Experts & Views
Revised SVB Procedure/ Proceedings
Circular No. 4/2016-Cus and Circular No. 5/2016-Cus dated February 9, 2016
Background
The Special Valuation Branch (“SVB”) specializes in investigation and assessment of transactions involving special relationships between buyer-seller and certain special features surrounding the sale of imported goods having bearing on value of import goods. Hitherto instructions issued vide Circular No. 1/98-Customs dated January 1, 1998 and Circular No. 11/2001-Customs dated February 23, 2001 governed the procedure to be observed by Custom Houses for cases referred to SVB of the Customs Department.
Given various factors including delays in finalization of SVB investigations, prolonged uncertainty due to provisional assessments, increase in transaction costs due to extra duty deposits, cumbersome procedure of renewal of SVB Orders and taking cognizance of the fact that Circulars 1/98 and 11/2001 were based on the Customs Valuation (Determination of Price of imported goods), Rules, 1988, which have since been superseded by the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007 (“Valuation Rules”), the procedures relating to investigation by SVB have now been streamlined.
The significant features of the revised SVB procedure/proceedings to be followed by field formations are summarized below:
1. Transactions not to be subject to SVB proceedings
- Import of samples and prototypes;
- Import of goods fully exempted unconditionally or chargeable to nil rate of duty; and
- Transactions involving import of goods of value less than INR 1 Lakh where cumulative value of these transactions do not exceed INR 25 Lakhs in a FY.
2. Transactions to be considered for investigations for SVB
- Transactions between ‘related persons’, as defined under Rule 2(2) of the Valuation Rules;
- Cases involving possible additions to declared transaction value such as ‘royalty and license fee’ under Rule 10 (1)(c) of the Valuation Rules;
- Where the value of any part of proceeds of any subsequent resale, disposal or use of imported goods accrues to the seller [i.e. Rule (10)(1)(d)] of the Valuation Rules]; and
- Where any other payments are made or are contemplated to be made in future by buyer to seller as a condition of sale of imported goods etc. [i.e. Rule 10(1)(e)] of the Valuation Rules].
3. Renewal of SVB Orders
The requirement of renewal of SVB Orders every 3 years has been done away with immediate effect i.e. from February 9, 2016. Henceforth, SVB shall undertake renewal only in case of change in terms and conditions of sale, royalty or other commercial aspects of the import of goods between the seller and the importer. It has been clarified that in other cases there shall be no requirement of getting the SVB order renewed.
In cases where an application for renewal of SVB Order has been filed and is pending, the importer would be required to file a one-time declaration by May 31, 2016. A declaration in Annexure-1 needs to be filed if there is no change in terms and conditions of sale etc. and the process of renewal shall be dispensed with. On the other hand, in cases involving change in terms and conditions of sale, etc., the importer needs to file a declaration in Annexure-2 and thereafter, the SVB inquiries shall be initiated in terms of the procedure expounded in Circular No. 5/2016-Customs.
4. Change in circumstances surrounding the sale
In any case where, the circumstances of sale or terms and conditions of the agreement between the buyer and related seller change, or any other payments of the kind referred under Rule 10 (1) (c), (d) & (e) of the Valuation Rules are payable, the importers shall be required to declare the same at the place of import in the prescribed format in Annexure C to the Circular. The Proper Officer shall examine the said transactions and the jurisdictional Commissioner shall refer the matter to the jurisdictional SVB, where required.
5. Investigation Report
SVB is required to convey its investigation findings by way of an Investigation Report to the referring customs formation for finalizing the provisional assessments.
6. Some important timelines
| Particulars | Timelines |
| One-time declaration in Annexure 1 (in case of no change in circumstances surrounding the sale); or in Annexure 2 (in case of change in circumstances surrounding the sale) to be filed with the jurisdictional SVB by Importers, in respect of whom SVB Orders are pending renewal. |
By May 31, 2016 |
| In cases where Annexure 1 declaration filed, communication from the SVB to the Customs formations / Appraising groups for finalization of the related provisional assessments, without any further reference to the importer. |
By June 30, 2016 |
| Importers to file a prior Bill of Entry (“BoE”) as provided under second proviso to Section 46(3) of the Customs Act, 1962, in case transaction falls in category to be considered for SVB Investigations. |
Preferably 15 days prior to the import |
| Determination by the Proper Officer whether transaction needs to be investigated by the SVB and submission of findings to Commissioner. | Within 3 days of the filing of BoE and the matter submitted before the Commissioner |
| Importer to furnish the documents including a duly indexed reply to the questionnaire (Annexure B) to the jurisdictional SVB in case matter is referred to the SVB for further investigations by Commissioner. |
Within 60 days |
| All related records to be transferred to the jurisdictional SVB, on completion of the procedure for provisional assessment and issue of the questionnaire (Annexure B). |
3 working days from the release of the goods |
| SVB to complete the investigations and issue its findings. |
Within 2 months from the date of receipt of information in Annexure B Notes:
|
| Proper Officer shall issue a show cause notice to the importer in transactions wherein the declared value has been influenced by the circumstances surrounding the sale. | Within 15 days of receipt of Investigation Report |
7. Extra Duty Deposit
No Security in the form of ‘Extra Duty Deposit’ (“EDD”) to be taken from importers, in order to reduce transaction costs and to bring uniformity across Customs Houses. However, in case importer fails to provide the documents and information required for SVB inquiries within 60 days of requisition of the same, security deposit at a rate of 5% of the declared assessable value shall be imposed by the Commissioner for a period not exceeding the next 3 months. The importer is free to choose manner of furnishing the Security Deposit for the purpose of provisional assessment viz., Cash Deposit or Bank Guarantee. The form of Bond to be initially furnished by the importer is prescribed in Annexure D to the Circular. The form of Bond to be used in a case where taking a Security Deposit becomes necessary is prescribed in Annexure E.
ELP Comments
The streamlining of SVB procedures is a welcome step and supports the Government’s ease of doing business initiative. These guidelines possibly will reduce the administrative efforts and time involved in SVB proceedings, for both importers and Customs Department.
A significant amendment, from Industry’s perspective is formulation of principles on collecting EDD. There are hundreds of crores stuck-up in Customs Department, and with minimizing the practice of collecting EDD, cash flows should ease up. However, no clarity has been provided on existing/pending SVB refunds/monies which are with the Customs Department.
Disclaimer: The information provided in this update is intended for informational purposes only and does not constitute legal opinion or advice. Readers are requested to seek formal legal advice prior to acting upon any of the information provided herein. This update is not intended to address the circumstances of any particular individual or corporate body. There can be no assurance that the judicial/ quasi judicial authorities may not take a position contrary to the views mentioned herein.
Regards
ELP Tax Team