The Ministry of Finance has notified the Customs (Assistance in Value Declaration of Identified Imported Goods) Rules, 2023, ("Rules"), vide Notification No. 03/2023-Customs (N.T.), dated 11th January 2023. The Rules have come into effect from 11th February 2023. The Rules have been issued to keep systematic undervaluation of goods in check.

Customs valuation under the Customs Act, 1962

Section 14 of the Customs Act, 1962 ("Act") provides for valuation of goods imported into India in order to determine the applicable import duty on such goods. However, pursuant to concerns regarding undervaluation of goods, clause (iv) was inserted in the second proviso to Section 14(1) of the Act, by virtue of the Finance Act, 2022. The newly inserted clause provided for rules to be made for establishing checks in order to apprehend cases where the value of goods was not declared truthfully and thus, creating additional obligations on importers. The Customs Valuation Rules 2023 have been issued under the said clause (iv) of the second proviso to Section 14(1) of the Act.

Customs Valuation Rules, 2023

The Rules provide that in cases where it is found that the importers of a certain class of goods have been systematically undervaluing imports, the customs authorities have power to impose additional documentation and certification requirements for such importers.

Under the Rules, the CBIC may, by Order, designate a certain class of commodities as "identified goods" if it has reason to believe that the value of such goods may not be declared truthfully or accurately. However, the Rules provide that imports not subject to duty, imports made under advance authorization, imports by Government or public sector undertakings, etc. shall be excluded from the procedure laid down.

For making such decision, the CBIC can rely on a written reference made by any individual who has reason to believe that the imported goods may be undervalued. Such reference can also be made by Customs officers, namely Commissioner or Additional Director General. After designating the goods as "identified goods", CBIC forwards the completely documented written reference to the Screening Committee for their Preliminary Examination.

Two-stage examination process

Upon receiving a written reference from the CBIC, the Screening Committee is required to conduct a Preliminary Examination of such reference. Where the Screening Committee finds the written reference suitable for detailed examination, it must record preliminary findings and forward the same to the Evaluation Committee for Detailed Examination.

At the second stage, the Evaluation Committee must comprehensively examine the written reference received, to assess the likelihood of whether the goods in question have been undervalued or not. For their examination, the Evaluation Committee may undertake data analysis using information such as trends in international prices, information received through stakeholder consultation, expert reports, academic or research papers, disclosures made under the Act or any other relevant law and costing in relation to manufacturing or assembly of the goods.

If the Evaluation Committee concludes that there is a likelihood that the value of concerned goods has not been declared truthfully, the Committee shall prepare a report specifying the description of goods, precautional unit value, Unique Quantity Code to be declared, checks to be exercised, etc.

Issuance of orders for additional obligations

The report of the Evaluation Committee will thereafter be transferred to the Screening Committee, who may confirm the said report and make recommendations to the CBIC. After considering such recommendations, the CBIC may issue an Order specifying the complete description of the identified goods along with 8-digit HS code, particular Unique Quantity Code, any other technical specifications, any other obligations of the importer, checks to be exercised with regards the concerned goods and the duration of the Order.

Upon the issuance of the Order for the identified goods, the importer of such goods would be required to declare the value of such goods at the time of filing of bill of entry, using the Unique Quantity Code specified in the Order, along with other details mentioned therein. The importer may also be required to fulfill any other obligations specified in the Order or submit additional information or documents to verify the truthfulness or accuracy of the declared value.

Where the customs authorities are satisfied with the truthfulness and accuracy of the declared value, such value shall be accepted for the purpose of customs valuation. However, in case (a) the importer does not provide the required information or documents; or (b) does not fulfill their obligations specified under the Order; or (c) based on the information or documents submitted, the customs authorities still have reasonable doubt about the accuracy of the declared value, the importer may be subject to further proceedings under Rule 12 of the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007.

The aforesaid Rules aim to address the concerns of undervaluation of imported goods, which has significantly impacted the import duty assessment for such goods. These rules are likely to keep in check the malpractice of evasion of duties and aid the authorities in increased customs duty collections. On the other hand, businesses must take into account the additional obligations that may arise for clearance of imported goods where the values for such goods are not declared accurately.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.