Circular No. 1 dated 1^st January 1998

The existing instructions and the procedure observed in the various Custom Houses in regard to cases taken up by the Special Valuation Branch of the Custom Houses have been reviewed by the Board in the context of several representations received from the trade and industry about inordinate delays in the finalisation of cases involving related personal transactions, payment of royalty and licence fees, technical collaboration agreements between the seller and buyer and also the financial burden on account of the requirement of the extra duty deposit etc.

2.      On the basis of this review, the Board has taken the 'following decisions:

(1)     The 'Special Valuation Branch' (SVB, for short) as an institution specialising in investigating transactions involving special relationships and certain special features should be continued. However, these SVBs would be located only at four Custom Houses i.e. at Chennai, Calcutta, Delhi and Mumbai. Any decision taken in respect of a particular case in any of the four major Custom Houses shall be followed by all other Custom Houses/ formations.

(2)     The SVB of any one of the four Custom Houses, located proximate to the Head or Corporate Office of the importer or as requested by the importer would handle the investigation of such a case. Where in the declaration prescribed under the Customs Valuation (Determination of Price of Imported Goods), Rules, 1988 (hereinafter referred to as "Valuation Rules, 1988"), the importer has himself made an averment that the transactions are between related persons in accordance with Rule 2(2) of the Valuation Rules, 1988 and there is a prima facie justification for further enquiry, the concerned case of import may be referred to the SVB of the concerned Custom House, where a separate case file would be opened and a registration number assigned to the case.

(3)     In examining whether a prima facie case exists for investigation by the SVB, the following criteria should be applied: -

(a)    Where the importer provides evidence to the effect that the goods under assessment have been obtained at the same price by unrelated buyers or where the importer is able to demonstrate that the price for the said goods closely approximates to one of the following values ascertained at or about the same time �

(i)  the transaction value of identical goods, or of similar goods, in sales to unrelated buyers in India;

(ii) the deductive value for identical goods or similar goods; and

(iii) the computed value for identical or similar goods.

The concerned Assessment Group will proceed to determine the value for the goods under assessment as declared by the importer without any reference to SVB. In coming to a conclusion in this regard, the provisions of Rules 4(3)(b) and 4(3)(c) of the Valuation Rules, 1988 and the interpretative Notes relating to Rule 4(3)(b) should be kept in view.

(b)    Where however, any particular case is not covered by (a) above and an examination of the circumstances surrounding the relevant sale is clearly required to be undertaken, the case should be referred to the SVB. In such a case, there should be prima facie evidence of the relationship having influenced the price declared by the importer.

(4)     In regard to transactions where the sale or price is subject to certain restrictions, or conditions or considerations [c.f. Rules 4(2)(a) and 4(2)(b)] the Assessment Group will examine the restrictions or conditions or considerations as they appear in the Agreement or any other document concerning the sale, determine the value and complete the assessment without referring the case to the SVB.

(5)     Where the Assessment Group or the importer is of the opinion that the correct method to be adopted is the 'deductive value' method, the case should be referred to the SVB after initial assessment on provisional basis since the process of arriving at the Customs Value under this method would require examination of the sale transactions over a period of time. Similarly, where the 'computed value' method is sought to be applied the case may be referred to the SVB.

3.      In regard to additions to the transaction value made under Rule 9 of the Valuation Rules, 1988, the criteria for reference to SVB would be as follows:

(1)     Where any additions are sought to be made under Clauses (a) and (b) of Rule 9(1) the determination of value in each case should be completed by the Assessment Group without any reference to the SVB.

(2)     Where the additions sought to be made are in the nature of 'royalty and licence fee', if on a prima facie consideration the payment of such "royalty or licence fee" satisfies the conditions laid down in the relevant rule [i.e. Rule 9(1)(c)] read with the interpretative note relating thereto the case may be referred to the SVB after following the usual provisional assessment procedure.

(3)     Similarly, where the value of any proceeds of any subsequent sale, disposal or use of imported goods [i.e. Rule (9)(1)(d)] or other payments made as a condition of sale of imported goods [i.e. Rule 9(1)(e)] prima facie merits addition to the transaction (invoice) price the case may be referred to the SVB after following the provisional assessment procedure.

4.      All cases to be registered in the SVB for a special investigation shall be with the specific approval of the concerned Commissioner of Customs. Without the approval of the Commissioner, no case should be referred to the SVB. Where the imports requiring investigation by SVB are noticed in a Custom House or Customs formation other than Chennai, Calcutta, Delhi and Mumbai Custom Houses, all the relevant records should be forwarded to the SVB of one of the Custom Houses which would take up the investigation of the case, after following the provisional assessment procedure. The Custom House which would be undertaking the investigation will be determined in terms of paragraph 2(2) above. There should be greater co-ordination between the SVBs of the four Custom Houses which undertake investigations in case where special relations between the importer and supplier exist or in cases referred to in paragraph 3(2) and 3(3) above. The information available, showing special relationship in respect of a supplier, importer, needs to be shared amongst the four Custom Houses on a regular basis for which a specially designed format could be worked out and prescribed.

5.      The SVBs, while investigating transactions involving 'related persons' or cases entailing additions on account of the special relationships or special features of the sale transactions, will keep in view all the relevant judgments of the Courts and decisions of the CEGAT in the matter. In particular, the ratio of the judgments/ decisions in the following cases should be borne in mind:-

1.        Collector of Customs v. Maruti Udyog Ltd. [1987 (28) E.L.T. 390 (Tribunal)]

2.        Union of India v. Mahindra and Mahindra Ltd. [1995 (76) E.L.T. 481 (S.C.)]

3.        Collector of Customs v. Essar Gujarat Ltd. [1996 (88) E.L.T. 609 (S.C.)]

The procedure so far being adopted for registration and subsequent investigation of the cases may continue to be followed. Thus, the requirement of furnishing information and the formats of the sample questionnaire, Annexure 'X' (i.e. list of the documents required to be submitted in case of Sole Agencies/ Sole distributors/ Sole concessionaires). Annexure Y (i.e. list of documents required to be submitted in case of collaboration Agreement). statement 'A' (i.e. information to be filed by Agents, distributors etc.) and Statement 'B' (i.e. information to be furnished by subsidiaries/ collaboration Agreements), may be continued as in the past. It is however, emphasised that the required information should not be sought piece-meal. Any importer to whom the Questionnaire is issued should be directed to furnish the reply within 30 days of receipt of the Questionnaire.

6.      Besides, the minutes of the Conference of Collectors of Customs held (i) at Calcutta on 8th and 9th December, 1988, (ii) at Madras from 23rd to 26thJuly, 199Qread with the minutes of the meeting of Addl./ Deputy Collector of Customs held in June, 1990 circulated under Boards' letter F. No. 467/ 18/ 89-Cus., V, dated 27-6-1990 and .the contents of Boards' letter F. No. 467/ 36/ 89-Cus., V (ICD) should also be kept in view. A copy each of these minutes/ letters is enclosed for ready reference.

7.      In cases where the provisional assessment procedure is resorted to on account of determination of value it would be imperative for the concerned Commissioner of Customs to critically examine the issues leading to the adoption of the provisional assessment procedure. In each and every case, the decision should be taken at his level before provisional assessment is ordered.

8.      The amount of extra duty deposit presently kept at 5% of the value of the goods should henceforth be reduced to 1% of the value.

9.      Furthermore, where provisional assessment is being resorted to, the investigation and finalisation of the assessment should be completed within three months of the registration of the case in the SVB of the designated Custom House. If no decision is given within 4 months of the registration of the case, the obtaining of the extra duty deposit should be discontinued. The time- frame for finalisation of investigation should be strictly adhered to irrespective of whether the importer has furnished all the required information or not.

10.    As regards the cases pending with the SVB of various Custom Houses pending as on 30-4-1997, steps should be taken to complete the investigation and have the issues finally settled by 28th February, 1998. All the concerned Chief Commissioners and Commissioners are requested to put in extra efforts by way of re-deploying officers to achieve this target. As for cases registered from 1-6-1991 to 31-12-1997, all the pending cases should be completed by 30-4-1998.

11.    In view of the tight time-frame laid down for finalisation of SVB cases in para 9 above, the Commissioners of Customs should institute special monitoring arrangements and review periodically each pending cases and taken suitable steps to arrive at a decision. The Commissioners are wholly responsible for adhering to the prescribed time-frame.

12.    The receipt of this letter may please be acknowledged.