How to Execute a PD Bond for SVB Proceedings in India

A Provisional Duty (PD) bond is a security mechanism used when Customs allows an import to be assessed provisionally while the final customs valuation is still under examination. This is particularly relevant to Special Valuation Branch (SVB) cases involving imports between related parties.

Under Section 18 of the Customs Act, 1962, Customs can make a provisional assessment where the final duty cannot yet be determined. The importer provides security for any difference between the provisional and final duty.

For SVB cases, the process has also moved toward electronic execution in India.

When is a PD bond required in an SVB case?

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An SVB review generally arises when an Indian importer purchases goods from a related overseas entity, such as a parent, subsidiary, or group company. Customs may need to examine whether the relationship has influenced the declared transaction value.

If the valuation cannot be finalised immediately, Customs may permit provisional assessment under Section 18 of the Customs Act, 1962. The importer then provides the required bond/security so that the goods can be cleared without waiting for the SVB valuation process to conclude.

The PD bond, therefore, serves as an undertaking that the importer will:

1. Provide documents and information requested by customs
2. Comply with the requirements of the provisional assessment
3. Pay any differential customs duty that becomes payable after final assessment
4. Pay applicable interest on the additional duty

Importantly, the PD Bond itself is not a customs duty and does not constitute customs clearance. It supports the provisional assessment that may enable clearance.

Step 1: Determine whether the import requires provisional assessment

Before executing the bond, the importer should establish why the transaction cannot be finally assessed.

In an SVB case, this will generally relate to the need to determine the appropriate customs value for a related-party transaction.

The importer should have the relevant supporting information available, including the following:

1. Commercial invoices
2. Purchase agreements
3. Details of the relationship between buyer and seller
4. Pricing arrangements
5. Transfer-pricing documentation, where relevant
6. Details of royalties, licence fees, commissions, or other payments connected with the imports and
7. Previous SVB orders or references, if applicable.

The precise documents required will depend on the case and Customs’ queries.

CLICK HERE: Special Valuation Branch Compliance: Customs and Transfer Pricing Risks

Step 2: Obtain provisional assessment

If Customs cannot determine the final customs value because it requires additional documents, information, inquiry, or verification, the authorised/designated officer may allow the goods to be assessed provisionally under Section 18 of the Customs Act, 1962.

Under this arrangement, the importer does not wait for the final assessment before clearing the goods. Instead, Customs determines a provisional duty liability, and the importer pays that amount before clearance, subject to the other applicable customs requirements.

The importer also executes the required PD bond to secure any additional duty that may become payable when Customs finalises the assessment.

For example:

• Provisional customs duty: INR 2 million (amount the importer pays based on the provisional assessment)
• PD bond: Undertaking by the importer to pay any additional duty that becomes payable after final assessment
• Final assessment: Customs determines the final customs value and duty liability after completing the required examination or SVB proceedings

If the final duty is INR 2.2 million, the importer must pay the INR 200,000 differential duty, along with applicable interest. The PD bond supports this potential liability; it does not replace the payment of the provisional customs duty.

Step 3: Execute the customs bond electronically

CBIC introduced the Single All-India Multipurpose Electronic Bond (SEB) through Circular No. 04/2025-Customs dated 17 February 2025.

The system allows importers/exporters to execute a single electronic bond through ICEGATE rather than maintaining separate transaction-wise physical bonds at different customs locations.

For a provisional assessment, including an SVB case, the importer selects the appropriate purpose code/obligation when submitting the bond application.

This distinction is important because the PD bond and bank guarantee are not the same thing. The bond is the undertaking where a bank guarantee is required; it provides the specified financial security against the bond.

Step 4: Submit the bond application on ICEGATE

The importer can initiate the electronic bond application through the ICEGATE portal.

The process broadly involves:

1. Selecting the relevant customs bond/obligation.
2. Selecting the applicable purpose code for the SVB provisional assessment.
3. Providing the required supporting documents.
4. Indicating the applicable bond amount and, where relevant, the prescribed BG requirement.
5. Submitting the application electronically.

Step 5: Pay applicable stamp duty and e-sign the bond

Once the customs application has been scrutinised, a unique bond number is generated.

The draft bond is then sent to the National e-Governance Services Limited (NeSL) for electronic stamping and execution.

The importer must pay the applicable stamp duty electronically, provide e-signature for the bond and ensure that the person signing has appropriate authority to execute the bond on behalf of the company.

Step 6: Provide the required bank guarantee, if applicable

A PD bond and bank guarantee should be treated as separate requirements.

Where the applicable SVB purpose code requires a bank guarantee, the importer approaches an eligible bank for issuance of the electronic bank guarantee.

Under the process:

1. The bank issues the e-bank guarantee and transmits the details to NeSL
2. The importer enters the bank’s unique e-bank guarantee number on ICEGATE
3. ICEGATE retrieves and validates the e-bank guarantee details
4. The importer confirms the details and submits the linkage request
5. Once approved, the e-bank guarantee becomes linked to the relevant electronic bond

Step 7: Complete the SVB process and finalise the assessment

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After provisional clearance, the importer may need to provide additional information, documents, or clarifications requested by the customs authorities. Once the authorities determine the appropriate customs value, the provisional assessment is finalised. 

The outcome can be in one of three ways.

a) Final duty is higher

If the provisional duty is INR 2 million and the final duty is INR 2.2 million.

The importer must pay INR 200,000 differential duty + applicable interest.

b) Final duty is the same

If both assessments result in INR 2 million, there is no additional duty arising from the finalisation.

c) Final duty is lower

If the provisional duty is INR 2 million and the final duty is INR 1.8 million.

The importer may be entitled to an INR 200,000 refund, subject to the applicable customs refund provisions.

Key takeaway for businesses

A PD bond enables an importer to obtain provisional customs assessment when Customs cannot finalise the duty liability, particularly in related-party imports undergoing SVB review. The importer provides the required bond and, where applicable, a bank guarantee to secure any additional duty that may arise after final assessment.

The importer should distinguish the PD bond, bank guarantee, and customs duty. They must also complete the required electronic procedures through ICEGATE and NeSL.

Once customs authorities finalise the SVB assessment, the importer must pay any differential duty and applicable interest or claim a refund where the final duty is lower, subject to the applicable customs provisions.

Setting up a business in India requires navigating company registration, local approvals, and work permit processes. We help FDI companies by preparing and submitting documentation, coordinating with authorities, and ensuring compliance, so they can start operations smoothly and focus on growth.

Parul Sharma

Manager

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