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When goods are imported from related entities, such as subsidiaries, parent companies, or affiliates, prices might be adjusted for tax advantages or other reasons. The Special Valuation Branch (SVB) is a dedicated arm of Indian Customs that safeguards against such practice
The SVB operates under the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007 (CVR, 2007), which provide a comprehensive framework for assessing the value of goods in cross-border transactions.
Understanding and complying with Special Valuation Branch Rules is crucial for businesses engaged in related-party imports. Failing to do so can result in delays, provisional assessments, and penalties. This article explores these rules, their application, and strategies to handle related-party imports effectively.
The Special Valuation Branch (SVB) is a task force formed within Indian Customs to investigate cases where the valuation of imported goods may be affected by the relationship between the buyer and seller. The SVB mainly deals with imports where the buyer and seller have a prior relationship, such as relations between parent companies, subsidiaries, affiliated concerns, or those in common ownership or under common control.
The main objective of SVB is to ensure that the declared value for imported goods represents their market value without adulteration. This is important for maintaining fair trade and safeguarding government revenues.
Objectives
Investigating transactions that raise concerns under these rules would ensure integrity in customs valuation and support India's trade policies.
The Special Valuation Branch rules are a regulation under the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007 (CVR, 2007), which directs the valuation of imported goods when the buyer and seller are related. These rules are made to ensure that the declared value of goods would be fair, accurate, and free from the influence of the relationship between the importer and exporter.
According to Rule 2(2) of CVR, 2007 importers are required to declare that the seller is a related party. Parent-subsidiary, joint ventures, or shared ownership are regarded as related relationships. The declaration should be when filing the Bill of Entry with the customs department.
Investigations by SVB take place at times when:
Trade is scrutinized to determine that the pricing given is at market value, which is called the arm's length principle. A related-party transaction should therefore be treated like a transaction between two unrelated individuals.
Even when an investigation is ongoing, goods can be provisionally accepted so as to not to disrupt trade unnecessarily.
Some transactions are exempt, for example:
SVB will conclude investigations within two months, extendable to four months with permission.
The investigation by SVB is to determine if the declared value of imported goods has been affected by the buyer-seller relationship. Here's the step-by-step process:
Importers of related-party transactions or complex valuations need to file a Bill of Entry at least 15 days before imports. This advance filing allows customs the opportunity to review the case and determine if an SVB examination is required.
In most cases, only the first instance of import will be necessary to file an advance copy; subsequent imports will not necessarily require advance re-filing again if there have been no significant changes.
After the submission of the Bill of Entry, the customs officer examines the details of the transaction. This review includes:
The officer checks if the declared value meets the arm's-length principle and develops a proposal for further steps to be taken. The Central Registry Database (CRD) assigns a central case number to the investigation for monitoring and reference.
If the customs officer feels that the relation between the parties has played a significant role in determining the transaction value, he refers the case to the SVB. The importer will be asked for extra documentation, including agreements, transfer pricing reports, and declarations, that will enable the SVB to undertake a comprehensive examination of the transaction value.
SVB investigations typically require 2 months or longer from the time of receipt of all relevant information. However, the investigation can be extended by filing a request with the jurisdictional or chief customs officer. Businesses should be aware of the timeline and the documentation needed to facilitate the process and avoid unnecessary delays.
The processing of the SVB is a rather cumbersome procedure for businesses. However, it is possible to avoid all delays with the help of proactive compliance. Here are some very relevant best practices for managing SVB investigations effortlessly:
If a business files the Bill of Entry at least 15 days before the importation, Customs would have ample time to decide whether the transaction warrants further scrutiny. Communication at all times with your Customs officer regarding related-party transactions will ensure timely clearance of the goods.
To support the declared value of the imported goods is the same as their market value, be prepared with the following documents:
Regular internal audits should be conducted to confirm compliance with customs rules. Such audits will lead to the recognition and rectification of red flags before they mutate into big problems during an SVB investigation.
Following these best practices will minimize the risk of delays, fines, and added scrutiny during the SVB investigation process.
If an importer is not compliant with the SVB rules, delays in customs clearance will occur as the goods are held for further investigation. Violations will lead to fines, penalties, and rarely, court cases. If the declared value is incorrect, the importer must pay overdue duties as well as interest on the outstanding amount.
Yes, the importer can raise a dispute with the findings of SVB. In case the declared value is found to be incorrect, the importer receives a show cause notice stating the discrepancies. He can present evidence and explanations to dispute the findings. It may then be taken up by an adjudicating authority or appealed at the Customs Appellate Tribunal.
Industries such as pharmaceuticals, technology, and automotive are more likely to undergo SVB scrutiny due to their frequent related-party transactions and complex pricing structures. These sectors tend to have higher-value imports and intricate financial arrangements, making them prime candidates for scrutiny under SVB rules.
If the SVB finds that the declared value has been tampered with, then an importer gets a show cause notice and has to clarify. A reassessment of customs duties based on the rectified value will be made by the government, and additional duties and interest are to be paid by the importer, with penalty if manipulated deliberately. Repeated offenses may lead to extended delays and increased scrutiny of succeeding transactions.
