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Transaction Value of Imported Auto Components as OE Parts and Service
Parts
Customs
Circular No. 82 dated 3rd December 2002
A
reference was received in the Board from the Commissioner of Customs, Chennai to
consider the issue regarding the acceptance of dual pricing on import of auto
components as original equipment parts and service parts, since both are
identical in all respects, and hence, are covered under the definition of
identical goods as per Rule 2(1)(c) of Customs Valuation Rules, 1988.
2.
It may be noted that Board�s instruction vide letter No. 3/ 26/ 57,
dated 30.10.1957 (page 116 of Appraising Manual Volume I refers), had permitted
dual pricing of Original Equipment parts and Spare parts, subject to the
condition that (a) the lower prices in question are reasonable, and not unduly
and deliberately lower than what they would be and (b) that the said prices are
inclusive of the various elements which go to make the value under section 14 of
the Customs Act, viz., factory cost (cost of labour and material), factory
overhead administration or commercial overheads and a reasonable margin of
profit for the original manufacturer. It has been stated that it is a well
recognized practice and trade usage prevalent in the manufacturing circles, all
over the world, whereby a manufacturer supplied components of his products to a
co-manufacturer, who buys the components for use in further manufacturing
process, at a price lower than what he charges to his distributors or dealers
who buy the components for resale as spare parts or replacements. This circular
was issued under the earlier �Deemed Value� method, which existed prior to
the formulation of Customs Valuation Rules, 1988.
3.
The material circumstances and the trade usage discussed in the 1957
circular above, has not changed under the present Customs Valuation Rules, 1988
also. Further, it has been represented by the trade that the Original equipment
parts meant for manufacturing activity are imported at lower prices, since they
are imported in large volumes and for a definite quantity. The spare parts meant
for trading activity are imported at higher prices for various reasons such as
lower quantity sales, unit packaging, piece-meal orders, higher inventory
carrying cost, air freight, etc. While the components imported for manufacture
suffer Central excise duty, the spare parts do not suffer Central excise duty as
they are meant for trading activity. Though they are identical goods as per Rule
2(1)(c) of CVR, 1988, they are independent transactions in view of the
commercial considerations as discussed above.
4.
The issue has been examined. The decision of the Board in this regard is
as follows: �It was decided that in view of the introduction of the
�transaction value� concept on the customs side, dual prices in respect of
components imported as OE parts and as spare parts had to be accepted unless
there was evidence to the contrary. To reject the transaction value, the onus is
on the department to establish that price is not sole consideration for the
sale/transaction. This would be consistent with the practice on the Central
Excise side.�
5.
Therefore, Board would like to reiterate the acceptance of dual pricing
as long as they represent the transaction value. Problems, however, may arise as
these imports are generally made between related persons. It has been reported
by the Commissioner of Customs, Chennai that a price difference of upto 200
percent has been noticed on import of certain identical automobile parts. Such a
vast variation cannot be explained only by reasons of difference in commercial
levels, quantity levels, freight, inventory, etc. The related party transactions
needs to be looked into, to see whether this is a case of �tied in� sales
and examine whether the price charged for original equipment parts has been
reduced by loading the same in the price of payments not related to imported
goods. The Custom Houses should investigate implications of transfer pricing
also and see whether declared price is not lesser than the intrinsic value (cost
of production plus profit margin) of the product as discussed in the 1957
circular.
6.
The Chief Commissioners of Customs are requested to bring the above
circular to the notice of all the assessing officers under their jurisdiction
and direct them to finalise the pending provisional assessments. Difficulties,
if any, in implementing the above circular may be brought to the notice of the
Board immediately.
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