1 – With India introducing a new set of rules for importers – the Customs (Administration of Rules of Origin under Trade Agreements) Rules, 2020 (CAROTAR, 2020). the legal framework for imports by claiming preferential duty benefits as per Free Trade Agreements has undergone a complete overhaul. Against this backdrop, what are the safeguard & precautionary measures which importers (who claim such benefits) should adopt?
With the new CAROTAR rules coming into play it would be prudent for importers to:
Possess information, as specified in Form I, and submit the same to the proper officer on request;
Keep all supporting documents related to Form I for at least five years from date of filing of bill of entry and submit the same to the proper officer on request;
Exercise reasonable care to ensure the accuracy and veracity of the given information and documents;
Verification visits at vendors location outside India or requesting for additional information as per the Rules of Origin are also recommended.
2 – Recently, India approved SCOMET (Special Chemicals, Organisms, Materials, Equipment, and Technologies) items which are mandatory under the Wassenaar Arrangement. SCOMET list establishes transparency and greater responsibility in transfer of conventional arms and dual-use goods, technologies as well as software. Export of SCOMET items is restricted, i.e., export shall be permitted only against an Export Authorization/License. What sort of precautions should companies take while carrying export transactions from India?
The way forward for exporters would be to:
Appropriately determine coverage under SCOMET list and apply for license to obviate any consequences of non-compliance. An illustrative list of the category of SCOMET items is given below:
Toxic chemical agents and other chemicals.
Material, Materials processing equipments, and other material related technologies.
Aerospace systems, equipment including productions and test types of equipment, related technology and specially designed component and accessories.
Special Materials and Related Types of equipment, Electronics, Computers, Material Processing, Information Security, Sensors, Telecommunications and Lasers, Avionics, Marine, Aerospace Navigation and Propulsion related products.
Understanding the procedure for obtaining SCOMET license for export of controlled items varies according to the nature of transaction. It is therefore essential to identify the transactions as follows:
License for repeat orders
License for ‘stock and sale’
License for repair/replacement
License for display/exhibition/tenders
License for re-export/return of imported SCOMET items
Global Authorisation for Intra-Company Transfers (GAICT) license etc.
3 – Transfer of technology is also likely to be covered under SCOMET list. Technology can take a non-physical, intangible form and be transferred through non-physical or intangible means and such.
What then constitutes ‘Intangible Technology Transfer’ (ITT) according to the Indian authorities?
The definition of ITT is very wide. Broadly though, ITT constitutes:
Transfer of Technical Assistance – Such as instruction, trainings, seminar, presentations, conversations, calls, conferences, meetings etc.
Transfer of Technical Data – Transfer mechanisms such as email, data downloads, cloud sharing, visual inspection, calls, conference, meetings, conversations, and discussions.
Transfer of softwares – Which includes transfer mechanisms such as email, internet, cloud sharing, trouble shooting, updates and upgrades.
Are the exporters aware of the compliances /applicability of SCOMET license in cases of export/re-export of controlled ITT?
Most exporters are unaware/not informed enough about the wide coverage of ITT and fail to obtain SCOMET license in most cases.
In a case where SCOMET license is not obtained for the past export/re-export of ITT, what are the repercussions?
There will be penal consequences under the applicable statutes. Penalty under Foreign Trade (D&R) Act, 1992 may extend up to five times the value of the goods or services or technology. It is therefore relevant for exporters who are faced with this situation to analyze their rationale of not obtaining licenses and strategize their respective approaches.
4 – What is the impact on imports of ‘parts’ by various industries into India after the recent decision of the Hon’ble Supreme Court of India in Westing House?
As per the usual practice, parts and accessories specifically mentioned in Note 2 of Section XVII of Import Tariff governed under the Customs Tariff Act, 1975, were all classified under respective Chapter Headings, even if they were principally/solely used for goods under Chapter 86 to 88 of Import Tariff. However, the Supreme Court of India in the Westing House decision has unsettled this position and held that such parts and accessories cannot be classified under their respective Chapter Headings.
The decision implies that the parts and accessories albeit mentioned in Note 2 of Section XVII of Import Tariff, are also to be classified as parts of the principal product and not under its respective Chapter Heading. While the Supreme Court decision has negatively impacted certain sectors it has also resulted in benefits for some.
Most products under Bureau of Indian Standards (BIS) are under voluntary registration only. This allows import of products into the country which need not conform to the BIS standards. However, the Indian government is increasing the spectrum of products under the BIS regime, which is consequently increasing compliances for companies exporting to/importing from India. Are there any issues faced for carrying out compliances under BIS?
Obtaining a BIS license requires several measures, which include factory visits by the authorities to the applicant’s factories (within India as well as outside India) to assess manufacturing infrastructure, production process, quality control and testing capabilities, and sample(s) will be drawn for testing. Generally, the BIS Authority takes up to 6 months to issue the license. However, given the present scenario of COVID-19 wherein movement of men and material have been restricted, the prescribed period may vary while applying for the license.
Will this promote the spirit of Atmanirbhar Bharat (self-reliant India) by relying more on domestic production?
Yes
Which is the most impacted Country?
China would be the most affected country under stricter norms as most of the cheaper imports into India are from China.
5 – What measures have been taken by the Government of India to implement its commitment to WTO after India’s Merchandise Export from India Scheme (MEIS) which granted incentives on export of specified goods was challenged and subsequently discontinued. Would this be beneficial or detrimental to companies exporting from India?
In place of the MEIS Scheme, the Government of India has introduced a RoDTEP scheme which is a reimbursement scheme. However, allocation of funds to RoDTEP is only INR 13,000/- crore (approximately USD 1.7 billion) (proposed to be increased by Rs. 4,000/- crores) as against an MEIS allocation of INR 39,097/- crores (approximately USD 5.27 billion) for FY 19-20.
Lower allocation of funds has resulted in RoDTEP rates being lesser than that of MEIS rates and also not reflecting the actual percentage of embedded tax cost in the exported product.
Further, few sectors like viz. pharma, steel, chemical etc. are not under the ambit of RoDTEP. Moreover, RoDTEP benefits have been currently made ineligible for certain exports such as i) deemed exports, ii) products manufactured partly / wholly in bonded warehouses, iii) exports under Advance Authorization, Duty Free Import Authorization, iv) exports made by an Export Oriented Units, Free Trade Warehousing Zones, Export Processing Zones or Special Economic Zone. Inclusion of exports under iii) and iv) for the purposes of RoDTEP benefit would be decided at a later point in time based on the recommendation of RoDTEP Committee.
For further information, please contact:
Rohit Jain, Partner, Economic Laws Practice
+91 22 6636 7000
RohitJain@elp-in.com
Rohit Jain is a Partner in the Tax practice of ELP focusing on indirect taxes, direct tax and transfer pricing and customs laws. He is a law graduate from the University of Mumbai and a fellow member of the Institute of Chartered Accountants of India. His areas of expertise prior to the introduction of GST covered customs, excise, service tax, central sales tax, state Value Added Tax (VAT) laws and Foreign Trade Policy (FTP).
Rohit has been with the firm since its inception and has over a decade of experience in handling matters related to tax, in both advisory and litigation matters. He has advised various Fortune 500 Companies and Indian Conglomerates in sectors like financial services, manufacturing, telecommunication, oil and gas, petroleum and infrastructure projects in order to ensure smooth transitions from sales tax to the VAT regime.
He has also been involved in making representations to the Ministry of Finance and the Ministry of Commerce in relation to various tax policy matters on behalf of numerous industry associations. Rohit has been ranked as an Elite Practitioner by Asialaw Profile 2020 and has been recognized for his expertise in Tax by Chambers Asia-Pacific, recommended by the Tax Director’s Handbook and has also featured in World Transfer Pricing guide. Rohit has also been recognized in the Benchmark Leading Lawyers Guide as the “Dispute Resolution Star for Tax” and has featured in International Tax Review’s Tax Controversy Leaders Guide & Indirect Tax Leaders Guide. Rohit has also been ranked as a Legal Individual for Tax in the Legal 500 rankings. Prior to ELP, Rohit was part of the Tax team at RSM & Co.
Jignesh Ghelani, Partner, Economic Laws Practice
+91 22 6637 1989
JigneshGhelani@elp-in.com
Jignesh Ghelani is a Partner at ELP focusing on indirect taxes and the newly introduced Goods & Services Tax (GST). He is a fellow member of the Institute of Chartered Accountants of India (ICAI).
His areas of expertise include customs, excise, service tax, central sales tax (CST), state Value Added Tax (VAT) laws, Foreign Trade Policy (FTP), Special Economic Zone and Export Control related matters. Jignesh has over a decade of experience in handling matters related to tax, in both advisory and litigation matters.
He has advised various Fortune 500 Companies and Indian Conglomerates in sectors like manufacturing, oil and gas, petroleum, energy, construction and infrastructure and telecommunication. His areas of specialization include tax optimization strategies, structuring contracts, tax reviews / due diligence and representing clients before the tax authorities. He has also been a regular speaker at various tax conferences and has authored associated papers / articles on issues of Indirect taxation Prior to joining ELP, Jignesh was part of the Tax team at EY & PwC.
