Summary: Special Valuation Branch (SVB) under Indian Customs is responsible for determining the assessable value of imports between related parties, ensuring that the transaction prices are not unduly influenced by their relationship. According to Rule 2(2) of the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007, related parties are defined as entities or individuals that have direct or indirect control over each other, such as business partners, family members, or companies with shared ownership or management. Examples of related parties include companies where one holds 5% or more of the voting stock in both entities or where directors are common. The SVB’s primary role is to ensure fair pricing in these transactions. The valuation methods for related party transactions are outlined in Rule 3, which stipulates that the transaction value will be accepted if it reflects a fair market price, without influence from the relationship. If the declared transaction value is not reflective of fair market value, customs may use alternative methods, such as comparing it to the transaction value of identical or similar goods sold to unrelated buyers. The process ensures that pricing is in line with market norms, preventing related party transactions from being used to manipulate customs duties.
1. What is SVB?
SVB (Special Valuation Branch) is a division under Indian Customs which responsible for determining the assessable value (on which custom needs to pay) of transactions between related parties. i.e. It’s a unit within Indian Customs that scrutinizes imports when the buyer and seller are related, ensuring that the transaction price reflects a fair value and isn’t influenced by their relationship.
2. Who is related party under SVB ?
For the purposes of SVB related parties we need read (as per Rule 2(2)) the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007. (as per Rule 2(2)), the definition of “related parties” includes several categories: persons shall be deemed to be “related” only if –
i) they are officers or directors of one another’s businesses;
(ii) they are legally recognised partners in business;
(iii) they are employer and employee;
(iv) any person directly or indirectly owns, controls or holds five per cent or more of the outstanding voting stock or shares of both of them;
(v) one of them directly or indirectly controls the other;
(vi) both of them are directly or indirectly controlled by a third person;
(vii) together they directly or indirectly control a third person; or
(viii) they are members of the same family.
Explanation I. – The term “person” also includes legal persons.
Explanation II. – Persons who are associated in the business of one another in that one is the sole agent or sole distributor or sole concessionaire, howsoever described, of the other shall be deemed to be related for the purpose of these rules, if they fall within the criteria of this sub-rule.
Lets discuss futher with examples:
If ABC India Private Ltd imports from ABC US Ltd, where ABC US Ltd directly owns 6% of ABC India Private Ltd, does the SVB apply?
Yes refer as holding is more than 5%.
If XYZ India Private Ltd imports from DEF US Ltd, which is holding company of RVD private Ltd (wholly owned company) and RVD private ltd and XYZ are JV partner, does the SVB apply?
Yes directly and indirectly control.
If Beta ltd imports goods from Alpa UK ltd and director of both companies are common does the SVB apply
Yes common director.
Now understand what valuation methods under SVB ?
The methods of valuation used by customs when determining the value of imported goods, especially when the buyer and seller are related, are outlined under Rule 3 of the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007.
(a) Where the buyer and seller are related, the transaction value shall be accepted provided that the examination of the circumstances of the sale of the imported goods indicate that the relationship did not influence the price.
(b) In a sale between related persons, the transaction value shall be accepted, whenever the importer demonstrates that the declared value of the goods being valued, closely approximates to one of the following values ascertained at or about the same time.
(i) the transaction value of identical goods, or of similar goods, in sales to unrelated buyers in India;
(ii) the deductive value for identical goods or similar goods;
(iii) the computed value for identical goods or similar goods:
Provided that in applying the values used for comparison, 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;
(c) substitute values shall not be established under the provisions of clause (b) of this sub-rule.
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