FAQs on the Special Valuation Branch (SVB) in India: A Guide for Importers

Posted by Written by Melissa Cyrill Reading Time: 6 minutes

By understanding the role and procedures of the Special Valuation Branch (SVB) in India, businesses importing goods can effectively navigate the complexities of related party transactions and ensure compliance with Indian customs regulations.

In the dynamic landscape of international trade, understanding the complexities of customs regulations is crucial for businesses engaged in importing goods. One significant aspect of this regulatory framework in India is the Special Valuation Branch (SVB).

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Established to investigate transactions between related parties, the SVB plays a vital role in ensuring that declared values for imported goods reflect true market conditions, thereby preventing undervaluation and safeguarding revenue. This article aims to provide a comprehensive overview of the SVB, detailing its functions, procedures, and the implications for businesses navigating the complexities of customs valuation in India.

Also Read: What is the Relevance of the Special Valuation Branch to Importers in India?

1. What is the Special Valuation Branch (SVB)?

The Special Valuation Branch (SVB) is a specialized unit within the Indian Customs Department dedicated to investigating transactions involving special relationships between importers and suppliers. These investigations are crucial when such relationships may impact the declared value of imported goods, potentially affecting Customs Duty liability.

2. Where are the Special Value Branches located in India?

Special Value Branches are situated at five major Custom Houses in India:

  • Chennai
  • Kolkata
  • Delhi
  • Bangalore
  • Mumbai

Decisions made by one SVB are applicable across all Custom Houses in India, ensuring uniformity in handling related cases.

3. What is the procedure for an SVB investigation?

The procedure for an SVB investigation is detailed in Board Circular No. 05/2016, issued on February 9, 2016. When an importer declares that their transaction involves related parties under the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007, and there’s a prima facie justification for further inquiry, the case is referred to the SVB of the relevant Custom House.

4. What types of cases does the SVB handle?

The SVB primarily investigates:

  • Transactions between related persons that may influence the declared value of goods.
  • Complicated cases of adjustments to declared transaction values, especially under Rule 10 of the Valuation Rules.

5. When is an SVB investigation triggered?

An SVB investigation typically starts during the importation of goods when the importer declares that the supplier is related. Additionally, if the importer states that extra payments are being made to the supplier, the SVB may be involved.

Also Read: Procedure for Registration with India’s Special Value Branch

6. Does every related party import need to be referred to the SVB?

No, certain imports are exempt from SVB inquiries:

  • Import of samples and prototypes from related sellers.
  • Imports from related sellers that are fully exempt from duty.
  • Transactions where the value of goods is less than INR 100,000 and does not exceed INR 2.5 million in a financial year.

7. What are the steps involved in an SVB investigation?

The investigation follows these key steps:

  1. Filing initial documents: At the time of the first consignment import, the importer submits various documents, including Annexure A, to declare the relationship with the supplier.
  2. Provisional assessment: If further inquiry is needed, the case is referred to the SVB, and goods are cleared provisionally.
  3. Submission of responses: The SVB issues a second questionnaire, Annexure B, which must be completed within 60 days.
  4. Detailed justifications: The importer must provide detailed submissions demonstrating that the relationship did not influence the transaction value.
  5. Investigation Report (IR): The SVB compiles an IR detailing findings, which is sent to the customs port of import for final assessment.

8. How can importers justify the transaction value is not influenced by their relationship with the supplier?

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Importers can justify that the transaction value is unaffected by the relationship by:

  • Comparing it with the transaction values of identical or similar goods sold to unrelated buyers in India.
  • Using deductive value or computed value methods as outlined in the Customs Valuation Rules.

9. What happens if the SVB accepts the importer’s transaction value?

If the SVB accepts the declared value, it will be documented in the IR, and the customs authorities will finalize the assessment of the provisional entries. Future imports from the same supplier may continue to use this accepted value until further notice.

10. What if the SVB rejects the transaction value?

If the SVB rejects the transaction value, the port authorities will issue a show-cause notice to the importer. The importer can then file a detailed response justifying the transaction value. If the port authorities also reject the value, the importer may appeal the decision.

11. Is the Investigation Report issued by the SVB valid across all ports in India?

Yes, once finalized, the Investigation Report issued by any SVB is valid at all ports across India. However, the importer must refer to the ongoing SVB investigation during imports from multiple ports.

12. How long is the SVB Investigation Report valid?

There is no set validity limit for the IR issued by the SVB. It remains effective until the importer notifies customs authorities of any changes in circumstances, such as new intercompany agreements or changes in valuation methodology.

13. What documentation is needed for notifying changes in circumstances?

The importer must submit a declaration using Annexure C to inform customs authorities of any relevant changes. This allows for potential reassessment of the transaction value.

14. Can documentation prepared for income tax transfer pricing purposes be used for SVB investigations?

While such documentation may aid in explaining facts, it cannot be solely relied upon for customs valuation as the purposes of income tax and customs examinations differ. However, customs authorities may request these documents for clarification.

15. Who can initiate an SVB investigation?

The investigation can be initiated by customs authorities during the clearance process or through intelligence regarding related party transactions. Importers should ensure compliance from the outset to avoid delays.

16. What should importers do to prepare for potential SVB investigations?

Importers should maintain clear records of all transactions with related parties and be ready to provide necessary documentation to demonstrate compliance with the valuation rules. Preparation and timely submission of required documents are essential to facilitate smooth customs clearance and avoid penalties.

Special Valuation Branch India compliance

Managing compliance with SVB directives: Tips for foreign importers doing business in India

When entering the Indian market, foreign stakeholders must ensure compliance with the regulations set forth by the Special Valuation Branch (SVB) of the Directorate General of Foreign Trade (DGFT). The SVB is particularly concerned with transfer pricing and valuation of goods imported by related parties, ensuring fair pricing and preventing under- or over-invoicing. Here are some tips for compliance with SVB regulations:

  1. Understand SVB regulations: Familiarize yourself with the guidelines and procedures established by the SVB. This includes understanding the valuation norms for imports, especially when transactions involve related parties.
  2. Accurate documentation: Maintain comprehensive and accurate documentation for all import transactions. This includes invoices, contracts, and transfer pricing documentation that clearly outlines the pricing mechanism used.
  3. Ensure fair pricing: Ensure that the prices for imported goods are consistent with the arm’s length principle, meaning they reflect the prices that would be charged between unrelated parties. This is critical for compliance with SVB requirements.
  4. Prepare for valuation audits: Be prepared for potential audits by the SVB, which may involve providing justifications for the valuation of goods. Ensure that your pricing and valuation methodologies are well-documented and can withstand scrutiny.
  5. Engage with local experts: Collaborate with local legal and compliance experts who are well-versed in SVB regulations. Their expertise can help navigate the complexities of the compliance process and ensure adherence to local laws.
  6. Timely submissions: Ensure that all required documents and applications are submitted in a timely manner to the SVB. Delays can lead to penalties or complications in the import process.
  7. Regular training and awareness: Conduct regular training for your team on compliance with SVB regulations and transfer pricing principles. Keeping staff informed helps maintain compliance and reduces the risk of violations.
  8. Monitor changes in regulations: Stay updated on any changes to SVB guidelines and related regulations. Regularly reviewing DGFT notifications and announcements will help you remain compliant with the latest requirements.
  9. Utilize the advance ruling mechanism: Consider using the advance ruling mechanism to obtain clarity on specific valuation issues or compliance queries before entering into significant transactions. This can mitigate potential compliance risks.
  10. Maintain open communication with SVB: Establish and maintain a good relationship with SVB officials. Open communication can facilitate a smoother compliance process and may help in addressing any queries or issues that arise.

By following these tips, foreign stakeholders, importers, and companies, can effectively navigate the Indian market while ensuring compliance with Special Valuation Branch regulations, thus minimizing the risk of legal complications and fostering a successful business environment.

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