History of Customs Valuation

8/4/2019 History of Customs Valuation

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History of Customs Valuation

What is history ?


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What is history "'History,' Stephen said, 'is a nightmare from

which I am trying to awake.'" James Joyce

"History is the witness that testifies to thepassing of time; it illuminates reality, vitalizesmemory, provides guidance in daily life, andbrings us tidings of antiquity." Cicero

"The past is useless. That explains why it ispast. Wright Morris

"Every past is worth condemning." FriedrichNietzsche

Only a good-for-nothing is not interested inhis past." Sigmund Freud


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Introduction

Ancient History

Palmyra AD 136

Kautilya 300 BC

Methods of Valuation

World Perspective

Indian Scene


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RECENT HISTORY

World Perspective Why Valuation matter of concern Economic Conference Geneva 1927,1930

The formal History of customs valuationstarted from the establishment of League ofNations but the agreement between nationson customs valuation was not finalized untilgeneral conference of United Nations held on

Trade and Employment in 1947. Theconclusions of this conference wereincorporated in Article VII of GeneralAgreement on Tariff and Trade (GATT)


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World Scene

1947 13 Countries se up a study group toexamine customs issues identified by GATT

1947 First version of GATT developed during

United Nations Conference on Trade andEmployment in Havana is referred as GATT1947

GATT signed on 30.10.1947 by 23 countries

Article VII deals with Customs Valuation.


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The General Agreement onTariffs and Trade (GATT 1947)

The Governments of the Commonwealth ofAustralia, the Kingdom of Belgium, the UnitedStates of Brazil, Burma, Canada, Ceylon, theRepublic of Chile, the Republic of China, theRepublic of Cuba, the Czechoslovak Republic,the French Republic, India, Lebanon, the Grand-Duchy of Luxemburg, the Kingdom of theNetherlands, New Zealand, the Kingdom of

Norway, Pakistan, Southern Rhodesia, Syria,the Union of South Africa, the United Kingdom ofGreat Britain and Northern Ireland, and theUnited States of America:


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Article VII: Valuation forCustoms Purposes

1. The contracting parties recognize the validity of thegeneral principles of valuation set forth in the following

paragraphs of this Article, and they undertake to give effectto such principles, in respect of all products subject to duties

or other charges* or restrictions on importation andexportation based upon or regulated in any manner by value.Moreover, they shall, upon a request by another contractingparty review the operation of any of their laws or regulations

relating to value for customs purposes in the light of theseprinciples. The CONTRACTING PARTIES may request from

contracting parties reports on steps taken by them inpursuance of the provisions of this Article.


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2. (a) The value for customs purposes ofimported merchandise should be based on the actual valueof the imported merchandise on which duty is assessed, orof like merchandise, and should not be based on the valueof merchandise of national origin or on arbitrary or

fictitious values.* (b) Actual value should be the price at

which, at a time and place determined by the legislation ofthe country of importation, such or like merchandise issold or offered for sale in the ordinary course of trade

under fully competitive conditions. To the extent to whichthe price of such or like merchandise is governed by thequantity in a particular transaction, the price to beconsidered should uniformly be related to either (i)comparable quantities, or (ii) quantities not less favourableto importers than those in which the greater volume of themerchandise is sold in the trade between the countries ofexportation and importation.*

(c) When the actual value is not ascertainablein accordance with subparagraph (b) of this paragraph, thevalue for customs purposes should be based on the

nearest ascertainable equivalent of such value.*

Th l f f


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3. The value for customs purposes of anyimported product should not include the amount ofany internal tax, applicable within the country oforigin or export, from which the imported producthas been exempted or has been or will be relieved by

means of refund. 4. (a) Except as otherwise provided for in

this paragraph, where it is necessary for thepurposes of paragraph 2 of this Article for acontracting party to convert into its own currency a

price expressed in the currency of another country,the conversion rate of exchange to be used shall bebased, for each currency involved, on the par valueas established pursuant to the Articles of Agreementof the International Monetary Fund or on the rate ofexchange recognized by the Fund, or on the parvalue established in accordance with a specialexchange agreement entered into pursuant to ArticleXV of this Agreement.

(b) Where no such established par value andno such recognized rate of exchange exist, the

conversion rate shall reflect effectively the currentvalue of such currenc in commercial transactions.

) Th CONTRACTING PARTIES i


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c) The CONTRACTING PARTIES, in agreementwith the International Monetary Fund, shall formulaterules governing the conversion by contracting partiesof any foreign currency in respect of which multiplerates of exchange are maintained consistently with the

Articles of Agreement of the International MonetaryFund. Any contracting party may apply such rules inrespect of such foreign currencies for the purposes ofparagraph 2 of this Article as an alternative to the use ofpar values. Until such rules are adopted by the

Contracting Parties, any contracting party may employ,in respect of any such foreign currency, rules ofconversion for the purposes of paragraph 2 of thisArticle which are designed to reflect effectively thevalue of such foreign currency in commercialtransactions.

(d) Nothing in this paragraph shall beconstrued to require any contracting party to alter themethod of converting currencies for customs purposeswhich is applicable in its territory on the date of thisAgreement, if such alteration would have the effect of

increasing generally the amounts of duty payable.


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5. The bases and methods for

determining the value of productssubject to duties or other charges orrestrictions based upon or regulated inany manner by value should be stableand should be given sufficient publicityto enable traders to estimate, with areasonable degree of certainty, the

value for customs purposes.

Ad A ti l VII


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Ad Article VII Paragraph 1 The expression or other charges is not to be regarded as

including internal taxes or equivalent charges imposed on or inconnection with imported products.

Paragraph 2 1. It would be in conformity with Article VII to presume that actual

value may be represented by the invoice price, plus any non-includedcharges for legitimate costs which are proper elements of actualvalue and plus any abnormal discount or other reduction from theordinary competitive price.

2. It would be in conformity with Article VII, paragraph 2 (b), for acontracting party to construe the phrase in the ordinary course oftrade ... under fully competitive conditions, as excluding anytransaction wherein the buyer and seller are not independent of eachother and price is not the sole consideration.

3. The standard of fully competitive conditions permits acontracting party to exclude from consideration prices involvingspecial discounts limited to exclusive agents.

4. The wording of subparagraphs (a) and (b) permits a contractingparty to determine the value for customs purposes uniformly either (1)on the basis of a particular exporters prices of the importedmerchandise, or (2) on the basis of the general price level of likemerchandise.


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BDV

1950 -13 European governments developed theBDV, taking into account the broad principles andguidelines prescribed by Article VII GATTagreement.

CCC in force 4.11.1952 BDV incorporated in Convention for Valuation of

Goods for Customs purpose

BDV in force 28. 07.1953

What is BDV?

Let us examine provisions

A I


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Annex IDefinition of value

Article I 1.For the purposes of levying duties of customs, the

value of any goods imported for home consumption shallbe taken to be the normal price, that is to say, theprice which they would fetch at the time when theduty becomes payable on a sale in the open market

between buyer and seller independent of each other. 2.The normal price of any imported goods shall be

determined on the following assumptions: (a) that the goods are treated as having been delivered

to the buyer at the port or place of introduction into the

country of importation; and (b) that the seller will bear all costs, charges and

expenses incidental to the sale and to the delivery of thegoods at that port or place; but

(c) that the buyer will bear any duties or taxes applicable

in the country of importation.


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Article II 1.A sale in the open market between buyer and seller

independent of each other pre-supposes:

(a) that the price is the sole consideration; and (b) that the price made is not influenced by anycommercial, financial or other relationship, whether bycontract or otherwise, between the seller or any personassociated in business with him and the buyer or anyperson associated in business with him (other than therelationship created by the sale of the goods in question);and

(c) that no part of the proceeds of the subsequent re-sale,use or disposal of the goods will accrue either directly orindirectly to the seller or any person associated in business

with him .2.Two persons shall be deemed to be associated in

business with one another if, whether directly or indirectly,either of them has any interest in the business or property ofthe other or both have a common interest in any business or

property or some third person has an interest in thebusiness or ro ert of both of them.


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Article III

When the goods to be valued

a. are manufactured in accordance with anypatented invention or are goods to which any

registered design has been applied; or b. are imported under a foreign trade mark orare imported for sale under a foreign trade mark,the normal price shall be determined on the

assumption that the value of the right to use thepatent, design or trade mark in respect of thegoods is covered by the price.

Add d t A ti l I


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Note 1 "The time when the duty becomes payable" referred to in

paragraph (1) of Article I may, in accordance with thelegislation of each country, be either the time at which theentry is presented or registered, the time of payment ofcustoms duty or the time of clearance.

Note 2

The "costs, charges and expenses" mentioned in Article I,paragraph (2) (b) include, inter alia, any of the following: -carriage and freight;-insurance;-commission;-brokerage;-

costs, charges and expenses of drawing up outside thecountry of importation documents incidental to theintroduction of the goods into the country of importation,including consular fees;-the net amount (after allowing for re-payments made or to be made) of duties and taxesapplicable outside the country of importation;-cost ofcontainers excluding those which are treated as separatearticles for the purpose of levying duties of customs; cost of

packing (whether for labour, materials or otherwise);-loadingchar es.

Addendum to Article I


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NOTES

Note 3 Where the normal price would depend upon the quantityin the sale, it shall be determined on the assumption thatthe sale is a sale of the quantity to be valued.

Note 4

Where the determination of the value or of the price paidor payable depends upon factors which are expressed ina currency other than that of the country of importation,the foreign currency shall be converted into the currency

of the importing country at the official rate of exchange ofthat country.

Note 5


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NOTES Note 5 The object of the definition of value is to make it possible in all cases to

calculate the duties payable on the basis of the price at which imported

goods are freely available to any buyer in the open market at the port orplace of introduction into the country of importation. It is a concept forgeneral use and is applicable whether or not the goods are in fact importedunder a contract of sale, and whatever the terms of that contract.

But the application of the Definition implies an enquiry into current prices atthe time of valuation. In practice, therefore, when imported goods are the

subject of a bona fide sale, the price paid or payable on that sale cangenerally be considered as a valid indication of the normal price mentionedin the Definition. This being so, the price paid or payable can reasonably beused as basis for valuation, and Customs authorities are recommended toaccept this price as the value of the goods in question subject:

A .to proper safeguards aimed at preventing evasion of duty by means offictitious or colourable contracts or prices; and b.to such adjustment of thecontract price as may be considered necessary on account of circumstancesdifferentiating the contract from the notional concept embodied in theDefinition of Value.Adjustments under paragraph (b) above may in particularbe required with reference to freight and other expenses dealt with inparagraph (2) of Article I and Note 2 of the Addendum to Article 1, or withreference to discounts or other reductions in price granted in favour of sole

agents or sole concessionaires, or to any abnormal discount or anyreduction from the ordinary competitive price.

en um o r c e


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en um o r c e

Note 1 The provisions of Article III (b) may also be applied to goods

imported for sale, after further manufacture, under a foreigntrade mark.

Note 2 Sub-paragraph (b) of Article III, or that sub-paragraph

amended in accordance with Note 1 above, may be extended

so that it shall not apply to a trade mark registered within thecountry of importation, unless it is a mark used for the purposeof indicating that goods in relation to which it is used are thoseof:

A any person by whom the goods to be valued have been

grown, produced, manufactured, selected, offered for sale orotherwise dealt with outside the country of importation; or b.a person associated in business with any such person as is

referred to in (a) above; or c.a person to whom any such person as is referred to in (a) or

(b) above has assigned the goodwill of the business inconnection with which the trade mark is used.


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General Addendum

It is recommended that the concept ofvalue expressed by the Definition andthese Interpretative Notes be employed forthe valuing of all goods subject to customsdeclaration, including duty-free goods and

goods liable to specific customs duties.

S i U B l D fi i i f


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Summing Up - Brussels Definition of

Value

Basis was "Notional concept". Emphasis on

Intrinsic value".

"The price that imported goods would fetch inthe course of international trade, after giving dueregards to time, place, quantity and commercial

levels." By about 1970, over 100 countries were

applying BDV

KAUTILYA'S


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KAUTILYA'SARTHASASTHRA CUSTOMS

TARIFES: TARIFE SCHEDULE: TARIFF SCHEDULE IN KAUTILYA'S ARTHA SASTHRA CUSTOMSTARIFES: TARIFE SCHEDULE: IMPORT DUTY: On edible salt - one-sixth in kind + countervailing duty. All other goods: 20% advalorem. EXPORT DUTY: Live animals: Quadrupeds and bipeds - 4% or5% in cash. Food: Grains, fats, sugar, salt - 4% or 5% in cash. Freshprduce: Flowers, fruits, vegetables, fruits of creepers, seeds - one-

sixth in kind. Preserved food: Dried fish or meat - one- sixth in king;Cooked food - 4% or 5% in cash. Liquor: Wine - 4% or 5% incash Fermented liquor: 1/10the or 1/15th in cash. Medicines, Spicesand Perfumery: Spices; perfumery such as sandalwood and aloe:1/10th or 1/15th in cash; Perf umes n.e.s: 4% or 5% in cash; Medicines:4% or 5% in cash. Raw material: Cotton - 4% or 5% in cash; Ivory;

skins: 1/10th or 1/15th in cash; Timber, bamboo, bark: 4% or 5% incash; Pigments and colouring material: in cash.Manufactures Garments of cotton and similar in cash fibres; leathergarments; silk yarn; covering material such as bedspreads; carpets;wool and woollen goods: 1/10th or 1/15th in cash; Cotton yarn;garments n.e.s; leather goods n.e.s; earthenware: 4% or 5% in cash;Gems and Jewellery: Conch shells; diamonds; precious stones; pearl

necklaces; coral: 20% of basic cost(price less value added) in cash;experts to evaluate value added.


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Value under Sea Customs Act, 1878.

Value under Sea Customs Act 1878 wasbased on real value.

Real value was defined as the wholesaleprice for which like goods are capable of

being sold at the time and place ofimportation (excluding duties payable).The Sea Customs Act also contained

provisions for taking over the importedgoods by Government on payment of anamount equal to declared real value(Section 32).

S C t A t 1878


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SeaCustomsAct, 1878

In view of deeming provision in section 30,real value could be equated to an artificialvalue that might or might not coincide with

the actual value. To discourage under-valuation, provisions

existed for payment of an amount equal tothe declared real value


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SeaCustomsAct, 1878

Basis was Real Value"

"Wholesale price for which like goods

were capable of being sold at the time andplace of import

Mere fact that Importer paid a certain pricewas not sufficient to prove that It was real

value. It was to be shown that like goodscould not be delivered at a low


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Sea Customs Act

Valuation Provisions Section 22 Tariff Value

Section 29 Owners requirement fordeclaring real value

Section 30 Real Value

Section 31 Examination of Ad valoremgoods

Section 32 Procedure for undervaluedgoods


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Section 14 Customs Act 1962


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History of Customs Valuation

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