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EY T ax Alert

CBEC issues Circulars laying down procedure for investigation of related party import cases by Special Valuation Branch of Customs

12 February 2016

Tax Alerts cover significant tax news, developments and changes in legislation that affect Indian businesses. They act as technical summaries to keep you on top of the latest tax issues. For more information, please contact your EY advisor. Executive summary

This Tax Alert summarizes Circulars1 issued by Central Board of Excise & Customs (‘CBEC’) prescribing procedure for investigation of related party import cases and other cases by the Special Valuation Branch (‘SVB’) of Customs. It also prescribes procedure for renewal of SVB orders and ongoing SVB inquiries.

Key aspects of the prescribed procedure is laid down below:

?No security in the form of Extra Duty Deposit (‘EDD’) shall be collected from the importers. However, if the importer fails to provide requisite documents / information within 60 days, security deposit (either in cash or bank

guarantee) at a rate of 5% of the declared assessable value shall be

collected for a period not exceeding three months.

?SVB shall not issue an appealable order. Instead, it shall convey its investigative findings by way of an Investigation Report to the referring

customs formation for finalizing the provisional assessments.

?In cases involving additions to value on account of royalty, licence fee etc, importers are advised to file a prior bill of entry, preferably 15 days prior to the import.

?SVBs shall complete the investigations and issue its findings within two months from the date of receipt of information wherever possible. In cases where investigations are not completed within 2 months, SVB shall seek the approval of appropriate authority for extension of time period.

?Circular No 5/ 2016 dated 9 February 2016 is issued in supersession of Circular No. 1/98 – Cus dated 1 January 1998 and 11/2001-Cus dated 23 February 2001.

[1][Circular No. 4/2016 and 5/2016 dated 9 February 2016]

Background

?SVB specialises in investigation of

transactions involving special

relationships between the buyer and the

seller or those involving other special

circumstances surrounding the import of

goods, both of which have a bearing on

the assessable value.

?Detailed instructions were issued

vide Circular Nos. 1/98 - Cus dated 1

January 1998 and 11/2001-Cus dated

23 February 2001, prescribing the

procedure to be observed by the Custom

Houses (‘CH’) for referring cases to SVB

and time lines to be followed for

finalising such cases.

?However, trade and industry has been repeatedly representing to the

Government regarding issues faced by

them such as:

?Delays in finalisation of SVB

investigations,

?Continued incertainty due to

provisional assessments,

?Increase in transaction costs due to EDD,

?Burdensome procedure of removal of SVB orders

?Further, the aforesaid Circulars were based upon the Customs Valuation

(Determination of Price of imported

goods), Rules, 1988, which have since

been superseded by the Customs

Valuation (Determination of Value of

Imported Goods) Rules, 2007 (‘CVR’).

?Accordingly, after considering the above and the large number of SVB

investigations pending in various CHs, a

need had been felt to streamline the

procedures relating to investigations

done by SVBs.

Procedure for investigation of related party import cases by SVB2

2 As per Circular No 5/2016 dated 9 February 2016 Person in charge of the functions of SVB

?SVB shall function under the supervisory control of the jurisdictional Chief

Commissioner / Principal Commissioner /

Commissioner.

?Previously, Director General of Valuation (‘DGoV’) was in charge of the functioning

of SVB. They shall continue to support

the SVBs by qualitatively monitoring

investigation orders issued by SVBs. Jurisdiction of SVBs

?SVBs are presently functioning at the CH at Bengaluru, Chennai, Kolkata, Delhi

and Mumbai.

?The jurisdiction of the SVBs shall be based upon the principle of location of

the corporate office of the importer.

?Accordingly, as and when imports

requiring investigation by SVBs are

noticed at any customs formation, the

concerned Commissionerate shall

transfer all relevant records to the

jurisdictional SVB for investigations.

?However, in cases where the import takes place through CH locations as above, the

importer will be free to select the SVB of

the CH of import or the CH most

proximate to the corporate office, as

convenient to him.

Extra Duty Deposits

?Currently, EDD @ 1% of declared

assessable value is being collected from

the importer for a period of 4 months

during which time he is required to

submit required documents and

information to the SVB.

?In the event of non-submission of

documents within aforesaid timelimit,

the EDD can be increased to 5% till such

time the importer complies.

?Upon the importer complying with the requisition for documents and

information, Circular 11/ 2001 provides

that EDD shall be discontinued.

?As per the Circular henceforth, no

security in the form of EDD shall be

collected from the importers.

?However, if the importer fails to provide requisite documents and information

within 60 days, security deposit at the

rate of 5% of the declared assessable

value shall be collected by the

Commissioner for a period not exceeding

three months.

?At the same time, the importer shall be granted a further period of 60 days to

comply with the requisition.

?If the importer fails to submit documents / information within this extended

period, the Commissioner may consider

the use of other provisions of the

Customs Act for obtaining the same from

an importer.

?In no case shall the imposition of security deposit exceed the period of three

months specified above.

?Furthermore, the importer would be free to choose whether the security deposit

to be provided for the purposes of

provisional assessment shall be by way of

cash deposit or a Bank Guarantee.

No appealable orders

?Henceforth, SVB shall not issue an appealable order. Instead, it shall convey

its investigative findings by way of an

Investigation Report (‘IR’) to the

referring customs formation for finalizing

the provisional assessments.

?CBEC has now introduced a

questionnaire to be filled by the importer

which would enable the jurisdictional

Commissioner to take a decision on

whether a case needs to be referred to

SVB for investigations.

Cases not be taken up for inquiries by SVBs:

?Import of samples and prototypes from related sellers.

3 Includes additional duty of Customs

4As defined under Rule 2 (2) of CVR

5 As per rule 10 (1)(c) of CVR ?Imports from related sellers where duty chargeable3is unconditionally fully

exempted or nil.

?Any transaction where the value of imported goods is less than Rs 1 lac but

cumulatively these transactions do not

exceed Rs 25 lacs in any financial year.

Cases which may be considered for SVB investigations:

?Where any importer makes a declaration that the transaction is between ‘related

persons’4, it would be necessary to

examine whether or not the

circumstances surrounding the import of

goods indicate that the relationship has

influenced the price.

?In cases involving possible additions to declared transaction value with respect

to the following:

?royalty and licence fee5 or

?where the value of any part of

proceeds of any subsequent resale,

disposal or use of imported goods

accrues to the seller6 or

?where any other payments are made or to be made by the buyer to seller

as a condition of sale of imported

goods etc.7

Procedure for considering reference to SVB

?In cases involving additions to value on account of royalty, licence fee etc,

importers are advised to file a prior bill of

entry8, preferably 15 days prior to the

import.

?The importers are also advised to provide prescribed information at the time of

filing of the Bill of Entry itself.

?This would be necessary only in the first instance of import. Once a decision has

been taken regarding referring the

matter to SVB or not, there would be no

need for such advance filing of the Bill of

Entry for subsequent import.

6 As per Rule 10(1)(d) of CVR

7 As per rule 10(1)(e) of CVR

8 As provided under the second proviso to section 46 (3) of the Customs Act, 1962

?Upon filing of the Bill of Entry, and

receipt of information, the proper officer

(‘officer’) shall proceed to determine

whether, prima facie, there is a need for

investigation by the SVB.

?He shall complete such examination within 3 days of the filing of Bill of Entry.

The matter will be submitted before the

Commissioner.

?The officer shall examine the case on parameters such as transfer price, the

basis on which it is derived, etc.

?After examining the transaction on the above lines, the officer shall submit the

findings to the Commissioner for a

decision on whether the case is fit for

being referred to the SVB for

investigations.

?The Commissioner shall after due

consideration of the preliminary findings,

take a considered view whether:

?the matter be referred to the SVB for further investigations and the goods

be provisionally assessed to duty9 or ?the transaction does not merit

investigations by SVB and that

assessment be finalised on the basis

of enquiries to be conducted by the

officer10 or

?the transaction be assessed in terms of rule 3 of CVR.

Procedure post reference to SVB:

?In the event of the Commissioner

directing investigations by SVB, the

officer shall promptly carry out

provisional assessment in terms of

section 18 of the Customs Act, 1962 and

alongside requisition further information

from the importer.

?The importer should be advised to

furnish the documents and a duly

indexed reply to the questionnaire to the

jurisdictional SVB within 60 days.

?Upon completion of the procedure for provisional assessment and issue of the

9 As per section 18 of the Customs Act

questionnaire, all related records shall be

transferred to the jurisdictional SVB, and

in no case later than 3 working days of

the release of the goods.

?The documents received from the

importer shall be duly acknowledged by

the SVB.

Procedure in Special Valuation Branch

?Upon receipt of information, SVB shall commence inquiries. The Deputy

Commissioner / Asst. Commissioner

(SVB) may call for further documents or

information as required. The importer

shall also be given suitable

opportunity to submit evidence in

support of the declared value.

?SVBs shall, as far as possible, complete the investigations and issue its findings

within two months from the date of

receipt of information.

?In cases where investigations are not completed within 2 months, the SVB

shall seek the approval of the

jurisdictional Commissioner for such

extended time period as is deemed

necessary to complete investigations.

?However, where investigations are not completed within 4 months from the date

of receipt of information, the matter

shall be submitted before the Chief

Commissioner for extension of period as

is deemed fit.

?Upon completing investigations, the SVB shall submit the findings before the

Principal Commissioner/Commissioner,

quantifying the extent of influence on the

transaction value due to

?the relationship

?or payments towards royalty or

licence fee or other payments actually

made or to be made as a condition of

sale of the imported goods.

?Upon approval by the Principal

Commissioner / Commissioner, an

Investigation Report (‘IR’) shall be

prepared incorporating all relevant facts,

submissions made by the importer,

10As per Rules 4 to 9 of the CVR

investigative findings, grounds for

acceptance or rejection of transaction

value, and the extent of influence on

declared transaction value, if any.

? A copy of the IR shall also be sent to the DGoV.

Finalisation of assessments

?Upon receipt of the IR from the SVB, where investigative findings are that the

declared value is found conforming to

rule 3 of the CVR, the customs stations

where provisional assessments have

been undertaken shall immediately

proceed to finalize the same.

?However, when investigative findings are that the declared value has been

influenced by the circumstances

surrounding the sale, the officer shall

issue a show cause notice to the

importer within 15 days of the receipt of

the IR, under intimation to the concerned

SVB.

?The adjudicating authority shall, after following the principles of natural justice,

pass an order quantifying the extent of

influence on the declared transaction

value.

Changes in circumstances surrounding the sale

?In any case where, the circumstances of sale or terms and conditions of the

agreement between the buyer and

related seller change, or any other

payments11 become payable, the

importers shall be required to declare the

same at the place of import in the

prescribed format.

?In all such cases, the officer shall

examine the transactions as per

procedures laid out above and the

jurisdictional Commissioner shall refer

the matter to the jurisdictional SVB,

where required.

?In view of the above, the system of renewal of SVB orders has been

discontinued with immediate effect.

11 As referred under Rule 10 (1) (c), (d) & (e) of the CVR

12 Circular No 4 / 2016 dated 9 February 2016 Monitoring of SVB investigations

?DGoV shall monitor the progress of the investigations and report to the Board

cases involving any inordinate delays.

?Circular No 5/ 2016 dated 9 February 2016 is issued in supersession of

Circular No. 1/98 – Cus dated 1 January

1998 and 11/2001-Cus dated 23

February 2001.

Procedure for renewal of SVB orders and ongoing SVB inquiries12

?To facilitate quick disposal of cases currently pending with SVBs for renewal,

a system of one-time declaration is being

provided. Importers shall submit to the

jurisdictional SVB, a declaration in the

prescribed formats by 31 May 2016.

?In case the importer files declaration in Annexure 1 (declaring no change in

circumstances surrounding sale of

goods), the process of renewal would be

treated as dispensed with.

?Consequently, the SVB shall immediately inform the Custom stations where

provisional assessments have re-started

due to the process of renewal to

immediately discontinue collecting EDD

and finalize the related provisional

assessments, without any further

reference to the importer.

?The communication from SVBs to the Customs formations / Appraising groups

must be sent by 30 June 2016.

?In case the importer files declaration in Annexure 2 (declaring change in

circumstances surrounding sale of

goods), SVB inquiries shall be initiated as

per the prescribed procedure13. Pending SVB Investigations

?All pending SVB investigations (other than renewal cases), where EDD is being

13 In terms of the procedure stated in Circular No. 5/2016 dated 9 February 2016

obtained are required to be reviewed as

per the new procedure prescribed above.?EDD shall be discontinued where the importer has provided the required

information and documents. This

exercise shall be completed by 31 May

2016.

?In cases where EDD has been enhanced to 5%, on account of non-provision of

necessary information or documents for

SVB inquiries, the Commissioner shall

immediately take recourse to appropriate

provisions under the Customs Act for

obtaining the necessary documents for

investigations and shall subsequently

dispense with the EDD. Comments

The new procedure prescribed by

CBEC will not only provide much

needed relief to the importers in

case of transactions involving

special relationships and

circumstances but will also

facilitate ease of doing business

through radical shift in the

approach and functioning of SVB.

The success in bringing down the

time taken in disposal of cases

and making the process less

burdensome, will however

depend on its efficient

implementation by the revenue

department. On the other hand

timely adherence to the

simplified compliance

requirements will help importers

overcome their grievances.

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