SVB — Related Party Import Valuation

The Special Valuation Branch (SVB) is a unit within the Customs department that examines whether the declared transaction value of imported goods between related parties is influenced by the relationship, as required under Rule 3(3) of the Customs Valuation (Determination of Value of Imported Goods) Rules 2007 read with Section 14 of the Customs Act 1962. An SVB reference is initiated when an importer declares that it is related to the foreign supplier within the meaning of Rule 2(2) of the Customs Valuation Rules 2007 — which includes parent-subsidiary relationships, common directors, or one party holding 5% or more of equity in the other — and the jurisdictional customs officer refers the matter to SVB. The importer must file a detailed questionnaire (SVB Questionnaire Annexure A) along with transfer pricing documentation, audited financials of the foreign supplier, and comparative pricing data to demonstrate that the relationship has not influenced the price. Finalisation of SVB proceedings results in an Order in Original that determines the assessable value for all past and future imports from the related party.

During the pendency of SVB proceedings, the jurisdictional customs officer typically levies an Extra Duty Deposit (EDD) — also called a PD bond with security — ranging from 1% to 5% of the CIF value of each import consignment to protect revenue in case the SVB determines that the declared value was understated. The EDD rate is determined by the Principal Commissioner / Commissioner of Customs based on the degree of doubt about the transaction value, as per Circular No. 11/2016-Customs dated February 23, 2016, which revised the EDD and security requirements for SVB cases. The importer furnishes a Provisional Duty Bond and a bank guarantee or cash security equivalent to the EDD. Once the SVB issues its final Order in Original, the EDD collected in excess of the determined additional duty is refunded to the importer under Section 27 of the Customs Act 1962, subject to the limitation period of one year from the final order date.

While both SVB proceedings under the Customs Valuation Rules 2007 and transfer pricing documentation under Section 92 to 92F of the Income Tax Act 1961 examine arm's length pricing of related-party transactions, they are independent legal proceedings under different statutes and adjudicated by different authorities — the Customs department for SVB and the Income Tax department for TP. However, the Transfer Pricing study prepared under Rule 10B of the Income Tax Rules 1962 — including CUP, TNMM, or other prescribed methods — is highly persuasive evidence in SVB proceedings to demonstrate that the import price reflects arm's length value and has not been artificially lowered. A CA who has prepared the TP documentation must assist in tailoring it for the SVB context, noting that the SVB officer is not bound by a TP order but will give it significant weight. Inconsistencies between TP documentation and SVB submissions — for example, different margins used — can create adverse inferences in both proceedings simultaneously.

An importer aggrieved by an SVB Order in Original may file an appeal before the Commissioner (Appeals) under Section 128 of the Customs Act 1962 within 60 days of receipt of the order, extendable by a further 30 days on sufficient cause shown. If the Commissioner (Appeals) order is also adverse, the next appellate forum is the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) under Section 129A of the Customs Act 1962, where the appeal must be filed within 3 months of the Commissioner (Appeals) order. For all SVB-related appeals, the importer continues to furnish EDD or a provisional duty bond on future imports pending the appeal outcome. It is advisable to also seek a review of whether the ongoing EDD rate should be revised downward based on the appeal filing, through a representation to the jurisdictional Principal Commissioner under Circular No. 11/2016-Customs. A CA with customs valuation expertise is essential as SVB appeals require detailed economic analysis and comparability benchmarking.

Yes. An SVB Order in Original, once finalised, determines the assessable value methodology or loading factor applicable to all future imports from the same related foreign supplier under the same contractual arrangement. Customs Circular No. 11/2016-Customs dated February 23, 2016 provides that the finalised SVB orders are valid for 3 years, after which the importer must file a review application with fresh documentation if the trading relationship, pricing structure, or shareholding pattern has not materially changed. If there is any change in the nature of the relationship, the goods imported, or the pricing mechanism, the importer must suo motu inform the SVB and request a fresh examination under Rule 3(3) of the Customs Valuation Rules 2007. Non-disclosure of material changes in the related-party relationship can attract penalties under Section 112 or Section 114AA of the Customs Act 1962 for mis-declaration.