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CMA Final · Indirect Tax Laws and Practice · Valuation and Related Party Transactions

Under Section 14(1), an importer, Kaveri Industries, buys machinery at a price of ₹40,00,000. It also separately pays ₹3,00,000 as design work costs and ₹2,00,000 as royalty linked to the goods, and ₹1,50,000 as insurance to the place of importation. Using only the provisos of Section 14(1) and assuming each item is includible to the extent specified, what is the maximum value to which transaction value is built up before rate-of-exchange conversion, and which statement about the exchange rate is correct?

The value is ₹46,50,000, being the price plus design work, royalty and insurance under the first proviso to Section 14(1). The price must be converted at the rate of exchange in force on the date the bill of entry is presented under Section 46.

  1. A₹46,50,000, with the rate of exchange as on the date the bill of entry is presented under Section 46Correct
  2. B₹43,00,000, with the rate of exchange on the date of payment
  3. C₹46,50,000, with the rate of exchange on the date of arrival of the vessel in all cases
  4. D₹41,50,000, with the rate of exchange on the date of the contract

Explanation

The first proviso adds design work, royalties and licence fees and insurance to the price: 40,00,000 + 3,00,000 + 2,00,000 + 1,50,000 = 46,50,000. The third proviso requires conversion at the rate of exchange in force on the date the bill of entry is presented under Section 46. Other options omit includible items or use wrong dates.

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