25-01-2024

GTRI brief

The Central Board of Indirect Taxes and Customs (CBIC) needs to simplify language and enhance transparency of its notifications.

Knowing import duties on a product should not require expert help.

This will help over a lakh firms importing merchandise of exceeding US$660 billion in year 2023 and will be a major ease of doing business initiative with zero cost to Government and immense benefit of clarity to Indian industry.

For this the CBIC must use services of communication experts for help in drafting easy to understand notifications containing necessary details.

Notifying import duties is a critical mandate of CBIC. Firms pay import duties as notified by CBIC, but firms cannot do it on their own as the CBIC notifications use complex language and mostly refer to back notifications unintentionally hiding complete details needed to know the duty or import conditions on a product.

Complex notifications and duty calculations

Import duties in India vary significantly, ranging from 0 to 150%. These duties include components like basic customs duty, Social Welfare Cess, Agriculture Infrastructure Development Cess (AIDC), and IGST. For example, a company importing tennis shoes would pay 35% basic customs duty, 3.5% Social Welfare Cess, 0% AIDC, and 18% IGST. However, the total duty isn't a simple sum of these percentages but is calculated using a specific formula, resulting in a total duty of 63.43%. It is impossible for a layman to find out individual duty components for a product and calculate total duty payable.

This complexity poses a challenge, especially for small firms, in determining the correct customs duty for their products. They have to seek expert help to understand and comply with the various duties, as information is spread across numerous notifications each year.

3-Two examples of complex nature of CBIC notifications:

Here are two examples illustrating the complexity of CBIC notifications, along with suggestions for simplification:

I- Notification for Precious Metals:

CBIC issued the notification No. 05/2024 on January 22, 2024, to update an older notification (No. 11/2021 from February 1, 2021). However, the references mentioned were not available in the older notification, but in another one, No. 03/2023-Customs, dated February 1, 2023. One needed to look at least 11 notifications that amended the oldest notification. This roundabout reference makes understanding the update challenging. Use of complex sentences make them further difficult to understand.

The notification could have simply stated that the government has imposed an Agriculture Infrastructure Development Cess (AIDC) of 5% on gold or silver findings, avoiding the need for cross-referencing multiple documents. And this is one small part of imprt duties, finding total duty on this product may take many more hours of work.

II-Basic Duty Notification for Photocopiers:

In notification No. 07/2019, dated March 15, 2019, the CBIC refers to an older notification (No. 152/2009-Customs, dated December 31, 2009). The notification amends a table entry but does not directly mention the product or the new duty rate.

The notification could have been more direct by stating that the basic duty on photocopier paper and related products would be 10.94%. This would eliminate the need to decipher the product and rate from complex table amendments.

4-Suggestions for improvement

To enhance clarity and accessibility, CBIC should hire services of communication experts for help in drafting easy to understand notifications containing necessary details. The key task before CBIC are:

· Simplify Language: Use straightforward, non-technical language to make notifications easily understandable and standalone, eliminating the need for cross-referencing.

· Specificity in Product and Duty Descriptions: Clearly state relevant products along with their 8-digit tariff codes and corresponding duties in each notification to avoid confusion.

· Consolidation of Information: Compile all duty-related information under various conditions into a single, easily accessible Excel sheet or webpage for efficient reference.

· With India implementing FTAs, CBIC must also notify country wise import duties in easy accessible manner.

· Self-Contained Notifications: Adopt a comprehensive approach like the Directorate General of Foreign Trade (DGFT) to ensure each notification is complete in itself.

Implementing these suggestions would significantly elevate the effectiveness of CBIC notifications. Clear, direct, and comprehensive communication is key to ensuring compliance and ease of interpretation. Such an approach not only aligns with CBIC’s objectives but also fosters greater transparency and understanding within the trade community.

Annex-Details relating to example I

CBIC has issued a notification, number 05/2024, dated January 22, 2024. The operative part of the notification reads”.. the Central Government, makes the following further amendments in the notification No. 11/2021 – Customs, dated the 1st February, 2021..namely:

In the said notification, in the Table, after Sl. No. 15D and the entries relating thereto, the following Sl. Nos. and entries shall be inserted, namely: -

15E. 7112 Spent catalyst or ash containing precious metals-4.35%

15F. 7113 Gold or silver findings.. -5%

15G. 7118 Coins of precious metals 5%”.

Thus the above notification informs us to refer to a back notification No. 11/2021 which has been modified by adding above entries after Sl. No. 15D of the notification No. 11/2021. When we referred to the concerned back notification No. 11/2021, we found that it was related to Agriculture Infrastructure and Development Cess but it contained no reference to entrees like Sl. No. 15D as mentioned in the new notification.

Our search indicated that notification No. 11/2021 since issuance on 1st February, 2021, has been amended at least 11 times. We had no way but to study all notifications to find out which notification contained 15D. Finall we found out that notification 03/2023-Customs dated 01-02-2023 added S No 15B,C and D.