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6SVB / Related Party
Customs Duty & Trade Policy

SVB — Related Party Import Valuation

SVB Imports

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Regulatory Framework

Where an importer and its overseas supplier are "related persons" as defined under Rule 2(2) of the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007 — for example, common directors, one party controlling the other, or both under common control — the declared transaction value is subject to closer scrutiny by the Special Valuation Branch (SVB) of Customs, to determine whether the relationship has influenced the price.

The current SVB procedure follows CBIC Circular No. 5/2016-Customs (dated 9 February 2016), which materially eased the earlier regime. It abolished the requirement for periodic renewal of SVB orders — a fresh SVB investigation is now triggered only on a genuine change in circumstances, such as a change in ownership or shareholding between importer and supplier, revision of the pricing formula, a new or materially altered royalty or technical-collaboration agreement, or a material change in the commercial terms of sale, rather than automatically at a fixed interval.

During the pendency of an SVB investigation, the importer is required to furnish an Extra Duty Deposit (EDD) of 1% of the assessable value on each import consignment, refundable on the final order; the SVB may increase the EDD up to 5% where there is an initial indication of value manipulation or the importer is uncooperative. The 2016 circular also introduced risk-based referral criteria and time-bound investigation targets, materially reducing blanket referral of all related-party imports to SVB.

Overview

SVB (Special Valuation Branch) advisory covers the customs valuation of the imports from the related parties — the reference of the import transactions with the related suppliers to the Special Valuation Branch of the customs under the Customs Act 1962 and the Customs Valuation (Determination of Value of Imported Goods) Rules 2007, the Rule 4 related-party provision that allows the transaction value only where the relationship has not influenced the price, and the SVB proceedings that examine the price. The SVB is where the customs tests the transfer prices on the related-party imports.

The related-party imports — the purchases from the foreign parent, the sister companies and the related suppliers — carry the special valuation scrutiny: under Rule 4 of the Customs Valuation Rules 2007, the transaction value is accepted only where the relationship has not influenced the price, and the SVB examines the imports to determine whether the price reflects the arm's length. The proceedings require the documentation — the transfer pricing, the cost data, the price comparisons — and the SVB's determination can adjust the value and the duty.

The cost of a mishandled SVB position is the duty demand and the interest: the value adjusted and the duty recovered, with the retrospective application the SVB can make. The preparation is the documentation that shows the price is arm's length.

This service is for importers with related-party imports. We review the import transactions against Rule 4 of the Customs Valuation Rules 2007, prepare the documentation — the transfer pricing, the cost and the price analysis — respond to the SVB notices and the proceedings, and coordinate the valuation position so the related-party imports carry the value and the duty that the rules accept.

How It Works

  1. 1

    Import & Relationship Review

    We review the imports and the related-party relationships.

    Harun Raaj & Associates does this1 week
  2. 2

    Valuation Position

    We assess the valuation position under Rule 4 of the Rules 2007.

    Harun Raaj & Associates does this1 week
  3. 3

    Documentation Build

    We prepare the transfer pricing, the cost and the price documentation.

    Harun Raaj & Associates does this2-4 weeks
  4. 4

    SVB Proceedings

    We respond to the notices and the proceedings before the SVB.

    Harun Raaj & Associates does thisAs required
  5. 5

    Determination & Compliance

    We manage the determination and the duty positions.

    Harun Raaj & Associates does thisAs required

Frequently Asked Questions

What is Special Valuation Branch and when is an SVB reference triggered for related-party imports?
The Special Valuation Branch (SVB) is a unit within the Customs department that examines whether the declared transaction value of imported goods between related parties is influenced by the relationship, as required under Rule 3(3) of the Customs Valuation (Determination of Value of Imported Goods) Rules 2007 read with Section 14 of the Customs Act 1962. An SVB reference is initiated when an importer declares that it is related to the foreign supplier within the meaning of Rule 2(2) of the Customs Valuation Rules 2007 — which includes parent-subsidiary relationships, common directors, or one party holding 5% or more of equity in the other — and the jurisdictional customs officer refers the matter to SVB. The importer must file a detailed questionnaire (SVB Questionnaire Annexure A) along with transfer pricing documentation, audited financials of the foreign supplier, and comparative pricing data to demonstrate that the relationship has not influenced the price. Finalisation of SVB proceedings results in an Order in Original that determines the assessable value for all past and future imports from the related party.
What extra duty deposit is required during the pendency of SVB proceedings?
During the pendency of SVB proceedings, the jurisdictional customs officer typically levies an Extra Duty Deposit (EDD) — also called a PD bond with security — ranging from 1% to 5% of the CIF value of each import consignment to protect revenue in case the SVB determines that the declared value was understated. The EDD rate is determined by the Principal Commissioner / Commissioner of Customs based on the degree of doubt about the transaction value, as per Circular No. 11/2016-Customs dated February 23, 2016, which revised the EDD and security requirements for SVB cases. The importer furnishes a Provisional Duty Bond and a bank guarantee or cash security equivalent to the EDD. Once the SVB issues its final Order in Original, the EDD collected in excess of the determined additional duty is refunded to the importer under Section 27 of the Customs Act 1962, subject to the limitation period of one year from the final order date.
How does SVB valuation interact with our existing transfer pricing documentation prepared for income tax purposes?
While both SVB proceedings under the Customs Valuation Rules 2007 and transfer pricing documentation under Section 92 to 92F of the Income Tax Act 1961 examine arm's length pricing of related-party transactions, they are independent legal proceedings under different statutes and adjudicated by different authorities — the Customs department for SVB and the Income Tax department for TP. However, the Transfer Pricing study prepared under Rule 10B of the Income Tax Rules 1962 — including CUP, TNMM, or other prescribed methods — is highly persuasive evidence in SVB proceedings to demonstrate that the import price reflects arm's length value and has not been artificially lowered. A CA who has prepared the TP documentation must assist in tailoring it for the SVB context, noting that the SVB officer is not bound by a TP order but will give it significant weight. Inconsistencies between TP documentation and SVB submissions — for example, different margins used — can create adverse inferences in both proceedings simultaneously.
What happens if we disagree with the SVB Order in Original — what is the appeal process?
An importer aggrieved by an SVB Order in Original may file an appeal before the Commissioner (Appeals) under Section 128 of the Customs Act 1962 within 60 days of receipt of the order, extendable by a further 30 days on sufficient cause shown. If the Commissioner (Appeals) order is also adverse, the next appellate forum is the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) under Section 129A of the Customs Act 1962, where the appeal must be filed within 3 months of the Commissioner (Appeals) order. For all SVB-related appeals, the importer continues to furnish EDD or a provisional duty bond on future imports pending the appeal outcome. It is advisable to also seek a review of whether the ongoing EDD rate should be revised downward based on the appeal filing, through a representation to the jurisdictional Principal Commissioner under Circular No. 11/2016-Customs. A CA with customs valuation expertise is essential as SVB appeals require detailed economic analysis and comparability benchmarking.
Does an SVB order, once passed, apply prospectively to all future imports from the same foreign related party?
Yes. An SVB Order in Original, once finalised, determines the assessable value methodology or loading factor applicable to all future imports from the same related foreign supplier under the same contractual arrangement. Customs Circular No. 11/2016-Customs dated February 23, 2016 provides that the finalised SVB orders are valid for 3 years, after which the importer must file a review application with fresh documentation if the trading relationship, pricing structure, or shareholding pattern has not materially changed. If there is any change in the nature of the relationship, the goods imported, or the pricing mechanism, the importer must suo motu inform the SVB and request a fresh examination under Rule 3(3) of the Customs Valuation Rules 2007. Non-disclosure of material changes in the related-party relationship can attract penalties under Section 112 or Section 114AA of the Customs Act 1962 for mis-declaration.

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