DEF Ltd. imported a packaging machine from USA. DEF Ltd. paid - 56,000 as charges for development activities for work done in India with respect to…

CA Final · Indirect Tax Laws · PYQS · May 2025
DEF Ltd. imported a packaging machine from USA. DEF Ltd. paid - 56,000 as charges for development activities for work done in India with respect to the imported machine. Further, the following particulars are furnished and you are required to compute the assessable value for the purpose of customs duty payable: S. No. Particulars Amount ($) 1. Price of the machine 20,000 2. Freight (Air) 5,000 3. Design charges paid to a firm in USA 300 4. Licence fee relating to imported goods payable by the buyer as a condition of sale 10% of Price of Machine 5. Buying commission paid by the buyer to his agent in USA 200 Amount (₹) 6. Materials and components supplied by the buyer free of cost 50,000 7. Insurance paid to the insurer in India 6,000 Other Particulars: (i) The commission payable with respect to sales to the local agent of the exporter is 5% of cost of the machine. (ii) Materials and components supplied by the buyer free of cost are valued at 50,000. (iii) Inter-bank exchange rate as arrived by the authorized dealer is 82.50 per $. (iv) CBIC had notified for purpose of Section 14 of the Customs Act, 1962, exchange rate of 83 per $.

Suggested Answer and Working Notes:

Computation of assessable value Particulars Amount ($) Price of the machine 20,000 Add: Design charges paid in USA [Includible since it is undertaken elsewhere than in India.] 300 Add: Licence fee payable by the buyer as a condition of sale [10% of 20,000] [Includible in assessable value.] 2,000 Add: Buying commission [Not includible in assessable value.] Add: Commission to local agent [5% of 20,000] [Includible in assessable value.] 1,000 Total 23,300 Amount (₹) Value in Indian currency [$23,300 x 83] [Rate of exchange notified by the CBIC shall be considered.] 19,33,900 Add: Materials and components supplied by the buyer free of cost [Includible in assessable value.] 50,000 Customs FOB 19,83,900 Add: Air Freight [If the goods are imported by air, the freight cannot exceed 20% of FOB price] 3,96,780 Add: Insurance paid to the insurer in India 3 [Includible in assessable value.] 6,000 CIF value/ Assessable value 23,86,680 Note: Development work undertaken in India is not includible since it is undertaken in India. 3 It has been most logically assumed that the insurance charges paid to insurer in India in Indian Rupees pertain to the insurance of goods till the place of importation and thus, have been included in the CIF value of goods. However, it is also possible to assume that since such charges are paid to insurer in India, they pertain to the insurance of goods post importation. In that case, they shall not be included in assessable value at all; further, since insurance charges till the place of importation become unascertainable, insurance @ 1.125% of Customs FOB shall be added while computing the CIF value/ assessable value.

Topics: Customs: Valuation under the Customs Act, 1962

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