/ What is a Provisional Duty Bond (PD Bond) and what is Special Valuation Branch (SVB)?

Provisional Duty (PD) Bonds and the Special Valuation Branch (SVB) are inter-related. 

As per the Customs (Provisional duty Assessment) Regulations of 2011 a Customs Officer will make an estimate of duty to be levied on a shipment for one of two reasons. This estimate is then referred to as the Provisional Duty – PD Bond.  This will be made when:  

• an importer or an exporter is unable to make a self-assessment under sub-section (1) of section 17 of the Customs Act, 1962 (52 of 1962) and requests in writing for the assessment to be done;  or  
• the “proper office on account of any grounds specified in sub section (1) of section 18 of the said Act, is not able to verify the self-assessment or make a re-assessment of the duty on the imported goods or the export goods” 

This rule is important when two related parties (e.g. a parent and its Indian subsidiary) are engaged in International trading, because in this situation the Customs Department wants to understand whether the relationship between the firms has any influence on the product level transfer price set. This product level transfer price is verified by the Special Valuation Branch of Indian Customs using various parameters related to the self-declared information of the importer. Since the process of understanding the transfer pricing is cumbersome, it usually takes at least 3 to 5 months.  

Obviously, your Indian subsidiary cannot wait for this long and will want to import the goods to India, so in order to complete affected imports without an SVB study, you will need to initiate the process for the provisional duty (PD) bond from the first import onwards. 

Once the SVB is convinced of the transfer prices, it issues an order which allows importation of goods without any further requirement for a PD Bond. This order once issued is valid for the next 3 years and needs to be renewed after that or when the pricing strategy undergoes a change or business status of the Indian subsidiary changes (whichever is earlier).  

The order issued by the SVB holds relevance at each Indian port, until and unless a particular port official senses a disparity or irregularity in the prices documented. Where a port officer is convinced that the transfer prices is not following the Arms-Length principle, then they may ask the importer to introduce the Provisional Duty Bond. Such an inspection is an exceptional one and most of the times transfer price once agreed remains fine. 

Where you have a Provisional Duty Bond in place you need to introduce this at each port at which your Indian entity imports goods. The introduction of the PD bond is initiated by submitting a bond on a India Rupee 100 judicial stamp paper (INR 200 judicial stamp paper in Mumbai). Introducing a PD Bond is a time consuming process as the file moves through the entire hierarchy of customs officers for signatures and then comes back to the first level officer after signatures.  

It is also important to note that a PD Bond is introduced with validity, both of date as well as the amount for which the imports will be permitted in India from the foreign related entity. Your EXIM team has to keep note of the validity date and the amount for which the bond remains open. When either is close to expiry then an extension is required.  

M+V Altios’s legal team can get all the import registrations along with the required corporate and product related registrations for you. Additionally, our Supply Chain experts can help you with the import process and make sure your goods do not get stuck at the customs.