Special Valuation Branch (SVB) Assessment – Detailed Legal Procedure

Special Valuation Branch (SVB) Assessment – Detailed Legal Procedure

1. Legal Basis and Objective

The Special Valuation Branch (SVB) functions under the aegis of the Customs Department to examine the valuation of goods imported under circumstances where the declared transaction value may be influenced by the relationship between the importer and the foreign supplier or by other special circumstances.

The SVB procedure derives its statutory authority from:

• Section 14 of the Customs Act, 1962 (valuation of imported goods);
• The Customs Valuation (Determination of Value of Imported Goods) Rules, 2007 (“Valuation Rules, 2007”);
• Section 18 of the Customs Act, 1962 (provisional assessment);
• Central Board of Indirect Taxes and Customs (CBIC) Circular No. 05/2016-Customs dated 9 February 2016 and subsequent clarifications.

The principal objective is to ensure that the declared transaction value reflects the true value for duty purposes when the importer and supplier are “related persons” as defined under Rule 2(2) of the Valuation Rules, 2007.

2. Identification of Cases Requiring SVB Examination

A reference to the SVB is warranted when:

1. The importer declares a relationship with the foreign supplier in the Bill of Entry under Rule 2(2) of the Valuation Rules, 2007; or
2. The proper officer observes circumstances indicating that the price declared may not be the sole consideration for the sale or may have been influenced by factors such as:
   • Royalty or licence fee payments;
   • Technical collaboration or management fees;
   • Transfer pricing implications; or
   • Any other financial or commercial arrangements between related entities.

The initial determination to refer a case to SVB is made by the jurisdictional Commissioner of Customs, based on the recommendation of the assessing group.

SVB units presently function at major Custom Houses in Mumbai, Chennai, Kolkata, Delhi, and Bengaluru, with jurisdiction determined by the importer’s principal place of business in India.

3. Preliminary Scrutiny and Provisional Assessment

1. Upon filing the Bill of Entry, the importer is required to make a declaration regarding relationship and any related-party transactions.
2. The assessing officer examines the declaration and relevant import documents.
3. If the Commissioner authorises a referral to SVB, the assessment is made provisional under Section 18 of the Customs Act, 1962.
4. The importer executes a bond covering the differential duty liability and furnishes an Extra Duty Deposit (EDD), generally at 1% of the assessable value.
   • If the importer fails to cooperate or delays submission of documents, the EDD may be increased (up to 5%) until the investigation is concluded.
5. A Provisional Duty (PD) Circular is issued by the referring Custom House, and the complete case file is transmitted to the jurisdictional SVB within three working days.

4. SVB Registration and Commencement of Investigation

1. On receipt of the reference, the SVB allots a Registration Number and records the case in its central registry maintained by the Directorate General of Valuation (DGOV).
2. The importer is served with a detailed questionnaire in Annexure B, seeking information on pricing policies, ownership structure, royalty payments, cost allocations, and contractual terms.
3. The importer must furnish a complete reply along with supporting documents within 60 days from the date of issue of Annexure B.
4. The SVB may call for additional documents, hold meetings with the importer, or seek inputs from other authorities or overseas offices, as necessary.
5. The investigation aims to determine whether:
   • The declared value is acceptable under Rule 3 of the Valuation Rules, 2007; or
   • Adjustments under Rules 9 or 10 are required due to influence of relationship, royalties, or other considerations.

5. Time-Limits for Investigation

• The SVB is expected to complete its investigation and submit its findings within two months from the date of receipt of complete information from the importer.
• In exceptional circumstances, the period may be extended by the Commissioner for justified reasons.
• The time-limit for finalising provisional assessments (including SVB matters) is governed by the amended Section 18 of the Customs Act, 1962, which prescribes a general limit of two years, extendable by one additional year in specific cases.

6. Preparation and Approval of Investigation Report

1. Upon conclusion of the inquiry, the SVB prepares an Investigation Report (IR) setting out:
   • Background and facts of the case;
   • Submissions made by the importer;
   • Analysis of contractual and pricing arrangements;
   • Findings on whether the declared transaction value has been influenced by the relationship; and
   • Recommendations for acceptance or modification of the declared value.
2. The IR is submitted for approval to the Principal Commissioner/Commissioner of Customs (SVB).
3. After approval, copies of the IR are forwarded to the referring Custom House(s) and, where relevant, to the Directorate General of Valuation and other concerned formations.

7. Finalisation of Assessment

Depending on the findings of the Investigation Report:

1. Where declared value is accepted:
   • The provisional assessment is finalised as per Section 18(2) of the Customs Act;
   • The EDD is refunded to the importer; and
   • The SVB registration remains valid for future imports from the same supplier under identical terms.
2. Where declared value is not accepted:
   • The jurisdictional assessing officer issues a Show Cause Notice (SCN) within the prescribed period, setting out the proposed adjustment and the basis for rejection of the declared value.
   • The importer is afforded an opportunity of personal hearing and may submit written representations.
   • Upon adjudication, a speaking order is issued determining the final assessable value and consequential duty liability.
   • The EDD already deposited is adjusted against the final duty demand; any balance amount is recovered or refunded accordingly.
3. The SVB order/IR is binding across all ports of import for that specific importer–supplier combination.

8. Validity and Renewal of SVB Orders

1. Earlier, SVB orders were subject to automatic review after three years.
2. Pursuant to CBIC Circular 05/2016-Customs (09.02.2016), the requirement for periodic renewal has been abolished.
3. Renewal or re-investigation is now required only if there is a change in circumstances, such as:
   • Modification of ownership or shareholding between importer and supplier;
   • Change in pricing formula, royalty, or technical collaboration agreements; or
   • Introduction of new products or change in the commercial terms of sale.
4. The importer is under a continuing obligation to notify such changes to the jurisdictional Custom House and SVB for fresh examination.

9. Compliance Considerations for Importers

• Ensure complete disclosure of related-party transactions at the time of filing Bills of Entry.
• Maintain contemporaneous documentation including inter-company agreements, transfer pricing studies, royalty/licence fee details, and correspondence evidencing arm’s-length pricing.
• Respond to Annexure B within the prescribed time; delay may result in higher EDD and prolonged provisional assessments.
• Monitor the validity of SVB determinations across ports and ensure consistent compliance.
• Promptly notify Customs of any variation in commercial or ownership structure to avoid penal consequences under Sections 111(m) and 112 of the Customs Act, 1962.

10. Summary of Sequential Steps

11. Conclusion

The SVB mechanism serves as a specialised valuation control to safeguard revenue in cases involving related-party imports. With the procedural reforms introduced through Circular 05/2016-Customs and the amended Section 18, the process has been streamlined — focusing on risk-based referrals, time-bound investigation, and reduced administrative burden for compliant importers.
Importers are advised to maintain transparency, timely submissions, and proactive disclosure to ensure smooth clearance and finalisation of assessments.

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