Rule 3 explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Rule 3 is the heart of import valuation. It says the value of imported goods is, first, the transaction value adjusted under rule 10, and it sets the conditions on which that value is accepted. Only when the transaction value cannot be used does valuation move down the ladder of other methods. Our compliance advisory team reviews supply contracts against these tests.
This article is written as amended up to Notification No. 91/2017-Customs (N.T.) dated 26 September 2017 (CBIC text; no later amending notification found). Later notifications should be checked; no official consolidated text exists beyond the CBIC text.
Under rule 3(1), the value of imported goods is the transaction value, adjusted under rule 10, and subject to rule 12 (rejection of declared value). Rule 3(2) accepts it only if four conditions are met. Where buyer and seller are related, rule 3(3) lets the price stand if the relationship did not influence the price or if the declared value closely approximates a test value. If none works, rule 3(4) sends the officer through rules 4 to 9 in order.
Rule 3(1): the starting point
"Subject to rule 12, the value of imported goods shall be the transaction value adjusted in accordance with provisions of rule 10." Transaction value is the value referred to in section 14(1) of the Customs Act, 1962, as rule 2(1)(g) says; see our guide to section 14. The adjustments in rule 10 (commissions, packing, assists, royalties, transport and insurance) are covered in our article on rule 10.
Rule 3(2): the four conditions
The value under sub-rule (1) "shall be accepted" provided that:
| Clause | Condition |
|---|---|
| (a) | No restrictions on the buyer's disposition or use of the goods, other than restrictions that (i) are imposed or required by law or by public authorities in India, (ii) limit the geographical area of resale, or (iii) do not substantially affect the value |
| (b) | The sale or price is not subject to some condition or consideration for which a value cannot be determined in respect of the goods being valued |
| (c) | No part of the proceeds of any later resale, disposal or use by the buyer accrues directly or indirectly to the seller, unless an appropriate adjustment can be made under rule 10 |
| (d) | The buyer and seller are not related, or, if related, the transaction value is acceptable under sub-rule (3) |
Consider Harbour Textiles, which imports yarn from a Vietnamese mill. The contract lets Harbour resell only within India. That is a geographic limit under clause (a)(ii), so it does not stop the price being accepted. If instead the contract required Harbour to buy a second, unrelated product to get the yarn price, clause (b) would be in play, because the price depends on a condition whose value cannot be determined for the yarn.
Clause (c) links to rule 10(1)(d), which adds resale proceeds that come back to the seller. If an adjustment can be made there, the price can still be used.
Rule 3(3): sales between related persons
Whether buyer and seller are related is decided by rule 2(2); see our article on rules 1 and 2. Relatedness alone does not defeat the price. Rule 3(3) gives two routes.
Route 1: circumstances of the sale (clause (a))
The transaction value is accepted provided that examination of the circumstances of the sale indicates that the relationship did not influence the price.
Route 2: test values (clause (b))
In a sale between related persons the transaction value is accepted whenever the importer demonstrates that the declared value closely approximates one of the following, ascertained at or about the same time:
- the transaction value of identical goods, or of similar goods, in sales to unrelated buyers in India;
- the deductive value for identical goods or similar goods; or
- the computed value for identical goods or similar goods.
When applying these comparison values, "due account shall be taken of demonstrated difference in commercial levels, quantity levels, adjustments in accordance with the provisions of rule 10 and cost incurred by the seller in sales in which he and the buyer are not related".
The burden in route 2 is on the importer: the words are "whenever the importer demonstrates". Keep price lists, invoices to unrelated buyers and cost data ready.
Clause (c): no substitute values
"Substitute values shall not be established under the provisions of clause (b)." The test values are only a check on the declared price; they are not a way to replace it. If the declared value fails the check, the officer cannot simply adopt a test value as the assessed value; the process moves under rule 3(4) and rule 12.
For instance, Orchid Pharma Pvt Ltd imports an intermediate from its parent abroad. The importer shows that its declared value closely approximates the transaction value of identical goods sold by an unrelated supplier to another Indian buyer around the same time, after allowing for quantity differences. Under clause (b), the transaction value is accepted.
Rule 3(4): when transaction value fails
"If the value cannot be determined under the provisions of sub-rule (1), the value shall be determined by proceeding sequentially through rule 4 to 9." Our article on rules 4 to 6 explains the next steps.
How the pieces fit
- Take the price actually paid or payable and add the rule 10 items.
- Test the four conditions in rule 3(2).
- If the parties are related, apply rule 3(3).
- If the declared value is doubted, the officer follows rule 12; see our article on rules 11 and 12.
- If transaction value cannot stand, move sequentially through rules 4 to 9.
Related-party importers often meet extra scrutiny; our guide to the Special Valuation Branch explains that process.
Need help with a valuation query?
If an assessing officer has doubted your declared value or you are structuring a supply arrangement with conditions attached to the price, we can check it against rule 3 before the goods arrive. Reach out to our compliance advisory team.
Key takeaways
- Transaction value, adjusted under rule 10, is the first method and is subject to rule 12.
- Four conditions in rule 3(2) must be met for acceptance; the related-party condition is met through rule 3(3).
- The importer demonstrates a close approximation to one of three test values.
- Test values cannot be used to establish substitute values.
- If transaction value fails, rules 4 to 9 apply in sequence.
Read next
- Rules 1 and 2: definitions, place of importation and related persons
- Rules 4 to 6: identical goods, similar goods and the order of methods
- Rule 10: additions to transaction value
- Special Valuation Branch for related-party imports
Disclaimer: Based on the customs rules named above as published on the CBIC Tax Information Portal and, for sets amended since 2023, the amending notifications (read through a TaxClue consolidated reading text; no official consolidated text exists), as consulted on 3 October 2026. Later notifications, rates and the Customs Act, 1962 provisions referred to should be checked. This article is general information, not legal advice; check the official text before acting.