Related-Party Imports into India: How to Prepare for an SVB Review

Foreign companies with Indian subsidiaries and Indian manufacturers sourcing goods from overseas group entities must pay close attention to customs valuation. Imports of raw materials, machinery, components, spare parts, finished goods, and prototypes can attract scrutiny where the buyer and seller are related.

The central question for the importer is straightforward:

Can the business demonstrate that its relationship with the overseas supplier has not influenced the price declared to Indian Customs?

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India’s Special Valuation Branch (SVB) examines related-party imports requiring further scrutiny to determine whether the declared transaction value is acceptable under the Customs Act, 1962 and the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007.

For CFOs, tax directors, customs managers, supply chain heads, and legal teams, early preparation can reduce the risk of repeated queries, extended reviews, and supply chain disruption.

What is the Special Valuation Branch in India?

The Special Valuation Branch is a specialised Indian Customs mechanism for examining import transactions involving related parties and other arrangements that may affect customs valuation.

An SVB review is not simply a registration or procedural exercise. Customs examines whether the commercial relationship between the importer and overseas supplier has influenced the declared import price.

The SVB may also consider whether payments such as royalties, licence fees, assists, engineering charges, commissions, or proceeds from subsequent resale should be added to the transaction value.

What is the legal framework for SVB reviews?

Section 14 of the Customs Act, 1962 provides that customs duty is generally levied on the transaction value of imported goods. The mechanism for determining that value is set out in the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007.

Key provisions include:

• Rule 2(2): Defines when the buyer and seller are considered related persons.
• Rule 3: Provides for acceptance of the transaction value where the prescribed conditions are satisfied.
• Rule 3(3): Requires Customs to examine whether the relationship influenced the declared price.
• Rules 4 to 9: Set out alternative valuation methods where the transaction value cannot be accepted.
• Rule 10: Identifies additions that may need to be made to the transaction value.

CBIC Circular No. 5/2016-Customs prescribes the procedure for SVB investigations.

Related-party status is therefore the starting point for the valuation review. The critical issue is whether the importer can independently substantiate the declared price.

Which related-party imports may attract SVB scrutiny?

SVB considerations may arise when an Indian business imports from a parent company, subsidiary, affiliate, or another overseas group entity.

Relevant goods can include:

• Raw materials and manufacturing inputs;
• Machinery and production equipment;
• Components and spare parts;
• Finished goods for distribution;
• Technology-related products; and
• Prototypes and specialised equipment.

The review is particularly important where the broader commercial arrangement involves royalties, brand licensing, technical know-how, software licences, engineering support, technology transfer, or management services.

What does Customs examine during an SVB review?

Customs can look beyond the invoice to understand the complete commercial and financial relationship between the parties.

Customs may request intercompany agreements, financial statements, transfer pricing documentation, royalty arrangements, technical assistance agreements, cost sheets, import invoices, product pricing calculations, and payment records.

Incomplete or inconsistent submissions can result in further information requests and extend the review process.

Is a transfer pricing study sufficient for SVB purposes?

No. A transfer pricing study may support the importer’s position, but it does not automatically establish that the customs value is acceptable.

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Transfer pricing documentation is prepared under the Income-tax Act for direct tax purposes. Customs authorities independently examine imported goods under Section 14 of the Customs Act and the Customs Valuation Rules, 2007.

The two analyses have different legal purposes. Customs requires evidence that the relationship between the buyer and seller did not influence the declared transaction value.

Nevertheless, the transfer pricing and customs valuation positions should be technically consistent. Differences between the pricing methodology, intercompany agreements, financial records, and explanations provided to different authorities may create additional questions.

Do royalties and licence fees form part of the customs value?

Certain royalties, licence fees, and other payments may need to be added to the customs value under Rule 10 of the Customs Valuation Rules, 2007.

Payments requiring review may include:

• Brand royalties;
• Licence fees;
• Technical know-how payments;
• Engineering support charges;
• Software licence fees;
• Technology transfer payments; and
• Certain other commercial or management charges.

Their treatment depends on the commercial arrangement, contractual obligations, nature of the imported goods, and whether the payment is made directly or indirectly as a condition of sale.

Businesses should not examine these payments solely from an accounting or income-tax perspective. The customs implications must be assessed separately.

Why do businesses find the SVB process challenging?

SVB reviews require information and expertise across customs valuation, transfer pricing, international taxation, accounting, corporate law, supply-chain management, and commercial contracting.

The required information is often divided across several departments:

• Finance maintains financial statements and payment records.
• Tax teams prepare transfer pricing documentation.
• Procurement manages supplier negotiations and pricing.
• Legal teams maintain intercompany agreements.
• Logistics teams handle import documentation.
• Commercial teams understand the pricing strategy.

Each function may hold only part of the overall explanation. The business must bring these records together into a single, technically consistent account of the transaction.

What are the most common SVB compliance risks?

Common problems include:

1. Late identification of SVB exposure: The business only considers valuation requirements after Customs raises queries.
2. Overreliance on transfer pricing documentation: The company assumes that an arm’s-length study automatically supports the customs value.
3. Incomplete documentation: Relevant agreements, calculations, invoices, or payment records are unavailable or inconsistent.
4. Unreviewed additional payments: Royalty, licence, engineering, or technical assistance payments have not been assessed under Rule 10.
5. Outdated agreements: Contracts no longer reflect the company’s actual pricing, functions, suppliers, or royalty arrangements.

These gaps may make it difficult for the importer to demonstrate that the declared value accurately reflects the transaction.

How should importers prepare for an SVB review?

Businesses should conduct a pre-import or periodic customs valuation review covering the relationship, pricing methodology, agreements, additional payments, and supporting records.

Importers should ask:

• Have we assessed whether our related-party imports may require an SVB review?
• Do our intercompany agreements reflect the actual commercial arrangement?
• Can we explain and reproduce the import pricing methodology?
• Is our transfer pricing documentation consistent with our customs position?
• Have royalties and other payments been reviewed under Rule 10?
• Are cost sheets, invoices, payment records, and financial statements readily available?
• Can we demonstrate that the relationship did not influence the declared price?

Where the answer to any of these questions is uncertain, the importer should consider a proactive review before Customs initiates enquiries.

Managing SVB risk in India

Related-party imports form part of a broader commercial, tax, and supply-chain structure. Customs valuation cannot therefore be managed solely by the logistics or tax function.

Businesses should coordinate finance, tax, legal, procurement, commercial, and supply-chain teams to ensure that pricing policies, contracts, transfer pricing documentation, and import records present a consistent position.

A structured SVB readiness review can help identify valuation risks, documentation gaps, and potentially dutiable payments before they result in repeated Customs queries or disputes. Ultimately, the importer must be able to show that its declared value is supported by both the documentation and the commercial reality of the transaction.

How DSA supports businesses through the SVB process

At Dezan Shira & Associates (DSA), we understand that every related-party import transaction forms part of a broader commercial and tax framework.

Our multidisciplinary approach enables us to assist businesses throughout the entire SVB lifecycle. Email us for business enquiries at: India@dezshira.com

A. SVB applicability review

We assess whether your related-party imports are likely to require an SVB review and identify potential valuation risks before Customs raises queries.

B. Documentation review

Our professionals review:

• Intercompany agreements
• Transfer Pricing reports
• Pricing policies
• Royalty arrangements
• Financial statements
• Import documentation
• Supply chain structures

to identify gaps and ensure consistency with the Customs Valuation Rules.

C. Technical advisory

We analyse whether royalty, licence fees, assists, engineering charges, commissions, or other payments have Customs valuation implications under Rule 10.

Where necessary, we recommend practical solutions before the issue becomes a Customs dispute.

D. Preparation of SVB submissions

We coordinate information across multiple departments and prepare technically robust responses aligned with the requirements of the Customs authorities and CBIC Circular No. 5/2016-Customs, which prescribes the procedure for SVB investigations.

E. Ongoing support

Our assistance continues beyond the initial submission by supporting clients in responding to Customs queries, reviewing additional information requests, and ensuring consistency between Customs valuation, Transfer Pricing, and commercial documentation.

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