Revamped Special Valuation Branch guidelines... Better late than never!!!

By Vijay Kumar

AND for a more detailed analysis of the SVB story, here is an article written by Suresh Nair, Partner in EY. In November 2014, we had carried his article, TARC recommendations - 'Beginning of end' for SVB?

The Tax Administrative Reforms Committee (TARC) in its second report had identified and highlighted the challenges with the present Special Valuation Branch (SVB) process including

++ "Gate keeper" approach and the traditional control mechanisms.

++ Huge pendency in SVB cases and quality of decisions.

++ Requirement of extra duty deposit (EDD).

++ Increase of EDD from 1% to 5% at slightest delay on the part of the importers in providing documents/details.

++ Resistance of Customs to discontinue the EDD on furnishing of required documents/details despite specific mention in relevant Circular.

The Committee had recommended that related party transactions be handled through the post-clearance audit mechanism thereby suggesting discontinuation of the said SVB mechanism.

Legal Corner Icon — the image was hosted by the publisher and was not captured.Well, CBEC has taken note of the above. After almost 15 years, we now have two new back to back Circulars (Circular No 4 and 5, both dated 9 February 2016) which would potentially trigger a completely different approach to the functioning of SVB.

One major relief is that, going forward, no EDD payment is required for related party transactions if all documents required for SVB investigations are submitted within 60 days from the date on which the assessing officer at the port of import calls for the relevant information.

If the information is not submitted with the said period, Security Deposit @ 5% (either in Cash or Bank Guarantee) of declared assessable value would be imposed by the Commissioner for a period not exceeding 3 months. Industry would hope that the Department follows the Circular strictly which should then be beneficial as compared to the current practise followed.

For imports through ports under the jurisdiction of Mumbai/Delhi/Chennai/Kolkata/ Bangalore Custom House, the importer would be free to approach the SVB of the Customs House of import or the Customs House most proximate to their corporate office.

The Circular also provides the option to the proper officer at the Customs station of import to finalise the assessment basis enquiries or to refer the matter to the SVB. Typically, the investigations by SVB are required to be completed within 2 months from receipt of required information, extendable by approval of Commissioner/Chief Commissioner. Import of samples, prototypes, nil rated/unconditionally exempted goods and goods with lower than stipulated value are not to be referred to SVB which is a positive move.

Another relevant change is that the concept of “SVB Order” has been put to rest. Pursuant to scrutiny of information / documents submitted, the SVB office would going forward issue an Investigation Report (IR) to the Customs assessing officers at the port of Import who would finalise the provisional assessments accordingly. In case the IR proposes that declared value has been influenced due to related party relationship, then a show cause notice would be issued to the importer before finalising the provisional assessment.

A detailed procedure for speedy disposal of cases currently pending with the SVB for renewal has also been conceptualised. “One time Declaration” would need to be submitted on the letter head of the importer to the SVB office and formats of the same have been provided in the said Circular no. 4. The Declarations are largely aligned to the Affidavits that the importers file at the time of applying for renewal of SVB Orders. Even in case where there are changes in the terms and conditions or circumstances relating to the sale of goods / new agreement / change in royalty payment etc , the “One Time Declaration” would need to be submitted. Two specific formats (one for change and one for cases where there is no change) have been provided for to meet the requirements of the importer.

For import transactions where there is no change in the circumstances surrounding the import transactions and valuation thereof (i.e for importers who file the “One Time Declaration” in Annexure 1), the process of renewal would be treated as dispensed with and Extra Duty Deposit (EDD) would be discontinued immediately. This should be a big relief to the related party importers with SVB renewals pending for a long time and yet bearing the brunt of 1% EDD.

There is also a specific reference of discontinuing EDD in all cases where SVB is pending investigations (other than renewal cases also) if the importer has provided information and documents as called for by the SVB. A time line of 31 May 2016 has been specified for this purpose to enable the SVB office to carry out its due diligence.

SVB is now back under the functional control of the jurisdictional Commissionerate. The Director General of Valuation has now been relieved of this function while they would continue to monitor the quality of investigation report of the SVB and also support the SVB by way of issuance of guidance notes.

Before Parting:

Hopefully, both the Circulars would go a long way in bringing a smile back on the Importers who have struggled to get their SVB files cleared from the Department. As they say, ‘the proof of the pudding would be in eating” and Industry would expect that the Department ensures strict compliance to the guidelines mentioned in the said Circulars, which would make the long 15 year wait worth it at the end of the day. This should also importantly address the ‘Ease of Business' agenda of the Government !!!