Interest Charges in Customs Value

Treatment of Interest Charges in Customs Value of Imported Goods

As per the WCO's Committee on Customs Valuation, The Parties to the Agreement on Implementation of Article VII of the GATT agree as follows:

Charges for interest under a financing arrangement entered into by the buyer and relating to the purchase of imported goods shall not be regarded as part of the Customs value provided that:

1. the charges are distinguished from the price actually paid or payable for the goods;
2. the financing arrangement was made in writing;

where required, the buyer can demonstrate that: - 

• such goods are actually sold at the price declared as the price actually paid or payable, and 
• the claimed rate of interest does not exceed the level for such transactions prevailing in the country where, and at the time when the finance was provided.

This Decision shall apply regardless of whether the finance is provided by the seller, a bank or another natural or legal person.  It shall also apply, if appropriate, where goods are valued under a method other than the transaction value. Each Party shall notify the Committee of the date from which it will apply the Decision.

Special Valuation Branch Cases

The 'Special Valuation Branch (SVB)' was created for investigation of transactions involving special relationships between buyer - seller or those involving other special circumstances surrounding the sale of imported goods, both of which have a bearing on the assessable value.

Challenges with SVB Cases:

• Delays in finalization of SVB investigations,
• Uncertainty due to provisional assessments,
• Transaction costs increases due to Extra Duty Deposits (EDD)

Impact of SVB

'Extra Duty Deposit' @ 1 % of declared assessable value is being obtained from the importer for a period of 4 months during which time he is required to submit required documents and information to the SVB. In the event of his failing to do so, the EDD can be increased to 5% till such time the importer complies. Upon the importer complying with the requisition for documents and information, EDD shall be discontinued, while imports will continue to be assessed provisionally till the completion of investigations.

In other words, the imports were continued to be assessed provisionally on the basis of a PD Bond but without any EDD.

Cases not to be taken up for inquiries by SVBs are

• Import of samples and prototypes from related sellers
• Imports from related sellers where duty chargeable (including additional duty of Customs etc.) is unconditionally fully exempted or nil.
• Any transaction where the value of imported goods is less than Rs 1 lac but cumulatively these transactions do not exceed Rs 25 lacs in any financial year

Cases, which may be considered for SVB Investigations

While filing a Bill of entry, Importer makes a declaration about the seller of imported goods as a related party, as defined under Rule 2(2) of the Customs Valuation (Determination of Price of Imported Goods) Rules, 2007 (CVR, 2007).

Apart from related parties transactions, cases involving following additions to declared transaction value also need to be examined to determine whether SVB investigations are necessary:

• 'royalty and licence fee' under Rule 10 (1)(c) of CVR, 2007 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 (10)(1)(d)] of CVR, 2007; or
• where any other payments are made or are contemplated to be made in future by buyer to seller as a condition of sale of imported goods etc., [i.e. Rule 10(1 )(e)] of CVR, 2007

Reference:

WCO's Guideto Customs Valuation and Transfer Pricing (June 2015)

CustomsValuation (Determination of Value of Imported Goods) Rules, 2007

Issuance of Pre- Shipment Inspection Certificate (PSIC)

• Pre-shipment Inspection Agencies (PSIA) shall issue Pre-Shipment Inspection Certificate (PSIC) as per format defined in Appendix 2H of Foreign Trade Policy. PSIC would also carry uniquely numbered hologram of the PSIA.
• A PSIA can also carry out inspections in countries, where it does not have a full time equipped branch office but which falls within its area of operation, by deputing its Inspectors. However, for such inspections in other countries, the PSIA will be required to give prior intimation to DGFT by sending an email (at psia-travel-dgft@gov.in) and furnishing details of visit / inspection done by the Inspector in PSIC.
• The applicants may submit their applications initially without bank guarantee, as required under S.No.9 of ANF-2L. Their applications would not be rejected only on the ground of non-submission of bank guarantee. Applicants would, however, be required to submit bank guarantee or an equivalent financial instrument, before they are notified as PSIA, by the competent authority, as per FTP/HBP 2015-20.

(Amended vide Public Notice No 12/2015-20 dated 18.05.2015)

Check list of Documents for cancellation of Bond (LUT) / Bank Guarantee

Para 5.13 of HBP (Vol 1) deals with redemption and issue of Export Obligation Discharge Certificate (EODC) by DGFT on production of relevant documents for proof of export done by the licencee. After receipt of EODC from the licensing authorities, the licencee has to request for cancellation of Bond (LUT) / Bank Guarantee executed with custom authorities. The request for cancellation of Bond / BG should be accompanied by the following documents for cancellation / closure of Bond (LUT) / BG :-

1.     Request letter

2.     Original EPCG Licence

3.     Duty debit sheets in original

4.     Original EODC (Redemption Certificate) from DGFT

5.     Installation Certificate from Central Excise

6.     Self attested copies of Bills of Entry

7.     Self attested copies of Shipping Bills

8.     Invoice copies / Bills of Lading copies etc.(Import)

9.     Invoice copies / Bills of Lading copies etc.(Export)

10. Import statement (Bills of Entry-wise details, specially duty saved amounts)

11. Export statement (Shipping Bills details, specially FOB amounts)

12. Bank Realization Certificates

13. Authorisation letter to CHA / Representative to receive the BG/Bond

14. Any other documents required by Group AC.