Customs procedures on Special Valuation Branch (SVB)

Section 14 of the Customs Act 1962 deals with valuation of import and export cargo. Where there is an influence over the price due to direct or indirect relationship between buyer and seller such cases are referred to Special Valuation Branch in order to ascertain correct value of the cargo imported or exported so that appropriate duties shall be collected from such importer or exporter.Procedures and formalities to register with SVB (special valuation branch)

All those importers who are having relationship with the suppliers or those who are having Technical Collaboration, etc., shall furnish a declaration about the relationship in the declaration form 15 days prior to the actual arrival of cargo or time of filing of Bill of Entry in the Appraising Group. On examination of the circumstances of sale and the invoice value of identical or similar goods, the group will make a reference to Special Valuation Branch for further investigation of influence of relationship on assessable value. If the importer is able to furnish evidence of the transaction value of identical or similar goods in respect of sales to unrelated buyers in India at the same price, then there is no need for any reference to Special Valuation Branch and the Bill of Entry will be assessed finally based on those contemporaneous import values. If there are no contemporaneous imports, and there is no way to compare the values at the time of assessment of the Bill of Entry, then a reference is made to Special Valuation Branch. This reference is to be done with the prior approval of the Commissioner of Customs. If the importer can substantiate with documentary evidence that his invoice price is not influenced because of the relationship, there is no need for any reference to Special Valuation Branch.

Who should register with SVB (Special Valuation Branch)

Let the party be Importer, Exporter, Buyer, Seller, Legal Person, Sole Agent or Sole Distributor or Sole Concessionaire, if they are:

a) officers or directors of one another’s businesses;

b) employer and employee

c) legally recognized partners in business

d) directly or indirectly owns, controls or holds 5 per cent or more of the outstanding voting stock or shares of both of them

<li>one of them directly or indirectly controls the other </li>

<li>directly or indirectly controlled by a third person </li>

<li>together they directly or indirectly control a third person </li>

<li>members of the same family </li>

<li>those who have collaboration Agreement </li>

<li>those who have technical Agreement. </li>

<li>those who have any other contract or agreement with the foreign supplier, such parties fall under Special Valuation Branch (SVB).</li>

Importers who are related to the supplier in terms of Rule 2(2) of the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007, Rule 2(1) of the Customs Valuation (Determination of Value of Export Goods) Rules, 2007, and those cases which fall under the purview of Section 14(1) of the Customs Act, 1962, are required to register with SVB. Rule 2(2) of the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007/ Rule 2(1) of the Customs Valuation (Determination of Value of Export Goods) Rules, 2007, reads as above.

The Special Valuation Branch of that Custom House, which is located proximate to the Head or Corporate Office of the importer (having special relationships etc. with the suppliers), handles the investigation into valuation of such importer. Wherever in the declaration prescribed under the Customs Valuation (Determination of Value of Imported Goods), Rules, 2007 (hereinafter referred to as “Valuation Rules, 2007”), the importer has himself made an averment that the transactions are between related persons in accordance with Rule 2(2) of the Valuation Rules, 2007, and there is a, prima facie, justification for further enquiry, the concerned case of import is referred to the SVB of the concerned Custom House, where a separate case file is opened and a registration number is assigned to the case. Similar reference to SVB to look into valuation on account of special relationship can be ordered by Commissioner concerned where such relationship comes to light on any intelligence or while enquiring into transactions of any importer with a particular supplier.

A prima facie case exists for investigation by the SVB where the importer is not able to provide evidence to the effect that the price has not been influenced by the relationship or where the importer is not able to demonstrate that the price for the said goods closely approximates to one of the following values ascertained at or about the same time –

1) the transaction value of identical goods, or of similar goods, in respect of sales to unrelated buyers in India;

2) the deductive value for identical goods or similar goods; and

3) the computed value for identical or similar goods.

All cases to be registered in the SVB for special investigation should be with the specific approval of the concerned Commissioner of Customs.

SVB Jurisdiction

Where the imports requiring investigation by SVB are noticed in a Custom House or Customs formation other than Chennai, Kolkata, Delhi, Bangalore or Mumbai Custom House, all the relevant records should be forwarded to the SVB of the concerned Custom House that would take up the investigation of the case after following the provisional assessment procedure.

List of documents required to be submitted in case of subsidiaries / holding companies and those who have collaboration agreement or similar agreements.

1) Collaboration agreement, Joint Venture Agreement and other agreements with the supplier of the imported goods or with any other person acting for the supplier

2) Approval of Government of India / RBI to the agreement, if any

3) Statements for last three years duly certified by the Chartered Accountant, containing the following informations :-
i) CIF value and landed cost of imports from suppliers of the imported goods, the collaborator or associated companies
ii) CIF value and landed cost of import from other suppliers
iii) Value of standard bought out components procured in India
iv) Ex-factory value of the goods
v) Royalty, net and gross Paid or payable

4) Representative sample invoices of own imports for the last 3 years and photocopies of the relevant Bills of Entry

5) Annual reports of importing Company for the last 3 years

6) Statement regarding equity participation in / of foreign company for the last 3 years

7) Statement regarding shareholding of / in any Indian company along with particulars of common Directors

8) Current price list of product imported from the supplier of the goods including spares and warranty parts imported by any other person

9) Representative specimen invoices of procurement of goods procured from some other person by the supplier and supplied importer

10) Representative specimen invoices of procurement of identical, similar or connected goods made by companies associated with importer

11) Representative specimen invoices of imports of identical of similar goods by any other person

12) Representative specimen of invoices and bills of entry of imports of identical, similar items as spares and warranty parts by the importer or any other person

13) Details of remittances along with method and mode and deferred payments details, if any

14) Details regarding any other payment made to or on behalf or under the instructions of the supplier

List of documents required to be submitted in case of Sole Agents / Sole Distribution / Sole Concessionaire

1) Agency agreements of the importer with any person

2) Specimen copies of the import invoices and Bills of Entry

3) Specimen copy of invoices for import of identical, similar or connected goods by this part through the present importer

4) Specimen copy of invoices for import of identical, similar or connected goods by a company associated with the importer

5) Commission note and credit notes in case of amounts received from outside India

6) Annual report of the importer’s business concern for last three years

7) Pricelists for import and sale of the imported goods.

8) Statement regarding percentage of shareholding of / in any Indian company along with common directors

9) Statement regarding equity participation of / in foreign company

10) Indent / invoices wise statement of commission received in last three years

11) Details of remittances along with method, mode and deferred payment details, if any

12) Statement of expenses as required under Sl.No.28 of the questionnaire with the supplier of the imported goods or with any other person acting

Customs procedures on Special Valuation Branch (SVB)

On receipt of the reference from Appraising Groups, the case is registered in Special Valuation Branch and a PD Circular for provisional assessment is issued. Copies of the same are issued to the importer and to the Appraising Groups as well. The importer shall indicate the PD Circular Number at the time of provisional assessment of all their imports in the Appraising Group and execute PD Bond with 1% Extra Duty Deposit on the assessable value of the goods. Along with the PD Circular a questionnaire in “Annexure A” is also issued to be filled up by the importer along with the list of all documents required to be submitted. The amount of extra duty deposit at present kept at 1% will be continued. The Board has however decided that if the importer does not furnish complete reply to the questionnaire within 30 days of receipt of the ‘Questionnaire’, the extra duty deposit will be increased to 5% till the date of receipt of reply by the Department. The importers falling under the related category may keep ready all the documents along with the replies to the questionnaire, etc., at the time of first import itself, so that the case can be finalized as early as possible in the Special Valuation Branch

Questionnaire under Special Valuation Branch

Following Questionnaire to be filled by importers / exporters who are related to the foreign supplier / purchaser

Annexure A

Annexure B

Annexure C

How to reply to questionnaire of Special Valuation Branch (SVB)?

The importer is required to submit replies to the questionnaire and furnish all the documents listed in “Annexure-B” or “Annexure-C” as the case may be.

Annexure B is meant for Sole Agents / Sole Distributor / Sole Concessionaire

Annexure C is required to be submitted by Subsidiaries or Holding companies and those who have collaboration agreement or similar agreements.

Replies can be furnished to the same without waiting for the receipt of questionnaire from the department. All the columns in the questionnaire shall be filled up without fail. Wherever, the reply is ‘nil’ or where the question is not applicable to the importer, the same shall be specifically stated instead of leaving the column blank. The importer shall also furnish all the documents mentioned in the annexure. If the documents listed in the annexure are not existing or not applicable to the importer, the same shall be specifically stated. All the pages of the questionnaire shall be signed by the importer or his authorized signatory with name and designation of the person signing them.

Annexure A will be issued by the assessing group, dealing with particular imports, to the importer soon after it is decided to refer the case to a SVB. Annexure A is a set of questionnaire to be filled by importers or exporters who are related to the foreign supplier or purchaser. Any importer to whom the questionnaire is issued will be instructed to furnish the reply to the referring Custom House as well as to the SVB within 30 days of receipt of the questionnaire. Traders who are importing the goods and selling the same in the same condition as they are imported shall furnish the invoice value, landed price, and their selling price in the Indian market. The difference between the selling price and landed cost shall be properly explained.

What are the measuring rods included in Transaction Value of imported goods?

The price of goods, any amount paid or payable for costs and services, including commissions and brokerage, engineering, design work, royalties and license fees, costs of transportation to the place of importation, insurance, loading, unloading and handling charges etc. are assessed by Customs Department to find transaction value of imported goods. Under SVB the department verifies the circumstances in which the buyer and the seller shall be deemed to be related, the manner of determination of value in respect of goods when there is no sale, or the buyer and the seller are related, or price is not the sole consideration for the sale or in any other case and the manner of acceptance or rejection of value declared by the importer or exporter, as the case may be, where the proper officer has reason to doubt the truth or accuracy of such value, and determination of value for the purposes of this section etc. are verified. As regular assessment of value of goods by customs on importation and exportation of goods, the rate of exchange is calculated on the date of which Bill of Entry (for imports) or Shipping Bill (for exports) is presented.

Transaction value under Special Valuation Branch (SVB)

Section 14 (1) As per the rules and regulations of SVB, the value of imported or export goods shall be the transaction value of such goods, that is to say, the price actually paid or payable for the goods when sold for export to India for delivery at the time and place of importation, or as the case may be, for export from India for delivery at the time and place of exportation, where the buyer and seller of the goods are not related and price is the sole consideration for the sale subject to such other conditions as may be specified in the rules made in this behalf

Method of customs valuation under Special Valuation Branch SVBWhen Transaction Value is not acceptable for any reason Indian Customs guides on determination of value of imported or export goods to India under Rule 3(3)(a) of the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007 and Rule 3(2) of the Customs Valuation (Determination of Value of Export Goods) Rules, 2007 . Based on this rule, the value of imported goods is assessed at the time and place of importation.

What is Rule 3(3)(a) of Customs Valuation (Determination of Value of Imported Goods) Rules, 2007?

3(3) (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.

3(3) (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;

What is Rule 10 of Customs Valuation (Imports) explained?

As per Customs Valuation (Determination of Value of Import Goods) Rules, 2007, the rule 10 describes about valuation of imported goods to India as below:

10. Cost and services:

(1) In determining the transaction value, there shall be added to the price actually paid or payable for the imported goods, –

(a) the following to the extent they are incurred by the buyer but are not included in the price actually paid or payable for the imported goods, namely:- (i) commissions and brokerage, except buying commissions;

(ii) the cost of containers which are treated as being one for customs purposes with the goods in question;

(iii) the cost of packing whether for labor or materials;

(b) The value, apportioned as appropriate, of the following goods and services where supplied directly or indirectly by the buyer free of charge or at reduced cost for use in connection with the production and sale for export of imported goods, to the extent that such value has not been included in the price actually paid or payable, namely:-

(i) materials, components, parts and similar items incorporated in the imported goods;

(ii) tools, dies, molds and similar items used in the production of the Imported goods;

(iii) materials consumed in the production of the imported goods;

(iv) engineering, development, art work, design work, and plans and sketches undertaken elsewhere than in India and necessary for the production of the imported goods;

(c) royalties and license fees related to the imported goods that the buyer is required to pay, directly or indirectly, as a condition of the sale of the goods being valued, to the extent that such royalties and fees are not included in the price actually paid or payable;

(d) The value of any part of the proceeds of any subsequent resale, disposal or use of the imported goods that accrues, directly or indirectly, to the seller;

(e) all other payments actually made or to be made as a condition of sale of the imported goods, by the buyer to the seller, or by the buyer to a third party to satisfy an obligation of the seller to the extent that such payments are not included in the price actually paid or payable.

Explanation.- Where the royalty, license fee or any other payment for a process, whether patented or otherwise, is includible referred to in clauses (c) and (e), such charges shall be added to the price actually paid or payable for the imported goods, notwithstanding the fact that such goods may be subjected to the said process after importation of such goods.

(2) For the purposes of sub-section (1) of section 14 of the Customs Act, 1962 (52 of 1962) and these rules, the value of the imported goods shall be the value of such goods, for delivery at the time and place of importation and shall include –

(a) the cost of transport of the imported goods to the place of importation;

(b) loading, unloading and handling charges associated with the delivery of the imported goods at the place of importation; and

(c) the cost of insurance :

Provided that –

(i) where the cost of transport referred to in clause (a) is not ascertainable, such cost shall be twenty per cent of the free on board value of the goods;

(ii) the charges referred to in clause (b) shall be one per cent of the free on board value of the goods plus the cost of transport referred to in clause (a) plus the cost of insurance referred to in clause (c);

(iii) where the cost referred to in clause (c) is not ascertainable, such cost shall be 1.125% of free on board value of the goods;

Provided further that in the case of goods imported by air, where the cost referred to in clause (a) is ascertainable, such cost shall not exceed twenty per cent of free on board value of the goods:

Provided also that where the free on board value of the goods is not ascertainable, the costs referred to in clause (a) shall be twenty per cent of the free on board value of the goods plus cost of insurance for clause (i) above and the cost referred to in clause (c) shall be 1.125% of the free on board value of the goods plus cost of transport for clause (iii).

Provided also that in case of goods imported by sea stuffed in a container for clearance at an Inland Container Depot or Container Freight Station, the cost of freight incurred in the movement of container from the port of entry to the Inland Container Depot or Container Freight Station shall not be included in the cost of transport referred to in clause (a).

Explanation.- The cost of transport of the imported goods referred to in clause (a) includes the ship demurrage charges on charted vessels, lighterage or barge charges.

(3) Additions to the price actually paid or payable shall be made under this rule on the basis of objective and quantifiable data.

(4) No addition shall be made to the price actually paid or payable in determining the value of the imported goods except as provided for in this rule.

Finalization of Special Valuation Branch (SVB) cases

On receipt of replies to questionnaire and other documents, the SVB will examine the same and call for any other additional information that is required. Upon receipt of reply to the questionnaire within the prescribed time limit, the SVB will decide within 7 days whether the importer has replied to the questionnaire substantively. Otherwise, immediate further information not furnished will be sought before taking step for finalization of investigation. After furnishing of all the information, the importer may, if they so desire, appear for personal hearing and explain their case with regard to the acceptance of transaction value or otherwise. Thereafter, an Order-In-Original will be issued by the D.C (SVB) and the same will be intimated to the importer by registered post and copies will be endorsed to all the Appraising Groups. Where provisional assessment is being resorted to the investigation and finalization of the assessment must be completed within four months from the date of reply. If no decision is taken within 4 months, the extra duty deposit should be discontinued and the concerned DC/AC will be held responsible for inexplicable delay in finalization. Once the case is finalized by the Special Valuation Branch , the provisional assessments pending in the Appraising Groups will be finalized and the extra duty deposit paid at the time of provisional assessment will be adjusted in accordance with the SVB order. In all cases of loading, it is mandatory for the importer to quote Order in Original No. of SVB and indicate the percentage of loading at the time of filing of each Bill of Entry by them. If they do not quote the Order No. and the loading factor, it will be construed as mis-declaration on the part of importer and dealt with in accordance with the provisions of Customs Act.

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