The Central Board of Excise and Customs (CBEC) has comprehensively revised the procedure for examination of related party transactions by the Special Valuation Branch (SVB). Presently, SVB investigates transactions involving relationship and certain other special features like technical collaboration etc. between suppliers and importers, to determine influence of such relationship on the invoice value of imported goods. SVBs are currently housed in Mumbai, Delhi, Chennai, Kolkata and Bangalore which take cases for adjudication of importers most proximate to their location. Usually SVB mandates provisional assessment with 1% Extra Duty Deposit (EDD) till finalization of the case, and case is finalized by issuing an appealable order subject to periodical review after every 3 years.

Circular no 4/2016 and 5/2016 dated 09 February 2016 lay down a new procedure for referral and investigation of related party transactions by SVBs.   

Circular 4/2016 dated 09 February 2016

  1. Automatic renewal of existing SVB orders pending renewal by filing one-time declaration by 31 May 2016, if there is no change in the circumstances surrounding sale of goods between the parties. EDD to be discontinued and provisional assessments would be finalised based on the SVB order under renewal.
  2. If any change in the circumstances surrounding the sale of goods is reported by the importer, enquiries would be initiated as per Circular 5/2016.
  3. In case of pending SVB investigation where importer has provided requisite information and documents, EDD to be discontinued immediately.

Circular 5/2016 dated 09 February 2016

  1. Importer to furnish requisite information at the time of first import to enable the jurisdictional Commissioner to judiciously decide on the reference of cases to SVB for further investigation
  2. Investigation by SVB in the following cases dispensed with:
    1. Import of samples and prototypes from related sellers
    2. Imported goods which are unconditionally fully exempt from customs duty
    3. Imported goods where nil rate is prescribed for customs duty
    4. Value of imported goods is less than INR 1,00,000 per transaction provided the cumulative value of imported goods does not exceed INR 25,00,000
  3. Appraising officers are allowed to decide cases involving royalty, license fee and flow back without referring to SVB. Importers are advised to file advance bill of entry to allow appraising officer’s sufficient time to determine if reference to SVB is required.
  4. SVB to investigate and quantify the extent of influence on the transaction value, if any, and submit an investigation report to the jurisdictional commissioner for issuance of a show cause notice to the importer by the proper officer. If no influence found on the transaction value, provisional assessment shall be finalised forthwith without any notice or speaking order.
  5. SVB shall complete the investigation within 2 months of receipt of requisite information and documents from the importer, which can be extended by the Commissioner for a period of another 2 months and by the Chief Commissioner for an appropriate period where the investigation is not completed within 4 months. All pending investigation (commenced on or before 31 December 2015) shall be completed by 31 October 2016.
  6. In case of pending SVB investigations, where requisite information and documents are not submitted by the importer within 60 days of requisition, 5% security deposit shall be collected for a period not exceeding 3 months. At the option of the importer, the security deposit can be paid either by cash or bank guarantee.

Comment

While the procedure for investigation by SVB has now been simplified to an extent, by removing uncertainty in the assessments, reducing transaction cost on account of EDD and eliminating multiple appeals by issuance of speaking orders, the measures appear to be halfhearted. Determination of influence for reasons of payment of royalty, license fee and flow back by appraising officers would continue to lead into multiple orders and appeals.