GST Advisory

Special Valuation Branch (SVB) & Its Investigation Procedure

Special Valuation Branch, most commonly known as SVB, is a special unit of the Customs department that specializes in the investigation of the transactions by an importer in India and a supplier in a foreign country having a relationship such as joint ventures, partnerships, holding-subsidiary that has the possibility of influencing the price of the transaction. The SVB conducts investigation to determine the same, which shall be discussed in the present article.

What is the Role of the Special Valuation Branch (SVB)

The SVB is assigned the main task of verifying that the relation of the parties hasn’t influenced the terms and conditions and, consequently, the value of the transaction between the parties.

The Branch is also responsible for handling more complicated cases of additions or deletions with regard to the transaction value that has been declared by the importers under Rule 10(1)(c) or Rule 10(1)(d), or Rule 10(1)(e) of the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007.

In simple terms, SVB investigates the valuation of goods imported by the “related parties” as defined in Rule 2(2) of Customs Valuation (Determination of Value of Imported Goods ) Rules, 2007 (CVR).

Investigation by Special Valuation Branch

The CBEC / CBIC vide Circular No. 05/2016-Customs dated 09.02.2016 provided the procedure for the investigation of related parties’ import and other cases by the special Valuation Branch which shall be discussed below.

Cases That Can Be Referred For Investigation by SVB

The SVB investigates the cases of the importers who have declared themselves to be the related person as per rule 2(2) of CVR, 2007, which the importer declares while filing before the customs wherein the branch examines if the circumstances surrounding the sale of imported goods indicate that the relationship has influenced the price of imported goods or not and if the inquires by the branch is needed or not.  There are certain transactions apart from the related party transactions that involve possible addition to declared transaction value that is considered/ examined for determining if the special valuation branch’s investigations are needed or not, the payments of the following nature are examined in respect of the same.

• Royalty and licence fees’ under rule 10(1)(c) of CVR, 2007 or
• 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.

Procedure for Considering Reference to SVB

• If the importer falls under the ambit of the definition of the related party as per rule 2(2) or of CVR, 2007 and/or involves additions to value on account of royalty, licence fees etc., he must provide information in respect of the same at the time while filing of bill of entry as given in questionnaire attached to CBEC Circular No. 05/16-Customs dated 9th Feb 2016 and the information as required under rule 3(3)(b) of CVR, 2007.
• The importers falling in the above-mentioned categories should, as far as possible, file a prior bill of entry under the second proviso 46(3) of the Customs Act, 1962, at least 15 days before import, along with information as per the questionnaire discussed above. 
• Such advance filing of the bill provides sufficient time to Customs for deciding upon referring the matter to SVB or not, thereby ensuring timely clearance of the imported goods. This advance filing of a bill of entry is needed only in the first instance of import, and once the custom takes a decision with respect to referring the matter to the branch or not, there won’t be any need for such an advance bill of entry in each subsequent import. 
• After filling out the bill of entry and receiving the information as per the questionnaire, the circumstances surrounding the sale shall be examined by the proper officer, followed by determining the requirement of SVB investigation.
• The examination shall be completed by the proper officer within three days of the filing of the bill of entry, along with the submission of the matter before the Commissioner. The parameters shall be considered by the proper officer while evaluating the matter.
• At the time of examining the information provided by the importer according to rule 3(3)(b), the proper officer shall also refer to the Interpretative Note given in CVR.
• Upon the completion of the examination, the report, as per the prescribed guidelines, shall be submitted by the proper officer to the Commissioner for deciding upon the need to refer the case to SVB. 

The Commissioner shall decide upon the following after preliminary findings, 

• Should the case be referred to SVB for investigating further, and the goods be provisionally assessed to duty as per sec- 18 of the Customs Act, 1962.
• If the transaction does not qualify, the investigations by SVB and the assessment be finalized on the basis of enquiries as done by the proper officer according to rules 4 to 9 of the CVR, 2007.
• The transaction is assessed according to rule 3 of CVR, 2007.

Process for Reference to SVB

• If the Commissioner is of the opinion that the case needs to be referred to SVB, the goods shall be promptly cleared by the proper officer by conducting a provisional assessment in terms of Sec 18 of the Customs Act, 1962 and make sure that no delays occur in the release of goods.
• The proper officer shall ask for further information from the importer according to Circular No. 05/2016-Customs dated 09.02.2016. The documents and duly indexed reply to the questionnaire must be furnished by the importer to the jurisdictional SVB within 60 days.
• Upon conducting the provisional assessment procedure and issuing of questionnaire to the importer, the proper officer must transfer all related records/documents to the jurisdictional SVB within 3 working days of the release of goods.
• If the import takes place through Customs Houses of Mumbai / Chennai / Kolkata / Delhi / Bangalore, the importer would have the liberty of selecting the SVB of the Customs House of the import or the Customs House nearby to the corporate office, as convenient to him.
• On the contrary, the jurisdiction of SVBs was based only on the principle of the location of the corporate office as per the earlier Circular No. 11/2001-Customs dated 23.02.2001. 

Procedure in Special Valuation Branch (SVB) 

• Subsequent to the receipt of all records from the referring Customs formation, the SVB shall assign a case no. and update the Central Registry Database (CRD) maintained by DGOV, followed by informing the RMD about the details of the importer, his IEC code and details of the seller for inserting suitable instructions for assessing officers of all Customs House for ensuring provisional assessments at all ports of import during the pendency of branch’s investigations.
• The Special Valuation Branch shall duly acknowledge the documents and an intimation concerning the same shall be forwarded to RMD and the referring Appraising Group about submission of the documents in time so as to ensure the continuance of the provisional assessments without security till the finalization of investigations.
• The branch shall check the documents and information that has been received from the importer before commencing the enquiry. If required, the concerned Deputy/Asstt. Commissioner may ask for additional information or documents. The importer shall be given the full opportunity to submit all evidence in support of his declared value.
• SVB shall complete the investigations and issue its findings within a maximum of two months of receipt of information.
• Otherwise, the branch shall seek the approval of the jurisdictional Commissioner for extending the period of investigation as deemed necessary.
• However, if the investigations aren’t completed within 4 months after receiving the information then the matter shall be placed before the Chief Commissioner for an extension of the period as deemed fit.
• The investigations shall be completed by the SVB quantifying the extent of influence on transaction value due to the relationship or payments towards licence fees, royalty, or other payments actually made or to be made in future as a condition of sale of imported goods after which the findings thereto shall be submitted to the Principal Commissioner/Commissioner by the branch. 
• After receiving the approval of the Principal Commissioner/Commissioner, an Investigation Report (IR) shall be prepared broadly consisting of the following details/documents:
  • Relevant facts
  • Submissions of the importer
  • The findings
  • The ground for acceptance or rejection of declared value
  • Extent of influence on declared transaction value
  • All relied up on documents.
• The IR, along with all relevant documents, shall be communicated to the referring Customs station and all other such stations where the goods were cleared on a provisional basis; same shall be communicated to the DGOV.
• In cases where it can be concluded by the investigative findings that the declared value is as per rule 3 of CVR, 2007, the acceptance with regard to the declared value shall be communicated to the importer by SVB.

Finalization of Assessments

• The receipt of the finding to the branch shall lead to the finalization of all the provisional assessments without the need to issue a speaking order for such finalization where the declared price is found, confirming rule 3 of CVR, 2007.
• In cases where after the investigative findings, it has been concluded that the declared value is influenced by the circumstances surrounding the sale, a show cause notice will be issued by the proper officer to the importer within 15 days of receipt of the investigation’s report under intimation to Special Valuation Branch.
• In case the imports have been made from multiple locations, the jurisdictional Commissioner of special valuation branch shall issue the show cause notices in all such locations and make a proposal to the Commissioner (Customs), CBEC/CBIC recommending the appointment of a common adjudicating authority by the Board for passing orders for the purpose of finalizing the provisional assessments.
• The adjudicating authority would be required to follow the principles of natural justice for passing the orders quantifying the extent of influence on the declared price.
• A copy of the order shall be supplied to the RMD and DGOV for updating the Central Registry Database. Normal appellate channels, as given in the appellate provisions under Chapter XV of the Customs Act, 1962^[1], would apply for filing appeals against the orders of adjudicating authority.
• The earlier system of adjudication wherein the proper officer of Special Valuation Branch  used to pass the appealable order followed by the AO passing another corresponding order for finalization of the provisional assessments has now been replaced, and the Special Valuation Branch  shall not issue an appealable order as per the decision of the court; rather, it shall convey its findings through the Investigation Report to the concerned Customs formation, thereby avoiding multiple streams of appeals for the trade.

Procedure for cases where reference to SVB isn’t required

Whereupon examination of the transaction, the Commissioner is of the opinion that there isn’t any need for referring the matter to the branch, a reference number shall be issued by the concerned Customs formation to the importer and RMD indicating the examination of the transaction from the perception of the requirement for the branch inquiries and its decision of not referring the same to the branch.

Transactions that are not subjected to SVB Proceedings

To ensure that only the significant revenue implications cases are taken up for Special Valuation Branch’s investigations, the Board has decided that the following cases won’t be taken up for inquiries by Special Value Branch :

• Imports from related sellers wherein the duty chargeable (including Additional Duty of Customs etc.) is nil or unconditionally fully exempted. 
• Import of prototypes and samples from related sellers
• Any transaction wherein the value of imported goods > than Rs. 1 lakh but cumulatively, these transactions do not exceed Rs. 25 lahks in any financial year.

Concept of Extra Duty Deposit / Revenue Deposit:

The concept of Extra Duty Deposit was provided under Circular No. 01/98 dated 01.01.1988, which was applicable in cases where the documents sought for are not provided to the relevant authorities failing  which the higher extra duty deposit shall be leviable.

However, in the circular issued in 2016, the board has reviewed the levy and has clarified that no security in the form of an extra duty deposit shall be obtained from the importers, but if the importer fails to provide the information within 60 days of such requisition, security deposit at a higher rate of 5% shall be imposed by the commissioner who shall be valid for the period of 3 months. 

Also, where the documents are not provided by the importer for an additional 60 days, then the commissioner in charge of such investigation may adopt to use of such provisions of the customs act for obtaining such documents/information. But in no case, the imposition of such a deposit shall exceed three months, as discussed above. Importers are free to choose if such a deposit is to be made through cash deposit or through a bank guarantee.

Conclusion 

It is imperative for Indian importers trading with related entities to be cautious of customs regulations and also documentation aspects surrounding the same. It is also important that the pricing adopted and furnished to the customs authorities shall not contradict the pricing adopted for transfer pricing (tax) purposes. Also, as a matter of procedure for price verification, Customs authorities test the pricing charged by the overseas supplier to unrelated parties in India and therefore, before finalising the pricing, the margins charged from unrelated entities must also be tested so as to avoid the case being referred to SVB.

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