Customs Act, 1962 Section 14 — Valuation of goods

Type Section

Legislation Customs Act, 1962

Amendments 2

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Plain-English Explanation

Plain English Summary

Overview

Section 14 of the Customs Act, 1962, establishes the method for determining the value of imported and exported goods for the purpose of levying customs duties. This section is crucial because the customs duty is generally calculated as a percentage of this assessed value.

Who Does This Apply To?

This section applies to:

Importers of goods into India.
Exporters of goods from India.
Customs officers responsible for assessing the value of goods and levying duties.

How It Works

The valuation process under Section 14 operates as follows:

Transaction Value: The primary method for valuation is the transaction value. This is defined as the price actually paid or payable for the goods when sold for export to India (in case of imports) or for export from India (in case of exports).
- The sale must be for delivery at the time and place of importation or exportation.
- The buyer and seller must not be related.
- The price must be the sole consideration for the sale.
Inclusions in Transaction Value (Imports): The transaction value of imported goods includes, in addition to the price:
- Costs and services like commissions, brokerage, engineering, design work.
- Royalties and license fees.
- Costs of transportation to the place of importation.
- Insurance.
- Loading, unloading, and handling charges.
  The extent and manner of including these costs are specified in the Customs Valuation Rules.
Circumstances for Alternative Valuation: If the transaction value cannot be determined or is rejected by customs, other methods are used as per the Customs Valuation Rules. This includes situations where:
- There is no sale.
- The buyer and seller are related.
- Price is not the sole consideration.
- The customs officer doubts the truth or accuracy of the declared value.
Tariff Value: In certain cases, the Central Board of Indirect Taxes and Customs (CBIC) can fix tariff values for specific goods via notification, considering the trend of values of similar goods. Duty is then chargeable on this tariff value, regardless of the transaction value.
Exchange Rate: The price is calculated based on the rate of exchange in force on the date the bill of entry (for imports under Section 46) or shipping bill (for exports under Section 50) is presented. This rate of exchange is determined by the CBIC.

Important Conditions & Exceptions

Condition 1: Relationship between Buyer and Seller: The Customs Valuation Rules define the circumstances under which the buyer and seller are deemed to be related. If related, the transaction value may be rejected, and an alternative valuation method may be applied.
Condition 2: Doubt in Accuracy of Declared Value: The proper officer has the authority to reject the declared value if they have reason to doubt its truth or accuracy. They must then follow the specified rules for determining the value.
Exception: Tariff Value: If the CBIC has fixed a tariff value for specific goods, this value prevails over the transaction value for duty calculation.

Practical Example

ABC Importers imports machinery from a foreign supplier. The price paid to the supplier is $100,000. ABC also pays:
* $5,000 for engineering services.
* $2,000 for transportation to the Indian port.
* $1,000 for insurance.

The exchange rate on the date of presenting the bill of entry is ₹80/$.

The customs value will be:
* Price: $100,000
* Engineering: $5,000
* Transportation: $2,000
* Insurance: $1,000
* Total value in $: $108,000
* Value in INR: $108,000 * ₹80 = ₹8,640,000

Customs duty will be calculated on this value of ₹8,640,000.

Key Amendments

No major amendments since enactment. The section has been interpreted and clarified through various judicial pronouncements and circulars issued by the CBIC. The Customs Valuation Rules are periodically updated to reflect changes in international trade practices and to align with the WTO Valuation Agreement.

Section 14. Valuation of goods. -¹

(1)For the purposes of the Customs Tariff Act, 1975 (51 of 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 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, 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:¹

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, insurance, loading, unloading and handling charges to the extent and in the manner specified in the rules made in this behalf:¹

Provided further that the rules made in this behalf may provide for,-¹

(i)the circumstances in which the buyer and the seller shall be deemed to be related;¹

(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;¹

(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:¹

(iv)the additional obligations of the importer in respect of any class of imported goods and the checks to be exercised, including the circumstances and manner of exercising thereof, as the Board may specify, where, the Board has reason to believe that the value of such goods may not be declared truthfully or accurately, having regard to the trend of declared value of such goods or any other relevant criteria²

Provided also that such price shall be calculated with reference to the rate of exchange as in force on the date on which a bill of entry is presented under section 46, or a shipping bill of export, as the case may be, is presented under section 50.]

(2)Notwithstanding anything contained in sub-section (1), if the Board is satisfied that it is necessary or expedient so to do, it may, by notification in the Official Gazette, fix tariff values for any class of imported goods or export goods, having regard to the trend of value of such or like goods, and where any such tariff values are fixed, the duty shall be chargeable with reference to such tariff value.¹

Explanation . - For the purposes of this section -¹

(a)rate of exchange" means the rate of exchange -¹

(i)determined by the Board, or¹

(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;¹

(b)"foreign currency" and ''Indian currency" have the meanings respectively assigned to them in clause (m) and clause (q) of section 2 of the Foreign Exchange Management Act, 1999 (42 of 1999).¹(iv) the additional obligations of the importer in respect of any class of imported goods and the checks to be exercised, including the circumstances and manner of exercising thereof, as the Board may specify, where, the Board has reason to believe that the value of such goods may not be declared truthfully or accurately, having regard to the trend of declared value of such goods or any other relevant criteria²

Explanation . - For the purposes of this section -

(a)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;

(b)"foreign currency" and ''Indian currency" have the meanings respectively assigned to them in clause (m) and clause (q) of section 2 of the Foreign Exchange Management Act, 1999 (42 of 1999).]

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Frequently Asked Questions

What is the 'transaction value' as defined under Section 14 of the Customs Act, 1962, and how is it used to determine the value of imported goods?

The transaction value, according to Section 14(1) of the Customs Act, 1962, is the price actually paid or payable for goods when sold for export to India, provided the buyer and seller are unrelated and the price is the sole consideration. This value forms the basis for calculating customs duties, subject to adjustments for costs like transportation, insurance, and commissions as specified in the relevant rules.

What costs and services are included when determining the transaction value of imported goods under Section 14?

As per the proviso to Section 14(1), the transaction value includes costs and services such as commissions, brokerage, engineering, design work, royalties, license fees, transportation to the place of importation, insurance, and loading/unloading charges. The extent and manner of inclusion are specified in the rules framed under the Act.

How does the Customs Act, 1962, address valuation when the buyer and seller are related, or when the price is not the sole consideration, as per Section 14?

Section 14(1) second proviso (ii) states that the rules made under the Act may provide for 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. These rules typically outline alternative valuation methods to be used when the transaction value is not applicable or acceptable.

What happens if a Customs officer doubts the accuracy of the declared value of goods under Section 14 of the Customs Act?

According to Section 14(1) second proviso (iii), the rules made in this behalf may provide for 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. The officer may reject the declared value and determine the value based on available evidence and the valuation rules.

Can the Customs Board fix tariff values for imported or exported goods under Section 14? If so, how does this affect duty calculations?

Yes, Section 14(2) allows the Board to fix tariff values for any class of imported or exported goods via notification in the Official Gazette, considering the trend of value of such or like goods. When tariff values are fixed, customs duty is charged with reference to these values, overriding the transaction value in certain cases.

How is the rate of exchange determined for calculating the value of imported or exported goods under Section 14 of the Customs Act, 1962?

The exchange rate used for valuation is the rate in force on the date the bill of entry (for imports) is presented under Section 46 or the shipping bill (for exports) is presented under Section 50. This rate is either determined by the Board or ascertained in a manner directed by the Board, as outlined in the Explanation to Section 14.

What additional obligations might an importer face under Section 14 regarding the valuation of imported goods?

Section 14(1) second proviso (iv) refers to the additional obligations of the importer in respect of any class of imported goods and the checks to be exercised, including the circumstances and manner of exercising thereof, as the Board may specify, where, the Board has reason to believe that the value of such goods may not be declared truthfully or accurately, having regard to the trend of declared value of such goods or any other relevant criteria. This may include providing additional documentation or undergoing more stringent scrutiny.

Key Conditions & Requirements

Condition	Details
Transaction Value Basis	Value is based on the price actually paid or payable when sold for export to/from India, at the time and place of import/export.
Buyer and Seller Independence	Transaction value applies only if the buyer and seller are not related, and price is the sole consideration.
Inclusions in Imported Goods Value	The transaction value for imported goods includes costs and services like commissions, engineering, royalties, transportation, insurance, and handling.
Rules for Related Parties/No Sale	Rules may specify valuation methods when buyer and seller are related, there's no sale, or price isn't the sole consideration.
Doubt on Declared Value	Proper officer can reject declared value if its truth/accuracy is doubted, and then determine the value.
Additional Importer Obligations	Board can impose additional obligations and checks on importers if the declared value is suspected to be untruthful/inaccurate.
Exchange Rate Reference	Price is calculated based on the exchange rate in force on the date of presenting the bill of entry or shipping bill.
Tariff Value Fixation	Board can fix tariff values for goods based on value trends, and duty will be chargeable with reference to such tariff value.

Amendment History

12Superscript numbers in the text mark amended passages — click them to jump here. Click "↑ view in text" to jump back.

2007↑ view in text

Substituted by Act 22 of 2007, section 95, for section 14 (w.e.f. 10-10-2007). Earlier Section 14 was amended by Act 20 of 1966, section 2(w.e.f. 1-8-1966), by Act 51 of 1975, section 13(w.e.f. 2-8-1976), by Act 25 0f 1978, section 3 (w.e.f. 1-7-1978), by Act 27 of 1988, section 2(w.e.f.16-8-1988) and by Act 20 of 2002, section 118 (w.e.f. 11-5-2002).

2022↑ view in text

Inserted by s. 89 of Finance Act 2022 (6 of 2022).