SVB 2.0: Building A Future-Ready Customs Valuation Framework

The Special Valuation Branch of Indian Customs plays a pivotal role in scrutinising the valuation of imported goods, particularly in the transactions involving related parties. Its primary objective is to prevent revenue loss by ensuring that the declared value of the imported goods should not be influenced by the relationship.

SVBs are currently located in five major Custom Houses: Mumbai, Delhi, Bangaluru, Kolkata, and Chennai.

SVB evaluates various financial arrangements such as transfer pricing, royalty payments, and inter-company agreements. Importers involved in related party transactions are required to submit comprehensive documentation, including contracts and invoices, to facilitate this evaluation. Historically, SVB issued a “speaking order” for each case, which had to be renewed every three years, even if there were no changes in the transaction structure. This led to redundant work and delays in finalising provisional assessments of Bills of Entry.

To address these inefficiencies and to streamline the SVB process, CBIC vide Circular No. 4/2016-Cus and 5/2016-Cus both dated Feb. 9, 2016 introduced significant procedural reforms. Though this was not the first attempt to streamline the SVB process, initiatives were taken right from 1998. However, the moot problem of pendency continued to plague the system.

The key changes introduced vide circulars dated Feb. 9, 2016 included:

• Replacing the speaking order with an Investigation Report on perpetual basis, unless there is no change in circumstances surrounding the sale.

• Eliminating the mandatory three-year renewal.

• Empowering the Commissioner at the port of import to decide whether a case should be referred to SVB.

• Allowing finalisation of Bills of Entry based on the IR or initiating a Show Cause Notice if value adjustments are proposed.

These reforms were expected to streamline operations and reduce pendency. However, despite these efforts, a significant backlog of SVB cases and provisional BOEs persists.

The Finance Act of 2025 introduced Section 18 (1B), mandating that all provisionally assessed BOEs pending as of March 29, 2025 (excluding those under Section 18(1C)) must be finalised within two years, extendable by one more year. This has intensified pressure on customs authorities, especially since many pending BOEs are delayed due to the non-issuance of IRs by SVB.

From the Department’s Perspective:

• Importers fail to submit required documents despite reminders.

• Importers are inactive or untraceable.

• Cases are under investigation by the Directorate of Revenue Intelligence.

• Legal proceedings are pending before CESTAT or courts.

• Case files are missing.

From the Importers’ Perspective:

• Historical data is unavailable due to the age of the case.

• A laundry list of information and documents requisitioned by the officer.

• Organisational changes like mergers or acquisitions complicate documentation.

• Key personnel have left the company.

• Communications are sent to outdated addresses or emails.

These issues, while genuine, are not insurmountable. Some practical solutions to address these bottlenecks may be:

1. Data Limitations: If older data is unavailable, SVB could limit its analysis to the most recent three years on sample basis. If trends are consistent and the importer confirms continuity, a declaration may suffice.

2. Communication Gaps: Customs authorities at ports may verify and update contact details to ensure effective communication with importers.

3. Investigations: If a case is under DRI investigation, the agency should be requested to expedite the process if it pertains to valuation. If not, a confirmation should be obtained to allow SVB to proceed independently.

4. Use of Available Data: SVB should base its findings on the data at hand, with further scrutiny deferred to Post Clearance Audit.

5. Adjudication of IR with loading: In case of an IR proposing additional loading in the Assessable Value involving multiple jurisdictions, a mechanism may be devised to appoint a common authority to issue SCN and another to adjudicate the same.

Implementing these measures could significantly reduce the backlog of SVB cases and enable the finalisation of pending BOEs.

Another major issue is the limited capacity of assessing groups at ports, who are already burdened with live BOEs. In order to address this problem, the department may consider:

• Introducing functionality for bulk finalisation of assessments.

• Creating dedicated teams to handle the backlog of provisional BOEs.

Prior to February 2016, importers with pending SVB cases had to deposit an EDD of 1% of the import value per BOE. In some cases, this is still being collected, which is no longer legally justified. Moreover, even after the IR is issued, importers are required to get the BOEs finalised and thereafter file separate refund claims for EDD payments, causing further delays. The department may issue directions for:

• Immediate cessation of outdated EDD recovery.

• Automatic refund of EDD post-IR issuance, without waiting for BOE finalisation.

The Customs Department is actively engaging with the stakeholders to identify and resolve bottlenecks. It is expected that new guidelines will be issued soon to streamline the SVB process and expedite disposal of pending SVB cases, as well as finalisation of BOEs. The overall outcome of this exercise would squarely depend upon the proactive participation by all stakeholders—importers, consultants, and customs brokers to expedite submissions and information required to finalise the IRs. This will further facilitate the finalisation of long-pending BOEs, some of which have remained unresolved for decades.

Resolving SVB-related issues is critical for India’s economic ambitions. As the country positions itself to become the world’s third-largest economy and seeks to attract foreign investment through introduction of various investor friendly measures, including preferential trade agreements, it must eliminate procedural inefficiencies that dissuade business. Enhancing the ease of doing business, particularly in customs processes, will build investor confidence, bring transparency and support India’s growth trajectory.

Vikram M Kulkarni is tax partner at EY India.

Disclaimer: The views expressed here are those of the author, and do not necessarily represent the views of NDTV Profit or its editorial team.