Customs Valuation FAQs — Section 14, CVR 2007, Related Party & Assists

These questions are drawn from real GST compliance scenarios, litigation, and common queries from practitioners. Answers reflect the law as amended up to Finance Act 2024.

• 1 What is customs valuation under Section 14 of the Customs Act, 1962?

  Customs valuation under Section 14 determines the assessable value of imported goods for the purpose of calculating customs duty. The assessable value is the transaction value — the price actually paid or payable when goods are sold for export to India — plus mandatory additions under Rule 10 of the Customs Valuation Rules, 2007 (freight, insurance, assists, royalties, commissions). The transaction value method is the primary method under the WTO Customs Valuation Agreement principles adopted by India.

• 2 What are the six methods of customs valuation under the Customs Valuation Rules 2007?

  The Customs Valuation (Determination of Value of Imported Goods) Rules, 2007 prescribe six sequential methods: (1) Rule 3 — Transaction Value (primary); (2) Rule 4 — Identical Goods Value; (3) Rule 5 — Similar Goods Value; (4) Rule 7 — Deductive Value (based on Indian sale price minus costs and duties); (5) Rule 8 — Computed Value (cost of production + profit); and (6) Rule 9 — Residual/Fall-back method. These must be applied strictly in sequence — officers cannot skip methods.

• 3 Can customs officers reject a declared transaction value? What is the procedure?

  Yes, but only if there are 'reasonable doubts' about the truth or accuracy of the declared value under Rule 12 CVR 2007. The mandatory procedure is: (a) issue a written notice specifying the grounds for doubt; (b) give the importer a reasonable opportunity to respond and justify the price; (c) if rejection is upheld, apply the five fallback methods in prescribed sequential order. Rejection based solely on NIDB data or contemporaneous export prices without this procedure is impermissible — consistently struck down by CESTAT and the Supreme Court.

• 4 What are 'assists' in customs valuation and must they be added to transaction value?

  Assists are goods or services supplied by the buyer to the foreign seller free of charge or at reduced cost for use in producing the imported goods — such as tooling, dies, moulds, raw materials, designs, or engineering work provided from India. Under Rule 10(1)(b) CVR 2007, the appropriately apportioned value of assists must be added to the transaction value. Disputes frequently arise on the methodology for computing assist value, particularly for indigenously developed moulds or designs.

• 5 How are related-party imports valued and what is the SVB?

  Where buyer and seller are related (as defined in Rule 2 CVR 2007 — parent-subsidiary, joint venture, exclusive agents, etc.), the transaction value is accepted only if the importer demonstrates the relationship did not influence the price. Three tests apply under Rule 3(3): (a) price approximates deductive or computed value of identical/similar goods to unrelated buyers; (b) price is within the pricing range of unrelated buyer transactions; or (c) cost-plus verification. Related-party imports are investigated by the Special Valuation Branch (SVB) of Customs, which issues a speaking order on the arm's-length nature of the price. SVB orders can be appealed to CESTAT.

• 6 Are royalties and licence fees added to customs value?

  Under Rule 10(1)(c) CVR 2007, royalties and licence fees related to the imported goods that the buyer must pay as a condition of sale are added to the transaction value. Two tests must both be satisfied: (a) the royalty relates to the imported goods (not merely to a trademark on the packaging); and (b) payment is a condition of sale. Post-importation royalties tied only to sales revenue, and royalties for trademark use unrelated to production, have been held non-includible in multiple CESTAT rulings.

• 7 What are the penalties for customs valuation misdeclaration?

  Deliberate under-valuation attracts: (a) confiscation of goods under Section 111(m) of the Customs Act, 1962 (with option to redeem on payment of fine); (b) personal penalty on the importer under Section 112(a) up to the market value of the goods; and (c) in cases of fraud, forgery, or wilful misstatement, enhanced penalty up to five times the duty evaded under Section 114A. Prosecution under Section 132 for making false statements in customs documents is also possible.