CUSTOMS DUTY ON BRANDED GOODS

By V.KAPILA SHREE

INTRODUCTION

Customs Duties are probably the oldest form of taxation in India. It originated in

1786, when the britishers formed the 1st Board of Revenue in Calcutta.Customs law regulates the Import and Export of goods by restricting,

forbiddingor imposing duties. Customs Duty is a tariff levied on goods imported orexported. The levy of custom duty brings into its perview the issues ofintellectual property (IP) like:

Patents Trademarks Copyrights

while importing goods. The Constitution of India stipulates that no tax shall belevied or collected, except by authority of law. The law for levy and collection

ofCustoms Duties is the Customs Act, 1962 and the Customs Tariff Act, 1975.

VALUATION OF GOODS FOR THE PURPOSE OF ASSESSMENT

The imposition of the customs duty in India follows the ad valorem tax systemWhich necessities ascertaining the customs value on which the ad valorem ratecan be applied. This is said to be in conformity with the provisions of Article VII

ofThe General Agreement on Tariffs and Trade 1994 (GATT). Customs Duty is payable as a percentage of ‘Value’ often called‘Assessable Value’. The term Value may be either

(a) ‘Value’ as defined under section 14(1) of the Customs Act,1962; or(b) Tariff Value prescribed under section 14(2) of the Customs Act,1962

The provisions of section 14(1) apply for both imported andexported goods.

SECTION 14 - CUSTOMS ACT, 1962

Value of imported/export goods shall be: Transaction value i.e. Price actually paid or payable for the goods Sold for export to India For delivery at the time & place of importation Where the buyer & seller are not related Price is the sole consideration for the sale

CUSTOMS VALUATION METHOD (DETERMINATION OF PRICE OF IMPORTED GOODS)

RULE S 1988

The above Rule lays down 6 methods of valuation of imported goods. They are

as follows:

Transaction Value This method is based on the valuation factors, of the various

elements, which should be added while determining the customs value.

Transaction Value of Identical goods This is based on the previously determined transaction value of

identical goods, as defined in the Valuation Rules, imported at or about the same time.

Transaction Value of Similar Goods This is based on the transaction value of Similar goods imported at or about the same time.

Deductive Value Method This is calculated based on the selling price of imported goods or

identical/similar goods in India after deducting selling expenses, margin profit, duties and taxes.

Computed Value Method The computed value is arrived at from the cost of materials used in

production of imported goods, cost of fabrication or other processing charges at the country of production , profit and general expenses, and other dutiable factors as may be applicable.

Fall Back Method These include flexible application of previous valuation methods in a

manner consistent with the provisions of section 14(1) of the Customs Act,1962.

CUSTOMS VALUATION METHOD (DETERMINATION OF PRICE OF IMPORTED GOODS) RULES 1988RULE 9(1)(b): The value, apportioned as appropriate, of the following goods and services where supplied directly or indirectly by the buyer free of charge or at reduced cost for use in connection with the

production and sale for export of imported goods, to the extent that such

value has not been included in the price actually paid or payable, namely:-

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

(ii) tools, dies, moulds and similar items used in the production of the Imported goods;

(iii) materials consumed in the production of the imported goods;

(iv) engineering, development, art work, design work, and plans and

sketches undertaken elsewhere than in India and necessary for the production of the imported goods;

RULE 9 (C) :

Royalties and licence fees related to the imported goods that the buyer is required to pay, directly or indirectly, as a condition of the sale of the goods being valued, to the extent that such royalties and fees are not included in the price actually paid or payable.

Exceptions: Determining Customs Value

Charges for the right to reproduce the imported goods not added to the price actually paid or payable for the imported goods in determining the customs value.

Payments made by buyer for the right to distribute or re – sell the imported goods shall not be added to the price actually paid or payable for the

imported goods.

Relevant Cases Laws:

State Bank of India – VS – Collector of Customs, Bombay (2000) 115 ELT 597(SC)

Supreme Court held that the cost of software is not mentioned separately, onlythe license fee was mentioned, licensee fee paid for countrywide use cannot beconsidered as reproduction charges. The court observed that reproduction anduse are separate things and the transaction value is to be seen as a whole.Hence, the license fee charged for the countrywide use is part of the transactionvalue and therefore the SBI is not entitled for refund of the duty paid.

BPL DISPLAY DEVICES LTD – VS – COMMR OF CUSTOMS (2002) 142 ELT A284 (SC)

Held that the cost of drawings, designs, and know-how fees is includible in theassessable value of imports. Whether it is termed as royalty, licensee fee or‘technology fee’ is immaterial, the importer is liable for payment of duty.

ANDHRA PETROCHEMICALS – VS – COMMR (1997) 90 ELT 275 (SC)

Supreme Court held that it is immaterial whether supply of machinery, transfer of

technical know-how and drawings are referred under different contracts, the fact

to be looked into is whether it is a single package deal or not.

JINDHAL PHOTO FILMS – VS – COMMR OF CUSTOMS, BOMBAY (2002) 141 ELT 2002 (CEGAT)

It was held that license fee related to know-how embedded in the machine has to

be added to assessable value.

CONCLUSION

When only equipment is imported without importing technical know-how, there arise no IP issue while ascertaining the price of the imported goods for the purpose of customs valuation.

However, if agreements exists for transfer of know-how or other forms of IP along with the imported goods, the issue of arriving at the valuation of such goods in combination with the value of IP arises

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