Unit – V: International Marketing - Import Procedure and Documentation

Import Procedure:

Importing goods into India involves a series of steps:

• Obtaining an Importer Exporter Code (IEC): Before initiating the import process, an entity must have a valid IEC issued by the Directorate General of Foreign Trade (DGFT).
• Selecting a Port of Entry: Choose a suitable port of entry for the goods based on factors such as proximity and infrastructure.
• Classifying Goods and Custom Duty: Determine the Harmonized System of Nomenclature (HSN) code for the imported goods and calculate the applicable customs duty.
• Documentation and Filing: Prepare and submit documents, including the Bill of Entry, commercial invoice, packing list, certificate of origin, and other specific documents, to the Customs authorities.
• Customs Assessment: Customs authorities assess the declared value of the goods, examine the documents, and verify the duty amount.
• Payment of Duty: Pay the assessed customs duty and any applicable taxes or cess.
• Customs Examination: Goods may undergo physical inspection by customs officials.
• Release of Goods: Once customs formalities are completed, the goods are released for further transportation or delivery.

Clearance of Import Cargo:

Clearance of imported cargo involves the physical and administrative processes required to release imported goods from the customs port.

1. Physical Clearance: This includes unloading and moving the cargo from the port to a designated area.
2. Customs Examination: Customs officials may conduct inspections to ensure compliance with customs regulations and to verify the declared value of the goods.
3. Documentation: Review and verification of the documents submitted by the importer.
4. Payment of Duties and Taxes: Clear any outstanding customs duties, taxes, and other charges.
5. Release of Cargo: After completing all formalities, customs authorities release the cargo for further transportation.

Documents Submitted by the Importer for Customs Clearance:

Importers need to provide specific documents to customs for the clearance process. Essential documents include:

• Bill of Entry: A document filed with customs, specifying details of the imported goods and the duty payable.
• Commercial Invoice: Provides information about the value of the goods, the seller, and the buyer.
• Packing List: Describes the contents and packaging of the cargo.
• Certificate of Origin: States the country of origin of the goods.
• Bill of Lading/Airway Bill: Acts as proof of shipment and title to the goods.
• Import License: Required for goods that need specific licenses.

Imports under Duty Exemption Scheme:

Imports under the Duty Exemption Scheme are a set of policies and procedures that allow eligible entities to import specific goods into a country without paying customs duty or at a reduced customs duty rate. These schemes are typically designed to promote exports, enhance the competitiveness of domestic industries, and facilitate the import of essential inputs for production. In the Indian context, there are several duty exemption schemes that importers can benefit from

1. Advance Authorization (AA):

   • Purpose: The Advance Authorization scheme allows importers to procure inputs without payment of customs duty, excise duty, and additional customs duty (CVD and SAD). These inputs are used in the manufacturing of export products.

   • Eligibility: Exporters and manufacturers who have a specific export obligation can apply for Advance Authorization.

2. Duty-Free Import Authorization (DFIA):

   • Purpose: The DFIA scheme permits the duty-free import of inputs or goods required for the production of export products.

   • Eligibility: Exporters who have specific export obligations and a recognized status as manufacturer exporters can avail DFIA benefits.

3. Export Promotion Capital Goods (EPCG) Scheme:

   • Purpose: Under the EPCG Scheme, eligible entities can import capital goods for pre-production, production, or post-production at zero or concessional customs duty rates.

   • Eligibility: The scheme is available to manufacturers who have export obligations and meet specified criteria.

4. Duty-Free Import of Inputs for Export Products (DFI):

   • Purpose: The DFI scheme allows the duty-free import of inputs or goods for producing export products.

   • Eligibility: Exporters who have export obligations and meet prescribed conditions can benefit from this scheme.

5. Deemed Exports:

   • Purpose: Deemed exports refer to those transactions in which goods are supplied to projects or entities that are eligible for concessions, but the goods don't physically leave the country. Deemed export benefits include customs duty exemption and other concessions.

   • Eligibility: Entities involved in projects such as government projects, EPC contracts, and specified categories of suppliers can claim deemed export benefits.

6. Special Economic Zones (SEZs):

   • Purpose: SEZs are designated areas where businesses can set up operations for manufacturing and trading. Imports into SEZs are duty-free, and exports from SEZs are encouraged.

   • Eligibility: Businesses that set up operations within SEZs and meet SEZ regulations can avail duty-free imports and other incentives.

7. Export-Oriented Units (EOUs):

   • Purpose: EOUs are manufacturing units that are allowed to import goods without paying customs duty. They are required to fulfill export obligations.

   • Eligibility: Entities that have been granted EOU status and meet the prescribed export obligations can avail duty exemptions.

8. EPCG for Technology Upgradation:

   • Purpose: This is an EPCG scheme aimed at technology upgradation. It allows the import of capital goods at a concessional duty rate for the modernization and technology upgradation of existing units.

   • Eligibility: Manufacturers who meet the criteria and export obligations specified under the scheme can avail these benefits.

9. Project Imports:

   • Purpose: Project imports are allowed for specific projects where the goods are required for a particular task or project. The duty structure is set based on the project's requirements.

   • Eligibility: Entities involved in designated projects can avail the benefits under this scheme.

Procedure for Customs Clearance:

The procedure for customs clearance involves several steps and processes that importers must follow to ensure the lawful and timely release of imported goods through customs. In India, the customs clearance process is administered by the Central Board of Indirect Taxes and Customs (CBIC) and is governed by the Customs Act, 1962.

1. Preparing for Customs Clearance:

• Obtaining an Importer Exporter Code (IEC): Before initiating the customs clearance process, an entity must have a valid IEC issued by the Directorate General of Foreign Trade (DGFT).

• Selecting a Customs Port: Choose a customs port based on factors like proximity, infrastructure, and convenience for clearing the goods.

2. Filing a Bill of Entry:

• Submission of Documents: The importer or their customs broker submits a Bill of Entry (BoE) to the customs authorities. The BoE includes details of the imported goods, their value, and other relevant information.

• Document Verification: Customs officials examine the submitted documents, including the commercial invoice, packing list, certificate of origin, bill of lading or airway bill, and any other required documents.

3. Assessment of Customs Duties:

• Classification and Valuation: Customs officials classify the imported goods according to the Harmonized System of Nomenclature (HSN) code and assess the value of the goods for customs duty purposes.

• Calculating Customs Duty: Based on the HSN code and the assessed value, customs authorities calculate the customs duty, which may include basic customs duty, integrated goods and services tax (IGST), and other charges.

4. Duty Payment:

• Payment of Customs Duty: The importer is required to pay the assessed customs duty, taxes, and other charges to customs authorities. Various payment methods, including electronic funds transfer, are available.

5. Customs Examination:

• Physical Examination: Customs officials may conduct a physical examination of the imported goods to verify their description, quantity, quality, and compliance with relevant regulations.

• Sampling and Testing: In some cases, samples of goods may be drawn for laboratory testing, particularly for goods that require quality or safety checks.

6. Release of Goods:

• Customs Out-of-Charge: After completing all customs formalities, the goods are cleared by customs and become "out-of-charge," making them available for further transportation.

7. Delivery or Transport:

• Transportation to Destination: The cleared goods can be transported to the intended destination, which may include a warehouse, manufacturing facility, or distribution center.

8. Record Keeping:

• Document Retention: Importers are required to maintain records of all customs-related documents, including the Bill of Entry, invoices, and certificates of origin, for a specified period.

Customs Valuation:

Customs valuation is the process of determining the value of imported goods for customs purposes, which is used to calculate the customs duties and taxes that must be paid on those goods. The valuation of imported goods is an essential aspect of international trade, and it ensures that customs authorities collect the appropriate amount of revenue while promoting transparency and fairness in trade. Customs valuation is governed by international standards, such as the World Trade Organization's Agreement on Customs Valuation, and is implemented in accordance with national laws and regulations. In the Indian context, the valuation of imported goods is primarily regulated by the Customs Act, 1962, and the Customs Valuation Rules, 2007. 

Methods of customs valuation:

1. Transaction Value:

• The primary method for customs valuation is the transaction value. This method considers the price actually paid or payable for the imported goods when sold for export to India, adjusted for certain costs and expenses.

2. Transaction Value of Identical Goods:

• If the transaction value cannot be determined, the transaction value of identical goods sold for export to India is considered. The term "identical goods" refers to goods that are the same in all respects, including quality, characteristics, and reputation.

3. Transaction Value of Similar Goods:

• When neither the transaction value nor the transaction value of identical goods can be determined, the transaction value of similar goods sold for export to India is used. Similar goods are those that closely resemble the imported goods in terms of characteristics and uses.

4. Deductive Value:

• Deductive value is based on the resale price of the imported goods in India, minus certain expenses like profits, commissions, and taxes. This method is used when none of the above methods can be applied.

5. Computed Value:

• Computed value is determined based on a computed cost of production, plus a reasonable amount for profits and general expenses. This method is used when none of the previous methods can be applied.

6. Fall-Back Method:

• In case none of the above methods can be applied, customs authorities may use a reasonable means consistent with the principles and general provisions of the WTO Agreement on Customs Valuation.

Principles of Customs Valuation:

1. The Primary Principle: The primary basis for customs valuation is the transaction value. Customs duties and taxes are generally calculated on the actual price paid or payable for the imported goods.

2. Pricing Elements: The transaction value includes all payments made as a condition of sale, such as packing, royalties, and license fees. It may also include any subsequent resales, commissions, and other costs incurred by the buyer.

3. Comparability: Customs authorities must ensure that the imported goods and their value are compared to identical or similar goods to determine the transaction value.

4. Use of Global Information: Customs authorities may use available global information, including price databases, to validate the declared transaction value.

5. Adjustments: Customs authorities may make certain adjustments to the transaction value, such as for the cost of transport, insurance, and other specified costs, to arrive at the dutiable value.

Guidelines to Importers under GST Regime:

Under the Goods and Services Tax (GST) regime in India, importers need to follow specific guidelines:

1. GST Registration: Importers must obtain GST registration to pay GST on imported goods.
2. Reverse Charge Mechanism: GST on imported services is generally payable under the reverse charge mechanism.
3. Input Tax Credit: Importers can claim input tax credit on GST paid on imports, which can be used against the GST liability on domestic sales.

Financing of Importers:

Importers can secure financing for their import transactions:

1. Letter of Credit (LC):

   • A Letter of Credit is one of the most common methods of trade finance. It involves a financial institution (usually a bank) issuing a guarantee on behalf of the importer to the exporter, assuring payment upon the presentation of specified documents and compliance with the terms and conditions of the LC. Importers can use LCs to demonstrate their commitment to paying the exporter, while exporters gain assurance of payment.

2. Bank Loans and Overdrafts:

   • Importers can obtain loans or overdraft facilities from banks to finance their import transactions. These loans can be secured or unsecured and are typically provided with fixed or variable interest rates. Banks may also offer short-term or long-term loans depending on the import financing requirements.

3. Trade Credit:

   • Trade credit involves an arrangement where an importer is extended credit terms by the exporter. This means that the importer receives the goods and is allowed a specific period (often 30, 60, or 90 days) to make payment. Trade credit can provide flexibility to importers in managing their cash flow.

4. Foreign Currency Loans:

   • Importers can secure loans denominated in foreign currencies to finance their imports. These loans help manage currency risk and are often used when imports are conducted in a foreign currency. The repayment is in the foreign currency used for the loan.

5. Export and Import Finance:

   • Many banks in India offer specialized export and import finance services. These services may include pre-shipment and post-shipment finance, which are designed to support the financial needs of importers throughout the import process. Pre-shipment finance helps cover expenses before the goods are shipped, while post-shipment finance covers costs after the shipment has been made.

6. Buyer's Credit:

   • Importers can avail themselves of buyer's credit, where a bank in India extends a loan to the importer in Indian rupees, and the foreign supplier is paid in the supplier's currency. This arrangement can help importers manage exchange rate risk and obtain favorable terms.

7. Open Account Financing:

   • Under open account financing, the importer receives the goods and makes payment at a later date, which is typically agreed upon between the importer and exporter. While this option provides flexibility to importers, it may pose some credit risk to the exporter.

8. Export Credit Guarantee Corporation (ECGC):

   • ECGC provides export credit insurance to protect Indian exporters against payment risks, including those related to imports. Importers can avail of ECGC's services to enhance the security of import transactions.

9. Factoring Services:

   • Factoring companies purchase the receivables of the importer and provide immediate cash for a fee. This can help importers improve their cash flow and manage their financial obligations.

10. Supply Chain Financing:

    • Supply chain financing is a collaborative approach that involves multiple parties in the supply chain, including importers, exporters, and financial institutions. It helps optimize working capital and liquidity for all participants.