New Rules to Curb Systematic Under-Valuation of Imports

Ankita Tiwari

27 May, 2024

In recent times, Indian experts witnessed a gap between the trade data from India and from other countries like China. It was due to the under-invoicing of shipments by Indian importers to avoid their import tax liability. Under-valuation of imports was an issue for the exchequers and domestic industry. Under-valuation also affects the long-term growth of the Indian economy. To resolve these issues, the Government of India introduced the Customs (Assistance in Value Declaration of Identified Imported Goods) Rules, 2023 (hereinafter referred to as “CAVR, 2023”). The CAVR, 2023 was issued vide Notification No. 03/2023-Customs dated 11^th January 2023 and is to be read with Circular No. 01/2023-Customs dated 11^th January 2023. The CAVR, 2023 came into effect on 11^th February 2023.

The CAVR, 2023 was enacted under the second proviso to sub-section (1) of section 14 of the Customs Act, 1962 which was inserted by the Finance Act, 2022. This proviso to section 14 of the Customs Act was inserted to empower the Central Board of Indirect Taxes & Customs (hereinafter referred to as “CBIC”) to make laws imposing additional obligations on importers against whom the CBIC has reasons to believe that they are not disclosing the value of goods truthfully or accurately as per the prescribed criteria.

The CAVR, 2023 is a framework that deals with systematic under-valuation of imports which leads to evasion of custom duty. The new rules come in the wake of recent instances of systematic undervaluation of imports from China. It empowers CBIC to mandate additional disclosure and certification requirements to be followed by importers of goods. The new rules will allow CBIC to identify the class of imports where undervaluation is rampant and prescribe additional declarations from importers of such goods in order to prevent under-valuation of imports. For specifying identified goods, CBIC has to formulate the following two committees:

1. Screening Committee
   The screening committee shall comprise the following members:
   1. Director General (DG) of Valuation who shall be the Convenor as well as the Secretariat of the Committee;
   2. DG of Revenue Intelligence;
   3. DG of Analytics and Risk Management; and
   4. Convenors of the National Assessment Centre
2. Evaluation Committee

The Evaluation Committee should comprise the following members:

1. Additional Director General (ADG) of Valuation who shall be the Convenor as well as the Secretariat of the Committee;
2. ADG (Headquarters) of DG of Revenue Intelligence;
3. ADG (National Customs Targeting Centre- Cargo) of DG of Analytics and Risk Management; and
4. Members of the working group on Valuation and related issues of the National Assessment Centre constituted by the Board.

For efficient conduct and timely discharge of their functions, both the Screening Committee as well as the Evaluation Committee shall hold regular meetings whenever necessary.

Process of Identification of Goods for under-valuation of Imports

1. When any person including any officer of customs such as the Commissioner or Additional DG or a person from any other department, has reasons to believe that the value of any class of imported goods has not been declared truthfully or accurately then he may file a written reference electronically to CBIC. The written reference must contain the complete description of the goods and the manner in which the goods have been under-valued along with documentary evidence, a reliable source of information.
2. The Screening Committee conducts a preliminary examination of the reference made to it in order to decide whether a detailed examination is required or not. The time limit for completing the preliminary examination is 15 days which can be extended up to 21 days from the date of forwarding of the written reference by CBIC.
3. If the written reference is found fit for detailed examination, the reference shall be taken up for detailed examination by Evaluation Committee on the date the preliminary findings were recorded. However, if the findings of the Screening Committee are not found suitable for the detailed examination then reasons for the closing of such reference are to be recorded.
4. The detailed examination shall be conducted by the Evaluation Committee keeping in mind the various parameters prescribed and an expert report is to be provided within 30 days extendable up to further 30 days.
5. After reviewing the reference, the evaluation committee shall either close the reference or recommend action in the form of a detailed examination report containing information or details like the description of goods with an 8-digit HSN Code, checks to be undertaken, duration of such checks, etc to the Screening Committee.
6. The examination report shall be examined by the Screening Committee in terms of its completeness and shall be recommended to the CBIC within 15 days of the receipt of the report from the evaluation committee.
7. On receipt of the examination report, the CBIC shall evaluate the recommendations and issue a notification under Rule 5 of CVAR, 2023 specifying the goods as identified goods and requiring checks and compliance to be undertaken as per the CAVR, 2023 for such identified goods.
8. Once the CBIC issues a notification identifying the goods, the importers will mandatorily be required to comply with those additional compliances or disclosures at the time of filing the Bill of Entry and any other additional checks as may be specified.
9. If the importer fails to comply with the notification or the proper officer doubts the accuracy of information then further proceedings for rejection will be initiated as per Rule 12 of the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007.

Negative list of goods under the CAVR, 2023

1. Imports not involving duty;
2. Goods whose tariff value is fixed by the CBIC or which attract duty on a specific rate basis;
3. Imports where the parties are investigated by the Special Valuation Branch (SVB) or an SVB report already exists in this regard;
4. Imports where authorization or license is issued under the duty exemption scheme of the Foreign Trade (Development and Regulation) Act, 1992;
5. Project imports;
6. Any other imports as may be specified by the CBIC.

Other Aspects of CAVR, 2023 to curb under-valuation of imports

1. The notification identifying the goods shall have a validity of a minimum of 1 (one) year and a maximum of 2 (two) years.
2. The notification is subjected to a mid-term review for ascertaining if there is a need to de-notify or extend the validity of the period of such notification.
3. An electronic application has to be made under the CAVR, 2023.

Impact of CAVR, 2023 on under-valuation of imports

1. Goods having a history of import duty evasion will face higher scrutiny and greater disclosure requirement.
2. Additional disclosure and certification requirements by importers of such goods which the authorities suspect to be following a systematic under valuation of imports for evading import duty.
3. Technical details will have to be disclosed by the importer in import documents and other obligations to show that there is no under-valuation of imports.
4. The authorities shall undertake extensive research of global markets to evaluate the prices of identified goods and check under-valuation of imports.
5. The precautionary unit value determined by the tax authority shall be considered an accurate benchmark price of the item.

Conclusion

The CAVR, 2023 has been introduced to address the concerns of under-valuation of imports which adversely affects the customs duty. These rules impose additional obligations and compliance requirements on importers who do not correctly declare their value. These additional obligations require the importer to justify the value declared by him in the case of their imports. Thus, this new rule ensures a check on evasion of duties and aids the authorities to collect customs duty properly.

Also Read: Special Valuation Branch (SVB) & Its Investigation Procedure