The Special Valuation Branch is a separate wing of the Indian Customs Department dealing with the valuation of goods imported between related parties, usually parent companies, subsidiaries, or group entities. The essential role of SVB is to ensure that transfer pricing or influence of relationship does not lead to undervaluation of goods for customs purposes. In other words, what SVB ascertains is whether the import value declared by the company represents the real transaction value in terms of the Customs Valuation Rules, 2007.
Once an importer submits the application for SVB and completes the documentation and questionnaire process, the investigation is conducted by the Customs authorities. In this, agreements, pricing terms, and the relationship between the foreign supplier and the Indian importer are examined in detail. After this detailed examination, a Final Order is issued by the SVB.
In this article, we focus on the stage after the Final SVB Order is passed — what happens next, how provisional assessments are finalized, and in which situations the possibility of loading on your imports becomes higher. We will also understand the key instances that typically trigger loading and the compliance actions importers should take once the final SVB order is issued.
Understanding the Concept of Loading in SVB Order
When the importer and the foreign supplier are related parties, customs authorities suspect that the transaction value may not reflect the true market price because of influence from the relationship. The special valuation branch scrutinizes such transactions with the aim of establishing acceptability of the declared prices under the customs valuation rules.
If the SVB, upon scrutiny, finds that the payments made to the foreign supplier, like royalty, license fees, or technical service fees, have not been correctly added in the declared value of the imported goods, or if it thinks the value is undervalued, it may order an additional percentage addition to the value. The process of addition to the value is called “loading.”
In other words, loading means enhancing the assessable value of imported goods by a specific percentage or amount, as prescribed by the order issued by SVB. For instance, if an importer declares goods at USD 100 per unit and the SVB decides on a 5% loading, the assessable value for customs duty purposes will be USD 105 per unit.
Legal Basis of Loading under Order of SVB
The legal authority for imposing loading comes from Section 14 of the Customs Act, 1962, and Rule 10 of the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007: enabling customs officers to add such payments, like royalties, license fees, or proceeds from any subsequent resale, which the buyer has to pay, whether directly or indirectly, as a condition of sale of the imported goods.
Thus, when the special valuation branch determines that such payments exist or suspects that the declared transaction value is understated, it may issue an order specifying loading. The order ensures that the value used for calculating customs duty accurately represents the total consideration paid for the goods.
Common Reasons for Loading in SVB Order
Loading in SVB Order is not arbitrary; it's based on certain findings from the SVB in customs investigation. The most frequent reasons include:
a. Royalty and License Fees
Payments such as royalty or license fees paid by an importer to a foreign supplier - or to a third party on behalf of the foreign supplier - as a condition of sale are additions to declared value. For example, in technology-intensive industries such as automotive, electronics, or pharmaceuticals, royalties are not uncommon. If an importer cannot show that such payments are not related to imported merchandise, the special valuation branch can load the declared value.
b. Technical Assistance or Service Fees
Payments for technical know-how, design or engineering services provided by the foreign parent company are a frequent target of scrutiny. If Customs believes these services are related to the production or sale of the imported goods, loading can be imposed.
c. Management and Consultancy Fees
When the related foreign supplier provides management support or consultancy services, the SVB in customs may suspect that such payments have an indirect impact on the price of the goods imported. Without requisite documentation or evidence to segregate such payments from the product value, Customs may order loading.
d. Influence of Relationship
When the buyer and seller are related-for example, parent-subsidiary, group company, or joint venture-the declared price is presumed to be influenced by that relationship, unless proven otherwise. The SVB in customs may, therefore, load the declared value to neutralize perceived underpricing.
e. Lack of Supporting Documentation
Sometimes, loading occurs because the importer is unable to create adequate documentation to support claims that payments, like royalty or service fees, are not related to the imported merchandise.
f. Undisclosed Additions or Discounts
If the importer is entitled to post-import discounts, free replacements, or any other financial arrangement not reflected in the invoice, SVB may question the declared transaction value. Failure to substantiate such transactions can result in loading.
How SVB in Customs Does the Investigation
Examination by the special valuation branch is a procedural process that is well-structured, comprising various steps to ensure equity and transparency. Below is an overview of how investigations typically proceed:
Step 1: Reference to the SVB
When the Customs officers at the port find out that the importer and supplier are related, the case is referred to the SVB in customs. The imports are then provisionally assessed pending completion of the investigation.
Step 2: Submission of Questionnaire and Documents
This includes a detailed questionnaire, relevant agreements that may be supply, royalty, or technical assistance contracts, and any transfer pricing documentation. These are reviewed to check whether the declared value covers all payments.
Step 3: Personal Hearing and Review
The special valuation branch scrutinizes the agreements, financial records, and explanations provided. The importer may be called for a personal hearing to clarify points and justify the declared price.
Step 4: Issuance of SVB Order
The SVB examines the evidence presented and issues an Order-in-Original (OIO). It may:
- Accept the declared value without any loading,
- Loading of a certain percentage or amount, or
- Direct adjustments for items such as royalties.
The importer’s future assessments are based on this SVB order until it is reviewed or modified.
Step 5: Finalization of Provisional Bills of Entry
Once the Loading in SVB Order is issued, provisional BOEs filed during the investigation are finalized. In case loading is ordered, customs duty is recalculated based on the revised assessable value. However, in the event no loading is imposed, the provisional assessments are finalized at the declared value along with refund of excess duty.
Practical Examples of Loading in SVB Order
Practical scenarios to consider in the application of Loading in SVB Order:
Example 1: Royalty-Based Loading
An Indian subsidiary imports machinery from its foreign parent company. Besides this, it also pays 3% of its sales value as royalty for technical know-how. The special valuation branch determines that this royalty relates to the imported machinery and directs 3% loading on the transaction value.
Example 2: Service Fee Loading
An importer pays its overseas supplier a separate annual technical service fee. As the importer cannot prove that the payment is not related to the import transaction, the SVB in customs adds a 5% loading on imports.
Example 3: No Loading
If the importer, through agreements and financial documents, can establish that the royalty is paid for post-importation manufacturing activities unrelated to the imported article, then SVB may not apply any loading.
Consequences of Loading in SVB Order
Loading has immediate and long-term implications for the importer:
1. Increased Duty Liability:
A higher assessable value means more customs duty, directly impacting the cost of imports.
2. Transfer Pricing Implications:
As many of the related-party importers also face transfer pricing audits, any increase in customs valuation through loading may create reconciliation issues between customs and income-tax valuation.
3. Compliance Requirements:
Once an SVB order instructs loading, all imports following that must be valued accordingly until the order is varied or set aside. If this isn't followed, the result may be penalties or reassessment.
4. Impact on Provisional BOE:
All pending provisional assessments are finalized on the basis of the loading percentage mentioned in the SVB order.
5. Refund or Recovery:
If later an appellate authority modifies or cancels the loading, the importer may claim a refund for the excess duty paid.
What Can Importers Do if They Disagree with an SVB Loading Order
If the importer disagrees with the said Loading in SVB Order, the law has provided for appeal at multiple levels under the Customs Act, 1962. The hierarchy of appeal under customs law allows the importer to challenge the order at multiple levels.
a. Appeal to Commissioner (Appeals)
An appeal to the Commissioner (Appeals) should be filed within 60 days from the date of the receipt of the SVB order, which can be extended by 30 days. The importer may argue that:
- The loading is based on incorrect interpretation of the agreements;
- Payments such as royalties or fees have nothing to do with the imported merchandise; or
- The special valuation branch disregarded evidence that proved the transaction value was genuine.
b. Appeal to CESTAT
In case the Commissioner (Appeals) sustains the loading, the importer approaches the Customs, Excise and Service Tax Appellate Tribunal-CESTAT. CESTAT looks into the matter in detail and confirms the Loading in SVB Order, modifies, or revokes it.
c. Appeal to High Court
Where a substantial question of law arises, such as in the interpretation of valuation rules, the importer may file an appeal before the High Court under Section 130 of the Customs Act.
d. Appeal to Supreme Court
The importer, in such complex cases involving valuation principles or constitutional questions, may further appeal to the Supreme Court under Section 130E.
At each stage, the importer may challenge both the factual determinations and the legal conclusions reached by the Loading in SVB Order.
How to Prepare a Strong Case Against Loading in SVB Order
Loading defense in an SVB order requires great documentation and strategy. Here are some best practices:
1. Comprehensive Agreements:
The type of payment should be spelled out clearly in all contracts with foreign suppliers, especially any differentiation between royalties, service fees, and product costs.
2. Provide Proof of Independence:
Document that royalties or service fees are for post-import activities and do not pertain to the sale or importation of merchandise.
3. Utilize Transfer Pricing Studies:
Align customs valuation with transfer pricing documentation that proves prices are at arm's length.
4. Submit Evidence in a Timely Manner:
Provide all relevant records—bank remittances, invoices, and correspondence—to the special valuation branch in time to avoid presumptive loading.
5. Seek Professional Support:
The customs and legal experts assist in preparing replies, attending hearings, and drafting appeals against Loading in the SVB Order.
6. Approval of BOE:
After the SVB decision, ensure that provisional BOEs are finalized correctly and that duty differences are settled promptly.
How SKMC Global Can Help
The investigation of an SVB in customs can be complex and financially significant for importers. SKMC Global provides expert assistance throughout the entire Special Valuation Branch process — from documentation and compliance support to managing and resolving issues related to Loading in the Final SVB Order.
Our services include:
- Review related-party agreements and financials before submission.
- Drafting of replies to SVB questionnaires and representation in hearings.
- Coordinating with customs for timely finalization of provisional Bills of Entry.
- Assisting appeals before Commissioner (Appeals), CESTAT, High Court, or Supreme Court against adverse Loading in SVB Orders
- Ensuring the alignment of Customs valuation and transfer pricing documentation.
Importers, with the end-to-end expertise of SKMC Global, can ensure compliance, reduction in valuation risks, and thereby efficiently manage SVB in customs proceedings.
Conclusion
Loading is the fundamental concept of SVB Order in the customs valuation mechanism for related-party transactions in India. The special valuation branch plays a very important role in protecting revenue by ensuring that import values reflect true market prices. However, loading is not penalty; it is a corrective measure to make the transaction fair.
Understanding how SVB works in customs, the reasons for loading, and the appeal mechanisms available is crucial for importers. Maintaining robust documentation, proactive cooperation with Customs authorities, and seeking expert guidance in case of need are the ways in which businesses can manage special valuation branch investigations and minimize the risk of unjust loading.
Ultimately, the secret to compliance is transparency and preparedness. If managed correctly, SVB investigations do not have to disrupt trade operations but can reinforce the importer's credibility and foster long-term customs compliance.