In case of transactions between associated enterprises Special Valuation Branch of Customs (“SVB”) investigates such transactions to arrive at arms’ length price in terms of the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007 [“the Customs Valuation Rules”]. The Central Board of Excise & Customs (“the CBEC”) has prescribed procedure in this regard vide Circular No. 1/98-Cus. Dated January 1, 1998 read with Circular No. 11/2001-Cus. February 23, 2001 (“the Earlier SVB Circulars”) to be followed by the SVB and importers.

The CBEC, in supersession of the Earlier SVB Circulars, issued Circular Nos. 4/2016-Cus. and 5/2016-Cus. both dated February 9, 2016, laid down revised procedure with immediate effect thereby bringing significant changes in the way investigations of transaction with associated enterprises of imported goods is investigated to arrive at arms’ length price. 

1. Circular No. 5/2016-Cus. dated February 9, 2016 – New cases for investigation

1.1 Control over SVBs

• SVB continue to be located at Bangalore, Chennai, Delhi, Kolkata and Mumbai and importer can select SVB which proximate to its corporate office.
• SVBs to function under supervisory control of the Jurisdictional Chief Commissioner/ Principal Chief Commissioner/ Commissioner of Customs (“the Commissioner”).
• The Directorate General of Valuation (“the DGOV”) continue to qualitatively monitor Investigation Reports issued by SVB.

1.2 Extra Duty Deposits (“EDD”)

• If assessment provisional then no security in form of EDD to be taken from importer.
• If importer fails to provide required information within sixty days or further extended period of sixty days, security deposit at 5% of declared assessable value to be imposed for a maximum period upto three months. Security deposit may be cash or bank guarantee.
• Bond to be initially submitted by importer in prescribed form.
• Importer to submit specified information within 60 days. In case of failure to submit information the Commissioner may take actions under the Customs Act, 1962 (“the Customs Act”).
• SVB to submit their findings through Investigation Report, after review by the Commissioner, to the Customs Appraising Group for finalizing of provisional assessment. No appealable orders to be passed by SVB.
• Importer to submit information in specified format to enable the Commissioner to take decision whether case needs to be referred to SVBs for investigation or not.
• List of cases not be taken up reference to SVB prescribed.
• Apart from related party transactions the following type of cases to be referred for SVB investigation:
  1. Royalty and license fees under Rule 10(1)(c) of the Customs Valuation Rules.
  2. If value of parts or proceeds of subsequent resale, disposal or use of imported goods accrues to seller as per Rule 10(1)(d) of the Customs Valuation Rules.
  3. Any other payment made to seller in connection sale of imported goods as per Rule 10(1)(e) of the Customs Valuation Rules.

1.3 Procedure for considering reference to SVB

• For first instance of import from associated enterprises, importers required to:
  1. File advance Bill of Entry preferably 15 days prior to import, and
  2. Provide information as prescribed in Annexure A of the Circular and Rule 3(3)(b) of the Customs Valuation Rules.
• The Proper Officer to decide matter within three days of filing of Bill of Entry on the basis of specified parameters and submit his findings to the Commissioner, who will decide whether the matter be referred to SVBs or not.

1.4 Procedure for reference to SVB

• In case matter is referred to SVB by the Commissioner, the Proper Officer to provisionally assess imported goods under Section 18 of the Customs Act.
• Additional information, if any, required from importer to be called as per specified format, which on receipt to be transferred to SVB within three working days of release of goods. 

1.5 Procedure in SVB

• During course of inquiries, the Deputy Commissioner (SVB) to call for additional information from importer within reasonable time.
• Investigation to be completed by SVB within two months from the date of receipt of information from importer. Further approval of the Commissioner must for extension of time period if investigation not completed by SVB within stipulated time. If investigation not completed within four months from the date of receipt of information, matter to be placed before the Chief Commissioner for extension of time.
• Upon completion of investigation, SVB to submit detailed findings to the Commissioner.
• On approval of the Commissioner, an Investigation Report to be drafted by SVB detailing grounds on which transaction value is accepted/ rejected. Investigation Report to be submitted to Custom House where goods were provisionally assessed along with one copy of report to the DGOV.

1.6 Finalization of Assessment

• On receipt of Investigation Report, which states that declared value found to confirming to Rule 3 of the Customs Valuation Rules, Customs Station to proceed to finalise provisional assessments without issue of speaking order in the matter.
• Where Investigation Report states that declared value influenced by circumstances surrounding the same, the Proper Officer to issue a show cause notice to importer within fifteen days of receipt thereof and pass a speaking order in the matter. In case importer imported goods from multiple Customs Houses, a request to be made to the CBEC for appointment of a common Adjudicating Authority.
• Orders of Adjudicating Authority appealable in terms of the Customs Act.

1.7 Non-renewal of SVB orders

• System of renewal of SVB orders discontinued. 

1.8 Declaration of change in circumstances

• In case of any change in terms of sale between related parties or any payment under Rule 10(1)(c), (d) and (e) of the Customs Valuation Rules becomes payable, importer to declare such information in prescribed format.

2. Circular No. 4/2016 – Cus. February 9, 2016 - Pending and renewal SVB cases

2.1. Renewal of the SVB Orders

• Importers to submit one-time declaration in prescribed format by May 31, 2016.
• Once declaration made process of renewal treated as dispensed with.
• SVB to inform Custom Stations to discontinue EDD and finalize provisional assessments.
• In case of change in circumstances of sale, SVB inquiries to be initiated in terms of Circular No. 5/2016-Cus.

2.2. The pending SVB investigations

• For all pending cases where EDD obtained, to be reviewed in terms of Circular No. 5/2016Cus. by May 31, 2016.
• If due to failure on the part of importer to provide information and EDD is enhanced to 5%, the Commissioner to take appropriate action as per the Customs Act for obtaining necessary documents.
• Thereafter procedure prescribed in Circular No. 5/2016-Cus.to be followed.
• The jurisdictional Commissioner of all existing SVBs to draw up action plan to dispose of all pending cases by October 31, 2016.