Procedure to Obtain SVB Registration in India

The Special Valuation Branch’s (SVB) process for investigating related parties’ import and other cases were provided by the CBEC/CBIC vide Circular No. 05/2016-Customs dated 9 February 2016.

CBIC: Central Board of Indirect Taxes and Customs CBEC: Central Board of Excise and Customs

Special Valuation Branch is a branch set up under the Customs Act, 1962 for carrying out investigation of goods imported by an Indian importer from foreign supplier. The investigation is carried out where a relationship such as joint venture, partnership, holding-subsidiary is found between the importer and supplier which may influence the arm’s length price of the goods so supplied.

Benefit of SVB Registration

The purpose is to inspect the related party transaction value of the imported goods. The transaction value has direct nexus on the customs duty payable by the importer. Under Section 14 of the Customs Act, 1962, custom duty is levied on imported goods.

If an Indian buyer and foreign supplier are related, such as joint venture, partnership holding-subsidiary, the goods imported might be undervalued and priced lower than the normal market rate. As such, the duty imposed by the custom authority on such supplies shall be lower, resulting in significant losses for the Government.

The said process is exactly opposite of the Transfer Pricing analysis under the Income Tax regulations which try to examine whether the goods supplied between related entities have been ‘overvalued’ so as to reduce Income Tax liability in India.

The transactions between an Indian importer and the related foreign supplier may be investigated by the Special Value Branch (SVB) under Customs Act, 1962, when:

• The parties are related in accordance with Rule 2(2) of the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007 and the value of the imported goods is calculated as per the same Rules.

Rule 2(2) of the Customs Valuation Rules, 2007 provides that the following individuals will be termed as ‘related’ for customs valuation:

• Officers/Directors/Partners in each other’s businesses.
• They have an employer-employee relationship.
• Any individual who directly/indirectly owns, controls or holds 5% of voting stocks/shares or both.
• Both are directly/indirectly controlled by a third person.
• Both directly/indirectly control a third person together.
• Both belong to the same family.
• Sole agent or sole distributor.

Transactions other than Related Party Transactions covered under SVB

Apart from related party transactions, the following transactions can be reviewed by the SVB:

• Royalty and licence fees under rule 10(1)(c) of CVR, 2007.
• In cases wherein any part of proceeds of any subsequent resale value, disposal or use of imported goods accrues to the seller— rule 10(1)(d) of CVR, 2007.
• Other payments made or contemplated to be made in future by a buyer to a seller as a condition for sale of imported goods etc.— rule 10(1)(e) of CVR, 2007.
• However, no reference to the branch is required if the addition to value is required to be made under rules 10(1)(a) and 10(1)(b) of CVR, 2007.

Who needs SVB registration?

Importers must register with the SVB if they have affiliations with their suppliers as specified in:

• Rule 2(2) of the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007.
• Rule 2(1) of the Customs Valuation (Determination of Value of Export Goods) Rules, 2007.
• Section 14(1) of the Customs Act, 1962.

Cases where SVB valuation is not Applicable

In the following cases, SVB valuation is not required:

• Importing goods as samples/prototypes from a related seller.
• In instances when importing goods from a related supplier and the chargeable duty is Nil or entirely exempted without any conditions.
• Transactions where value of imported goods is below INR 100,000. Further, cumulatively, such transactions must not be more than INR 2.5 million in any financial year.

Ports handling SVB Functioning in India

As of now, the Customs department has SVBs functioning at five Customs port cities in India namely:

• Bengaluru,
• Chennai,
• Delhi,
• Kolkata, and
• Mumbai.

Process of SVB registration

Filing declaration and necessary documents

• When importers submit the bill of entry to the Customs Authorities, they must file a declaration in Annexure-A. This must be submitted along with relevant supporting documents.
• This must be done prior to clearing out the goods from the Customs Port.

Note: Information required in Annexure-A Information to be given by Importer at the time of Bill of Entry: Name and address of importer, Importer-Exporter Code (IEC), Goods and Services Tax Identification Number (GSTIN), Permanent Account Number (PAN), Type of organisation, Whether importer is manufacturer or trader, Details of business activity caried out, Name, address, website of foreign seller, Whether seller is manufacturer or trader, Relationship between importer and seller and agreement between them, Details of goods imported, Price at which goods are imported, Payment details.

Examination by Authorized Customs Officer

• The circumstances relating to the sale and the invoice cost of the goods is examined by the authorized officer.
• The authorized officer may refer your case to the SVB if further investigation is required.

Information request in Annexure-B

• In cases where the case is referred to the SVB, the customs office might ask the importer to provide more details using Annexure-B.
• All the requested details and documents must be submitted by the importer to the jurisdictional SVB within 60 days.

Note: Information required in Annexure-B Documents to be filed by the importer to SVB: Following details of the Importer:    - Full name, address, Annexure-A, Bill of entry, bill of lading, packing list, Letter of Credit (LC).    - Annual report and Balance Sheets of preceding 3 years.    - Copy of transfer pricing report filed with Income Tax, if any.    - Copy of Advance Pricing Agreement, if any.    - Details of previous goods imported from same seller. Details of goods imported. Whether imported goods are CKD/SKD, list of items imported. Pricing Pattern. Terms and Conditions of Sale. Relationship particular.

Levy of Extra Duty Deposit (EDD) during pendency of SVB Investigation

(Failure to respond to Annexure-B within the prescribed time)

While the case is pending before SVB and the importer has not submitted documents within 60 days, the Commissioner shall impose an Extra Duty Deposit (EDD) @5% of the declared assessable value for a period of not more than the next three months. Importers can choose to make EDD payments through cash deposits or a Bank Guarantee considering the EDD is like a form of security deposit.

Time frame to Complete the Investigation

The SVBs are expected to complete their investigation and release their findings within two months of receiving the information through Annexure-B. However, this period is usually extended considering the extensive details requested by the SVB and the time taken by importers in submitting the same. As such, when the enquiry carries on for more than 2 months, the SVB seeks the jurisdictional Commissioner’s approval for the extended period required to aptly complete the investigation.

Completion of Investigation & Submission of Investigation Report (IR)

With the proper approval of the Principal Commissioner/Commissioner, SVB creates an Investigation Report (‘IR’) that includes all pertinent facts, importer submissions, investigative findings, the justifications for accepting or rejecting the transaction value, and the scope of any influences on the declared transaction value. A copy of the investigation report must also be shared with the Directorate General of Valuation Board of Excise and Customs (DGoV) and the relevant customs stations where the importer’s imports are provisionally finalized.

Validity of Investigation Report or Final Assessment

Currently, the SVB does not pass any order in original or appealable order on its own. On the contrary, it simply finalizes investigation reports, based on which the Jurisdictional Commissionerate finalizes the provisional assessment or passes an adjudication order, whatever the case may be. Such investigation reports or final assessments have an indefinite validity, which only changes in instances of sale or terms and conditions of agreement between importer and their related party.

Conclusion

The SVB ensures that the relationship between importers and foreign suppliers do not have an influence on the transaction terms and pricing. It is responsible to make sure such relationships adhere to the provisions of the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007. Furthermore, the SVB also resolves complex instances that require necessary adjustments and investigate necessary matters as per the provisions of Customs Act, 1962.


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