SME Chatroom: 'ITC available based on IGST payment shown in bill of entry'

Q. We imported certain goods, where the supplier gave us a 40 per cent discount and showed it in the invoice. The Customs rejected that and made us pay duty on the full value, inclusive of the discount amount. We availed ITC of the full IGST as shown in the bill of entry. Does the discount shown in the invoice have any bearing on the ITC that we can take?

Apparently, the Customs, in accordance with explanation (1)(iii)(b) of Rule 12 of the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007, raised doubts regarding the truth and accuracy of your value declaration -- because the sale involved an abnormal discount or abnormal reduction from the ordinary competitive price -- and then proceeded to reject the declared value in accordance with Rule 12(1) of the said Rules. Duty has been paid based on the assessable value determined by the Customs, and so, you can take the ITC of the IGST paid as shown in the bill of entry. ITC cannot be curtailed on the basis of the discount shown in the invoice.

 
Q. We facilitate trade transactions between buyers and sellers abroad. The goods do not enter India at all. We do not trade in the goods but only earn brokerage from both, which is exempted at S.No.12AA of the Table in the notification 9/2017-IT(Rate) dated June 28, 2017. We are, however, not able to comply with the documentation requirements mentioned, that we must have a copy of the bill of lading, because the goods move through air or land also. We also cannot get a copy of the certificate of origin where the goods are used and old. How can we go ahead?

S.No.12AA applies to services provided by an intermediary when the location of both supplier and recipient of goods is outside the taxable territory. The government’s intent is quite clear but the documentation requirements mentioned do not take into account many eventualities, as you point out. I also find that some other wordings in the notifications are faulty and can be improved. So, I suggest that you may represent the matter to the Central Board of Indirect Taxes & Customs (CBIC) directly and through the EPC for services.
 
Q. We face a problem with reference to trade between our company (the Indian parent company) and our wholly-owned subsidiary in the USA, where some equipment is customised and there is no benchmark or comparable product. How can we convince Customs about the assessable value, given lack of access to each other’s cost structure and profit margin?

In the case of related party transactions, where contemporaneous imports/exports are not available, the matter goes to the Special Valuation Branch for further investigations. There, your plea of lack of access to each other’s cost structure is unlikely to be accepted. You may opt for the Computed Value Method and facilitate assessment under Rule 8 of the Customs Valuation Rules for imports and Rule 5 of the Customs Valuation Rules for exports.
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