India is one of the popular options for importing goods into Britain. The British market believes that the costs of manufacturing being low in India compared to other areas of the world, businesses can benefit from lower costs compared to sourcing products closer to UK. Another factor is that in India, English is typically used as a business language, and the legal and administrative systems in India and UK are similar, which makes trading between the two countries relatively simple. This article attempts to give an introduction and basic guide on the laws and procedure to be mindful of while exporting from India to UK.
An export business requires a simple but specific process which must be followed at every step to ensure safe and legal export of goods. Based on government guidelines, the process for initiating an export business is as follows:
Step 1: Starting a Company and Having an Account - To start the export business, first a sole Proprietary concern/ Partnership firm/Company has to be set up as per procedure with an attractive name and logo. A current account with a Bank authorized to deal in Foreign Exchange should be opened.
Step 2: Obtaining Permanent Account Number - It is necessary for every exporter and importer to obtain a PAN from the Income Tax Department.
Step 3: Obtaining Importer-Exporter Code (IEC) Number - As per the Foreign Trade Policy, it is mandatory to obtain IEC for export/import from India. Para 2.05 of the FTP, 2015-20 lays down the procedure to be followed for obtaining an IEC, which is PAN based. An application for IEC is filed online at www.dgft.gov.in as per ANF 2A, online payment of application fee of Rs. 500/- through net Banking or credit/debit card is made along with requisite documents as mentioned in the application form.
Step 4: Registration cum membership certificate (RCMC) - For availing authorization to import/ export or any other benefit or concession under FTP 2015-20, as also to avail the services/ guidance, exporters are required to obtain RCMC granted by the concerned Export Promotion Councils/ FIEO/Commodity Boards/ Authorities.
After taking the above four steps, the product should be finalized which is to be exported to the UK (or any other country, this aspect of the process remains the same largely all over the world).
Step 5: Sampling and Pricing - Providing customized samples as per the demands of Foreign buyers help in getting export orders. As per FTP 2015-2020, exports of bonafide trade and technical samples of freely exportable items shall be allowed without any limit.
Product pricing is crucial in getting buyers’ attention and promoting sales in view of international competition. The price should be worked out taking into consideration all expenses from sampling to realization of export proceeds on the basis of terms of sale i.e. Free on Board (FOB), Cost, Insurance & Freight (CIF), Cost & Freight(C&F), etc. Goal of establishing export costing should be to sell maximum quantity at competitive price with maximum profit margin. Preparing an export costing sheet for every export product is advisable.
Step 6: Covering Risks - International trade involves payment risks due to buyer/ Country insolvency. These risks can be covered by an appropriate Policy from Export Credit Guarantee Corporation Ltd (ECGC). Where the buyer is placing order without making advance payment or opening letter of Credit, it is advisable to procure credit limit on the foreign buyer from ECGC to protect against risk of non-payment.
The above six steps are essential initial requirements to starting an export and must be followed in their entirety to ensure all licenses, permissions and securities are in place.
On receiving an export order, it should be examined carefully in respect of items, specification, payment conditions, packaging, delivery schedule, etc. and then the order should be confirmed. Accordingly, the exporter may enter into a formal contract with the overseas buyer.
Quality Check: It is important to be strict quality conscious about the export goods. Some products like food and agriculture, fishery, certain chemicals, etc. are subject to compulsory pre-shipment inspection. Foreign buyers may also lay down their own standards/specifications and insist upon inspection by their own nominated agencies. Maintaining high quality is necessary to sustain in export business.
Labeling, Packaging, Packing and Marking: The export goods should be labeled, packaged and packed strictly as per the buyer’s specific instructions, and following all norms of the country that the goods are being exported to. This also ensures that goods reach the destination in a good condition.
Customs Procedures: It is necessary to obtain PAN based Business Identification Number (BIN) from the Customs prior to filing of shipping bill for clearance of export good and open a current account in the designated bank for crediting of any drawback amount and the same has to be registered on the system.
In case of Non-EDI, the shipping bills or bills of export are required to be filled in the format as prescribed in the Shipping Bill and Bill of Export (Form) regulations, 1991. An exporter needs to apply different forms of shipping bill/ bill of export for export of duty free goods, export of dutiable goods and export under drawback etc.
Under EDI System, declarations in prescribed format are to be filed through the Service Centers of Customs. A checklist is generated for verification of data by the exporter/CHA. After verification, the data is submitted to the System by the Service Center operator and the System generates a Shipping Bill Number, which is endorsed on the printed checklist and returned to the exporter/CHA. In most of the cases, a Shipping Bill is processed by the system electronically.
Documentation: The 2015-2020 Policy describes the following mandatory documents for import and export:
· Bill of Lading/ Airway bill
· Commercial invoice cum packing list
· shipping bill/ bill of export/ bill of entry (for imports)
(Other documents like certificate of origin, inspection certificate etc may be required as per the case, further details of these are provided in Point 3.)
The quality of goods, proper packaging, following of customs procedure and having necessary documentation ensures a smooth export transaction.
Aside from the previously mentioned documentation, the following documents may have to be filed depending on the goods being exported:
• Customs entry
• Customs bond
• A Legal Undertaking if needed for obtaining advantages from the Indian government to trade particular items for adhering to government obligations and requirements.
• A customs clearance declarations from India according to the format specified by the government of the country.
• Export licence obtained from the Indian Government.
• Letter of Credit or Purchase order between the importer in UK and exporter from India.
• Packing list or Commercial Invoice issued by the seller of the goods.
• Certificate of Origin offered by an efficient authority from India.
• Insurance Certificate issued by an insurance provider authorized by the government.
• Some importers request exporters to investigate export products to India by a globally reputed inspection agency, which then provides a Certificates of Inspection
• Temporary shipment certificate, only in case necessary.
• The purchaser may demand the seller for enclosing a Certificate of Analysis. The document helps customs of India to verify the goods imported to UK.
• Certificate of Free Sale in the event that the products are not involved commercially, this document is attached along with the dispatched goods.
• Weight Certificate giving a weight declaration issued by the exporter is required at different conditions like claiming import/export benefits, calculation of export or import duty, international road safety rules, the stability of vessel/flight, and so on.
These documents should be in place to ensure that all requisites are complied with. Documentation is one of the most important parts of any commercial transaction, and should be followed to exact specifications.
After goods are packed for export, necessary export customs clearance documents required by Exporting country’s load port customs are prepared. Invoice cum Packing list and other required export documents for Exporting country’s customs are arranged before movement of export cargo to Customs port of the country. The export documents are filed with Exporting country customs electronically.
The cargo is moved from Exporter’s location to customs location where international carriers are also operated. The export cargo is unloaded at Exporting country’s customs bonded area under the control custodian of cargo. Once export process is completed by Exporting country’s customs for export, necessary permission is given by customs authorities to move the export cargo. Necessary export inspection procedures by Exporting country’s customs authorities are undertaken wherever required.
Some of the collections and customs duties, along with laws imposing restrictions that are in place in the United Kingdom are detailed as under:
Value Added Tax, or VAT, is applicable on goods imported into (and exported out of) the UK, and is governed by the Value Added Tax Act 1994 (an act of Parliament (Westminster), particularly Section 15 to Section 17 of this statute, which details the charge to the tax applicable in the case of ‘Imported Goods from Outside Member States’ (i.e., outside the EU).The VAT is charged as though it is a custom duty, and provisions in the Community Customs Code (from the European Economic Community), and the Customs and Excise Management Act 1979 apply whilst appropriating VAT in relation to imported goods.
Suspensions/Reductions for certain goods against Custom Duty and UK Trade Tariff
Under current EU legislation, some goods benefit from a temporary tariff suspension, which are designed to allow manufacturing industries amongst EU member states to compete on a level playing field with non-EU manufacturing industries. Thus, partial or complete suspensions are placed on goods, components, or raw material which is not available in a sufficient and sustainable quantity within the EU.
Direct bilateral arrangements between nations may also lead to the conception of other forms of reduced rates.
Excise duty, which is charged in addition to ‘Customs Duty’, are specific to certain products. The appropriate excise duty payable is assigned to individual items under Section 47 of the UK Trade Tariff, which details the “tax type codes” for each category of the aforementioned items.
Reliefs from Excise Duty
Items subject to excise duties may also be liable to reliefs from the same, however, these reliefs do not extend to include custom duties (such as VAT) to which these items may be liable. Such reliefs are applicable to select alcoholic liquors, spirits, and beers through various provisions under the Alcoholic Liquor Duties Act 1979, to tobacco products through Section 2(2) of the Tobacco Products Duty Act 1979, and to hydrocarbon oil via provisions under the Hydrocarbon Oil Duties Act 1979, respectively.
Import Prohibitions & Restrictions
According to the terms of the UK Trade Tariff, certain restrictions are placed on the import of certain goods. Examples of these restrictions include the following:
• Licensing Restrictions: Licensing restrictions have been placed in the UK under EU Law and have been integrated into the provisions of the UK Trade Tariff. Goods which are imported into the UK, are primarily done so under the power of an Open General Import License (OGIL), which is issued by the Secretary of State with the powers conferred upon him/her under the Import of Goods Control Order 1954, which is bound to the act of parliament, the Import, Export, and Customs Powers Defence Act of 1939. This is the primary licensing restriction in place in the UK. In addition, specific licenses are needed to be issued by the Department for Business Innovation and Skills (or a similar EU issuing authority) for the import of specific goods originating from specific countries,
• Restrictions & Prohibitions imposed by customs upon certain specific goods: Such restrictions are placed on goods such as, but not limited to, controlled drugs (under the Misuse of Drugs Act 1971), explosives, firearms, fireworks (under The Fireworks (Amendment) Regulations 2004), anti-personnel mines, indecent or obscene media, nuclear materials, offensive weapons, mammals which are susceptible to rabies, torture equipment, and realistic imitation firearms (under the Violent Crime Reduction Act 2006),
• Restrictions & Prohibitions imposed by customs on goods on countries outside the EU: Such restrictions are placed upon goods such as, but not limited to animals, birds, livestock, animal pathogens, animal carcasses (by way of the EU Veterinary Checks regime), bushmeat, cat & dog fur, Chlorofluorocarbons (CFCs) and other ozone depleting chemical substances, counterfeit currency notes, counterfeit and pirated goods and media, embryos, goods bearing false indications of origin, goods infringing a trademark (under Section 89 of the Trade Marks Act 1994), goods infringing copyright (under Section 111 of the Copyright Designs and Patents Act 1988), hair & wool (under the Anthrax Prevention Order 1971), prison-made goods, and whale products.
While this list gives an idea of the kind of restrictions and duties in place, it is not complete and individuals aiming to export from India have to exercise abundant caution in ensuring that the goods they wish to send to the UK are within permissible guidelines prescribed by the concerned governments.
By Shiv Mangal Sharma
Advocate Supreme Court