Indirect Tax Laws and Practice · Valuation and Related Party Transactions

Customs Valuation Rules 2007: Methods in Order (Rules 4 to 9)

Updated 11 October 2026 · Fact-checked

Under the Customs Valuation Rules, 2007, imported goods are valued at transaction value first. If it cannot be accepted, you move down in a fixed order: identical goods (rule 4), similar goods (rule 5), deductive value (rule 7), computed value (rule 8), then the fallback (rule 9). Use the first method that works.

Understand Customs Valuation (Determination of Value of Imported Goods) Rules

Section 14 of the Customs Act, 1962 says the value of imported goods is the transaction value: the price actually paid or payable when the goods are sold for export to India, where buyer and seller are not related and price is the sole consideration. The Valuation Rules, 2007 add the detail.

Rule 3 says the transaction value, adjusted under rule 10, must be accepted if conditions are met. These include: no restrictions on use or disposal of the goods (other than legal ones, geographical resale limits or those that do not substantially affect value), no unquantifiable condition attached to the sale, no part of resale proceeds accruing to the seller (unless adjustable under rule 10), and no relationship that influenced the price. Where buyer and seller are related, the value is accepted if the circumstances of sale show the relationship did not influence price, or if the importer shows it closely approximates a test value.

If the value cannot be determined under rule 3(1), rule 3(4) says you proceed sequentially through rules 4 to 9. This is the core of the topic. The order is: rule 4 identical goods, rule 5 similar goods, rule 7 deductive value, rule 8 computed value, rule 9 fallback. Rule 6 is the link rule. It sends you from rule 5 to rule 7, and then to rule 8 if rule 7 fails. At the importer's request the order of rules 7 and 8 can be reversed.

Think of it as a ladder. Rules 4 and 5 use prices of other imports (comparison). Rule 7 works backwards from the Indian resale price. Rule 8 works forwards by building up the cost of production. Rule 9 uses reasonable means, flexibly applied, on data available in India. You never skip a rung because another looks easier.

Deductive value starts from a selling price in India and deducts. Computed value starts from the cost of production and adds. This is the usual exam question on how the two differ.

Key rules to remember

Order of methods: Rule 3 (transaction value) → Rule 4 (identical goods) → Rule 5 (similar goods) → Rule 7 (deductive) → Rule 8 (computed) → Rule 9 (fallback); Rule 3(4) requires you to proceed sequentially through rules 4 to 9. Rule 6 is the link; the importer may ask to reverse rules 7 and 8.
Rule 4 and Rule 5 (comparison): Value = transaction value of identical (or similar) goods, at the same commercial level and in substantially the same quantity, imported at or about the same time; Adjust for differences in commercial level, quantity and transport cost. If more than one such value is found, the lowest is used. Identical goods look the same in all respects; similar goods only closely resemble each other, with like characteristics, materials and function.
Rule 7 Deductive value: Deductive value = unit selling price in India (greatest aggregate quantity, to unrelated buyers) − usual commission or profit and general expenses − post-import transport, insurance and handling − customs duty and taxes payable in India because of the import; Start from an Indian selling price and deduct. The sale should be at or about the time of import; the rule allows sales within 90 days of importation if there is no sale at that time.
Rule 8 Computed value: Computed value = cost or value of materials and fabrication + usual profit and general expenses + transport, insurance, loading, unloading and handling to the place of importation (rule 10(2) items); Start from the cost of production abroad and add. It needs cost data from the foreign producer, so it is often hard in practice.
Rule 9 Fallback: Value determined using reasonable means, consistent with the principles and general provisions of the Rules and Section 14, based on data available in India; It cannot be based on arbitrary or fictitious values or a minimum customs value. Apply earlier methods with reasonable flexibility.
Exchange rate: Rate of exchange in force on the date the bill of entry is presented under section 46; Section 14(1) third proviso. Convert the foreign-currency value at this rate.

How to solve Customs Valuation (Determination of Value of Imported Goods) Rules questions

Use this order for any question where the declared value is rejected or cannot be accepted.

1Check first why transaction value fails: relationship that influenced price, unquantifiable condition, restriction on use, resale proceeds going to the seller, or a doubtful declared value.
2Write the heading of each rule in sequence. Do not jump to rule 7 or rule 8 unless the data says rules 4 and 5 are unavailable.
3Test rule 4: is there an identical import, same country of origin and producer, at or about the same time, at the same commercial level and quantity? Adjust for differences. If more than one value, take the lowest.
4Test rule 5 in the same way for similar goods. Say clearly in the answer that the facts show no identical or similar import.
5Apply rule 7: take the Indian selling price in the greatest aggregate quantity to unrelated buyers. Deduct profit and general expenses, post-import costs and duties and taxes payable.
6If rule 7 fails (or the importer asks for reversal), apply rule 8: add materials, fabrication, usual profit and general expenses and landed costs.
7Add rule 10 adjustments (commission, royalties, freight, insurance, handling and the like) where the method does not already include them. Convert to rupees at the bill of entry date rate.
8State the final assessable value and which rule was used, with a one-line reason.

Quickest way: Ladder-and-direction shortcut

When to use it: Use it in MCQs and short numerical questions where one rule must be picked fast.

Look at the data given. Prices of other imports means rule 4 or 5. Indian resale price means rule 7. Cost of materials and fabrication means rule 8. Nothing usable means rule 9.
Resale price in India: deduct. Production cost data: add.
Identical = same in all respects; similar = like characteristics and interchangeable.
If two comparison values exist under rule 4 or 5, pick the lowest.
Check whether duty is already included in the Indian selling price. If so, deduct it in rule 7.
Write the rule number next to every working line to earn the method marks.

Common mistakes in Customs Valuation (Determination of Value of Imported Goods) Rules

Jumping straight to deductive or computed value
The numbers for these are given, so they look easier than identical goods.
Fix: Always state that rules 4 and 5 are unavailable (or fail) before using rule 7 or 8, because rule 3(4) requires sequential application.
Mixing up deductive and computed value
Both use profit, general expenses and transport.
Fix: Deductive starts from an Indian selling price and subtracts. Computed starts from production cost and adds.
Forgetting to deduct customs duty in the deductive method
Students deduct profit and transport but treat the selling price as duty-free.
Fix: The Indian resale price includes the duty paid on import, so deduct duty and taxes payable by reason of import.
Taking the average of two comparison values under rule 4 or 5
Averaging seems fair.
Fix: If more than one transaction value of identical or similar goods is found, use the lowest.
Treating rule 9 as free estimation
The word fallback sounds like any value will do.
Fix: Rule 9 needs reasonable means based on data in India. It cannot use arbitrary or fictitious values or minimum customs values.
Ignoring comparison adjustments
Students copy the identical goods price as-is.
Fix: Adjust for differences in commercial level, quantity and transport costs before accepting the comparison price.

Worked examples

Example 1

The declared value of a consignment of 1,000 units imported by Bharat Components Pvt Ltd has been rejected. No identical or similar goods were imported at or about the same time. The importer sold the goods in India to unrelated buyers at ₹2,400 per unit, in the greatest aggregate quantity. This price includes: usual profit and general expenses of 15% of the selling price; transport and insurance after importation of ₹60 per unit; customs duty and taxes payable by reason of import of ₹420 per unit. Find the assessable value per unit and in total.

Show the solution

Rules 4 and 5 are not available as no identical or similar goods were imported. Rule 7 (deductive value) applies, as an Indian resale price is available.
Selling price per unit = ₹2,400.
Profit and general expenses = 15% × ₹2,400 = ₹360.
Post-import transport and insurance = ₹60.
Customs duty and taxes payable by reason of import = ₹420.
Deductive value per unit = 2,400 − 360 − 60 − 420 = ₹1,560.
Total value = 1,560 × 1,000 = ₹15,60,000.

Answer: Assessable value is ₹1,560 per unit under rule 7, so ₹15,60,000 for the consignment.

Example 2

Rules 4, 5 and 7 cannot be applied to an imported machine. Cost data from the foreign producer are available: materials ₹5,00,000; fabrication ₹1,50,000; profit and general expenses usual for goods of this class exported to India ₹80,000; transport to the place of importation ₹40,000; insurance ₹10,000; loading and handling charges ₹5,000. Find the value.

Show the solution

Rules 4, 5 and 7 fail, so rule 8 (computed value) applies.
Cost of materials and fabrication = 5,00,000 + 1,50,000 = ₹6,50,000.
Add usual profit and general expenses: 6,50,000 + 80,000 = ₹7,30,000.
Add transport, insurance and loading/handling: 40,000 + 10,000 + 5,000 = ₹55,000.
Computed value = 7,30,000 + 55,000 = ₹7,85,000.

Answer: The computed value under rule 8 is ₹7,85,000.

Exam tips

Write the rule number against each step. Examiners award marks for choosing the correct method in the correct order.
In MCQs, spot the data clue: Indian resale price means deductive; production cost means computed.
State why each earlier rule fails in one line, even in numericals.
Remember the lowest-value rule under rules 4 and 5 and the importer's right to reverse the order of rules 7 and 8.
Convert foreign currency at the rate on the bill of entry date under section 46, as per section 14.

Practice questions from Valuation and Related Party Transactions

Customs Valuation (Determination of Value of Imported Goods) Rules in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Customs Valuation (Determination of Value of Imported Goods) Rules: frequently asked questions

What is the order of customs valuation methods?

First transaction value under rule 3. If it cannot be accepted, rule 3(4) sends you through rules 4 to 9 in sequence: identical goods, similar goods, deductive value, computed value and the fallback method.

What is the difference between deductive value and computed value?

Deductive value works backwards from the price at which the goods are sold in India, deducting profit, expenses, post-import costs and duties. Computed value works forwards from the cost of materials and fabrication, adding profit, general expenses and landed costs.

Can the importer choose computed value before deductive value?

Yes. If the importer requests it, the order of the deductive and computed methods can be reversed. The earlier methods (rules 4 and 5) still come first.

What if several identical goods values are available?

Where more than one transaction value of identical or similar goods is found, the lowest of them is used to determine the value.