Chap_18

FOB Price	Yen	9,00,000
Add – Ocean Freight	Yen	18,000
Add – Insurance charges	Yen	9,000
Add - Design and consultancy charges	Yen	90,000
Add –Packing Charges	Yen	22,000
Total CIF Price	Yen	10,39,000
CIF @ Rs 0.302 = 1 Yen			Rs	3,13,778.00
Add – Landing charges @ 1%			Rs	3,137.78
Assessable Value			Rs	3,16,915.78

Calculation of duty payable is as follows -
		Duty Rate %	Amount Rs	Duty Rs
(A)	Assessable Value Rs		316,915.78
(B)	Customs Duty	20		63,383.16
(C)	Sub-total for calculating CVD (A+B)		380,298.94
(D)	CVD as % of C	16		60,847.83
(E)	Education cess of excise - 2% of 'D'	2		1,216.96
(F)	Sub-total for calculating Edu Cess (B+D+E)		125,447.95
(G)	Education Cess of Customs (2% of 'F')	2		2,508.96
(H)	Sub-total for Special CVD (C+D+E+G)		444,872.69
(I)	Special CVD (4% of 'H')	4		17,794.91
(J)	Total Duty Rs B+D+E+G			145,751.82
(K)	Total duty (rounded)			145,752.00

A manufacturer can avail Cenvat credit of duty as specified in columns D (i.e. CVD), E (education cess of excise) and I i.e. Spl CVD.

Q 5 Infotech Limited has imported a machine from Japan at an FOB cost of 50,000 yen (Japanese). The other expenses incurred are as follows: (i) Freight from Japan to Indian Port 5,000 yen. (ii) Insurance paid to insurer in India Rs. 2,500. (iii) Designing charges paid to consultancy firm in Japan 7,500 yen. (iv) M/s Infotech spent Rs. 25,000 in India for development work connected with the machine. (v) Transportation cost from Indian Port to factory Rs. 7,500. (vi) Central Government had announced exchange rate of 1 yen = Rs. 0.40 by Notification under Section 14(3) of the Customs Act, 1962. The exchange rate prevailing on that day in the market was 1 yen = Rs. 0.4052. (vii) M/s. Infotech made payment to the Bank based on an exchange rate of 1 yen = Rs. 0.4150. (viii) The Commission payable to the agent in India was at 5% of the FOB price in Indian Rupees. The rate of Customs duty is 20%. Similar goods are subject to 16% excise duty in India. Education cess on duty is 2%. Special CVD under section 3(5) of Customs Tariff Act is applicable. Clearly showing your workings to arrive at the total Assessable value in Rupees for purposes of Levy of Customs duty. How much Cenvat can be availed by importer, if he is manufacturer? [CA Final November 2002 - adapted]

Ans - Not solved, as it is exactly as per aforesaid example.

Q 6 M/s. Premium Industries Ltd., has imported a machine from Japan at an F.O.B. cost of 1,00,000 Yen (Japanese). The other expenses incurred were as follows : (i) Freight from Japan to Indian Port 10,000 Yen; (ii) Insurance paid to insurer in India Rs. 5,000; (iii) Designing Charges paid to consultancy firm in Japan 15,000 Yen; (iv) M/s Premium Industries Ltd. spent Rs. 50,000 in India for development work connected with the machine, (v) Transportation cost from Indian port to Factory Rs. 15,000; (vi) Central Government has announced exchange rate of 1 Yen = Re. 0.40 by notification under section 14(3). However the exchange rate prevailing in the market was 1 Yen = Re. 0.4052 (vii) M/s Premium Industries Ltd. made payment to the bank based on exchange rate of 1 Yen = Re. 0.4150, (viii) The commission payable to the agent in India was @ 5% of F.O.B. price in Indian Rupees. - . - The rate of custom duty is 20%. Similar goods are subject to 16% excise in India. Education cess on duty is 2%. Special CVD under section 3(5) of Customs Tariff Act is applicable. Find the custom duty and other duties payable. How much Cenvat can be availed by importer, if he is manufacturer? [ICWA Inter June 2000 adapted]

Ans - Not solved, as it is exactly as per aforesaid example.

Q 7 Calculate the total Customs duty liability from the following data: - Product imported from France : Gears * C.I.F. value in French Franc : 20,000 * Exchange rate : 1 FF = Rs. 6.25. * Additional Information : (1) C.I.F. value includes Air Freight of 2,000 FF’s and Insurance of 200 FF. (2) Basic Customs duty : 20% (3) Excise duty chargeable on similar goods in India is 16% as per tariff rate. However, as per an exemption notification the effective rate is 8%. (4) Education cess on duty – 2%. (5) Special CVD under section 3(5) of Customs Tariff Act is applicable. [ICWA Inter December 2000 adapted] How much Cenvat can be availed by importer, if he is manufacturer?.

Ans - Not solved, since similar.

Q 8 ‘A’ imports by air from USA a Gear cutting machine complete with accessories and spares. Its HS classification is 84.6140 and Value US $ f.o.b. 20,000. - - Other relevant date/information: (1) At the request of importer, US $ 1,000 have been incurred for improving the design, etc. of machine, but is not reflected in the invoice, but will be paid by the party. (2) Freight - US $ 6,000. (3) Goods are insured but premium is not shown/available in invoice. (4) Commission to be paid to local agent in India Rs. 4,500. (5) Freight and insurance from airport to factory is Rs. 4,500. (6) Exchange rate is US $ 1 = Rs. 45. (7) Duties of Customs : Basic – 20% CVD – 16% Education cess on duty – 2%. Special CVD under section 3(5) of Customs Tariff Act is applicable. - - Compute (i) Assessable value (ii) Customs duty. How much Cenvat can be availed by importer, if he is manufacturer? [ICWA Inter December 2002 adapted]

Answer 8 (i) Computation of Assessable Value

FOB Value of Machine US $	$	20,000
Add: Expenditure for improving design	$	1,000
Add - Freight limited to 20% of FOB [Rule 9 (2)]	$	4,000
Insurance @ 1.125% of FOB [Rule 9(2)c(iii)]	$	225
Sub-Total	$	25,225
Sub-Total In Rs @ Rs 45 per Rupee			Rs	11,35,125
Add - Agents Commission [Rule 9(1)(i)]			Rs	4,500
Total CIF Value			Rs	11,39,625
Add – Landing charges 1% of CIF			Rs	11,396
Assessable Value			Rs	11,51,021

Duty payable will be as follows –

Calculation of duty payable is as follows -
		Duty Rate %	Amount Rs	Duty Rs
(A)	Assessable Value Rs		1,151,021.00
(B)	Customs Duty	20		230,204.20
(C)	Sub-total for calculating CVD (A+B)		1,381,225.20
(D)	CVD as % of C	16		220,996.03
(E)	Education cess of excise - 2% of 'D'	2		4,419.92
(F)	Sub-total for calculating Edu Cess (B+D+E)		455,620.15
(G)	Education Cess of Customs (2% of 'F')	2		9,112.40
(H)	Sub-total for Special CVD (C+D+E+G)		1,615,753.55
(I)	Special CVD (4% of 'H')	4		64,630.14
(J)	Total Duty Rs B+D+E+G			529,362.69
(K)	Total duty (rounded)			529,363.00

A manufacturer can avail Cenvat credit of duty as specified in columns D (i.e. CVD), E (education cess of excise) and I i.e. Spl CVD.

Q 9 - Determine the total Customs Duty payable from the following data - Quantity imported : 100 MTs, FOB value : Swiss Franc : 10000, AIR Freight : Swiss Franc : 2500, Insurance : Data not available, Exchange rate : 1 Swiss Franc = Rs. 34, Rate of BCD 30%, Rate of Cenvat under First Schedule to CETA : 16%, Rate of SED under Second Schedule to CETA : 16%, Rate of AED (GSI) under Additional Duties of Excise (GSI) Act : Rs. 10/kg, Rate of NCCD 1%, Education cess – 2% of duty. Special CVD under section 3(5) of Customs Tariff Act is applicable. How much Cenvat can be availed by importer, if he is manufacturer? [ICWA Inter June 2003 adapted]

Answer 9 FOB price is 10,000.00 Swiss Francs. Since air freight is more than 20% of FOB, freight is required to be limited to 20% of FOB i.e. 2.000 SF (Swiss Francs). Since insurance data is not available, insurance cost is to be taken @ 1.125% on FOB, i.e. 112.50 SF. Hence, CIF value is 12,112.50 SF (FOB 10,000 + Freight 2,000 + Insurance 112.50 SF). Add landing charges of 1% of CIF i.e. 121.13. Hence, ‘Assessable Value’ or ‘Customs Value’ is 12,233.63 SF i.e. Rs 4,15,943.25.

The duty calculations are as follows –

Calculation of duty payable is as follows -
		Duty Rate %	Amount Rs	Duty Rs
(A)	Assessable Value Rs		415,943.25
(B)	Customs Duty	30		124,782.98
(B1)	NCCD 1%	1		4,159.43
(C)	Sub-total for calculating CVD (A+B)		544,885.66
(D)	CVD as % of C	32		174,363.41
(E)	Education cess of excise - 2% of 'D'	2		3,487.27
(E1)	AED (GSI) @ Rs 10 per Kg			1,000,000.00
(F)	Sub-total for calculating Edu Cess (B+D+E+E1)		1,306,793.09
(G)	Education Cess of Customs (2% of 'F')	2		26,135.86
(H)	Sub-total for Special CVD (C+D+E+E1+G)		1,748,872.20
(I)	Special CVD (4% of 'H')	4		69,954.89
(J)	Total Duty Rs B+D+E+G			1,402,883.84
(K)	Total duty (rounded)			1,402,884.00

A manufacturer/importer can avail Cenvat credit of duty as specified in columns D (i.e. CVD) and G i.e. Spl CVD.

Notes – (1) Basic Excise Duty (Cenvat) is 16% and Special Excise Duty (SED) is 16%. Hence, CVD, which is equal to excise duty will be 32%. In addition 2% education cess is payable. Hence, total CVD is 32.64% (2) As per Notification No. 77/2003-Cus dated 14-5-2003, NCCD of excise is not required to be considered while calculating CVD.

Q 10 - Determine the assessable value and customs duty amount from the following data: # Name of the raw material—X # FOB value – Euro 1 million # Ocean freight – Actual data not available # Ocean Insurance – Actual data not available # Freight from sea port to godown paid in India Rs. 10,000 # Transit insurance in India – Rs. 2,000 # Selling commission paid to agent in India – 5% # Royalty on manufacture and sale of final product payable to foreign collaborator – 5% # Interest payable on raw material imported at 180 days credit (on FOB value) 12% p.a. # Dividend paid to the foreign supplier of raw material on their equity participation for the year 2001-02 - Rs. 2 per share on 1 million shares of face value Rs. 10/ share. # Importer supplied design and drawings worth Euro 10,000 to the foreign raw material supplier. # Landing charges as per Customs provisions # Customs duty rates : BCD - 20%, CVD - 16%, Education Cess on duty – 2%. Special CVD under section 3(5) of Customs Tariff Act is applicable. # Exchange rate: 1 Euro = Rs. 42. How much Cenvat can be availed by importer, if he is manufacturer? [ICWA June 2002 adapted]

Answer 10 – Since ocean freight is not available, it has to be taken at 20% of FOB. Insurance will have to be taken @ 1.125% of FOB Value.

Royalty on manufacture and sale of final products payable to foreign collaborators has no relation to goods imported. Hence, it is not includible in Assessable Value for customs. Similarly, dividend paid to foreign supplier has no relation with supply of raw materials. It is not includible in Assessable Value.

Interest payable for credit is not includible in assessable value for customs purposes, as it is not part of ‘transaction value’.

Freight from seaport to godown and transit insurance in India are post-importation costs and are not includible.

It is assumed that selling commission to selling agent in India is payable on basis of CIF Value of goods including cost of drawings supplied by buyer.

As per rule 9(1)(b)(iv) of Customs Valuation Rules, cost of engineering drawings is includible only if work was undertaken outside India. Since, payment has been made in Euro, it is assumed that the design and drawing work was done outside India.

Landing charges will be 1% of CIF Value, as per Customs Valuation Rules.

Hence, calculation of customs duty will be as follows –

(A) Value of goods in Euro	10,00,000 Euro
(B) Add – Freight @ 20% of FOB	2,00,000 Euro
(C) Add – Insurance @ 1.125% of FOB	11,250 Euro
(D) Total CIF Value (A+B+C)		12,11,250 Euro
(E) Add designing and drawing charges		10,000 Euro
(F) Total CIF Value		12,21,250 Euro
(G) CIF Value in Rupees @ Rs 42.00		5,12,92,500.00 Rs
(H) Local Agency Commission @ 5%		25,64,625.00 Rs
(I) Total Value		5,38,57,125 Rs
(J) Add – Landing Charges @ 1% of ‘I’		5,38,571.25 Rs
(J) Assessable Value (I+J)		5,43,95,696.25 Rs

Calculation of duty payable is as follows -
		Duty Rate %	Amount Rs	Duty Rs
(A)	Assessable Value Rs		54,395,696.25
(B)	Customs Duty	20		10,879,139.25
(C)	Sub-total for calculating CVD (A+B)		65,274,835.50
(D)	CVD as % of C	16		10,443,973.68
(E)	Education cess of excise - 2% of 'D'	2		208,879.47
(F)	Sub-total for calculating Edu Cess (B+D+E)		21,531,992.40
(G)	Education Cess of Customs (2% of 'F')	2		430,639.85
(H)	Sub-total for Special CVD (C+D+E+G)		76,358,328.50
(I)	Special CVD (4% of 'H')	4		3,054,333.14
(J)	Total Duty Rs B+D+E+G			25,016,965.39
(K)	Total duty (rounded)			25,016,965.00

A manufacturer can avail Cenvat credit of duty as specified in columns D (i.e. CVD), E (education cess of excise) and I i.e. Spl CVD.