Frequently Asked Questions

Ans: The ACV contains no definition of ‘sale’. However, the term ‘sale’ has to be interpreted in the widest sense, keeping in view the provisions contained in Articles 1 and 8 of the ACV. The Technical Committee on Customs Valuation has prepared a list of cases that would not be deemed to constitute ‘sales’ meeting the requirements and conditions of Article 1 and 8 of the Code. In such cases, one of the methods other than the transaction value method has to be applied proceeding sequentially. The list is not exhaustive:

(i) Free consignments: Where transactions do not involve payment of any price, they cannot be regarded as sales. Examples of such transactions are gifts, samples, promotional items.

(ii) Goods imported on consignment: Under this arrangement the goods are imported not as a result of sale but for subsequent sale on the account of the supplier. As such, there is no sale the time of importation. Importation on consignment for subsequent auction sale is an example of such transaction. Such importations on consignment are to be distinguished from profit-sharing transactions. In the case of the latter, the goods are sold Provisionally at a price to which part of the profit arising out of subsequent sale in the country of importation has to be added.

(iii) Goods imported by intermediaries who do not produce the goods: Under this arrangement, goods are delivered to an intermediary who imports the same, acting as an agent of the supplier, and sells it later on, on the supplier's account and risk. Importation for replenishment of the agency stocks is an example of such transaction.

(iv) Goods imported by branches: Where branches are not separate legal entities, the importation by branches cannot be regarded as sale. Sale necessarily involves a transaction between two separate persons. Ownership must charge.

(v) Goods imported under hire or lease: Transactions on hire or lease do not constitute sales, even if an option is included in the contract to purchase the goods.

(vi) Goods supplied on loan: Often, machinery is loaned by the owner to a customer. Such transactions do not constitute sale.

(vii) Goods (waste and scrap) imported for destruction: In such transaction, the importer does not pay for the imported goods. On the other hand, the exporter pays the importer to accept and destroy such goods. Such transactions will also not' constitute sale under the ACV.

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Ans: Barter deals consist of an exchange of goods or services of approximately equal value. The barter mayor may not be settled in monetary terms. In the former case, there is no transaction value nor any objective or quantifiable data for determining the value. Hence, methods other than the transaction value method have to be applied. In the latter case also where a barter transaction is expressed in monetary terms, the same will be subject to the provisions of Article 1, paragraph l(b) of the ACV. Here again, application of a method other than the transaction value method will be appropriate.

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Ans: Assist is a term used to describe any of the following goods or services supplied free or at a reduced cost by the buyer for use in the production of the imported goods:

a) materials, components, parts and similar items incorporated in the imported goods;

b) tools, dies, moulds and similar items used in the production of the imported goods;

c) materials consumed in the production of imported goods;

d) engineering, development, ;artwork, design work, and plans and sketches undertaken elsewhere than in the country of importation and necessary for the production of the imported goods.

These assists are listed in Article 8.1 (b) of the ACV. Value of such assists, apportioned as appropriate, has to be added to the price actually paid or payable, whether these are directly supplied by the buyer or not. At times, such assists are provided to the supplier of the imported goods by the foreign collaborator of the buyer at the instance of the buyer. In such cases, the price actually paid or payable to the supplier will not include the cost of assists for which the buyer will be making separate payments to his foreign collaborator. Therefore, such payments are to be added, after due apportioning, to the price actually paid or payable for the imported goods for determination of the customs value.

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Ans: A buying agent acts on behalf of a buyer, finding a seller, collecting samples, inspecting goods and in some cases arranging the transport, insurance, storage and delivery of the goods. The amount paid to a buying agent for his services is termed as buying commission, which is paid by the importer in addition to paying for the goods. Article 8(1)(a)(i) of the ACV specifically excludes buying commissions from being added to the price actually paid or payable while determining the customs value.

Sometimes buying agents act as principals in the sense that they use their own funds for the payment of the goods and after acquiring the ownership they resell the goods to the ultimate buyer in the country of importation, raising an invoice in their own names. In such cases, the so-called buying agent become the actual seller of the goods and the sale price would include the agent's commissions and profits. While there is a provision in the ACV for not adding buying commission, there is no provision to permit deduction towards buying commission in such cases.

In some cases, the buying agent may be undertaking to pay the transport and insurance charges and including the same in his buying commission. Such charges towards transport and insurance are to be included while determining the customs value if the importing country has opted for CIF basis of valuation.

The agency contract between the buyer and the agent, their relationship, and where the agent reinvoices the buyer, the original invoice from the seller have to be examined carefully.

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Ans: A seller may lack confidence in the letter of credit raised by the buyer on the buyer's bank for the payment to be made for the goods sold. He/she may, therefore, seek confirmation of the letter of credit from his/her bank or from a confirming house (a specialized commercial house which offers such services) who provide guarantees to the seller against the commercial risk of non-payment by the buyer or his/her bank.

The fee charged for such services is called confirming commission. Amounts towards such commission may have been directly included by the seller in the invoice price. There may be cases where the seller separately invoices the buyer for the confirming commission or the confirming institution itself directly sends an invoice to the buyer. In such cases, confirming commissions paid by the buyer to the seller or to a third party have to be added to the price actually paid or payable for determining the customs value.

In some cases, a buyer may undertake on his/her own accord to provide a seller with an irrevocable and confirmed letter of credit. For such deals, the buyer has to pay necessary charges to the confirming institutions. When such charges are incurred by the buyer without there being any condition imposed in the contract for sale, such charges should not be added to the price actually paid or payable for valuation purposes.

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Ans: Since the price actually paid or payable is the primary basis of valuation under the ACV, actual price exclusive of trade discounts has to be taken as the basis for determining the customs value. The following discounts can, therefore, be allowed for deduction:

(i) Cash discount;

(ii) Quantity discount;

(iii) Discount in kind;

(iv) Bonus for purchases exceeding certain quantity; and

(v) Special introductory discount.

When the contract for sale provides for the following discounts, the same may also be allowed for deduction:

(i) Late shipment allowance;

(ii) Breakage allowance (for fragile goods);

(iii) Contractual discount (a kind of quantity discount);

(iv) Negotiated discount (special discounts justified in the special circumstance of the sale).

There are certain other discounts that require to be examined carefully in the light of the valuation provisions and may have to be disallowed:

(i) Discount for brokerage: This is a form of brokerage or commission when the sale is negotiated through a broker. Such discounts are to be added to the invoice value. However, buying commission is not to be added.

(ii) Cash discount given to agents of importers in the country of importation: These are special discounts given to sole agents, sole concessionaires etc. When the imports are by third party and the sole agent a commission, the same is to be added to the price to determine value. When the import is by the sole agent himself, it is to be seen whether he is related to the supplier and the relation has influenced the price. If so, the discount may not be allowed to be deducted. Otherwise, imports by sole agents have to be treated under the ACV at part with any other normal imports.

(iii) Service stocking discount: This is a discount for allowing storage facility by the importer. This being in the nature of a compensation for some post importation activity to be undertaken by the importer, the same may not be allowed to be deducted. Moreover, the contract of sale has to be seen in detail to determine whether the transaction value method is at all applicable to such a sale.

(iv) Discount on account of loss by exchange: such discounts are at times allowed by banks with the concurrence of shippers on account of fluctuations in exchange rates. These are allowed through separate arrangements and are in the nature of compensation outside the sale contract. Therefore, such discounts may not be allowed to be deducted while determining the customs value.

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Ans: Quantity discounts are allowed by a seller according to a fixed scheme based upon the quantity of the goods sold over a basic period. Normally these are allowed as deductions from the price according to the quantity sold. Such discounts are to be normally allowed while determining the customs value.

A situation may arise where such discounts are granted retrospectively in respect of importation already made. For example, a seller grants 5% discount on purchases up to 100 units in a year and 10% discount if purchases exceed 100 units in a year. A buyer receives 5% discount on his first purchase of 100 units. Subsequently, he makes a second purchase of 100 more units on which he receives 10% discount and in addition, another 5% discount retrospectively towards the first purchase. In such a case, 5% additional discount on the subsequent importation cannot be deducted for determining the customs value. Such amounts are in the nature of credits in respect of earlier transactions and as such represent part of the price already paid. Hence, such amounts have to be included in the customs value of the second importation, being part of the price paid or payable. As far as the first transaction is concerned, the same has to be decided separately. In case the same was assessed provisionally, the assessment can be reopened and the value re-determined.

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Ans: There may be a financial arrangement between the buyer and the seller under which the seller allows deferred payment charging an extra amount towards interest. However, this amount mayor may not be distinguished from the price payable. The ACV does not contain any specific provision for deduction of interest. However, the WTO Committee on Customs Valuation has adopted a Decision to the following effect, which provides necessary guidelines:

Charges for interest under a financing arrangement entered into by the buyer and relating to the purchase of imported goods shall not be regarded as part of the customs value provided that:

a) the charges are distinguished from the price actually paid or payable for the goods;

b) the financing arrangement was made in writing;

c) where required, the buyer can demonstrate that:

(i) such goods are actually sold at the price declared as the price actually paid or payable; and

(ii) the claimed rate of interest does not exceed the prevailing rate of interest for such transactions at the time when and in the country where the financing was provided.

The above guidelines apply regardless of whether the finance is provided by the seller, a bank or another natural or legal person. They will also apply whether valuation is done by applying transaction value method or any other method.

The importer should be able to give a copy of the document showing the financial arrangement. It may usually be found in the contract for sale under the 'terms and conditions' clause. Where no such written document exists or where the interest shown is unreasonably high, no deduction may be allowed. It may, however, be noted that the interest rate can be higher if financing is provided in a currency whose exchange rate is subject to high fluctuations and therefore has a higher risk in dealing in the same.

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Ans: When the buyer pays a royalty or licence fees related to the imported goods as a condition of sale, the, amount has to be added to the price actually paid or payable. Examples are payments in respect of patents, trademarks, copyrights etc. The basic requirement for addition of these fees under Article 8.I(c) of the ACV are:

(i) such amounts are related to the goods being valued; and

(ii) the buyer pays these amounts as a condition of sale of the goods being valued.

Payments made by the buyer for the right to distribute or resell the imported goods have to be added to the price actually paid or payable for the imported goods only if such payments are a condition of the sale for export to the country of importation. On the other hand, payments for the right to reproduce the imported goods in the country of importation should not be added to the price actually paid or payable for the imported goods in determining the customs value.

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Ans: Valuation of carrier media such as tapes and discs for data processing equipment (computers) poses the following problem:

(i) should the price of the medium such as tape and disc alone be taken as the value disregarding the cost of data or instruction (software) recorded on the same; or

(ii) should the price of the medium, including the cost of data and instructions recorded on the same, be taken as the value?

The problem is peculiar for the reason that essentially the carrier media itself (tape or disc) is liable to duty under the customs tariff whether it is recorded or not. On the other hand, it is the software (data or instructions) recorded on it, which is of primary interest to the importer. In fact, in most cases the software has to be transferred into the memory or database of the importer's own system before the same can be used. In such a case, the medium is used only as a temporary means of storing data. It is also possible for the buyer and the seller to transmit and receive such software through wire or satellite, if such technical facilities are available to them. In such cases, the question of charging customs duty may not arise.

In view of the peculiarity of the problem., the Committee on Customs Valuation has left the choice to the individual countries as to whether they should include the cost of software in the customs value or not . It has further opined that both methods of valuation would be consistent with the ACV.

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Ans: Motor vehicles may be imported, after purchase without any use in between or they may be imported after use. In the former case, there may not be any difficulty in using the transaction value method Valuation of used motor vehicles can be problematic. In the case of individual import of a vehicle which has been in the personal use of the importer for some time prior to the import, the vehicle may have been purchased either new or in used condition several Years back and put to additional use thereafter. In such cases, transaction value method will not be applicable as the vehicle to be valued after importation cannot be regarded for valuation purposes as the same vehicle as when last sold. It will also be difficult to find transaction values of identical or similar vehicles. Even deductive value method can rarely be applied to such individual imports. In most cases, therefore, recourse has to be taken to the fallback method under which reasonable means consistent with valuation principles are to be adopted.

In some countries, the value of a used mototr vehicle is determined by allowing depreciation for the period of use from the prices of new cars of similar make, model and year of manufacture. If there are any additional fixtures, value of the same are usually added Adjustments are also made for freight and insurannce charges if the domestic law in the country of importa tion requires valuation to be done on ClF basis.

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Ans: Imports of used and second-hand machinery are more common in developing countries valuation of which can be problematic. Such machinery may be imported after purchase without any further use in between. In such cases the transaction value method can be applied. However. the machinery may have been further used after the last purchase or the declared value may be doubtful. It may not be possible to find values of identical or similar machines or to determine value by the deductive value method. In such cases the fallback method has to be applied in a manner consistent with the broad valuation principles. In some countries value is determined in such cases by allowing depreciation from the prices of new machinery for the period of use. At the same time appropriate additions are also made for any reconditioning done and fitments made in between.

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Ans: The ACV has no special provision for the valuation of these types of goods, imports of which are usually noticed in developing countries. Normally. if there is no doubt about the description of the imported material and the transaction is genuine, valuation can be done by the transaction value method. However, at times, prime goods are mis-declared or customs officers entertain a reasonable doubt about the truth and accuracy of the declared value. In such cases. one of the other methods of valuation has to be adopted. Usually it is difficult to find goods which are identical or similar to such goods. In the case of scrap. some varieties are at times graded according to international specifications developed by the concerned trade associations and it may be possible to find comparable goods of same specification. The deductive method of valuation can be used where such goods imported by traders are resold after importation. Where no other methods apply, recourse has to be taken to the fallback method.

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Ans: There may be cases where the entire shipment is found to be totally damaged upon importation. Normally, national legislation provides for re-exportation abandonment or destruction of the damaged goods without any duty liability and hence there would be no need for valuation in such cases. There may be cases where the importer takes delivery of goods that. Are partially damaged or goods having scrap value only. In such cases, since the price paid or payable is not for the damaged goods, the transaction value method is not applicable. However. if only a portion of the goods is damaged, it may be possible to proportionately value the portion of the undamaged goods based on the transaction value. For the damaged goods, the value may be determined either under the deductive value methods or under the fallback method as the other methods may not be applicable. Under the deductive value method, the resale price may be used as the basis of valuation whereas under the fallback method, the basis can be either a renegotiated price or the original price reduced by an amount equal to an estimate of damage or cost of repair or insurance settlement.

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Ans: If such goods are re-exported without any duty liability, valuation may not be necessary. However, if such goods are retained by the buyer, valuation would be necessary. In the case of wrongly supplied goods, transaction value method will not apply and valuation has to be done by applying one of the other methods. In the case of goods not conforming to the specifications in the original purchase order, there may be situations where the seller may take steps to bring the goods into conformity or may render some compensation to the buyer extraneous to the goods. In such cases, it may be possible to value the goods using the transaction value method.

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Ans: Split consignments relate to one transaction between the buyer and the seller but imported through several consignments. Such cases arise in the following instances:

(i) The goods constitute a complete industrial plant. The consignments are split up for convenience in transport, keeping in view the installation schedule.

(ii) The total import is of a large quantity and the same is conveniently shipped in several consignments keeping in view the requirement over a period of time.

(iii) The shipments are split because the importer wants the goods delivered through different ports.

In the first case, some countries may have a provision for charging one rate of duty for all the goods imported under a single project import contract. There may however, be cases where the imports under a single project contract may take a long time for completion and the duty rates applicable may undergo a changes. In such cases, separate valuation of split consignment becomes necessary. Separate valuation also becomes necessary for currency conversion, as the rate of exchange applicable on the date of entry for each split consignment is relevant. Therefore, the whole project assessment should be done on a provisional basis apportioning the total value to each consignment in a reasonable manner, subject to final adjustment and assessment at the conclusion of all the imports.

In the second case, since the split consignment consist of identical units or sets of goods of a particular quantity, valuation of each consignment can be done easily apportioning the transaction value.

In the third case also, transaction value method can be applied with suitable adjustments made for differences in transportation charges to various ports.

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Q42	What constitutes sale for the purpose Customs valuation?
Q43	How are barter deals to be treated for valuation purposes?
Q44	How are baggage items to be valued?
Q45	How are commercial level and quantity adjustments to be done?
Q46	What is meant by the expression "greatest aggregate quantity”?
Q47	What is meant by the expression “goods of the same class or kind”?
Q48	What is an assist?
Q49	What is buying commission and how is it to be treated for valuation purposes?
Q50	What is confirming commission and how is it to be treated for valuation purposes?
Q51	How are discounts to be treated for valuation purposes?
Q52	How are retrospective quantity discounts to be treated for valuation purposes?
Q53	How are interest charges to be treated for valuation purposes?
Q54	How are warranty charges to be treated for valuation purposes?
Q55	*How are royalties and licence fees to be treated for* valuation purposes?**
Q56	How is carrier media bearing software to be valued?
Q57	How are used and second-hand m vehicles to be valued?
Q58	How is used machinery to be valued?
Q59	How are sub-standard goods, off-grade materials, seconds, rejects, defectives and scrap to be valued?
Q60	How are damaged goods to be treated for valuation purposes?
Q61	How are wrongly supplied goods and goods not in accordance with specification to be valued?
Q62	How are replacement goods to be valued?
Q63	How are excess goods packed free of charge to be valued?
Q64	How are rented or leased goods to be treated for valuation purposes?
Q65	How are goods exported for repairs to be valued when imported after repairs?
Q66	How are split consignments to be assessed?

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