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Frequently Asked Questions

 

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Why and how does Government regulate imports and exports?

Generally, the Government imposes restrictions on imports and exports for the following reasons:

  • Protection of public morals;
  • Protection of human, animal, or plant life or health;
  • Protection of patents, trademarks and copyrights, and the prevention of deceptive practices;
  • Prevention of use of prison labor;
  • Protection of national treasures of artistic, historic or archaeological value;
  • Conservation of exhaustible natural resources;
  • Protection of trade of fissionable material or material from which they are derived;
  • Prevention of traffic in arms, ammunition, and implements of war.

However, there could also be situations such as maintaining price stability, honoring international commitments, protecting domestic producers, etc., which might warrant the imposition of restrictions, usually for a temporary period.

The Foreign Trade (Development & Regulation) Act, 1992 empowers the Central Government to notify Foreign Trade Policy. Accordingly, the Commerce Ministry has notified the Policy for the period 2015-20. Besides, under the Customs Act, 1962 also certain restrictions on imports and exports are imposed.

Most items can be exported or imported without any license/authorization but some items are allowed without license/authorization only upon fulfillment of prescribed conditions. Some items are prohibited for import or export. Some items can normally be imported or exported by State Trading Enterprises only and some will be allowed for import or export only against a license/authorization. The import/export policies for all goods are indicated against each item in Indian Trade Classification (Harmonised System) for Imports and Exports, usually known as ITC (HS). Schedule 1 of ITC (HS) lays down the Import Policy regime while Schedule 2 of ITC (HS) details the Export Policy regime.

Also, domestic Laws/ Rules/ Orders/ Regulations/ Technical specifications/ environmental/ safety and health norms applicable to domestically produced goods apply, mutatis mutandis, to imports, unless specifically exempted. Besides, product-specific restrictions or conditions may be imposed by other Ministries or authorities. For example, Ministries dealing with health, environment or agriculture may impose restrictions on their own also.

Under the Customs Act, 1962, import duties are levied on most items. Export duties are also levied on a few items. These details are given in Schedule 1 and 2 to the Customs Tariff Act, 1975. Under this Act, anti-dumping, safeguard, and anti-subsidy countervailing duties have also been levied on some items. Product-specific cesses are levied on some items under various legislations.

The restrictions imposed on imports or exports are usually enforced at the borders by the Customs who man the entry and exit points at the ports, airports, land customs stations, and foreign post offices through which goods enter the country or leave the country. Customs officers not only collect duties but also enforce various provisions governing imports and exports of cargo, baggage, postal articles, and arrival and departure of vessels, aircraft, etc.. Their functions include enforcement of prohibitions and restrictions on imports and exports under various legal enactments, prevention of smuggling including interdiction of narcotics drug trafficking, and international passenger clearance.

What are SEZ, EOU and DTA?

A Special Economic Zone (SEZ) is a specially delineated geographical enclave, which is deemed to be a foreign territory for the purpose of certain economic laws. The idea is to help build world class infrastructure and offer a package of incentives in notified areas where manufacturers, service providers and traders can operate in a hassle free environment and boost exports. Towards this end, SEZ Act, 2005 was enacted and SEZ Rules, 2006 was notified. Many other allied laws relating to excise, customs, service tax, central sales tax, value added tax, income tax etc. have also been amended suitably to give necessary inducements to SEZ developers who build and maintain necessary infrastructure and SEZ units who operate in the processing areas within the SEZ.

The main objectives spelt out in the SEZ Act, 2005 are:

  • generation of additional economic activity
  • promotion of exports of goods and services;
  • promotion of investment from domestic and foreign sources;
  • creation of employment opportunities;
  • development of infrastructure facilities;

As on 2nd September 2016, formal approvals for 406 SEZs have been granted, out of which 328 have been notified and 204 are operational where 4,166 units have been set up. The investments in SEZ amounted to Rs.3,76,494 crores. The employment was 15,91,381 persons in these zones. The exports from SEZ Units amounted to Rs. 4,67,337 Crore in 2015-16.

EOU is an acronym used to collectively refer to units set up under the special schemes for Export Oriented Units (EOU), Electronics Hardware Technology Parks (EHTP), Software Technology Parks (STP) and Bio-Technology Park (BTP). These are Units undertaking to export their entire production of goods and services (except permissible sales in Domestic Tariff Area (DTA)). These unit may be engaged in manufacture of goods, including repair, re-making, reconditioning, reengineering, rendering of services, development of software, agriculture including agro-processing, aquaculture, animal husbandry, bio-technology, floriculture, horticulture, pisciculture, viticulture, poultry and sericulture. Trading units are not covered under these schemes.

Objectives of these schemes are to promote exports, enhance foreign exchange earnings, attract investment for export production and generate employment. These are sought to be achieved by giving the Units a package of incentives that mainly treat them as duty free enclaves that can be set up anywhere in the country. EOU/ EHTP/ STP/BTP Units must be positive net foreign exchange (NFE) earners, except for some sectors, where a higher value addition is required. Till recently, most EOUs were required to function as bonded warehouses but now that requirement has been done away with

Domestic Tariff Area (DTA) refers to all areas other than SEZs and EOUs. The DTA units have no obligation to export, except when they obtain any duty free inputs or duty free capital goods for export production. They have no restriction on how much they can sell in DTA. Within the DTA, the manufacturers in North East, Sikkim, Himachal Pradesh, Jammu and Kashmir and Uttarakhand get some special concessions and incentives, like excise duty exemptions or refunds.

What are the different types of import duties?

There are different types of customs duties and cesses that are levied on imported goods.

Basic Customs Duty (BCD) is levied on imported goods at the rates prescribed in the Schedule 1 of the Customs Tariff Act, 1975. BCD is essentially intended to make imports expensive so that domestic industry is protected to that extent and to raise revenue. BCD may be expressed on ad valorem basis i.e. as a percentage of the value of the goods or on specific basis i.e. per unit basis. Section 12 of the Customs Act, 1962 mandates this levy.

Additional Customs Duty, usually called Countervailing Duty (CVD), is levied to ensure that the imported goods suffer the same duty that domestically produced goods suffer. So, it is equivalent to the excise duty leviable on like goods, if manufactured in India. This is levied on the value of the goods plus the BCD, except in case of certain goods where it is levied on the basis of the Retail Sale Price (RSP) declared on the packages less abatement at notified rates. CVD is levied under Section 3(1) of the Customs Tariff Act, 1975.

Another Additional Duty of Customs, levied under Section 3(3) of the Customs Tariff Act, 1975, seeks to counter-balance the excise duty leviable on any raw materials, components and ingredients of the same nature as, or similar to those, used in the production or manufacture of such articles. This levy is useful when goods manufactured indigenously is exempted from payment of excise duty. Presently, it is levied on stainless steel manufactures for household use and transformer oil only. It is levied on the sum total of assessable value of the goods, BCD, CVD, education cess and secondary and higher education cess.

Another Additional Duty of Customs, usually referred to as Special Additional Duty (SAD) is levied to countervail the incidence of sales tax or value added tax that domestic producers pay when they sell their goods in India. At present this is 4%, which is levied on the sum total of assessable value of the goods, BCD, CVD, education cess and secondary and higher education cess. It is levied under Section 3(5) of the Customs Tariff Act, 1975.

Anti-dumping duties are levied to protect the domestic producers from dumping – i.e. the foreign suppliers exporting to India below the ‘normal value’. Safeguard duties are levied to protect the domestic producers temporarily from a surge in imports. Anti-subsidy Countervailing duties are levied to protect the domestic producers from subsidised exports from other countries. These duties are levied at the rates and in the manner notified by the Government under Sections 9A, 8B and 9 of the Customs Tariff Act, 1975 respectively.

Many cesses are imposed under various legislations e.g. education cess, clean energy cess etc. on imported goods that are collected in the same manner as customs duty. Besides, the Customs Tariff Act, 1975 gives emergency power to Government to levy or raise import duties; power that has hardly ever been used.

‘National Calamity Contingency Duty’ (NCCD) is imposed on pan masala, tobacco products and crude petroleum on specific basis and two-wheelers and motor vehicles at 1% (on assessable value plus CVD), with a view to build a ready corpus of funds to cope with natural disasters.

How can I find out the duties that are leviable on items that I want to import?

The first step to determine the duty payable on imported goods is to get the classification right, in Schedule 1 of the Customs Tariff Act, 1975 that covers all the items in 21 Sections and 98 Chapters. Each Chapter has several headings at 4-digit level, sub-headings at 6-digit level and tariff lines at 8-digit level. Section Notes, Chapter Notes and Rules for Interpretation of the Tariff have to be taken into account for locating the item in the Tariff.

While classifying goods, the foremost consideration is the “statutory definition” and any guideline provided by HSN Explanatory Notes of World Customs Organisation. The “trade meaning” must be given due importance unless the Tariff itself requires the terms to be interpreted in a strict technical sense in which case technical dictionaries should be used. Central Board of Excise and Customs has issued many clarifications on classification and there are many case laws also on classification. In case of doubt, a binding ruling from Advance Ruling Authority can be sought.

Once the classification is done, the rate of duty specified in the Tariff Schedule against that item called “Tariff rate of duty” becomes the base. The next step is to examine whether any exemption notification issued by the Finance Ministry covers the item. The Tariff rate read with the exemption notification gives the effective rate of duty for determining the Basic Customs Duty (BCD).

To determine the Additional Customs Duty (CVD) leviable on the item under Section 3(1) of the Customs Tariff Act, 1975, the same procedure should be adopted but for determining the effective rate of excise duty for like items, if manufactured in India. The Central Excise Tariff Act, 1985 is aligned with the Customs Tariff Act, 1975 and so, the classification will be same under both the legislations. Here again, the Tariff rate read with the exemption notification gives the effective rate of excise duty. This rate of duty must be adopted for levy of CVD, which is equivalent to the excise duty leviable on like goods, if manufactured or produced in India.

The education cess (EC) is levied at 2% of the BCD+CVD and secondary and higher education cess (SHE) at 1% of BCD+CVD. Additional Duty of Customs (CVD) leviable on the item under Section 3(5) of the Customs Tariff Act, 1975, called the SAD is 4%. Here again the exemption notifications must be referred to see if the EC, SHE or SAD is exempted for the item in question.

Thereafter, the notifications relating to anti-dumping duties, safeguard duties and anti-subsidy countervailing duties must be checked out to see if any of those duties have been levied on the item of import. These notifications express the duties to be levied on per unit basis or in amounts in excess of landed value and so on.

Lastly there are product specific cesses levied under various legislations. Exemption notifications may cover some of them.

How to handle re-import of exported goods?

Re-import of exported goods is covered under the savings clause in the Foreign Trade (Exemption from Application of Rules in Certain Cases) Rules, 1993 and so, is allowed without a license/authorisation.

As per Section 20 of the Customs Act, 1962, “if goods are imported into India after exportation therefrom, such goods shall be liable to duty and be subject to all the conditions and restrictions, if any, to which goods of the like kind and value are liable or subject, on the importation thereof.” It means that such goods will be charged to full duty. However, there are some exemption notifications covering re-imports. In all cases of re-import, the Customs must be satisfied about the identity – that they are the same as the ones exported.

Notification 158/95 dated 14.11.1995 deals with re-import of exported goods for the purpose of repairs, reconditioning, reprocessing, refining, re-making, carrying out any similar process and re-export within 6 months from the date of re-importation, which may be extended by a further period of six months if the Commissioner of Customs allows. For this purpose, a bond must be furnished to the Customs at the time of re-import, which will be discharged upon re-export after carrying out any of the said processes. For repairs and reconditioning, the re-import must take place within three years of export. For reprocessing, refining, re-making, carrying out any similar process, the re-import must have taken place within one year of exportation. Also, these processes must be carried out in any factory under Central Excise control following the procedure laid down under rule 173MM of the Central Excise Rules, 1944 or in a Customs bond under provisions of section 65 of the Customs Act, 1962.

The essence of notification 94/96-Cus dated 16.12.1995 is that any benefits taken at the time of export must be surrendered. Thus, if duty drawback or excise (state or central) rebate was taken at the time of export, that must be given back. If no excise duty was paid at the time of export, that must be paid at the time of re-import. If the goods were exported in discharge of obligation against advance authorisation or EPCG authorisation, the entry must be de-logged and the DEEC shipping bill converted into free shipping bill. And so on.

Under notification 94/96, in case goods are sent abroad for repairs and reimport, the duty payable upon re-import would be on the cost of repairs (whether incurred or not) plus to and fro cost of transportation and insurance. Cut and polished precious and semi-precious stones exported for treatment abroad will attract duty on fair cost of treatment plus to and fro freight and insurance. The notification 94/96 fully exempts other goods exported without availing any export incentives. There are some conditions in this notification that must be carefully taken note of.

Besides the above, there are exemption notifications covering re-import of goods sent abroad for electroplating, execution of projects etc. and some miscellaneous purposes.

What are bonded warehouses? What disciplines to follow there?

There are three types of bonded warehouses, where imported goods can be stored without duty payment. These are:

  • Special warehouses, licensed under Section 58A of the Customs Act, 1962 where notified sensitive goods can be deposited
  • Private warehouses, licensed under Section 58 of the Customs Act, 1962 where non-sensitive goods imported by or on behalf of the licensee can be deposited
  • Public warehouses, licensed under Section 57 of the Customs Act, 1962 where non-sensitive goods imported by anyone can be deposited

The licensing conditions are more or less similar, except for different stipulations regarding solvency certificates, supervision charges, customs locks etc. The importers have to provide bond for thrice the duty amount before depositing the goods in bonded warehouse. The goods can be stored in bonded warehouse for a period of one year, which can be extended for a further period of one year by the Commissioner of Customs. At the time of removal for home consumption, duty has to be paid. Beyond the interest free period of ninety days, interest is payable at notified rates.

Sensitive goods include gold, silver, other precious metals and semi-precious metals and articles thereof, goods warehoused for the purpose of supply to duty free shops in a customs area, supply as stores to vessels or aircrafts and supply to foreign privileged person. Special warehouses will be under the physical control of the Customs. Sensitive goods will not be allowed to be brought into or taken out of special warehouse except with the permission and in presence of the bond officers in charge of the warehouse.

In case of other warehouses, permission is not required for allowing entry of the imported goods and presence of customs officer is not required except for removal for exports. The movement of goods from the port to warehouse or from one warehouse to another or from warehouse for exports has to be under one-time lock, bottle sealed and numbered. Manufacture can be carried out in bonded warehouses.

In all cases, necessary infrastructure for storage and handling of goods, computerised system for accounting receipt, storage, operations and removal of goods and adequate personnel must be deployed. The warehouse keeper must use digital signature to file all documents electronically. Proper records must be maintained and periodic returns must be furnished.

he Central Board of Excise and Customs has made it clear that duty free shop (DFS) located in a customs area should not be treated as a warehouse. It is a point of sale for goods that are to be ex-bonded and removed from a warehouse for being brought to a DFS in the customs area for sale to international passengers arriving or departing from India. DFS operators who store goods in large warehouses in the city and/or in smaller warehouses in and around the precinct of the airport to act as a staging area for replenishing stocks in the duty free shopping area can get those warehouses licensed as bonded warehouses.

How to deal with situations when goods are held up by the Customs?

With the introduction of self-assessment, most imported consignments are cleared on the basis of declaration of the importer. Even when the Risk Management System selects a bill of entry for assessment by the Customs or when the Customs based on their own information decide to subject a bill of entry for scrutiny, goods get cleared unless non-compliance with legal provisions are noticed.

Still there are occasions when goods are held up mostly due to classification or valuation disputes. In such cases, it is best to furnish bond for differential duty, clear the goods under provisional assessment and argue later. There are occasions when the Customs want to send samples for testing. Even in such cases, bond can be furnished and goods cleared against provisional assessment.

When the holdup is on the grounds that import of the goods is restricted or subject to fulfilment of certain conditions and the importer expects to fulfil the conditions (e.g. obtaining a permit or license) shortly, he can seek permission to deposit the goods in a public bonded warehouse under Section 49 of the Customs Act, 1962. If the importer wants to claim duty exemption that can be granted subject to fulfilment of certain conditions and the importer expects to fulfil the conditions (e.g. obtaining a certificate or authorisation), he can file a bill of entry for warehousing, deposit the goods in a bonded warehouse and clear the goods when he is in a position to comply with the requirements for grant of exemption.

There could be situations where the importer is aggrieved that the goods are held up wrongly. In that case, he should meet the senior officers. The Chief Commissioner/Commissioners of Customs earmark time on all working days during which any person having any grievances is free to meet them without prior appointment. Besides, each Commissionerate has a designated Public Grievance Officer. Public Notices have been issued giving the names and telephone numbers of these officers. They may be approached for redressal of grievance.

Many committees like Public Grievance Committee, Watchdog Committee, Permanent Trade Facilitation Committee and Custom Clearance Facilitation Committee’ (CCFC) for Land customs stations and Inland Container Depots are constituted in many Customs Commissionerates, consisting Chief/Principal Commissioner of Customs, representatives of trade and industry and Custom House Agents, representatives of Custodians, Banks, Export Promotion Agencies and Chambers of Commerce and Food Safety Standards Authority of India/Port Health Officer, Plant/Animal Quarantine Authorities, Drug Controller of India, Textile Committee etc. These committees meet regularly to look into procedural issues or problems being faced in Customs clearance of export/import cargo or grant of various incentives. Feedback from trade and industry is used for necessary review of procedures and taking measures to remove the difficulties of importers/exporters and minutes of the meetings are put on the website. The importer must use these forums to agitate his problems. Sometimes, the importers approach the courts also and seek appropriate relief.

How to find out restrictions for export of any item?

The Commerce Ministry has notified Indian Trade Classification (Harmonised System) of Classification for Export and Import items, known as ITC (HS). Schedule 2 to ITC (HS) gives the Export Policy. It has 2 Tables – Table ‘A’ and Table ‘B’. Table ‘A’ gives the Policy for items that may fall under many chapters or headings or sub-headings of Schedule 1 of ITC (HS). Table 2 gives the Policy against specific chapter or headings or sub-headings of Schedule 1 of ITC (HS). All goods other than those listed in Table ‘A’ and ‘B’ are freely exportable i.e. without any conditions. The export licensing policy in the Schedule-2 and its appendices does not preclude control by way of a Public Notice or Notification under the Foreign Trade (Development and Regulations) Act, 1992.

The Table ‘A’ has eight entries. The important ones are Special Chemicals, Organisms, Materials, Equipments & Technologies (SCOMET) goods as specified in Appendix 3 of Schedule 2 of ITC (HS), military stores specified by Director General of Foreign Trade and wild animals, animal articles including their products and derivatives. Export of items not on SCOMET List may also be regulated under provisions of the Weapons of Mass Destruction and their Delivery Systems (Prohibition of Unlawful Activities) Act, 2005. Export of goods including plant & plant products using wood packaging material such as pellets, dunnage, crating, packing blocks, drums, cases load boards, pellet collars and skids etc. shall be allowed subject to compliance of International Standards for Phytosanitary Measures No. 15 (ISPM 15).

The Table ‘B’ lists the items covered under certain chapters/headings/sub-headings of ITC (HS) Schedule 1. The Policy is stated against each entry. Some items are ‘prohibited’ i.e. not permitted to be exported. Some others are ‘restricted’ i.e. their exports can be permitted for export under license. Some items can be exported only by State Trading Enterprises (e.g. State Trading Corporation Ltd.). All other items in Table ‘B’ are permitted for export freely but subject to fulfilment of specified conditions like certificate from specified authorities, registration with certain authorities, minimum export price, compliance with specified laws, quality certification and so on).

Normally there are no country specific restrictions for exports However, export of arms and related material to Iraq is prohibited. Direct or indirect export of all items, materials, equipments, goods and technology which could contribute to Iran’s enrichment related, reprocessing or heavy water related activities, or to development of nuclear weapon delivery systems etc. are not allowed. Direct or indirect export of all items, materials equipment, goods and technology which could contribute to Democratic People’s Republic of Korea’s nuclear-related, ballistic missile-related or other weapons of mass destruction is prohibited. Export of rough diamonds to Cote d’Ivoire is prohibited. Export of rough diamond is prohibited.

Besides, export of any item regulated through Public Notice issued by the Director General of Foreign Trade can be exported freely subject to conditions notified in the Public Notice.