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Customs & Foreign Trade Policy – Recent Developments

1. Brief Introduction to Customs Duty

As per the ancient custom, a merchant entering a kingdom with his goods had to make a suitable gift to the King. In the course of time, this ‘custom’ was formalized into ‘Customs Duty’. The word ‘customs’, indicates that it is a very old tax may right from the Veda period.

Present-day Customs Duty has its origin in the British period.

Entry 83 of the Union List of the 7th Schedule to the Constitution of India empowers the Central Govt. to levy the customs duty. The Customs Act, 1962 was passed to consolidate Sea Customs Act, Land Customs Act, and provisions for Air Customs. This is the main Act, which provides for levy and collection of duty, import/export procedures, prohibitions on importation and exportation of goods, penalties, offenses, etc.

The Customs Tariff Act, 1975 (CTA) contains two schedules – Schedule 1st gives classification/rate of duties for imports & Schedule 2nd gives classification/rates of duties for exports. The CTA also contains provisions for other duties/cesses i.e. like IGST, compensation cess, additional duty (CVD), preferential duty, anti-dumping duty, protective duties, etc.

2. Brief Introduction to Foreign Trade Policy

The Foreign Trade Policy (FTP), is notified by Central Government, in the exercise of powers conferred under S. 5 of the Foreign Trade (Development & Regulation) Act, 1992 [FT (D&R) Act], as amended. FTP is generally notified for 5 years.

The Foreign Trade Policy (FTP), 2015-2020,(as updated) is in force at present and it is due for renewal/amendment effective 1st April 2021.

All exports and imports made are, governed by the FTP, unless otherwise specified. The objective of the FTP is trade facilitation for cutting down the transaction cost and time, thereby rendering Indian exports more competitive.

The various provisions of FTP are regulated by the Director-General of Foreign Trade (DGFT) who may, by means of a Public Notice, notify Hand Book of Procedures, including Appendices and Aayat Niryat Forms or amendment thereto, if any, laying down the procedure to be followed by an exporter or importer or by any Licensing/Regional Authority or by any other authority for purposes of implementing provisions.

3. Importance of World Customs Organization (WCO)

World Customs Organization (WCO) has 180 members from Customs administrations across the world.

The WCO has provided the platform for creating many international treaties for the harmonization of Customs systems and effective communication between its member states. Kyoto convention was held in 1973 at the WCO Council Session in Kyoto, Japan which entered into force in 1974. Subsequently, the rise in international trade called for an amendment to the 1973 convention which was adopted at the WCO Council’s 94th Session in June 1999 and finally entered into force on February 3, 2006.

The contracting parties (member countries) agreed to the following key principles:

1. Transparency and Predictability of Customs actions;

2. Standardization of Customs actions;

3. Simplified procedures for Authorized persons;

4. Maximum use of Information Technology and obtain pre-arrival information;

5. Minimum necessary Customs control to ensure compliance with regulations;

6. Use of Risk management and Audit based controls;

7. Coordinated interventions with other border agencies;

8. Partnership with trade.

4. Trade Facilitation Measures made available by Indian Customs/DGFT

1. Simplification of rules and procedures by marking them user‐friendly by simplifying the procedures.

2. ICES, launched in 1995, automated the workflow process related to clearance of import and export consignments and presently handles 98 percent of India’s international trade.

3. ICEGATE- An electronic commerce portal offers a host of services to trade including electronic filing of the import and export documents and related electronic communication between Customs and the trade.

4. In order to further expedite the process of assessment, self‐assessment under S. 17 of the Customs Act was introduced.

5. CBIC has implemented 24×7 clearance facilities.

6. Accredited Client Programme (ACP) & Authorized Economic Operator (AEO) programme: An entity with an AEO/ACP status is considered a ‘secure’ trader and a reliable trading partner. Any economic operator such as importer, exporter, logistics provider, Customs House Agent can apply for authorization. The benefits may also include simplified Customs procedure, declarations, etc. besides faster Customs clearance of consignments of/for AEO status holders.

7. Advance Ruling Mechanism is an important trade facilitation measure that enables businesses to know in advance with certainty the customs duty liability on proposed imports and exports.

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Customs & Foreign Trade Policy – Recent Developments

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