TaxTMI 
TaxTMI 
Your SVB order and your transfer pricing study probably don't agree with each other
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....our SVB order and your transfer pricing study probably don't agree with each other<br>By: - Pradeep Reddy Unnathi Partners<br>Goods and Services Tax - GST<br>Dated:- 17-9-2026<br>I moderated the Global Trade Compliance and Customs Duty session at Vyapar Pe Vichar 2026 last week, hosted by Customs Trade and Compliance India in Pune. On the panel: practitioners Tanya Miglani and Anand Mohagaonkar, alongside industry leader R Sampath Raghavan. We spent 90 minutes on SCOMET, the WMD Act, sanctions, and SVB. Four separate regimes. Four separate teams usually own them, or don't own them at all. Here's the thing that came up more than once in that room: none of these show up as a crisis on day one. They show up as a show cause notice....
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...., a demand order, or a licence suspension, and by the time they do, the underlying gap has usually existed for years. SCOMET catches more than most exporters expect SCOMET stands for Special Chemicals, Organisms, Materials, Equipment and Technologies. It's India's dual-use export control list, sitting in Appendix 3 to Schedule 2 of the ITC(HS) Classification, and it runs off Chapter 10 of the Foreign Trade Policy 2023. The list has 9 categories, numbered 0 to 8 (Category 7 is reserved). Category 0 covers nuclear material, handled by the Department of Atomic Energy. Categories 1 to 5 cover toxic chemicals, micro-organisms and toxins, materials and processing equipment, nuclear-related equipment, and aerospace systems. Catego....
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....ry 6 is munitions, under the Ministry of Defence. Category 8 is the one that surprises people: electronics, computers, telecommunications equipment, sensors, lasers, navigation systems, and marine or aerospace propulsion components. That last category is why a company making industrial sensors, or a contract manufacturer producing a navigation-adjacent component, can find itself needing a SCOMET authorisation without ever thinking of itself as an arms exporter. Export of a listed item is either prohibited or requires authorisation, with narrow exemptions for SEZ and EOU transfers. Different authorisation types apply depending on whether it's a one-off sale, a repair, a temporary export, or an intra-company transfer, and general autho....
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....risations carry a post-export reporting obligation. If your product touches electronics, sensors, or specialised materials and you've never run it against Appendix 3, that's the first gap to close, not the last. The WMD Act now expects a programme, not a reaction The Weapons of Mass Destruction and their Delivery Systems (Prohibition of Unlawful Activities) Act, 2005 sits behind SCOMET enforcement. Section 10 prohibits manufacturing, possessing, or transporting nuclear, biological, or chemical weapons. Section 11 bars exporting equipment, technology, or materials primarily intended for WMD manufacture. Section 12 prohibits brokering restricted financial deals connected to these activities. The 2022 amendment added Sectio....
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....n 12A, which brings in targeted financial sanctions tied to UN Security Council Resolutions 1718 and 2231, the North Korea and Iran designation regimes. It gives the central government power to freeze, seize, or attach the funds and economic resources of designated persons or entities, and bars anyone from financing a prohibited WMD-related activity. The Department of Revenue's implementation order for Section 12A came on 20 October 2023. Penalties under the Act are not token amounts. Section 16 sets a fine of Rs. 3 lakh to Rs. 20 lakh for a first export-related offence, rising to imprisonment of 6 months to 5 years plus fine for repeat violations. Section 18 deals with forgery of documents, at a minimum fine of Rs. 5 lakh or 5 times....
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.... the value of the technology or service involved, whichever is higher. None of that requires you to have a compliance programme in a strict statutory sense. What's changed is the incentive structure. The Internal Compliance Programme concept comes from Wassenaar Arrangement best-practice guidance rather than the WMD Act itself, but DGFT Public Notice No. 40/2024-25, dated 15 January 2025, states that an exporter who has implemented or improved an ICP can have that treated as a mitigating factor when penalties or corrective action are decided. An ICP is mandatory for specific schemes, including Global Authorisation for Inter-Company Transfers, the General Authorisation for Export of Drones, and telecom and information security authori....
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....sations. For everything else, it's the difference between a documented, defensible process and a scramble to reconstruct one after DGFT has already asked the question. Secondary sanctions reach you without a single US transaction This is the one that catches Indian companies off guard, because the instinct is to check for a direct US nexus and stop there. Secondary sanctions don't require one. OFAC and the US State Department can designate a non-US entity, including an Indian company, for providing material support to a sanctioned party, most commonly Russia-linked entities at present, with no US touchpoint of its own. The exposure usually doesn't arrive as a direct designation. It arrives through your bank. A foreig....
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....n financial institution that facilitates transactions for a sanctioned counterparty risks losing its own US correspondent banking access. That risk cascades down to its corporate clients through frozen accounts or terminated banking relationships, which is how a company with zero US business ends up unable to move money. The Department of Justice has prosecuted Indian nationals for routing controlled components to prohibited Russian end-users through intermediaries, which is the counterparty-network version of the same exposure. Complex payment chains through correspondent banks and third-country intermediaries create a third route, sometimes without either party fully understanding what the funds passed through. The practical response i....
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....sn't a one-time sanctions check. It's mapping your counterparties, their beneficial ownership, and your payment routes on an ongoing basis, and being suspicious of any payment structure that exists mainly to obscure where money is coming from or going to. SVB and transfer pricing are answering different questions The Special Valuation Branch and your transfer pricing documentation both apply the arm's length principle to the same related-party transactions. That's where the similarity ends. Customs, through SVB, is checking whether you've undervalued imports to reduce duty. Income tax, through transfer pricing, is checking whether you've priced imports or paid related parties in a way that shifts profit out ....
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....of India. Those are opposite pressures on the same number: customs wants to see that your import price isn't too low, transfer pricing wants to see that it isn't too high. The methods differ too. Transfer pricing offers 6 methods with no mandated order; you pick the most defensible one for your facts. Customs valuation under the Customs Valuation Rules requires you to reject each method in sequence before moving to the next, and land on Rule 3(3) or Rule 9 as the actual test for related-party influence on price. Since the 2016 reform, SVB registration is a one-time declaration rather than the earlier system of repeating the entire process every 3 years. The investigation order that results applies as a provisional assessment a....
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....cross ports until something material changes. Transfer pricing documentation, by contrast, gets prepared annually. That's the structural mismatch: a customs position that gets fixed at a point in time, sitting next to a tax position that gets refreshed every year, with nobody assigned to check whether the two still agree with each other. Why the gap turns into a demand years later None of this shows up immediately, which is exactly why it doesn't get fixed. Your SVB order gets finalised. Your transfer pricing study gets filed with Form 3CEB each year. Nobody circulates the annual TP report to the customs team, because customs isn't in the loop on the tax filing calendar, and the tax team isn't tracking whether the S....
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....VB order is still current. Inconsistencies build up quietly between the intercompany agreements, the TP documentation, the SVB submission, and the customs declarations actually filed at each port. Then a customs audit, a DRI investigation, or simply a change in your group's TP methodology surfaces the inconsistency, and customs treats every affected import going back years as a fresh occasion for a show cause notice. Differential duty and interest accrue for the full period under dispute, and litigation to resolve it runs for years more. By the time it's raised, you're not arguing about last quarter's pricing. You're arguing about a position taken 3 or 4 years ago, defended with documents two different teams wrote wit....
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....hout talking to each other. Who actually owns each of these inside your organisation Ask most mid-size companies who owns SCOMET classification and you'll get a shrug, or an answer that assumes it's someone in logistics. Ask who owns WMD Act compliance and the honest answer is often nobody, because it's read as a legal-department footnote rather than an operational requirement. Sanctions screening frequently sits with treasury or the bank relationship team, reactive rather than continuous. SVB and transfer pricing usually sit in two different departments that report to two different people and rarely compare notes. That's the real finding from the Pune session, more than any one regime on its own. Each of these four....
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.... has an owner somewhere in a typical Customs or Indirect Tax function, right up until the point where two of them intersect, and the intersection is where nobody's job description covers the gap. What to check this quarter Start with a straight classification exercise: run your product catalogue against SCOMET Appendix 3, particularly Category 8 if you make or handle electronics, sensors, or navigation-adjacent components, and document the outcome even where the answer is that nothing's listed. Pair that with an honest look at whether you have anything resembling an Internal Compliance Programme, because DGFT is now telling you in writing that having one changes how a penalty gets decided. Separately, get your compliance or....
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.... treasury function to map every counterparty and payment route with cross-border exposure, including the ones nobody's flagged before. Ask them to explain any structure that routes payment through multiple intermediaries before accepting it. Then pull your last SVB order and your most recent transfer pricing study for the same related-party imports, and put them side by side. If nobody in your organisation has done that comparison in the last year, that's the gap most likely to become an SCN with your name on it. If one of these four is unowned in your organisation That's the discussion question the Pune panel left the room with, and it's worth asking in your own compliance or indirect tax function this week: of SCO....
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....MET classification, WMD Act and ICP readiness, sanctions screening, and SVB-TP alignment, which one currently has nobody's name against it? We advise companies on export control classification, WMD Act and sanctions compliance frameworks, and SVB-transfer pricing alignment reviews. If you want a view on where your own exposure sits, write to us at [email protected]. =============<br> Scholarly articles for knowledge sharing by authors, experts, professionals ....