Circular No. 11 dated 23^rd February 2001

The existing instructions and the procedures 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 and the following instructions are issued in modification of the earlier Circular No.  1/ 98-Cus, dated 1.1.98: -

a.      The � Special Valuation Branch� (SVB, for short) as an institution specializing in investigation of transactions involving special relationships and certain special features having bearing on value of import goods should be continued. SVBs would continue to be located only at four major Custom Houses, i.e., Chennai, Calcutta, Delhi and Mumbai and any decision taken in respect of a particular case in any of these major Custom Houses shall be followed by all other Custom Houses/ formations.

b.      The Special Valuation Branch of that major Custom House, (out of the 4 mentioned earlier) which is located proximate to the Head or Corporate Office of the importer (having special relationships etc. with the suppliers), would handle the investigation into valuation of such importer. Wherever 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 Valuations 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 should be opened and a registration number assigned to the case. Similar reference to SVB to look into valuation on account of special relationship could be ordered by Commissioner concerned where though not disclosed by the importer, such relationship comes to light on any intelligence or while enquiring into transactions of any importer with a particular supplier.

c.      It will be deemed that a, prima facie, case exists for investigation by the SVB where the importer is not able to provide evidence to the effect that the price has not been influenced by the relationship or where the importer is not 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 respect of 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.

2.      Apart from investigation of special relationship case, SVB will also handle more complicated cases of additions to declared transaction value as stipulated under Rule 9 of the Valuation Rules. No reference to SVB would be necessary where any additions are sought to be made under Clauses (a) and (b) of Rule 9(1). Where, however, the additions sought to be made are considered to be in the nature of �royalty and licence fee� under Rule 9 (1)(e), or where the value of any part of proceeds of any subsequent resale, disposal or use of imported goods accrues to the seller [i.e. Rule (9)(1)(d)] or where any other payments are made or are contemplated to be made in future by buyer to seller as a conditions of sale of imported goods etc., [i.e. Rule 9(1)(e)], the case may be referred to the SVB after following the provisional assessment procedure.

3.      All cases to be registered in the SVB for 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.

4.      Where the imports requiring investigation by SVB are noticed in a Custom House or Customs formation other than Chennai, Calcutta, Delhi, or Mumbai Custom House, all the relevant records should be forwarded to the SVB of the concerned Custom House, 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 1(b) above.

5.      There should be greater co-ordination amongst 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 2 above. The information available, showing special relationship in respect of a supplier and importer, under investigation in any SVB needs to be shared amongst the four Custom Houses on a regular basis. Once a case is registered by the SVB of one of the 4 Custom Houses, detailed information regarding the same alongwith PAN No. of the importer should be furnished to the Directorate of Valuation for maintaining a Central Registry. The Directorate of Valuation will also circulate such details through the monthly Valuation Bulletins to all Custom Houses, so that imports effected at any Custom House in such cases under investigation by SVB are undertaken provisionally and interests of revenue are safeguarded.

6.      The procedure so far being adopted for registration and subsequent investigation of the cases may continue to be followed. The requirement of furnishing information and the formats of the sample questionnaire, as also the list of the documents required to be submitted have since been reviewed and a consolidated questionnaire along with list of documents has been prepared (Annex-A). This should be issued by the assessing group, dealing with particular imports, to the importer soon after it is decided (with Commissioner�s concurrence as mentioned earlier) to refer the case to a SVB. Any importer to whom the questionnaire is issued should be instructed to furnish the reply to the referring Custom House as well as to the SVB of the concerned major Custom House, within 30 days of receipt of the questionnaire. The questionnaire should be issued by the Custom House referring the case to the SVB.

7.      Upon receipt of reply to the questionnaire within in the prescribed time limit, the SVB will decide within 7 days whether the importer has replied to the questionnaire substantively. Otherwise, immediate further information not furnished will be sought before taking step for finalisation of investigation.

8.      Board is very keen that decision to make reference to SVB and advancing all assessments of particular importer for goods from particular suppliers to be undertaken on provisional basis, should be made after very careful consideration and good deal of circumspection. It would be imperative for the concerned Commissioner of Customs to critically examine the issues involved and decide whether it merits detailed enquiries by SVB and adoption of the provisional assessment procedure. In each and every case, the decision would be taken at his level before provisional assessment is ordered and matter referred to SVB. There would be however no need to obtain Commissioner�s approval for imports made under different bills of entry, in a particular case, once the case has been registered with the SVB.

9.      The amount of extra duty deposit presently kept at 1% will be continued. Board has however decided that if the importer does not furnish complete reply to the questionnaire within 30 days, of receipt of the �Questionnaire� by the importer, the extra duty deposit will be increased to 5% till the date of receipt of reply by the Department. It should therefore be impressed upon the concerned importers (in the public notice that is issued) to ensure timely replies being sent to the Questionnaire to avoid any higher deposit being insisted. Furthermore, where provisional assessment is being resorted to, the investigation and finalisation of the assessment must be completed within four months from the date of reply. If no decision is taken within 4 months, the extra duty deposit should be discontinued and the concerned Deputy Commissioner/ Assistant Commissioner will be held responsible for inexplicable delay in finalisation.

10.    It has been reported that the Declaration forms prescribed for valuation purposes are being filled up in a very casual manner by the importers leaving many columns blank. All the assessing officers must be directed to ensure correct filling up of these forms including reference to the relevant B/ E before they allow individual clearances after provisional assessment. (The declaration form is being revised to include details of the ports/ ICDs through which the imports will be effected).

ANNEXURE-A

Questionnaire to be filled by importers who are related to the foreign suppliers

1.      Name of the importer with full address of the Head or Corporate office, registered office, administrative office/ factory and PAN No.

2.      Whether the importer is a proprietorship/ partnership/ private limited company/ public limited company/ branch office of company incorporated outside India.

3.     

(a)           Name of the foreign supplier from whom the goods are imported

(b)     nature of the business relationship of the importer with the supplier (e.g., subsidiary company/ branch office/ distributor/ agent/ indentor or any other)

(c)           nature of the transaction- e.g., sale to the importer, consignment sales, branch transfer or any other.

4.      Whether any officer or director in the company/ firm of the importer holds any office in any company incorporated outside India; if so, whether such a company is related to/ associated in any way with the supplier of the imported goods. Also give details of converse situation, if applicable?

5.      Whether the importer and the supplier of the goods are partners in business?

6.      Whether there is an employer-employee relationship between the importer and the supplier of the imported goods and vice versa?

7.      Whether the foreign supplier or any of their associated companies jointly or severally, directly or indirectly own, control or hold equity shares worth 5% or more of the total paid-up capital of your company or any of your associated companies?

8.      Whether any other third person jointly or severally, directly or indirectly owns controls or holds the equity shares worth 5% or more of the paid up capital of the foreign supplier and of your company including associated companies?

9.                

(a)   Whether the supplier of the goods is in a position, directly or indirectly, to exercise restraint over you, legally or operationally, in any manner?

(b)   Specify the role if any, of the supplier or any of its associate business entities, in your corporate policy, design specification, quality control, marketing, sub-licensing of patent, franchise, etc?

(c)   Whether any legal liabilities created by contracts or agreements entered into by the supplier devolve on the importer?

10.    Whether the importer is in a position, directly or indirectly, to exercise restraint over the supplier, legally or operationally, in any manner? Details as per (b) and (c) above for this converse position? (d) Whether the product manufactured by the importer using the imported goods is sold under a trademark, design or patent owned or controlled by the supplier of the goods or any person related to them?

11.    Whether a third party is in a position, directly or indirectly, to exercise restraint over both the importer and the supplier of imported goods, legally or operationally, in any manner? Details, as per (b) and (c) of (9) above?

12.    Whether the importer and the supplier of the imported goods, together, are in a position, directly or indirectly, to exercise restraint over a third person, legally or operationally, in any manner ? Details as per (b) and (c) of (9) above.

13.    Whether importer and the supplier of the imported goods are members of the same family?

14.

(a)     Whether the importer is a sole agent, distributor or indentor appointed by the foreign suppliers.

(b)     Give full particulars of all the suppliers of goods from outside India for whom the importer acts as agent/ distributor/ indentor?

15.    Whether the importer is a branch or subsidiary of the supplier of the imported goods? (The words subsidiary has the same meaning here as in Section 4 of the Companies Act.)

16.   

(a)     Whether the importer is engaged in the local manufacture of any products of the suppliers of the imported goods?

(b)       If yes, whether the imported items are used in such manufacture?

(c)       If yes, whether the imported items are manufactured or exclusively supplied by the suppliers?

(d)     Whether the product manufactured by the importer using the imported goods is sold under a trademark, design or patent owned or controlled by the supplier of the goods or any person related to them?

17.

(a)   Whether the imported goods are component parts of CKD/ SKD sets for local assembly into finished goods? If yes, furnish a complete list of the items imported in CKD/ SKD condition.

18.    In the case of (16) and (17) above; (b) Are the same components imported by any person into India as spares for stock and sale? If so, please furnish the prices at which such imports are made.

19.    Whether the importer has imported any capital goods, plant, machinery, equipment, etc., from the supplier of the imported goods or its related or associated concerns or persons? Please furnish details?

20.    Is any amount paid or payable, directly or indirectly, to or on behalf of the supplier of the imported goods for engineering, development, artwork, design work, plans or sketches undertaken elsewhere than in India and connected with the production of the imported goods? Are any services rendered by or on behalf of the importer relatable to this?

21.    Is the import of the goods covered under an agreement? Are there other agreements between the importer and the supplier? If yes, list them.

22.    What is the basis of arriving at the price in the invoice? Is it (a) Price list with discount (b) Net discounted price (c) Quotation. (d) Transfer price; or (e) Other (please specify)?

23.    Do the supplier of the imported goods supply the same directly to any other person in India? If so, please furnish the prices at which these imports are made, with supporting documents.

24.    What is the form of payment by the importer for the imported goods? Furnish the heads of accounts under which other payments, if any, are made to the supplier of the imported goods, and details of the payments/ transfer of funds in any form.

25.    Furnish the total quantity and FOB value of imports made by the importer from the same supplier during the last three years.

26.    Amount of royalty/ technical knows how fees/ licence fee/ any other fee paid or payable by the importer to the supplier of the imported goods.

27.    Furnish the full details of amounts, if any, received by the importer in the form of agency commission, overriding commission or any other remuneration received either form other importers in India or from the supplier of the imported goods.

28.    Expenses incurred by the importer on behalf of, by understanding or agreement with, or under instructions from the supplier of the imported goods, e.g. advertising, propaganda expenses or any other expenses for the promotion or sales of the imported goods.

29.    Whether the supplier of the goods supplies identical, similar or connected items to buyers/ branches/ collaborators in other countries? If yes, prices at which such transaction have taken place, for the last one-year.

List of documents required to be submitted by the importer

A.     In case of sole agent/ sole distributor/ sole concessionaire

         1.         Agency agreements of the importer with any person.

2.           Specimen copies of the import invoices and bills of entry

3.     Specimen copies of invoices for import of identical, similar or connected goods by this party through the present importer.

4.     Specimen copies of invoices for import of identical, similar or connected goods by a company associated with the importer.

5.           Commission notes and credit notes in case of amounts received from outside India.

6.           Annual reports of the importer�s business concern for the last three years.

7.           Pricelists for import and sale of the imported goods.

8.     Statement regarding percentage of shareholding of/ in any Indian company alongwith number of common director.

9.           Statement regarding equity participation of/ in foreign company

10.           Indent/ invoice wise statement of commission received in the last three years

11.           Details of remittances alongwith method, mode and deferred payment details, if any.

12.           Statement of expenses as required under question number 28 of the questionnaire.

B.     In case of subsidiaries, holding companies, and those who have collaboration agreements or similar agreements

1.   Collaboration agreement/ joint venture agreement/ other agreement with the supplier of the imported goods or with any other person acting for the supplier.

2.   Approval of Government of India/ R.B.I. to the agreement, if any.

3.   Statement for the last three years till date, duly certified by a Chartered Accountant, containing the following information:-

i.    CIF value and landed cost of imports from the suppliers of the imported goods, the collaborator, or associated companies;

ii.       CIF value and landed cost of imports from other suppliers;

iii.       Value of standard bought-out components procured in India;

iv.       Value of other components procured in India;

v.       Ex-factory value of the goods;

vi.         Royalty, net and gross, payable or paid.

         4.     Representative sample invoices of own imports for the last three years and photocopies of relevant bills of entry.

5.           Annual reports of importing company for the last three years

6.           Statement regarding equity participation in/ of foreign company for last three years.

7.     Statement regarding shareholding of/ in any Indian company alongwith particulars of common director.

         8.   Current price-list of the products imported form the supplier of the goods, including spares and warranty parts imported by any other person.

9.   Representative specimens of invoices of procurement of goods procured form some other person by the supplier and supplied to the importer.

10.   Representative specimens of invoices of imports of identical, similar or connected goods made by companies associated with importer.

11.   Representative specimens of invoices of imports of identical or similar goods by any other person.

12.   Representative specimens of invoices and bills of entry of imports of identical or similar items as spares and warranty parts by the importer or any other person.

13.   Details of remittances alongwith method, mode and deferred payment details, if any

14.   Details regarding any other payment made to or on behalf or under the instructions of the supplier.