Customs valuation determines the value on which import duty is calculated on a bill of entry. Under the WTO Customs Valuation Agreement (adopted in India under Section 14 of the Customs Act), the primary method is transaction value — the price actually paid or payable for the goods when sold for export to India. Adjustments for freight, insurance, assists, and royalties may be required.
Customs Valuation Hierarchy — India
If transaction value cannot be used, customs applies these methods in order:
| Method | Basis | When Applied |
|---|---|---|
| Method 1 (Primary) | Transaction value (invoice price + adjustments) | Almost always — when goods are genuinely sold for export to India |
| Method 2 | Transaction value of identical goods | When Method 1 cannot be used; import of identical goods in same or similar timeframe |
| Method 3 | Transaction value of similar goods | Similar goods when identical not available |
| Method 4 | Deductive value (resale price minus margins) | Based on domestic selling price after import |
| Method 5 | Computed value (cost of production + profit) | Supplier-provided cost breakdown |
| Method 6 | Fall-back (best available data) | Last resort |
What Gets Added to Invoice Price (Additions to Value)
| Addition | Example |
|---|---|
| Freight (if not already in invoice) | FOB invoice: add sea/air freight to get CIF |
| Insurance | If not in invoice: add actual or notional 1.125% of FOB+freight |
| Assists | Dies, moulds, materials supplied free by buyer to supplier for production |
| Royalties and licence fees | If paid as condition of sale and not already in price |
| Proceeds of subsequent resale accruing to seller | Revenue-sharing arrangements where seller gets a % of resale |
Related Party Transactions
When buyer and seller are related (parent-subsidiary, affiliated companies), customs scrutinizes the invoice price more closely. The importer must demonstrate that the relationship did not influence the price — using comparable transaction data, cost-plus analysis, or resale price method.
Special Valuation Branch (SVB)
India's SVB (Special Valuation Branch) investigates related-party import transactions. If SVB is involved:
- Importer must register with SVB and submit financial data on the relationship
- SVB issues an Order-in-Original determining if the transaction value is acceptable
- Pending SVB order: customs provisionally assesses using a loading (extra %) on declared value
- After SVB order: differential duty is paid or refunded
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