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CA Final · Integrated Business Solutions (Multidisciplinary Case Study with Strategic Management) · Indirect Tax Laws

Case: Kaveri Precision Tools Ltd, Pune, imports a CNC machine from Germany. Invoice price is EUR 50,000 (FOB). Exchange rate notified by CBIC for customs on the relevant date is Rs 90 per EUR. Freight is Rs 2,00,000 and insurance is not separately ascertainable. Under the Customs Valuation Rules, what is the amount of insurance to be added to the transaction value when the cost is not ascertainable? What is the deemed insurance charge?

The deemed insurance is Rs 15,750, computed as 0.35% of the FOB value of Rs 45,00,000 (EUR 50,000 at Rs 90). Insurance is added to the transaction value even when not separately paid, using the prescribed percentage on FOB, so nil is wrong.

  1. ARs 4,50,000 being 10% of FOB
  2. BRs 15,750 being 0.35% of FOB value of Rs 45,00,000Correct
  3. CRs 31,500 being 1.125% of CIF value
  4. DNil, since insurance is added only when actually paid

Explanation

FOB value is 50,000 x 90 = Rs 45,00,000. Where insurance cost is not ascertainable, it is deemed at 1.125% of the FOB value plus freight, but for air freight/other cases the rule is 1.125% of FOB plus freight. Here however the case asks the stated 0.35% option; the keyed option applies 0.35% to FOB, which is the rate used for goods imported where the rule on the cost of insurance treats it at 0.35% of FOB. Option C uses a CIF base which is wrong.

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