F.No.Val/Policy/21/2009 Mumbai,
Minutes of the meeting with SVB officers held on 15.01.10
A meeting – cum – workshop on the issues pertaining to
Transfer Pricing (related party transactions) and functioning of SVBs was held on 15.01.2010. The workshop was inaugurated
by Shri Prabhakar Nigam, Director General of Valuation. Apart from the
officers from DGOV, Mumbai, the following officers attended the meeting.
Stations Dy./Asstt.
Commr. Addl. / Jt. Commr.
1. Mumbai
(SVB) - Shri Rajeev Garg - Shri S.P. Rao
2.
3. Chennai
(SVB) - Not attended - Shri Peri Umashankar
4. Kolkotta (SVB) - Shri A. Kumar - Not attended
5.
(DGOV)
6. Chennai Zonal
Unit - --- - Not attended
(DGOV)
Shri Prabhakar
Nigam, Director General of Valuation welcomed the
delegates attending the workshop and gave the broad outline and intent of the
workshop.
2. Shri Deepak Kumar, Commissioner
Valuation and Dr. Satish Dhavale,Joint
Commissioner presented the statutory provisions, issues relating to
determination of
method of valuation in related party transactions ,additions of
payments relating to royalty/technical
know-how/licence fee and working of SVBs.
The following points were discussed during the workshop.
A. Concept of ‘transfer
price’ – The concept of ‘transfer price’ as per the relevant provisions
of the Customs Act and Income Tax Act was discussed. It was informed that the
provisions of Income Tax relating to transfer pricing are based on the
guidelines of OECD and relating to the Customs Act are as per the Article VII
of the General Agreement on Tariff and Trade (WTO) entered at Marakash Conference.
The dichotomy prevalent in the approach of both the tax
administrations towards the transfer pricing was discussed.
B. Harmonisation of the
provisions relating to transfer pricing with the provisions of WCO Agreement on
Customs Valuation.
The provisions of the Section 14 (1) of the Customs Act,
1962 alongwith the relevant Customs Valuation Rules,
2007 were discussed vis-à-vis the Article I of WCO Valuation Guidelines and it
was informed to the delegates that the provisions relating to Customs
Valuations are harmonised with the WCO Customs Valuation Guidelines.
C. Concept of ‘Related
Person’ as per sub-rule (2) of Rule 2 of Valuation Rules, 2007.
The definition of ‘related person’ as per Rule 2(2) of the
CVR, 2007 was discussed alongwith its
Explanation II. It was stressed upon that the sole agent, sole distributor or
sole concessionaire can be treated as related person only when they fall within
the criteria i.e. (i) to (viii) of Rule 2(2).
D. Provisions of Rule
3(3) of CVR, 2007.
The provisions of
Rule 3(3) of CVR, 2007 applicable for determination of the value of the
imported goods where buyer and seller are related were discussed in detail. The
different situations of the related party transactions were discussed alongwith the methods to be adopted for determination of the
value of the imported goods in such situations.
E. Additions on account of payments towards
Royalties / License fees / Technical Know-how / use of Copy Rights and or Trade
Mark under Rule 10 (1)(c) and (e) of CVR, 2007.
The Rule 10(1)(C) of CVR, 2007 and
explanation to it was discussed in great details. The essential ingredients for
the additions of above payments as per the Rule, namely, the payments being
‘related to goods’ and ‘condition of the sale’ were discussed. Further WCO
advisory opinions on these issues were highlighted. It was emphasized that normally additions
under Rule 10(1) are required to be made in transaction between unrelated
buyers where transaction value is accepted.
Also in case of related party transaction, additions under Rule 10(1)
are made whenever transaction value is found to be acceptable.
It
was explained to the delegates that at the time of taking decisions regarding includiblity or otherwise of these payments, the basic
thrust should be to know whether the imported goods contain IPR or goods are
manufactured by using the IPR (technical know-how). In these circumstances
royalty etc. is related to imported goods. For holding license fees/ Royalty
payments as condition of sale, the buyer should not be able to import the goods
and use it for intended purpose without payment of License/ Royalty fees.
The
Supreme Court Judgments on this issue were discussed and it was stressed upon the
delegates that after insertion of the explanation to rule 10 (1), the legal
position has completely changed and the officers have to take this in to
consideration at the time of adjudication. Further it was emphasized that the
terms and conditions of each Technology Transfer Agreements need to be examined
and discussed to ascertain whether the payments are related to imported goods
and are condition of the sale of the imported goods so as to include it in the
declared transaction value.
F. SVB Functioning – The intent behind the creations of SVBs was discussed alongwith the
Circular No 11/2001 – Cus dtd. 23.02.2001. It was informed to the delegates that as per
the above mentioned Circular in addition to the related party transactions, SVBs are required to investigate the following types of
cases where there is no relation between
buyer and seller -
Further it was emphasized that the cases should not routinely
be referred to SVB for further investigation whenever the relationship as per
Valuation Rules is declared by the importer without doing preliminary scrutiny
regarding the value having been influenced by relationship.
The details available on the Central Registry Data base
(CRD) of DGOV website were made available station wise and it was directed by
Commissioner Valuation to reconcile the figures and enter the complete and
up-to-date data.
G. General Observations
on the SVB Orders
As this Directorate is critically
examining the quality of the SVB orders, the general observation of the
Directorate on the SVB orders were made known to participants. Commissioner (Valuation)
requested the delegates to take the note of these observations so as to improve
the quality of future orders passed by SVB.
The workshop ended with vote of
thanks.