July 30, 2021

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Legal compliances for import and export duties

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This article has been written by Anindita Chanda Bhaumik, pursuing the Diploma Programme in Business Laws for In-House Counsel from LawSikho.

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With the advent of Liberalisation, Globalisation and Privatisation, India took its first step towards becoming global, that is to say, from trading within the geographical boundaries to reaching beyond those same boundaries. Fast forward to the 21st century, India is not only a global participant but resultantly has also witnessed economic development by leaps and bounds.

India’s participation has been quite significant when it comes to foreign trade, since the ancient times and while it took a dip during British rule, the same changed and gained momentum post-independence and have assumed the role of engine of growth, the engineers being the entities participating in international trade. These entities have to follow a set of rules to get their products in the foreign market and as such, it is pertinent to have a brief knowledge of the law of the land concerning the import and export of goods and services.

Import and export is a major contributing factor to the country’s Gross Domestic Product (GDP) which is essentially an indicator of the country’s economic health and progress. The fact that no country is self-sufficient concerning resources makes it impossible for any country to be a closed economy. Be it for the unequal distribution of natural resources or the territorial division of labour and specialisation, the willingness to enhance the standard of living of the people ultimately paves the way for foreign trade. 

Import as such helps in meeting the shortage of essential consumer goods, capital goods and various inputs which cannot be amply produced within the country. Such goods include sugar, ores and minerals, petroleum and crude products, chemical and allied products etc.

The export basket of India, on the other hand, includes traditional items (such as tea, cotton textiles, jute, cashew nuts etc.) and non-traditional items of export (such as aluminium, electronic goods, ferroalloys, non-ferrous metals, machinery and instruments etc.). 

The import and export of goods and services, apart from meeting the increasing consumer demands and resultant enhancement of the standard of living also helps the economy in terms of foreign exchange. The foreign exchange obtained by way of such exports accounts for favourable commercial conditions within the country which in turn attracts more capital and investment funds. Hence as a general principle, it is preferred that an economy has a favourable balance of trade, that is to say, the value of exports is greater than the value of imports. A country needs to have a favourable balance of trade because the low valuation of domestic currencies may result in lesser foreign investment as they lose purchasing power in comparison with other countries. From April 2020 to July 2020, the economy estimated a trade surplus of US$ 14.06 billion wherein the export and import stood at US$ 141.82 billion and US$ 127.76 billion, respectively.          

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From the abovementioned, it is obvious as to the role that imports and exports play in nurturing the health of the economy. It is important for an entity intending on pursuing import or export business to be aware of the legal framework concerning the imports and exports. A brief understanding of the different legal frameworks concerning Foreign Trade includes:

  • The Foreign Trade (Development and Regulation) Act, 1992 (FTDRA) together with the Foreign Trade Policy (FTP) regulates foreign trade in India. The Act aims at providing for the development and regulation of foreign trade by assisting in the imports into and exports from India. The FTP is prepared every five years by the Central Government depending upon the requirements necessary to meet the established standards of economic performance. The year 2020 marks the end of the current FTP 2015-2020 which aimed at improving India’s market share in the existing markets also aiming at exploring new markets. 
  • Apart from FTDRA and FTP, there also exist product-specific laws that determine the exports of specific products. For instance, India is a leading exporter in Tea, any entity, as a part of the trade, willing to export tea has to follow the mandates as given in the Tea Act, 1953. Similarly, other product-specific laws include the Coffee Act, 1942, The Rubber Act, 1947, Drugs and Cosmetics Act 1940.
  • Also, governing the foreign trade, we have the Customs Act, 1962 and the Customs Act, 1975 which governs the import and export duties in India and Foreign exchange regulations which deals with the payment or receipt of foreign currency.

Taxes collected by the customs authority on the imports and certain exports are known as imports and exports duties. Generally, the export and import of goods is free. It should, however, be noted that the term ‘free’ in connection to exports, herein, does not imply that one does not need to pay any tax on the same but rather, such goods do not require a licence or prior authorisation. 

Now, whether goods to be exported are free, restricted or prohibited can be ascertained as given under the Foreign Trade Policy and Schedule 2 of the Indian Trade Classification (Harmonised System) [ITC(HS)] and Schedule 2 of the Handbook of Procedures, Volume I, respectively. The ITC(HS) is an Indian Trade Classification system which is based on the international coding system followed for export regulation, known as the Harmonised System of Coding. 

To export or import goods, the concerned entity has to:

  1. Obtain an Importer-Exporter Code Number (IEC) from the Director General of Foreign Trade (DGFT) which is essential for clearing customs, sending shipments and making transactions in foreign currency.
  2. Ensure compliance with Customs Act, 1962, FTDRA, 1992 and FTP, 2015-2020. In the case of imports, additional permission and licences from DGFT are required depending upon the classification of imported items.
  3. Procure import licences by classifying the same in ITC(HS).
  4. File Bill of Entry and other necessary documents for customs clearance.
  5. Ascertain import duty rate for clearance and payment.

It should be noted that when exporting, the trader has to register with the Indian Chamber of Commerce (ICC) which certifies that the products so exported originated in India by way of issuing Non-Preferential Certificates of Origin. 

It is pertinent to note that the compliance requirements as such can either be performed by the entities engaged in export or import or the same can be done by a customs breaker.

There is a list of documents that are necessarily required to be submitted with the authorities for carrying out export and import businesses. The documents which are mandatorily required for exporting or importing have been specified under FTP 2015-2020. 

There are specific provisions which provide for the steps to be followed for both imports and exports. However, there are no specific provisions regarding the procedure for imports and export duties, that is to say, a set of steps for the procedure, as the same comes within the ambit of the procedure for imports and exports. Even when dealt separately, there are only two stages to import duties and export duties. 

As mentioned earlier, taxes are charged on goods imported or exported. Concerning imports, charges are calculated as given under Schedule I of the Customs Tariff Act, 1975. Imports duty may be basic customs duty as specified under the Schedule 1 of the Customs Tariff Act, 1975, additional duty as per Section 9 of the said Act, special additional customs duty and in certain circumstances anti-dumping duty or safeguards duty as specified under Section 9A and Section 5B of the Customs Tariff Act, 1975.

Additional duties, also known as Countervailing duty are levied on such imported products which are similar to the ones produced within the country thereby levelling the market reception for these products. 

In the possible instances where the imported articles may pose a threat to the domestic market, the authority may impose an anti-dumping duty (penalty levied upon low-priced imported products) or safeguards duty (duty levied on articles that may cause serious injury to the domestic market), as per the situation. 

On the other hand, in exports, the export duty which is either levied by way of a fixed sum based on the weight of the product or ad valorem i.e., a percentage of the export value will be levied as a charge and the same is determined as per the Schedule II of the Customs Tariff Act, 1975 together with the export cess specified in Appendix I to the said schedule.   

Section 11 of the FTDRA, 1992 provides for the penalty to be levied on any import or export made in contravention of the said Act, rules, orders and FTP. As per the provision:

  • Any export or import made in violation of the provision of the said Act will attract a penalty of not less than ten thousand rupees and five times the value of the goods or services or technology to which such contravention has been made. 
  • Submitting false, tampered or forged declaration, statement or document will also attract the above-mentioned penalty to which such submission has been made.
  • Upon contravention, if a person admits to the same on notice by the Adjudicating Authority, the concerned authority may determine an amount to be paid by way of settlement.
  • If a person fails to pay the penalty as per the measures specified under clause 5 and 6 to the Section 11, then the IEC number of such person may be suspended by the Adjudicating Authority unless the penalty is paid.
  • Any contravention of the provisions of this Act, rules or FTP will result in the confiscation of the good together with the package, covering or receptacle and any conveyances by the Adjudicating Authority until the person concerned pays the redemption charges equivalent to the market value of the goods or conveyance. 

Imports and exports play a crucial role in not only determining but also ascertaining the economic health of the country. The more an economy engages in export, the better the economy will be resulting in attracting capital. It is pertinent that a person ensures compliance with the legal frameworks that have been put in place to regulate the exports and imports of the country as compliance of the legal frameworks will ensure that trade continues to operate smoothly.

  1. THE FOREIGN TRADE (DEVELOPMENT AND REGULATION) ACT, 1992 ACT NO. 22 OF 1992.
  2. FOREIGN TRADE POLICY OF INDIA, available at: https://www.ibef.org/economy/trade-and-external-sector

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