TIOL-DDT 401 · the untouched capture
Rendered as it looked. Links and images are disabled in this view; the file itself is untouched.
<html>
<head>
<meta http-equiv=Content-Type content="text/html; charset=windows-1252">
<link rel=Edit-Time-Data href="Taxindiaonline's%20DDT%20401_files/editdata.mso">
<title>Taxindiaonline's DDT 401</title>
</head>
<body >
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif">
<b><font color="#663399" size="3">TIOL-DDT 401</font><br>
07 07 2006<br>
Friday</b></font></p>
<p align="center" ><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Natula
pass opened</strong></font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b><u>
<img src="http://www.taxindiaonline.com/RC2/image/stories/NATULA.jpg" width="416" height="300" hspace="5" border="1" align="middle">
</u></b></font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>“It is not symbolic, we mean business”,
said the Chinese Ambassador while attending the opening ceremony of the ancient
Natula pass for trade between India and China even as </strong>businessmen from
both sides crossed into each other's territory by bus to attend trade fairs
after the ceremony. Every newspaper and news agency from BBC to Voice of America
reported the historic event as the world’s highest customs station was opened.</font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b><u>
<img src="http://www.taxindiaonline.com/RC2/image/stories/uti_ATM.jpg" width="416" height="300" hspace="5" border="1" align="middle">
</u></b></font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif">UTI bank has opened the world’s highest ATM
at Natula. </font></p>
<p align="justify" > <font size="2" face="Verdana, Arial, Helvetica, sans-serif"><img src="http://www.taxindiaonline.com/RC2/image/stories/trade.jpg" width="416" height="300" hspace="5" border="1" align="middle">
</font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif">It’s once again Hindi Cheeni bhai bhai at Natula.
</font></p>
<p align="center" ><font color="#006600" size="2" face="Verdana, Arial, Helvetica, sans-serif"><strong>Customs
valuation - a WCO case study</strong></font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif">Today we are carrying an interesting case
from Bangalore Tribunal on Customs valuation. While deciding the case, the Tribunal
remarked, <b>It would be very instructive to go through WCO case study on the
application of decision 6.1 (equivalent to Rule 10A) for rejection of Transaction
Value.</b></font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif">It is not only instructive but enlightening
that DDT is tempted to reproduce the entire case study here. Any one remotely
connected with customs valuation should study this case. Here it is.</font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b><i>Case Study 13.1: Application of Decision
6.1 of the Committee on Customs Valuation</i></b></font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b><i>Facts of transaction:</i></b></font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif">1. Company ICO in country I, imported 2,000
(two thousand) units of consumer goods from exporting country X. ICO presented
the following information in the import declaration.</font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif"> (i) the seller of the merchandise is company
XCO, domiciled in country of exportation X,</font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif"> (ii) the manufacture ;of the imported goods
is company MCO, domiciled in country M;</font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif"> (iii) the declared value was calculated using
the transaction value specified in Article 1 of the Agreement;</font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif"> (iv) no adjustments were made to the price
under Article 8.1 of the Agreement;</font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif"> (v) in accordance with the provisions of Article
15.4, there is no relationship between ICO,XCO or MCO;</font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif"> (vi) according to the commercial invoice,
the unit price of the imported goods was.9.30 c.u.(FOB value);</font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif"> (vii) payment was made in cash.</font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif">2. After release of the goods, the Customs
risk analysis system selected ICO for an import audit.</font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif">3. Prior to the audit and as part of the
process of constructing a profile of the importer, the Customs administration
analyzed all imports of identical goods and obtained the following information:
</font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif"> (i) nine other buyers imported identical goods
at or about the same time as the goods being valued:</font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif"> (ii) the Customs values of the identical goods
were determined under the transaction value method;</font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif"> (iii) the unit prices of the identical goods
varied from 69.09 c.u. to 85.00 c.u.(FOB); </font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif"> (iv) the quantity of goods imported in each
transaction was almost the same (between 1,800 and 2,300 units) as in the transaction
between ICO and XCO (2000 units); </font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif"> (v) the payments for the imports of identical
goods were also made in cash, except in the case where the goods cost 85.00
c.u. (FOB).</font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif">4. The Customs administration conducted enquiries
of the other importers and obtained the price lists of several suppliers in
country of exportation X. The unit prices of the identical foods in these lists
varied from 80.00 c.u. to 140.00 c.u. (FOB), according to the quantity sold.
The origin of all imported goods was country M, although the main suppliers
of these goods to import country I were domiciled in country of exportation
X.</font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif">5. The Customs administration of country
I had not signed a mutual assistance agreement with the Customs administrations
of countries X or M. The Customs administration wrote to supplier XCO and manufacturer
MCO asking for information of the price of the goods. No answer was received.
</font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif">6. The Customs administration of country
I had not signed a mutual assistance agreement with the Customs administration
searched for suppliers on the Internet and found many offers for the sale of
identical goods, whose retail sale prices for export were between 123.99 c.u.
and 148.00 c.u.</font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif">7. The Customs administration notified ICO,
in writing, that it had reasons to doubt the truth of the declared transaction
value based on the facts set out above, but primarily based on the low value.
The administration asked the importer to present any further evidence, i.e.,
commercial correspondence and / or any other document confirming that the invoice
price was the total price actually paid or payable for the imported goods. </font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif">8. ICO replied that: </font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif"> (i) all the particulars of the transaction
had been detailed in the commercial invoice supplied;</font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif"> (ii) there was no special trade condition
such as those referred to in Article 1 of the Agreement applying to the transaction;</font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif"> (iii) the transaction was based upon an ordinary
offer by XCO; </font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif"> (iv) there was no written contract of sale
and no commercial correspondence; </font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif"> (v) the sale was settled by telephone.</font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif">9. The Customs administration decided to
carry out an audit on the premises of Company ICO. At its first visit, the Customs
administration obtained the following information:</font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif"> (i) there was no commercial correspondence
with XCO;</font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif"> (ii) ICO had sold all the goods to company
BCO in country I at a unit price of 281.00 c.u.;</font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif"> (iii) The accounting records were neither
in order nor up to date and could not substantiate the amount paid for the
imported merchandise at issue.</font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif">10. The Customs administration granted a reasonable
period to enable Company ICO to update its accounting records and put them in
order. When the records were provided, the audit did not find any further evidence
concerning the price actually paid or payable for the goods, adjusted in accordance
with the provisions of Article 8. The only information presented was that which
had previously been provided to Customs.</font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif">11. The audit revealed that a credit card payment
had been made by one of the employees of Company ICO to a third person, during
business travel to country X, which was registered in the accounting records
as an administrative cost. The importer had provided no acceptable explanation
as to the nature of this payment. Therefore, doubts were raised as to the
low profit earned, considering that the resale price of the goods was much higher
than the price declared at importation, and as to the amount of the administrative
costs registered. </font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif">12. The audit report concluded that:</font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif"> (i) the importer did not provide any further
evidence that would demonstrate that the declared value represented the total
price actually paid or payable for the imported goods, adjusted as necessary
in accordance with Article 8;</font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif"> (ii) the audit did not disclose any new information
and did not dispel Customs, doubts as to the truth or accuracy of the transaction
value declared;</font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b>Determination of Customs value: </b></font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif">13. The primary basis for Customs value is
the transaction value, that is, the price actually paid or payable for the goods
when sold for export to the country of importation, adjusted in accordance with
the provisions of Article 8.</font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif">14. The price actually paid or payable should
not be subject to any condition or consideration that could prevent the value
from being determined on the basis of the provisions of Article 1.</font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif">15. This price may be represented by the invoice
price, adjusted in accordance, with the provisions of the Valuation Agreement
and, in this respect, the commercial invoice could constitute sufficient proof
of the truth or accuracy of the declared value subject, of course, to Article
17 of the Agreement.</font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif">16. In accordance with Decision 6.1 of the
Committee on Customs Valuation, where the Customs administration has reason
to doubt the truth or accuracy of declared value, it may ask the importer to
provide further explanation, including documents or other evidence, that the
declared value represents the total amount actually paid or payable for the
imported goods, adjusted in accordance with the provisions of Article 8.</font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif">17. In this case, due to the fact that the
declared value was substantially lower than the declared values of identical
goods imported by nine other buyers at or about the same time, the Customs administration
had reason to doubt the truth or accuracy of the declared value as reflected
in the commercial invoice. Therefore, in accordance with Decision 6.1, the
Customs administration properly asked the importer to provide further evidence
to confirm that the declared value was the total price actually paid or payable
for the imported goods, adjusted in accordance with the provisions of Article
8.</font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif">18. In such cases, both parties should seek
to strengthen the spirit of co-operation and dialogue encouraged by the Agreement
with a view to finding solutions which harm neither the legitimate interests
of the importer nor those of the Customs administration.</font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif">19. In determining Customs value under the
Agreement, Customs administrations should not be required to rely on documents
which are incomplete in respect of relevant information, particularly if there
are doubts concerning other charges and payments which may form part of the
transaction value.</font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif">20. Specifically, Decision 6.1 provides that
if, after receiving further information, or in the absence of a response, the
Customs administration still has reasonable doubts about the truth or accuracy
of the declared value, it may, taking in account the appeals provisions of Article
11, be deemed that the Customs value of the imported goods cannot be determined
under the provision of Article 1. However, before taking a final decision, the
Customs administration shall communicate to the importer, in writing if requested,
its grounds for doubting the truth or accuracy of the particulars or documents
produced and the importer shall be given a reasonable opportunity to respond.</font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif">21. In this case, taking into account the facts
that: (i) the importer provided no evidence other than the commercial invoice
to substantiate that the declared value represented the price actually paid
or payable for the imported merchandise, adjusted in accordance with Article
8; and (ii) the accounting records reviewed during the audit revealed a questionable
expense, the Customs administration accordingly concluded that it still had
reasonable doubts about the truth or accuracy of the declared value and notified
the importer of its grounds for such conclusion.</font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif"><b><i>Conclusion: </i></b></font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif">22. So, in accordance with Decision 6.1, the
Customs administration may properly conclude that the Customs value of the imported
goods cannot be determined under the provisions of Article 1. The Customs administration
shall communicate to the importer, in writing, its decision and the grounds
thereof.</font></p>
<p align="justify" ><font size="2" face="Verdana, Arial, Helvetica, sans-serif">[Source: Dutt Majumdar’s Customs valuation
– Law and Practice – 2003 04 Fourth edition]</font></p>
<p align="justify" ><font color="#FF6666" size="2" face="Verdana, Arial, Helvetica, sans-serif">Until Monday with more DDT
</font></p>
<p align="justify" ><font color="#FF6666" size="2" face="Verdana, Arial, Helvetica, sans-serif">Have a nice weekend. </font></p>
<p align="justify" ><font color="#FF6666" size="2" face="Verdana, Arial, Helvetica, sans-serif">Mail your comments to</font>
<font size="2" face="Verdana, Arial, Helvetica, sans-serif"><a href="mailto:vijaywrite@taxindiaonline.com">vijaywrite@taxindiaonline.com</a></font></p>
</body>
</html>