The related party transactions of import of goods are subjected to review by the Special Valuation Branch (SVB) of customs owing the complexities involved therein. Most of the importer were facing issues due to the cumbersome procedure for getting the valuation process complete. Also there were considerable number of cases which were pending to be completed from the SVB Cell of the Custom Department. Pending valuation cases has resulted into uncertainty in the business and therefore there was long pending demand to rationalize the process. The process adopted by the department was hindrance to objective of “ease of doing business in India”. Considering the long pending demand from the Industry the CBEC has issued circular revising the procedure. This article gives insight to the revised procedure and its positives and negatives.
With its objective of “ease of doing business” in India, the Government of India is taking all necessary steps. Some of the recent steps which it has taken includes,
- Online application of Industrial License (IL) and Industrial Entrepreneur Memorandum (IEM) along with simplified format of application.
- A single window portal for obtaining clearances from various governments and government agencies.
- Limiting number of documents required for export and import to three.
- Ministry of Corporate Affairs has introduced an integrated process of incorporation of a company.
- Initial validity period of Industrial License has been increased to three years from two years.
- Process of applying for Environment and Forests clearances has been made online.
- Faster service tax refunds and
there are many more such steps which are taken for ease of doing business in India.
In order to investigate the transaction involving special relationships between buyer – seller or those involving other circumstances surrounding the sale of imported goods, the Special Valuation Branch (SVB) was created. The SVB was specialized in investigating the transactions of import of goods with the related parties / other specialized cases.
As per circular 1/98-Cus dated 01.01.1998 and 11/2001-Cus dated 23.02.2001, importer was required to take following steps,
- In case an importer importing goods from related parties was required furnish a declaration about the relationship in the GATT declaration form at the time of filing of Bill of Entry.
- Upon receipt of declaration, the customs officer at custom station was making reference to Special Valuation Branch for further investigation of influence of relationship on assessable value.
- SVB Cells are located proximate to the Head or Corporate Office of the importer. Currently SVB Cell are located at the custom house in the city of Delhi, Mumbai, Chennai, Kolkata and Bangalore.
- The goods were allowed to be cleared on provisional basis on receipt of PD Bond from the importer.
- The importer is required to pay 1% Extra Duty Deposit on the assessable value of the goods.
- Upon receipt of information, SVB cell used to allot a file number for such importer and issue to issue a standard questionnaire to be replied by the importer.
- If the importer does not furnish complete reply to the questionnaire within 30 days of receipt of the ‘Questionnaire’ by the importer, the extra duty deposit will be increased to 5% from 1% till the date of receipt of reply by the Department.
- The SVB Cell was empowered to investigate the matter giving opportunity of being heard to the importer.
- After necessary investigation, the proper officer issues the Order. The order issued was appealable order.
- Further the order issued was for a period of 3 years from the date of passing the order and transactions were subjected to review after period of 3 years. The review in common parlance was termed as renewal of SVB Order.
However, the Trade and Industry was facing tremendous issues in getting the SVB order / renewal order from the SVB Cell due to following reasons,
- Complex investigation matter.
- Shortage of Manpower at SVB Cell
- Un-necessary delay from the officer at SVB cell
- Change of officers leading to delay in the process
- Delay from importer in submitting the information as asked by SVB Cell
The department tried hard to reduce the pendency by way of regular internal reviews, addition of resources in SVB cell but none of these measures were bearing the fruits. The pendency is getting increased by every passing days causing dissatisfactions amongst the importers.
The pending investigation resulted in,
- Uncertainty due to provisional assessment
- Increase in transaction cost due to extra revenue deposit
- Renewal of SVB order
- Burdensome procedure for getting refund of extra revenue deposit
Over the period, Trade and Industry representing to government for liberalizing this process. The current Government under able leadership of Shri Narendra Modi was determined to look into all the aspects by which it can make India as place where there is ease in doing business. With this objective in mind, the department has issued revised guidelines for investigating the imports from relate parties. The department has issued circular 5/2016-Cus dated 9th Feb 2016 in suppression of the earlier circulars.
Now let’s decode the revised procedure laid down by the department,
a) Transactions which will not be subjected to SVB investigations
The transactions involving insignificant revenue implications will not be subjected to SVB. With this view following transactions will not be subjected to SVB investigations,
- Imports of samples and prototypes from related sellers
- Imports from related sellers where duty chargeable (including additional duty of customs etc) is unconditionally fill exempted or nil:
It is important to note the wording “unconditional” in case the goods are subjected to nil rate of duties subject to some condition then they will be subjected to SVB investigation. For example imports by EOU, SEZ, STPI will be subjected to SVB still they claim full exemption from duties as the exemption is conditional.
- Any transaction where the value of the imported goods is less than Rs 1 Lacs but cumulatively these transactions do not exceed Rs 25 lacs in any financial year.
This is good move however the limits mentioned above are not very less. Higher limit backed by On-site audit by Customs based on Risk assessment module could have resulted further relief to the importer.
b) Transactions which will be subjected to SVB investigations
- Transactions with related parties (not involving above exempted transaction).
- Transactions involving possible addition on account of Royalty / license fees etc
c) Revised procedure for making reference to SVB and procedure thereafter
- At the time of first imports, the importer is requested to file advance BoE so as to avoid possible delay in clearance of goods owing time required for investigation of the case.
- The importer is required to submit information as mentioned in Appendix-A attached to the circular which gives the details about the importer, its relationship, payment terms, agreement with seller, any other payment to seller and its relevant details.
- On receipt of above documents, the appraising officer will review the transactions and circumstances surrounding the sale. The officer will examine whether the case warrants SVB investigation.
- In case the appraising officer feels the case needs to be referred to SVB then matter is required to be submitted to the Commissioner within 3 days of the receipt of the documents from the importer.
- The Commissioner has to take the decision on the matter after due consideration of the facts whether the case merits transfer to SVB or the matter needs to be decided on the basis of available records.
- If warrants, the Commissioner will make reference of the matter to the SVB.
- In case the reference made to SVB, the goods will be cleared provisionally by the appraising officer.
- The appraising officer will also issue requisition for further information to importer for submission to the SVB Cell. The format / questions / information was been given in the Appendix-B to the circular issued by the department.
- The importer is required to submit the information within 60 days to the jurisdictional SVB. If, the importer fails to submit the information within period of 60 days, the security deposit (EDD) @ 5% on assessable value will be imposed by the Commissioner.
- Along with 5% EDD, the importer will be granted further 60 days for submission of the information. In case the importer fails to submit the information, the Commissioner will be duty bound to complete the information on the basis of available records and information.
- The importer has option of give pay the security deposit by way of Bank Guarantee or cash deposit subject to furnishing specified bond in the circular.
- On receipt of the documents at SVB, it will commence the investigation. The SVB cell may call information from the importer is necessary. Opportunity will be given to importer to submit the necessary documents in support of the declared value at the time of imports.
- The SVB cell is duty bound complete the investigation within period of 2 months from the date of receipt of initial information in Annexure-B.
- In case the investigations are not completed within period of 2 months then the Commissioner can grant extension for further period of 2 months. If the investigation are not completed within period of 4 months (2 initial months + 2 extended period by Commissioner) then the files will be put before Chief Commissioner for further extension as is deemed fit by the Chief Commissioner.
- The SVB Cell is expected to submit investigation report to the Commissioner / Principal Commissioner detailing its observations and quantifying the extent of influence in the prices.
- The investigation report will be submitted to the Custom stations and the provisional assessments will be finalized accordingly.
- In case the Investigation findings states that the declared value is influenced by the relationship then the importers will be issued Show Cause Notice (SCN) within 15 days from the receipt of the report.
- In case the imports are from multiple custom stations then a common adjudicating authority will be appointed for finalizing the assessments.
- The adjudicating authority is expected to pass a speaking order based on the submission / reply submitted by the importer to the SCN issued.
- Subsequent imports will be assessed provisionally till the time of receipt of investigation report from the SVB Cell.
- Further in case of change in circumstance surrounding sale the importer is required to give the details in Annexure – C to the circular. Upon receipt of Annexure-C, the entire procedure as mentioned above will be repeated.
The above circular has still not addressing following issues,
- No time line specified for the Chief Commissioner for extension of time period.
- The refund mechanism for Duty Deposit.
- The importer will be required to represent case at three authorities first at the time of imports before appraising officer, second before SVB Cell at the time of investigations and third at Custom Station in case the SCN is issued.
The procedure which the importer is expected to follow for pending cases at SVB has been issued vide separate circular 4/2016-Cus. The circular states that,
- In case the pending cases of renewal of SVB, the importer will be required to submit one time declaration (format prescribed in circular 4/2016 – Annexure – I) by 31st May 2016. Upon submission of the said information the renewal case will be disposed.
- In case of change in the business / information surrounding the import of goods, the importer will have to follow procedure mentioned in Circular 5/2016-Cus as mentioned above.
- For other pending cases (other than renewal cases), in case the importer has submitted all the necessary information then EDD will be disposed. The SVB has to complete this by 31st May 2016.
- In case the importer has not submitted the necessary information and EDD has been increased to 5%, the Commissioner are directed to take action against the import for getting the information as per the provision of the Customs Act, 1962.
On review of above changes one can think whether the objective with which the procedure has been revised will be achieved. It’s anybody guess…!! Let’s wait and watch the outcome of this revised procedure.