This document outlines new procedures for Special Valuation Branch (SVB) investigations of related party transactions under Indian customs valuation rules. Key points include: SVB investigations will now be based on questionnaires submitted with bills of entry rather than automatic for related parties; no extra duty deposits will be required upfront but can be imposed if information is not provided; SVB has strict timelines to issue investigation reports to streamline assessments; renewals of SVB orders are discontinued; importers can make one-time declarations to close existing renewal cases. The changes aim to reduce transaction costs and delays associated with SVB investigations.

1. K.VAITHEESWARAN
ADVOCATE &TAX CONSULTANT
Flat No.3, First Floor,
No.9, Thanikachalam Road,
T. Nagar,
Chennai - 600 017, India
Tel.: 044 + 2433 1029 / 4048
402, Front Wing,
House of Lords,
15/16, St. Marks Road,
Bangalore – 560 001, India
Tel : 080 22244854/ 41120804
Mobile: 98400-96876
E-mail : vaithilegal@yahoo.co.in / vaithilegal@gmail.com
www.vaithilegal.com

2.  In Customs Valuation, related party transactions are
always an issue.
 The definition of ‘related persons’ is quite wide.
 The transaction requires examination in terms of Rule
3(2) and Rule 3(3) of theValuation Rules.
 Four Customs Houses have a Special Valuation Branch
(SVB) for investigating transactions.
 CBEC Circular No.11/2001 dated 23.02.2001 provides for
1% extra deposit which increases to 5% if the details are
not furnished within a time frame from receipt of
questionnaire from SVB.

3.  Huge impact on cost on account of extra deposit.
 Delay in passing of SVB Orders resulting in increase
in transaction cost.
 Globalization has increased the number of
transactions involving related parties.
 Order needs to be renewed which involves further
delay.
 SVB Order providing for additions resulting in
appeal as well as higher demands for subsequent
transactions which have to be separately contested.

4.  Circular No.04 & 05/ 2016 dated 09.02.2016 with
Annexures issued by CBEC.
 SVB shall function under the supervisory control of the
Jurisdictional Chief Commissioner/ Principal
Commissioner/Commissioner.
 The current system of location of corporate office of the
importer being the basis shall continue.
 When imports requiring SVB Investigation are noticed
by any customs formation, the concerned
Commissionerate shall transfer the records to the
Jurisdictional SVB.

5.  Jurisdiction of SVB based on States identified
through Annexure – F to Circular.
 In order to reduce transaction cost and to bring
uniformity, no security in the form of Extra Duty
Deposit (EDD) shall be obtained from importers.
 However, if importer does not provide the
documents and information within 60 days,
security deposit of 5% of declared assessable
value shall be imposed by the Commissioner for a
period not exceeding next 3 months.

6.  The information and documents should be
provided within the extended period and if there
is any failure, the Commissioner can consider the
use of other provisions of the Act for getting the
information.
 In no case shall the imposition of security
deposit exceed the further period of 3 months.
 Importer can choose cash deposit or bank
guarantee for the purpose of provisional
assessment and the formats have been specified.

7.  The existing system of the SVB Officer
passing an Appealable Order and the
Assessing Officer passing an Order finalizing
provisional assessments is replaced.
 SVB shall convey investigative findings
through an Investigation Report (IR) to the
referring customs formulation for finalizing
the provisional assessments.
 This is to avoid multiple appeals.

8.  Importer has to fill up a questionnaire in the
format specified at the time of filing Bill of
Entry itself.
 This is to enable the Jurisdictional
Commissioner to take a decision as to
whether a case needs to be referred to SVB
for investigation.
 Earlier trigger for SVB likely based on the
information sought in the questionnaire.

9.  Import of samples and prototypes from related
sellers.
 Imports from related sellers where duty is
unconditionally fully exempt or nil.
 Value of imported goods is less than Rs.1,00,000/-
and cumulatively the transactions do not exceed
Rs.25,00,000/- in any financial year.
 No reference to SVB would be necessary where
additions are made under Rule 10(1)(a) and (b) of
the Valuation Rules - Commission, Packing, Free
supply, etc.

10.  Para 4.1 of the Circular provides that apart from
transactions involving related parties, need for SVB
investigation will have to be examined for other
transactions such as Royalty and Licence Fee under
Rule 10(1)(c); Accrual of subsequent resale proceeds
to seller under Rule 10(1)(d); and other payments as
a condition of sale under Rule 10(1)(e).
 In order to avoid delay on account of scrutiny of
transactions between related parties, royalty etc.,
importers have been advised in so far as possible to
file prior Bill of Entry at least 15 days prior to import.

11.  Prior Bill of Entry along with Annexure – A at the
first instance of import.
 Officer shall determine prima facie whether there is
a need for SVB investigation after evaluating
various parameters.
 Findings would be submitted to the Commissioner.
 Commissioner shall take a view as to whether SVB
reference and provisional assessment is required or
SVB reference is not required and valuation can be
done under Rule 4 to Rule 9 or transaction should be
assessed under Rule 3.

12.  Where SVB Investigation is directed, provisional
assessment under Section 18 would be done and further
information would be sought from the importer in
Annexure – B format.
 Once procedure for provisional assessment is completed
and Annexure – B questionnaire is issued, all records to be
transferred to Jurisdictional SVB not later than 3 days of
release of the goods.
 In case SVB reference is not necessary, Customs House will
issue a reference number to the importer and the Risk
Management Division to indicate that the transaction has
been examined and that it has been decided not to refer to
SVB.

13.  Assignment of a Case Number.
 Inquiry.
 SVB shall as far as possible complete the
investigation and issue its findings within 2 months
from the date of receipt of the information in
Annexure - B.
 If investigation is not completed within 2 months,
approval of Jurisdictional Commissioner is required
for extension.
 If not completed within 4 months matter shall be
submitted to Chief Commissioner for extension.

14.  On completion of investigation, IR shall be
communicated to the referring Customs Station/
Appraising Group.
 If the report states that value confirms to Rule 3, the
Customs Station shall immediately finalize the same
and there will not be any necessity for a speaking
order.
 However, if the report states that value has been
influenced, then a Show Cause Notice should be
issued to the importer within 15 days of the receipt of
the report and the adjudication process would follow.

15.  System of renewal of SVB Orders
discontinued with immediate effect.
 Change in circumstances of sale or in terms
and conditions between buyer and seller or any
other payment under Rule 10(1)(c) or (d) or (e)
will have to be declared at the time of import in
the prescribed Annexure – C.

16.  A one time declaration in a specified format can be
furnished by the importer by 31.05.2016 for quick
disposal of cases currently pending for renewal.
 SVB shall allot a reference number for each declaration.
 Where the declaration is in the prescribed format, the
process of renewal would be treated as dispensed with and
the Customs Station shall be informed for discontinuing EDD
and finalizing provisional assessment without reference to
importer.
 If there is change in circumstances surrounding the sale as
stated in the declaration, then the SVB enquiry shall be
initiated by serving questionnaire in Annexure – A and B and
the new procedure will be followed.

17.  All pending SVB other than renewal have to be
reviewed in terms of Para 3.2 of Circular
No.05/2016.
 In case importer has provided information and
documents, EDD shall be discontinued.
 This exercise shall be completed by 31.05.2016.
 Where EDD has been enhanced to 5% due to non-
production of documents or information,
Commissioner shall use Customs Act to get the
information and subsequently dispense with EDD.

18. K.VAITHEESWARAN
ADVOCATE &TAX CONSULTANT
Flat No.3, First Floor,
No.9, Thanikachalam Road,
T. Nagar,
Chennai - 600 017, India
Tel.: 044 + 2433 1029 / 4048
402, Front Wing,
House of Lords,
15/16, St. Marks Road,
Bangalore – 560 001, India
Tel : 080 22244854/ 41120804
Mobile: 98400-96876
E-mail : vaithilegal@yahoo.co.in vaithilegal@gmail.com