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From YOUSAF RAFIQ
Special Correspondent, Islamabad
Jan 03 - 16, 2000

The government has issued a new notification spelling out new rules to regulate the valuation of imported goods for levy of custom's duties and other taxes. The new rules, Custom's Valuation (Determination of Value of Imported Goods) Rules, 1999 will come into force with effect from January 1, 2000 and will apply to goods imported, or for which bill of entry is filed, on or after January 1, 2000.

General

Declaration by the importer

The importer, or his agent shall furnish (a) a declaration disclosing full and accurate details relating to the value of imported goods; and (b) any other statement, information or document as considered necessary by the appropriate officer for determination of the value of imported goods under the Act and these rules, and the Act.

Burden of proof

Where the appropriate officer has reason to doubt the truth or accuracy of the particulars or of documents produced in support of the declaration, such officers may ask the importer to provide further explanation, including documents or other evidence. If after receiving information referred to in such rule (1) or in the absence of a response, the appropriate officer still has reasonable doubts about the truth or accuracy of the declared value, it may be deemed that the custom's value of the imported goods cannot be determined under the provisions of sub-section (1) of section 25 of the Act. When a final decision is made, the appropriate officer shall communicate to the importer in writing his decision and the grounds therefor.

Prohibited methods

Where the value of imported goods cannot be determined under sub-sections (1), (5), (6), (7) and (8) of Section 25 of the Act, the custom's value shall be determined on the basis of data of imports available with the Custom Department. However, no value shall be determined under these rules on the basis of (i) the selling price of the identical goods produced in Pakistan; (ii) the price of the goods in the domestic market of the country or origin except after allowing deduction of local taxes and profits at each level of sale in the country of exportations; (iii) arbitrary or fictitious values; or (iv) the minimum custom's values, except those notified under sub-section (14) of section 25 of the Act.

Rights of custom

Nothing contained in these rules shall be construed as restricting, or calling in question, the right of the appropriate officer to satisfy himself as to the truth or accuracy of any statement, information, document or declaration presented for valuation purposes by or on behalf of the importer under the Act and rules made thereunder.

Rights of importer

Whenever the appropriate officer is unable to accept the transaction value without further inquiry, he shall give the importer an opportunity to supply such further detailed information as may be necessary to enable him to examine the circumstances surrounding the sale. In this context, the appropriate officer of custom's shall examine relevant aspects of the transaction, including the way in which the buyer and seller organize their commercial relations and the way in which the price in question was arrived at, in order to determine whether the relationship influenced the price. Where it can be shown that the buyer and seller, although related under the provisions of the clause (i) of rule 2, buy from and sell to each other as if they were not related, this would demonstrate that the price had been settled in a manner consistent with the normal pricing practice of the concerned industry or with the way the seller settles prices for sales to buyers who are not related to him, this would demonstrate that the price has not been influenced by the relationship. Where it is shown that the price is adequate to ensure recovery of all costs plus a profit which is representative of the firm's overall profit realized over a representative period of time, for example, on an annual basis, in sales of goods of the same class or kind, this would demonstrate that the price had not been influenced.

Primary method of valuation

price actually paid or payable

The price actually paid or payable is the total payment made or to be made by the buyer to or for the benefit of the seller for the imported goods. The payment need not necessarily take the form of a transfer of money. It may be made by way of letter of credit or negotiate instruments, or by cash or credit or partly by cash and partly by credit and may be made directly or indirectly. As example of an indirect payment would be the settlement by the buyer, whether in whole or in part, of a debt owed by the seller. Activities undertaken by the buyer on his own account, other than those for which an adjustment is provided in sub-section (2) of section 25 of the Act are not considered to be an indirect payment to the seller, even though they might be regarded as of benefit to the seller. The costs of such activities shall not, therefore, be added to the price actually paid or payable in determining the value of imported goods.

The custom's value of imported goods shall not include the following charges or costs, provided that they are distinguished from the price actually paid or payable for the imported goods, namely; (i) charges for construction, erection, assembly, maintenance or technical assistance undertaken after importation of imported goods such as industrial plant, machinery or equipment; (ii) the cost of transport after importation; and (iii) duties and taxes in Pakistan.

The price actually paid or payable refers to the price of the imported goods. Thus the flow of dividends or other payments from the buyer to the seller, which do not relate to the imported goods, shall not be part of the custom's value.

Restriction which do not affect value

Among restrictions which would not render a price actually paid or payable unacceptable are restrictions which do not substantially affect the value of the goods. An example of such restrictions would be the case where a seller requires a buyer of automobiles not to sell or exhibit them prior to a fixed date which represents the beginning of a model year.

Restriction which affect value

If the sale or price is subject to some conditions or considerations for which a value cannot be determined with respect to the goods being valued, the transaction value shall not be acceptable for custom's purposes; For examples: (a) the seller establishes the price of the imported goods on condition that the buyer will also buy other goods in specified quantities; (b) the price of the imported goods is dependent upon the price, or prices, at which the buyer of the imported goods sells other goods to the seller of the imported goods; or (c) the price is established on the basis of a form of payment extraneous to the imported goods, such as where the imported goods are semi-finished goods which have been provided by the seller on condition that he will receive a specified quantity of the finished goods.

Conditions or considerations relating to the production or marketing of the imported goods shall not result in rejection of the transaction value. For example, the fact that the buyer furnishes the seller with engineering and plans undertaken in Pakistan shall not result in rejection of the transaction value. Likewise, if the buyer undertakes on his own account, even though by agreement with the seller, activities relating to the marketing of the imported goods, the value of these activities shall not be part of the value of imported goods nor shall activities result in rejection of the transaction value.

Transaction value acceptable in case of related persons. Where the buyer and seller are related, circumstances surrounding the sale shall be examined and the transaction value shall be accepted as the custom's value of imported goods provided that the relationship did not influence the price. Where the appropriate officer has no doubts about the acceptability of the price, it may be accepted without requesting further information from the importer. For example, the appropriate officer may have previously examined the relationship, or he may already have detailed information concerning the buyer and the seller, and may already be satisfied from such examination or information that the relationship did not influence the price.

Secondary methods of valuation

Transaction value of identical goods

In applying sub-section (5) of section 25 of the Act, appropriate officer shall, wherever possible use a sale of identical goods at the same commercial level and in substantially the same quantities as the goods being valued. Where no such sale is found, a sale of identical goods that takes place under any one of the following conditions may be used, namely: (i) a sale at the same commercial level but in different quantities; (ii) a sale at different commercial level but in substantially the same quantities; or (iii) a sale at a different commercial level and in different quantities.

Having found a sale under any one of the conditions referred to in sub-section (1), adjustments shall then be made, as the case may be, for the following namely: (i) quantity factors only; (ii) commercial level factors only; or (iii) both commercial level and quantity factors. For the purposes of sub-section (5) of section 25 of the Act, the transaction value of identical imported goods means a value, adjusted as provided for in clauses (a), (b) and (c) of sub-section (5) of that section, which has already been accepted under sub-section (1) of the said section 25.

A condition for adjustment because of different commercial levels or different quantities shall be that such adjustment, where it leads to an increase or a decrease in the value, may be made only on the basis of demonstrated evidence that clearly establishes the reasonableness and accuracy of the adjustment, e.g. valid price lists containing prices referring to different levels or different quantities. As an example of this, if the imported goods being valued consist of a shipment of ten units and the only identical goods for which a transaction value exists involved a sale of five hundred units, and it is recognized that the seller grants quantity discounts, the required adjustment may be accomplished by resorting to the seller's price list and using that price applicable to a sale of ten units. This does not require that a sale had to have been made in quantities of ten as long as the price list has been established as being bona fide through sales at other quantities.

Transaction value of similar goods

In applying sub-section (6) of section 25 of the Act the appropriate officer shall, wherever possible, use a sale of similar goods at the same commercial level and in substantially the same quantities as the goods being valued. For the purposes of sub-section (6) of the said section the transaction value of similar imported goods means the value of imported goods, adjusted as provided for in sub-section (2) thereof which has already been accepted under sub-section (1) of that section. The provision of Rule-12 shall, mutatis mutandis, also apply in respect of similar goods.

Deductive value method

For the purposes of this rule, the expression "unit price at which goods are sold in the greatest aggregate quantity" means the price at which the greatest number of units is sold in sales to persons who are not related to the persons from whom they buy such goods at the first commercial level after importation at which such sale takes place.

Any sale in Pakistan, as provided in sub-rule (1), to a person who supplies directly or indirectly free of charge or at reduced cost for use in connection with the production and sale for export of the imported goods any of the elements specified in clause (c) of sub-rule (2) of section 25 of the Act shall not be taken into account in establishing the unit price for the purposes of sub-section (7) of section 25 of the Act.

For the purposes of the rules, the phrase "profit and general expenses" as used in sub-clause (i) of Clause (a) of sub-section (7) of section 25 of the Act, shall be taken as a whole for the purpose of determination of value. The figure for the purpose of this deduction shall be determined on the basis of information supplied by or on behalf of, the importer unless his figures are inconsistent with those obtained in sales in Pakistan, of the class or kind of goods. Where the importer's figures are inconsistent with such figures, the amount for profit and general expenses may be used upon relevant information other than that supplied by, or on behalf of, the importer.

Local taxes payable by reason of the sale of the goods for which a deduction is not made under sub-clause (iv) of clause (a)n of sub-section (7) of section 25 of the Act shall be deducted under sub-clause (i) of clause (a) of that sub-section.

In determining either the commissions of the usual profits and general expenses under clause (a) of sub-section (7) of section 25 of the Act the question whether certain goods are "of the same class or kind" as other goods must be determined on case to case basis by reference to other circumstances involved, sales in Pakistan of the narrowest group or range of imported goods of the same class or kind, which includes the goods being valued, for which necessary information can be provided, should be examined. For the purposes of sub-section (7) of section 25 Act "goods of the same class or kind includes goods imported from the same country as the goods being valued as well as goods imported from other countries.

For the purposes of clause (b) of sub-section (7) of section 25 of the Act the "earliest date" shall be the date by which the sales of the imported goods or of identical or similar goods are made in different in sufficient quantity to establish the unit price.

Wherever the method of valuation provided in clause (c) of sub-section (7) of section 25 of the Act is used, deductions made for the value added by further processing shall be based on objective and quantifiable data relating to the cost of such work. Accepted industry formulas, methods of construction, and other industry practices would form the basis of the calculations.

The method of valuation provided in clause (c) of sub-section (7) of the Act shall normally not be applicable when, as a result of the further processing, the imported goods lose their identity. However, there can be instances where, although the identity of the imported goods is lost, the value added by the processing can be determined accurately without reasonable difficulty. On the other hand, there can also be instances where the imported goods maintain their identity but form such a minor element in the goods sold in Pakistan that the use of this valuation method would be unjustified. Accordingly, each situation of this type must be considered on a case to case basis.

Computed value method

As a general rule, custom's value shall be determined under sub-section (8) of section 25 of the Act on the basis of information readily available in Pakistan. In order to determine a computed value, however, it may be necessary to examine the costs of producing the goods being valued and other information which has to be obtained from country of manufacture.

For the purposes of these rules, "costs or value" referred to in clause (a) of sub-section (8) of section 25 of the Act shall be determined on the basis of information relating to the production of the goods being valued supplied by, or on behalf of the producer. It shall be based on the commercial accounts of the producer, provided that such accounts are consistent with the generally accepted accounting principles applied in the country where goods are produced. The "cost or value" shall include the costs of elements specified in sub-clauses (ii) and (iii) clause (b) of sub-section (2) of section 25 of the Act. It shall also include the value, apportioned as appropriate under rule 17 of any element specified in clause (c) of sub-section (2) of section 25 of the Act which has been supplied directly or indirectly by the buyer for the use in connection with production of the imported goods. The value of the elements specified in sub-clause (iv) of clause (b) of sub-section (2) of section 25 of the Act which are undertaken in Pakistan shall be included only to the extent that such elements are charged to the producer and no cost or value of the elements referred to in this sub-section shall be counted twice in determining the computed value.

For the purposes of these rules, the "amount for profit and general expenses" referred to clause (b) of sub-section (8) of section 25 of the Act shall be determined on the basis of information supplied by or on behalf of the producer unless the producer's figures are inconsistent with those usually reflected in sales of goods of the same class or kind as the goods being valued which are made by the producers in the country or manufacture for export to Pakistan.

For the purpose of these rules, the "amount for profit and general expenses" referred to in clause (b) of sub-section (8) of section 25 of the Act shall be taken as a whole. If producer's profit figure is low and the producer's general expenses are high, the producer's profit and general expenses, taken together, shall nevertheless be consistent with that usually reflected in sales of goods of the same class or kind. Where the producer can demonstrate a low profit on sales of the imported goods because of particular commercial circumstances, the producer's actual profit figures should be taken into account provided that the producer has valid commercial reasons to justify them and the producer's pricing policy reflects usual pricing policies in the branch of industry concerned. Where the producer's own figures for profit and general expenses are not consistent with those usually reflected in sales of goods of the same class or kind as the goods being valued which are made by producers in the country of manufacture for export to Pakistan, the amount for profit and general expenses may be based upon relevant information other than that supplied by, or on behalf of, the producer of the goods.Where information other than that supplied by, or on behalf of, the producer is used for the purposes of determining a computed value, the appropriate officer shall inform the importer if the latter so requests of the source of such information, the data used and the calculation based upon such data, subject to the provisions of rule 19.

For the purposes of these rules, the "general expenses" referred to in clause (b) of sub-section (8) of section 25 of the Act, include the direct and indirect costs of producing and selling the goods for export which are not included under clause (a) of that sub-section.

For the purposes of clause (b) of sub-section (8) of section 25 of the Act whether certain goods are "of the same class or kind" as other goods, must be determined on a case to case basis with reference to the circumstances involved. In determining the usual profits and general expenses under sub-section (8) of section 25 of the Act sales for export to Pakistan of the narrowest group or range of goods, which includes the goods being valued, for which the necessary information can be provided, shall be examined. For the purpose of sub-section (8) of the section 25 "goods of the same class or kind" must be from the same country as the goods being valued.

Fall back method

Value of imported goods determined under sub-section (9) of section 25 of the Act, shall, to the greatest extent possible be based on previously determined customs values of identical goods assessed within ninety days. The methods of valuation, to be employed under sub-section (9) of section 25 of the Act may be those laid down in sub-sections (1), (5), (6), (7) and (8) of the said section inclusive, but a reasonable flexibility would be in conformity with the aims and provisions of sub-section (9) of that section.

Adjustment of value

For adjustment of value there shall be two factors involved in the apportionment of the elements as specified in clause (c) of sub-section (2) of section 25 of the Act to be imported, namely: (i) the value of the element itself, and (ii) the way in which that value is to be apportioned to the imported goods. The apportionment of these elements shall be made in a reasonable manner appropriate to the circumstances and in accordance with generally accepted accounting principles.

The value of the elements shall be adjusted as follows, namely: (i) if the importer acquired the element from a seller not related to him at a given cost, the value of the element is that cost; (ii) if the element was produced by the importer or by a person related to him, its value shall be the cost of producing it; and (iii) if the element had been previously used by the importer, regardless of whether it had been acquired or produced by such importer, the original cost of acquisition or production would have to adjusted downward to select its use in order to arrive at the value of the element.

Once a value has been determined for the element, it shall be apportioned to the value of the imported goods, as follows, namely: (i) the value might be apportioned to the first shipment if the importer wishes to pay duty on the entire value at one time; (ii) the importer may request that the value be apportioned over the number of units produced up to the time of the first shipment; or (iii) the importer may request that the value be apportioned over the entire anticipated production where contract or firm commitments exist for that production.

Addition for the elements specified in sub-clause (iv) of clause (c) of sub-section (2) of section 25 of the Act shall be based on objective and quantifiable data. In order to minimize the burden for both the importer and appropriate officer in determining the values to be added, data readily available in the buyer's commercial record should be used in so far as possible.

For those elements supplied by the buyer which were purchased or leased by the buyer, the addition shall be made for the cost of the purchase or the lease. No addition shall be made for those elements available in the public domain, other than the cost of obtaining copies of them.

Payments made by the importer for the right to distribute or resell the imported goods shall not be added to the price actually paid or payable for the imported goods if such payments are not a condition of the sale for export of the goods to Pakistan.

Where objective and quantifiable data do not exist with regard to the additions required to be made under clauses (b), (c), (d) and (e) of sub-section (2) of section 25 of the Act the transaction value cannot be determined under the provisions of sub-section 91) of section 25. As an illustration of this, a royalty is paid on the basis of the price in a sale in Pakistan of a litre of a particular product that was imported by weight in kilograms and made up into a solution after importation. If the royalty is based partially on the imported goods and partially on other factors which have nothing to do with the imported goods, (such as when the imported goods are mixed with domestic ingredients and are no longer separately identifiable, or when the royalty cannot be distinguished from special financial arrangements between the buyer and the seller), it would be inappropriate to attempt to make an addition for the royalty. However, if the amount of this royalty is based only on the imported goods and can be readily quantified, an addition to the price actually paid or payable can be made.

Miscellaneous

Use of generally accepted accounting principles. For the purposes of these rules, the expression "generally accepted accounting principles" refers to the recognized consensus or substantial authoritative support within Pakistan at a particular time with regard to the following, namely: (i) as to which economic resources and obligations should be recorded as assets and liabilities; (ii) which changes in assets and liabilities should be recorded; (iii) how the assets and liabilities and changes in them should be measured; (iv) what information should be disclosed and how it should be disclosed' and (v) which financial statements should be prepared.

Confidentiality

All information which is by nature confidential or which is provided on a confidential basis for the purposes of custom's valuation shall be treated as strictly confidential by the authorities concerned who shall not disclose it without the specific permission of the person or government providing such information, except to the extent that it may be required to be disclosed in the context of judicial proceedings.

Dispute settlement

In case of dispute between the importer and the appropriate officer in respect of the value of the goods being valued, the same shall be resolved in consistence with the relevant provisions of the Custom's Act, 1969 (IV of 1969). Nothing contained in these rules shall bar the claim of the importer for provisional release of goods under the section 81 of the Act or claim of the custom's to assess the goods under the section 80 of the Act read with section 26 thereof.