Customs Duty in India: How Import Valuation Works
Customs duty in India is calculated on the assessable value, not just the invoice price. For related-party imports especially, valuation gets scrutiny that the invoice amount alone does not survive.
Import duty in India is charged on the assessable value of goods, determined under the Customs Valuation Rules, which are based on the WTO Valuation Agreement. The transaction value -- the price actually paid or payable -- is the primary basis, but it is not automatically accepted at face value, particularly for related-party imports.
What goes into assessable value beyond the invoice price
- Freight and insurance up to the port of import, added to the FOB or ex-works invoice value to arrive at CIF value.
- Certain costs the buyer bears separately but which relate to the imported goods -- assists, royalties tied to the imported goods, and specific commissions -- can be required to be added back even if not on the commercial invoice.
- Landing charges, calculated as a percentage addition in the assessment.
Why related-party imports get extra scrutiny
When the importer and exporter are related (a common structure for foreign companies importing from their own group entities), customs authorities can question whether the transaction value reflects an arm's-length price, since a related-party relationship could influence the price downward. This runs in parallel to, but is a separate exercise from, income tax transfer pricing -- a price that satisfies transfer pricing documentation does not automatically satisfy customs valuation requirements, and the two authorities do not always align.
Where this commonly creates problems
- Group intercompany pricing set primarily for income tax transfer pricing purposes, without separately confirming it holds up under customs valuation rules.
- Free-of-charge or heavily discounted intercompany transfers (samples, spare parts, warranty replacements) where the "value" isn't obvious and needs to be constructed properly rather than declared as nominal or nil.
- Royalty or licence fee payments tied to imported goods that should be included in assessable value but are paid separately and not flagged for inclusion.
The practical approach
For related-party import flows, get the customs valuation position confirmed separately from (though ideally consistent with) the transfer pricing position, and document the basis for the declared value clearly enough to support it if queried at the time of import, not reconstructed after an audit query months later.