Import Regulations and Definitions Explained

Vijayan Ramakrishnan 10.03.24 10 00 am to 12.30 pm 5.00 pm to 7.00 pm

Topics to be covered Definitions Meaning and scope of import High sea sales Bonded warehouse Valuation of imported goods SVB and related transactions Import of services Import and GST Advance Rulings Important case studies

Meaning and scope of import Meaning of Imported goods Section 2(10) of the IGST Act,2017 defines Import of goods with its grammatical variations and cognate expressions, means bringing goods into India from a place outside India. The term bringing goods in to India means physically goods should be brought into India and import of goods commences when the goods cross the Customs frontiers of India, it may be land, air and territorial waters of India. Thus import of goods necessarily implies goods to be brought physically in India.

Important Definition Section 2(4) of the IGST Act,2017 defines Customs frontiers of India means the limits of a customs area as defined in Section 2 of the Customs Act, 1962 (52 of 1962). Section 2(25) of the Customs Act, 1962 defines imported goods means any goods bought into India from a place outside India but does not include goods which have been cleared for home consumption. Section 2(27) of the Customs Act, defines India includes the territorial waters of India. Section 2(28) of the Customs Act, defines Indian Customs Waters means the waters extending into the sea up to the limit of contiguous zone of India under Section 5 of the Territorial Waters, Continental Shelf, Exclusive Economic Zone and other Maritime Zones Act,1976 and includes any bay, gulf, harbor, creek or tidal river.

Section 2(56) of the CGST Act, 2017 defines India means the territory of India as referred to in article 1 of the Constitution, its territorial waters, seabed and sub-soil underlying such waters, continental shelf, exclusive economic zone or any other maritime zone as referred to in the Territorial Waters, Continental Shelf, Exclusive Economic Zone and other Maritime Zones Act, 1976, and the air space above its territory and territorial waters. Section 2(11) Customs area , means the area of a customs station and includes any area in which import goods or export goods are ordinarily kept before clearance by Customs Authorities.

The term importer has not been defined in IGST Act but as per Section 2(26) of the Customs Act, importer , in relation to any goods at any time between their importation and the time when they are cleared for home consumption, includes any owner, beneficial owner or any person holding himself out to be the importer. 11.25 of Foreign Trade Policy states Import is as defined in Foreign Trade (Development & Regulations) Act, 1992 as amended from time to time. 11.26 of Foreign Trade Policy states Importer means a person who imports or intends to import and holds an IEC number, unless otherwise specifically exempted inserted

Levy of duty on imported goods Any goods imported into India are chargeable to duties of Customs under Section 12 of the Customs Act, 1962 at rates specified in the Customs Tariff Act, 1975. As per Section 12 of the Customs Act, levy of duties of customs is on the goods imported into India. Import commences when the goods cross the territorial waters and is completed when bill of entry for home consumption is filed. Taxable event occurs when bill of entry for home consumption is filed; same is also applicable for warehouse goods. As per Section 7(2) of the IGST Act, 2017, Supply of goods imported into the territory of India, till they cross Customs frontier of India, shall be treated to be supply of goods in the course of inter-State trade or commerce. Further as per Section 8(1)(ii) of the IGST Act, 2017, goods imported into the territory of India till they cross the Customs frontiers of India shall not be treated as intra-State supply of goods.

In view of the above interpretation IGST shall be levied on imported goods once the same cross the Customs frontiers of India i.e. on inter-State supply of goods. As per Section 5(1) of the IGST Act, 2017, Integrated tax on goods imported into India shall be levied and collected in accordance with the provisions of Section 3 of the Customs Tariff Act, 1975 on the value as determined under the said Act at the point when duties of Customs are levied on the said goods under Section 12 of the Customs Act, 1962. Though, the levy of IGST is under IGST Act, its valuation is as per Customs Tariff Act and levied and collected when duties of Customs are levied and collected .

As per Section 8 of Compensation Cess Act, compensation cess shall be levied on such intra-State supplies of goods or services or both, as provided for in Section 9 of the Central Goods and Services Tax Act, and such inter-State supplies of goods or services or both as provided for in Section 5 of the Integrated Goods and Services Tax Act, Levy of Social Welfare Surcharge @ 10% as a duty of Customs on imported goods in to India, in addition to any other duties of Customs or tax or cess chargeable on such goods, under Section 25(1) of the Customs Act, 1962 read with Clause 108 of the Finance Bill, 2018.

The integrated tax on imported goods shall be in addition to the applicable Basic Customs Duty (BCD) which is levied as per the Customs Tariff Act. In addition, GST compensation cess, may also be leviable on certain luxury and demerit goods under the Goods and Services Tax (Compensation to Sates) Cess Act, 2017 and also recently levy of Social Welfare Surcharge. The Customs Tariff Act, 1975 has accordingly been amended to provide for levy of Integrated Tax, the Compensation Cess, Social welfare Surcharge on imported goods. Accordingly, goods which are imported into India shall, in addition to the Basic Customs duty, be liable to Integrated Tax at such rate as is leviable under the IGST Act, 2017 on similar article on its supply in India.

Definitions Section 2 , Chapter 1 of The Customs Act 1962 describes Customs definitions In all 44 definitions are in the Customs Act 1962 Chapter 11 of Foreign Trade Policy lists all definitions related to FTP 63 definitions are in FTP Link for FTP definitions: https://agriexchange.apeda.gov.in/FTP/FTP2023_Chapter11.pdf

[(1) "adjudicating authority" means any authority competent to pass any order or decision under this Act, but does not include the4[Board, Commissioner (Appeals)] or Appellate Tribunal;] 3[(1A) "aircraft" has the same meaning as in the Aircraft Act, 1934 (22 of 1934);] 3[(1B) "Appellate Tribunal" means the Customs, Excise and5[Service Tax] Appellate Tribunal constituted under section 129;]

[(2) assessment means determination of the dutiability of any goods and the amount of duty, tax, cess or any other sum so payable, if any, under this Act or under the Customs Tariff Act, 1975 (hereinafter referred to as the Customs Tariff Act) or under any other law for the time being in force, with reference to- (a) the tariff classification of such goods as determined in accordance with the provisions of the Customs Tariff Act; (b) the value of such goods as determined in accordance with the provisions of this Act and the Customs Tariff Act; (c) exemption or concession of duty, tax, cess or any other sum, consequent upon any notification issued therefor under this Act or under the Customs Tariff Act or under any other law for the time being in force; (d) the quantity, weight, volume, measurement or other specifics where such duty, tax, cess or any other sum is leviable on the basis of the quantity, weight, volume, measurement or other specifics of such goods; (e) the origin of such goods determined in accordance with the provisions of the Customs Tariff Act or the rules made thereunder, if the amount of duty, tax, cess or any other sum is affected by the origin of such goods; (f) any other specific factor which affects the duty, tax, cess or any other sum payable on such goods, and includes provisional assessment, self-assessment, re-assessment and any assessment in which the duty assessed is nil;

(3) "baggage" includes unaccompanied baggage but does not include motor vehicles; 7[(3A) beneficial owner means any person on whose behalf the goods are being imported or exported or who exercises effective control over the goods being imported or exported;] (4) "bill of entry" means a bill of entry referred to in section 46; (5) "bill of export" means a bill of export referred to in section 50; (6) "Board" means the8[9[Central Board of Indirect Taxes and Customs]constituted under the Central Boards of Revenue Act, 1963 (54 of 1963)]; (7) "coastal goods" means goods, other than imported goods, transported in a vessel from one port in India to another;

10[(7A) "Commissioner (Appeals)" means a person appointed to be a Commissioner of Customs (Appeals) under sub-section (1) of section 4;] 31(7B) common portal means the Common Customs Electronic Portal referred to in section 154C; 11[(8)12[Principal Commissioner of Customs or Commissioner of Customs], except for the purposes of Chapter XV, includes an Additional Commissioner of Customs;] (9) "conveyance" includes a vessel, an aircraft and a vehicle; (10) "customs airport" means any airport appointed under clause (a) of section 7 to be a customs airport13[and includes a place appointed under clause (aa) of that section to be an air freight station]; (11) "customs area" means the area of a customs station14[or a warehouse] and includes any area in which imported goods or export goods are ordinarily kept before clearance by Customs Authorities

(12) "customs port" means any port appointed under clause (a) of section 7 to be a customs port15[, and includes a place appointed under clause (aa) of that section to be an inland container depot]; (13) "customs station" means any customs port,16[customs airport, international courier terminal, foreign post office] or land customs station; (14) "dutiable goods" means any goods which are chargeable to duty and on which duty has not been paid; (15) "duty" means a duty of customs leviable under this Act; (16) "entry" in relation to goods means an entry made in a bill of entry, shipping bill or bill of export and includes17[* * *] the entry made under the regulations made under section 84; (17) "examination", in relation to any goods, includes measurement and weighment thereof; (18) "export", with its grammatical variations and cognate expressions, means taking out of India to a place outside India;

(19) "export goods" means any goods which are to be taken out of India to a place outside India; (20) "exporter", in relation to any goods at any time between their entry for export and the time when they are exported, includes18[any owner, beneficial owner] or any person holding himself out to be the exporter; 19[(20A) foreign post office means any post office appointed under clause (e) of sub-section (1) of section 7 to be a foreign post office;] (21) "foreign-going vessel or aircraft" means any vessel or aircraft for the time being engaged in the carriage of goods or passengers between any port or airport in India and any port or airport outside India, whether touching any intermediate port or airport in India or not, and includes (i) any naval vessel of a foreign Government taking part in any naval exercises; (ii) any vessel engaged in fishing or any other operations outside the territorial waters of India; (iii) any vessel or aircraft proceeding to a place outside India for any purpose whatsoever;

[(21A) "Fund" means the Consumer Welfare Fund established under section 12C of the Central Excises and Salt Act, 1944 (1 of 1944);] (22) "goods" includes - (a) vessels, aircrafts and vehicles; (b) stores; (c) baggage; (d) currency and negotiable instruments; and (e) any other kind of movable property; (23) "import", with its grammatical variations and cognate expressions, means bringing into India from a place outside India; (24)21["arrival manifest or import manifest"] or "import report" means the manifest or report required to be delivered under section 30;

(25) "imported goods" means any goods brought into India from a place outside India but does not include goods which have been cleared for home consumption; (26) "importer", in relation to any goods at any time between their importation and the time when they are cleared for home consumption, includes22[any owner, beneficial owner] or any person holding himself out to be the importer; (27) "India" includes the territorial waters of India; (28) "Indian Customs Waters" means the23[waters extending into the sea up to the limit of24[Exclusive Economic Zone under section 7] of the Territorial Waters, Continental Shelf, Exclusive Economic Zone and other Maritime Zones Act, 1976, (80 of 1976)] and includes any bay, gulf, harbour, creek or tidal river;

[(28A) international courier terminal means any place appointed under clause (f) of sub-section (1) of section 7 to be an international courier terminal;] (29) "land customs station" means any place appointed under clause (b) of section 7 to be a land customs station; (30) "market price", in relation to any goods, means the wholesale price of the goods in the ordinary course of trade in India; 26[(30A) "National Tax Tribunal" means the National Tax Tribunal established under section 3 of the National Tax Tribunal Act, 2005 (49 0f 2005);] 27[(30AA) notification means notification published in the Official Gazette and the expression notify with its cognate meaning and grammatical variation shall be construed accordingly;] 25[(30B) passenger name record information means the records prepared by an operator of any aircraft or vessel or vehicle or his authorised agent for each journey booked by or on behalf of any passenger;]

31) "person-in-charge" means, - (a) in relation to a vessel, the master of the vessel; (b) in relation to an aircraft, the commander or pilot-in-charge of the aircraft; (c) in relation to a railway train, the conductor, guard or other person having the chief direction of the train; (d) in relation to any other conveyance, the driver or other person-in-charge of the conveyance; (32) "prescribed" means prescribed by regulations made under this Act;

(33) "prohibited goods" means any goods the import or export of which is subject to any prohibition under this Act or any other law for the time being in force but does not include any such goods in respect of which the conditions subject to which the goods are permitted to be imported or exported have been complied with; (34) "proper officer", in relation to any functions to be performed under this Act, means the officer of customs who is assigned those functions by the Board or the12[Principal Commissioner of Customs or Commissioner of Customs]; (35) "regulations" means the regulations made by the Board under any provision of this Act;

(36) "rules" means the rules made by the Central Government under any provision of this Act; (37) "shipping bill" means a shipping bill referred to in section 50; (38) "stores" means goods for use in a vessel or aircraft and includes fuel and spare parts and other articles of equipment, whether or not for immediate fitting; (39) "smuggling", in relation to any goods, means any act or omission which will render such goods liable to confiscation under section 111 or section 113; (40) "tariff value", in relation to any goods, means the tariff value fixed in respect thereof under sub-section (2) of section 14;

(41) "value", in relation to any goods, means the value thereof determined in accordance with the provisions of28[sub-section (1) or sub-section (2) of Section 14]; (42) "vehicle" means conveyance of any kind used on land and includes a railway vehicle; 29[(43) "warehouse" means a public warehouse licensed under section 57 or a private warehouse licensed under section 58 or a special warehouse licensed under section 58A;] (44) "warehoused goods" means goods deposited in a warehouse;

International Trade There is not a single country in the world, which can claim itself self-sufficient and produce all the goods and services required by its residents. This is because each country is unique in terms of natural resources, technology, and level of development. International trade has made it all possible by providing the platform to the world to interact and exchange the resources for their own benefit. Strong global presence not only helps in the economic development of the country but it also contributes significantly in the prosperity of the whole world. In every country, the international trade is governed by a set of rules and regulations, which are known as foreign trade policies. These foreign trade policies laid down the guidelines for the export and import of goods and services

International trade allows different countries to exchange products and services that are not accessible in their home country. International trade includes commercial transactions that comprises of sales, investments, and shipment. These transactions are carried out between two or more different countries for political and profit motives. Liberalisation and change in political environment has also played a major role in making global trade popular.

There are various reasons that have given rise to international trade which are as follows: Technological expansion Free cross-border trade and movement of resources Advancement of services that facilitates international business Increased pressure from customers Growing competition Continuously changing political scenarios

Reasons for International Trade Cheap Resources Access to New Technology Diversification of risks Favourably Government Regulations Scarcity/non availability in domestic market Make or buy decisions by companies Opportunities for trading

What is Customs?? Customs is an authority or agency in a country responsible for collecting tariffs and for controlling the flow of goods, including animals, transports, personal effects, and hazardous items, into and out of a country.

Evolution of Customs Some common synonyms of custom are habit, practice, usage A custom (also called a tradition) is a common way of doing things. It is something that many people do, and have done for a long time. The collection of tax was in practice since the time of Indus Valley Civilisation. During British rule in India, the customs duty was an important source of revenue for states. Lord Cornwallis demolished the customs duty in 1788 However, it was reintroduced in 1801

The Customs Laws in India were designed as per the British system by enacting the Sea CustomsAct and the customsauthority in place. Subsequently Land Customs Act was established for controlling the flow of goods through land routesand frontiers. There was no Aircustomsas itwas controlled by the Air Force. After Independence, Indian Customs Act 1962 was enacted by merging the systemof Seacustoms, Land customsand Warehouse Customs intoone.

In India, the Central Board of Indirect Taxes and Customs (CBIC) created under the Ministry of Finance , is the Customs Authority. CBIC is mainly responsible for framing customs rules and collecting customs duties in India The following functions are also under CBIC: Collecting customs duties as per the Act Making provisions forregulating exports and imports Taking preventive measures to control smuggling and drug trafficking

Evolution of Customs Year Progress 1788 Customs duty collection was abolished by Lord Cornwallis 1801 Reintroduced 1878 Sea Customs Act enacted 1924 Land Customs Act enacted 1934 Air customs was controlled by Indian Aircraft Act 1934 , earlier it was 1911 1962 Customs Act, 1962, repealed all the earlier enactments and consolidated Air , Sea and Land customs

Territorial waters The territorial jurisdiction extends to territorial water up to 12 nautical miles from the nearest point of the baseline; beyond territorial waters is the Contiguous Zone extending up to 24 nautical miles; and beyond that up to 200 nautical miles is the Exclusive Economic Zone of India. Exclusive Economic Zone is an area of coastal water and seabed within a certain distance of a country's coastline, to which the country claims exclusive rights for fishing, drilling, and other economic activities. Indian Customs Waters' means the water extending into the sea up to the limit of the contiguous zone of India. In this manner, Indian Customs waters reach out up to 12 nautical miles past territorial waters.

Concepts of Customs in general Regulations of Imports and exports Revenue collections Prevention of smuggling Facilitation of trade

Registration Every importer and exporter has to register oneself with the following government agencies: Customs Ports to carry out imports and exports operations Director General of Foreign Trade to obtain Importer Exporter Code and other licences Registration with a nationalised or private bank as Authorised Dealer bank to deal with forex. Export Promotion councils and Commodity boards GST to deal with IGST Income tax.

Regulatory Framework of customs The Customs Act 1962 Customs Tariff Act 1975 Customs Tariff Foreign Trade (Development & Regulations)Act 1992 Foreign Exchange Management Act 1999 Export (Quality Control & Inspection) Act 1963 IGST

Website links The Customs Act 1962 https://taxinformation.cbic.gov.in/content -page/explore-act https://old.cbic.gov.in/htdocs- cbec/customs/cst2023-010523_new/cst-idx https://www.indiacode.nic.in/bitstream/12 3456789/1947/3/A1992-22.pdf 1. 1. 2. The Customs Tariff Act 1975 and Tariff 2. 3. The Foreign Trade (Development & Regulation Act) 1992 3. https://commerce.gov.in/wp- content/uploads/2021/06/EIC-Act.pdf https://www.indiacode.nic.in/bitstream/12 3456789/1988/1/A1999_42.pdf https://cbic- gst.gov.in/aces/Documents/IGST-bill- e.pdf https://www.customsclearance.net/en/arti cles/general-interpretative-rules-gir 4. Export (Quality Control & Inspection) Act 1963 Foreign Exchange Management Act 1999 4. 5. 5. 6. IGST 6. General Interpretative Rules 7. 7.

Tariff & Non tariff Barriers Tariffs are monetary barriers in the form of taxes imposed on imported or exported goods, while nontariff barriers encompass a diverse range of non-monetary measures. While tariffs target specific products or industries, nontariff barriers can have a broader and often less transparent impact on trade. Tariff and Non-tariff Barriers are different from each other. Tariff Barriers are the fees charged in the form of a tax or duty. However, Non-Tariff Barriers are the non-tax measures used by the government of a country in order to restrict imports from foreign countries.

What are Tariff Barriers? When two nations trade in commodities, the country in which the goods are exported levies a tax in order to generate revenue for the government while also raising the price of foreign goods so that domestic firms can compete with foreign products. The fee is in the form of a tax or duty which is referred to as a Tariff Barrier. The amount of tax or duty levied as a tariff is added to the cost of the import, making foreign goods more expensive, which is ultimately borne by the product s customer. The tariff is paid to the customs authorities of the country where the goods are being sent.

Examples of Tariff Barriers: Export Duties Import Duties Specific Duties Ad-valorem Duties Compound Duties

What are Non-Tariff Barriers? Non-tariff Barriers are non-tax measures used by the government of a country in order to restrict imports from foreign countries. It includes constraints that result in prohibition, formalities, or circumstances that make imports of commodities difficult and reduce market potential for foreign products. These are quantitative and exchange controls that have an impact on trade volume, pricing, or both. It might be in the form of laws, policies, practices, conditions, and requirements imposed by the government to limit imports.

Examples of Non-Tariff Barriers Import Quotas VERs, i.e. Voluntary Export Restraints Import Licensing Technical and Administrative Regulations Price Control

Difference between Tariff and Non-tariff Barriers Basis Tariff Barriers Non Tariff Barriers Tariff Barriers are taxes or fees imposed by the government on imports in order to protect domestic industries and boost revenue for the government. Non-tariff barriers include all the limitations other than taxes imposed by the government on imports in order to protect domestic enterprises and discriminate against new entrants. Meaning The World Trade Organisation authorised its members to impose tariff barriers but only at reasonable rates. Import quotas and voluntary export barriers were eliminated by the World Trade Organisation. Permissibility Nature Tariff barriers are explicit in nature. Non-tariff barriers are implicit in nature. Non-tariff barriers are imposed in the form of Regulations, Conditions, Requirements, Formalities, etc. Form Tariff barriers are imposed in the form of Taxes and Duties. Revenue Tariff barriers generate revenue for the government. Non-tariff barriers do not generate revenue for the government. Affects Tariff barriers affect the price of imported goods. Non-tariff barriers affect the quantity or price or both of the imported goods. As the government charges tariff barriers, monopolistic organisations prices can be controlled. Monopolistic Organisations The monopolistic organisation charges high rates for low output. Profits made by the importers can be restricted through tariff barriers. Profit Importers can make high profits through non-tariff barriers. Example Import Duties, Export Duties, Ad-valorem Duties, etc. Import Licensing, Foreign Exchange Regulations, Import Quotas, etc.

What is Tax? A tax may be defined as a financial burden laid upon individuals or property owners to support the government, a payment exacted by legislative authority. In simple words, the tax is nothing but money that people have to pay to the government, which is used to provide public services. Taxes are broadly classified into 2 Types 1.Direct Taxes 2.Indirect taxes

Direct Taxes A direct tax is a kind of charge, which is imposed directly on the taxpayer and paid directly to the government by the persons( juristic or natural) on whom it is imposed. A direct tax is a tax that cannot be shifted by the taxpayer to someone else. A significant direct Tax imposed in India is income tax.

Indirect Taxes They are Transferable tax from one person to another. The entire burden of the tax is on the ultimate consumer, but the immediate liability to pay tax is on supplier of goods or services. They are also called consumption based tax and regressive in nature because they are not burdened principle of ability to pay. All consumer including Bagger bear the burden of the tax. Indirect taxes are levied on goods or services but not on income or property. From 1st of July 2017 all indirect taxes on goods or services or merge into one unified code called as goods and services tax.(GST)

Direct taxes vs Indirect taxes S No Direct Taxes Indirect Taxes 1 It is levied on income and activities conducted It is levied on products or services 2 It is paid directly by person concerned It is paid by one person but he recovers the same from another person ie the person who actually bears the tax, ultimate consumer 3 It is paid after the income reaches in the hands of the tax payer It is paid before goods/services reach the tax payer 4 Tax collection is a bit difficult Tax collection is relatively easier 5 Example Income tax, Wealth tax, Gift Tax, capital gain tax Example: GST, customs duty, sales tax, excise duty.

STRUCTURE OF CUSTOMS TARIFF Customs Tariff Act, 1975 Gen. Rules of Interpretation. (Rule 1 to 6) Gen.Exemption (No. 1 to 202) Annex. (I to XXXV) 1st - SCH 2nd - SCH Sections (XXI) Chapters Ch. 1 to 98 Notes: 1. Each section is preceded by Section Notes 2. Each chapter is preceded by Chapter Notes 3. Each chapter is divided into Headings & Sub-Headings 4. Customs Tariff Classifications are eight digit numbers.