The importers and exporters are in a state of shock as well as dilemma after the issuance of Trade Notice No. 46/2019-20 dated 17.1.2020 which was issued with regard to the imports and exports under the ‘others‘ category. The notice states 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.

So, in order to control the casual usage of the residual code, the department has issued this notice  to trade and Industry advising them to classify the imported goods under correct HS Code instead of ‘Others’ category.

The said Trade Notice limits the scope of usage of “others” category and is considering to bring strict actions against those who continue to classify the imported goods under ‘others’ category even where the correct HS code are obtainable. The Trade notice proposes to bring a licensing regime for certain items by shifting these items from “free” to “restricted” category. This essentially means that all the items which are imported or exported under the “others” category in Harmonised System of Nomenclatures (HSN) will be restricted and the importer/exporter will have to obtain license before undertaking the transaction.

This typically means that the government is giving a warning to the importers/exporters to restrict the usage of “others” category.

India adopts the HSN code for classification of products. This was developed by World Cusotms Organisation (WCO). This is an international nomenclature standard adopted by about 137 countries to ensure uniformity in classification in international trade. HDN provides product codes and description upto 4 digit (Heading) and 6 digit (Sub digit) levels only and member countires of WCO are allowed to extend the codes upto any level subject to the condition that nothing changes at 4 digit or 6 digit levels. India has developed 8 digit level classification.

Now let us analyse the root cause of the problem. 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’.

It appears that the concerns expressed by the Ministry of Commerce are misplaced. However, never it can be denied that there will be such importers and exporters including CHAs who simply mention the “others” category for ease of classification and clearance of the item. Since the items are classified under “others” category, the department also does not bother much and it makes the clearance easy as custom duty rates are mostly same for specific and “others” category. In this entire process, it becomes difficult to monitor the data of import and export product wise.

The Trade Notice gives an option to trade and industry to make representations before them if the products are genuinely covered under “others” category so that separate categories can be carved out for them. Thus, it is expected that, HS classifications may undergo a big overhaul.

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.

It is recommended that the companies get the complete check up of the HSN classifications adopted by them for their imports and exports. Circle out the ones being categorized under “others” category. In case they are wrongly classified under “others”, adopt a correct classification for future transactions, else make a representation to the Ministry to make changes in the HSN classification.

If the industry does not pay attention to this, they are bound to land in trouble with their exports and imports to the extent of having huge impact on their business being carried in India.

Nevertheless, the restriction imposed under “others” category may have to face the wrath in the courts for its legality. 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 merely because a product falls under ‘others’ category for the purpose of classification.

However, as it stands today, in case the industry continues to classify their products under “others” category, they will not be allowed to import/export without the license.

For any further details, please contact shweta@rsalegalsolutions.com

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