FEBRUARY 12, 2020

By S Murugappan, Advocate

THE entire community involved in import and export trade and the manufacturing industries have been put in a state of shock and on tenterhooks by the Ministry of Commerce and Industry recently with the issue of a Trade Notice No. 46/2019-20 dated 17.1.2020 regarding imports and exports under 'others' category. The notice alleges that importers and exporters have been casually mentioning the Harmonised System (HS) code for their products in the relevant import/export documents as 'others' thus hampering collection of trade statistics. It further states that such descriptions are loose and inaccurate. It goes on to add that if such declarations/mis-classifications continue, the government will be forced to move all such 'others' category products from 'free' to 'restricted' category and bring in a 'licensing regime'. This was reiterated further in public by the Commerce Minister himself. This will mean that for all such items, described as 'others', import/export licences have to be obtained from the Ministry of Commerce.

As a matter of fact, the above notice is a sequel to the notice No. 37/2019 dated 22.10.2019. In terms of that notice the Ministry of Commerce advised members of trade and industry to be careful while mentioning HS codes in the import/export documents. It further warned that wilful mis declaration of HS codes will be duly dealt with under the Foreign Trade (Development and Regulation) Act.

For import/export statistics as well as for policy control, for several years now, Government of India has adopted the Harmonised System of Nomenclatures code, commonly referred to as HS code. This code was developed by the World Customs Organisation (WCO) and has been adopted by more than 200 countries right from 1988. This HS code is a multipurpose goods nomenclature made by the World Customs body to take care of import export tariffs, transport statistics, economic research and analysis etc. Basically it is a six digit code, first two digits referring to a chapter, next two digits referring to a product group and the last two digits referring to specific products at subdivision/subheading levels. Countries have been given options to have further subdivisions of these products by providing subheadings with addition of two or more digits. The Indian trade classification based on harmonised system contains eight digit level classification of goods modified to suit our country specific requirements which should be sufficient to capture trade data.

Significant and important products traded across the world are specifically captured at six digit level in the harmonised system. Flexibility has been provided to expand it to eight digits based on country specific requirements. There are thousands and thousands of products involved in cross border trade and it will not be feasible to specify each one of them by name. Thus the code contains for most of the product groups a residuary heading as 'others'.

As an example, one can refer to Chapter 90 which covers various instruments and medical equipment. The first two digits refer to the chapter and the product group, 'cinematographic cameras and projectors' is mentioned at subheading level 07. This four digit heading, namely 9007, is subdivided to cover 'cameras' under 900710 and 'projectors' under 900720. The product group 'projectors' is further subdivided at eight digit level in the Indian trade classification as 9007 2010 to cover 'projectors for films of width less than 16 mm' and as 9007 2090 to cover 'others'. As such, if a projector for films of a higher width is imported, necessarily it is to be classified as 'others' with code 9007 2090. But this does not mean that the product description in this case as 'others' is 'vague' or 'inaccurate'. To the contrary, it correctly reflects the nature and scope of the product. The authorities can still ascertain that the product imported is a 'projector' by checking the code adopted at six digit level. The harmonised system evolved by the World Customs body does not leave room for any 'loose' or 'casual' descriptions and consequently there should not be any difficulty in collecting trade data.

Thus the concerns expressed by the Ministry of Commerce appear to be unwarranted and misplaced. They appear not to appreciate the dynamics of the HS code and the subtleties involved in choosing an appropriate heading. In fact, the trade notice goes on to state that the importers, when they file bills of entry with customs authorities 'casually' mention the product heading as 'others'. For the purpose of charging import duty, customs authorities will insist for proper description and classification of the products under the HS code and any 'casual' approach in classification will land importers in trouble with demand notices and penal proceedings initiated by the Customs Department.

A cause for worry will be the warning let out in the trade notice to the effect that if the importers and exporters do not mend their approach, the 'others' category products will be moved to licensing regime. The notice states that all these will be shifted from 'freely importable' category to 'restricted' category. India is a signatory to the WTO agreements and in terms of the 1994 General agreement on tariffs and trade, referred to as GATT agreement, there cannot be non-tariff trade barriers or any quantitative restrictions on cross-border trade in general. Article XI of the above agreement specifically prohibits imposition of restrictions and of licensing requirements except in situations like prohibition of exports to meet domestic critical shortages, measures to enforce international standards, non-pollution requirements, national security etc. Thus, there cannot be a prohibition or restriction because a product falls under 'others' category for the purpose of classification. Even otherwise, such a step will mean that a clearly laid out policy is being sacrificed for the purpose of collecting statistics.

The GATT agreement provides that countries can resort to other methods such as levy of anti-dumping duties only in cases where they are able to establish that the suppliers are dumping the products into other countries below the cost of manufacture so as to cause injury to the domestic industries in the importing countries. The Ministry's advice to trading public that for import/export of goods under 'others' category, they should approach the Ministry and get clarifications and if necessary import/export licences, therefore, will not be in conformity with the terms of WTO agreements to which India is a signatory.

There is a suggestion in the Trade Notice dated 17.1.2020 that "If members of Trade and Industry are of the view that that existing HS codes are not sufficient to cover the goods that they are importing, they should immediately suggest appropriate HS codes at 8 digit level for such goods". This has been followed up with another Trade Notice No.47/2019-20 dated 29.1.2020 inviting them to submit data in this connection online by 16th February 2020. The efficacy of such representations and data is doubtful. For example Chapter 29 of the HS code covers "organic chemicals" and there are hundreds and hundreds of such chemicals, if one goes by their names. If all these are to be individually described then that exercise will result in chaos and distortion of the existing structure. The result will be that it will open up a Pandora's Box with different persons suggesting different codes of their choice effectively diluting the HS code and eliminating its universal authenticity. It also will result in mismatch with the present HS code adopted in Customs Tariff. In any case, all such measures can only add to additional documentation and can bring in delays with all their attendant consequences impacting on production, availability of imported goods and timely exports and effectively bring back the licensing raj.

[The views expressed are strictly personal.]