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Special Valuation Branch

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India introduced the self-assessment system for customs clearance in 2011. However, multinational companies still face challenges related to HSN classification, customs duty rates, and delays in clearance—especially when importing from related party entities. In such cases, the Special Valuation Branch (SVB) process is applicable. SVB is a customs unit established to evaluate whether the declared value of goods in related party transactions reflects an arm’s length price or has been undervalued to lower customs duties. This process contrasts with transfer pricing under income tax, which checks for overvaluation.

What is the Special Valuation Branch (SVB)?

SVB is a specialized unit under Indian Customs that investigates the pricing of goods between related entities. These units are located at five major customs ports: Mumbai, Delhi, Chennai, Kolkata, and Bengaluru.

Importers can choose any SVB office, but it’s recommended to opt for the one nearest to the registered office of the Indian importer.

When is SVB Investigation Triggered?

  • During the first import from a related party, when the Bill of Entry mentions the relationship.
  • When additional payments (e.g., royalties, commissions) are declared under Rule 10 of CVR, even for unrelated parties.

Why SVB Matters

Incorrect valuation under SVB can lead to:

  • Higher customs duties
  • Delays in clearance
  • Litigation with Customs authorities
  • Reduced profitability for Indian importers

Legal Basis of Valuation

Customs duties are calculated on the assessable value under Section 14 of the Customs Act. For related parties, valuation is governed by the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007 (CVR).

Who is Considered a “Related Party”?

According to Rule 2(2) of CVR, parties are considered “related” if:

  • They are partners, directors, employer-employee, or family members
  • One directly/indirectly controls the other
  • Both are controlled by a third party
  • There is ownership/control of 5% or more of voting shares by the same entity

Thus, imports by Indian subsidiaries from foreign parent or group companies usually fall under SVB scrutiny.

SVB Exemptions

Import of samples and prototypes

Imports with nil or fully exempt customs duty

Transactions below INR 1 lakh, provided total imports don’t exceed INR 25 lakhs per year

Impact of Additional Payments on Customs Valuation

Under Rule 10 of CVR, additional payments can influence customs value. Examples include:

  • Royalties and license fees
  • Brand/trademark usage fees
  • Design and management service fees
  • Cross-charges for IT, HR, or admin services

If these payments are considered a condition of sale, they will be added to the assessable value, increasing customs duties. Hence, clear intercompany agreements and value disclosures are crucial.

Customs Valuation Methods under CVR

If transaction value is questioned, alternatives under CVR include

  • Rule 4 & 5: Comparison with identical/similar goods
  • Rule 7: Deductive value method
  • Rule 8: Computed value method

Courts have also directed Customs to consider:

  • Global market prices (e.g., LME quotes)
  • Subsidiary pricing in other countries
  • Cost-based justification from the supplier

SVB Investigation Process

  • Step 1: Initial Filing (Annexure A)

    At the time of the first import, the importer must submit: • Annexure A with detailed relationship and pricing disclosures • Supporting documents for customs valuation If the customs officer accepts the declared value, final assessment is done. If not, the case is referred to SVB and goods are cleared on a provisional basis with a bond.

  • Step 2: Questionnaire (Annexure B)

    SVB assigns a case number and issues Annexure B to the importer. A reply is required within 60 days. Failure to respond leads to an Extra Duty Deposit (EDD) of 5% on subsequent imports for 3 months.

  • Step 3: Written Submissions & Hearings

    The importer must submit detailed explanations proving that the declared value is unaffected by the relationship. These are reviewed through discussions and supplementary documents.

  • Step 4: Investigation Report (IR)

    Based on all evidence, SVB issues an Investigation Report (IR), accepted by the Customs port for final assessment. The IR details findings, methodology, and decisions on valuation.

Validity of the SVB Report

The IR is valid across all Indian ports.

Importers must file Annexure A at all ports during ongoing investigations.

After finalization, the IR applies pan-India unless circumstances change.

Outcome of SVB Investigation

If Accepted:
If the IR confirms that the transaction value is unaffected by the relationship, the customs port accepts this for all future imports, unless a price difference is found with other unrelated importers.

If Rejected:
A show cause notice is issued by the Customs port. The case proceeds to adjudication and may be appealed under Customs law. SVB recommendations significantly influence final decisions.

Use of Income Tax Transfer Pricing Documentation

While transfer pricing documents under Income Tax may help, they are not sufficient for SVB. Customs and tax valuation are based on different principles and objectives.

Is There an Expiry for the IR?

There is no sunset clause. However, importers must self-report any changes such as:

  • New intercompany agreements
  • Additional payments
  • Change in pricing methodology

These must be declared through Annexure C, or the customs can reopen the investigation. Non-disclosure may attract penalties.

Why Choose Global Tax Masters?

At Global Tax Masters, we specialize in assisting importers with the SVB investigation process. Our expert team provides

01.

End-to-end support for Annexure A & B filings

02.

Drafting of customized submissions for valuation

03.

Coordination with Customs & SVB authorities

04.

Representation in hearings and assessments