An Overview of Imports & Exports in India

By

NK BHAT

Foreign Trade and India

• India is an ancient maritime trading nation• Merchandise:

– Exports touch $286 Billion in Apr 14 - Feb15– Imports touch $412 Billion in Apr 14 - Feb15

• Services:– Exports touch $ _____ Billion in Apr 14 - Jan15– Imports touch $ _____ Billion in Apr 14 - Jan15

Laws to note

• The Foreign Trade ( Development and Regulation ) Act, 1992 (Amended in 2010)

• The Foreign Trade Policy 2015-20• The FEMA 2000• RBI Regulations• The Customs Act, 1962• The Central Excise Act, 1944

Steps in Exporting

• A business organization• Manufacturer exporter• Merchant exporter• Agent/ intermediary• Service provider• Product selection• Procurement of order

Essentials of export contract

• Product, standards & specification• Quantity• Inspection• Value• Terms of delivery• Taxes, duties and charges• Period of shipment

Export contract contd….

• Packing, labeling, marking• Terms of payment - Amount, mode &

currency• Discounts and commissions• Licences and Permits• Insurance• Documentary requirements• Guarantee

Export contract contd……

• Force majeure (An event that is a result of the elements of nature, as opposed to one caused by human behavior)

• Remedies (Alternatives available to an aggrieved party)

• Arbitration (Settlement outside a court of law)

Incoterms

• EXW - Ex works• FCA - Free Carrier• FAS - Free alongside ship• FOB - Free on board• C&F - Cost and freight• CIF - cost, insurance and freight• CPT - Carriage paid to • CIP - Carriage and insurance paid to

Incoterms contd…

• DAF - Delivered at frontier• DES - Delivered EX ship• DDU - delivered duty unpaid• DDP - delivered duty paid• DEQ - delivered ex quay (A wharf or quay is a structure

on the shore of a harbor or on the bank of a river or canal where ships may dock to load and unload cargo or passengers)

Risks in International trade

• Credit risk• Currency risk• Carriage risk• Country risk• Voyage risk

Export registration

• Importer Exporter Code (IEC) with DGFT• PAN• Bank account• Appointment of agents• Export licenses• Customs registration• Registration with export promotion

councils

Export inspection• IPQC– In process quality control• ISI, AGMARK• Fumigation• ISO- 9000 & ISO – 14000• Export Inspection Agency (EIA) (For pre-shipment inspection)

• Social Accountability (SA-8000 Standard)

• Global Compact (Ten principles of UN in the areas of human rights, labour, the environment and anti-corruption, etc, which enjoy universal consensus)

Currency management

• Understanding currency fluctuations• Invoicing currency• Forward contract• Hedging• Repatriation• Exchange Earner’s Foreign Currency A/c

(EEFC)

Reading FTP

• The Foreign Trade Policy• The Handbook of Procedures• The ITC- HSN classification• Export licenses• Import licenses• Open General Licence• State Trading (Channelizing Agency)

Customs Procedure - Export

• Exporter• Person in charge of conveyance• Bill of Lading• Export General Manifest (It is a legal document mandatory to be

filed by carrier of goods with customs department)• Shipping Bill, Packing List, ARE etc.• Stuffing / Examination / Sealing• Self-sealing / self-certification

Customs Procedure contd…

• Importance of Inland Container Depot (ICD) / Container Freight Station (CFS)

• Customs Bonded Warehouse• Green Channel for exporters• Assessment• The concept of Transaction Value

Customs Import Procedure• Importer• Person in charge of conveyance• Bill of Entry• Import General Manifest• Assessment• Electronic Data Interface (EDI)• Risk Management System (RMS) Facilitated Import of

Consignments (No Assessment, No inspection & No examination of Goods)

Central Excise Export Procedure

• Exports are free of duty• Clearances under Bond• Clearances under Rebate• ARE 1 (Under Bond or Undertaking)• ARE 2 (Under Rebate)• UT1 – Undertaking in lieu of Bond• Proof of Export• Sealing of Container

Gist of Foreign Trade Policy

• Legal Framework & Trade Facilitation – Chapter 1• General Provisions regarding Imports & Exports –

Chapter 2• Export from India Schemes – Chapter 3

– Merchandise Exports from India Scheme (MEIS)– Services Exports from India Scheme (SEIS)

• Duty Exemption / Remission Schemes – Chapter 4• Export Promotion Capital Goods (EPCG) – Chapter 5• Export Oriented Unit (EOU) – Chapter 6• Deemed Exports – Chapter 7

Export from India Schemes

• Export from India Schemes – Merchandise Exports from India Scheme (MEIS)– Services Exports from India Scheme (SEIS)

• Duty Credit Scrips are given for both MEIS & SEIS• These Scrips can be used for the following:

– Payment of Customs Duty– Payment of Excise duty on Domestic Procurement– Payment of Service Tax on availing Domestic Services– Payment of Customs Duty in case of EO defaults

• The ITC-HSN wise Rewards will be notified separately

Duty Exemption / Remission Schemes

• Duty Exemption consist of the following: – Advance Authorisation (Including AA for Annual

Authorisation)– Duty Free Import Authorisation (DFIA)

• Duty Remission Scheme consists of the following: – Duty Drawback Scheme (DBK)

Duty Exemption Schemes…Contd.

• Considerations in Advance Authorisation:– Covers Inputs, Fuel, Oil, Catalyst required for production

process– Standard Input-Output Norms (SION)– Normal Wastage– Minimum Value Addition Norms– Past export performance – Annual requirement is possible– Actual User Condition– Waste / Scrap can be disposed off on payment of duty– Validity is 12 months from date of issue of AA– AA can be used against material free-issued by foreign customer

Drawback

• Recouping of duties of customs and central excise and service taxes – 90% of actual

• All industry rates• Brand rate (Rule 6) – For products for which

standard rates are not already fixed• Special Brand rate (Rule 7) – Where the rate of

drawback is low (less than 4/5th)• Post export documentation

EOU

• Minimum investment of Rs. 1 Crore (P&M)• 300 warehousing districts as location• Nearly 3000 units in existence• New or conversion from DTA• Manufacturing & services covered• Trading units are not permitted

EOU contd…

• Widest definition of manufacture• Single B – 17 Bond• Duty-free import of raw materials and inputs and

similar sourcing of inputs and capital items from DTA

• Net Foreign Exchange = Export – Import = + ve• Export Obligation over 5 years

EOU contd…• Can subcontract part of production to DTA• Can sell upto 50% of FOB value of Export in DTA• Can sell to other EOU/ BTP/ EHTP/STP/SEZ and count

against EO provided consideration received in Forex• Exempt from State Trading and SSI reservation

restrictions• Export proceeds to be collected within 9 months• 100% EEFC retention• Can import Second Hand Capital Goods

EOU contd…• Clubbing of exports with exports of parent company for

export house status• CST paid by EOU to DTA is reimbursed by DGFT • CT3 procedure (CT3 form is issued by Customs &

Excise officials to units under STPI and 100% EOU units to procure Indigenous Capital Goods locally without central excise duty)

• Self sealing• Green channel clearance on import• CT1 - Certificate for procurement of specified goods

without payment of duty by DTA from EOU

EPCG

• Import of capital goods at NIL customs duty• Export Obligation is 6 times the duty saved in 6

years• Actual User condition is applicable• Covers manufacturer exporters or merchant

exporters with supporting manufacturers• In case the Capital Goods are sourced

indigenously, EO will be 25% less

EPCG contd…

• Direct as well as third party exports allowed• Shipments under Advance authorization, Duty

Free Import Authorisation (DFIA) Scheme & draw back will count for fulfillment of Export Obligation

• Physical exports required but certain deemed exports allowed

• Clubbing of licenses allowed

Advance authorization

• Duty free import of inputs• Fuel, oil and energy are also allowed to be

imported• Standard Input-Output Norms (SION Norms)• Ad hoc SION permitted• Positive value addition• Issued for annual requirement also

Advance authorization contd…

• Advance release order / Invalidation in favor of supporting manufacturer

• Supplies to SEZ counted as fulfillment of EO• Actual user condition• Disposal of imported items after meeting Export

Obligation• License transferable after meeting EO and with

the permission of DGFT

Special Economic Zone (SEZ)

• Exclusive geography• Duty free enclave• Sales from SEZ to DTA is permitted – Considered as

import for DTA• Special concessions for promoters• Positive Export Obligation is a must• All imports & Exports are duty-free• Customs duty, excise duty, service tax and VAT & CST

are exempt on supplies to SEZ units• Exclusive Graded Income Tax benefit for 15 years

Deemed Exports

• Covered by Chapter 7 of Foreign Trade Policy• The concept of Deemed Exports – For saving

foreign exchange through local manufacturing • Covers supply by Manufacturer:

– 7.02 A(a) Advance authorization/ DFIAS– 7.02 A(b) EOU/ STP/EHTP/BTP– 7.02 A(c) Supplies EPCG Authorization holders– 7.02 A(d) Supply of marine freight containers by EOU

Deemed Exports - Categories

Supply by Main / Sub-contractor:• 7.02 B(e) Projects under International competitive

bidding (ICB) Procedure• 7.02 B(f) Projects approved by Ministry of Finance by

notfn. 12/2012-Cus dt 17.03.2012 under ICB– Supplies of capital goods for any purpose– Supplies to Mega Power Projects (ICB not necessary if PPA is

under competitive basis)• 7.02 B(g) Supply to projects funded by UN Agencies• 7.02 B(h) Supplies of goods to Nuclear Power Projects

through National Competitive Bidding or ICB

Benefits to Deemed Exports

• 7.03 (a) Advance authorization / DFIAS• 7.03 (b) Deemed Export drawback• 7.03 (c) Refund of Terminal Excise Duty, if

exemption is not availableAs per table appearing on next slide

Benefits to the Supplier (7.04)

Relevant sub-para of 7.02

Benefit given as given in Para 8.3(a) (b) ©

(a) Yes Yes Refer Policy

(b) Yes Yes Exemption

© Yes Yes Refund

(d) No Yes Refund

(e) Yes Yes Exemption

(f) Yes Yes Exemption / Refund

(g) Yes Yes Exemption

(h) Yes Yes Refund

Eligibility of TED Refund (7.05)

• Refund of Terminal Excise Duty is available only if the final customer has not availed cenvat credit or rebate on such goods (Please refer Annexure II of Form ANF 8)

• Supplier can avail drawback only if he has not availed cenvat credit on the inputs (Please refer Annexure III of Form ANF 8)

Status Holders under the FTP• One Star Export House Rs 3 crores• Two Star Export House Rs 25 crores• Three Star Export House Rs 100 crores• Four Star Export House Rs 500 crores• Five Star Export House Rs 2000 crores

• Benefits allowed to status holders

Excise export concessions

• Export without payment of duty• Export under claim for duty• Procurement of excisable goods for export

production without payment of duty• Drawback• Concessional notifications

Service tax concessions

• Drawback• Its limitations• ASTR 1• ASTR 2• Clearances to SEZ exempt• Refund of service tax paid on export

related input services

WTO/ GATT

• International Treaty• Governing Principles• MFN• Non discrimination• National treatment• Reduction of tariffs• Elimination of Non tariff barriers

Free Trade Agreements• NAFTA (Canada, USA & Mexico)• EU• MERCOSUR (Latin American countries)• ASEAN (Assn of Southeast Asian Countries)• SAFTA (South Asian Countries including India)• Indian agreements with Sri Lanka, Thailand and

Singapore• Implications of FTAs

Importance of Ports in International Trade

• 70% of international trade is over the seas– 90% in case of India

• Trade through Air is comparatively very expensive and cannot become a common preference, and is unsuited for heavy, large cargo

• Many coastal states have a number of ports

Ports in India

• India has 12 major ports and more than 180 minor ones

• India has a coastline of nearly 6000 KMs• Some new ports have dedicated SEZs nearby• More & More industries are moving close to

Major ports having good infrastructure• Very often ports have become drivers of new

growth centres (E.g., Hazira, Mangalore, Vizag, etc.)

Problems of Indian Ports

• Limited land area• Industries located in hinterland• Low channel draft• Too many players• Inadequate deployment of skill and technology• Lack of coordinated approach

Requirements of modern World class port

• Skill – Intensive• Technology driven, minimal paper work• Port is the best when its an industrial complex by

itself• Quay cranes• Crane productivity• Fully automated terminals with good quay length

Port stake holders in India

• Customs• Port Trusts• Port Health Organization• Plant Quarantine• Immigration• Terminal operator• Vessel operating agent

Port Stakeholders Contd…

• Steamer agent / Mainline operator• Container operating agents• Stevedore (a firm or individual engaged in the loading

or unloading of a vessel)• CHA / Exporters / Importers• Transport operators• CFS / ICD• Security agencies / External players

Keep in touch…nk.bhat@larsentoubro.comswamibhat@gmail.comCell: 8888827838

Thank You…