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The following areas of work have been accomplished by the Directorate General of Valuation:
Achievements
The following areas
of work have been accomplished by the Directorate General of Valuation:
10.1 NIDB: Development of a comprehensive electronic
data base of imported goods namely National Import Data Base (NIDB). This involves compilation of import data on a
daily basis from all Customs stations in the country and its analysis by a
specially developed software to determine unit values, weighted average values
of identical goods, percentage deviations and outliers, supplemented with
international price information. The
combined, analyzed data is transmitted to all Customs stations every week for
use as an assessment tool and decision support system for checking under
valuation. The NIDB data is also made available on the Directorate of Valuation
website (www.dov.gov.in) for direct access
by departmental officers on a password protected basis.
10.2 Export commodity database (ECDB) project:
The Export Commodity Database (ECDB) Project is a comprehensive export
valuation data base, developed with a view for checking overvaluation and abuse
of export incentive schemes. This implies capture of export data in a
pre-determined format from the Customs Stations, consolidation and analysis of
the export data with the help of a specially designed software for providing
certain results (such as weighted averages, standard deviations, outliers), which
would help in detecting potential cases of valuation fraud. The data is being
disseminated on a regular basis to field formations for on-line use to check
export value declarations and to take considered decisions on valuation.
The first phase of the ECDB
project was started on November 2004 when the export data received from the EDI
stations was combined and was converted into a structured data base. This was in access format with copy search
and retrieval facilities. This simple database was placed on the Directorate
website, (www.dov.gov.in), for online
access by assessing officers .
In the second phase of the ECDB,
launched in August, 2005 has the analyzed export data by a specially developed
software for giving desired results. The
Directorate has distributed CDs containing the ECDB software and the data for
the initial three months. The DGOV has
been doing fortnightly data analysis and has been transmitting the analyzed
data on fortnightly basis to the field formations for building up the local
database by updating the initial three months data. Output data are in both the Access and Oracle
format. The entire ECDB (Phase II) is also made available on the DOV Website
for access by officers on a Password protected basis.
10.4 Sensitive Commodities: The Directorate
has developed a list of sensitive commodities prone to undervaluation based on
its studies and research in consultation with Customs stations. The list
consists of specific products as well as product groups, which have significant
revenue implications due to high tariffs and large volume of imports and other
factors having influence on value. The list
is periodically reviewed and updated based on feedback from Customs houses and
Directorates own studies on valuation trends.
The list of specific products is subjected to weekly valuation analysis
in the NIDB. Valuation trend of these commodities is also regularly monitored
for issue of Alerts and Guidelines to field officers.
10.5 Valuation Alerts: The Customs
stations are alerted based on Directorate’s studies of valuation trends of
important commodities, which are sensitive to undervaluation. Several such
studies were carried out in respect of specific commodities on the basis of
NIDB and international price trends. In cases, where the studies revealed
potential undervaluation, Alert Notices were issued to field formations. During
2004, 21 and during 2005, 15 Alert Notices were issued. During year 2006, 5
alert notices have been issued and in the current year till date 3 alerts have
been issued. These alerts give details of the study conducted by the
Directorate and its findings along with guidelines for further action to
safeguard revenue. The follow up action taken by field formations on these
Alert Notices issued by the Directorate is also monitored on a regular basis.
10.6 CRD : Creation of a Central Registry Database (CRD)
of Special Valuation (SVB) cases relating to importation involving complex
valuation issues such as related party imports, cases involving payment of
royalties, license fees, supply of materials and services by the importer, etc.
The Central Registry (CRD) is made available on the Directorate’s web site for
reference by departmental officers in their day to day assessment work.
10.7 Valuation Bulletin
: A monthly “Valuation Bulletin”
incorporating all value related information, including international price
trends of important commodities and market intelligence reports from various
sources, is published and distributed to all field formations. The Bulletin is widely used by officers in
the field as an important source of information on valuation questions in their
day to day assessment work. The Valuation Bulletin is also made available on
line to field officers on the Directorate’s web site (www.dov.gov.in).
10.8 Resolving Valuation Problems: Several practical
problems concerning Customs valuation were identified and the issues analyzed
for providing solutions. Valuation guidelines / instructions were issued in
several cases. Complex valuation questions were also discussed in the
Conference of Chief Commissioners (August 2003, January 2004, May 2004) and
decisions taken. A Meeting of Chief
Commissioners of Mumbai Zones was held in January 2005 and resolved many
practical questions on valuation. It was further agreed that this forum will be
acting as the Valuation Committee of Mumbai Zone and will meet regularly to
examine all valuation questions referred to it for finding solution and
ensuring uniform application. Matters
needing policy decisions will be referred to the Board. A similar meeting was conducted for Ahmedabad
Zone in April 2005 to discuss and sort out valuation issues pertaining to
Ahmedabad Zone. Similar arrangements are
being made at other zones also.
A
Conference of Chief Commissioners on Valuation was held on 1.10.2005 and
various issues relating to valuation were discussed and deliberated. The Board in its meeting held on 28.11.2005
has approved the minutes of meeting and given specific directions with
reference to inclusion of ship demurrage charges, determination of quantity
(shore tank Vs. ship ullage) for assessment of imported bulk liquid cargo,
Computation of freight of time chartered / daughter vessels and Transfer
pricing. Tariff Conference on
The need for regular
co-ordination meeting between various Directorates was recognized and the first
meeting with DG, DRI was held on 22.02.2007 in DRI Headquarters,
10.9 Valuation Inspections: Valuation
Inspection of Customs stations is also done by the Directorate on a regular
basis. This is done by as a Team of officers selected for the purpose for each Custom
station. During the Inspection the overall performance of the Customs station
in complying with the regulations and instructions on Customs valuation matters
is studied with reference to the information gathered and the relevant
documents scrutinized. The Inspection Report is prepared highlighting
deficiencies noticed and the matter is followed up with the Commissioners
concerned for taking remedial measures. During 2004-05 nine such inspections
were conducted and follow up action taken. In the month of January-February
2006, 3 inspections have been carried out at different Customs Houses such as
Chennai, Mumbai and Kolkata. These inspections had considerable impact on
improving the quality of Customs valuation at field offices. In 2006-07, 5
inspections have already been conducted and 20 more inspections are scheduled
for all major custom houses.
10.10 Additional Revenue
Realized: The measures taken by the Directorate in developing
valuation tools, disseminating valuation related information and monitoring
valuation practices have successfully prevented revenue losses in several areas
and also resulted in additional revenue collection. On the basis of monthly
reports received from the Chief Commissioners, the extra revenue realized as
revaluing the goods after rejecting the under valued declarations during
2003-2004 was Rs.193 crores. During
2004-05, the additional revenue realized was Rs.334 crores, which is 73% higher
compared to the previous year establishing the efficiency of measures taken by
DOV. In 2005-06 an amount of Rs.455 crores of extra revenue was realized, as against Rs.334 crores during the corresponding period last year by
enhancement in value of imported goods. During the year 2006-07 an additional
revenue due to enhancement in the value, was realized to the tune of Rs.627 crores.
A comparative chart reflecting performance of last four years as well as the
duty realized upto October 2007 is placed at Annex A.
10.11 International
Co-operation: Several cases of
suspected undervaluation were taken up for verification of value at the
exporting countries with success to a certain extent. The Directorate also
moved proposals to the World Trade Organization for a multilateral framework
for exchange of information on customs valuation. This was accepted by the WTO
Ministerial Conference (
The Directorate
also hosted three international seminars on Customs Valuation (May 2000,
December 2001 and January 2003) in collaboration international organizations
such as WTO, WCO and the Commonwealth Secretariat. Recently, on 4th-
10.12 Seminars And Workshops: Several seminars and workshops were
organized for the benefit of officers so as to strengthen the Customs valuation
expertise. Eight such workshops were conducted so far with great success. These
workshops also helped to ascertain the practical problems in the field and to
provide quick solutions.
The
Government of India, the ADB and the OECD co-hosted the international
Conference on Tax Reform in
10.13 HSN work
by DGOV : Pursuant to changes brought in by the WCO in
the International Convention on the Harmonized Commodity Description and Coding
System (HS-2007), Tariff changes on both Customs and Central Excise side were
taken up in Finance Bill 2006. All the relevant amendment schedules on Customs
& Central Excise were prepared by officers of Directorate General of
Valuation and submitted to Board office.
These schedules have been incorporated in the Finance Act, 2007. All the HS-amendments have been made
effective from 1.1.2007.
On the recommendations of this Sub-Group, in Budget 2007, a new rule 10A
has been inserted in the Central Excise Valuation (Determination of Price of
Excisable goods) Rules, 2000 to provide that where goods are manufactured by a
job-worker on behalf of a person (commonly known as principal manufacturer),
the value for payment of excise duty would be based on the sale value at which
the principal manufacturer sells the goods, as against the present provision
where the value is taken as cost of raw material plus the job charges.
The liability to
pay duty will rest with the job worker as per the present practice. The value
in such cases shall be:
(a)
the ‘transaction value of the goods at which they are sold’
by the principal manufacturer for delivery at the time of removal of goods from
the factory of job-worker, provided that principal manufacturer and the buyer
of the goods are not related and that the price is the sole consideration for
the sale.
(b)
the ‘normal transaction value of goods sold at or about the
same time’ when sold by the principal manufacturer from a place other than the
factory of job-worker, provided that the principal manufacturer and the buyer
of the goods are not related and that the price is the sole consideration for
the sale. This methodology is similar to valuation in case of sale through
depot.
(c)
Determined in accordance with the principles enunciated in
the Valuation Rules, for cases not covered under (a) and (b) above, on a
case-to-case basis. For example, if the excisable goods manufactured on
job-work are sold by the principal manufacturer where the price is not the sole
consideration for sale, the value of such goods shall be determined in terms of
principles laid down in rule 6.
It has
also been provided in the rule that the cost of transportation from the
premises, wherefrom the goods are sold, to the place of delivery shall not be
included in the value of excisable goods. This amendment will come into effect
from 1.4.2007.
10.15 Legislative Changes
:-The DGOV has prepared draft new
Section 14 of the Customs Act, 1962 and
new Customs Valuation Rules for the Imported goods and Export goods and
sent to Board Office . The new Section 14 has been published in the Finance
Act’07 and is going to be effective from 10-10-07 The Ministry has also issued Notification No. 94/2007
& 95/2007-Cus (NT) both dated 13.09.2007 notifying the new Customs Valuation Rules for the Imported
goods and Export goods TO BE EFFECTIVE FROM 10-10-07 in terms of the new
Section 14 of the Customs Act, 1962. The DGOV has also prepared draft
Circulars/instructions on new Customs Valuation Rules for the Imported goods
and Export goods and sent to Board office. Board may issue these Circulars/instructions shortly .
11. The Risk Management System (RMS) is a measure
of trade facilitation and it does selective screening of only high risk
cargo for customs examination. It also
provides for a special customs clearance procedure for authorized
persons (Accredited Clients) having good track record and who meet specified
criteria identified by the Customs. The Board has decided to introduce the
‘Risk Management System’ (RMS) in major Customs locations where the Indian
Customs EDI System (ICES) is operational vide Board Circular No 43/2005 Cus
23-11-05. With the introduction of the RMS, the present practice of routine
assessment, concurrent audit and examination of almost all Bills of Entry will
be discontinued and the focus will be on quality assessment, examination and
Post Clearance Audit of Bills of Entry selected by the Risk Management System.
12. In the context of the development of a Risk
Management System (RMS) for import (also export) cargo clearance, the
Directorate General of Valuation (DGOV) has joined hands with the national Risk
Management Team for devising the strategy for valuation risk assessment and
control. On the basis of discussions,
the valuation component of the RMS, namely, Valuation Risk Assessment Module
(VRAM) has been designed. It would be composed of three parts. The first part
will be a “Valuation Corridor” consisting of a database of very highly
sensitive commodities. Most of them will have permissible value bands defined
for allowing clearance without intervention. Any consignment having declared
value below the lower limit of value band will be directed for examination and
assessment by officer. The Directorate has since developed the list of highly
sensitive commodities and worked out the value bands. NIDB has been extensively
used for the purpose. The latest list prepared on the basis of data for the
period from Oct 2006 to December 2006 submitted to RMS Team. This list is
periodically revised and value bands updated.
13. The second part of the valuation component of
the RMS is about the valuation contribution of different commodities to the
general risk evaluation corridor. Here the risk is computed statistically for
various risk elements, such as CTH, description (key words), country of origin,
importer profile, port of shipment, etc . Each area is assigned a maximum risk
index and every commodity under import will be evaluated in terms of a
percentage of the total risk. The third part of the Valuation Risk component
will be the use of intervention corridor in the RMS to study the valuation
trend of newly identified sensitive commodities, and to monitor the efficacy of
valuation risk management. The DOV team is
actively involved in the development of risk rules and operation of RMS so as
to obtain feedback and refer as risk parameters. The RMS based assessment is introduced in many
customs formations.
14. The
quality of import data captured will be very crucial for achieving reliable
risk assessment. The Directorate has
been experiencing difficulties on account on poor data quality in the context
of NIDB. Declaration of incomplete or inaccurate information concerning the
goods and the absence details like brand, model and specifications as well as
use of different units of quantity for the same goods have been the important
areas causing considerable problems in NIDB data analysis and giving inaccurate
results. The Directorate has been repeatedly requesting the Customs stations to
take concrete steps to improve the quality of data captured, but the situation
still needs considerable improvement with intervention at senior levels and
closer monitoring. An Approach Paper on the subject was prepared by the Directorate
and submitted to the Board for consideration.
(b) Transfer Pricing
15. Transfer pricing is the mechanism adopted
by multinational Enterprises for valuing the goods and services traded with
their Subsidiaries or Associate Companies abroad so as to lower taxes and to
maximize profits. The Transfer Pricing policies relating to Income Tax are generally based on the OECD (Organization
of Economic Cooperation and Development) Guidelines on the subject, which broadly
defines the controls between enterprises indulging in Transfer Pricing, the
methods for determination of “arms length price” and the administration of
Transfer Pricing Regulations. It is estimated that more than 60% of international transactions
are between related parties/associated Enterprises.
16. ADB Working Group in CBEC on Transfer Pricing :- A Working
Group on Transfer Pricing in C.B.E.C. as a part of the ongoing Asian
Development Bank Technical Assistance Project (ADBTAP) was constituted in
December 2006 under the Chairmanship of Mr.S.Dutt Majumder Director General
Valuation. The objectives of the Working Group include interalia study of the
present practice of implementation of law concerning transfer pricing in
Customs and its deficiencies, - both technical and administrative. The Working Group is to suggest the
administrative set up for dealing with transfer pricing in Customs in the most
effective way and also to suggest on the technical aspects.
17. The possible recommendations of the Working Group
which are under deliberation may be as follows:
•
Relocating the Transfer
Pricing Work in Directorate of Valuation for uniform and skilled treatment;
•
Simplification of
procedures to reduce burden on importer;
•
Harmonisation of
documents required to be submitted before Customs and Income Tax;
•
Suggestions for
improving technical skills of officers dealing with TP cases;
•
Developing a real time
data base for the Directory of Related Parties;
•
Integration of the
Directory with Risk Management Module .
It is likely to submit its
report by the end of October 2007.
(c) Central Excise Valuation Database
18. When the Directorate of Valuation was
established 1997, it was proposed to be a combined Directorate to handle both
Customs and Central Excise valuation matters.
However, to begin with the Directorate was asked to focus on the Customs
valuation matters, which were of priority. The work of the Directorate on the
Customs side has since stabilized. Under
the cadre restructuring, the Directorate was upgraded to a Directorate General
and regular staff were also sanctioned. Therefore, a proposal to expand the
functions of the Directorate into more technical areas, such as Central Excise
Valuation, Commodity Classification and Rules of Origin, so as to develop it
into a Technical Services Directorate was submitted to the Board in November
2003. In pursuance of the recommendation by Conference of Chief Commissioners
held on 27the July 2004 at
19. In the proposal concerning Central Excise
valuation, it was suggested that specific responsibilities be assigned to the
Directorate. These include: (i) developing
of a comprehensive electronic database focussing on the valuation of the
domestically manufactured goods, (ii) monitoring valuation trends of sensitive
commodities and providing appropriate valuation guidance to the field
formations, (iii) gathering market intelligence and information concerning the
pricing pattern of important commodities and providing valuation related input
to field formations and enforcement agencies (DGCEI and DG Audit). Board has approved additional staff
comprising one Commissioner, one Additional/Joint Commissioner, two Dy./Asst.
Commissioners, and supporting staff but till date, no officer has been posted
either at Group A level by Board or at other levels by local Central Excise
zones on loan basis.
20. Meanwhile, the
Directorate has initiated the work on developing a Central Excise Valuation
Database. It was felt that the SERMON database maintained by the Directorate of
Systems could be a good source of data for the purpose. How ever, on scrutiny
of the data, it was noticed that description of goods was absent in the returns
filed by the assessees. It was felt that no meaningful database on valuation
could be developed without knowing the exact nature of goods manufactured by
assessees. The matter was therefore taken up with the Board for revising the
ER1 returns so as to include the description and specifications. Meanwhile, the
Directorate took up the matter with Chief Commissioners of Central Excise and
DGCEI for suggestions to prepare a list of sensitive commodities to concentrate
on the valuation study by the Directorate (November 2004). A Notification was
issued by the Board (May 2005) amending the ER1 return format to incorporate
the description of goods. However, this falls short of the Directorate’s
requirement for compiling data based on the exact description and specification
of goods. Also the column itself is not mandatory. Unless a Customs EDI type
database with complete invoice level details of unit prices with brand/ model/
grade/ specifications is available in Central Excise, any meaningful database
of valuation in Central Excise like NIDB in import side, is not feasible.
However, DGOV has circulated a Base Paper on Central Excise to all Chief
Commissioners and Board where an alternative system for building database on
Central Excise has been proposed till a full fledged invoice level database in
Central Excise comes into existence and response of various Central Excise
zones to this proposal has been favourable but no formal sanction has been
received from Board for the same. Also
some legislative changes are required in Central Excise Valuation provisions to
make them comparable to Customs Valuation provisions like Rule 10A for
rejection of transaction value, substitution of declared value with value of
similar goods, deductive value or computed value, etc. It may be remembered
that NIDB has been a great success giving additional revenue of about Rs 650
crores per annum and a similar database in Central Excise can yield a revenue
of Rs 1000 crores plus per annum since base of Central Excise is bigger than
Customs and all information and documents to establish a full proof case of
undervaluation is available in India itself since both suppliers and customers
are domiciled in India.
ANNEX-A
COMPARATIVE
PERFORMANCE FOR LAST 4 YEARS
|
Sr. No. |
Financial Year |
Amount realized (Rs. in crores) |
% increase/decrease |
|
01 |
2003-2004 |
193 |
|
|
02 |
2004-2005 |
334 |
+73.05% |
|
03 |
2005-2006 |
455 |
+36% |
|
04 |
2006-2007 |
627 |
+38% |
|
05 |
2007-2008 (upto Oct.07) |
403 (as against 317.40 during
the corresponding period last year) |
+27% |
|
Sr.No. |
Financial Year |
No. of Inspections |
Cus stations
Inspected |
|
01 |
2004-2005 |
9 |
ICD |
|
02 |
2005-2006 |
3 |
Mumbai Custom House, |
|
03 |
2006-2007 |
7 |
Nhava Sheva, |
|
Sr. No. |
Calendar Year |
No. of Alerts |
|
01 |
2004 |
21 |
|
02 |
2005 |
15 |
|
03 |
2006 |
6 |
|
4 |
2007 |
2 |
ANNEX B
TECHICAL ASSITANCE GIVEN TO FOREIGN COUNTRIES IN
Visit of foreign delegations to
India
|
Period of
Training Course |
Course |
Country
of Trainees |
Total
Number of Trainees |
|
|
Functioning
of the Directorate General of Valuation as well as on the National Valuation
Database as a part of 26th Indo-Sri Lankan DG Level Bilateral
talks. |
|
4 |
|
26th May |
Practical
working experience in the field of Customs valuation and maintenance of
valuation database. |
|
5 |
|
|
Discussion
on approach and philosophy of valuation and valuation database. |
|
5 |
|
21st Nov |
Study
visit to Directorate General of Valuation with an objective to understand the
Indian NIDB and issues relating to Customs Administration, modernization |
|
5 |
|
|
Discussions
on exchange of valuation data |
|
7 |
|
18th Dec |
Study
visit to Directorate General of Valuation with an objective to exchange views
and learn from the Indian experience in the implementation of valuation
database |
|
2 |
|
16th Apr |
Study of valuation database; Technical assistance to
establish a valuation database. |
|
5 |
|
|
Study of
implementation of WTO valuation l agreement; utilization of database as risk
assessment tool. |
|
3 |
|
|
Enforcement
of valuation agreement in |
|
2 |
|
4th& |
Visit of
Mr. Kunio Mikuriya, Deputy Secretary General, WCO to see the working of Indian
Valuation Database. |
|
|
Dispatch of experts
|
Period of
Training Course |
Course |
Country
of Trainees |
Total
Number of Trainees |
|
27th Dec
-28thDec 2006 |
|
|
30 |
|
13th
to |
|
|
50 |