Special Valuation Branch, what you need to know if you are selling in India

Le Indian companies who choose to import goods from companies located outside India must undergo the procedure called Special Valuation Branch (SVB), considered extremely long and complex. 

But what is meant by Special Valuation Branch? How does it work in practice? Let's find out together and see why it is necessary to know what it is if the goal is to sell in India. 

What is meant by Special Valuation Branch

The Special Valuation Branch in India is nothing more than a’specialized institution in the’investigation of transactions involving companies with special relationships and some special characteristics that could have an impact on the value of imported goods.

Going into detail, the Indian Customs Department houses this specialized unit that plays a key role in examining transactions involving Indian importers and foreign suppliers with close ties of affiliation. We refer to joint ventures, partnerships, or relationships between holding companies and subsidiaries.

In other words, the SVB has the authority to examine transactions between an Indian importer and a related foreign supplier. This scrutiny is initiated when the parties involved are considered “related” as defined in Rule 2(2) of the Customs Valuation (Determination of Value of Imported Goods). Rules, 2007.

What is the main goal of the SVB?

Lo purpose is to ensure that these relationships do not influence unduly the terms of transactions and prices, in compliance with the Customs Valuation Rules. In addition, the Special Valuation Branch also deals with complex situations that require adjustments to the transaction value declared by importers. 

But why does this happen? One must keep in mind that customs duties are calculated on the “assessable value” of goods, which is the value of the transaction concordat between the supplier and the importer, and is subject to some inclusions (such as transportation, insurance, etc.) as long as the buyer and seller are not related.

Therefore, in cases where the buyer and seller of the goods are connected, the value must be determined according to the Customs Valuation developed in this regard. Here is where precisely the SVB comes into play.

What is meant by the term “Connected”?

In order to understand the effective application of this procedure, it is necessary to be clear about the concept of the term “related” under the customs regulations. 

We see that the buyer and the seller will be considered “connected” if:

• are officers or directors who work in either company;
• Are contractually recognized partners in business;
• Are employer and employee;
• anyone who owns, controls or holds, directly or indirectly, 5% or more of the outstanding voting shares or shares of both;
• One of the two directly or indirectly controls the other;
• both are controlled directly or indirectly by a third person;
• Together they directly or indirectly control a third person;
• Are members of the same family. 

Generally, all transactions involving the import of goods by an Indian company and its holding company or associated/affiliated group company located outside the’India are considered transactions between related parties. Therefore, they may be investigated by customs authorities. 

The survey of the Special Valuation Branch in India.

Let us try to get into the specifics of how this rather lengthy and complex procedure is put into practice, attempting to schematize The stages of conducting the investigation. 

Consider a foreign supplier selling goods to an Indian importer. The SVB investigation is triggered only when a transaction between related parties is detected. It is also triggered if there are anomalies in the prices. They could be caused precisely by a relationship between a parent party and a related subsidiary. This raises concerns about potential abuse in pricing. Although some disparity in pricing is allowed, justification to the SVB is critical for compliance.

The steps of the Special Valuation Branch

Here, then, is how the stages of the investigation unfold:

1.  The Indian importer has to submit several documents together with the so-called “Annex-A” (which contains questions regarding the relationship between the parties and how the transfer price is calculated) to the customs authorities when filing the bill of entry, before getting the goods cleared from the customs port. In case the declared value of imported goods is acceptable to the port authorities, the final assessment is made without any reference to the SVB. The importer receives a reference number under which the customs authorities also accept the value of subsequent imports between related parties. 
2. Otherwise, if the official examining the circumstances of the sale finds anomalies in the invoice value of the goods, he or she will refer to the Special Valuation Branch for further investigation. Please note: No direct requests or representations to the SVB from importers will be considered.
3. At that point, the SVB department records the matter and issues a second questionnaire, the so-called “Annex B.” The importer must respond to the questionnaire within 60 days of its issuance by the SVB. In case the importer fails to provide the response within the prescribed period, the department shall require an additional duty deposit (calculated at the rate of 5% of the declared taxable value of the goods) on subsequent imports as well, for a period of 3 months.
4. The Special Valuation Branch investigates on the basis of the documents received from the importer, deciding whether or not the relationship between the importer and the supplier influenced the transaction value of the goods under the Customs Valuation Rules (CVR). At this point, the SVB presents its findings to the Principal Commissioner/Commission: the report includes the comments submitted by the importer, the results of the investigation, the reasons for accepting or rejecting the transaction value, and the extent of influence on the transaction value declared, if any, under the CVR.

How do you justify the value of the transaction?

We have, therefore, ascertained that the transaction value is acceptable as long as the importer in India proves that that value is not affected by the relationship with the seller of the goods. This can be done through these methods described in the CVR:

• Comparison with identical/similar goods imported into India From unrelated importers;
• Deductible value of imported goods;
• Calculated value of imported goods.

In the event that the importer is unable to justify the value of the transaction under the rules described above, the CVR allows the customs officer to make an assessment based on best judgment.

What happens if the SVB accepts the arguments? What if it rejects them?

Once the transaction value declared by the importer is accepted by the SVB, the basis for accepting the transaction value is incorporated into an Investigation Report (IR) and the same is forwarded to the port of importation. Thereafter, the authorities also accept the value of all goods imported subsequently by the importer from its associated companies until they find simultaneous imports to other unrelated parties in India at higher prices.

If, otherwise, the declared transaction value is not accepted by the SVB, an IR is issued that does not take into account the transaction value declared by the importer at the port of import. The competent official at the port of import will issue a notice of assessment to the importer within 15 days from the date of receipt of such IR and notify the SVB authorities. In such a case, the importer is required to submit a detailed written statement against the allegations and justify the basis on which the transaction value should be accepted. The port customs authorities have the right to make the final decision in this regard, which in practice is heavily influenced by the suggestions of the SVB authorities. In case the port customs authorities also reject the value of the transaction between related parties, the Customs Law provides an appeal mechanism where the importer can appeal and continue the dispute.

How can Octagona India help

In conclusion, we have seen that examination by the Special Valuation Branch is necessary to check whether goods imported from India were invoiced at a “market price” or whether they were “undervalued.” The impact of this process on the company can be very critic. Suffice it to say that incorrect valuations and declarations can lead to a negative Investigation Report that can increase customs duty costs in the supply chain, significantly reducing the profitability of the Indian company. In addition, litigation with customs authorities over valuation takes time and can incur additional costs, negatively impacting the business of exporting to India.

There is, in addition, a great deal of other information concerning the jurisdiction of the Special Valuation Branches and the situations where SVB registration is not mandatory. To learn more about these circumstances you can contact Octagona and its professionals who specialize in the internationalization process of businesses.

In particular, our branch in India, is able to assist companies in the following. mode:

• To determine the best method of evaluation;
• Preparation and finalization of documents;
• Submission of documents to the customs officer;
• Assist in resolving questions received by the Deputy Commissioner.

Contact us immediately for receive more information about this, we will respond promptly.