Need for rules to assist imported goods valuation unclear

The Central Board of Indirect Taxes and Customs (CBIC) has released the draft Customs (Assistance in Value Declaration of Identified Imported Goods) Rules, 2022, and invited suggestions, views, comments, feedback etc. from the stakeholders. This follows the amendment to Section 14 of the Customs Act, 1962, through the Finance Act, 2022, that let the CBIC make rules specifying additional obligations of the importer in respect of a class of imported goods whose value, the CBIC has reasons to believe, is not being declared correctly.

The draft rules envisage detailed procedures for receiving representation regarding undervaluation of a class of imported goods, reference by the CBIC to a select committee for preliminary examination of the representation, detailed investigation by an evaluation committee, review of its report by the select committee followed by recommendations to the CBIC, notification of the identified class of goods, checks to be made at the time of import of such goods, periodic review, powers to relax the application of the Rules, and so on.  

The draft rules specify 11 types of imports that will be exempted from application of the rules. These include goods that attract nil or specific duty rate or tariff valuation, pre-import of goods under advance authorisations, project imports, imports made for manufacture in bonded warehouses, imports by government and public sector undertakings, imp­orts in non-commercial quantities, im­ports for re-export, related party trans­actions already investigated, and any other imports specified by the CBIC.

Apparently, the government intends to target a class of goods where the values declared at the time of imports are less than the trend of prices going up and the CBIC has reasons to believe that the importers are not declaring the value accurately or truthfully. The trade is not too clear why these new rules are required when the Customs Valuation (Determination of Value of Imported Goods) Rules 2007 already contain provisions to examine cases where the assessing officer has doubts regarding correctness of the declared value of imported goods.

In valuation disputes, the courts have allowed rejection of declared value and re-assessment of value only where the Customs prove contemporaneous imports (i.e. imports of goods of same quality, grade or specifications at same or similar quantity and commercial levels at about the same place and time of imports) at higher prices. Perhaps, the government wants to tackle situations where the importers get away on the grounds that the specifications of alleged contemporaneous imports are different from the specifications of the imported goods. In any case, the CBIC needs to communicate the need for the new rules clearly and with adequate justification. Merely saying that the measure is to address the issue of undervaluation in imports is not enough.

The procedures prescribed under the draft rules are quite elaborate. It is not clear why two committees are required when the CBIC is well equipped to handle the task. The constitutions and functions of the select committee and evaluation committee are such that the same or similar functionaries will be reviewing their own work. It appears to be a case of bureaucrats creating work for each other.

The government must note that some elements in the trade will always try to evade taxes. They should be discouraged through better enforcement rather than more laws. Also, lower tax rates disincentive tax evasion.

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