Overview: APPRAISAL OF THE IMPORT-EXPORT LAWS OF INDIA
Nov. 13, 2020 • Madhav Gawri
I. Introduction
In today’s globalized world, exports and imports forms the essence of the foreign trade of any country. Foreign trade can be defined as “exchange of capital, goods and services across international borders or territories”.[i] It forms a significant part of the Gross Domestic Product (GDP) of any country. Thus, businesses thinking of starting export or import operations should be well aware of the legislations involved along with stages and stakeholders involved in the process. But before delving into this aspect, one need to know what is “import” and “export”.
II. What Is “Import” And “Export”?
The terms “import” and “export” have been explicitly defined in the Customs Act, 1962[ii] and the Foreign Trade (Development & Regulation) Act, 1992.[iii] However, there were conflicting judgments of the High Court with respect to the fact that “when can import or export be said to have been completed?”
In respect of imports, this issue was finally resolved by a three-member bench of the Supreme Court in Kiran Spinning Mills v. CC,[iv] wherein they held that only when the goods cross the customs barrier, then only the import is said to be completed. The taxable event is the day of crossing of customs barrier and not on the date when goods landed in India or had entered territorial waters. Moreover, in situations of warehoused goods, it is only when such goods are taken out of the customs and brought to the mass of goods in the country, then such goods will be said to have crossed the customs barrier.
In respect of exports, the Supreme Court in Union of India v. Rajindra Dyeing and Printing Mills[v] held that when goods cross territorial waters of India, then export will be said to be complete.
III. Indian Legislations Governing Imports And Exports
In India, the import and export of goods and services are regulated by the following legislation:
A. The Foreign Trade (Development & Regulation) Act, 1992
The Foreign Trade (Development & Regulation) Act, 1992, which replaced the Imports and Exports (Control) Act, 1947, empowers the Central Government to make provisions for the development and regulation of foreign trade by permitting the smooth flow of imports and exports. The Act confers the central government with powers to prohibit, restrict and regulate imports and exports in all or specified classes of cases.[vi] In fact, the Central Government has been conferred with the power to formulate the Export-Import Policy and the Director-General of Foreign Trade shall advise the government for the said purpose. Thus, by virtue of this power, the Foreign Trade Policy 2015-20 was formulated, which governs such foreign transactions in present times.[vii]
B. The Foreign Exchange Management Act, 1999
The Foreign Exchange Management Act, 1999, which replaced the Foreign Exchange Regulation Act, 1973, proved to be more ‘liberal’ as it allowed transaction without any restrictions. This is because the Act focussed on the idea to ‘permit’ rather than to ‘prevent’. Moreover, the Act removed restrictions on cross border capital flows especially foreign investment providing a clear signal of lowering of insulation.
C. Customs Act, 1962
Customs duty is usually imposed on import into and export out of India. Such duties of customs levied on goods imported into or exported from India are charged at such rates as specified in “The Customs Tariff Act, 1975” or any other law for time being in force.[viii] Import duty is levied on almost all items, while export duty is levied only on a few limited products, where Indian goods are in commanding position.
As a consequence, exported goods are usually exempted from all duties of customs except a few items, namely, leather, etc. In contrast, almost all duties of customs are usually levied on imported goods such as basic customs duty, additional customs duty, etc. The Additional Customs Duty, commonly known as Countervailing Duty, is an additional duty levied under section 3(1) of the Customs Tariff Act. The rationale behind CVD is to safeguard the interests of manufacturers in India to provide level playing field to indigenous producers or manufacturers.
Moreover, education cess has also been made payable on imported goods w.e.f. 9-07-2004. It will be 2% of the aggregate duty of customs. In addition to an education cess, a secondary and higher education cess of 1% of the total duties of customs will also be imposed on imported goods. Other customs duties levied on imports are Safeguard Duty, Protective Duty, Anti-Dumping Duty.
D. Integrated Goods and Services Tax Act, 2017
The Integrated Goods and Services Tax Act, 2017 defines both “import” and “export” of goods and services. For a transaction to be subject to GST, it must fall within the scope of supply under section 7 of the CGST Act, 2017. However, section 7 does not cover the importation of goods within its ambit as a consequence of which, import of goods is not subject to GST.
In order to levy GST, a transaction must fall within the ambit of supply, therefore, the proviso to section 5(1) of the IGST Act explicitly provided that “IGST shall be levied on import of goods and services and will be collected in accordance with 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”. Thus, such IGST levied under the customs act shall be considered a “customs duty”.
In contrast, export of goods and services under the GST law has been treated as a supply between two States. Hence, exports are inter-State supply[ix] and hence, IGST is leviable on exports. In fact, the IGST Act treats exports as a zero-rated supply.[x] Zero-rated supply implies that the ‘0%’ GST is leviable on the recipient.
E. Other Legislation dealing with Exports and Imports
In addition to the above stated legislation, other laws regulating exports and imports in India are:
- Tea Act, 1953
- Coffee Act, 1942
- The Rubber Act, 1947
- The Marine Products Export Development Authority Act, 1972
V. Import & Export Procedures
Now, let us try to understand the procedure involved in the importation of goods and services:
- Before importing from India, each person should mandatorily acquire Importer- Exporter Code Number from the Director-General of Foreign Trade under section 7 of the 1992 Act.
- Once IEC is acquired, a person may import goods in accordance with section 11 of the Customs Act, 1962, the Foreign Trade (Development & Regulation) Act, 1992 and the Foreign Trade Policy 2015-20.
However, if the goods fall within the category of restricted, canalized or prohibited goods, then the importer is required to obtain additional permissions and licences from the appropriate authorities.
- In order to ascertain whether a licence is required for importation of goods and services, an importer first needs to classify the goods on the basis of Harmonised System of Coding or ITC classification. As a consequence, either a general or specific licence is granted to the specified item.
The general licence authorizes importation of goods from any country whereas under the specific licence, goods can be imported.[xi]
- Once import licences are obtained, the importer is required to present a bill of entry in accordance with section 46 of the Customs Act, 1962. As soon as the goods get shipped, the custom officials inspect the bill of entry which was furnished and match it with the imported goods. If no irregularities are found, a “pass out order” is issued by the officials for replacement of imported goods from customs.
- Then, the rate of import duty under Customs Act and IGST is determined for clearance of goods.
In addition to these procedures during export, an exporter must also get registered with Indian Chamber of Commerce (ICC), which issues the Non-Preferential Certificates of Origin which confirms the fact that the place of origin of exported goods is India.
VI. Conclusion
The change in export-import policies every 5 year has made the export and import of goods and services a complicated process. Moreover, the increase or decrease in the rate of customs duties and IGST plays a significant role in foreign trade of a country. Thus, it becomes a tedious task for businesses to keep record of these changes every now and then.
[Keywords]: Import, Export, Foreign Trade, Customs, IGST, Importer-Exporter Code.
[Profile of the author]: Shubhangi Komal is a 5th year Law student in National University of Study and Research in Law, Ranchi and holds keen interest in constitutional, criminal, environmental, labour and human rights laws.
[FAQs]: 1. What are the regulatory documents required during export or import?
Ans. The required regulatory documents are as follows:
- GST return forms (GSTR 1 and GSTR 2)
- GSTR refund form
- Exchange Control Declaration
- Bank Realization Certificate; and Registration-cum-Membership Certificate (RCMC).
[i] Smriti Chand, The Meaning and Definition of Foreign Trade or International Trade, Your Article Library https://www.yourarticlelibrary.com/foreign-trade/the-meaning-and-definition-of-foreign-trade-or-international-trade-explained/5972
[ii] Customs Act, §2(18) & 2(23) (1962).
[iii] Foreign Trade (Development & Regulation) Act, §2(e) (1992).
[iv] 1999 (113) ELT 753
[v] (2005) 180 ELT 433 (SC)
[vi] Foreign Trade (Development & Regulation) Act, §3(2) (1992).
[vii] Id., § 5.
[viii] The Customs Act, § 12 (1962).
[ix] The Integrated Goods and Services Tax Act, §7(5) (2017).
[x] Id., §16
[xi] Vasundhara Rastogi, India: Import and Export Procedures In India, Mondaq (Sept. 18, 2019)