The Indian companies that they choose to import goods coming from companies located outside India have to 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.
The Special Valuation Branch in India is nothing more than aspecialized institution in the'investigation of transactions involving companies with special relationships and some particular characteristics that could impact the value of imported goods.
Going into detail, the Indian Customs department hosts this specialized unit which plays a vital role in examining transactions involving Indian importers and foreign suppliers with close affiliation ties. 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 control is initiated when the parties involved are considered “related” as defined in Rule 2(2) of Customs Valuation (Determination of Value of Imported Goods) Rules, 2007.
The scope is to ensure that these relationships do not influence unduly the terms of transactions and prices, in compliance with the Customs Valuation Rules. Furthermore, the Special Valuation Branch also deals with complex situations that require adjustments to the transaction value declared by importers.
But why does all this happen? It must be kept in mind that customs duties are calculated on the “evaluable value” of the goods, which is the value of the transaction agreed 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 case the buyer and seller of the goods are connected, the value must be determined according to the Customs Valuation developed for this purpose. This is where the SVB comes into play in this case.
In order to understand the actual application of this procedure, it is necessary to have a clear understanding of the concept of the term "connected" under customs legislation.
Let's see that the buyer and the salesperson will be considered "connected" self:
Generally all transactions involving import of goods by an Indian company and its holding company or associated/affiliated group company located outside theIndia are considered transactions between related parties. Therefore, they may be subject to investigation by customs authorities.
Let's try to get into the concrete details of how this rather long and complex procedure is put into practice, trying to schematize the stages of the investigation.
Consider a foreign supplier selling goods to an Indian importer. The SVB's investigation is triggered only when a transaction between related parties is detected. Also, it triggers if the prices have any anomalies. They could be caused precisely by a relationship between a controlling party and a subsidiary connected to each other. This raises concerns about potential abuse in pricing. While some price disparity is permitted, justification to the SVB is critical to compliance.
Here, then, is how the phases of the investigation proceed:
We have therefore established that the value of the transaction is acceptable provided that the importer in India demonstrates that that value is not influenced by the relationship with the seller of the goods. All this can be done through these methods described in the CVR:
In the event that the importer is unable to justify the value of the transaction according to the rules described above, the CVR allows the customs officer to make a best judgment assessment.
Once the transaction value declared by the importer comes 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 import. Thereafter, the authorities also accept the value of all goods subsequently imported by the importer from his associated companies until they encounter concurrent 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 which does not take into account the transaction value declared by the importer at the import port. The relevant official of 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 communicate it to the SVB authorities. In such a case, the importer is required to submit a detailed written statement against the charges and justify the basis on which the transaction value should be accepted. The customs port authorities have the right to make the final decision in this regard, which in practice is strongly influenced by suggestions from the SVB authorities. In case the customs port authorities also reject the value of the transaction between related parties, the customs law provides an appeal mechanism where the importer can file an appeal and continue the dispute.
To conclude, we have seen that the examination by the Special Valuation Branch is necessary to verify whether the goods imported from India were invoiced at “market price” or whether they were “undervalued”. The impact of this process about the company can be a lot critic. Suffice it to say that incorrect assessments and declarations can lead to a negative Investigation Report which can increase the costs of customs duties in the supply chain, significantly reducing the profitability of the Indian company. Furthermore, litigation with customs authorities regarding valuation takes time and may result in additional costs, negatively impacting the business of exporting to India.
There is also numerous other information regarding the jurisdiction of the Special Valuation Branch and the situations where SVB registration is not mandatory. To find out more about these circumstances you can contact Octagona and its professionals, specialized in the internationalization process of companies.
In particular, our branch in India is able to assist companies in the following mode:
Contact us immediately for receive further information in this regard, we will respond promptly.
Are you interested in our service?
Fill out the form or contact us at the number
+39 059 9770184
Copyright © Octagona. All rights reserved. P.I. 02646871208
