India Eases Customs Rules for Local arms of Multinationals

Simplified mechanism has been prescribed to clear up past pendency at the Special Valuation Branch

India has simplified rules governing pricing of imports by related parties including Indian arms of import-dependent multinationals such as Swarovski, Apple, BMW, Audi, and Bausch & Lomb, a move that is expected to significantly improve ease of doing business for such entities.

The government has revamped decadeand-half-old customs rules and done away with a requirement that made deposit of extra duty on imported goods by such entities mandatory.

The new simplified mechanism has been prescribed to clear up past pendency at special valuation branches (SVBs) of customs. “In order to facilitate quick disposal of cases currently pending with SVBs for renewal, a system of one-time declaration is being provided,“ said a di rective to field formations issued by the Central Board of Excise and Customs.

Typically, transactions between related parties such as subsidiaries of foreign firms do not follow usual business dynamics in terms of pricing. Tax laws mandate that transactions between related parties should be carried out on arms-length basis akin to its dealing with any other entity. Under income tax law, these transactions are governed by transfer pricing rules. The customs has a special arm to deal with such issues, and special valuation branches located at customs house in four metros carry out valuation of imported goods.

Relationship between the importer and the exporter and its influence on the invoice value of an imported good, terms and conditions of joint venture agreements, and technical arrangements are examined closely at SVB to ensure that the country gets due revenue.

The instruction issued in 2001served as the manual for special valuation branch.As per that instruction, an order issued by SVB is valid for three years after which a reassessment is carried out.This has led to long delays of as much as three years in some instances.

Importers are allowed to carry out imports pending SVB decision while ma king a payment of extra duty deposit.Though this duty , which can in cases go up to as much as 5%, is refundable but manual processes and long pendency have made it very difficult for importers.

Now, requirement of this deposit has been done away with except in cases where the importer fails to furnish requisite information or documents within 60 days of requisition, in which case 5% security deposit shall be imposed strictly only for a period not exceeding three months.

The importer can choose to provide the security deposit either in cash or through a bank guarantee. But, imports of prototypes, exempt goods, or goods valuing less than Rs.1 lakh, cumulatively not exceeding Rs.25 lakh in any financial year cannot be taken up for investigation.

The government has also discontinued renewal of SVB orders. In case of change in circumstances or terms and conditions of the agreement, the importer shall declare the same at the place of import, the CBEC directive said.

Legal advisory firm Dhruva Advisors said the removal of extra duty deposit would help reduce working capital requirement for importers. “The new procedure for SVB valuation shows the government's commitment in fulfilling its promise of `ease of doing business' in India,“ it said in a note.

The Economic Times, New Delhi, 23rd February 2016

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