Common Customs Valuation Errors That Trigger SVB Scrutiny in India

Special Valuation Branch (SVB) investigations are some of the critical customs compliance procedures for multinational companies importing goods into India from related overseas entities. Although transactions between related parties are permitted under Indian customs law, importers must demonstrate that their relationship has not influenced the declared transaction value.

Many SVB investigations are triggered not because of deliberate undervaluation but due to valuation inconsistencies, inadequate documentation, or failure to disclose payments that form part of the customs value. Understanding these common errors can help businesses reduce compliance risks, avoid reassessments, and minimise delays in customs clearance.

Why customs valuation matters in related-party imports

Under the Customs Act, 1962 and the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007, customs duty in India is generally calculated based on the transaction value of imported goods. However, when imports occur between related parties, Indian customs authorities may examine whether the declared price reflects the true value of the goods.

The SVB reviews such transactions to determine whether the buyer-seller relationship has influenced pricing and whether all dutiable elements have been included in the assessable value.

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While an SVB investigation does not automatically indicate non-compliance, customs authorities typically scrutinise transactions involving transfer pricing arrangements, royalty payments, licensing agreements, technical assistance, or other financial relationships between related entities.

10 common customs valuation errors that attract SVB scrutiny

1. Declaring an incorrect transaction value

A common reason for SVB scrutiny is declaring an import value that does not accurately represent the total consideration paid or payable for the imported goods.

Errors frequently arise when importers:

• Use internal transfer prices without customs valuation analysis
• Fail to update invoice values after pricing revisions
• Declare provisional prices without appropriate documentation
• Ignore year-end price adjustments between related parties.

Where custom authorities find that the declared transaction value does not satisfy valuation requirements, they may reject the declared value and determine the assessable value using alternative valuation methods prescribed under the Customs Valuation Rules.

2. Failing to declare royalties and licence fees

Many multinational companies pay royalties or licence fees to overseas parent companies for trademarks, patents, software, manufacturing know-how, or technology.

These payments may become part of the customs value when:

1. They relate to the imported goods;
2. Are paid directly or indirectly as a condition of sale; or
3. They satisfy the valuation requirements under the CVR.

Businesses often assume royalty payments relating only to intellectual property or income tax considerations, overlooking their customs implications.

Failure to disclose dutiable royalty payments is one of the most frequently examined issues during SVB investigations.

3. Not including assists in customs value

Importers sometimes provide overseas manufacturers with materials, components, tools, moulds, engineering designs, prototypes, or technical specifications free of charge or at reduced cost.

These “assists” may need to be added to the customs value if they contribute to producing the imported goods.

Common omissions include tooling and mould costs, engineering or design work undertaken outside India, free raw materials supplied to overseas manufacturers, or product development expenses borne by the importer.

If these costs are excluded, customs authorities may reassess the import value during SVB proceedings.

4. Omitting subsequent payments to overseas suppliers

Payments made after importation are often overlooked during customs valuation.

These may include year-end transfer pricing adjustments, management service recoveries linked to imported goods, performance-based payments, reimbursement arrangements, and deferred consideration.

If these payments effectively increase the price paid for imported goods, Customs may examine whether they should be included in the assessable value.

5. Inadequate documentation supporting transfer pricing

Many companies consider maintaining transfer pricing documentation for income tax purposes sufficient to demonstrate customs compliance.

However, transfer pricing regulations and CVR have different objectives.

Income tax authorities focus on profit allocation, whereas customs evaluates whether imported goods have been correctly valued for duty purposes.

During SVB investigations, Customs may request:

1. Transfer pricing studies
2. Intercompany agreements
3. Pricing policies
4. Benchmarking reports
5. Cost sheets
6. Functional analyses
7. Audit reports
8. Financial statements

Incomplete or inconsistent documentation often results in additional clarification requests and extended investigations.

6. Failing to disclose related-party relationships

Importers are required to disclose whether the overseas supplier is related under the CVR.

Relationships that require disclosure include:

1. Parent entity and subsidiary company
2. Companies under common ownership or control
3. Joint ventures
4. Businesses with common directors
5. Situations where one party directly or indirectly controls another

Failure to disclose related-party transactions can significantly increase compliance risks and may invite closer examination by Customs.

7. Inconsistent valuation across similar imports

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Customs authorities routinely compare import values across different ports, previous consignments, identical or similar goods, or imports by other related entities.

Sizeable unexplained price variations may trigger further enquiries.

Businesses should maintain a consistent valuation methodology across imports and document any commercial reasons for pricing differences, such as volume discounts, promotional pricing, contractual revisions, or changes in product specifications.

8. Incorrect treatment of freight, insurance, and other charges

Importers sometimes incorrectly exclude or include charges such as the following:

1. International freight
2. Insurance
3. Packing costs
4. Commissions
5. Buying commissions
6. Design charges
7. Loading and handling expenses

Errors in determining which costs form part of the assessable value frequently result in customs reassessments.

9. Overlooking technical service or engineering agreements

Separate technical collaboration or engineering agreements with related overseas entities may involve payments connected with imported machinery, equipment, or components.

Where these payments are linked to the imported goods or constitute a condition of sale, Customs may examine whether they should be added to the customs value.

Businesses often treat these agreements solely as commercial or tax arrangements without evaluating their customs implications.

CLICK HERE: Special Valuation Branch (SVB) in India: FAQs for Importers

10. Delayed response to SVB information requests

Even when the declared valuation is appropriate, delays in responding to SVB questionnaires or providing supporting documentation can prolong investigations.

Common issues include incomplete responses, inconsistent explanations, missing agreements, unavailable historical invoices, and lack of internal coordination between finance, tax, legal, and customs teams.

Preparing documentation before an investigation begins can significantly reduce response times.

How businesses can reduce SVB risks

Companies importing from related overseas entities should establish robust customs valuation governance rather than addressing issues only after Customs initiates an SVB review.

Key compliance measures include the following:

1. Reviewing intercompany pricing from both customs and transfer pricing perspectives.
2. Evaluating whether royalties, licence fees, assets, and post-import payments are dutiable.
3. Maintaining comprehensive intercompany agreements and valuation records.
4. Performing periodic customs valuation reviews.
5. Ensuring consistent declarations across all import consignments.
6. Coordinating customs, finance, legal, procurement, and tax functions when structuring related-party transactions.

Regular internal reviews can identify valuation gaps before they result in reassessments, additional duty demands, or prolonged SVB investigations.

CLICK HERE TO KNOW MORE: Special Valuation Branch Review in India: Guide for Related-Party Importers

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