New valuation rules introduced for specified goods

By Reena Asthana Khair, Kochhar & Co.
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The Customs (Assistance in Value Declaration of Identified Imported Goods) Rules, 2023 (rules), read with section 14 of the Customs Act, 1962, identify undervalued imports that should be investigated further. Undervaluation leads not only to evasion of customs duty but also to unfair competition. Even if few traders import consumer items at lower prices, other importers have to follow to remain competitive. Undervaluation is difficult to detect, as the prices of consumer products vary according to factors such as make, model and specifications.

Reena Asthana Khair
Reena Asthana Khair
Senior partner
Kochhar & Co.

The rules set up a mechanism to identify routinely undervalued goods and to require the importer to supply specified details. Customs authorities can then assess the correct value. This will benefit exporters in Japan by preventing unfair competition from countries exporting undervalued goods. Conversely, Japan companies may suffer delays to and higher duties on their exports if they are not able to give additional information and documents as required.

The process is triggered by a written reference from a person who believes the value of imports has not been declared truthfully. References will likely be from competitors importing at higher prices or local producers affected by undervalued imports. References can also be made by customs officers and government departments.

If, on preliminary examination, the screening committee finds cause for further enquiry, the evaluation committee may examine information from any source, including international price data, stakeholder consultation or disclosure and reports, research papers and open-source intelligence from the source country. The committee may look at the cost of manufacture and assembly. After the review, the evaluation committee will report to the screening committee whether, on a balance of probabilities, the value of the goods has been declared accurately. Undervalued goods are to be identified under the harmonised system nomenclature or even by brand. The committee will specify a precautionary unit value to be used by the customs automated system in imposing additional obligations on the importer. These include declarations in the bill of entry of specifications such as make, model, brand, grade, size and quality. Documents may be demanded, such as manufacturers’ invoices and test reports, certification issued in the country of origin, purchase orders and contracts.

On receiving the report, the screening committee may close the reference or make detailed recommendations to the central customs board. If the board supports the recommendations, it will issue a notification identifying the goods and the required declarations.

The process is welcome, as undervaluation prevents honest importers competing. Through incomplete particulars, importers conceal the true value of imported goods, evading duty. Traders match each other’s low prices, creating evidence of undervaluation for a class of goods. Transactions are difficult to combat at an individual level and the whole class of goods must be examined for undervaluation. Undervaluation often floods the market with sub-standard products, imported at low prices, evading customs duties and destroying local industry.

There are flaws in the framework. While the evaluation committee may consider further information through stakeholder consultation or disclosure, it is not obliged to do so. A report may be based on one-sided information from a competitor. The assessing, auditing and investigating officers may feel bound by the precautionary unit value set by the customs automated system, leaving no room for independent adjudication or a finding of lesser value, especially for stock lot imports.

The order of the board is valid for one to two years, subject to review by the screening committee. The grounds for review are not specified. Prices of commodities may be very volatile, something the rules do not fully address. An importer may find it difficult to obtain such documents as certificates detailing manufacturing processes or manufacture and assembly costings. These may be business confidential with Japan exporters not wanting to jeopardise future negotiating positions through disclosure.

Failure to supply information may lead to rejection of the declared value, with customs duties charged on a higher figure. This will reduce the competitiveness of Japan exports.

Reena Asthana Khair is a senior partner at Kochhar & Co.

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