Special Valuation Branch – Procedures under Customs Valuation Rules

The Special Valuation Branch (SVB) investigates the transactions between the importer and the related foreign supplier. When the parties are related as per Rule 2(2) of the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007 (Valuation Rules), then the valuation of goods as imported from such related foreign suppliers is investigated and/or examined by the SVB.

Related Party

Rule 2(2) of the said Customs Valuation Rules enumerates the following persons who shall be deemed to be ‘related’ for the purpose of customs valuation:

• Officers or directors of one another’s businesses
• Legally recognized partners in business
• Employer and employee
• Any person who directly or indirectly owns, controls or holds five per cent or more of the outstanding voting stock or shares of both of them.
• One of them directly or indirectly controls the other
• Both of them are directly or indirectly controlled by a third person.
• Together they directly or indirectly control a third person
• Members of the same family

Circulars Pertaining to SVB

CBEC has comprehensively revised the instructions for the examination of related party transactions. In this regard, the following circulars have been issued by CBEC:

(i) Circular No. 04/2016-Customs dated 09.02.2016 providing procedure for renewal of SVB orders and ongoing SVB inquiries under Circular No. 11/2001- Cus dated 23.02.2001

(ii) Circular No. 05/2016-Customs dated 09.02.2016 providing procedure for investigation of related party import cases and other cases by SVBs B.2

SVB Procedure

The step by step SVB procedure to be followed is laid down as under:

Step 1 – Filing of Annexure-A with the Customs Authority

Every importer while filing bill of entry makes a declaration about whether seller of imported goods is related in terms of Rule 2(2) of the Valuation Rules. Accordingly, importer, shall file Annexure-A along with the supporting documents with the Customs Authorities before getting the goods cleared from the Customs Port.

Step-2- Reference to SVB

√ Upon filing the Bill of Entry and receipt of information under Annexure-A, the proper officer will examine “circumstances surrounding the sale” within 3 days based on parameters specified in the said Annexure – A.

√ Further, the following cases shall not be taken up for inquiries by SVBs:

• Import of samples and prototypes from related sellers.
• Import of goods from related sellers that enjoy unconditional custom duty exemption (exemption for BCD, CVD as well as SAD)
• Imports from related supplier which have low value

√ Thereafter, findings would be forwarded to Commissioner for a decision on whether the case is fit for being referred to the SVB for investigations.

√ The Commissioner based on preliminary findings will take a considered view on whether-

• The matter be referred to the SVB for further investigations and the goods be provisionally assessed -or
• The transaction does not merit investigations by SVB and that assessment be finalized on the basis of Rules 4 to 9 of the Valuation Rules; or
• The transaction be assessed in terms of Rule 3 of Valuation Rules.

Step-3- Procedure for reference to SVB

√ If the Commissioner -refers case to SVB, the proper officer would assess and release goods on provisional basis and seek further information as in Annexure B.

√ Further, Importer as directed by proper officer is required to furnish documents as per Annexure B & reply to Jurisdictional SVB within 60 days.

√ The proper officer needs to transfer the related documents to the jurisdictional SVB, within 3 working days of release of goods on provisional basis

Step-4 – SVB Investigation

√ Upon receipt of documents from referring customs formation, SVB shall inform details of importer to Risk Management Division (RMD).

√ The SVB Department will go through the documents and information received and complete investigations and issue its finding in 2 months from date of receipt of initial information and documents. Extension can be sought for another 2 months.

√ The SVB will quantify the extent of influence on the transaction value due to the following and submit its findings to the Principal Commissioner / Commissioner.

• relationship or payments towards royalty or licence fee or
• other payments actually made or to be made as a condition of sale of the imported goods

√ Upon approval by the concerned Principal Commissioner / Commissioner, an Investigation Report (“IR”) containing following and with recommendations will be submitted to the referring customs station.

• Relevant facts, submissions made by the importer;
• The findings;
• The grounds for acceptance or rejection of declared value;
• Extent of influence on the declared transaction value

√ Further, IR will also be submitted to any other customs station where the goods were cleared on provisional basis as well as to the Directorate General of Valuation.

Step-5- Finalization of Assessments

√ Upon receipt of the Investigation Report from the SVB, all the provisional assessments will be immediately finalized.

√ In case the investigation report finds that the declared value has been influenced by the circumstances surrounding the sale, then the Customs Officer will issue a Show Cause Notice to the importer within 15 days

√ In case IR report accepts declared value then there shall not be any further investigation and such report would be valid without any expiry (i.e renewal is not required) for said sellers.

√ For every new related seller SVB complete process needs to be followed.

Changes in Circumstances surrounding the sale

In case the circumstances of sale or terms and condition of agreement between existing buyer and seller changes, then importer shall declare same at place of import in Annexure C and SVB process if recommended by jurisdictional commissioner would be initiated. (process explained above)