The central government has so amended the Customs Valuation (Determination of Price of Imported Goods) Rules, 1988, (CVR) as to place considerable discretion in the hands of the Customs to accept or reject the 'transaction value'.
Notification no. 41/2001-Cus dated 7th September 2001 adds the words 'subject to Rules 9 and 10A' before the earlier stipulation that 'the value of imported goods shall be the transaction value'.
Rule 9 relates to adjustments to be made to the price paid or payable and includes freight, insurance, landing costs, commission, brokerage, cost of containers, packing, any goods or services supplied by the buyer, royalty, license fees, any flow-back of any part of proceeds of sales of imported goods to the seller and any other payments to be made by the buyer to the seller as a condition of sale.
Rule 10A mandates the Customs officer to give an opportunity to the importer to clear the doubts of the Officer about the correctness of the declaration of value furnished in accordance with Rule 10. If the Customs Officer uses his powers under Rule 10A and rejects the 'declared value', the assessable value has to be determined by proceeding sequentially through Rules 5 to 8.
For making a determination of 'transaction value', the Customs Officer had to examine whether the four exceptions provided in Rule 4(2) operate.
The exceptions relate to any conditions regarding disposition of the goods by the importer, any condition or consideration for which a value can not be attributed, any flow-back of consideration and any relationship between the parties.
In the landmark judgment of Eicher Tractors Ltd. [2000 (122) ELT 321], the Supreme Court had held that if the particularised exceptions do not operate, the 'price paid or payable' must be accepted by the Customs.
The government has now overthrown the above Supreme Court judgment by amending the law itself. The government has added four more exceptions to the Rule 4(2). The sale must be in the ordinary course of trade under fully competitive conditions, should not involve any abnormal discount or reduction from the ordinary competitive price, should not involve special discounts limited to exclusive agents and objective and quantifiable data must exist with regard to adjustments required to be made under Rule 9.
If any of these conditions are not fulfilled, the Customs officer can reject the importer's declaration of value.
This means that the Customs can reject negotiated prices. The Customs can ignore discounts given to distributors keeping in view the volume of business that they generate, investments that they make to promote the products, the after sales service capabilities that they build up etc.
The Customs can ignore discounts given at auctions, distress sales of unusable stocks etc. and proceed to load the price. More draconian is the power of the Customs to question whether sale is under fully competitive conditions or whether any reduction from the ordinary competitive price is involved.
What is meant by 'fully competitive conditions' or 'ordinary competitive price' is not defined anywhere. So, the Customs can call into question almost any transaction, thus encouraging harassment, corruption and litigation. The importer is now at the mercy of the Customs officer.
The amendment is not in conformity with the WTO Agreement of Customs Valuation. On that point, our trading partners can complain but not our importers.
