EXPORT VALUATION:
There is no law on export valuation in India and other foreign countries. In Global economy, the export is valuable source of foreign exchange earning source for all nations, Whether it is poor, developing and developed nation. [ 29th and 30th November 1996, Commissioners Conference at Mumbai].The Central Board of Excise and Customs viewed that while the declared value is being accepted by DGFT for issue of license under VABAL, providing for different standard of valuation for Customs purpose might not be in line with the steps taken to usher in the liberalization.The FOB price accepted by Ministry of Textile while endorsing quota and for collecting Cess and same was declared in Invoice& shipping Bills. This is in conformity to above view of Board.It would be illegal to accept higher FOB for Cess and re-determining FOB value of the same good for foreign exchange.The opinion of the Law Ministry “It may be stated that if the exporter is able to bring in foreign exchange equivalent to the value declared, it may be difficult for the concerned authorities to prove that it was a case of over-valuation. [Commissioner Conference decision]Therefore, presumption that the exporter would not bring foreign exchange equivalent to declared value export cargo, at the stage of examination / assessment at ICD, Udaipur will be contrary to the opinion of Ministry of Law.Ministry of Finance Instructed that the Custom Officers are authorized to verify the PMV of an export product but are not authorized to reduce FOB value.It is stated that the FOB value may be higher, as per the contract between the exporter and Foreign Buyer, ( depending on various factors) but the “Present Market Value” of the goods is an index of their local )wholesale/retail) price inclusive of excise duty, Sales Tax and other local taxes plus cost of transportation. [Ministry of Finance FM 605/51/97-DBK (Circular No:89/97 – Cus dated 08.12.1997]The PMV of the goods can be many multiple of the FOB (Annexure 68).The above Ministry’s Instruction is in line with Rules of valuation contemplated in World Trade Organization (WTO/World Customs Organization (WCO). There are two type of value, one is for foreign exchange or Government Statistics and other is for assessment of duty for Customs Purpose. The First value is corresponds to FOB and letter to the PMV.It is accepted practice in course of assessment of value for important goods to reject declared value in suspected under invoicing. The valuation is done as per WTO valuation Rules with Customs valuation Rules 1988. The goods are adjudicated on account of under invoicing of value and higher duty amount is realized on the increased value.But the Indian Importer only remit the foreign remittance as per the Invoice raised by the foreign supplier and Not the enhanced value determined by the customs.Normally in Import case, there is under invoicing and over invoicing in case of export case.As discussed for Import case, if there is higher PMV value declared by the exporter, then the customs department can re-asses the PMV. The goods can be adjudicated under section 113 and 114 of Custom Act 1962 for claiming higher drawback based on higher export price.But the exporter had to receive foreign exchange from the buyer, as declared in the G.R.Form as per Foreign Exchange Regulation Act 1974.The Foreign buyer would not remit Less foreign exchange corresponding to reduce FOB determined by the Customs authorities for the purpose of determining drawback eligibility.As stated earlier and above, the customs authorities only can determine PMV and not FOB.Definitions:FOB: The International Chambers of Commerce has defined FOB at relevant time of export as [ INCOTERMS 1990] “Free on Board means that the seller fulfils his obligation to deliver when the good have passed over the ship’s rail at the named post of shipment. This means that the buyer has to bear all costs and risks of loss of or damage to the goods from that point.The FOB term requires the seller to clear the goods for export.The buyer must pay the price as provided in Contract of Sale.The FOB is a International Terms of Sale Contract, under such term of sale, the sellers bears all the expenses prior to placing on Board. Thereafter the property usually vests in the buyer.Export Pricing:Price is an index of the value of a product. Rather, it represents besides value, its quality, durability and many other attributes like ego satisfaction or status consciousness.The price depends on cost, competition and demand.International markets are considered to be more competitive than domestic markets, because competition in export markets, originate from three quarters Viz.Competing domestic producers in the export markets;Producers in other competing supplying countries; andCompeting domestic producers in one’s own country.Similarly, demand in international markets is subject to a number of factors, which are different from those operating in domestic markets.A Product has to adapted to meet the special requirement of foreign buyers, which arises from different tastes, habits and customs.The produced may have to be tailored according to the requirements of the overseas consumers and their capacity to pay for it.The other factors, which affect pricing are:Lower price for short deliveries and higher price for long deliveries.Price on credits are higher than the cash.To capture market, offering goods at low price.Fluctuation in foreign currency on account of devaluation or appreciation.Interest rate ,Inflation ,Inventory cost ,allowance for wastage & shrinkage,Price of any product depends on cost of product, cost of distribution, cost of marketing support, supply and demand factors, price level and margins, competition etc.,Normally for FOB price structure includesFactory cost of goods,Export labeling, packing and marking,Loading for transport at factory,Transport to docks,Port handling charges and fees,Cost of documents,Consular Invoice (Certificate of origin)Export duty / cess,Demurrage charges,Godown charges ,Measurement / weighing charges,Re-strapping charges of opened cases,Octrio duty ,Sales Tax for merchant exporter.Charges if any, on account of:Overseas distributors / agents commissions,Cost of providing after sales service,Cost of spare parts ,Financing charge if exporting on credit terms,Direct administrative and selling expenses,Congestion surcharge,Bank Charges, etc ,Profit margin .The above price element in FOB are only illustrative and not are exhaustive. The price of goods varied from buyer to seller and form market to market.If the export price are under priced of a good then importing country may counter by Imposing anti-dumping duty ,Counter vailing or safeguard duty,High import duty ,License condition ,Cost of Product may be arrived on fixed cost, variable cost or Export specific / Indirect cost. Therefore price may vary depending on accounting principle adopted to arrive cost of product.Few examples below would make clear that price of product vary according to market:BPP’s ITC-HSC Classification on Import items with Indian Tariff (1999-2000), price in Rs.695/- (domestic price) and same book price for overseas as US$125 about Rs.6,500/- (Annexure 45). The International price is 10 times more than the domestic price of the same good.Forbes magazine price, India’s Rs.150/- United States US$4.95, Indonesia Rp.23,000/-Benefit Magazine Rs.10/US$4/UK£2.5 [International Market price is about Rs.200/- and domestic price is Rs.10/-] The International price is 20 times more thant he domestic price of the same good.Honourable court decision:At the relevant time of export, various Courts, including the Honorable Supreme Court took a view that over-invoicing is not offence.Such asDimple overseas [1995(76) E.L.T.48] 1996(86) E.L.TA67-(S.C).Shilpi Exports 1996(83) E.L.T.302Bird & Co 1988(37) E.L.T. 70 (Cal)Collectio of Custom V Lexus Exports Pvt. Ltd. 1994 (69) E.L.T 228 (Calcutta)Upheld decision in Shelpi Exports [A-219 of 2000 (115) E.L.T.Upheld Dimple Overseas Case Judgment, on 31.07.96.M.V.T. International Vs Commissioner of Customs, New Delhi 2000 (117) E.L.T. 258(7).Commissioner Vs. Akshay Exports 2004 (163) E.L.T. A67 (S.C.).It is difficult to prove that whether it is deliberate over-invoicing or ability of the exporters to realize higher price in the overseas market.
