EXPORT VALUATION RULES: A HURDLE RACE FOR GENUINE EXPORTERS

By Vijay Kumar

One of our expert commentators wrote in:

The new section 14 stipulates that the transaction value for export goods shall be determined by the exporter based on the rules made in this behalf. The basic idea is to curb overvaluation of exports to claim undue export incentives by dubious exporters who have committed rebate/DEPB frauds.

Unfortunately these new rules are like a hurdle race for a genuine exporter in this globalized competitive world where every nation vies with another for a larger share in the global trade. It’s a race against time for the exporter to clear all the hurdles in these export valuation rules.

Transaction value shall be accepted only if the sale/export is to buyers who have no business interest in each other and the sale is under competitive conditions. Sale under competitive conditions essentially means that the exporter and the buyer do not have any business interest in each other.

This clause of determining whether the exporter and the buyer have any business interest in each other will be the biggest stumbling block, because the officer scrutinizing the value declared by the exporter should normally go by a self declaration from the exporter in this regard which has the danger of not getting accepted by the officer and is an incentive for corrupt practices. Further, the new rules do not have such a provision for the exporter to declare that the export is to a buyer and that the buyer and exporter do not have any business interest in each other.

The export rules gives enormous discretionary power to the officer to reject the transaction value in the absence of any provision for the exporter to declare that the export is under competitive condition and the exporter will have to go through the ordeal of determining the value in terms of rules 4 through 6 of the rules. The rules provide for the proper office to determine the value (comparison or computed or residual).

For determination of comparative value in terms of rule 4, there are certain anomalies which may hinder the true determination of value for e.g. when the policy of the government is not to export local taxes rule 4 (3) (vi) talks of PMV inclusive of taxes which is erroneous – does it mean that true PMV will be deduced by a back calculation deducting the taxes from the actual PMV – why get into such a messy situation in the first place; further how can the MRP of the local comparative goods or the local price in the manufacturer’s price list be the determinative factor for a commodity meant for export. Usually the quality of an export commodity differs from that of a commodity meant for domestic sale. In that case how can the MRP or local price list of a local commodity become the basis for determining the price of export goods? Sub clauses (vi), (vii) and (viii) do not have any relevance for determining the comparative value of export goods.

When the value cannot be determined in terms of rule 4, the proper officer will proceed to determine the value by computation method by determining various cost elements. Just imagine the kind of litigation this provision will foment in future. How can the proper officer certify the various cost elements viz., cost of materials, processing, design, cost of expenses like transportation, loading, unloading, insurance etc, above all the controversial element called profit. The determination of value by computation method should have been left to the exporter with the proper officer insisting for a certified cost accountant certificate rather than leave the job of determining the value by computation method in the hands of the proper officer who has no locus standi to certify the various cost elements involved in the goods meant for export. Further it does not provide for determination of value when there is a merchant export or third party export where the sale is not under competitive conditions.

The residual method is the most cumbersome of the processes and the least said the better. The Government can do a world of good if the export valuation rules are stipulated only for goods which are exported under claim for incentives like drawback or DEPB and excluding the incentive of rebate claimed towards CENVAT or input stage rebate of CENVAT rather than bring in an omnibus provision to cover all the exported goods and to top it all give enormous discretionary power to accept or reject the transaction value in the hands of a proper officer.

Let us hope that the Ministry will consider all these factors before notifying the new export valuation rules. The Ministry should take note of the fact that provisions should be facilitative measures rather than stumbling blocks for genuine exporters.