This document provides a summary of Indian customs valuation laws and rules for imports and exports. It discusses key sections and rules related to determining the transaction value of imported and exported goods for customs purposes. Some notable points covered include how transaction value is defined, when related parties are involved, additions to the price paid or payable, and alternate valuation methods if transaction value cannot be determined. It also discusses several relevant case laws that have impacted interpretation of the valuation rules.

1. CUSTOMS VALUATION –
IMPORT AND EXPORT
K.VAITHEESWARAN
ADVOCATE & TAX CONSULTANT
Flat No.3, First Floor, 402, Front Wing,
No.9, Thanikachalam Road, House of Lords,
T. Nagar, 15/16, St. Marks Road,
Chennai - 600 017. Bangalore – 560 001
Mobile: 98400-96876
E-mail : askvaithi@yahoo.co.uk
K.Vaitheeswaran

2. SECTION 14
Value shall be the transaction value that is
to say the price actually paid or payable when
the goods are sold for export to India.
For delivery at the time and place of
importation or as the case may be for export
from India for delivery at the time and place
of exportation

3. SECTION 14
Buyer and seller are not related.
Price is the sole consideration for the sale subject to
other conditions as may be specified in the Rules
Transaction value shall include in addition to the
price amounts for costs and services, license fees,
cost of transportation to the place of importation,
insurance, loading, unloading and handling charges
to the extent and the manner specified in the
Rules.

4. SECTION 14
Rules may provide for
(ii) Circumstances determining relationship.
(iii)Method of valuation when there is no sale or when
parties are related or price is not the sole
consideration or any other case.
(iv)Manner of acceptance or rejection of value, where
the officer has reason to doubt the accuracy of value.

5. IMPORT
Valuation Rules are based on GATT
(now WTO) Rules.
Originally framed in 1988.
Major change to Rule 4 in 2001.
Customs Valuation (Determination of
Value of Imported Goods) Rules, 2007
introduced from 10.10.2007.

6. CHANGES IN DEFINITIONS
Transaction value means the value
referred to in Section 14.
Under the old Rules transaction value is
the value determined under Rule 4.

7. VALUATION RULES
Methods are to be applied in a sequential
order.
When the first method is not applicable, the
second method has to be applied and so on
so forth.
If transaction value is rejected by the
Department, Department has to go
sequentially and cannot straightway adopt
the residual method.

8. RULE 3
Value shall be transaction value subject to
adjustments
Value of imported goods shall be accepted provided
that
(i) there are no restrictions as to disposition or use
(excluding territorial / legal / minor)
(ii) price is not subject to some condition or
consideration for which value cannot be determined
(iii) no part of the subsequent sale proceeds accrue
to the seller.
(iv) buyer and seller are not related.

9. RULE 3
Where buyer and seller are related,
price can still be accepted if it is
demonstrated that the relationship has
not influenced the price.

10. RULE 4 – IDENTICAL GOODS
Identical goods
Transaction value
Shall not include provisionally assessed values
Same commercial level / same quantity
Adjustments for differences
Adjustments for differences in transportation
costs
When multiple values are available lowest to
be adopted.

11. RULE 5 – SIMILAR GOODS
Similar goods
Transaction value
Shall not include provisionally assessed values
Same commercial level / same quantity
Adjustments for differences
Adjustments for differences in transportation
costs
When multiple values are available lowest to
be adopted.

12. RULE 6
Where value cannot be determined
under Rule 3 or Rule 4 or Rule 5 then
value has to be determined under Rule
7.
At the request of the importer and with
the approval of the proper officer, Rule
8 can be applied first and then Rule 7
can be applied.

13. RULE 7 – DEDUCTIVE VALUE
Sale price in India
Deductions for commission, transport,
insurance and associated costs in India,
duties and taxes on import / sale.
Where there is manufacture and sale
deduction for value addition shall be given.
Sale must happen within 90 days after import
for this Rule to operate.

14. RULE 8 – COMPUTED VALUE
Value shall consist of the sum of
(a) cost or value of materials and fabrication
or other processing employed in producing
the imported goods.
(b) profit and general expenses in respect of
goods of same class.
(c) transportation, loading and insurance.

15. RULE 9 – RESIDUAL METHOD
Where value cannot be determined under the
preceding rules, it shall be determined using
reasonable means consistently the principles and
general provisions of these rules and on the basis of
data available.
Value shall not exceed the price at which such
or like goods or ordinarily sold or offered for
sale for delivery at the time and place of
importation when the seller and buyer has no
interest in the business of each other and price
is the sole consideration.

16. RULE 9
No value shall be on the basis of
- Selling price of goods produced in India
- Highest of two alternative values
- Domestic price in the country of export
- Export price to another country
- Cost of production
- Minimum customs values
- Arbitrary or fictitious values

17. RULE 10 – COST AND
SERVICES
The following shall be added to price paid or
payable provided it is not already included.
- Commissions and brokerage other than
buying commission
- Cost of packing
- Cost of containers
Goods and services supplied free of costs by
the buyer or at a concessional rate.

18. RULE 10 – COST AND
SERVICES
Royalty and license fee related to imported
goods that the buyer is required to pay
directly or indirectly as a condition of
sale.
Value of any part of proceeds of any
subsequent resale or disposal.
Other payments made by the buyer to seller
or third party to satisfy obligation of seller.

19. RULE 10 – ROYALTY &
LICENSE FEE
An explanation provides that where royalty or
license fee or any other payment for a
process whether patented or otherwise
is includable, such charges shall be
added to price paid or payable
notwithstanding the fact that such
goods may be subjected to the said
process after importation of such goods.
Board Circular dated 09.10.2007 refers to
post importation activity, like running of
machinery when the process is put to use.

20. RULE 10 – ROYALTY &
LICENSE FEE
Board Circular states that the explanation has been added in
the context of Supreme Court judgment in the case of JK
Corporation.
J.K. Corporation Ltd. (2007) 208 ELT 485, a collaboration
agreement was entered into with a foreign company and as per
Part-A of the agreement a lumpsum payment of US Dollars
14,00,000 was made for the supply of license, knowhow, and
technology. Under Part-B of the agreement the price of the
foreign equipment was said to be US Dollars 34,86,000 + DM
12,00,000 + Yen 88,50,00,000. The Supreme Court held that
no part of the know-how fee was relevant for the fabrication of
the plant or machinery or its design. The amount paid under
Part-A was towards services to be offered for the matters
specified. The value of license and technical know-how
cannot be included in the value of goods.

21. RULE 10 – ROYALTY &
LICENSE FEE
Disputes are likely and old decisions
could be questioned.
Mahindra & Mahindra (1999) 76 ELT
481 (SC) – Royalty for know-how has
no bearing as transactions are
independent.

22. RULE 10 – ROYALTY &
LICENSE FEE
The Supreme Court in the case of CC Vs. Ferodo
India Pvt. Ltd. (2008) 224 ELT 23 has held that
technical knowhow costs and payment of royalty can
be included in the price of imported goods only if the
payment constitutes a condition pre-requisite for the
supply of imported goods. If the payment has no
nexus with the working of the imported goods then
such payment is not includable in the value.

23. RULE 10 – ROYALTY &
LICENSE FEE
The Supreme Court in the case of Bombay Dyeing and
Manufacturing (1997) 90 ELT 276 has held that expenses
in connection with dismantling of old machinery to facilitate
transport including inspection charges is includable in the value.
In the case of Toyota Kirloskar Motor Pvt. Ltd. (2007) 213
ELT 4, capital goods and parts were imported from Toyota and
the question was whether royalty and know-how fees should be
included or not in the value. The Supreme Court held that
payments for post import activities cannot be included. Amounts
payable for as a condition of import of goods for motors
governing the manufacturing activities are distinct and such
payments are not related to the import of capital goods.
Amounts cannot be included.

24. RULE 10 – ROYALTY &
LICENSE FEE
In the case of Matsushita Television and Audio (I) Ltd. (2007)
211 ELT 200, the The Department while valuing the goods added a
certain percentage taking into account the royalty payment. The
Supreme Court held that in terms of the agreement, the net factory
sales price is defined to mean the sale prices to customers
including the cost of bought out components and the cost of
imported goods. In terms of Rule 9 of the Valuation Rules, 1988
only such royalty relatable to imported goods and which is a condition
of sale of such goods can be added to the declared price. In the
instant case, it is clear that the royalty is payable on the sale price
including the cost of imported goods. In other words, the
payment under the agreement was not only in connection with
production of goods but also to imported components and therefore
the Department’s contention is correct.

25. RULE 10 – ROYALTY &
LICENSE FEE
In the case of CCE Vs. Living Media India Ltd.
(2011) 271 ELT 3, the Supreme Court held that
cassettes are brought into India as pre-recorded
cassettes which carry the music or song of an artist.
There is an agreement as per which royalty payment
is towards the money due to the artists. Royalty
becomes payable on distribution of cassettes and
such royalty is payable on the entire shipment less
records returned. Royalty is a condition of sale and
would form part of value.

26. RULE 10(2)
Cost of transport
Loading, unloading and handling charges
Insurance
Explanation provides that cost of transport of
imported goods includes ship demurrage
charges on chartered vessels, lighterage or
barge charges.
Supreme Court in the case of Ispat Industries
(2006) 202 ELT 561 had held that transportation
charges for use of barges for carrying cargo from
mother vessel to jetty cannot be added to value since
cost of transport is already included – Mimansa
Principles/Guna “as subordinate and Pradhan as

27. RULE 10(2)
Supreme Court in the case of IOC (2004) 165 ELT
257 had confirmed that demurrage should not be
included in value since there was a Board Circular to
that effect in 1991.
The new explanation will increase the value
since all these charges will now have to be
added.
Board Circular dated 09.10.2007 clarifies that ship
demurrage charges paid by importer for detention of
ship in the harbour before touching the landmass at
the docks has to be included in the value.

28. OTHER RULES
Rule 11 deals with declaration
Rule 12(1) deals with rejection of
declared value.
Explanation to Rule 12

29. Explanation to Rule 12
Rule does not provide for a method of
valuation.
Where declared value is rejected value shall
be determined by proceeding in accordance
with Rule 4 to Rule 9
Officer has powers to raise doubts on truth or
accuracy of declared value based on certain
reasons which may include

30. Explanation to Rule 12
Significantly Higher Value at which identical or similar
goods imported in comparable quantity in
comparable commercial transactions were assessed.
Abnormal discount or abnormal reduction from
ordinary competitive price.
Special discounts limited to exclusive agents.
Mis-declaration of origin, quality, quantity, etc.
parameters.
Non-declaration of parameters such as brand, grade,
specifications that have relevance to value.
Fraudulent or manipulated documents.

31. BOARD CIRCULAR DT.12.2.2008
Transaction value under Rule 3 has to be rejected by
re-determining value of secondhand machinery under
Rule 9.
No difficulty to reject where the documents such as
certificates, invoice, etc. are manipulated or
fraudulently obtained or there is mis-declaration in
respect of particulars such as model, year of
manufacture, etc.

32. BOARD CIRCULAR DT.12.2.2008
Rule 12 can be applied in appropriate cases. As an illustration if
the declared value of the second hand machinery is much below
the value arrived at by the depreciation method on the basis of
the certified price of the new machinery in the year of its
manufacture, the officer may have reason to doubt the truth or
accuracy of the declared value and can ask for further
information and explanation. If the reasonable doubt persists
the declared value can be rejected under Rule 12 and value can
be re-determined by factoring depreciation.
Even in respect of other imported goods, the re-determination
of value would be similar as in the case of second hand
machinery.

33. VALUATION – OTHER CASE LAWS
The Supreme Court in the case of Hewlett Packard
India Sales (P) Ltd. (2007) 215 ELT 484 has
held that pre-loaded operating system (software)
recorded in Hard Disc Drive in the laptop forms an
integral part of the laptop. Without operating
system, like Windows, the laptop cannot work.
Computer cannot open without operating system.
When a laptop is imported with in-built pre-loaded
operating system recorded on Hard Disc Drive, the
said item forms an integral part of the laptop.

34. VALUATION – OTHER CASE LAWS
The Supreme Court in the case of CC Vs.
Competent Business Machines (2009) 236 ELT
629 has held that where the assessee had imported
second hand photocopier machines with the
Chartered Engineer’s report stating that the machines
were old and obsolete, there is no material on record
for the Department to enhance value. The website
information relied upon by the Department is in
respect of another model of photocopying machines.

35. VALUATION – STANDING
ORDERS
Second hand printers and Copiers – Order to regulate
procedure for engaging a chartered engineer for
valuation and duties pertaining to assessment is valid
and cannot be challenged under Article 226 – Vinay
Auto Copier Machine Vs. UOI (2011) 274 ELT
33 (Mad).
Furniture - Valuation based on standing order which
directs 60% deduction from MRP for the purpose of
arriving at value ignoring the negotiated price
between the parties is not valid – Life Style
International Pvt. Ltd. Vs. UOI (2011) 271 ELT
190 (Bom)

36. CONTEMPORANEOUS IMPORTS
Department’s point of Decision
reference
Prices on the internet No investigation to
demonstrate import of
identical goods at higher
prices – not valid – BC
Trading
Prices in foreign journals Not valid – Varsha plastics
Prices in international Spices imported at USD 2600
market weekly bulletins PMT. International price was
USD 5500 to 6500. No
evidence for pricing except
contract. SC accepted
Department’s valuation based
on weekly of spices market
which indicated higher prices
– Radhey Shyam
Ratanlal .

37. CONTEMPORANEOUS IMPORTS
Department’s point of reference Decision
Prices in London Metal Exchange Department demanded additional
duty on the ground that prices on
the London Metal Exchange was
more than the declared price on the
day of import. SC held that the
order of the Tribunal had no
reference to contemporaneous
imports even at the stage of
adjudication, so valuation based on
declared prices need not be
interfered with – Prabhu Dayal
Prem Chand.

38. CONTEMPORANEOUS
IMPORTS
Department’s point of reference Decision
Prices of goods imported by the As many goods were imported by
same importer the same importer, it was found
that the value of similar goods were
higher than declared goods of same
specifications. SC held therefore
adoption of the deemed value by
the customs is correct – Lan Eseda
Industries Ltd.

39. EXPORT
Export Valuation Rules for the first time.
Transaction value as per Section 14.
Definition of related person.
Value of export goods shall be the
transaction value.
If value cannot be determined, it shall
be determined by proceeding
sequentially through Rule 4 to Rule 6.

40. RULE 4 – EXPORT VALUATION
RULES
On transaction value of goods of like kind and
quality.
Exported at or about the same time.
To buyers in the same destination country of
import or in its absence, another destination
country with adjustments.
Adjustments for difference in dates, levels,
quantity, quality, composition, design, freight,
insurance has to be done.

41. OTHER RULES
Computed value which shall include cost of
production, charges for design or brand and
amount towards profit.
Where Rule 5 fails, residual method would be
applied through Rule 6
Rule 8 provides for rejection of declared
value. Doubts can be raised if there is
significant variation in value, export value is
significantly higher compared to market
value, there is mis-declaration, etc.

42. SPECIAL VALUATION BRANCH
SVB operates at Metros to investigate related party
transaction.
Definition of related person.
Questionnaire.
1% extra deposit.
5% extra deposit of duty if details not furnished
within 30 days of receipt of questionnaire
Investigation and finalization of assessment within 4
months and deposit should be discontinued if not
finalized. (Board Circular 23.02.2001)

43. CONCLUSION
Transfer pricing and customs.
Service Tax and Customs.
GST

44. Thank you
K. VAITHEESWARAN
Advocate & Tax Consultant
Flat No.3, First Floor, 402, Front Wing,
No.9, Thanikachalam Road, House of Lords,
T. Nagar, 15/16, St. Marks Road,
Chennai - 600 017. Bangalore – 560 001
Mobile: 98400-96876
E-mail : askvaithi@yahoo.co.uk
K.Vaitheeswaran