Ajay Srivastava Additional DGFT Suggests 10 Customs Reforms in Business Line Article, Direct Port Delivery and Direct Port Entry Suggested

·         Total Reform of Coding, Classification and Description System Suggested

·         Simple Language to be used in Notifications

Expressing customs rules and codes in simple prose will go a long way in making foreign trade transactions less cumbersome

Here are 10 suggestions to improve Customs’ functioning. Implementing these will have a significant impact. After all, every year, merchandise of value $840 billion (2018 figure) equal to about 30 per cent of the GDP passes through Indian Customs before it could be exported or imported.

The first four suggestions relate to improving information flow. The remaining six are about making Customs processes more efficient. Here we go:

Simplifying the language

One — Use simple language in Notifications — Notifying import duty is a crucial task of Customs. Yet, finding correct Customs duty for a product is a pain. You need an expert to wade through the maze of hundreds of Customs notifications issued every year. The notifications are not self-contained and amend part of an earlier notification issued years ago. An example:

Notification No. 07/2019 published on March 15, 2019. “the Central Government, .. makes the following further amendments in the notification of the .. No.152/2009-Customs, dated the December 31, 2009, .. namely: In the said notification, in the TABLE, against serial number 384, for the entry in column (2), the entry, “480920, 480990”, shall be substituted”.

The above notification simply could have said that duty on the photocopier paper etc. would be 10.94 per cent. But it neither mentions product name nor the duty rate. Ninety per cent of notifications suffer from this malaise.

Further, many exemption notifications do not mention precise HS (harmonized Structure) codes. This makes expert intervention necessary in deciding the import duty. Customs duty calculator is of little help.

The way out is to rescind the old notification while issuing a new notification. Or publish an updated version. Make new notification self-contained. Each notification should list effects of the notification, a practice followed by the DGFT. Also, create a searchable database of all notifications with a free text search. All duties on all products with every condition should be available on a single excel sheet. Such simple changes will eliminate plenty of go-betweens.

Standard codes

Two — Use standard codes for the Duty Drawback scheme — the government has adopted the eight-digit ITC (HS) Codes for exports-imports. But, the drawback scheme, the largest indirect tax refund scheme, uses only the first four digits of the ITC (HS) Codes. For the next digits, it uses its own product codes and description. This forces exporters to use two different codes for the same product and creates confusion.

Three — Demystify products identified as ‘Others’ — a Mobile phone is India’s top electronic import item. Yet, it is covered under the description ‘Others’ in ITC(HS) schedule. The schedule covers over 2,300 entries that together cover over 25 per cent of India’s imports as ‘Others.’ Customs must identify major items traded under the ‘Others’ categories. This will give a clear picture of the trade profile and check any misuse.

Four — Make past Tribunal decisions available online — Importers and exporters can appeal to the tribunals against the decisions of the Customs on issues like valuation, classification or penalties. Though tribunal orders are the public documents, these are not available in an online searchable database. Availability of earlier decisions through a searchable database would allow trade to get transparent and uniform understanding of precedence and help them in making informed decisions. Further, it would also potentially ensure that tribunals themselves adhere to existing precedence to a greater degree and thereby reduce the time for decision making.

FiveMinimise customs processing at the port — All consignments which are given the green signal by Customs Risk Management System (RMS) should be allowed Direct Port Delivery or DPD facility if customs duty is paid within 24 hours of container arriving in the terminal. Today less than 50 per cent of containers use DPD facility. This means extra cost of shifting and housing of container at the Container Freight Stations (CFS).

Six — Allow Direct Port Entry (DPE) to all consignments — All firms with self-sealing permission by Customs are currently allowed DPE facility. For the remaining firms, Customs could consider developing on-site inspection and e-sealing facilities in all major ICDs, transport clusters and ‘transport nagars.’ The GST officials could support the on-site sealing exercise. RFID seal is tamper proof and no further Customs checking at the port would be needed. When goods arrive at a port, customs officers would already have the required information and the Let Export Order (LEO) can be generated online. This action will bring down customs processing time at a port to near zero levels.

Seven — Make RMS effective — Customs uses a sophisticated Risk Management System or RMS. But many times, Customs officers have reasons to reject RMS recommendations and go for inspection of the goods. The basis of decision making must be entered into the system, and available under RTI with adequate anonymisation of individual shipments and their consignees, along with figures indicating to what extent in percentage terms the over-ride led to an actual finding of non-compliance. Customs may use this data for developing analytics tools that will further reduce RMS over-ride by establishing guidelines for officers for making such decisions.

Eight — Make inspections transparent — All physical inspection must happen under CCTV recording in designated inspection zones. And the record must be retained for adequate time and be made accessible to the consignee/consignor and their agent. All terminal operators/ICDs/CFS must be mandated to develop facilities sufficient to support this.

Nine — Seek information, not documents — Custom's eSanchit system allows traders to upload scanned copies of documents. But a large number of uploads make the system slow. Also, information contained in the documents cannot be used by the system. Replace upload of documents with a digital entry of the required information. This will allow RMS based processing. Scanned copies of the documents can only be asked when RMS recommends. This step will also facilitate more straightforward implementation of AI-based automated processing.

Ten — Improve valuation — Cases of under-invoicing of consumer and intermediate goods, especially those imported from Middle-East, East and South-East Asia is a concern. Setting a reference price for a festival and similar imports may be a good starting point.

Finally — the above suggested changes can be implemented with minimal investments. The resulting enhanced transparency would reduce cost and time of doing business and improve India’s export performance. Possibly, the Customs reform agenda for the new government.