32 International Trade: Import Procedure in India

Shafali Nagpal

 

Learning Outcome:

 

After completing this module the students will be able to:

  • Meaning of Import
  • Types of Import and Importer
  • Import and International Trade
  • Import Procedure
  • Import Duties
  • Bills of Entry, Bills of Sight

 

 

Introduction 

 

Import is the transactions of goods and services into the jurisdiction of the import country from another country. Import country is the one which purchases goods and services. The purchaser (person, organization, agency etc) is called as Importer. Export country is country from where the goods and services are purchased. The seller (person, organization, agency etc) is called as exporter.

 

Import and export are financial transactions which are critical for any economy. Import and export are part of international trade and contribute in GDP of a nation.

 

Types of Import:- 

 

According to Central Board of Excise and Custom, Ministry of finance, India The import is of four types depending upon the types of goods:

  1. Freely importable: these are the goods which can freely imported without any requirement of license.
  2. Canalised Imports: these are the import of the goods which can be imported only through government specified channels and agencies
  3. Licensed  Imports:  these  are  the  goods  as  the  name  suggests  which  are restricted and requires license for purchase.
  4. Prohibited Import: these are those types of goods which cannot be imported.

 

Why Countries Import 

  1. Those goods and services are not produced in their own country. E.g petroleum, Oil, agricultural products.
  2. The variety of goods and services cannot be produced by one country and its people to meet the requirement. Eg many agricultural products due to variation in climate cannot be produced.
  3. It is costly to produce in own country as compared to import of such products.
  4. The quality of the product is low as compared to the imported product. E.g Technology based products with latest innovations.
  5. The production is less as compared to the demand of the product.
  6. Due to the limited resources, no country can calim to be self reliant in present time. It is not only import but technical advancement also achieved by the country to get maximum benefits.
  7. Import support in improving the standard of living of the people of a country by making the goods produced in every country of the world available.
  8. Import of latest technology helps in increasing production in all part of economy. Import is helpfull to achieve the goal of producing the product at minimum cost. Import helps in diversitying and expanding production capacity also.

 

Import and International Trade 

 

While calculating the Gross Domestic Product, the difference of export and imports is taken into consideration. (Ex-Im). When Exports are more than imports, the GDP is higher. When it is reverse, it is negative. Every nations want exports to be higher than imports to have higher GDP.

 

Main goods of import during 2015

Main  goods  Imported  in  India  during 2015 Percentage share (%)
crude oil imports, with petroleum crude 34
gold and silver 12
Machinery 10
Electric goods 7
Pearls, precious & semi precious gems 5

 

Major trading countries for import during 2015:

Main Import partners of India Percentage share
China 10.7
United Arab Emirates 8
Saudi Arabia 7
Switzerland 7
United States 5

*Source: http://www.tradingeconomics.com/india/imports

 

There are two basic types of goods that are imported:

  1. Industrial and consumer goods
  2. Intermediate goods and services

 

There are three broad types of importers:

  1. Looking for any product around the world to import and sell.
  2. Looking for foreign sourcing to get their products at the cheapest price.
  3. Using foreign sourcing as part of their global supply chain.

 

Import Procedure: 

 

Import is the trade of goods from the foreign country. The government defines its import policy to maintain balance of trade and increase GDP of the country and keep control on imports through tariff barriers, statutory requirements, custom duties and policies.

 

The steps taken in import procedure are as follows:

 

(i)  Trade Enquiry: 

This is the first stage of any transaction, similarly while importing goods from foreign country, it is essential to make trade enquiries, to avoid complications at later stages. It is the written request by the importer from the intending buyer or its agent regarding goods, specifications, price, quality, time of delivery, quantity required, weight, number and similar items and terms and conditions like mode of payment, currency, method of delivery, packing and related terms and conditions of import. The exporter supply the quotations referring the details asked by importer and other terms and conditions.

 

(ii)  Procurement of Import Licence and Quota: 

The import trade in India is controlled under the Imports and Exports (Control) Act, 1947. There are regulations to be followed for import in any country. In India, obtaining prior approval for import is compulsory. Importer has to obtain import certificate and import quota certificate. The govenmnet list the items and the quantity to be imported

 

There are two types of licence:

 

a. General licence – which allows import from any country

b. Specific licence – which allows import from specific countries.

 

There are three types of importers for granting of import licence:

 

a. Established importer,

b. Actual users, and

c. Registered exporters, i.e., those import under any of the export promotion schemes.

 

The application by the intender on required format for licence has to be obtained from the controller of Imports. The documents required with the application are :

  1. Receipt of licence fee paid.
  2. Certificate from Chartered Accountant of total value of goods to be imported.
  3. Verification certificate from income tax.

 

(iii)  Obtaining Foreign Exchange: 

After the approval from the government and obtaining licence, importer has make necessary arrangements of the foreign exchange. Depending on the terms and conditions of import, If the payment has to be made in foreign currency of the exporter, then importer has to apply to the exchange bank for the foreign currency. In India, reserve bank is the central bank for issuing foreign currency. Importer has to submit an application in the prescribed form along- with the import licence to any exchange bank as per the provisions of Exchange Control Act. The exchange bank then endorses the application after verification to be approved by the RBI. The RBI then sanctions the amount of the payment to be released for specific transaction.

 

(iv)  Placing the Indent or Order:

The importer after obtaining the licence, quota and foreign exchange, places an order. This order is called as indent. The indent are of three types:

 

a. Open indent: In open Indent, the necessary specifications of goods like price, etc. are not mentioned in the indent, the exporter has the discretion to complete the formalities, at his own end.

b. Closed Indent:  on the other hand, in closed indent, all the specifications like, quantity & quality of goods, price, time of delivery etc are clearly mentioned.

c. Confirmatory Indent: A confirmatory indent is one where an order is placed subject to the confirmation by the importer’s agent.

 

(v)  Dispatching a Letter of Credit (L.C):

After the order is placed, the supplier sends the confirmation letter to the importer. The importer then request its bank to issue a letter of credit.

 

A letter if credit is a certificate by the importer’s bank stating that the payment will be made to the exporter on production of bill.

 

In international trade, both importer and exporter are not known to each other. The importer and exporter appoint the banks in their country to enquire about the credibility of each other. Importer wants to be sure of supply of goods and exporter wants surety of the payment. Thus the banks act as intermediary and assure the transaction by playing a key role in international trade.   Letter of credit is the important document which ensures the payment to exporter.

 

vi.  Appointing Clearing and forwarding agent:

The clearance is specialized job for which importer usually appoints the clearing and forwarding agents. The custom clearance is legal process which takes time, expenses and efforts at all steps. If the importer wishes , he can appoint clearing and forwarding agents for custom clearances.

 

vii.  Obtaining Necessary Documents:

After receipt of Letter of credit, the exporter fulfills the order and arranges for the shipment of goods and sends Advice Note to the importer immediately after the shipment of goods. Advise note is the document which contains the information about the shipment of goods, the date of dispatch and it also indicate the expected date of receipt of shipment by the importer.

 

The exporter send Documentary bills. Documentary bill contain all documents like the invoice of goods, Bill of landing, invoice, certificate of origin, consumer invoice, insurance policy, Bill of exchange. This Documentary bill is provided to importer’s bank having its branch in the foreign country by the exporter for collecting payment of the bill.

 

The documentary Bill are of two types:

 

a. Documents against payment: Full payment of the bill is made after submission documents of title of goods by the exporter to importer bank. The grace period of 24 hours is permitted.

b. Documentary Bills against acceptance: The payment is made to the exporter only after the acceptance from the importer. Documents are retained by the importer’s bank till date of maturity. A period of 30 -90 days is permitted.

 

viii. Customs Formalities and Clearing of Goods:

After obtaining documents of title of goods, the importer collects his shipment from the port. The importer has two choices:

 

a. Immediate Clearance:

b. To store under bond and clear later

 

The following procedure is followed for collection of shipment at port:

 

(a) To obtain endorsement for delivery or delivery order:

On arrival of the shipment, importer receives endorsement bill from the shipping company. This endorsement bill entitles the importer to take the delievery of goods. Shipping company endorses the bill only after receipt of freight of goods.

 

depending upon the terms and conditions agreed between importer and exporter, freight charges are paid to the shipping company by the importer or by the exporter. If the freight charges are paid by the exporter, then importer receive endorsement bill. If freight charges are to be paid by the importer, then endorsement bill is given on clearance of freight charges by him.

 

(b) Obtaining Port Trust Dues Receipt:

Importer after receiving delivery order has to obtain Port Trust Dues receipt. This receipt is issued by the Land and Shipping Dues office. This office charges for the services of Dock used by the importer. Importer fill two copies of Application to Import form in this office and after payment of the dock charges, receives the Port Trust Dues Receipt.

 

(c) Bill of Entry:

Bill of Entry is the most important document for import custom clearance. Under section 46, bill of entry is to be submitted by the importer for custom clearance. Bill of entry is the document which certifies the value of the goods entering into the country. This is a form supplied by the custom office and is to be filled in triplicate. This form contains all details regarding the name and address of the importer, packages number, marks, quantity, value, description of goods, the name of the ship, the name of the country where from goods have been imported and custom duty payable. It is to be filed within 30 days of arrival of goods at custom location. Under electronic data interchange (EDI), no formal bill of entry has to be submitted, it is recorded electronically. The importer is required to file the cargo declaration for processing of clearance.

 

Bill of entry is of three types:

 

a. Bill of entry for home consumption: This is White colour form, used when goods imported are to be cleared on payment of full duty. It is commonly called as White Bill of entry. The goods imported are for use in India.

 

b. Bill of entry for housing: This is yellow form so called as yellow bill of entry. Goods are kept in warehouse without payment of duty under a bond and can be taken from there when required after clearing the custom duty. This allows adjournment of payment of the custom duty till requirement of goods. It is also called as Into bond bill of entry.

 

c. Bill of entry for Ex-Bond Clearance: it is green paper form. This is used ofr clearance from warehouse after certain period after payment of duty.

 

(d) Bill of Sight:

 

When importer does not have suffiecint information rearding the goods imported due to lack of documents or information received from the exporter, then he can submit the bill of sight. Billof sight contains the inform ation possed by the importer with the remark that he is not in the position to provide the complete details of the goods. Importer is allowed to open the package in presence of custom officer so that he can fill the bill of entry form with required information.

 

ix. To pay Customs or Import Duty:

There are three types of imported goods:

(i)  Non dutiable or free goods,

(ii) Goods which are to be sold within the country or which are for home consumption, and

(iii) Re-exportable goods i.e. goods meant for re-export. If the goods are duty free, no import duty is to be paid at the custom office.

 

Custom authorities will permit the delivery of such goods after usual examination of the goods. But if the goods are liable for duty, the importer has to pay custom or import duty which may be based on weight or measurement of goods, called Specific Duty or on the value of imported goods Ad-valorem Ditty.

 

x. Payment to clearing and forwarding Agents:

Importer has to fulfill lot of formalities which are time consuming. To save his time, importer appoint clearing agents. These agents charge remuneration for this. When all formalities are done and after custom clearance, importer make payment to his agent.

 

xi. Closing the Transactions:

The last step of the trade is closing the transaction. After the importer is satisfied with the transaction, it is closed. But if there is any shortfall and importer is not satisfied with the quantity, quality, etc, then he will write to the exporter and settle the matter. In case of damage to the goods during the transit, importer can claim compensation form the insurance company.

 

TYPES OF IMPORT DUTIES*

 

A. Basic Custom Duty: It is the standard rates and standard preferential rates of custom duties imposed on the goods imported from specific countries.

 

B. Additional Custom Duty: It is also called as counter Vailing Duty or C.V.D. It is levied on the imported goods which are being produced in India. It is payable only if the imported article is such as, if produced in India, its process of production would amount to ‘manufacture’ as per the definition in Central Excise Act,1944.

 

C. Anti Dumping Duty: anti dumping duty is levied to protect the domestic business. It is imposed on the goods which are purchased below the market price. If government thinks so, it may levy anti dumping duty on such goods. But 100%EOU, SEZ, FTZ units are exempted from it. The duty cannot exceed the difference between market price and price i.e margin of dumping. The importer in this case is notifed for the period ogf 5 years extended upto 10 years.

 

D. Protective Duty: It is the duty levied to protect the domestic market from imports. The government decides the period, types of goods on which it is to be levied on recommendation of tariff commission.

 

E. Safeguard Duty: It is the duty imposed on goods to protect the domestic markets from exports of products. Due to the heavy exports, if domestic market suffers, then government may impose this duty for four years or may extended for 10 years.

 

F. Education Cess: In addition to custom duty, education cess of 2% and Higher Education Cess of 1% of aggregate custom duties is levied. It is being charged to fund health and education initiatives.

 

* Source: http://www.india-briefing.com/news/import-policy-procedures-duties-8728.html/

 

Summary:

 

Import is critical component if International trade and affect the GDP of an economy. The various types of goods can be imported from foreign countries by following the procedure laid down by the government of any country. In India it is governed by the Import and Export (control) Act 1947. Obtaining Import License is an mandatory condition for import and the importer required various types of documents like letter of credit, bills of exchange,custom clearance and has to pay various types of import duties such as Basic  Custom  Duty, Protected duties, Additional duties before closing of specific Import transaction.

 

Suggested Readings

 

Books

  1. Cateora Philip R (1997), International Marketing, 9th Edition, Irwin/McGraw
    HIU
  2. Terpestra, Vern (1972) International Marketing, Halt, Reinhart and Winsten Inc.
  3. Sundaram, Anant K. and J. Stewart Black (2000) The International Business Environment: Text and Cases, Prentice Hall of India Pvt. Ltd., New Delhi.
  4. Cherunilam Francis (2004) International Business: Text and Cases, Prentice Hall of India Pvt. Ltd., New Delhi
  5. Charles W. Hill, “International Business – competing in the Global marketplace”, Tata McGraw Hill Publishing Co. Ltd., New Delhi.

 

Website

  • www.tradingeconomics.com/india/imports
  • www.india-briefing.com/news/import-policy-procedures-duties-