If you are importing goods from a “Related Party” (like a foreign parent company or subsidiary), your shipments typically pass through the Special Valuation Branch (SVB) of Indian Customs.
While SVB ensures that the government isn’t losing revenue due to “under-invoicing,” for an importer, it often means one thing: Blocked Working Capital.
Thousands of importers have millions of rupees stuck in Extra Duty Deposits (EDD) because they don’t know how to close their SVB investigation and claim their refunds. This guide explains the process and how to unblock your funds.
What Triggers an SVB Investigation?
Customs authorities initiate an SVB investigation when they suspect that the price you pay for imported goods is influenced by your relationship with the supplier.
Common Triggers:
- Related Parties: You and the supplier share directors, partners, or control (Rule 2(2) of Customs Valuation Rules).
- Royalty/License Fees: You pay a separate fee to the supplier for technology, branding, or technical know-how.
- Sole Agents: You are the exclusive distributor in India with special pricing arrangements.
Once triggered, your imports are treated as “Provisional Assessments” (PD Bond), and the file is transferred to the SVB unit.
The Financial Trap: Extra Duty Deposit (EDD)
This is the most critical part for your finance team. While the investigation is pending, Customs requires security to clear your goods.
- The Good News: Since Circular 05/2016, the mandatory 1% EDD has been dispensed with for compliant importers who submit documents on time.
- The Risk (The 5% Penalty): If you fail to reply to the SVB questionnaire within 30 days (extendable by another 30 days), the Commissioner can impose a mandatory 5% Extra Duty Deposit on all your shipments.
- The Impact: This money sits with the government until the investigation is legally “Finalized.”
The Refund Process: How to Get Your Money Back
Once the SVB passes a favorable order (accepting your transaction value), you are eligible to claim the EDD back. However, the refund is not automatic. You must navigate a specific procedure to unlock these funds.
Step 1: Finalization of Bill of Entry (BoE)
You cannot claim a refund on a “Provisional” Bill of Entry. You must first approach the Appraising Group at the port of import with your Final SVB Order to convert your entries from Provisional to Final.
Step 2: Proving “Unjust Enrichment”
This is where 90% of refunds get rejected. You must prove that you did not pass on the burden of this Extra Duty Deposit to your customers.
- Evidence Required: A Chartered Accountant (CA) Certificate stating that the EDD amount was shown as “Receivable” (Asset) in your balance sheet and not booked as an “Expense” in your Profit & Loss account.
Step 3: Filing the Claim
File a refund application under Section 27 of the Customs Act, 1962 with the following documents:
- Original TR-6 Challans (proof of EDD payment).
- Finalized Bills of Entry.
- SVB Order Copy.
- CA Certificate (Unjust Enrichment).
Why Are Your Refunds Stuck? (Common Pitfalls)
- Lost Challans: Importers often lose the physical challans for EDD paid years ago.
- Accounting Errors: If your finance team booked the EDD as a “Cost” instead of an “Asset,” you fail the Unjust Enrichment test.
- Non-Finalization: Importers get the SVB order but forget to “finalize” the individual Bills of Entry at the port.
Conclusion
An SVB investigation doesn’t have to be a cash-flow nightmare. With the right documentation and timely responses to the SVB questionnaire, you can avoid the 5% penalty and expedite your refunds.
Don’t let your working capital sleep in a government account.
Need Help with SVB or EDD Refunds?
Handling SVB investigations requires a mix of Legal expertise (to answer questionnaires) and Chartered Accountancy (to prove valuation).
Mundhra Consulting Services (MCS) specializes in:
✅ Drafting replies to SVB Questionnaires.
✅ Representing clients during SVB Personal Hearings.
✅ Processing EDD Refund Claims across all Indian ports.
Contact Mundhra Consulting Services (MCS)
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