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Special Classification Schemes for Imported Goods; for a Project, Baggage and Postal Articles

(A) Project Import:

The ‘Project Import Scheme’ is an Indian innovation to facilitate setting up of and expansion of industrial projects. Normally, imported goods have to be classified ‘on merits’ under the Customs and Excise Tariffs for levy of duty. This implies that each individual article has to be classified separately and assessed to appropriate duty not only for the purposes of customs duty but also for the purposes of Countervailing Duty (CVD). For setting up of a ‘Project’, a number of goods may be imported in one or many consignments. If all goods required for the project are to be classified and valued separately for assessment to duty, the process becomes cumbersome. This may lead to delay in clearance of goods. Further, the suppliers, while sending goods for a contracted project, do not value each and every item or parts of machinery manufactured and supplied in stages. Ascertaining values for different items further delayed assessment on merits and leading to demurrage and time and cost overruns for the project. The project import assessment provisions introduced in Customs Tariff in 1965 and continued ever since facilitate early and quick assessment by simplifying the process of classification and valuation of goods required for a project.

2. The Project Import Scheme seeks to achieve the objective of simplifying the assessment in respect of import of capital goods and all the related items required for setting up of a project by levy of a flat rate of duty in respect of such goods. This objective has been achieved by incorporating a heading 98.01 under Chapter 98 of the Customs Tariff and prescribing a uniform customs duty rate under this heading. All the goods approved for importation in connection with an industrial project are classified under this heading. Goods classified under this heading cannot be classified under any other heading which may cover the product more specifically.

3. The different projects to which heading 98.01 applies are; irrigation project, power project, mining project, oil / mineral exploration projects, etc. Such an assessment is also available for an industrial plants used in the process of manufacture of a commodity. However this benefit is not available to hotels, hospitals, photographic studios, photographic film processing laboratories, photocopying studios, laundries, garages and workshops. This benefit is also not available to a single or composite machine. The Central Government can also notify projects in public interest keeping in view the economic development of the country to which this facility will apply. This is achieved by issuing a notification. A number of notifications have been issued notifying a large number of projects for assessment under heading 98.01.

4. Goods that can be imported under this scheme are machinery, prime movers, instruments, apparatus, appliances, control gear, transmission equipment, auxiliary equipment, equipment required for research and development purposes, equipment for testing and quality control, components, raw materials for the manufacture of above items, etc. In addition, raw material, spare parts, semifinished material, consumable upto ten percent of the assessable value of goods can also be imported.

5. The purposes for which such goods can be imported are for initial setting up’ or for ‘substantial expansion’ of an unit of the project. The ‘unit’ is any self contained portion of the project having an independent function in setting up the project. A project falls under the category of ‘substantial expansion’ if the installed capacity of the unit is increased by not less than twenty five percent, as per the Project Import Regulations.

6. The Central Government has formulated the Project Import Regulations (PIR) prescribing the procedure for effecting imports under this scheme. The procedure is as follows:

Procedure for Availing Benefits Under Project Imports

7. Registration of Contracts : The basic requirement for availing the benefit of Project Import Regulations is that the importer should have entered into one or more contracts with the suppliers of the goods. Such contracts should be registered prior to clearance in the Customs House through which the goods are expected to be cleared. The importer shall apply for such registration in writing to the proper officer of Customs.

8. As per Regulation 4, the assessment under Heading No.98.01 is available only to those goods which are imported against one or more specific contracts, which have been registered with the appropriate Custom house in the manner specified in Regulation 5 .The contract is required to be registered.

(i) before any order is made by the proper officer of customs permitting the clearance of the goods for home consumption;

(ii) in the case of goods cleared for home consumption without payment of duty subject to re-export in respect of fairs, exhibitions, demonstrations, seminars, congresses and conferences, duly sponsored or approved by the Government of India or Trade Fair Authority of India, as the case may be, before the date of payment of duty.

To expedite early registration, the importers are advised to submit the following documents at the time of registration:-

(a) An application for registration of the contract.

(b) Original deed of contract together with true copy thereof.

(c) Industrial Licence and letter of intent, SSI Certificate granted by the appropriate authority with a copy thereof.

(d) Original Import licence, if any, with a list of items showing the dimensions, specifications, quantity, quality, value of each item duly attested by the Licensing Authority and a copy thereof.

(e) Recommendatory letter for duty concession from the concerned Sponsoring Authority, showing the description, quantity, specification, quality, dimension of each item. Sponsoring authority should indicate whether the recommendatory letter is for initial set-up or substantial expansion, giving the installed capacity and proposed addition thereto.

(f) Continuity Bond with Cash Security Deposit equivalent to the 2% of CIF value of contract sought to be registered subject to the maximum of Rs.50,00,000/- and the balance amount by Bank Guarantee backed by an undertaking to renew the same till the finalisation of the contract. The said continuity bond should be made out for an amount equal to the CIF value of the contract sought to be registered.

(g) Process flow chart, plant layout, drawings showing the arrangement of imported machines along with an attested copy of the Project Report submitted to the Sponsoring authorities, Financial Institution, etc.

(h) Write up, drawings, catalogues and literature of the items under import.

(i) Two attested copies of foreign collaboration agreement, technical agreement, know-how, basic/detailed engineering agreement, equipment supply agreement, service agreement, or any other agreement with foreign collaborators/suppliers/persons including the details of payment actually made or to be made.

(j) Such other particulars as may be considered necessary by proper officer for the purpose of assessment under Heading No. 98.01.

Procedure Followed in Custom Houses:

9. After satisfying that goods are eligible for project imports benefit and importer has submitted all the required document, the contract is registered by the Custom House and as a token of registration the provisional duty bond is accepted by the Asst./ Dy.Commissioner of Customs, Project Group. The details of the contracts are entered in the register kept for the purpose and a project registration number is assigned and is communicated to the importer. The importer is required to refer to this number in all subsequent correspondence.

Clearance of Goods after Registration:

10. On every Bill of Entry filed for clearance of goods under the Project Import Scheme, the importer/clearing agent is required to indicate the Project Contract number allotted to it. After noting, the Bill of Entry is sent to the project group, which is required to check the description, value and quantity of the goods imported vis-à-vis the description, value and quantity registered. In case these particulars are found in order, the bill of entry is assessed provisionally and handed over to the importer or his agent for payment of duty. The Project Group keeps a note of the description of the goods and their value in the project contract register and in the file maintained in the group for each project.

Finalisation of Contract:

(a) Submission & Reconciliation Statement by Importer:

11. Under Rule 7 of the PIR, 1986 the importer is required to submit, within three months from the date of clearance of the last consignment or within such extended time as the proper officer may allow the following documents for the purpose of finalization of the assessment:

(i) a reconciliation statement i.e. a statement showing the description, quantity and value of goods imported along with a certificate from a registered Chartered Engineer certifying the installation of each of the imported items of machinery;

(ii) Copies of the bills of entry, invoices, and final payment certificate.

The final payment certificate is insisted upon only in cases where the contract provides that the amount of the transaction wilt be finally settled after completion of the supplies.

(b) Plant Site Verification:

12. To ensure proper that the imported goods have actually been used for the projects for which these have been imported, plant site verification may be done in cases where value of the project contract exceeds Rs.1 crore. In other cases plant site verification is normally done selectively.

(c) Action by the Assessing Group:

13. In the normal course after submission of the reconciliation statement and other documents by the importers, the provisional assessments are finalized within a period of three months where plant site verification is not required and within six months where plant site verification is required. In cases where a demand has been issued and confirmed on such finalisation and importer has not paid the duty demanded, coercive steps are taken to realise the amount.

(B) Baggage:

14. Similar to project imports, all goods imported by a passenger or a member of crew in his baggage are classifiable under one heading / subheading 98.03 and levied to a single rate of duty. Such goods need not have to be classified separately in the Tariff. [except motor vehicles, alcoholic drinks, goods imported through courier service]. Such assessment will however not apply to goods imported by a passenger or a member of the crew under an import license or a customs clearance permit.

(C) Postal goods:

15. Similar to project imports and baggage, all goods imported by post/ air or for personal use are classifiable under a single heading, i.e., 98.04 and levied to duty accordingly. This heading has been sub divided into two subheadings. One applicable to drugs & medicines and other, the rest. Such goods will however be governed by the Exim policy as far importibility is concerned. Motor vehicles, alcoholic drinks and goods imported through courier service can however not be classified under this heading. Goods imported under an import license or a customs clearance permit will however not be classified under this heading.

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