Government of Pakistan

Directorate General of Customs Valuation and PCA

Custom House, Karachi

C.No.13/06-IV-A/226419                                                                 Dated: 21.05.2007

The Collector of Customs,

(Appraisement/MCC/Port Qasim/Preventive),

The Collector of Customs, (Lahore/Multan/Sambrial/Gujranwala/Faisalabad/Rawalpindi)

The Collector of Customs, (Hyderabad/Quetta/Peshawar)

SUB:               UNDER INVOICING IN THE IMPORT OF IRON AND STEEL PRODUCTS

On receipt of references from reputed local manufactures of iron and steel products, regarding under invoicing in the import of certain items of Iron and Steel, this Directorate General undertook an exercise of value verification placing reliance on Metal Bulletin Research, cost analysis based upon import prices of raw material used in the end product, conversion cost and other charges. The complainants pointed out that; (i) the value of finished product declared by the commercial importers was even lower than the actual cost of raw material being imported by the manufacturers, (ii) in case of certain items the old agreed values based on the LME prices pertaining to the year 2004, were being followed, whereas there has been an upsurge in LME price quoted for these items. After detailed scrutiny it was observed that in the values declared by the importers for iron and steel products are not the actual transactional values. Hence these following items were selected for the purpose of value verification study under Section 25(A) of the Customs Act,1969.

	i)	Electrolytic tin plates and tin free sheets (secondary quality) HS Code (7210.1200) & (7210.5000)
ii)		Stainless steel sheets/circles 200-300 (series) non magnetic (secondary quality) HS Code (7219 & 7220).
iii)		Seamless pipes (prime quality) HS Code (7304.1000)
iv)		Iron & steel wire rope galvanized & un-galvanized HS Code (7312.1010 & 7312.1020)

 

2. Detailed working of above mentioned items is as below

i)         Electrolytic tin plates and tin free sheets (secondary quality) HS Code (7210.1200) & (7210.5000)

The basic raw material for ETP and Tin Free Sheets of secondary quality is hot rolled coil which is converted to cold rolled oil then to  tin mill black plate which is finally converted to either ETP or Tin Free Sheets. The prices of hot rolled coils (prime quality) are published in the Metal Bulletin Research which quotes the price for HRC at $547/mt (FOB) as on 12.03.2007, which is the average benchmark price for CIS, Latin America, HS Steel imports and  EU. The data of imports revealed the declared value for ETP and Tin Free Sheets  (secondary quality), in the rage of $400 to 450/tonne except few cases which revealed import  value ranging from & 632/mt to $693/mt. This anomalous situation has rendered the declared value of this item, doubtful and resonantly,  unacceptable as transaction value. Separate meeting were held with the manufacture and the importers. The meeting with manufacturers was held on 8.01.2007, in which their representative explained that the conversion cost from the stage of HRC to and Tin Mill Black plate is to $150/metric tone (approx) and from in tin mill black plate to ETP and Tin Free Sheets comes to $150/ metric tonne (approx), being the coating charges. There after a discount of 40% is given to arrive at the value of secondary quality ETP and Tin Free Sheets. Freight @$45/mt is to be added at the last stage. LME price for tinplate as quoted in the Metal Bulletin as on 27.03.2007 is $ 881/mt, which is the average bench mark price for Latin America, Europe and Japan. Further more copies of commercial invoices containing details of import of ETP (secondary quality) for the period September and November 2006, by M/s Karim Containers, quoting prices at Euro $32.50/tonne (US$ 693/tonne) and Euro 480/tonne (US$ 632/tonne) were also provided.

A separate meeting was held on 22.01.2007 with nearly thirteen importers of ETP and Tin Free Sheets, (Secondary quality), which was attended by the representative of M/s. Aleem Cans and M/s. Steel Ways. The representative stated that prices of secondary quality HRC, CRC and galvanized painted iron and steel sheets were fixed by the Appraisement Collectorate after taking an average of six months bulletin prices of prime quality of each item and applying discount for secondary quality. They took the position that according to the as greed prices, the value of ETP and Tin Free Sheets (secondary quality) stood at $450/tonne. They were informed about upward trend in the value of steel products and were with the evidence of higher value. However they insisted on the application of LME prices prevailing at the time of agreement on price formula.

In the light of above, the Customs value of secondary quality ETP and Tin Free Sheets is determined as below while following section 25(5) and (8) of the Customs Act, 1969 and considering the latest trend of LME Price for Tin Plate @ US $ 881/mt as published in Metal Bulletin for the period 27.03.2007 and applying a discount of 40% for secondary quality plus freight @ US $ 45/mt.

DESCRIPTION	HS. CODE	ORIGIN	CUSTOMS VALUE
Electrolytic Tinplates (Secondary Quality)	7210.1200	All origin	$574/tone
Tin Free Sheets (Secondary Quality)	7210.5000	All origin	$574/tonne

ii)        Stainless steel sheets/ circles 200-300 (Series) Non magnetic   (secondary quality) HS Code 7219 & 7220).

A representation was received from a local manufacturer of stainless steel products that a formula for determining the assessable value of imported stainless steel sheets/coils of secondary quality was devised in which the LME price of the year 2004 for grade 304 2mm stainless steel (prime quality) was taken as the base price on which certain deductions and discounts were applied for reaching the price of secondary quality stainless steel products. The formula was prescribed after consultation/agreement with the manufacturers, importers the Appraisement Collectorate, Karachi, Valuation Directors, Karachi and the Board. The formula has been explained in letter C.No. SI/Misc/400/2003-V dated 6.09.2004 issued by the Appraisement Collectorate. The assessment formula was applicable for six months which was required to be revised thereafter to keep assessable prices in line with the international prices of stainless steel products. Approval of this formula was given by the Board vide letter C.No. 1(13) CBR/2000 dated 27.10.2004. The main grievance of the manufacturer is that although the entire formula is intact, yet the base price of stainless steel (prime quality), which has witnessed an upsurge in the recent years has not been revised which is causing substantial loss of revenue to the Government. As a consequence the importers are resorting to under invoicing by applying the LME price of stainless (prime quality), for the year 2004 the formula based on consensus of all stake holders is as below;

            LME 304 2mm (Prime Quality) FOB

               Add Loading 10% to cover thinner size for all origin except Japan

               Less 20% further Discount for 200 series

               Less 40% Discount for secondary quality

               Add freight charges @45/mt

(the cases of Japanese origin with loading should be 15%)

A meeting was arranged with Manufacturers on 8.01.2007 in which it was stated that stainless steel is being imported at under invoiced value @US $ 1300/mt to 1400/mt on the basis of old LME prices of stainless steel for the year 2003/2004. According to the agreed formula, in terms of current LME prices for stainless steel, the price for stainless steel 2mm 200 series (nonmagnetic), would be $2421/mt. A separate meeting was held with the importer on 22.01.2007, which was attended by the Senior Vice President of Gujranwala Chamber of Commerce and Industry, finance Secretary/Members of All Pakistan Stainless Importers and Traders Association Gujranwala and representative of M/s Madina Traders, Karachi. The Senior Vice President explained that Metal Bulletin Research  publishes the price for Grade 304 series of 2mm CR coils and Grade 304 series of 2mm HR sheets whereas the Stainless Steel products imported by them were made from Grade 200 series of 2mm non magnetic secondary quality. He stated that at the time of Appraisement Collectorate fixed the formula, the LME price existed for Grade 304 series of 2mm, prime  quality  which included the Alloy surcharge, which was a local levy charged by all European countries on the manufactures of stainless steel. Hence it was not supposed to be added to the price of stainless steel of secondary quality being imported by them.

 

A third meeting was convened on 8.02.2007 which was followed by a final meeting on 20.02.2007. This meeting was attended by the manufactures and the importers along with their President/Members of Association. The representative from local manufactures reiterated the same as was mentioned in the written representation and in the earlier meetings.  According to him, as far as the formula is concerned; the only disturbing factor  was the  fact that the formula remained unrevised despite clear instructions, stressed in Appraisement Collectorate’s letter. Though the LME prices quoted for Stainless Steel has shown an upsurge and stood at $4400/mt and $4600/mt, as on 30.03.2007, yet the formula was being applied with the base price of Stainless Steel pertaining to the year 2004 i.e. at US$ 2600/mt.

 

The importers argued that the formula based on price of Stainless Steel grade 304 series 2mm quoted in Metal Bulletin is not applicable to their imports as the percentage of nickel in different in 304 and 200 series; with nickel percentage being 2% in 1 tonne of 200 series and 8% in 1 tonne of 304 series. Furthermore the importers and the representatives Association argued that they had only accepted the formula in 2004 because at that time LME Prices were not inclusive of alloy surcharge. They said that Metal Bulletin only quoted the price for 304 series for Europe and US exports.

 

Having paid due consideration to the plea of both the Manufactures and the importers , it is but rational to conclude that the formula on which the assessment of Stainless Steel products was devised after consensus of the Manufacturers, importers, Appraisement Collectorate, Valuation Directorate and the CBR. The issue of nickel percentage in 200 and 300 series has already been addressed in the said formula by providing a discount of 40% on 300 series as mutually agreed between the importers, manufacturers and the Customs Department. The basis of formula is the LME price, needs revision in terms of Appraisement Collectorate’s letter dated 6.09.2004 and the upsurge in price of Stainless Steel as quoted in Metal Bulletin. Keeping in view the aforesaid background the LME price (FOB), of Stainless Steel, Grade 304 series, 2mm CR Coil, 2B (prime quality) Asia-comes to $ 4500 (average for lowest and highest value as on 30.03.2007).

 

The Customs value for 300 & 200 series in light of agreed formula is as below;

Non Magnetic Stainless Steel Sheets/Coils 300 (Secondary Quality)

Average Price reported in Metal Bulletin Research for March 2007              $4500

Add 10% loading to cover thinners sizes                                                     $ 4950

Discount for Secondary Quality @ 40%                                                      $ 2970

Add freight @ 45/mt                                                                                         $3015

(In case of Japan loading should be 15%)

Non Magnetic Stainless Steel Sheets Coils 200 (Secondary Quality)

Average price reported in Metal Bulletin Research for March 2007                $4500

Add 10% loading to cover thinners sizes                                                     $ 4950

Less 20% discount on 200 series                                                               $ 3960

Discount for Secondary Quality @ 40%                                                      $ 2376

Add freight @ 45/mt                                                                                  $ 3421

(In case of Japan loading should be 15%)

As per agreed formula, the LME Price shall be taken for the purpose of assessment as prevailing on the date of Contract/LC for all transactions.

The value of non-magnetic Stainless Steel Sheets Ceils AISI 200 series (secondary quality), imported from INDIA is still under study and will be determined and issued shortly.

iii)      SEAMLESS PIPES (PRIME QUALITY) H.S. CODE (7304.1000 & 7304.2900)

The meeting on 8.01.2007 was attended by manager of M/s. Huffaaz Seamless Pipes Ltd, who mention that the item Seamless Pipes is being imported from different sources on values lower them the actual cost of raw material i.e. Steel Round Bars. The declared values of Seamless Pipes as per import data was $450/mt, which was being assessed by the Clearance Collectorates at $580/mt whereas the import price of Steel Round Bars is $499/mt. As transaction value could not be accepted as normal value on account of higher import prices of raw materials, the case was dealt under Section 25(8) of the Customs Act, 1969 due to availability of cost break up of finished goods. The representative submitted production cost break up of Chinese made seamless Pipes on most modern and latest plant which is as below;

Round Steel Bars………….Ex-Mill from China                $450/mt

Conversion Cost                                                            $200/mt

Wastage 15%                                                               $68/mt

Inland Transport and other Charges                               $15/mt

Freight from China to Karachi Port                                 $45/mt

Chinese Companies Profit                                             $80/mt

C&F Price to Karachi Port                                              $858/mt

 

A formula presenting the cost analysis to Seamless Pipes manufactured by M/s Huffaaz Seamless Pipes is as under;

Round Steel Bars Price C&F                                          $499/mt

Clearance, Transport, Loading and Unloading                 $22.35/mt

Conversion Cost                                                           $230/mt

Wastage 25%                                                              $130/mt

Selling Distribution and Admin Expense                          $48/mt

Price PMT                                                                   $929.35/mt

 

A copy of Metal Bulletin Research was also produced for the month of March 2007 in which the FOB price range of Seamless Pipe is given @ US$ 850/mt (for Chinese origin) to US$1350/mt for Japanese Origin. The representative of the manufacturer stressed that price of Seamless Pipe should not be less than the price quoted in Metal Bulletin. A meeting with the importers was convened on 22.01.2007, which was attended by Manager Operations of M/s. Usman Enterprises, who explained that, Seamless Pipes are being imported from South Africa @ US$ 450/mt and being assessed at US$ 580/mt. A third meeting was arranged with the Manufacturers and Importers on 19.02.2007 in which there was no representative from the importers said where as Manager Marketing, of M/s. Huffaz Seamless Pipes appeared. On the said date the representative submitted copies of Letter of Credit containing the price of Chinese origin Hot Rolled Steel Round Bars @ US$ 499.05/mt (C&F). Further more copies of Sales Tax Invoices were submitted containing the value at which Seamless Pipe has been sold locally. The price indicated in the Sales Tax Invoices was in the range of US$ 975 to US$ 1400/mt depending on the size ranges.

In view of the above analysis, the Customs Value of Seamless Pipes determined under Section 25(8) of the Customs Act, 1969 based upon the average of LME price range is as below.

 

Description	HS Code	Origin	Customs Value
Seamless Pipes ½ to 2.5 inches	7304.1000& 7304.2900	China, South Africa, Romania, Ukraine	US $ 980/MT
Seamless Pipes 3 to 8 inches	7304.1000 & 7304.2900	China, South Africa, Romania, Ukraine	US $ 895/MT
Seamless Pipes ½ 3 inches	7304.1000 & 7304.2900	China, South Africa, Romania, Ukraine	US $ 980/MT

 

iv)             Iron & Steel wire role-galvanized & un-galvanized H.S.Code (7312.1010 & 7312.1020)

A reference was received from M/s. Cable and Conductors limited regarding under invoicing in the import of Steel Wire Rope. It was mentioned that Steel Wire Rope, both galvanized and un-galvanized is being imported at US$ 360/mt to $430/mt at one Dry Port in upcountry whereas it raw material i.e. Wire Rode, is being imported at US$ 535/mt to $550/mt. As a result a meeting was convened with the manufacturer on 8.01.2007 which was attended by the Incharge Sales & Marketing who provided a cost sheets for Galvanized and Ungalvanized Wire Rope, depicting value of US$ 1000/mt and US$ 850/mt for Galvanized and Ungalvanized Steel Wire Ropes. The work sheet is as below:-

 

Material Cost                                                   Rs.37835/mt

Salaries                                                           Rs. 2500/mt

Electricity/Fuel                                                 Rs. 4503/mt

Store and Spares consumed                          Rs. 2179/mt

General and Admin Expenses                       Rs. 1701/mt

Selling and Sales Centre Expense                 Rs. 505/mt 

Financial/Leasing Charges                             Rs. 168/mt

Total                                                                Rs. 49390/mt

 

Table No 1

High Carbon Steel Wire Rod

TABLE NO. 2

MATERIAL	TOTAL	ROD	JUTE
Put into process	1106.80	1077.68	29.12
Production	1000	970.88	29.12
Wastage	106.80	106.80

 

A Separate meeting was held with the importers on 22.01.2007, which remained unattended. A final meeting was convened on 8.02.2007 when both the Manufacturer and the importer were called. There was no representation from the importers side whereas the representative from M/s Cable and Conductors was present Same arguments were repealed by the Complainant as expressed in the earlier meeting. A written reply dated 14.02.2007 was admitted by the Complainant enclosing there with a copy of their Sales Contract and Commercial Invoice containing details of import of Chines origin Galvanized and Ungalvanized Steel Wire Rope. The values depicted were in the range of US$ 975/mt to US$ 2753/mt for Galvanized Steel Wire Rope and US $759 to 869/mt for Ungalvanized Steel Wire Rope.

Based on the above analysis the Customs value under Section 25(8) of Customs Act, 1969, of Steel Wire Rope, Galvanized and Ungalvanized is as below;

DESCRIPTION	HS CODE	ORIGIN	CUSTOMS VALUE
GALVANIZED IRON STEEL WIRE ROPE BELOW 5MM DIA	7312.1010	CHINA	US$ 1006/mt
GALAVANIZED IRON STEEL WIRE ROPE ABOVE 5MM DIA	7312.1013	CHINA	US$800/mt
UNGALVANIZED STEEL WIRE ROPE	7312.1010	CHINA	US$710/mt

5. The Collectorate of Customs are advised to assess the goods as per above determined Customs Values.

Singed by

(Muhammad Nasir Azhar)

Director

abcdabcdabcdabcd