Import Guide

Countervailing Duty Definition

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Countervailing Duty is levied on the cost of imported goods and is equal to excise duty levied on like goods when manufactured in India.

The objective is to ensure that the protection provided by the import duty to domestic industry is not eroded.

Customs Surcharge

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It is levied at the rate of 10% of the basic rate on all commodities except crude oil and petroleum products, GATT-bound items, gold and silver.

Basic Custom Duty

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All goods imported into India are chargeable to duty as prescribed in the 1st Schedule of Customs Tariff Act. This Schedule is amended from time to time of Customs Tariff Act.

This duty can be levied either as a percentage of value of goods or at a specified rate.

Customs Duties are Levied in three Ways

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Specific rate-at the rate prescribed per unit of item i.e. weight or number of length

Ad-valorem duty-levied on the value of the item Specific and

Advalorem-levied in both ways.

Customs Tariff Classification

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The basic legislation is the Indian Customs Act, 1962 read with Customs Tariff Act, 1975. Section 12 of the Customs Act,'62 empowers levy of duties on goods imported into or exported from India.

However, the rates at which the different import export duties shall be leviable have been respectively specified in the First and Second Schedule to the Customs Tariff Act, 1975-called the import Tariff and Export Tariff respectively.

With effect from Feb. 28, 1986, the new tariff import schedule based on international convention of Harmonised Commodity and Coding system, commonly known as Harmonised Coding System came into being.

The basic features of the Import Tariff Nomenclature are outlined below: The headings, the Section and Chapter Notes and the interpretive Rules

Customs not specified elsewhere of all other works

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Supervision and control over Customs Commissionerate of Mumbai, Calcutta, Chennai, Kandla, Bangalore, Cochin, Delhi , Visakhapatnam, Goa and Tuticorin and Customs Divisions of other Central Excise Commissioners, Assistant Commissionerates regarding Customs work handled by them.

Chemical laboratories

Directorate of Drawback

The Ministry of Finance (MoF) issues Customs Notifications to levy duty on the imported goods. The Changes are made each year on the Day of the Fiscal Budget. Customs clearance of the imported goods is done by the customs Authorities functioning under the overall charge of MoF. The hierarchy of the Authorities:

Central Board of Excise & Customs (CBEC) in the MoF Under which operates:Customs Commissionerates of Mumbai, Calcutta, Chennai, Kandla, Bangalore, Cochin, Delhi, Vizag, Goa and Tuticorin.

Directorate of Drawback Field Level:Principal Commissioners Customs ,Commissioners,Addl. Commissioners ,Dy. Commissioners,Asst. Commissioners,Port of clearance.

Member (Customs) looks after the following matters

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Customs Law and its interpretation and application, policy and broad procedures(Other than those concerning anti-smuggling)
Enforcement of Import Export prohibitions
Foreign Travel and Cases on imports and exports
Baggage concessions and rules

Customs Valuations
Tariff Classification and Tariff advices
Customs procedures, Customs House Agents Regulations
Warehousing, inland Bonded Warehouses
FTZs, EPZs, 100% EOUs etc. Matters relating to Drawback
Customs Co-operations Council, GATT and ESCAP and international talks and agreements, organisations concerning customs

Customs Authorities

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The customs administration vests in CBEC for implementing the provisions of the Customs Act.1962. There are two main wings of Customs House. In the 'Appraisement' wing the job of collection of revenue is assigned, while the 'Preventive' one aims at prevention of smuggling.

The Customs authority functions under the Ministry of Finance (MoF) with the Central Board of Excise & Customs at the apex. The board is headed by a Chairman and assisted by Members.

Custom Clearing Procedure

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The appraising procedure may be of two types.

The First Custom Checks Procedure - Applicable only when appraisers/assessing group finds it difficult to complete the assessment on the basis of the documents made available.
The Scrutinising Appraiser in the group gives the examination order. The goods are then examined in the docks and the B/E rerutned to the Scrutinising Appraiser for completion and license debit. In this case the Customs 'out of charge' is given by the Accounts Department soon after the recovery of duty

The Second Custom Checks Procedure - Under this 80 to 90 percent of the consignments are cleared.

If the documents are adequate for determining the classification, value, ITC license, the form is completed by the Appraiser and then countersigned by The Assistant Collector. It is then forwarded to the License Department for licensing debit and audit. Then it is returned to the importers for payment of duty in the Accounts/Cash department. After recovery of duty the original B/E is retained in the Accounts Department and the duplicate and other copies are returned to the importer for getting the goods examined in the docks. In the docks, the Shed Appraiser/Examiner shall examine the goods and if in order, shall give the out of charge for taking delivery from the custodian of the goods viz. Port Trust, after payment of Port Trust charges.

Irrespective of the procedure, examination of cargo for assessment purpose is chiefly the function of the Appraising Department having special staff of examiners in the docks/Air cargo shed. The records of the examination and weighment should be declared, attested and dated at the time of the examination. If the examination spreads over more than one day, the result on each day's progress should be disclosed.

These apart some of the Customs house in India have introduced the simplified computer procedure for speedy clearance of consignment through B/E.

Imports Customs Clearance

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Imports Customs Clearance and the Customs Clearing agents play the key role in the import of goods. All goods imported into India have to pass through the procedure of Customs clearance as they cross Indian border. The goods are examined, appraised, assessed, evaluated and then allowed to be taken out of charge of the Customs for use by the importer. The entire process of customs clearance is complex and to carry out this procedure smoothly, the help of accredited customs clearing agents has to be taken.

The importers need to present a Bill of Entry on receipt of the advise of the arrival ofthe vessel. The Bill of Entry is noted in Import Department, with corresponding endorsementmade against the consignment entry in the IGM along with the date. The Bill of Entry will then be presented in the Appraising Department with all the relevant documents like customs invoice, Bill of Lading, Import license and catalogue literature.

Postal Imports

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Remittances against bills received for collection in respect of imports by post parcel may be made by authorised dealers, provided the goods imported are such as are normally despatched by post-parcel. In these cases the relative parcel receipts must be produced as evidence of dispatch through the post and on undertaking to submit importers should furnish post parcel wrappers within three months from the date of remittance.

If the parcel has already been received in India, the parcel wrapper should be produced in support of the remittance application. Where goods to be imported are not of a kind normally imported by post parcel or where authorised dealer is not satisfied about the bona fides of the applications the case should be referred to RBI for prior approval with full particulars together with relative parcel receipts/or wrappers.

Import Documentation

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The importer should comply with certain obligations: submission of Exchange Control Copy of Bill of Entry for Home Consumption/Postal Wrappers to the authorised dealer. This will act as evidence that the goods for which the payment was made, have actually been imported into India.

Authorised dealers should ensure that in all cases, including cases of advance remittances permitted , these are submitted by their importer customers and are verified. In respect of imports made on D/A basis, since goods would normally be cleared before the due date of payment, authorised dealers should insist on production of documentary evidence of import i.e. Exchange Control Copy of Bill of Entry for Home Consumption/ postal wrappers at the time of effecting remittance of import bill. Authorised dealers should also advise this requirement to their importer customers in writing while delivering the documents against acceptance.

Time Limit for Import Remittance

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The remittance against imports should be completed not later than 6 months from the date of shipment. Accordingly, deferred payment arrangements involving payments beyond 6months are not permissible without approval of RBI/Gol. However, no objection to importers withholding a small part of the cost of the goods not exceeding 15 percent towards guarantee of performance etc. Authorised dealers may make remittances of amounts so withheld provided the earlier remittance had been made through them. No interest payment should be allowed to be remitted on these withheld amounts.

Sometimes, settlement of import dues may be delayed due to disputes, financial difficulties, Authorised dealers are permitted by the RBI to make remittances in such cases even if the period of 6 months expires, provided-
Authorised dealer is satisfied about the bona fides of the circumstances leading to the delay in payment. No payment of interest is involved for the additional period.

In case, where the overseas supplier insists on payment of interest, it may be allowed in accordance with the provisions contained in para 7A.12 up to a maximum period of 60 days beyond 180days from the date of shipment provided the import bill is paid within that period. Remittances against import of books may be allowed without restrictions as to time-limit, providedno interest payment is involved nor has the importer forgone any part of the discount/rebate normally allowed to importers towards compensation for delay in settlement of dues.

Interest remittance on import bills-interest accrued on usance bills under 'normal interest clause' or of overdue interest paid on sight bills for a period. not exceeding 6 months from the date of shipment in respect of imports without prior approval of RBI. In case of pre-payment of usance import bills, remittances may be made only after reducing the proportionate interest for the unexpired portion of usance at the rate at which the interest has been claimed or the 'prime' rate (or its equivalent) of the country in the currency of which the goods are invoiced, whichever is higher. Where interest is not separately claimed remittances may be allowed after deducting the proportionate interest for the unexpired portion of usance at the prevalling 'prime'.

However, interest under normal interest clause would mean interest at the prime rate (or its equivalent) of the country in the currency of which the goods are invoiced.

Payment for import bills

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Where the import bills are drawn in Indian Ruppes (INR), an equivalent amount(plus bank charges) is debited to the account of the importer by the authorised dealer and the amount remitted to the foreign seller. In case the bills are drawn in foreign currencies, the INR equivalent is arrived at by applying the appropriate foreign exchange rate.

Fixing of Re. Equivalent-In order to bring uniformity in the handling of import bills under L/C authorised dealers have been directed by the RBI of follow the following procedure:

Sight import bills received under L/C and conforming to credit terms, may be held in foreign currency for a maximum period of 10days from the date of receipt of documents by the Bank.

In case of non-payment by the drawee within 10days, the importer's liability on the foreign currency bill shall be crystallized by converting the foreign currency amount in to rupee at the B.C. Selling rate prevailing on the 10day or the forward exchange contract rate where applicable. Authorised dealers shall keep a proper record of the date of receipt of documents.

In case the 10th day is holiday or a Saturday, the importer's liability in rupees shall crystallise in the next following working day.

Authorised dealer shall carry swap costs from the customer.

Authorised dealer shall charge interest at the rate as prescribed by RBI for advances to non-priority sectors from time to time on rupees advances made against the import bills pending retirement by the customer. Such interest shall be recovered from the date of negotiation or the date of crystallisation of the rupee liability and thereafter penal interest shall be recovered.

When the rupee liability on an import bill is crystallised at the Forward Exchange Contract Rate and it results in early/late delivery, the charges as per FEDAI rule 9 shall be levied.

Authorised dealers shall charge commission/handling charges at the rate of 0.15% on the bill amount at the time of converting foreign currency into INR irrespective of the fact whether the bill is retired within 10 days or later.

Import Payment

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Payments in retirement of bills drawn under L/C as well as bills received from abroad for collection against imports into India, must be received by authorised dealers, irrespective of amount, by debit to the account of the importer with themselves or by means of a crossed cheque drawn by him on his other bankers. Payment against bills should not be accepted in cash. This rule also applies to private imports where the amount involved is Rs. 20,000 or more.

Scrutiny for Insurance Documents

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whether the policy is taken out in the name of the shipper

Certificate/policy is according to Letter of Credit terms

Risk commences w.e.f. date of B/L

Amount of insurance as per L/C terms

Whether drawn in the same currency as the L/C

Description of goods agree with B/L

Risks as per L/C are covered

The place where claims are payable is as per L/C terms

Adequately stamped

Details such as name of carrying vessel, ports of loading/destination, marks, agree with the B/L

Certificate of analysis, weighment,etc.

The certificates are issued by the authority stipulated in L/C

Name of the shipper is properly shown

The samples drawn relate to the goods actually shipped

Date of sample verification is within the date of shipment

Invoice- check

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Is made out in the name of the person who had opened the L/C

Quantity, unit price and value are quoted as per L/C

Whether unit price and value are quoted as per L/C

The description of the merchandise corresponds to the description in the L/C

The arithmetical calculations are correct

Import license/OGL/Contract No./Order No./Indent No. mentioned as per L/C

No charge other than stipulated in L/C in included

Additional copy for Exchange Control purposes is submitted

The date and no. of the License/OGL indicated

Bill of lading is submitted within 21days from the date of shipment, if no specific time is between the date of issue and expiry of L/C

The date of shipment is between the date of issue and expiry of L/C

Full quantity of goods is shipped, if part shipment is not allowed

Full set is submitted

Freight is shown as prepaid/payable at destination, as per L/C

Bill of lading shows 'on board shipment'

Parties are notified as per L/C terms

Carrying vessel's name has been mentioned in Bill of Lading

The beneficiary's name is shown as consignor, unless L/C terms permits third party bill of lading

The consignee's name is as per L/C

The B/L is manually signed

The description of goods is consistent with L/C

The ports of loading/destination are mentioned as per L/C

Marks, numbers, quantity and weight agree with the invoice

The carrying vessel belongs to any particular line as per L/C

Adequately stamped

Properly endorsed

If AWB, whether flight number and date of departure mentioned

If freight has been added separately in invoice and no separate freight certificate of shipping company is submitted. B/L shows freight amount.

Checklist for Document (Received under L/C) Scrutiny

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General-check whether all documents in full sets as per L/C terms have been received

Documents had been presented before the expiry date

All the documents are dated subsequent to the date of issue of the L/C

Cancellation/overwriting in all documents are authenticated

Bills of Exchange-check whether Drawn on the person indicated in the L/C and duly signed up by the beneficiary of the credit , Drawing is within L/C amount and in the same currency as per the L/C , The amounts in words and figures are the same and identical with the amount stated in the invoice Superscription, regarding drawing under L/C has been made and the Bill must have been issued stamped.

Document Check

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This is a very important function and this should be done with great care. After receiving the document from the overseas supplier's bank the importer's bank will scrutinise them to verify the extent of correctness as per the terms of the L/C. For discrepancies in the documents following principles are adopted:

If discrepancies are such which violates any of exchange control or import control regulations, the documents should straightaway be rejected.

If the discrepancies are of trivial nature not affecting the character of the transactions the documents may be accepted on merits.

If the documents are rejected, immediate notice to that effect should be given to the bank to safeguard the importer's interests.The documents prescribed by the beneficiary are carefully scrutinised by the issuing banker.

The importer should also scrutinise the documents to ensure that:

They were presented when the credit was in force and had not expired.

The amendments and special instructions have been taken care of

The amount of bill does not exceed the value of L/C

All documents required in the L/C have been made available

Documents carry required endorsements

The documents do not contain discrepancies which violate any exchange control/import control regulations

The invoice is duly signed, tallies with amount of draft, Exact quantities are shown and is drawn in appropriate currency of the origin of goods

Bill of lading is presented in full set of negotiable copies and is on board bill of lading and duly signed In case the goods are imported on cash against documents(CAD), documents against payment(D/P) or documents against acceptance(D/A) basis, the importer needs to take delivery of documents from the banker before completion of the customs formalities. This process, known as retirement of documents, needs the importer to apply to authorised dealer/banker who is in possession of documents. This can be done by tendering the funds equivalent to the value of documents and the bank charges exchange control copy of import license, where applicable, Form A-1 duly completed for remittance of foreign exchange.

The documents are released to the importers against payment in case of DP bills and against acceptance in case of DA bills. The payment in either case is accepted only from the bank account of importer. If the bank is out of funds the interest is charged to the importer's account. For any overdue period a penal interest will be charged.

Import Policy

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For items not mentioned as Prohibited, Restricted or Canalised List for import in ITC(HS) Classification of Export and Import items; import of such items are freely permitted. There is no need to obtain any license or permission for importing such goods. The ITC(HS) Classification of Export and Import items contains 99 chapters and in each chapter there are column heading covering Exim Code, items description, policy and nature or restriction. The information related to import policy for any item can be obtained from our site under Customs Duty Calculator Schedule.

Procedure to be followed for grant of import license

An application for grant of an import licence or CCP for import of the items mentioned as restricted for import in ITC(HS) Classification of Export and Import items may be made to the regional licencing authority concerned.

Hedging Forex Risk

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Exchange risk arising on account of adverse movement of the exchange rates, can be avoided by the following methods:

By requesting the supplier to invoice the goods in Indian rupees (possible only when the seller agrees to it)

By entering into a forward exchange contract.

This involves booking of forward exchange contract with the bank of the importer.

For booking forward contract the importer should approach his bank with which an L/C has been opened. The bank will book a forward contract only against genuine trade transaction. The bank will verify suitable documents to ensure the authenticity and the amount of permitted currency of the underlying transaction. The amount, date and number of the forward contract will be marked on such documents under the stamp and signature of the bank to ensure that more than one forward contract is not booked in respect of the same underlying transaction. A transaction may be covered either in parts or in whole. The period and extent to which an exposure is to be covered is left to the choice of the customer. Ordinarily, the maturity of the forward contract matches with that of the underlying transaction. If the documents of import are not received within the agreed period of the contract, the contract needs to be cancelled(an fresh contract booked if desired) for which the bank will levycancellation charges as per FEDAI rules. In case the documents are received before the stipulated date and the importer wants early delivery, the bank will again levy charges for early delivery, as per FEDAI rules.

The importers should be careful in chosing the period of forward contract. Otherwise early delivery or cancellation of forward contract would lead to unnecessary charges. The RBI allows substitution of an import order on specific request, provided the bank is satisfied with the circumstance leading to the non-performance of the contract.

Where the documents are under a contract(Non-L/C case), the seller will submit the complete set of documents to his bankers with the request to either purchase/discount the documents to his banker with the request to either purchase/discount the documents or same on collection basis to the importer. In the former case the seller's bank finances the sellers whereas in the latter case, no financial facility is extended to the overseas seller. The seller's banker may advance some money against documents sent on collection basis while, treating the documents as collateral security.

When the documents are under L/C, the documents are prepared strictly in conformity with the letter of credit.
After preparing the documents the overseas seller will tender the documents to his banker for negotiation. The bank, after receiving the documents, will examine them to ensure that they are strictly drawn as per the terms of the credit. Following this the overseas banker will send the documents to the importer's banker in India. The impoter's bank will advise the importer to collect the shipping documents either against payment or acceptance as per the terms of the contract.

In case the documents are drawn under L/C, the issuing banker(of the overseas supplier) will examine the documents and if found in order it will hand over the same to the importer after debiting his account with amount involved or against acceptance as per the terms of the credit.

If the documents are not in line with the terms of the credit, the overseas banker can either refuse to negotiate further and ask the seller to send them on collection basis only; or it can contact the importer's bank(in the buyer's country) for authorisation; or it can also make payment under the reserve against seller's indemnity.

TT Buying Rate

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This rate is applied for purchase of foreign currency by banks when the banks in India have already obtained the cover in India. Thus all foreign inward remittances which are made payable in India are converted by applying this rate. A mail transfer issued by a bank in Dubai for US $ 10,000 drawn on any commercial bank having branch at the overseas destination will be converted into rupees at TT buying rate. Reading Rates-The rates announced by the banks every day morning are card rates.

Reputed importers can always bargain with the bank for improvement in the card rates for reducing their rupee liability on conversion of foreign currency into Indian rupees. Also a distinction is made between spot rates and forward rates. Spot rates are applicable on the day of transaction, whereas forward rates are fixed in advance for a transaction that will mature at a specified date or during a specified period in future imports.

TT Selling Rate

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This rate is applied for all clean remittances outside India. For selling foreign currency to its customer by the bank such as for issuance of bank drafts, mail/telegraphic transfer etc

Precautions to be taken at the time of establishing Letter of Credit

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Letter of credit offers almost complete protection to the seller but the buyer is put to many disadvantages and has to make payments against documents only. Before agreeing to open a letter of credit in favour of the seller, the opener must be satisfied with the creditworthiness and general reputation of the seller. Entire success of an L/C transaction depends on proper conduct of the seller.
Confidential report on the seller must be obtained at the time of first transaction with him.
Letter of credit also does not offer any protection for the quality/quantity of goods supplied under the L/C. It would, therefore be necessary to know the nature of goods and specify submission of quality reports/inspection reports from an independent agency to ensure receipt of goods of proper quality. This is particularly important in case of import of chemicals and such other goods. The opener has to submit an L/C application to the opening bank. The instructions contained in the L/C application is the mandate for the issuing bank and letter of credit will be issued in accordance with this application. It is, therefore, necessary that complete and precise information must be given in the L/C application form specifying therein the description, unit rate and quantity of the goods covered under L/C and details of documents required in absolute clear and unambiguous terms. The reference to underlying sale contract must be avoided as far as possible. The L/C application must nevertheless contain all the required/information based on which L/C could be opened by the bank. After the L/C has been issued by the bank, a copy thereof must be obtained immediately. The L/C must be scrutinized to ensure that it has been properly issued and is in conformity with L/C application. Discrepancy, if any, must be brought to the notice of opening bank immediately.
Import contact may be concluded either in terms of INR or in foreign currency. Where the contracts are in INR, the related documents are also prepared in INR and no conversion is involved. However, where the bill is drawn in foreign currency, the payment is made in Indian rupees equivalent to the foreign currency. The equivalent rupee value is arrived at by applying suitable exchange rate. These rates are applied by banks to standardise the foreign exchange-rupee conversion process.

When the price of foreign currency is quoted in terms of home or local currency it is called direct quotation basis. This has been in application since 02.08.1993. However, there is a difference between inter-bank exchange rates and merchant rates.
Merchant rates are the exchange rates applied by the bankers for transaction with their customers for various purposes, including imports and exports. These rates are calculated by the banks as per the guidelines issued by the Foreign Exchange Dealers Association of India (FEDAI). Inter-bank rates are the rate for transactions amongst the authorised dealers in foreign exchange and depend on the market conditions.
Since exchange rates are volatile, documents delivered by the bank at the time of a favourable exchange rate will enable the Indian purchaser to pay less of Indian rupees. Forex rates are always quoted as two way price i.e. at a rate at which the bank is willing to sell foreign currency(buying rate) and at a rate at which the bank is willing to buy foreign currency(selling rate). There is always some difference in buying and selling rates.
However, the maximum spread available to bank is restricted in terms of celling imposed by RBI. All exchange rates by authorised dealers are quoted in terms of their capacity as buyer or seller.

Types of Letter of Credit

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Revocable Letter of Credit or Irrevocable Letter of Credit

Confirmed Credit

Transferable Credit

With or without Recourse Credit

Revolving Letter of Credit

Transit Credit

Back to Back Credit

Sight Credit

Credit available against Time Draft (Usance Credit)

Deferred payment Credit.