prpri Readymade Garment Accessories Import-Compliance Readymade Garment Accessories Import-Compliance

In the last budgetary changes, the Customs mega exemption Notification No. 50/2017-Cus dated 30.06.2017 witnessed vital changes and amidst these changes, two changes directly hit readymade garment exporters and here these both changes are discussed for the sake of enhancement of awareness of the stakeholders.


Prior to the amendment, about 35 accessory items like various types of fasteners, shoulder pads, hooks & eyes, laces, sewing threads etc predominantly usable in readymade garments manufacturing were fully exempted from the basic customs duty and surcharge vide entry number 311. Though such exemption was subject to the fulfilment of the set of the conditions laid down at serial number 28 of annexure to the notification. The condition, in brief, the exemption was available to the textile garments or leather garments manufacturers or merchant exporters tied with the manufacturer for use in the manufacturing of textiles/leather garments meant for export. The second condition was that the importer should be registered with the export promotion council namely Apparel Export Promotion Council or Indian Silk Promotion Council or Council for Leather Exports and these promotion councils issue the entitlement certificates for enabling the exporters engaged in manufacturing readymade/leather garments, in claiming the basic Customs duty exemption for the value of 5% of the FOC or 3% of FOB value of the export effected in the preceding financial year.

The above exemption is no more available from 1st April,2021 onwards as the entry number 311 has been omitted vide the Notification No. 2/2021-Cus dated 01.02.2021 and readymade garment exporters are now bound to pay basic Customs duty on import of accessories which hitherto, were exempted vide said entry number in the notification.


In the wake of budgetary changes, another amendment was made in entry number 257 of the notification. Prior to amendment, the exemption from basic Customs duty was available on the importation of five accessory items i.e. Tags, labels, stickers, belts, buttons or hangers. Most importantly the exemption was absolute to the bonafide exporters but the amendment by adding one more item namely printed bag, made it conditional by way of attaching newly inserted condition number 108 in the annexure, the said condition is read as under;



If, –

(i) the said goods have been imported for fixing on articles for export or for the packaging of such articles;

(ii) the importer, by execution of a bond in such form and for such sum as may be specified by the Assistant Commissioner of Customs or Deputy Commissioner of Customs, binds himself to pay on demand in respect of the said goods as are not proved to the satisfaction of the Assistant Commissioner of Customs or Deputy Commissioner of Customs to have been used for the aforesaid purposes, an amount equal to the duty leviable on such goods but for the exemption contained herein;

(iii) the importer satisfies the Assistant Commissioner or Deputy Commissioner of Customs, that articles so imported have been exported within six months of the date of importation or within such extended period as may be permitted by the said Assistant Commissioner of Customs or Deputy Commissioner of Customs.

At first blush reading of the condition in entirety unearths that the amendment has attached the end use based post import condition in which for claiming upfront exemption from basic Customs duty and surcharge on importing certain accessories, the bona fide exporters are to demonstrate the usage of these accessories for the satisfaction of the condition.  In this broad understanding, in the coming para, the specific issues surrounding the exemption have been discussed.


The first clause prescribes the purpose for which the imported goods are to be used and such prescribed purpose is in line with the generic use of these accessory items without any discrimination in respect of textile readymade garment, leather garment or handloom garments or made ups. The bottom line is clear that imported items are to be invariably used either in fixing upon the export article or packing thereof. The further deep dive brings forth that as per the second clause, the cause for payment of duty shall arise if the accessory items so imported by claiming upfront exemption, are not proved to have been used for the said purpose. Now the question emerges whether constructive use or actual use is mandatory from the purpose satisfaction perspective. In this regard, it is to be noted that in the condition, instead of “for use”, the word “used for”, has been deployed in the second clause which needs due consideration as it is a clear manifestation of the legislative intention to allow the exemption on actual usage of the accessory items in the intended purpose.

Execution of bond 

The law– At the threshold, the condition requires the exporter, intending to import accessory items by claiming exemption, to execute the bond by binding himself to pay the amount equal to the duty foregone if the goods are not proved to have been used in the intended purpose. The provision in relation to bond execution emanates from section 143 of the Customs Act,1962 where the Assistant Commissioner/Deputy Commissioner of Customs is empowered to allow clearance on the execution of a bond for such amount, with surety or security, with the condition of doing of that thing within time after the import, export or clearance as may be specified in the bond.

The bond execution is a routine exercise in the Customs clearance of the imported consignments but pervasive implications of entering into a legal contractual agreement with the Customs are not appreciated at the operational level before the things goofed up and become litigative. In such a situation, there is a need to take note that in legal terms, the bond is an instrument by which the obligation to pay money is created expressly and it is also a legal agreement whereby a person undertakes to do or not to do anything subject to conditions stipulated in the agreement. In taxation matters more specific in Customs, the primary purpose of the bond is to secure due compliance with the rules and procedures laid down and put revenue safeguard. In such an undisputed position of law, it is worth noting that bonds are preserved as long as they are valid and are returned/cancelled once the obligation under the bond stands discharged in the prescribed manner.

Limitation-In the above stated statutory provisions in relation to the bond, it merits to mention here that the importer is not legally deemed to have been discharged from the obligation under the bond till the bond is not returned to the obligor/importer or cancelled. In such a situation, the sword of Damocles always hangs over the importer’s head during the currency of the bond as Customs Authority may come out with the recovery notice even after the exhausting stipulated period prescribed in section 28 of the Customs Act on the stance that the duty demand does not relate to short levy or non levy at the time of initial assessment on the importation, but has arisen subsequently on account of failure to fulfill the post-importation conditions under the exemption notification. In this regard, the classic decision of Larger Bench of Tribunal in the matter Bombay Hospital Trust v/s Commissioner of Customs, Sahar, Mumbai [2005(188)ELT 374(Tri-LB)] deserves due attention in which unequivocally, it was held that when a post-importation condition in an exemption notification is not fulfilled, the department has the power to recover the escaped duty in terms of Section 12 of the Customs Act, 1962. There is a catena of follow judicial precedents to set the law that the demand notice is not subject to any limitation of time in case of non-fulfilment of post-importation conditions as the importer is under continuous obligation by virtue of continuous validity of the bond.

Bond cancellation-In view of above settled position of law, the potential risk on account of non-cancellation of the bond is writ large, therefore in the interest of the class of importers, inclined to maintain a higher degree of compliance, it is advisable to close the bond immediately on fulfilment of the obligation in a proactive manner. In case the bonds are cancelled diligently, this exercise would not only mitigate unpredictable risk but would also help the importer in offloading the burden of contingent liabilities, reportable in the notes to accounts in the annual financials in terms of Indian Accounting Standard (Ind AS) 37.

Jurisdiction– Another aspect in bond execution needs due discussion on the jurisdiction part as with the attachment of the condition requiring the execution of bond, the divergent practice on the Customs department part was seen as few Customs offices having jurisdiction over the importer’s premise, accepted the bond executed by the importers in pursuance to the condition number 108 of the exemption notification to claim upfront exemption from the basic Customs duty vide entry number 257. Such divergent instances took place by circumventing the statutory provisions contained unambiguously under section 143 of the Customs Act in which the Assistant/Deputy Commissioner is empowered to allow the clearance of import consignment from the control of Customs officer on the execution of bond by the importer. The simple reading without adding from outside, reveals that the bond is to be executed before the Assistant/Deputy Commissioner who grants the leave to clear the goods, thereby in logical corollary, it would be Assistant/Deputy Commissioner at the port of import who actually allows the clearance of goods from the Customs clearance port. This averment gets support from the fact that even after unveiling faceless assessment in the Customs, the responsibility of accepting bond or bank guarantees has continued to be vested with the Bond section (or Turant Seva Kendra) at the port of import. The lack of jurisdiction of the Customs officer posted other than at a port of import in accepting the bond meant condition number 108 further exposes by the fact that in case, post import conditions are not fulfilled and duty stands to be recovered from the importer, than the Assistant/Deputy Commissioner at the port of import would be a proper officer to reassess the bill of entry to demand the duty in view of the law laid down by the Supreme Court in recent decision dated 9th March,2021 came in the matter of Canon India Private Ltd v/s Commissioner of Customs[CA 1827/2018]

In the above factual matrix on drawing parallel about the appropriate jurisdiction to accept the bond meant for claiming upfront exemption on import Customs clearance, it is worth adding that subject condition does not contemplate to observe the IGCR Rules,2017. As in the said set of rules, the bond is executed before the Assistant/Deputy Commissioner having jurisdiction over the place of the importer, and in case of violation of terms of the bond, the said very Customs officer is empowered to initiate the duty alongwith interest recovery proceedings. In these empowerments under regulation 8 of the IGCR Rules,2017, the Customs officer at the port of import has no jurisdiction for the understandable reason that the Customs Division offices at field level act as the extended arm of the Customs officer at the port of import to play supervisory role over the post import conditions fulfilment and to put safeguard to the Government revenue.

In the above discussion it is clear that the IGCR Rules have not applied in the subject condition, then the unrebutable position emerges that the Assistant/Deputy Commissioner at the port of import has the sole jurisdiction to accept the bond in persuasion to the condition number 108 of the exemption Notification No. 50/2017-Cus in the same manner as being executed to claim upfront duty exemption under the export incentive schemes or other entries of the same exemption notification.

Exportation proof   

Condition-The most critical part of the condition from the compliance perspective is to prove the exportation of accessories to the satisfaction of the Assistant/Deputy commissioner. The degree of criticality ups in case of non-contemplation of the modalities to satisfy the said Customs authority. It is a time tested fact that in such a situation, each Customs station in absence of any uniform guidelines, resorts to its own practice which most of the time, differs from other Customs stations and the exporter has no choice but to govern by divergent practices different Customs station wise. Though at this stage it is highly desirable on the part of the CBIC to step out to lay down some guidelines to eliminate any possibility of disparity in the modalities to prove the exportation of the accessory items. However, till the time, no instructions are issued, the exporters may resort to diligences at their own part to mitigate any possible exposure.

Conspicuous account for -As a matter of practice either in trading or in the manufacturing sector, all types of goods at SKU level are accounted for not only for the statutory compliance but for their own business interest also. In such a situation going by such best business practice, it is advisable to the exporters to take few circumspect measures to maintain two separate stock registers, one in respect of accessory items imported by claiming exemption and the second one, procured otherwise on payment of duty/tax. The requirement of maintaining separate two stock registers may be understood by the fact that separate accounting shall help in negating any allegation of diversion of accessories, imported under the exemption, in another manner. Both stock registers are to capture parallelly the movement of the accessories in separate stream for which for enhancing transparency, some additional columns on procurement side such as, bill of entry no./purchase bill no., procured quantity may be appended while on the consumption side, the particular garment style number may be added to the issue quantity for which accessories are being issued. Further, it would not be out of place to highlight the requirement of the maintaining garment stock register style-wise and reconciled with the accessories stock registers at all times. These transparent documentary pieces of evidence shall help in a great sense in proving the utilization of the accessories imported under the claim of exemption, in the intended purpose.

Export documentation– That on after account for the accessory items in a conspicuous manner, now question arises to prove the exportation and, on this front, the exporter may resort to declaring on the face of the shipping bill, the quantity of accessories and bond number, imported under the exemption, contained in the export consignment. In case the space scarcity does not permit the full disclosure in the shipping bill, the quantitative detail may be mentioned in the export invoice which is an integral part of the shipping documents. The reason for declaration on the shipping document is apparent as these documents undergo the scrutiny of the Customs officers at the time of Customs clearance and once, they pass the scrutiny test, then it shall assume good evidentiary value and shall be estoppel before the Customs department to challenge the veracity of the exportation of accessories alongwith garments. Besides this, the garments specification required by the overseas buyer and preserving the sample either in Customs or at own, till the bond cancellation would help in substantiating the exporter’s case to prove exportation in a requisite manner.

Per contra, any other document based upon self-declaration, which has not passed the scrutiny test in the Customs clearance, shall be always doubtful and exporters shall be bound to depend on the discretion of the Assistant/Deputy Commissioner to prove the exportation.

Obligation period extension– The last concern, where the exporters are to ensure the exportation of accessories, imported under the subject exemption, within six months of the date of importation. The said six months time is further extendable by the Assistant/Deputy Commissioner in case export does not take place. Here the exporters are to act diligently as the said stipulated period does not extend automatically and it is incumbent upon the exporters to approach the said Customs officer with the request on the genuine reason to extend the first six months period for another particular period. In such cases, as seen, the said Customs officers generally appreciating the genuine reasons which prevented the exporter in exporting the accessories in the stipulated time frame, accept the exporter’s request and become kind enough in extending the period further. Here it merits mention that the request without any cogent reason, rarely succeeds, therefore the exporters are to put up their request with genuine reasons as otherwise their request shall likely be rejected by the Assistant/Deputy Commissioner in absence of any good reason. The rejection of the request shall render the exporter to face repercussions attributable to the non-compliance in the law.


In the above discussion, the possible specific issues have been touched in an attempt to bring clarity, so that the readymade garment exporters may take due precautions to avoid any implication while importing accessories by claiming exemption under the exemption notification.

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