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SVB procedural revamp – Watchful monitoring must for real effectiveness
Nimish Goel, Partner & IDT Head, International Business Advisors
Ujjwal Pawra, Senior Manager
With an intent to simplify doing business in India, the Ministry Of Finance on February 09, 2016 has introduced two Circulars i.e. Circular No. 4/2016-Customs (‘Circular No. 4’) and Circular No. 5/2016-Customs (‘Circular No. 5’) which impact the Special Valuation Branch (‘SVB’) proceedings. The former Circular prescribes the procedure for renewal of SVB orders and ongoing SVB inquiries while the latter Circular lays the procedure for investigation of fresh cases. Earlier, the SVB cases were being initiated and investigated under Circular No. 11/2001 (‘the erstwhile Circular’), which now stands rescinded.
For a better understanding we intend to take up on the amendments along with the pros and cons we see with the introduction of these two new Circulars.
Circular No. 5 – Assessment of New/Fresh Cases
1st Stage – Application for clearance
1. Fresh cases are all such cases where the importer has not been assessed by SVB till date. In such cases, the importer has the option to file a prior bill of entry (‘BoE’) along with a Questionnaire (mentioned under Annexure A). The said information is requested at least 15 days prior to the date of the import. As per the Questionnaire, the importer is required to furnish various information including basic details of importer and seller; relationship of importer with the seller and whether similar goods have been imported in the past; whether additional payment is accruing to the seller and whether any payments are accruing to the seller as a condition of sale and information required under Rule 3(3)(b) of the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007 (‘the Valuation Rules’), etc.
2. Basis the primary information provided by the importer, the appraiser shall decide if there is a requirement for investigation by the SVB.
...This decision would be on the analysis of the circumstances surrounding the sale and evaluating the following issues in each case.
In addition to identifying issues relating to payment of royalty and licence fee and whether the same are a condition of sale or not, the appraiser at this stage is also expected the determine the genuineness of the transaction value inter se the importer and exporter of goods by looking at various documents including the contracts, terms of imports, and whether similar or identical goods are imported by unrelated parties at different prices.
The basic test remains the same as provided under the related party assessments by SVB. Only difference being the activity to determine whether the transaction is at arm’s length or not is now to be first decided by the appraiser.
3. The customs appraiser has a window of 3 working days to examine the whether relationship would have influenced the price and submit its findings to the Commissioner to decide whether the case should be referred to the SVB.
4. In order to ease the work of customs officials and avoid unnecessary valuation assessments, cases involving imports of samples/prototypes or where goods are unconditionally exempt from customs duty or where the value of imported goods is meager have been specifically removed from being referred to the SVB.
5. Post submission by the appraiser, the Commissioner would decide whether the case is fit to be investigated by the SVB. He may either direct the appraiser to assess the case himself or send it to the SVB for further investigations.
Will This Process Actually Reduce the Time For Assessments?
1. The details to be furnished by the importer in Questionnaire are quite substantial and involve extensive documentation.
...As per the Questionnaire, the importer is also required to furnish information under Rule 3(3)(b) of the Valuation Rules, which provides acceptance of the transaction value only when the importer is able to substantiate the declared value of his goods closely approximates with transaction value of identical goods or similar goods sold to unrelated buyers.
What is important to understand is that the Indian subsidiaries of foreign holding companies are generally the sole importers of products and availability of information of identical/similar goods is practically difficult since that information is typically available with Customs National Import Data Base (‘NIDB’).
2. As per the Questionnaire, the appraiser is required to present its findings to the Commissioner within 3 days of receipt of the information from the importer. This seems to be a welcoming step as this will help importer know in advance whether his case would be referred to SVB or not. However, it needs to be seen whether practically the customs appraisers would truly be able to analyze merit in individual cases in such å short span of time or simply forward the cases for investigation with the SVB. For customs appraisers to be able to identify valuation risks in case of related party imports, it is essential that they are well trained on customs valuation principles and equipped with all the legal ammunition to be able to decide the case on merits and with speed. If majority of the cases are put up for referral to the SVB due to paucity of time, the true spirit of the circular would get defeated.
3. The above also takes importance from the erstwhile Circular that also provided for assessment of the cases by customs officer before being referred to the SVB. Though Circular No. 5 does recognize this aspect, it needs to be seen how well the appraisers handle them.
...4. Another important aspect to analyze is absence of any time limit on Commissioner to revert on the findings of the appraiser. As a result, we cannot help but do foresee a situation where files would get piled-up at the Commissioner’s office and the importer might suffer. This would again defeat the purpose of this circular.
2nd Stage – When the Case is referred to SVB
1. Upon receiving confirmation from the Commissioner for referring the case to SVB, the appraiser would provisionally assess the BoE and release the goods.
2. Further, the appraiser would direct the importer to furnish additional information in another Questionnaire (‘the second Questionnaire) to be filed with the SVB. Post clearance of goods (provisionally), all the related documents shall be transferred to the jurisdictional SVB. Time limit for transferring all related documents to jurisdictional SVB is set as 3 days.
3. The importer would have a period of 60 days to furnish a copy of the second Questionnaire to the SVB. Till the expiry of 60 days no EDD would be levied on the importer. However, where the importer fails to provide documents within 60 days, he shall be required to furnish a security deposit, which shall be 5% of the declared assessable value of goods to be imported in the next three months.
4. The importer may get additional 60 days to comply with the requisition of information & documents.
In any circumstance the amount of security deposit would not go above 5% of the declared assessable value of goods to be imported in the next three months. The security deposit can be furnished either by way of cash deposit or a bank guarantee.
5. Upon receipt of the documentation, the SVB would have powers to call for further documentation/ information as required.
...It is directed to the SVB that investigations should be completed within 2 months, which may be extended by another 2 months after seeking permission from the Commissioner. However, in the event of investigation not getting completed after expiry of initial 4 months from date of receipt of the second Questionnaire, the case would have to be submitted to Chief Commissioner for further extension.
6. Upon completing the investigation, the SVB shall submit its findings to the Principal Commissioner/ Commissioner. Upon approval, the SVB would issue an Investigation Report (‘IR’) to the customs appraiser for finalizing the provisional assessments and the IR shall not be an appealable order.
What Does This Mean?
1. Removing the requirement of EDD/setting an upper limit is a huge relief to the importers. Till now it was simply because of officer’s procrastination, the importers were suffering massive cash flow issues. Another practical problem of recovering EDD post issuance of a favourable SVB order also stands to be solved to a large extent. Though this amendment is going to impact the cash flow of the importers, however, it is only relevant if it is followed in true spirit.
2. Till now the SVB was functioning under the erstwhile Circular. As per Para 10 of the erstwhile Circular it was the responsibility of the Deputy Commissioner/ Assistant Commissioner to finalize the case within a period of 4 months and no EDD was required to be paid by the importer post completion of those 4 months. However, this was never followed in practice and the importer was required to furnish EDD till the time an order was issued which typically ranged from 2-4 years. We hope the authorities strictly follow the current circular.
3. One practical problem that might arise is now the importer would have to re-present himself before the appraiser and the SVB (should the case getting referred) to explain his case as both the authorities have the power to call for documents, personal hearing etc.
...Though this seems to be a welcome measure and the intention seems to be reduction of assessment time, we need to see how well this intention is applied in practice by the customs officers.
3rd Stage – Finalizing the case
1. Where the SVB issues a favourable IR, the proper officer would proceed to finalize the case.
2. In case of an adverse IR, the appraising officer shall issue a show cause notice to the importer within 15 days of the receipt of the IR and the appellate provisions under the Customs Act would apply for filing appeals should the adjudicating authority pass an adverse order.
Few Challenges
1. The Circular No. 5 does not mandate the appraising officer to compulsorily accept the IR in a case where IR gives a clean chit to the assessee. Consequently, there is a possibility that the appraising officer with the permission of the Commissioner rejects the findings of SVB and adjudicates the matter himself.
2. The above will cause more problems when the IR is issued to all the ports where the assessee is importing the goods and some appraising port officers accepting the IR findings whereas few others rejecting them. This can lead to a chaotic situation since same imports at different ports might be assessed differently with litigations starting at different ports for the same assesse importing same products.
3. At this juncture, it is mentioned that the office of Director General of Valuation (‘DGOV’) shall continue to qualitatively monitor investigation orders issued by the SVBs. However, it is not clear if IR is not an appealable order then whether there would be any review process in future. If yes, then how will it function and which order/ report the Department would challenge?
Circular No.
...Cases for renewal
1. The importer would have to file a declaration in the format prescribed in Circular No. 4. The declaration requires the importer to confirm that there is no change in the circumstances surrounding the sale between the importer and the related party, no change in terms and conditions, no change with respect to royalty payment, etc.
2. Basis the declaration, the process of renewal of the expired SVB order would be considered complete. Post receipt of the declaration, the SVB is required to immediately inform the Customs stations where provisional assessments have re-started and subsequently EDD would be discontinued and all BoE shall be finally assessed.
3. In case there is a change in any of the circumstances mentioned in the declaration, the Importer is required to furnish a separate declaration post which the process of renewal shall be carried out in accordance with Circular No 5 (explained above).
Does It Help?
1. This is a big relief to importers who are doing business for a long time and were required to pay EDD only due to the reason that the SVB order had expired.
2. In case of no change in functioning of the business, the process of renewal would take place only basis a declaration filed by the importers.
3. Even in case there is a change in circumstances of sale, the EDD would be restricted to 5% of the assessable value for the first three months.
Case 2 - In other pending cases (other than renewal)
1. Other pending cases (except renewal) would be determined/ adjudicated in accordance with Circular No. 5. In cases where the importer has furnished the information and documentation required by the SVB, EDD shall be discontinued.
...The Department has been directed to complete this exercise by May 31, 2016.
2. In case the importer has not furnished information or documents required by the SVB, the rate of EDD would already have been enhanced to 5%. In such cases it is directed that the Commissioner would take recourse to obtain necessary documents for investigations and subsequently dispense with the requirement of EDD.
Considering the overall scheme of things, these two circulars would definitely reduce the un-necessary workload on SVB and importers. It is pertinent the Customs department takes these guidelines very seriously and we hope to see the change that has long eluded the Customs SVB office.
Comments
A GOOD PIECE OF ARTICLE. tHANK U SO MUCH FOR THIS HIGH LIGHTS