CLASS VIII: CUSTOMS

VALUATION

Umesh Raj Pandeya

Chapter Outline
 This Class covers:
 Import Valuation
 Valuation Principle
 Specific Rules for Customs Valuation when Transaction Value is
not correctly declared
 Valuation of Airfare, Insurance and Freight, etc.
 Provisional Valuation
 Base date for valuation and base date for using customs rate
 Export Valuation
 Valuation Principle

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Import Valuation Principle
 The rules on customs valuation, annexes and
interpretative notes set forth in the Agreement on
Implementation of Article VII of the General Agreement
on Tariffs and Trade 1994 shall be pursued in
determining the customs value of imported goods
(Sec. 13 subsection 1)

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Hierarchy of Valuation Method- Flowchart

1
• Transaction Value declared by the importer for the goods being imported

2
• Transaction Value of Identical Goods

3
• Transaction Value of Similar Goods

4/5
• Deductive Value Method

5/4
• Computed Value Method

6
• Best Judgment of Customs Officer

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Transaction Value of Goods
 “Transaction value" means the total amount to be set by adding freight, insurance and
other related costs incurred or incurable in the transportation of goods imported by an
importer up to the border of Nepal to the price actually paid or payable, directly or
indirectly, by the importer to the seller of such imported goods
 The customs value of goods to be imported shall be determined on the basis of the
transaction value of such goods
 The importer shall declare the transaction value, attaching therewith the description and
documents proving the value of goods imported
 If the transaction value declared by the importer is in conformity with WTO Valuation
principle, the Customs Officer shall determine the customs value of the goods on the
basis of such transaction value.
 If such transaction value does not appear to include freight, insurance and other related
expenses, the Customs Officer shall determine the transaction value by adding an
estimated amount likely to be incurred for the same, for which the Director General may
prescribe bases for fixing the estimated amount

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Customs Officer empowered to determine
Freight, insurance and other Associated Cost
 Where, owing to a circumstance beyond his or her control, an
importer is not able to forthwith submit documents of cost,
insurance or related costs incurred in the importation of any
goods, the importer may submit an application, accompanied
by the reason for the same, to the Customs Officer for the
fixation of the estimated amount of such freight, insurance or
other related expenses
 Where, in inquiring into the application referred to above, the
contents appear to be reasonable, the Customs Officer may fix
the estimated amount for freight, insurance or other related
expenses likely to be included in the transaction value of such
goods.

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Customs Officer empowered to determine
Freight….
 The concerned importer shall submit documents and evidence
relating to the actual freight, insurance and other related expenses no
later than ninety days after the date of fixation of the estimated
amount of freight, insurance or other related costs. If the amount set
forth in the documents and evidence so submitted is more than the
amount estimated by customs officer, the importer shall pay the duty
chargeable on such excess value, and if it is less than that, the
Customs Office shall refund the remaining amount, upon deduction of
the chargeable duty, to the importer.
 Where the concerned importer fails to submit documents and
evidence within the 90 days period as referred above or unless it is
proved otherwise, the estimated amount fixed by the Customs Officer
shall be considered as the final amount of such freight, insurance or
other related costs
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Air freight of Goods
 While declaring the transaction price for the purpose of determining import duty (u/s 13), the importer importing
goods using air route for commercial purpose shall explicitly disclose price of goods, freight and insurance cost.
 In case of freight, the higher of the following amounts will be considered for the purpose of valuation:
 Amount declared by Importer, or
 Amount mentioned in airway bill
 In case airway bill does not disclose the freight amount and there is reasonable circumstance to believe that
freight declared by the importer is less than the actual, the Customs Officer shall determine customs value by
estimating a reasonable amount as airfare, for which the officer can obtain the information from the concerned air
transport operator
 The concerned air transport operator shall provide the true and correct details of levied freight or freight to be
levied, as and when the officer desires to obtain such information
 In case the freight amount mentioned in airway bill and that paid to air transport operator are different, the customs
officer may accept the amount mentioned in receipt issued by operator as authentic and use the same to calculate
the amount of customs value.
 Notwithstanding anything explained above, if the air freight is prescribed by DG; the same shall be considered for
customs valuation purpose.

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Where the transaction value declared by
Importer is suspicious
 If there is a reasonable ground to believe that the value
declared by the importer is doubtful, the Customs Officer may
ask the importer to produce additional documents or evidence
in writing to prove that such value is the actual transaction
value. It shall be the responsibility of such importer to provide
documents so asked
 If the customs value of any goods cannot be determined on the
basis
of the transaction value declared by the importer or the bills,
invoices and documents submitted by the importer, the
Customs Officer shall give a notice, accompanied by the reason
for the same, to the concerned importer.

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The Alternative Valuation Methods
 The following are the alternative valuation methods,
which shall be applied one after another in the
following hierarchy:
 Transaction Value of Identical Goods
 Transaction Value of Similar Goods

 Deductive Value Method

 Computed Value Method

 Fair Judgment Method

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Transaction Value of Identical Goods
 Meaning of Identical Goods
 “Identical goods” means goods which are the same in all respects,
including physical characteristics, quality and reputation.
 Further tests on identical goods include the same country of origin and
the same producer
 14 carat gold bar produced in the same country by same producer are identical
goods
 Examples of identical goods are steel sheets of identical chemical composition,
finish and size, imported for automobile bodies in one case and for furnace
lining in another; wallpaper imported by interior decorators and wholesalers etc.
 Internationally, the definition of identical goods excludes imported goods
for which engineering, Development, artwork, design work, plans or
sketches are undertaken in the country of importation and are provided
by the buyer to the producer of the goods free of charge or at a reduced
cost.
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Transaction Value of Identical Goods
 If the customs value cannot be determined on the
basis of the transaction value of the same goods
declared by the importer, the customs duty of such
goods shall be determined on the basis of the
transaction value of identical goods already imported
into Nepal prior to the import of such goods

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Transaction Value of Similar Goods
 Meaning of Similar Goods
 “Similar goods” means goods which, although not alike in all respects, have like
characteristics and like component materials which enable them to perform the same
functions and to be commercially interchangeable .
 Further tests on similar goods include the same country of origin and the same
producer, but when the similar goods from same producer is not available similar
goods from different producer is considered
 An example of similar goods is interchangeable rubber tubes imported from two
different producers with different trademarks but of the same standard, quality and
equivalent reputation as well as similar characteristics, components and functions for
use by motor vehicle manufacturers. Normal grade sodium peroxide for bleaching
and special grade pure sodium peroxide for analytical purposes are not similar goods
as they have different specifications and are not interchangeable
 Internationally, the definition of similar goods excludes imported goods for which
engineering, Development, artwork, design work, plans or sketches are undertaken in
the country of importation and are provided by the buyer to the producer of the goods
free of charge or at a reduced cost.

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Transaction Value of Similar Goods
 If the customs value cannot be determined even after
applying the basis of the transaction value of the
identical goods, the customs duty of such goods shall
be determined on the basis of the transaction value of
similar goods already imported into Nepal prior to the
import of such goods

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Deductive Value Method
 Valuation under Deductive Value Method
 Conditions to be fulfilled:
 the customs value cannot be determined on the basis of the transaction value of
similar goods and
 such goods have already been imported into Nepal and sold at market to a person
who is not related to the importer,
 Method of Determination of Duty:
 the selling price of each unit of the sales in the greatest aggregate quantity in Nepal
less:
certain specified expenses resulting from the importation and sale of the goods (the
tax, duty levied in Nepal and other related costs and profits)
 This method is used in the hierarchical order when the value could not
be determined through transaction value of similar goods

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Computed Value Method
 Computed value shall consist of the sum of:
 the cost or value of materials and fabrication or other processing employed in
producing the imported goods;
 an amount for profit and general expenses equal to that 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 exportation for export to the country of importation;
 the cost or value of all other expenses necessary to reflect the valuation option
chosen by Nepal
 Method of determining the value:
 calculating the costs incurred in the production or manufacturing of such goods and
profits made or likely to be made by the seller while selling such goods to the
importer
 It is applied in the hierarchical order when the value cannot be determined
applying Deductive Value Method

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Use of Computed Value Method before
Deductive Value Method
 If the importer makes a request for the determination
of customs value by adopting the procedures of
Computed Value Method prior to adopting the
procedures of Deductive Value Method, the Customs
Officer may determine the customs value in
accordance with the Computed Value Method

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Best Judgment of Customs Officer
 If the value cannot be determined even after applying
any of the methods explained above, Customs Officer
shall so determine the customs value of such goods on
a reasonable basis as not to be contrary to the
provisions of the Customs Act

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Valuation of Goods under Luggage and
Baggage Order and Gifts- Special provision
 In the following two cases, the customs officer may determine a
reasonable customs value of such goods, if
 the owner of the goods imported under the Baggage Order for
personal purposes makes an application for the valuation of such
goods, showing the reason for failure to indicate the transaction value
thereof (or such goods are submitted without indication of value) and
if the Customs Officer considers the matter to be appropriate
 The owner who receives goods as a gift or specimen and imported
from a foreign country or relief materials makes an application for the
valuation of such goods, showing the reason for failure to indicate the
transaction value thereof (or such goods are submitted without
indication of value ) and if the Customs Officer considers the matter to
be appropriate

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Penalty against declaring low value of
Goods
 If the value declared by an importer to determine the
transaction value of the good so imported is less than the
customs value determined by the Customs Officer pursuant
to law, the Customs Officer may do the following in relation
to such goods:
 Clearing such goods by collecting fifty percent additional
customs duty on such difference value, or
 With the prior approval of the Director General, purchasing, or
causing to be purchased, such goods in a manner to pay the
amount to be set by adding five percent amount to the value
so declared to the importer

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DG’s power to give an order of
reassessment of value
 In case it is found that the customs value determined by the
Customs Officer was found determined without following the
method and procedure mentioned in Section 13 or there is a
valid reason to believe that the amount determined is doubtful,
the Director General shall give an order to reassess the amount
pursuant to Section 13.
 Director General shall give an order within ninety days from the
date of clearance of such goods
 Where an order is received as above, Custom Officer shall
reassess the customs value after conducting necessary
investigation and inform thereof shall be provided to the
Director General within thirty days.

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Currency of Import Valuation (sec. 13
(16))
 The customs value shall normally be determined in a foreign currency
 Where the valuation of goods on which the duty has to be paid at the time of
import is made in a foreign currency, the conversion of such currency into
Nepalese rupees shall be made according to the selling rate of foreign
currency prescribed by the Nepal Rastra Bank and prevailing on the day in
which
 the declaration form is registered in customs office or
 the declaration form is received in customs office in electronic medium through the
computer system of such goods.
 In the case of a foreign currency of which exchange rate is not prescribed by
the Nepal Rastra Bank, such foreign currency shall be converted into
American dollars, and the selling rate of American dollars shall be taken as the
basis.

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Base Date to levy Rate of Import Duty
(Sec. 8)
 Latter of following dates:
 the date on which the declaration form of such goods is
registered in the Customs Office or received in customs office
in electronic medium through the computer system, or
 where the declaration form has been registered in the Customs
Office or received in customs office in electronic medium
through the computer system, prior to the arrival of goods at
the Customs Office, the date of arrival of such goods at that
Office.

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Determination of Duty before arrival of
Goods at Customs Premise (Sec. 24)
 If any importer wishes to pay the duty chargeable on any goods to be
imported prior to the arrival of such goods at the concerned Customs Office,
the importer may, for that purpose, make an application, accompanied by the
declaration form to the Customs Officer.
 If, on examination of the application so received, it appears reasonable to
collect the duty, the Customs Officer may determine the duty.
 If the rate of duty determined ABOVE or the exchange rate of convertible
foreign currency prevailing on the day of payment of duty differs from that
prevailing on the day of clearance of goods, the rate prevailing on the day
of clearance of goods shall be applied.
 After those goods in respect whereof the duty has been paid as above have
arrived at the Customs Office, the Office shall complete necessary procedures
and make clearance of such goods with priority

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Conflicting provisions
 Sec. 8- rate prevailing on the date of registration of PP
through hardcopy of through electronic means should be
applied and where goods arrive latter, the rate prevailing on
the date of arrival of goods
 Sec. 13 (16): exchange rate applicable on the date of
registration of PP either in hardcopy of through electronic
means is applicable
 Sec. 24: Where there is advance payment of duty before
the arrival of goods, duty to be recovered applying rates
(both import and exchange) prevailing on the date of
customs clearance

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 VALUATION OF GOODS
UNDER DIPLOMATIC, DUTY
PRIVILEGE ON SUBSEQUENT
SALES

Calculation of duty on subsequent auction

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Base date for using Customs Rate (S. 8)

 In the case of goods imported under the diplomatic

facility, duty facility or partial or full exemption,
according to the tariff prevailing on the date of
payment of duty of such goods (Sec. 8 (2) (a))

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Exchange Rate- Base Date
 In converting the customs value of the goods of which
duty is paid subsequent to the importation thereof
under the diplomatic facility, duty facility or full or
partial exemption of duty, such conversion shall be
made according to the selling rate of foreign currency
which is prescribed by the Nepal Rastra Bank and
prevailing on the day of payment of the remaining duty.
(Proviso to Sec. 13 (16) of Customs Act)

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60% exemption on Rate
 In the following cases and where the conditions as follows are satisfies, there shall be
exemption of 60% of customs rate at the time of collection of duty when such
imported vehicles, equipments or goods are sold, or gifted away or used for own
purpose:
 Cases
 Import of vehicles, equipments or goods under diplomatic privilege
 Import of vehicles, equipments or goods under full or partial duty privilege
 Import of vehicles, equipments or goods by collecting 1% duty as per the decision of GON
 Import of vehicles, equipments or goods under record or bank guarantee facility
 Conditions
 Five years time period from the date of import must be elapsed, and
 Where the diplomatic or duty privilege was provided to a natural person, this facility is
available on his behalf for only one time during his tenure in Nepal
 The remaining duty after deducting already paid import duty (i.e. Customs Valuation *
Customs Rate * 60% minus customs already paid) shall be payable at the time of sales,
gifting away or using it for own purpose

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Valuation Method
 Eligible Goods:
 Vehicles or equipments imported under diplomatic privilege or duty privilege
 Vehicles or equipments imported in the name of projects, contractor of projects or consultants
in complete or partial duty exemption or bank guarantee or cash deposit under the condition to
subsequently re-export such goods
 Vehicles or equipments imported under partial or complete duty exemption in the name of
organization/association
if
 Subsequently gifted away in Nepal or sold or kept for the own use by the importer
The value to levy import duty at the time of sales, gifting away or using for own purpose shall be
determined as follows:
 Value determined on Import of such goods
Less: Depreciation @ 10% p.a. for maximum period of 5 years
 The period of five years shall be determined from the date of manufacturing of such goods and
the period of use in foreign country shall be deducted while determining the depreciation of
such goods as above

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Valuation Method
 Eligible Goods:
 Vehicles or equipments imported under diplomatic privilege or duty privilege
 Vehicles or equipments imported in the name of projects, contractor of projects or consultants
in complete or partial duty exemption or bank guarantee or cash deposit under the condition to
subsequently re-export such goods
 Vehicles or equipments imported under partial or complete duty exemption in the name of
organization/association
if
 Subsequently gifted away in Nepal or sold or kept for the own use by the importer
The value to levy import duty at the time of sales, gifting away or using for own purpose shall be
determined as follows:
 Value determined at the time of import of such goods
Less: Depreciation @ 10% p.a. for maximum period of 5 years
 The period of five years shall be determined from the date of manufacturing of such goods and
the period of use in foreign country shall be deducted while determining the depreciation of
such goods as above

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Valuation of vehicles imported on duty
exemption for personal purpose
 In case the vehicles imported under partial duty exemption
for personal purpose on personal capacity are to be sold or
transferred, the value shall be determined as:
 Value determined at the time of import of such goods
Less: Depreciation @ 10% p.a. for maximum period of 5 years
 Where the period of 10 years from date of import elapsed;
value = Value determined at the time of import less 60% of
such value (as depreciation)
 The period of five years shall be determined from the date of
manufacturing of such goods and the period of use in foreign
country shall be deducted while determining the depreciation
of such goods as above
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Confiscation of Goods imported under
privileges for specific purpose
 In case vehicles, equipments or other goods imported for specific
work or purpose on temporary basis with the condition to
subsequently re-export such goods under record or bank guarantee
facility are not returned back within 3 months of the end of defect
liability period or maintenance period of the contract; such goods shall
be confiscated immediately after the elapse of such three months
period except in following case:
 when duty is already paid as a result of gifting away or sales or declaring to
use for own purpose
 Where the goods were imported under bank guarantee facility, such
guarantee would be invoked to book the amount as revenue.
 In case a person provides information to confiscate the goods
explained above, the person will be entitled to 10% of the amount
received from auction as prize money.
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Question
 Michael, diplomat working in UN, imported a vehicle
(valuation on import: USD 20000) under diplomatic
privilege on 11th Asar 2072. His mission auctioned such
vehicle on 10th Jestha 2074. Determine the value of
customs duty payable by the person accepting such
auction on the basis of following information:
 Rate of duty at the time of import: 80%
 Exchange Rate at the time of import: Rs. 88/US$
 Rate of duty for 2073/74: 60%
 Exchange rate as on 10th Jestha 2074: Rs. 110.8/US$
Would your answer be different if the vehicle was imported
before 9th Jestha 2069?
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