News Update

Over 5000 cases disposed of since partial lifting of lockdown: ITATGovt extends validity of ceiling prices of Knee Implants till Sept, 2021ESIC invites submission of claims for unemployment benefitImport Policy amended for random sampling of LED productsAll Opposition parties minus Congress protest against GST Compensation issueGST Compensation Row Should Aid Enactment of Govt Debt LawHarsimrat Kaur protests against farm bills; puts in papersAnti-Profiteering under GST - An analysis of the nature and structure of NAACus - Non-implementation of appellate order strikes at the very root of administrative discipline - result will be undue harassment to assessees and chaos in administration of tax laws: HCCus - Even if any prayer is made, that cannot be a ground to compel the owner from accepting provisional release of goods with conditions despite there being an appellate order in his favour: HCCX - Principal manufacturer is not liable to pay duty on waste & scrap generated by job worker in course of processing of goods sent by the former: CESTATCX - Refunds processed under Notfn 32/99 are also covered u/s 11B of CEA & upon attaining finality, parallel proceedings for recovery of alleged erroneous refund u/s 11A are not maintainable: CESTATST - Appellants have rightly discharged service tax as recipient of service in terms of 2nd proviso to Rule 7 of the Point of Taxation Rules - Condition No. 3(f)(ii) of 40/2012-ST cannot be misconstrued to deny refund: CESTATST - Refund - Rule 5 of CCR - While arriving at the value of total turnover, there is no requirement to include the amount of export invoices for which payment has not been received: CESTATRegistration u/s 12AA cannot be denied to a trust even if its charitable activities have not yet commenced: ITATCIT(A) is obligated to decide an appeal on merits & cannot dismiss appeal for non-prosecution: ITATIf an amount is offered to tax as income in suceeding AY, additions need not be framed in respect of such income, during the current AY: ITATFraming of any additions to assessee's income is per se insufficient grounds to impose penalty, where no concealment of income or funishing of inaccurate particulars is attributable: ITATAdditions framed for unexplained cash credits are sustainable if assessee gave no justification for shares being subscribed at high premium, despite having a very nominal income: ITATCBIC notifies Customs exchange rates for export & import purposesCOVID-19: Global tally goes past 3 Crore with 9.47 lakh deaths, including over 2 lakhs in USA; 1.35 lakh in Brazil & 84K in IndiaIncome Tax raids hotelier at many places in Jammu & KashmirGovt re-activates micro-industrialization process in Rural IndiaGST - Breezily e-invoicing amidst COVID-19 - Voicing concerns crawling lately!Provisional release of seized goods - A comparison under CGST Act, 2017 & CA, 1962 (See 'The Insight' in Taxongo.com)No single transfer policy for all govt employees: MoSCriminal Law Reform Committee collecting suggestions from all quartersNCAP to achieve about 30% dip in Particulate Matter Concentrations by 2024Special Pax Trains score 82% average occupancy: GoyalRights of power consumer - Govt invites inputs to Draft RulesAmerica goes Japanese way; likely to offer tax breaks and subsidies to companies for shifting factories from ChinaLaw on extension of Compensation Cess and other ground realities
 
Uncertainty brings a window of opportunities

AUGUST 07 , 2020

By Amit Sarker and Samarth Bhargava

MULTIPLE phases of lockdown on account of COVID-19 has disrupted businesses on many perspectives - undefined demand cycle, unpredictable cash flows /working capital, erratic supply chain, to name a few. The uneven recovery rate of international markets has also added to the existing equation of uncertainty for the importer-exporter fraternity in India.

To address such challenges, business and sourcing teams have been collaborating to re-look at existing practices both from financial and efficiency perspectives. These testing times present a chance to the teams to re-evaluate the existing processes adopted and their associated costs. For businesses engaged in cross country trade, these could include, analysing various sources for imports and exports to gauge possible benefits, reviewing the current Customs duty rate structure on imports, possible approaches for optimising Customs duty payment, export-import process improvements, etc.

Against this backdrop, it would also be relevant to introspect on a few options which the sourcing and business teams can analyse with the aim to economise international transaction costs and thereby help mitigate some of the disruptions created on account of the uncertainties.

Re-assessing existing HSN classification adopted for imported goods incl. inputs, parts, accessories, etc.

A Harmonised System of Nomenclature (HSN) code adopted for an imported item is of utmost importance under indirect tax law. The emphasis on HSN code for goods gets amplified for industries who consume a variety of parts/accessories/spares in their operating cycle to manufacture/assemble the final product.

Indian Customs provisions provide some notable guidelines which require careful interpretation while classifying an imported good. As an illustration, there is a plethora of classification litigation observed in respect of imported items used in assembling final products in India. These items are typically classified under the same HSN heading under which the final product is being classified. This norm, though simplistic and practical, should be implemented prudently, as there are identifiable exceptions under the Indian Customs Tariff Act, 1975.

The sourcing team can perform a high-level re-assessment of the methodology adopted for classifying their imported goods, especially components consumed for making final product. Such activity may also result in opening up of a window for optimising duty cost associated with such items by unearthing applicability of Customs duty exemptions, which otherwise were not available on account of inconsistent classification methodology adopted.

In-bond manufacturing

'Demand' is an important factor for any business to plan its activities and preparing necessary forecasts. And with COVID-19's phase in FY 2020-21, this factor has become unpredictable for many sectors across industries. Manufacturing sector, having multiple impact areas, faces a higher brunt compared to other sectors.

Despite such limitations, a business can explore an opportunity of deferring or for complete remission of Customs duties payable on imported goods till point of clearance of manufactured goods, by evaluating ‘In-bond manufacturing' scheme recently introduced by the Indian Customs.

Industries having higher conversion cycle of imported raw material, fluctuating demand of manufactured product coupled with higher proportion of imported raw materials, could see a positive impact on their working capital cycle under the In-bond manufacturing scheme. Industries having substantial exports could also enjoy a complete remission of Customs duties on imported goods used in manufacturing the exported goods.

With the exercise of this scheme, a business can unlock its working capital, by deferring/remitting Customs duties on imported goods until removal of manufactured items from the bonded premises in India, which otherwise was blocked in upfront Customs duties payment or under drawback process.

FTAs' and PTAs'- an opportunity yet to be explored

Free Trade Agreements (FTAs) or Preferential Trade Agreements (PTA) are mutual agreements entered between two or more countries under which each country exchanges mutual treatment to imports originating from the other contracting country. The mutual treatment involves staged reduction of Customs duty payable on imports originating from a contracting country, subject to prescribed conditions.

In these demanding times where both cost and cash flow optimisation are stressed, exploring applicability of FTA/PTA for imported goods is called for as it helps in achieving both the above objectives by reducing Customs duty payable.

Further, given that the international supply chain had been under a complete halt, on account of COVID-19 and globally teams are back to the drawing board for arranging their respective supplies, sourcing teams can deliberate on alternate procurement channels considering the impact of an FTA/PTA on the overall cost of procurements for a respective channel.

Also, arranging for an FTA/PTA mapping on the existing procurement structure by the sourcing team can help the organisation to capitalise on such unexplored opportunities and achieve the twin targets of optimising the cash outflow and reducing the overall Customs duty cost.

Authorised Economic Operator (AEO)

Business processes have to be continuously modified to adapt to situations including disruptions caused by pandemics such as the COVID-19. Owing to the current economic phase, business teams have an opportunity to re-calibrate their existing business processes to make them more agile, secure, and contemporary. These process changes impact an organisation not only by increasing the productivity of business but also align them with global standards.

In addition to above, Indian Customs also extends certain benefits to organisations, vide Authorised Economic Operator (AEO) programme notified under Indian Customs law, aligned to secured international standards predominantly in the context of export-import transactions.

AEO certification provides array of monetary and non-monetary benefits. Few standing benefits are a 15-day Customs duty deferment, facility of Direct Port Delivery (DPD), self-sealing for exports, waivers in presenting Customs bond, faster processing of refunds, advance authorisation on self-certified input-output details etc.

Business teams while evaluating their current international trade processes should gauge aptness of AEO in their operating cycle. A prospect of obtaining a 15-day duty deferment coupled with efficiencies in logistics related costs could help the business in a long way to maintain healthy working capital and regain the pre-COVID momentum faster.

Resuming business after such fluctuating operating cycles is surely gruelling and appropriate financial stimulus from respective governments and authorities is expected. However, from an international trade point of view, the above represents a snapshot of the existing measures which business and sourcing teams should consider by evaluating its pertinence in their businesses.

[Amit Sarker is Senior Director and Samarth Bhargava is Deputy Manager with Deloitte Haskins and Sells LLP. The views expressed are strictly personal.]

(DISCLAIMER : The views expressed are strictly of the author and Taxindiaonline.com doesn't necessarily subscribe to the same. Taxindiaonline.com Pvt. Ltd. is not responsible or liable for any loss or damage caused to anyone due to any interpretation, error, omission in the articles being hosted on the site)

POST YOUR COMMENTS