for which a value cannot be acceptable.
buyer c) Landing determined in respect of the goods
c) Royalties & license Charges being valued. (Example 2)
fees (See Example 2)
a) The seller establishes the price of the
d) Subsequent pay back Ÿ c) No part of the proceeds of any imported goods on condition that the
to the seller subsequent resale, disposal or use of buyer will also buy other goods in
e) All other payments the goods by the buyer will accrue specified quantities.
actually made as a directly or indirectly to the seller, b) The price of the imported goods is
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condition of sale unless an appropriate adjustment can dependent upon the price or prices at
be made in accordance with the which the buyer of the imported goods
provisions of Rule 10 of these rules, sells other goods to the seller of the
and imported goods.
c) The price is established on the basis of a
RULE 2(2) RELATED Ÿ d) The buyer and seller are not form of payment extraneous to the
For the purpose of these rules, persons shall RELATED, imported goods, such as where the
be deemed to be "related" only if - Ÿ Provided that where the buyer and seller imported goods are semi finished goods
are related, that transaction value is which have been provided by the seller
I. They are officers or directors of one acceptable for customs purposes on condition that he will receive a
another's businesses; under the provisions of specified quantity of the finished goods.
II. They are legally recognized partners in Ÿ SUB - RULE (3) below.
business;
III. They are employer and employee; RULE 3(3) TRANSACTION VALUE ACCEPTABLE EVEN THOUGH BUYER AND
IV. Any person directly or indirectly owns, SELLER ARE RELATED.
controls or holds 5 per cent or more of
the outstanding voting stock or shares of (a) Where the buyer and seller are related, the transaction Tutorial Notes
both of them; value shall be accepted provided that the examination
V. One of them directly or indirectly of the circumstances of the sale of the imported goods
indicate that the relationship did not influence the price. Such examination will
controls the other;
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(b) In a sale between related persons, the transaction only be required where
VI. Both of them are directly or indirectly there are doubts about
controlled by a third person; value shall be accepted, whenever the importer
demonstrates that the declared value of the goods the acceptability of the
VII. Together they directly or indirectly price. Where the proper
being valued, closely approximates to one of the
control a third person; officer of customs has no
following values ascertained at or about the same time.
VIII. They are members of the same family. doubts about the
(i) the transaction value of identical goods, or of similar
Explanation: sole agent / distributor shall be goods, in sales to unrelated buyers in India; acceptability of the price,
treated as related only if they are covered (ii) the deductive value for identical goods or similar it should be accepted
within any criteria of this sub-rule goods; without requesting
(iii) the computed value for identical goods or similar goods further information from
the importer.
Rule 3(4):
If the value cannot be determined under the provisions of rule 3(1) or 3(2), the value shall be determined by proceeding
SEQUENTIALLY THROUGH RULE 4 TO 9.

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 RULE 10(1) ADJUSTMENT IN T.V.
While determining the transaction value there shall be added in the price actually paid or payable for
imported goods namely:

a) Commission, brokerage and packing etc. c) Royalty & licence fees: d) The value of any part e) All other payments
b) Free assistance by Ø Related to imported goods.
Following cost or services: buyer of proceeds of actually made or to
Ø Buyer is required to pay directly or subsequent resale, be made:
Ø To the extent they are incurred by the buyer and Apportioned value of the indirectly as a condition of sale of disposal of imported Ø As a condition of
Ø Are not included in the price actually paid or following goods or goods being valued. goods accrued
payable for imported goods. services: Ø To the extent that such royalty &
sale of imported
directly or indirectly goods.
Ø Where supplied directly license fees are not included in price to the seller.
actually paid or payable. Ø By the buyer to or on
or indirectly by the buyer Comment: Dividend
I) Commission ii) C o s t o f iii) C o s t o f Comment: Royalty and licence fees the behalf of seller.
at free of cost or reduced distribution by the buyer to
and brokerage c o n t a i n e r i n packing which cost for use in connection includes patents, know how, copyrights, the seller (subsidiary to Ø To the extent that
brand name or trade name. holding) shall not be such payment is not
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except buying which goods are includes cost of with production & sale of
commission labour and Explanation: Where royalty or license treated as part of proceeds included in price
imported imported goods. actually paid or
material fees or any other payment made by the of subsequent resale and
Ø To the extent that such buyer for any process shall be added in hence not includible in payable.
Comment 1. v a l u e h a s n o t b e e n the transaction value not withstanding to transaction value.
Definition of buying commission: Buying included in the price the fact that such process is carried out in Example:
Example:
commission means fees paid by importer to agent for actually paid or payable. India after importation of imported goods. Value of Machine 10,000
Value of Machine 10,000
representing abroad on behalf of importer and also for Example: Mr. X import a software (Master copy) of
Dividend Paid by importer Importer paid to Mr. X on
supply of information about prospective vendors. Window & paid license fee with permission to usecompany `200 behalf of supplier ` 500.
its copies at various branches by making After sale of machine 2% of Calculate value
Comment 2. additional copies of it. Calculate value Answer:-
Value of Hard Disk: ` 500
sale value paid by importer.
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Commission or brokerage paid in India : Following Calculate value
License Fee : ` 15,000
commission / brokerage includible in TV . Answer:-
- Commission paid to local agent in India Answer:-
- Commission paid to cannalising agency

Comment 3. i) Material, components, ii) Tools, moulds, dies & iii) Material iv) Engineering, development, art work,
Cost of returnable container: It is not includible in TV parts and similar items similar items ↓ design, plan & sketches
if importer executes a bond for re-export of containers ↓ ↓ Consumed in the ↓
within six months (extendable upto one year) Incorporated in the Used in the production of production of Undertaken elsewhere than in India &
imported goods. imported goods imported goods. necessary for production of imported goods.
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Example:- Answer:-
FOB value 1000 Example: FOB Value of Goods 1000 Ü Material Supplied by Importer 50 ÜTools used in production supplied by importer 100
Üsketches supplied by importer undertaken in USA . Calculate value 60
Buying Commission 50 Answer:-
Returnable container 20
Non-returnable
Brokarage in India
Calculate value.
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1) If goods are produced by the importer cost of production of such goods shall be included.
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Comment: Apportioned value of above goods and services shall be determined in the following manner:

2) If goods or services are acquired by the importer cost of acquisition is included in transaction value.

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 EXAMPLE 1: COMMISSION & BROKERAGE (RULE 10(1)(a)) 
Any commission or brokerage paid by the buyer for conclusion of contract is includible in transaction value

Includible in transaction
Cases value or not? Remark

Selling Commission already charged in Invoice Question of separate

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No addition does not arise
SELLING Selling Commission charged by seller by issuing Rule 10(1)(a)
COMMISSION separate invoice Yes
Selling Commission paid by the buyer on the instruction Rule 10(1)(a)

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seller to the foreign agent. Yes
Selling Commission paid by the buyer on the instruction
seller to the Local agent India. Rule 10(1)(a)
Yes
BUYING "Buying commissions” paid by an importer to his agent for Under Rule 10(1)(a),
COMMISSION the service of representing him abroad in the purchase of No specifically excluded.
the goods being valued.

EXAMPLE 2: PAYMENTS AS CONDITION OF SALE BY THE BUYER TO OR ON BEHALF OF SELLER (CONDITION OF SALE ALSO
INCLUDES IMPLICIT CONDITIONS) (RULE 10(1)(e))

PAYMENT BY BUYER TO OR ON INCLUDIBLE IN REMARK

BEHALF OF SELLER TRANSACTION
VALUE OR NOT?
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1. Dismantling charges Bombay Dyeing & Mfg Co Ltd. Dismantling
charges is includible in TV because without
Yes dismantling of machinery, it is not possible to bring
the goods to India. It is an implicit condition of sale.
2. Agreement of sale depict As per Rule 10(1)(e), any otherpayment made by
compulsory charged by Yes buyer to the seller as a condition of sale, then it is
includible in TV.
seller
Drawing
or design Agreement of sale does not As per Rule 10(1)(e), any payment made by buyer to
charges depict compulsory charged Yes seller as a condition of sale, then it is includible in TV
by seller but without this – conditions of sale is also an implicit condition.
drawing it is not possible to
install the imported goods.
3. Interest for late payment Interest or bank charges are financial charges
No related to late payment. It has no concern with sale
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of goods
4. Bank charges No -same as above-

Rule 10(2) Amended with N/n : 91/2017 dated 26th September, 2017
Rule 2 - Definition
Rule 2 place of importation" means the customs station, where the goods are brought for being cleared for home
(da) consumption or for being removed for deposit in a warehouse.

Tutorial Notes
The term “place of importation” was used in the Custom Valuation Rules however, the said term was not defined. In order to bring in clarity, the
definition of term place of importation has been inserted in said rules.
In view of the above definition, the transaction value of the imported goods in terms of section 14 of the Customs Act, 1962 would include the costs
incurred up to the place of importation, as defined above.

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Rule 10(2) - Cost of transportation & Insurance
(2) For the purposes of sub-section (1) of section 14 of the Customs Act, 1962 and these rules, the value of the
imported goods shall be the value of such goods, and shall include -
(a) the cost of transport, loading, unloading and handling charges associated with the delivery of the imported
goods to the place of importation
(b) the cost of insurance to the place of importation

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Circular No. 39/2017 - Cust., dated 26-9-2017
Handling “at” port not includible : The loading, unloading and handling charges associated with delivery of imported
goods at the place of importation, shall not be added. Only such charges “upto” the place of importation are added on
actual basis.

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Meaning of “loading, unloading and handling charges” : In accordance with Article 8(2) of the WTO Agreement, it
means “the cost of transport of the imported goods to the port or place of importation”. Thus, only charges incurred for
delivery of goods “to” the place of importation (such as the loading and handling charges incurred at the load
port) shall be includible in the transaction value.
Important Comment : Treatment of the loading, unloading and handling charges under the amended provisions
Thus, under the amended provisions of rule 10(2) of CVR, 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.
The phrase “loading, unloading and handling charges” appearing in the amended rule is to be understood in context of
Article 8(2) of the WTO Agreement which reads as “the cost of transport of the imported goods to the port or place of
importation”.
Only charges incurred for delivery goods at port in the country of export to be added in value loading unloading
& other related cost to delivery at Indian Custom station is not to be included in value of imported goods.
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Proviso 1 Provided that where the cost referred to in clause (a) is not ascertainable, such cost shall be 20% of the
free on board value of the goods:
Example :- Particulars US $
FOB value 1,000
Freight, loading, unloading and handling charges associated with the delivery of the imported goods Not known
to the place of importation
Insurance charges 10
Answer :-

Provided further that where the free on board value of the goods is not ascertainable but the sum of free on
Proviso 2 board value of the goods and the cost referred to in clause (b) is ascertainable, the cost referred to in clause
(a) shall be 20% of such sum.
Example Particulars US $
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FOB value plus insurance charges 1,010

Freight, loading, unloading and handling charges associated with the delivery Not known
of the imported goods to the place of importation
Answer :-

Provided also that where the cost referred to in clause (b) is not ascertainable, such cost shall be 1.125% of
Proviso 3
free on board value of the goods.
Example Particulars US $
FOB value 1,000
Sea freight, loading, unloading and handling charges associated with the 60
delivery of the imported goods to the place of importation
Insurance charges Not known
Answer :-

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 Provided also that where the free on board value of the goods is not ascertainable but the sum of free on board
Proviso 4 value of the goods and the cost referred to in clause (a) is ascertainable, the cost referred to in clause (b) shall be
1.125% of such sum.
Example Particulars US $
FOB value plus sea freight and loading, unloading and handling charges associated 1,060
with the delivery of the imported goods to the place of importation

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Insurance charges Not known
Answer:-

Proviso 5 Provided also that in the case of goods imported by air, where the cost referred to in clause (a) is

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ascertainable, such cost shall not exceed 20% of free on board value of the goods.
Calculation of freight or insurance if FOB is cum insurance or freight
Case Treatment
(a) Sum of “FOB” value of goods and Cost of transport/handling under Rule 10(2)(a) = 20% of (FOB
Cost of insurance under Rule 10(2)(b)” is + Insurance Cost of Rule 10(2)(b)]
ascertainable Example : FOB and insurance is $10,000. Hence, cost of
transport = 20% of 10,000 = $2,000.
(a) Sum of “FOB Value of goods and Cost of insurance under Rule 10(2)(b) = 1.125% of [FOB +
Transport & Handling Cost under RUle Transport/Handling cost of Rule 10(2)(a)]
10(2)(a)” is ascertainable Example : FOB and transport/handling is $ 10,000. Hence,
insurance= 1.125% of 10,000 = 112.50

Provided also that in the case of goods imported by sea or air and
Proviso 6
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transshipped to another customs station in India, Analysis [Circular No.
39/2017 - Cus., dated 26-9-
the cost of insurance, transport, loading, unloading, handling 2017] : Costs related to
charges associated with such transshipment shall be excluded. transshipment of goods (from
ports to ICDs(inland
CFS
Container Depot) : port to
port, port to CFS (Container
I
C
D
Freight Station), Airport to
Airport, etc.) within India will
To Pune ICD
be excluded, providing
Nearest to
Industrial Station uniform treatment to different
CUSTOMS
PORT modes of transshipment.

Explanation to Rule 10(2)

The cost of transport of the imported goods referred to in clause (a) includes the ship demurrage charges on charted
vessels, lighterage or barge charges.
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in cases where ship demurrage charges are paid by the

the ship demurrage importer for detention of the ship in the harbour before
charges on charted touching the landmass at the docks or at the place of
vessels, consumption, these charges would be includible in the
cost of transportation.

in cases where the big mother vessels cannot enter the

harbour for any reason and goods are brought to the docks
lighterage or by smaller vessels like barges, small boats, etc., the cost
barge charges. incurred by the importer for bringing the goods to the
landmass or place of consumption, such as lighterage
charges, barge charges will also be included in the
cost of transportation.

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 Question : 1
An importer from Cochin imports goods from an exporter in US. The vessel carrying the goods reaches Mumbai port first and
from there goods are transshipped to Cochin port.
Determine the assessable value of the imported goods under the Customs Act, 1962 from the following particulars: [RTP]

S.No. Particulars Amount

(i) Cost of the machine at the factory of the exporter US $ 20,000

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(ii) Transport charges from the factory of exporter to the port for shipment US $ 1,000
(iii) Handling charges paid for loading the machine in the ship US $ 100
(iv) Buying commission paid by the importer US $ 100
(v) Freight charges from exporting country to India US $ 2,000
(vi) Actual insurance charges paid are not ascertainable —

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(vii) Charges for design and engineering work undertaken for the machine in US US $ 5,000
(viii) Unloading and handling charges paid at the place of importation ` 1,500
(ix) Transport charges from Mumbai to Cochin port ` 25,000
(x) Exchange rate to be considered: 1$ = ` 60
Answer :
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 Question : 2
Product 'Z' was imported by Mr. X by air. The details of the import transaction are as follows: [RTP May 2018]

Particulars US $
Price of 'Z' at exporter's factory 8,500
Freight from factory of the exporter to load airport (airport in the 250

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country of exporter)
Loading and handling charges at the load airport 250
Freight from load airport to the airport of importation in India 4,500
Insurance charges 2,000

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Though the aircraft arrived on 22.08.20XX, the bill of entry for home consumption was presented by Mr.
X on 20.08.20XX.
The other details furnished by Mr. X are:

20.08.20XX 22.08.20XX
Rate of basic customs duty 20% 10%
Exchange rate notified by CBEC ` 60 per US$ ` 63 per US$
Exchange rate prescribed by RBI ` 61 per US$ ` 62 per US$
Integrated tax leviable under section 3(7) 18% 12%
of the Customs Tariff Act, 1975
Compute-
(i) value of product 'Z' for the purpose of levying customs duty
(ii) customs duty and tax payable
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Answer :
CO

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 Question : 3
15000 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: (MTP May 2018)
Sl. Particulars Amount
No.

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1. Freight paid (air) (inUSD) 4,500
2. Design & development charges paid in USA (in USD) 2,500
3. Commission payable to an agent in India (in `) 12,500
4. Exchange rate notified by CBEC and rate of basic duty is as follows :

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Date of Bill of Entry BCD Exchange Rate in `
08.09.20XX 20% 60
Date of arrival of aircraft BCD Exchange Rate in `
30.09.20XX 10% 62

The inter-bank rate was 1 USD = ` 63

5. Integrated tax payable u/s 3(7) of the Customs Tariff Act,1975 12%
Compute the amount of total customs duty and integrated tax payable on importation of chalices.
Make suitable assumptions where required. Working notes should form part of your answer.
VID
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 RULE 2(1) (d): IDENTICAL GOODS RULE 2(1) (f): SIMILAR GOODS
“Identical goods" means imported goods - "Similar goods" means imported goods -
I) Which are same in all respects, including i) Which although not alike in all respects, have

Same physical Quality Reputation

Like

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Like component Commercially
characteristics characteristics material which inter- changeable
enable to with the goods being
perform same valued having regard
Except for minor difference in appearance which does not affect function to quality reputation
price of goods being valued and trade mark

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ii) Produced in the country in which the goods being valued were produced, and
iii) Produced by the same person who produced the goods, or where no such goods are available, goods produced by a
different person,
But shall not include imported goods where engineering, development work, art work, design work, plan or sketch undertaken in
India were completed directly or indirectly by the buyer on these imported goods free of charge or at a reduced cost for use in
connection with the production and sale for export of these imported goods.

(LG Ltd, USA) (LG Ltd, USA) (Samsung Ltd, Japan) (Whirlpool Ltd, China) (LG Ltd, USA)
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Plastic Body Stainless Steel Steel Body Stainless Steel
Different Colour

RULE 4 / RULE 5
TRANSACTION VALUE OF INDENTICAL GOODS/SIMILAR GOODS
1)Subject to the provisions of Rule 3 of these rules, the value of imported goods shall be the transaction value of identical
goods /similar goods sold for export to India

Such identical/similar Such identical/similar goods are imported at substantially same quantity and same
goods are imported at or commercial value.
about the same time. Where no sale at the same commercial level and in substantially the same quantity is
found, then

Condition of sale of IG/SG Adjustments to be made

A sale at same commercial level but indifferent Adjust Quantity Factor i.e.
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quantities Quantity Discount

A sale at different commercial level but in Adjust commercial Level factor
Substantially same quantities i.e.Discount
A sale at different commercial level and different Adjust both the factors
quantities
2) Where the costs and charges referred to in Rule 10(2) (cost of transportation, insurance & etc.) are included in the transaction
value of identical goods / similar goods an adjustment shall be made, if there are significant differences in such costs and
charges between the goods being valued and the identical goods / similar goods in question arising from differences in
distances and means of transport.

3) In applying this rule, if more than one transaction value of identical goods / similar goods is found, the lowest such value shall
be used to determine the value of imported goods.

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 EXAMPLE 1:
Sagar Dry Fruits Ltd. imported dry fruits and declared the value as under:
Date of Imports Quantity Value Declared (Rs.) Country of Export

Nov. 2019 250 M.T. 25,000 per M.T. Egypt

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-Do- 150 M.T. -Do- -Do-

It was found that imports were also made by some other dealers as indicated below:
Date of Imports Quantity Value Declared (Rs.) Country of Export

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Sept. 2019 50 M.T. 35,000 per M.T. Dubai
By importer Mumbai International

Oct. 2019 20 M.T. 40,000 per M.T. Persia

By importer Chennai Fruits Ltd.

The Customs Department has sought to assess the imports made by Sagar Dry Fruits Ltd. as “contemporaneous imports” under
Section 14 read with Rule 4 of the Customs Valuation Rules, 2007. Briefly examine whether the action proposed by the
department is correct.
VID
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Question : 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:
S. No. Quantity imported in metric tonnes Unit price in US $(CIF)

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1. 20 260
2. 100 220
3. 500 200
4. 900 175

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5. 400 180
6. 780 160
The rate of exchange on the relevant date was 1 US $ = ` 60.00 and the rate of basic customs duty was 10% ad valorem. There is no
countervailing duty or special additional duty. Calculate the amount of duty leviable on the consignment under the Customs Act, 1962 with
appropriate assumptions and explanations, where required.
VID
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RULE 6

If the value of imported goods cannot be determined under the provisions of rules 3, 4 and 5, the value shall be determined under
the provisions of rule 7 or, when the value cannot be determined under that rule, under rule 8: Provided that at the request of the
importer, and with the approval of the proper officer, the order of application of rules 7 and 8 shall be reversed.

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RULE 7 - DEDUCTIVE VALUE
Subject to the provisions of Rule 3 of these rules, if the
► goods being valued or
► Identical or
► similar imported goods
are sold in India,
1) In the condition as imported

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a) At about the time at which the declaration for determination of value is presented- the value of imported goods shall
be based on the unit price at which the imported goods or identical or similar imported goods are sold in India,
b) Not at or about the same time of importation of the goods being valued, -the value of imported goods shall, be based
on the unit price at which the imported goods or identical or similar imported goods are sold in India, at the earliest date after
importation but before the expiry of ninety days after such importation.

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c) Unit price under (a) and (b) subject to the following deductions:
i) Either the commission usually paid or agreed to be paid or the additions usually made for profits and general
expenses in connection with sales in India of imported goods of the same class or kind;
ii) The usual costs of transport and insurance and associated costs incurred within India;
iii) The customs duties and other taxes payable in India by reason of importation or sale of the goods.

2) Not in the condition as imported, then, the value shall be based on the unit price at which the imported goods, after
further processing, are sold to the seller in India.
In such determination, due allowance shall be made for the value added by processing and the deductions provided for in
items (i) to (iii) as specified in (c)
In (1) and (2) Unit price is price at which greatest aggregate quantity sold to persons who are not related to the sellers in
India

RULE 7 Warehouse
Premises
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A
Insurance Storage Charges
USA C.T. Tax 20
T.V. 50
200 50
E Rejected
? Commission ` 80
General Exp. ` 100
Profit ` 500

B
Sale Price
Deductive Value = 7000 - [500 +100 + 80 + 20 + 50 + 50 + 200] 7000
Deductive Value (Cum Duty) = 6000
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Question:-
M/s. Jwala & co. imported goods declaring transaction value of ` 500 per unit, which was rejected. Rules 4 and 5 of Import
valuation rules are found inapplicable. M/s. Jwala & co. furnishes you following data and requests you to compute value
of imported goods as per Rule 7:
(i) Sale price in India (after processing, etc.) `1,000 P.u.
(ii) Commission to India agent on above sales 5% off sale price
(iii) Cost of processing after import ` 65 p.u.
(iv) Freight and Insurance from port of import onwards ` 30 and ` 20 p.u.
(v) General Expenses and Overheads in India are absorbed at ` 100 p.u.
(vi) Net profit margin (normally earned by others also) 15 % of sale price
(vii) Rate of Basic Custom Duty 10% + 10%SWS (No other duty leviable)
(viii) Loading, Unloading and Handling charges upto place of importation ` 45 p.u.

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Solution:- Computation of Custom value under Rule 7

Particulars (p.u.)
Sale Price in India 1,000
Less: Commission on sales @ 5% of 1,000 50
Cost of processing in India 65

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Post - import freight and insurance (` 30 + ` 20 - ` 50p.u.) 50
General Expenses (port -Import) 100
Net Profit margin in India $ 15% of 1,000 150
Cum- duty price 585

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Less: Custom Duty @ 11% (BCD + SWS) [635 x 11/111] (rounded off to nearest rupees) 57.97 or 58
Custom Value 527
Note :- Handling Charges upto port are already included in value of `527, as Rule 7 involves reverse working

RULE 8 - COMPUTED VALUE

Subject to the provisions of Rule 3, the value of imported goods shall be based on a computed value, which shall consist of the
sum of
a) The cost or value of b) An amount for profit and general expenses equal to c) The cost or value of all other
materials and fabrication or that usually reflected in sales of goods of the same class expenses under sub-rule (2) of rule
other processing employed in or kind as the goods being valued which are made by 10.
producing the imported goods. producers in the country of exportation for export to India. i.e. cost of transportation, insurance.
VID
MS CUSTOM
CUSTO S
?
USA
?

Usual Prot +
General ?
Expenses Customs
Processing `300/- Port
`500/-
Raw Computed
Value ` 2020
Material
`1000/-

Question :-
Miss Harshita imported certain goods from a related person Mr. Sagar of US and transaction value has been rejected. Rules 4 and
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5 of the Import Valuation rules are found inapplicable, as no similar/identical goods are imported in India. Miss harshita furnishes
cost related data of imports are requests Customs Authorities to determine value as per Rule 8. The relevant data are -
(i) Cost of materials incurred by Mr. Sagar $550
(ii) Making charges incurred by Mr. Sagar $100
(iii) Other direct expenses incurred by Mr. Sagar $350
(iv) Overheads Incurred by Mr. Sagar $260
(v) Freight from Mr. Sagar’s factory to US port $90
(vi) Loading charges at US port $50
(vii) Normal net profit margin of Mr. Sagar 20% of FOB
(viii) Air freight from US port to Indian port $375
(ix) Insurance from US port to Indian port $175
(x) Exchange rate ` 60 per $
The Custom Authorities are of the opinion that since value as per rule 7 can be determined at ` 1,45,000 there is no need to apply
rule 8

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Solution:- A s per Rule 6, at opinion of importer, Rule 8 may be applied before Rule 7. Hence, request of Miss Harshita to apply
Rule 8 is valid and since Rule 8 data is available, Authorities cannot force valuation as per rule 7.
Computation of value as per Rule 8 [Cost sheet system]

(I) Cost of material incurred by Mr. Sagar $ 550

(ii) Making charges incurred by Mr. Sagar $ 100

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(iii) Other direct expenses incurred by Mr. Sagar $ 350
(iv) Overheads incurred by Mr. Sagar $ 260
(v) Freight from Mr. Sagar’s factory to US port $ 90
(vi) Loading charges at US port $ 50

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Total Cost incurred by Mr. Sagar $ 1,400
(vii) Normal net profit margin of Sagar [20% of FOB or 25% of Cost = 25% of $ 1,400] $ 350
FOB Value $ 1,750
(viii) Air Freight and handling from US port to India [Air freight cannot exceed 20% of FOB;
$ 375
Hence restricted to 20% of $ 1,750 [Rule 10(2)(b)]
(ix) Insurance from US port to Indian port [Rule 10(2)(b)] $ 175
CIF or Assessable Value under Customs $ 2,150
Assessable Value (in`) [$ 2,150 x Exchange rate ` 60 per $] 1,29,000

RULE 9 - RESIDUAL METHOD

VID
Subject to the provisions of rule 3, where the value of imported goods cannot be determined under the provisions of any of
the preceding rules, then

The value shall be determined No value shall be determined under the provisions of' this rule on the basis of
using Ø The selling price in India of the goods produced in India;
Ø Reasonable means Ø A system which provides for the acceptance for customs purposes of the highest of
consistent with the the two alternative values;
Ø The price of the goods on the domestic market of the country of exportation;
principles and general
Ø The cost of production other than computed values which have been determined for
provisions of these rules
identical or similar goods in accordance with the provisions of Rule 8;
and
Ø The price of the goods for the export to a country other than India;
Ø on the basis of data available Ø Minimum customs values; or
in India; Ø Arbitrary or fictitious values.
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RULE 11 - DECLARATION BY THE IMPORTER

1) The importer or his agent shall furnish
a) A declaration disclosing full and accurate details relating to the value of imported goods; and
b) Any other statement, information or document including an invoice of the manufacturer or producer of the imported goods
where the goods are imported from or through a person other than the manufacturer or producer, as considered necessary
by the proper officer for determination of the value of imported goods under these rules.
2) Nothing contained in these rules shall be construed as restricting or calling into question the right of the proper officer of
customs to satisfy himself as to the truth or accuracy of any statement, information, document or declaration presented for
valuation purposes.
3) The provisions of the Customs Act, 1962 relating to confiscation, penalty and prosecution shall apply to cases where wrong
declaration, information, statement or documents are furnished under these rules.

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 RULE 12 - REJECTION OF DECLARED VALUE
1) When the proper officer has
► Reason to doubt the truth or accuracy of the value declared in relation to any imported goods,
► He may ask the importer of such goods to furnish further information including documents or other evidence and
► If, after receiving such further information, or in the absence of a response of such importer, the proper officer still has
reasonable doubt about the truth or accuracy of the value so declared,

9
► It shall be deemed that the value of such imported goods cannot be determined under the provisions of sub-rule (1) of
Rule 3(Transaction value).

2) At the request of an importer, the proper officer, shall intimate the importer in writing the grounds for doubting the truth or
accuracy of the value declared in relation to goods imported by such importer and provide a reasonable opportunity of being
heard, before taking a final decision under sub-rule (1).

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EXPLANATION: For the removal of doubts, it is hereby declared that
i. This rule by itself does not provide a method for determination of value, it provides a mechanism and procedure for rejection
of declared value in cases where there is reasonable doubt that the declared value does not represent the transaction value;
where the declared value is rejected, the value shall be determined by proceeding sequentially in accordance with rules 4 to
9.
ii. The declared value shall be accepted where the proper officer is satisfied about the truth and accuracy of the declared value
after the said enquiry in consultation with the importers.
iii. The proper officer shall have the powers to raise doubts on the truth or accuracy of the declared value based on certain
reasons which may include -
a. The 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;
b. The sale involves an abnormal discount or abnormal reduction from the ordinary competitive price;
c. The sale involves special discounts limited to exclusive agents;
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d. The mis-declaration of goods in parameters such as description, quality, quantity, country of origin, year of manufacture
or production;
e. The non declaration of parameters such as brand, grade, specifications that have relevance to value;
f. The fraudulent or manipulated documents.
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 CUSTOMS VALUATION (DETERMINATION OF VALUE OF EXPORT GOODS) RULE, 2007

RULE 2 (1)(A) GOODS OF LIKE KIND AND QUALITY

“goods of like kind and quality” means export goods which are identical or similar in physical characteristics, quality and
reputation as the goods being valued, and perform the same functions or are commercially interchangeable with the goods being
valued, produced by the same person or a different person; and

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RULE 2(2) RELATED
Same as defined under Rule 2(2) Customs Valuation (Determination of Price of Imported Goods) Rule 1988

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RULE 3: DETERMINATION OF VALUATION OF EXPORT GOODS
3(1) Subject to rule 8, the value of export goods shall be the transaction value.
3(2) The transaction value shall be accepted even where the buyer and seller are related, provided that the relationship has not
influenced the price.
3(3) If the value cannot be determined under the provisions of sub-rule (1) and sub-rule (2), the value shall be determined by
proceeding sequentially through rules 4 to 6.

RULE 4 DETERMINATION OF EXPORT VALUE BY COMPARISON

1) The value of the export goods shall be based on
► the transaction value of goods of like kind and quality
► exported at or about the same time
VID
► to other buyers in the same destination country of importation or
► in its absence another destination country of importation adjusted in accordance with the provisions of sub-rule (2)

2) In determining the value of export goods under sub-rule (1), the proper officer shall make such adjustments as appear to
him reasonable, taking into consideration the relevant factors, including-
► difference in the dates of exportation,
► difference in commercial levels and quantity levels,
► difference in composition, quality and design between the goods to be assessed and the goods with which they are being
compared,
► difference in domestic freight and insurance charges depending on the place of exportation.

RULE 5 COMPUTED VALUE METHOD

If the value cannot be determined under rule 4, it shall be based on a computed value, which shall include the following:-
a) Cost of production, manufacture or processing of export goods;
b) Charges, if any, for the design or brand;
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c) An amount towards profit.

RULE 6 RESIDUAL METHOD

1) Subject to the provisions of rule 3, where the value of the export goods cannot be determined under the provisions of rules 4
and 5, the value shall be determined using reasonable means consistent with
► the principles and
► general provisions of these rules
► provided that local market price of the export goods may not be the only basis for determining the value of export goods.

RULE 7 DECLARATION BY THE EXPORTER

The exporter shall furnish a declaration relating to the value of export goods in the manner specified in this behalf.

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 RULE 8 REJECTION OF DECLARED VALUE
1) When the proper officer has reason to doubt the truth or accuracy of the value declared in relation to any export goods, he
may ask the exporter of such goods to furnish further information including documents or other evidence and if,
► After receiving such further information, or
► In the absence of a response of such exporter,
► The proper officer still has reasonable doubt about the truth or accuracy of the value so declared,

9
► The transaction value shall be deemed to have not been determined in accordance with sub-rule (1) of rule 3.
2) At the request of an exporter, the proper officer shall intimate the exporter in writing the ground for doubting the truth or
accuracy of the value declared in relation to the export goods by such exporter and provide a reasonable opportunity of
being heard, before taking a final decision under sub-rule (1).
Explanation
For the removal of doubts, it is hereby declared that-

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1. This rule by itself does not provide a method for determination of value, it provides a mechanism and procedure for rejection of declared value in cases
where there is reasonable doubt that the declared value does not represent the transaction value; where the declared value is rejected, the value shall
be determined by proceeding sequentially in accordance with rules 4 to 6.
2. The declared value shall be accepted where the proper officer is satisfied about the truth or accuracy of the declared value after the said enquiry in
consultation with the exporter.
3. The proper officer shall have the powers to raise doubts on the declared value based on certain reasons which may include
a. The significant variation in value at which goods of like kind and quality exported at or about the same time in comparable quantities in a comparable
commercial transaction were assessed.
b. The significantly higher value compared to the market value of goods of like kind and quality at the time of export.
c. The misdeclaration of goods in parameters such as description, quality, quantity, year of manufacture or production.

Problem 1 : Compute export duty from the following data:

(I) FOB price of goods : US $ 1,00,000. (ii) Shipping bill presented electronically on 26-02-2020
(iii) Proper officer passed order permitting clearance and loading of goods for export on 04-03-2020.
(iv) Rate of exchange and rate of export duty are as under :
Rate of Exchange Rate of Export Duty
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On 26-02-2020 1 US $ = ` 55 10%
On 04-03-2020 1 US$ = ` 56 8%
Rate of exchange is notified for export by Central Board of Indirect Tax and Customs. Make suitable assumptions wherever
required and show the working (M 13)
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 SOCIAL WELFARE SURCHARGE
Objective - Goods imported into India to provide and finance education, health social securities
Levy - The Social Welfare Surcharge on imported goods shall be in addition to any other duties of customs or tax or cess
chargeable on such goods, under the Customs Act, 1962 or any other law for the time being in force.
Rate - 10% on aggregate of duties, taxess and cesses levied under section 12 of the Custom Act, 1962, but not including

9
safeguard duty , countervailing duty and anti-dumping duty. (i.e. 10% of BCD)

Note:- Social Welfare Surcharge is not applicable on export goods

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SPECIAL CASES OF VALUATION
Determination of assessable value in case of sale of warehoused goods before being cleared for home consumption
[Circular No.11/2010 dated 03.06.2010]
Issue: Whether the assessable value of the warehoused goods which are sold before being cleared for home
consumption should be taken as the price at which the original importer has sold the goods, before a Bill of Entry
for home consumption is filed?
Clarification: Section 14 of the Customs Act provides that the value of the imported goods is the transaction value of goods.
Transaction value is defined to mean the price actually paid or payable for the goods when sold for export to India
for delivery at the time and place of importation.
In the instant case, the goods are sold after being warehoused, therefore, it cannot be said that export of goods is
not complete and thus the sale of warehoused goods cannot be considered a sale for export to India.
Hence, the price at which the imported goods are sold after warehousing them in India does not qualify to
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be the transaction value as per section 14.
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 PROBLEMS FOR SELF PRACTICE
Q. 1 Compute the duty payable under the Customs Act, 1962 for an imported equipment based on the following information:
(i) Assessable value of the imported equipment US $ 10,100
(ii) Date of bill of entry is 25.4.20XX. Basic customs duty on this date is 10% and exchange rate notified by the CBIC is US $ 1 = ` 65.
(iii) Date of entry inwards is 21.4.20XX. Basic customs duty on this date is 20% and exchange rate notified by the CBIC is US $ 1 = ` 60.
(iv) Additional duty payable under section 3(7) of the Customs Tariff Act, 1975: 12%

9
Make suitable assumptions where required and show the relevant workings and round off your answer to the nearest rupee.

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VID
Q.2. Ashish imported some goods in February, 20XX and the goods were cleared from Mumbai port for warehousing on 8th
February, 20XX after assessment. Assessable value was ` 4, 86,000 (US $ 10,000 at the rate of exchange ` 48.60 per US $). The
rate of duty on that date was 35% (assume that no additional duty is payable). The goods were warehoused at Pune and were
cleared from Pune warehouse on 4th March, 20XX, when rate of duty was 30% and exchange rate was ` 48.75 = 1 US $. What is
the duty payable while removing the goods from Pune on 4th March, 20XX?
Answer:
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Q.3. An importer in India imported raw materials @ US $ 25,000 FOB. The goods were packed for which US $ 600 were charged extra.
The goods were stuffed in Container, the price of which was US $ 2,000. Insurance charges and ocean freight of US $ 250 and 800
respectively were paid. A commission of US $ 500 had to be paid to a broker for arranging the deal;
1 U.S $ = 48
► Customs Duty is 35%,
► GST on similar goods in India is 5%.
Determine the duty payable.

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Answer:

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Q. 4. Determine the Assessable Value for the Customs Act, 1962 in respect of import of a machine from UK:
(i) FOBValue £ 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 10-4-20XX

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(Exchange Rate notified by CBIC £ 1 = ` 84)
Insurance Charges are not ascertainable.
Make assumptions where required and provide suitable explanations.

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 Q.5 Mihir Limited has imported a machine from Japan at an FOB cost of 50,000 yen (Japanese). The other expenses incurred are
as follows:
(i) Freight from Japan to Indian Port 5,000 yen.
(ii) Insurance paid to insurer in India ` 2,500.
(iii) Designing charges paid to consultancy firm in Japan 7,500 yen.
(iv) M/s Mihir spent ` 25,000 in India for development work connected with the machine.
(v) Transportation cost from Indian Port to factory ` 7,500.

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(vi) CBIC announced exchange rate of 1 yen = ` 0.59 by Notification under Section 14(3) of the Customs Act, 1962. The exchange rate
prevailing on that day in the market was 1 yen = ` 0.4052.
(vii) M/s. Mihir made payment to the Bank based on an exchange rate of 1 yen =` 0.5920.
(viii) The Commission payable to the agent in India was at 5% of the FOB price in Indian Rupees.
The rate of Customs duty is 20%.Similar goods are subject to 12% GST in India.
Clearly showing your workings to arrive at the total Assessable value in Rupees for purposes of Levy of Customs duty.

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Answer:

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Q.6. Dhiraj' imports by air from USA a Gear cutting machine complete with accessories and spares. Its HS classification is 84.6140
and Value US $ f.o.b. 20,000.
Other relevant date/information:
1) At the request of Dhiraj, US $ 1,000 have been incurred for improving the design, etc. of machine, but is not reflected in the invoice, but
will be paid by the party.
2) Goods are insured but premium is not shown/ available in invoice.
3) Freight - US $ 6,000.

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4) Commission to be paid to local agent in India `. 4,500.
5) Freight and insurance from airport to factory is `. 4,500.
6) Exchange rate is US $ 1 = `. 45.
7) Duties of Customs: Basic – 25% GST - 12%,
Compute (i) Assessable value (ii) Customs duty.
Answer:

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Q.7. M/s Rakesh Industries imported by Air from USA certain goods at CIF value US $ 6,500.
Air freight US $ 1,400 and insurance charges US $ 100 were also paid.
Bill of Entry was presented on 28-02-20XX, but the date of arrival on 10-03-20XX.
Other relevant information is as follows:
Rate of Exchange as announced by CBIC - US $ 1 = ` 46.80 as on 28-02-20XX and ` 46.60 as on 10-3-20XX.
Rate of Exchange as announced by RBI US $ 1 = ` 46.70 as on 28-02-20XX and ` 46.50 as on 10-03-20XX.
Rate of Custom Duty* Basic Customs Duty - 30% as on 28-02-20XX and 25% as on 10-03-XX *GST- 18% as on 28-02-XX and 18%

9
as on 10-03-XX *
Compute the Assessable Value and Custom duty payable.
Answer:

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Q. 8. Mr. Backpack imported second-hand goods from a UK supplier by air, which was contracted on CIF basic. However,
there were changes in prices in the international market between the date of contact and actual importation. As a result of
several negotiations, the parties agreed for a negotiated price payable as follows:

Particular Contract Price (£) Changed Price (£) Negotiated Price (£)
CIF Value 5000 5800 5500
Air Freight 300 600 500

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Insurance 500 650 600

Other details for computing assessable value and duty payable are tabled below:
Particular Amount

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Vendor inspection changes (inspection carried out by foreign supplier on his £ 600
own, not required under contract or for making the goods ready for shipment)
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)
18.02.20XX 10% 102
Date of arrival of aircraft Basic custom duty Exchange rate in `
(notified by CBIC)
15.02.20XX 15% 98
Inter-bank rate 1 UK Pound = ` 106
Compute the assessable value and calculate basic customs duty payable by Mr. Backpack.
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Q.9 : BSA & 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.

Particulars US £
(i) F.O.B cost of the machine 10,000 U.K. Pounds
(ii) Freight (air) 3,000 U.K. Pounds

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(iii) Engineering and design charges paid to a firm in U.K. 500 U.K. Pounds
(iv) License fee relating to imported goods payable by the 20% of F.O.B. cost
buyer as a condition of sale
(v) Materials and components supplied by the buyer free of ` 20,000

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cost valued
(vi) Insurance paid to the insurer in India ` 6,000

(vii) Buying commission paid by the buyer to his agent in U.K. 100 U.K. Pounds

Other particulars:
(i) Inter-bank exchange rate as arrived by the authorized dealer : ` 98 per U.K. Pound.
(ii) CBIC had notified for purpose of section 14 of the Customs Act, 1962, exchange rate of ` 100 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)
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Answer :
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Q. 10 : Compute the assessable value for the purpose of determination of customs duty from the following data:

US $
Machinery imported from USA by air (FOB price) 4,000
Accessories compulsorily supplied along with the machinery 1,000
Air freight 1,200
Insurance charges Actuals not available
Local agent's commission to be paid in Indian currency ` 9,300
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Transportation from Indian airport to factory ` 4,000
Exchange rate US $ 1 = ` 60
Provide explanations where necessary.
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 Just for knowledge Purpose
Terms used in Commercial Parlance
It would be useful to know and understand the term and contents of documents used in the International trade
transaction
(1) Invoice This is the basic commercial document showing particulars regarding description of goods
Ü quantity and unit price Ü discounts and net price

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Ü names of consignor and consignee Ü payment particulars.
Ü 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 each of the package in the consignment.
(3) Certificate of Origin A certificate issued by the competent authority in the country of manufacture giving the extent of the
manufacture in that country.

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A negotiable document given by the carriers of the cargo giving particulars of
(4) Bill of Lading (a) Port of shipment (b) No. of packages covered by the consignment (c) Marks and numbers
on the page (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 pre-paid or is to be collected at the
destination. It is a negotiable document which has to be surrendered to the carrier for getting delivery of the
goods.
(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 has 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.
(7) Quotation It is a document, which indicates the price, the terms and other conditions on which the seller is
willing to supply goods to the buyer
(8) Acceptance It refers to the formalisation of the contract of sale between the buyer and the seller. Once the seller
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of the goods sends his acceptance of the order of the buyer (the indent) the contract is complete.
The acceptance will inter alia contain particulars of description of the goods to be supplied, unit
price, including discounts and other charges, time and terms of delivery, penal clause for breach of
contract, agreed terms of payment.
(9) Letter of Credit This is an instrument delivered by the bank intimating the seller that the buyer has instructed the
bank and the bank will according to these instructions pay the seller of the goods, the bill amount for
the supply of the goods on presentation of certain documents evidencing shipment of the goods.
(10) Sight draft A document evidencing the amount of money paid for the importation.
(11) Delivery Order An authorisation given by the local agent of the carriers, on surrender of the original negotiable
copy of the bill of lading or air consignment note, directing the custodian of the cargo to deliver the
consignment to the importer or his agent.
(12) Mate’s Receipt A receipt given by the First mate or First officer or cargo supervisor of the conveyance certifying the
total quantity of the consignment received on board the vessel or the aircraft. A bill of lading or air
consignment note is issued by the agent of the Carrier Company on surrender of the mate’s receipt.
(13) Retirement of The original negotiable copies of the shipment documents like invoice, packing specification,
documents certificate of origin.
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(14) Non-negotiable Since retirement of the original document takes time, non negotiable documents are given to the
documents importer to facilitate clearance.
(15) Boat/Lighterage Sometimes the vessel is unable to get a berthalongside the quay in the harbour. The goods are
Charge then transported from the ship to the shore by boats / lighters. The charges paid therefore arecalled
Boat / Lighterage charges.
(16) Customs Broker Since the importers / exporters may not be able to devote time and energy to clear imported goods or
export goods, and since it involves running about to several organisations apart from customs, like
Port, Trust, steamer agents, insurance companies, the assistance of agency organisation having
adquate technical knowledge and expertise has been provided inthe form of customs broker.
(17) Insurance cover It is customary to insure all goods which are traded in the course of international trade. The general
cover relates to risk on account of loss, pilferage, fire, storm etc. However, loss of goods on
account of seizure of goods due to war, is a separate cover. It is therefore customary to refer to the
insurance as marine risk insurance and war risk insurance. The policy and cover of such insurance
is a relevant document for valuation.

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