Special Valuation Branch- Need Of The Hour Is Completing Investigation In Time Before It Loses Its Importance

Special Valuation Branch (SVB) is a branch which specializes in investigation and assessment of transactions between related persons i.e. when Buyer and Seller are related. SVB has been set up in five major Customs Houses, for examining the arm's length transactions between two related persons and examining the includability of statutory additions to Rule 10 of the Customs Valuation Rules, 2007. The SVB is also expected to closely co-ordinate with the Income Tax Department (Transfer Pricing division). The SVB has been examining the transaction value between the related persons, under Customs Valuation Rules, 1963, Customs Valuation Rules, 1988 and Customs Valuation Rules, 2007.

The Board has been issuing Circulars on the functioning of the SVB from time to time. The Board in 2016 revamped the working of SVB with “simplified” approach. This was done by Circular Nos. 4/2016-Cus and 5/2016-Cus both dated 09.02.2016.

The object behind prescribing the new procedure was to overcome huge challenges faced by the industry in getting SVB order in time.

Current Circulars governing the SVB.

Circular No 4/2016-Cus is applicable for matters already pending with SVB for renewal and all pending SVB investigations (other than renewal cases). Circular No. 5/2016-Cus applies to new and fresh cases.

Types of matters pending before SVB

a. Fresh matter in terms of Circular No. 5/2016-Cus.

b. SVB orders passed prior to 09.02.2016 and pending for renewal.

c. Matters remanded by Appellate Authorities back to SVB for de novo consideration

Why the delay in disposal?

The delay, according to the authors, is attributable to many factors, such as methods adopted by the SVB in seeking information, Customs Officers were posted in SVB Section on ad-hoc basis, frequent change of officers, complexity of transactions, etc. Only in hand-full of cases, the delay could be attributable to the importer in furnishing information.

Legislative as well as administrative challenges in SVB process :

1. The working of SVB is not backed by the law; As per customs valuation rules, each import transaction between related person is to be examined. To avoid this exercise, SVB is set up without appropriate backing of law. The Circulars issued by Board are not helping to achieve this objective.
2. The detailed investigation report prepared at the end of the decision-making process is not given to the importer. The summary of the findings alone is given and is not helpful to the importer to cite as a precedent.
3. The CESTAT is often seen holding that SVB proceedings are alien to the customs assessment process and do not entertain the appeals against order(s) passed by Commissioner (Appeals) against original SVB order (orders passed prior to 09.02.2016). One of such decisions may be TBK India Pvt. Ltd. Vs. CC reported at 2019 (369) ELT 673 (Tri.-Mum)
4. The information obtained from the importer through the questionnaire is inadequate to understand the actual transactions.
5. The (in) formal meetings (not personal hearing) between the importer and the customs officer (mentioned as interactions in the circulars) are not so fruitful since most of the time the same information or document already on record, is sought again, in a different manner. If there is a change in the officer in the meantime, the process is repeated. New documents are asked for.
6. The quantum of Bond submitted by the importer for provisional assessment is staggering and the result is eye-popping out for statutory auditors or global leaders.
7. The issue of furnishing RD or EDD in these proceedings is a challenge in itself. Firstly, it delays the clearance every time. Then the importer is very lucky if he gets a refund without an issue on time bar and unjust enrichment and getting it within a reasonable time. Not to mention the requirement of submission of proof of deposits in originals.
8. The prolonged delay by the SVB results the field formations not accepting the provisional assessments for very long and require NOC for clearing the current consignments.
9. The field formations, most of the time, do not accept the favorable findings of the SVB and object to the value declared at the time of import despite examined and accepted by SVB.
10. The Investigating Officer (DRI/CIU/SIIB, etc.) often alleges that the order from the SVB is obtained by misrepresentation and hence it would not bind them. So, the result is getting a demand notice from them and litigating it. In the meanwhile, the SVB findings are not kept aside, and provisional assessment starts again.
11. Another challenge is when the SVB finds the transaction value is not acceptable, the investigation report is not given to the importer. The field formation sits on the report and does not act on it for years together but expects that the loading suggested in the investigation report is implemented from the very next day of receipt by it. The Board does not appoint a common adjudicating authority, in case the importer imports from number of ports. So, he has multiple proceedings on the same issue. The importer must find a law firm who has offices in these places.
12. It is a challenge to explain and satisfy the global leaders on delay aspect, when the SVB matters are reviewed at the global level.
13. The prolonged provisional assessments may attract unwanted disputes on other aspects and the department is not handicapped in issuing show cause notice within 2 years, because of provisional assessments.

Possible suggestions to improve the working of SVB

1. Appropriate amendments can be made to existing Customs Valuation Rules, 2007 or enact a new set of Rules on the SVB functioning. If not, a fresh and revamped circular may be issued in exercise of powers conferred under Section 143AA of the Customs Act.
2. Board should appoint a dedicated Commissioner, to be in-charge of SVB matters to ensure that the matters are decided in a time bound manner. This should be done in all the 5 places where the SVB is functioning. These Commissioners ideally should not hold any additional responsibilities, other than SVB.
3. The detailed investigation report in favor of the importer should be made available to the importer. Although, Circular does not envisage otherwise, but should specifically provide that no appeal is to be filed by the department if favorable IR to the importer is issued.
4. Where the finding of SVB is not in favor, then the investigation report should be sent to the respective Customs Ports, with a copy to the importer so that the importer is made know the reasons for not accepting the value or statutory additions to be made to the transaction value. Then the concerned Commissioner of Customs, having jurisdiction over the port of import, should take up the assessments for finalization after hearing the importer. This is more so that appeal against the order passed by the Commissioner against the importer can be filed before the CESTAT.
5. Where more than one port of imports is involved, the finalization of assessment should be automatically given to the jurisdictional Commissioner of Customs, in whose jurisdiction, the quantum of imports is more as compared to other ports. This should be done by amending Section 110A of the Customs Act, rather than waiting for the Board to appoint a Common Adjudicating Authority.
6. The order so passed finalizing the assessment by the Commissioner should also quantify the duty payable upon finalization, so that the pre-deposit requirement is also met.
7. The CESTAT should ideally decide such matters within a period of six months or should give utmost priority in disposing of such matters on merits.
8. All matters relating to import from related persons should not invariably be transferred to SVB, which Circular also suggests and should be adhered to.
9. Format of seeking information should be precise to cover all the relevant information rather than seeking in peace meal after filing the documents/ details. May be suggestions can be crow-sourced on format and the information to be sought from the importer.
10. One formal meeting/ hearing should be given before passing Investigation Report and it should be documented / recorded.
11. There should be clarity with respect to the remand matters (pre-2006 matters) as to how they would be dealt by the SVB. This will ensure that such matters are also disposed of without an inordinate delay.
12. A suitable amendment in the appeal provisions (to take care of pre-2006 SVB orders) that such orders are adjudication orders and appeal lies against them.