One of the bold proposals in the Finance Bill, 2007, is amendments in the law relating to valuation of imported and export goods. Apparently, the intention is to make the Indian Customs valuation law fully compliant with the GATT valuation rules. This will reduce the scope of harassment by the Customs officials and significantly and reduce disputes relating to valuation.
The GATT valuation rules were drafted in 1981. India, however, did not amend its 1963 valuation rules immediately. It was in 1988 that India put in place new valuation rules in accordance with the 1981 GATT rules.
However, Section 14 of the Customs Act, 1962, was so amended that the concept of 'deemed value' co-existed with the 'transaction value' concept in the rules. The contradiction between the two gave rise to litigation and courts sought to restore some semblance of order by giving primacy to the concept of 'contemporaneous imports'.
In 1995, the GATT valuation rules became part of the WTO disciplines. However, Article VII of the 1994 agreement allowed some deviations. India had left its valuation law unchanged and so, the spate of litigation continued. The courts' insistence that transaction value should not be rejected without irrefutable evidence of 'contemporaneous imports' provoked the government to introduce Rule 10A in the valuation rules allowing the Customs to reject the transaction value on the grounds of doubts regarding the declared value.
In a landmark judgment, (Eicher Tractors Ltd 2000 (122) ELT 321 SC), the Supreme Court restored primacy of 'transaction value' and said that unless any of the four conditions listed in Rule 4 (2) of the Customs Valuations Rules, 1988, were not met, the transaction value should not be rejected. The government retaliated by amending the rules on September 7, 2001, prescribing four more conditions in Rule 4 (2) of the said 1988 rules.
As a result, the disputes continued, and despite the efforts of the courts to restore order, the government ensured chaos. In the meantime, the import duty rates were steadily coming down and the attraction to under-invoice the imported goods had come down significantly.
So, the government has now decided to amend Section 14 of the Customs Act, 1962, and give primacy to 'transaction value.' India's accession in November 2005 to the World Customs Organisation's 1999 Kyoto Convention on simplification and rationalisation of Customs procedures has also had an influence on the government's decision, besides the state of negotiations at the WTO on 'Trade Facilitation,' which is also on the agenda of the Doha Development Round.
The proposed amendments to Section 14 of the Customs Act, 1962, do seek to give primacy to the 'transaction value' but also very cautiously mention that the transaction value would include, in addition to the price paid or payable, any amount that the buyer was liable to pay for costs and services such as commission, brokerage, assists, engineering design work, licence fees, royalties etc.
The notable and somewhat dangerous omission is that the proposed law does not say that the only those costs and services related to the imported goods would be included nor does the proposed law exempt the cost of design work done in India . Hopefully, these omissions will be made good before passing the Finance Bill.