Customs duty on branded goods


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Customs duty on branded goods

  2. 2. INTRODUCTION <ul><li>Customs Duties are probably the oldest form of taxation in India. It originated in </li></ul><ul><li>1786, when the britishers formed the 1 st Board of Revenue in Calcutta. </li></ul><ul><li>Customs law regulates the Import and Export of goods by restricting, forbidding </li></ul><ul><li>or imposing duties. Customs Duty is a tariff levied on goods imported or </li></ul><ul><li>exported. The levy of custom duty brings into its perview the issues of </li></ul><ul><li>intellectual property (IP) like: </li></ul><ul><li>Patents </li></ul><ul><li>Trademarks </li></ul><ul><li>Copyrights </li></ul><ul><li>while importing goods. The Constitution of India stipulates that no tax shall be </li></ul><ul><li>levied or collected, except by authority of law. The law for levy and collection of </li></ul><ul><li>Customs Duties is the Customs Act, 1962 and the Customs Tariff Act, 1975. </li></ul>
  3. 3. VALUATION OF GOODS FOR THE PURPOSE OF ASSESSMENT <ul><li>The imposition of the customs duty in India follows the ad valorem tax system </li></ul><ul><li>Which necessities ascertaining the customs value on which the ad valorem rate </li></ul><ul><li>can be applied. This is said to be in conformity with the provisions of Article VII of </li></ul><ul><li>The General Agreement on Tariffs and Trade 1994 (GATT). </li></ul><ul><li>Customs Duty is payable as a percentage of ‘Value’ often called </li></ul><ul><li>‘ Assessable Value’. The term Value may be either </li></ul><ul><li>‘ Value’ as defined under section 14(1) of the Customs Act,1962; or </li></ul><ul><li>Tariff Value prescribed under section 14(2) of the Customs Act,1962 </li></ul><ul><li>The provisions of section 14(1) apply for both imported and </li></ul><ul><li>exported goods. </li></ul>
  4. 4. <ul><li>SECTION 14 - CUSTOMS ACT, 1962 </li></ul><ul><li>Value of imported/export goods shall be: </li></ul><ul><li>Transaction value i.e. </li></ul><ul><li>Price actually paid or payable for the goods </li></ul><ul><li>Sold for export to India </li></ul><ul><li>For delivery at the time & place of importation </li></ul><ul><li>Where the buyer & seller are not related </li></ul><ul><li>Price is the sole consideration for the sale </li></ul>
  5. 5. CUSTOMS VALUATION METHOD (DETERMINATION OF PRICE OF IMPORTED GOODS) RULE S 1988 <ul><li>The above Rule lays down 6 methods of valuation of imported goods. They are </li></ul><ul><li>as follows: </li></ul><ul><li>Transaction Value </li></ul><ul><li>This method is based on the valuation factors, of the various elements, which should be added while determining the customs value. </li></ul><ul><li>Transaction Value of Identical goods </li></ul><ul><li>This is based on the previously determined transaction value of identical goods, as defined in the Valuation Rules, imported at or about the same time. </li></ul><ul><li>Transaction Value of Similar Goods </li></ul><ul><li>This is based on the transaction value of Similar goods imported at or </li></ul><ul><li>about the same time. </li></ul>
  6. 6. <ul><li>Deductive Value Method </li></ul><ul><li>This is calculated based on the selling price of imported goods or identical/similar goods in India after deducting selling expenses, margin profit, duties and taxes. </li></ul><ul><li>Computed Value Method </li></ul><ul><li>The computed value is arrived at from the cost of materials used in production of imported goods, cost of fabrication or other processing charges at the country of production , profit and general expenses, and other dutiable factors as may be applicable. </li></ul><ul><li>Fall Back Method </li></ul><ul><li>These include flexible application of previous valuation methods in a manner consistent with the provisions of section 14(1) of the Customs Act,1962. </li></ul>
  7. 7. CUSTOMS VALUATION METHOD (DETERMINATION OF PRICE OF IMPORTED GOODS) RULES 1988 <ul><li>RULE 9(1)(b): </li></ul><ul><li>The value, apportioned as appropriate, of the following goods and </li></ul><ul><li>services where supplied directly or indirectly by the buyer free of </li></ul><ul><li>charge or at reduced cost for use in connection with the production </li></ul><ul><li>and sale for export of imported goods, to the extent that such value has not </li></ul><ul><li>been included in the price actually paid or payable, namely:- </li></ul><ul><li>materials, components, parts and similar items incorporated in the imported goods; (ii) tools, dies, moulds and similar items used in the production of the Imported goods; (iii) materials consumed in the production of the imported goods; (iv) engineering, development, art work, design work, and plans and </li></ul><ul><li>sketches undertaken elsewhere than in India and necessary for the production of the imported goods; </li></ul>
  8. 8. <ul><li>RULE 9 (C) : </li></ul><ul><li>Royalties and licence fees related to the imported goods that </li></ul><ul><li>the buyer is required to pay, directly or indirectly, as a </li></ul><ul><li>condition of the sale of the goods being valued, to the extent </li></ul><ul><li>that such royalties and fees are not included in the price </li></ul><ul><li>actually paid or payable. </li></ul><ul><li>Exceptions: Determining Customs Value </li></ul><ul><li>Charges for the right to reproduce the imported goods not </li></ul><ul><li>added to the price actually paid or payable for the imported </li></ul><ul><li>goods in determining the customs value. </li></ul>
  9. 10. <ul><li>Payments made by buyer for the right to distribute or re – sell the imported </li></ul><ul><li>goods shall not be added to the price actually paid or payable for the imported </li></ul><ul><li>goods. </li></ul><ul><li>Relevant Cases Laws: </li></ul><ul><li>State Bank of India </li></ul><ul><li>– VS – </li></ul><ul><li>Collector of Customs, Bombay </li></ul><ul><li>(2000) 115 ELT 597(SC) </li></ul><ul><li>Supreme Court held that the cost of software is not mentioned separately, only </li></ul><ul><li>the license fee was mentioned, licensee fee paid for countrywide use cannot be </li></ul><ul><li>considered as reproduction charges. The court observed that reproduction and </li></ul><ul><li>use are separate things and the transaction value is to be seen as a whole. </li></ul><ul><li>Hence, the license fee charged for the countrywide use is part of the transaction </li></ul><ul><li>value and therefore the SBI is not entitled for refund of the duty paid. </li></ul>
  10. 11. <ul><li>BPL DISPLAY DEVICES LTD – VS – COMMR OF CUSTOMS (2002) 142 ELT A284 (SC) </li></ul><ul><li>Held that the cost of drawings, designs, and know-how fees is includible in the </li></ul><ul><li>assessable value of imports. Whether it is termed as royalty, licensee fee or </li></ul><ul><li>‘ technology fee’ is immaterial, the importer is liable for payment of duty. </li></ul><ul><li>ANDHRA PETROCHEMICALS – VS – COMMR (1997) 90 ELT 275 (SC) </li></ul><ul><li>Supreme Court held that it is immaterial whether supply of machinery, transfer of </li></ul><ul><li>technical know-how and drawings are referred under different contracts, the fact </li></ul><ul><li>to be looked into is whether it is a single package deal or not. </li></ul><ul><li>JINDHAL PHOTO FILMS – VS – COMMR OF CUSTOMS, BOMBAY (2002) 141 ELT 2002 (CEGAT) </li></ul><ul><li>It was held that license fee related to know-how embedded in the machine has to </li></ul><ul><li>be added to assessable value. </li></ul>
  11. 12. <ul><li>CONCLUSION </li></ul><ul><li>When only equipment is imported without importing technical </li></ul><ul><li>know-how, there arise no IP issue while ascertaining the price </li></ul><ul><li>of the imported goods for the purpose of customs valuation. </li></ul><ul><li>However, if agreements exists for transfer of know-how or </li></ul><ul><li>other forms of IP along with the imported goods, the issue of </li></ul><ul><li>arriving at the valuation of such goods in combination with </li></ul><ul><li>the value of IP arises </li></ul>
  12. 13. <ul><li>THANKING YOU </li></ul>