Import-Export Compliance Requirements for Traders in India

Due to the increased reliance on India for export and manufacturing, India is in the process of streamlining and liberalizing import-export policies to reduce compliance burdens for persons engaged in trade. Compliances have now been simplified and digitized to reduce burden for international traders.

India has grown to be a highly regarded destination for international trade in recent years, and the pandemic has only caused greater interest in India in this aspect. According to figures released by the Indian government, exports from India in 2020-21 was valued at nearly USD 221 billion, with another USD 204 billion in imports. Estimated continued growth is nearly 6%, specifically with the renewed focus on India for manufacturing and export of vaccinations, medicines, and medical devices in the coming years.

Due to this increased focus, India is also in the process of streamlining and liberalizing import-export policies to reduce compliance burdens for persons engaged in trade. The new Foreign Trade Policy 2021-26, will came  into effect in April 2021 and is expected to help guide India towards a USD 5 trillion economy. In this article, we take a look at the compliance requirements for international traders when exporting and importing through India, and the new rules being introduced.

Export & Import in India:

The Director General of Foreign Trade (DGFT) under the Ministry of Commerce is the apex body regulating imports and exports and ensuring that trading is in compliance with the Foreign Trade Policy (FTP), Foreign Exchange Management Act, 1999 (FEMA).  The FTP of 2015-2020 is still in effect, as it had been extended till 31st March 2021, and a new FTP will come into force in April of 2021.

The FTP of 2015-2020 took various steps to streamline import-export compliance requirements by digitizing various compliances and creating a better structure for redressal of complaints and disputes.

Exports and imports to and from India are free  unless the products or services are prohibited, restricted, or differently classified under the Indian Trade Classification (Harmonized System) of Exports and Imports. [ITC (HS)]

The ITC (HS) provides a classification code for such goods according to their groups or sub groups. The classification by ITC (HS) is aligned at the 6 digit level with the International Harmonized System of Goods Nomenclature maintained by the World Trade Organization. The schedules of the ITC (HS) also lays down the import and export policies of India.

For importing and exporting to and from India, traders will be required to obtain the Importer Exporter Code (IEC), prior to starting operations. The IEC is also issued based on the Permanent Account Number (PAN), and so all traders including foreign entities will have to obtain a PAN first.

Import Compliance Requirements:

As stated earlier, traders are free to import goods to India unless they are specifically restricted or prohibited under the ITC (HS) classification. The main compliance requirements/ steps for import of goods are as follows:

1. Obtain IEC: All importers have to obtain the IEC prior to importing goods. The IEC is a pan-Indian registration that all traders are required to have for import clearance, paying clearance dues, sending money in foreign exchange, etc. Traders will be provided lifetime validity upon registration.The IEC can be obtained by filing for an application online at www.dgft.gov.in/ with the Form ANF-2A.

• Digital photograph of the signatory Applicant.
• PAN Card details of the Applicant.
• A cancelled cheque bearing the name of the entity or a bank certificate in the prescribed format.
• Address proof of the applicant.

2. Legal Compliance: As mentioned, certain goods are restricted for trade under the Indian laws. Hence, traders will have to check for legal compliance under the Customs Act, 1962, and the FTP.

3. Application for Licenses: Depending on the classification of the goods under the ITC (HS), import licenses may be required. License certificates may be general (for goods across different countries) or specific (limited to good for a specific country).

4. Documents Required for Custom Clearance: The following documents are mandatorily required for import of goods into India:

• Bill of Entry: A bill of entry is a legal document that provides details of the import, which is required at the time of customs clearance. It may be one of three types: a bill of entry for home consumption, a bill of entry for housing, or a bill of entry for ex-bond clearance. A formal bill of entry is not required if the importer is filing through the Electronic Data Interchange (EDI) but importers may be required to file a cargo declaration for customs clearance. Under the EDI system, there is usually faster clearance of goods, since the requirement for a physical inspection of goods will be waived.

• Bill of lading, or airway bill, or lorry/railway/postal receipt in Form CN-22 or CN-23.
• Commercial invoice or packing list.

5. Import Duty Rate: Custom duty is levied on imports along with goods and service tax that will be levied according to the Integrated Goods and Service Tax (IGST), 2017, and compensation cess. The basic customs duties are levied according to the classification provided under the Customs Tariff Act 1975.. Countervailing duties or anti-dumping duties may also be levied depending on the good.

6. Single Window in Customs: India has introduced the Single Window Interface for Facilitating Trade (SWIFT) wherein importers are provided a single interface to apply for the different compliances that may arise under different ministries or regulatory agencies for the import of their goods. This was introduced to promote ease of doing business and reduce compliance costs.

Export Compliance Requirements:

Once an export  order has been received and it is examined in terms of the items, specifications, conditions of payment, conditions of delivery, etc. then the exporter may enter into a formal contract with the buyer placed overseas. Once it is fully confirmed, the following are the main steps that have to be carried out:-

1. Obtain Business Identification Number (BIN): A PAN based BIN has to be obtained from the Indian customs office prior to filing for a shipping bill for clearance of goods.
2. Check ITC (HS): Goods that are not classified under the ITC (HS) may be freely traded across Indian boundaries; however, if they are restricted, then they will require further compliances as prescribed therein. 
3. EDI or Bill of Export: Under the EDI system, the declarations provided have to be filed through the Service Centre of Customs. After these are verified, the data is submitted and the system will generate a Shipping Bill Number, which will be returned to the exporter. A bill of export has to be provided if the goods are not being declared through the EDI system. The bill should include details such as the name of the exporter, the address of the exporter, quantity of goods, etc. A certificate of origin and other documents such as invoices, export contracts, packing lists also have to be submitted with the bill of export.
4. Submissions to the Banks: After shipment, the following documents have to be presented to the Bank to discharge to the foreign bank for payment: certificate of origin, bill of exchange, letter of credit, invoices, packing list, declaration under foreign exchange, inspection certificate if required.

New Rules Regarding IEC:

A new platform will be launched soon for IEC related services for traders. While the process of filing the application for IEC is electronic, this platform will subsume all further services issuance of IEC, modification, amendment process, etc. Advance authorization, Export Promotion Capital Goods, and other schemes related to the FTP can now be availed through this platform.

The Bombay High Court also recently held in the case of Siddharth Mandavia v. Union of India, that the indirect tax department cannot suspend or cancel the IEC of any person. Only the DGFT is empowered to cancel or revoke an IEC. The Court had ordered that the IEC be unblocked along with the attached bank accounts.

Since 2020, the use of harmonized Unit Quantity Codes (UQC) for bills of entry or bills of shipping has been mandated by the DGFT and the Indian Customs offices. New guidelines are to be issued for use of UQC through the EDI system.

A new track and trace system is being introduced for export of pharmaceuticals and drug consignments. The system will now be implemented from 1st April 2021.

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