In terms of the direction given by the Board in its
meeting held on 28.11.2005, a Committee consisting of the Director General (Valuation) and Chief
Commissioners of Customs, New Delhi, Mumbai and Chennai met at Mumbai on
3.1.2006, to consider the following issues:
(1) strengthening
the Special Valuation Branches (SVBs) of Customs House on transfer pricing
(2) whether
SVB should be brought under the control of a single authority like DG of
Valuation
(3) nomination
of DG, Valuation as nodal agency to study the basis followed by Income Tax
department in its legislation and study the administrative and institutional
arrangements in handling transfer pricing work for interaction with the IT
department.
2. Shri V. Mangotra, Director (Transfer
Pricing) and Smt. Alpana Saxena, Additional Commissioner (Transfer Pricing) of
the Income Tax Department at Mumbai also joined the meeting when the last point
regarding Transfer Pricing was taken up for discussion. The Chief Commissioner of Customs, Kolkata
could not attend the meeting.
Shri A.K. Prasad, Commissioner (Import), Mumbai Custom House who deals with the
SVB matters at Mumbai and Shri N. Sasidharan, the former Commissioner, DGOV
also attended the meeting. The list of
the participants is enclosed at Annexure – A.
3. At the request of Shri K.K. Agarwal,
Director General (Valuation),
Shri Ramesh Ramachandra, Chief Commissioner of Customs, New Delhi chaired the
meeting.
4. At the outset, Shri S. Dutt Majumder,
Commissioner (Valuation) made a brief presentation on the agenda points, the
issues involved and the pros and cons of different alternatives, and the points
for decision. A hard copy of the
presentation is enclosed at Annexure – B.
5. While discussing the first item of the
agenda regarding modalities for strengthening of SVB, the house was unanimous that the
SVBs need to be strengthened as suggested in the Power Point Presentation, and
that it is essential to have effective supervision of the SVB work at different
levels. It was however pointed out that
following are
the logistic problems due to which the SVB could not be strengthened.
(a) There is a substantial number of
vacancies in some of the major Custom Houses at the level of Addl. / Jt.
Commissioners and Dy. / Asst. Commissioners, because of which it has not been
possible to put one Addl. / Jt. Commissioner and one Dy. / Asst. Commissioner
exclusively for the SVB work.
(b) In view of the rotation policy of the
Department, a sizeable number of Addl. / Jt. Commissioners and Dy. / Asst.
Commissioners are posted in Custom House who have done their tenure only in
Central Excise and they have no experience in Customs. That was the reason why it has not been
always possible to deploy officers with Customs appraising background for the
SVB work
6. After detailed discussion, the house was unanimous about
the following modalities for strengthening of SVBs.
(i)
One Deputy / Assistant Commissioner are to be posted
exclusively for SVB with minimum tenure of one year.
(ii)
The Addl. / Joint Commissioners who may have to hold the
additional charge must have SVB as his main charge and tenure for SVB must be
for one year minimum.
(iii)
Three / two Appraisers and support staff to be posted at
SVB with minimum tenure of 2 years.
(iv)
The Addl. / Joint Commissioner and the Deputy / Assistant
Commissioner must have adequate appraising experience.
(v)
The Appraisers must be experienced.
(vi)
The Commissioner should have power to engage C.A. or other
financial consultants and the expenditure could be met under the OE budget
head.
7. It was also decided that in order to
implement the proposal at (i) to (iii) above, the Board would be requested to
fill up the existing vacancies of Addl. / Joint Commissioners and Deputy /
Assistant Commissioners in the major Custom Houses of Mumbai, Delhi and Kolkata. It would also be necessary to review the
rotation policy for transfer from Customs to Central Excise and vice-versa, the
policy of transfer from current to non-current work etc.
8. While discussing the agenda item
regarding desirability
of handing over the SVB work to the Directorate General of Valuation, the
Committee had a threadbare discussion on the pros and cons of the proposal. As for the ‘pros’, the Committee considered the
following:
(a) There
will be focused attention of a single directorate.
(b) There
will be uniform approach at all the four SVBs, being under single authority.
(c) There
will be uniformity in engagement of financial consultants.
(d) There
will be close monitoring of SVB work.
(e) There will
be effective updating of CRD by SVBs.
9. As for the ‘cons’, the Committee considered the
following points:-
(i)
The major deficiencies with regard to the functioning of
the SVBs related to the lack of proper supervision at different levels and the
absence of appropriately skilled and experienced officers. These deficiencies would not be addressed
simply by transferring the work of SVBs to the DGOV.
(ii)
With SVBs under the control of Custom Houses, the day to
day control and redressal of the grievances of the Trade on the spot would be
more feasible.
(iii)
On a review of the performance in the disposal of the SVB
cases, it was observed that the Custom Houses at Chennai and Mumbai have been
handling maximum number of SVB cases and that in the last three months these two
Custom Houses have been performing reasonably well. It was felt that with enhanced effective supervision, the
performance of SVBs at the Custom Houses would increase further.
(iv)
DGOV will have a limited choice in posting the officers for
the SVB work, whereas the Custom House with a large number of officers under
its control will have a wider choice.
10. In the course of discussions there was a division of
opinion as to the desirability of handing over the SVB work to DGOV. Finally, on consideration of the fact that of late two major
Custom Houses have been performing well in terms of disposal of the SVB cases,
it was decided to continue with the present system of functioning of the SVB in
the Custom Houses for the present. It was felt that the matter could be reviewed in the month of April after
observing the performance of the SVBs during the next 3 months.
11. In this context, following decisions were
also taken with regard to pro-active role of DGOV vis-à-vis the SVBs.
(a)
Custom Houses will invariably send copies of all SVB orders
to the DGOV, which would be critically studied by the DGOV. For this purpose a monthly statement of
orders issued by SVB will be sent with details of Order-in-Original number etc.
to DGOV to facilitate monitoring by DGOV.
(b)
The DGOV would give its feedback to the concerned
Commissioner and Chief Commissioner on the aspects relating to the quality of
the order. This feedback can be used by
the Commissioner in deciding whether to accept the SVB order or to review /
file the appeal.
(c)
The DGOV will monitor the regular updating of the Central
Registry Data (CRD) by the SVBs of the concerned Custom Houses.
(d)
The DGOV will undertake inspection of the SVBs of the
Custom Houses with regard to the SVB orders.
During inspection, the statistics will also be crosschecked with
reference to the records available with the SVB as well as the concerned
appraising group. These inspections
should be done with regular periodicity.
(e)
The DGOV will formulate the detailed parameters for the
inspection and would review the existing proforma for inspection.
(f)
The policy section of the DGOV would need to be suitably
strengthened to take care of these additional work load. For the present, the Board would be
requested to fill up the existing vacancies in the DGOV.
(g)
The proposal for setting up an office of DGOV in the major
Custom House of Kolkata, which is pending with the Board will have to be
pursued vigorously so that to start with an unit of DGOV at Kolkata can be set
up immediately with a skeletal staff of one Dy. Commissioner / Asst.
Commissioner and supporting staff.
Later on, during the AGT in April – May‘ 06 the Kolkata unit can be
converted into a regular Regional Unit under one Addl. / Joint Commissioner.
12. Before starting the discussions on the
modalities of interaction with the Income Tax department on Transfer Pricing,
the Commissioner (Valuation) made a short presentation on the features of
Transfer Pricing (TP) Rules under Income Tax Act, as are relevant to the
Customs. The Committee observed that
the criteria for determining relationship in terms of the Transfer Pricing
Rules are different from those for the Customs Valuation Rules. The number of persons coming under the ambit
of ‘related persons’ is much more in terms of the Transfer Pricing Rules than
those in terms of the Customs Valuation Rules.
However, there is no scope for the Customs Valuation Rules to be amended
since these are governed by WTO Valuation Code. The Committee further observed that this difference in
criteria for determining relationship would not pose any difficulty, since the
moot point is that the transaction price should be determined correctly, and it
should be same for both Customs as well as Income Tax. The Committee observed that the main purpose
of the interaction between the Customs and Income Tax would be to ensure that
the Transfer Price declared to both the authorities i.e. Customs and Income Tax
are same. In this context, the
Committee also observed that the concerns of the Customs department and the Income
Tax department would be of opposite nature. The diversion of profit to exporting country by over valuation of
imported goods is the concern of the Income Tax department. On the other hand, under valuation of
imported goods for evading the Customs duty is the concern of the Customs
department. The Committee was also
informed that while normally it takes about 1 year for the Customs to
determine the price in the case of related party transaction, the Income Tax
department takes about 3 to 4 years time to finalise a particular related
party transaction involving Transfer Pricing.
13. While discussing the Transfer Pricing
Rules, the Committee observed that the documentation requirements under Rule
10 D of Transfer Pricing Rules are more exhaustive. It was therefore felt that on the Customs side also the
documentation requirements could be made equally exhaustive.
14. Shri V. Mangotra, Director (Transfer Pricing) gave an
overview of the Transfer Pricing Directorate of the Income Tax and informed the
Committee that the Transfer Pricing Directorate comes under the Directorate
General of International Taxation with 5 regional offices of the Directorate of
Transfer Pricing at Mumbai, Delhi, Chennai, Bangalore and Kolkata. He further informed that the Transfer
Pricing Directorate takes up only such cases of Transfer Pricing for scrutiny
and investigation where the transaction in a year between the same related
parties exceed Rs.5 crores. He further
informed that the Transfer Pricing Rules were broadly based on the OECD
guidelines.
15. After detailed discussion with the Director and the Addl.
Commissioner in the Transfer Pricing Directorate, it was felt by the Committee
that there should be an institutional mechanism for harmonization and
co-ordination of Transfer Pricing matters between Customs and Income Tax
departments, which should be backed by adequate legal and procedural
provisions. In order to
institutionalise such mechanism, the Committee was unanimous of the view that
the DGOV should be made the nodal agency for interaction with the Income Tax
department on Transfer Pricing matters.
It was further decided that a beginning having been made in the area of
interaction between Customs and Income Tax department through this meeting, the
officers of DGOV should now concretize the different parameters on which
there would be an institutional mechanism for harmonization and co-ordination
of Transfer Pricing matters. To
this end, the officers of DGOV will have the first meeting with the concerned
Income Tax authorities within next 15 days.
The Committee also felt the need for exchange of information and data
between Customs and Income Tax on TP matters. The DGOV would have to work out the details in this regard in
consultation with the Directorate on Transfer Pricing.
16. Summing up, the Committee made the following
recommendations:
(a)
The
modalities for strengthening of the SVBs, as detailed at sub-clauses (i) to
(vi) of the foregoing para 6 would need to be implemented.
(b)
For
this purpose, Member (P&V) would be requested to fill-up the existing
vacancies at the major Custom Houses of Mumbai, Delhi and Kolkata, as indicated
at foregoing paragraph 7.
(c)
For
the present, the SVBs, duly strengthened, may continue functioning under the
control of the respective Custom Houses.
The matter could be reviewed in April, 2006.
(d)
The
DGOV must have a proactive role vis-à-vis the functioning of the SVBs in the
areas indicated as sub-clauses (a) to (g) of the foregoing para 11.
(e)
DGOv
may give a firm proposal for an exhaustive documentation requirement as are
provided in the TP Rules. The list of
documents may be specified through Public Notice.
(f)
DGOV
may be made the nodal agency for interaction with the Income tax department on
Transfer Pricing matters. For this
purpose, the SVBs of the Custom Houses would provide all the necessary inputs
to DGOV.
(g)
DGOV
would concretize, in consultation with the TP Directorate, the different
parameters for having an institutional mechanism for harmonization and
co-ordination of Transfer Pricing matters.
Exchange of information and data will be one important parameter.
(h)
Having
made the beginning through this meeting, DGOV will have its next meeting with
TP Directorate within next 15 days.
17. The meeting ended with a vote of thanks to the Chair, and
also to the officers of the Transfer Pricing Directorate of the Income tax
department.
(S.
DUTT MAJUMDER)
COMMISSIONER
(VALUATION)
DGOV
ANNEXURE – A
1. Shri Ramesh Ramachandra, Chief Commissioner of Customs, New
Delhi.
2. Shri K.K. Agarwal, Director General (Valuation), Mumbai.
3. Shri K.M. Tiwari, Chief Commissioner of Customs, Mumbai – I &
III Zone.
4. Shri J.K. Batra, Chief Commissioner of Customs, Chennai.
5. Shri S.Dutt Majumder, Commissioner
(Valuation), DGOV, Mumbai.
6. Shri N. Sasidharan, Commissioner (General), Mumbai.
7. Shri A.K. Prasad, Commissioner (Import), Mumbai – I Zone.
Participants
from Income Tax Department on the Transfer Pricing issue:-
1.
Shri
V. Mangotra, Director (Transfer Pricing), Directorate of Transfer Pricing,
Income Tax Department, Mumbai.
2.
Smt.
Alpana Saxena, Additional Commissioner (Transfer Pricing), Income Tax
Department, Mumbai.