Findings of Market Enquiry of Export goods often gets into debate arena if not termed controversial. If you have been into Export Import for a while now or, been associated with Customs in any way, you must be familiar with ‘Market Enquiry’ thing. This makes an essentials part of entire value related investigations under Customs Act 1962.
Lets go through the various aspects relating to the Market Enquiry. A thorough read at one hand, would make the trade more informed while at the other hand, persons into enforcement would find themselves more empowered.
What is Market Enquiry?
By the way of market enquiry, the market price of the export goods is ascertained. The market price is defined in Section 2(30) of the Customs Act 1962, reads as under :-
“Market price’’ in relation to any goods means the wholesale price of the goods in the ordinary course of trade in India.”
The market enquiry for ascertaining the market price or value of the exports goods is done under the provisions of Section 14 of the Customs Act, 1962 read with Rule 6- Residual method of Customs Valuation (Determination of Value of Export Goods) Rules 2007.
Rule 6- Residual method
When value cannot be determined by any of the method i.e Rule 4 and 5, the same can be determined by Rule 6- Residual method which says that local market price of the goods can be one of the way to determine the prices of export goods, but same cannot be only basis for determining the price of the export goods and same shall be consistent with the provisions of general rules of valuation.
It clearly says that the market price to be ascertained in the wholesale market and not in the retail market. The presence of any extraordinary condition/situation such as curfew, shortage of particular goods, tightness of money market will vitiate the proceedings of market enquiry and same will be rendered void.
Application of Rule 6 for Market Enquiry
Now the question comes for consideration that when this rule is required to be applied, the answer is when the declared value by the exporter under Rule 8 of Customs Valuation (Determination of Value of Export Goods) Rules 2007 comes for scrutiny for the reason of doubt regarding truth and accuracy, then on reasonable ground the declared value is rejected after following due procedure. The process of rejection cannot based on arbitrariness and whims and fancy of proper officer but decision shall be coupled with reasonable belief and having sound and reasonable ground which can be one as and same would be determined only by applying sequentially Rule 4 and Rule 5, when the true and correct value cannot be ascertained by said Rules.
Need for Market Enquiry
As a general rule, FOB value of the export goods shall remain the basis for extending the drawback benefit and other export benefit such as MEIS and other chapter 3 benefits of FTP, since FOB value is recognized as the basis of export transactions both in the EXIM Policy as well as in the Customs Act, 1962. The value has been defined in section 2(41) of the Customs Act,1962 which reads as under;
Section 2(41) -‘Value’ in relation to any goods means the value thereof determined in accordance with the provisions of sub-section (1) of Section 14.
It means that value is required to be determined in terms of vires of Section 14(1) of the Customs Act,1962.
The applicability of the Section 14 to export goods was affirmed by landmark judgments of CEGAT’s Larger Bench in the matter of Om Prakash Bhatia v. Commissioner of Customs, Delhi vide 2001 (127) E.L.T. 81, wherein Hon’ble CEGAT held that Section 14 of the Customs Act would apply to export goods for valuation.
Only in Cases of Suspected Overvaluation
However, in cases of specific intelligence that the declared FOB value is inflated or there is evidence confirming such over-valuation, the field formations should resort to market verification to ascertain the correct market price of the goods. In addition to above, market verification can also be initiated on receipt of intelligence or where the intelligence is gathered in respect of consignments entered for export to sensitive destinations and/or where the goods are sub-standard and it appears that the acceptance of the declared value would result in accrual of substantial unintended drawback benefits and other export benefits. But all such cases should be taken up for investigation only with the express written approval of the Commissioner of Customs. The power of the same is traced to Board Circular No. 77/2002-Cus., dated 27-11-2002.
SIIB to Conduct Market Enquiry
Vide the mandate of Board Circular 56/2002-Cus dated 09.09.2002, market enquiry is specifically assigned to SIIB of the Custom House and not to the Assessing Officer.
Limitation in Conducting Market Enquiry
The Board Circular 56/2002-Cus dated 09.09.2002 mandates that market enquiry and final view thereof must be completed in 30 days, however with the permission of Commissioner of Customs , the same may be extended upto 90 days from the date of the S/Bill.
If upon enquiry, any discrepancy in respect of value is noticed, the show cause notice(SCN) must be issued within extended period of 90 days . However, subject to satisfaction of the Commissioner of Customs, enquiry may be extended by him from the period of 3 months till further period as deemed necessary after recording the reasons thereof. The extension can be granted for the reasons of fraud/misstatement/suppression of facts/collusion.
Determination of PMV not the Declared FOB Value
By market enquiry, the PMV is re-determined not the declared FOB value as the FOB value is contracted price, which is paid or payable to consignee/overseas buyer, and that cannot be amended, therefore in case of suspected overvaluation PMV is re-determined to ascertain the admissibility of drawback and other export incentives. Hence, the exporters should declare the present market value (PMV) of the goods in every case. Further, if during examination of the goods, it was suspected that the declared values are on the higher side or the goods appear to be sub-standard then the sample shall be drawn with the approval of the Assistant Commissioner and careful market verification may be carried out. In this context, Board Circular No. 7/2003-Cus., dated 5-2-2003 can be referred to.
Procedure to be Followed During Market Enquiry
(a) Before proceeding to re-determination of Market Value of the export goods, the SIIB officer shall issue a query memo to the exporter specifying reasons for doubt of market value. Rejection of declared value would follow due process of law and issue appealable order.
(b) Samples in triplicate would be taken under seal and signature of the Customs officer countersigned by Authorized representatives of exporter and two independent Panchas. One set of the sample shall be used for Market Enquiry, Second for Lab testing if required and third for record purpose.
(c) In presence of authorized representative of Exporter, market survey shall be conducted by the SIIB officer by showing the sample earmarked for market enquiry to the vendors in a whole sale market.
(d) With at least three wholesale vendors, market enquiry shall be conducted .
(e) After conducting Market enquiry, a Market Enquiry report shall be prepared by the SIIB officer and the same shall be countersigned by the authorised representative of the exporter as a token of witnessing and consenting the market enquiry.
Precautions to be Exercised During Market Enquiry and Investigation thereof
Presence of authorized representative of Exporter during market survey shall be ensured. Without giving notice to exporter, conducting market survey has no evidentiary value. The same view was held in M/s Siddachalam Exports Private Ltd Vs CCE, Delhi (Dated: April 1, 2011). In the said decided case by Hon’ble SC, it was observed that extant valuation rules of 1988 must be followed sequentially and in the event on non-observance of said Rules, the case was remanded back to lower authority for fresh adjudication.
Further, during investigation and specifically during recording of statement of exporter/his authorized representative, due care shall be taken and reasons recorded regarding non-application of Rule 4 and 5 and correspondingly there must be admission by the exporter in respect of non-applicability of Rule 4 and 5 in order to arrive at Rule 6. It is desired that during statement there should be cogent admission by the exporter regarding correctness of market value.
Burden of Proof of Valuation is on Department
It is golden rule that one who makes allegation heavy burden lies on his shoulder to prove and establish the allegation.
In line with this principle the burden of establishing correct value is on department. Burden to establish that the value mentioned by the exporter is incorrect lies on the department. The mis-declaration of value ascertained after market survey render the goods liable to confiscation under Section 113(i) and 113(ii) of the Customs Act,1962 and attracts penalty under 114 of the Customs Act.
Market Enquiry Should not be Conducted in Routine Manner
Market enquiry shall be resorted in such cases where it is conclusively proved through verification that the declared FOB value had been artificially inflated/manipulated by the exporter to avail of unintended higher drawback and other export benefits, the cases shall be investigated and decided on merits in terms of Sections 14 and 113 read with Sections 76(1)(b) and 114 of the Customs Act, 1962.
It must be ensured that the market verifications are not resorted to in a routine manner and should be undertaken only on the basis of information/intelligence and/or prima facie evidence which should be first recorded and thereafter, orders of Additional Commissioner/Joint Commissioner or in their absence, Commissioner’s be obtained to do market verification. Administrative authorities should also ensure that market verifications are expeditiously concluded and no harassment is caused to the Trade nor are any exports held up due to such exercise. In this context Circular No. 7/2003-Cus., dated 5-2-2003 may be referred to.
In view of the above, it is directed to exercise proper discretion and vigilance while initiating market enquiries. Enquiry should be ordered only in such cases where prima facie the restrictions placed by Section 76(1)(b) would be violated and the declared FOB value is many multiples of the true PMV of the export product. PMV enquiries which do not yield any desirable results would only raise the transaction time and transaction cost of the exporters, which should be avoided and would be against the spirit of ease of doing business.(Circular No. 74/2000, dated 7-9-2000 may be referred to)
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