The Central Board of Excise and Customs (CBEC) has revised its 2008 guidelines for determining the value of imported second-hand capital goods, for the purpose of charging duty. Its circular (No. 25 of October 15) first affirms a fundamental proposition in customs valuation law, that where used second-hand machinery is exported to India and the sale meets all the requirements in the Customs Valuation Rules of 2007 (CVR-2007), the price paid or payable will be the basis for determining the assessable value. However, the circular goes on to undermine that basic mandate.
Section 14 of the Customs Act, 1962, gives primacy to the transaction value i.e., the price paid or payable for imported goods. Rule 12 of CVR-2007 has some criteria for doubting a transaction value declared by an importer and for rejecting it. CBEC now adds its own criteria for rejection of the transaction value, by prescribing comparison of the declared value with that determined on the basis of a chartered engineer's certificate.
CBEC says the value declared by an importer shall be examined with respect to the report of a chartered engineer and the depreciated value of the goods, determined in terms of circular No. 493/124/86-Cus VI dated November 11, 1987, and one of January 4, 1988. If this comparison does not create any doubt on what is declared, these may be accepted. If there are significant differences arising from such a comparison, the officer concerned shall seek an explanation from the importer to justify the declared value. The officer will determine if the declared value may be accepted. If rejected, the value is to be determined in terms of rules 4 to 9 of CVR-2007, says CBEC. These instructions are not very different from its earlier circulars.
The latest circular also says inspection/appraisal reports by a chartered engineer or equivalent, based in the country of sale of the second-hand machinery, must be accepted by Customs. It prescribes the format in which these reports shall be prepared.
If an importer does not produce this report in the prescribed format from the country of sale, he might engage the services of inspection agencies as in the Handbook of Procedures, Vol. 1 (HB-1), notified by the Directorate General of Foreign Trade.
In case the agencies notified in HB-1 are not available at the port of import, the importers will be free to select any chartered engineer from those empanelled by the Customs House at the port. The circular prescribes the format of the certificate to be obtained from the agencies in India.
What CBEC has done is to relegate to the background the primacy in law given to the transaction value. Instead, it gives primacy to the depreciation method prescribed by it, a method upheld in some judgements. Importers have to comply with the circular, no matter how genuine their transactions with suppliers.
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