Administration of customs law in India has been simplified to a great degree in the last few years. Customs duty rates have also seen a significant downward revision. Nevertheless, complexities exist in several areas like classification, valuation, applicability of exemption notifications, project imports and incentives for specific sectors. Customs duties have myriad implications and profoundly impact domestic and global businesses.
Indian Customs Tariff is based on the Harmonised System of Nomenclature (HSN). Differential rates for different tariff lines and customs duty exemptions based on sub-classification of goods result in disputes. Correct classification of goods becomes indispensable for hassle-free compliance. In-depth knowledge of all merchandise attracting various customs duties is essential for correct classification of goods not only in India but also in the Asia-Pacific region. Intricate classification disputes are resolved in India by tax tribunals, High Courts and the Supreme Court of India.
Today, most multinationals have subsidiaries in India necessitating cross border transaction in goods and services between such entities. Indian companies are also acquiring trans-national character. In such a scenario valuation of goods for customs duty purpose assumes greater importance. Royalties, licensing and right to use are other issues that have attracted attention of customs authorities. Differences between business and the tax administration call for adroit handling of plethora of issues and cases relating to customs valuation, structuring of operations to facilitate compliance with customs laws and effective representation before the Special Valuation Branch (SVB) of the customs department and various dispute settlement bodies. Expertise in both customs and income tax helps business in determination of transfer prices acceptable to both the authorities.
Indian customs policy and provisions confer numerous exemptions to importers and exporters. The tax-breaks belong to several categories. End-use based exemptions where the benefit is dependent on fulfillment of a condition for particular use of imported goods are most common. Besides, tax enclaves like Special Economic Zones which enjoy full tax holiday, are accorded priority by the administration in recent times. Determination of admissibility to exemption, claiming the benefit as per law and defending the claim in courts in case of difference of opinion, are areas which require expert guidance and thorough impact analysis.
Import Procedure Compliance
The Government of India has taken a wide variety of initiatives including introduction of Risk Management System (RMS), advance ruling for foreign enterprises, etc which aim at reducing dwell time of imported cargo and speed up clearances. Conducting internal reviews to assess compliance with Customs and other governmental agency requirements would help business in development of a robust system of internal procedures, manuals and record keeping guidelines.
Foreign Exchange Management
In India, inbound and outbound investments attract the provisions of Foreign Exchange Management Act (FEMA). Investments in debts, external commercial borrowings (ECB) and working capital provided by foreign entities can be cited as those covered by this legislation. Payment of royalties for technical know-how in foreign exchange is governed by procedures prescribed by India’s central bank - the Reserve Bank of India. Often, allegations by the Customs Department, of under-valuation of goods, involve FEMA violations.
Thorough understanding of FEMA and rules and regulations of Reserve Bank of India is imperative to guide companies on foreign investments, mergers and acquisitions (M&A) and customs valuation disputes. Companies also need to be defended before Enforcement Directorate, appellate fora and High Courts in cases of alleged contravention of FEMA.
Free Trade Agreements(FTA)/Regional Trade Agreements(RTA)
Free Trade Agreements (FTAs), Regional Trade Agreements (RTAs) and Preferential Tariff Agreements (PTAs) are the building blocks of trade liberalization process. Analysis of benefits available under such arrangements is an integral part of strategic procurement of raw materials. Listing the benefits of reduced cost of inputs to any production house is to reiterate the obvious. To maximize the tariff advantages offered by FTAs and PTAs, thorough knowledge of Customs as well as WTO laws cannot be understated.
Legal Metrology and Customs
Country of origin determinations and marking are the most significant importability issues which have to be addressed before goods are imported. Evaluation of products to ensure compliance with origin and marking requirements is essential for hassle-free clearance and assessment of imported consignments.