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Custom Clearance Procedure

Customs Clearance Procedure in India

Customs clearance is a structured process designed to ensure that goods entering or leaving India comply with all applicable laws and regulations. The procedures differ slightly for importsExported andGoods exports,

Objectives but both aim to facilitate legitimate trade while protecting national interests.

Importof Customs Clearance Procedure

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The import clearance procedure is a series of steps an importer must follow to legally bring goods into India. It generally involves registration, documentation, examination, duty payment, and final clearance.

Overview of Import Clearance Steps:

  1. Step 1: Importer Registration
  2. Step 2: Arrival of Goods & Filing Bill of Entry
  3. Step 3: Customs Examination & Duty Assessment
  4. Step 4: Physical Examination & Risk-Based Inspection
  5. Step 5: Duty Payment & Customs Out of Charge

Let's delve into each step with explanations and examples:

Step 1: Importer Registration

Exports:
  • Explanation:Legality Check: BeforeTo anensure entity can importthe goods intobeing India,exported itare mustpermitted legally register itself withunder the relevant authorities. This registration establishes the importer'country's identitycustoms and legal standing for trade activities.
  • Key Registrations:laws.
    • Obtain IEC Code from DGFT (Directorate General of Foreign Trade):Example:
        Certain
      • hazardous Explanation:materials Themight Importer-Exporterbe Coderestricted (IEC)or isrequire aspecial mandatory 10-digit code requiredpermissions for anyone engaged in import or export activities in India. It's essentially a primary identification number for businesses in the import-export sector.
      • Example: A new company wanting to import electronics into India must first obtain an IEC from the DGFT. This is a one-time registration valid for the lifetime of the entity.export.
    • RegisterExporter forPermission: GSTTo Compliance:verify if the exporter has the necessary licenses or permissions from relevant authorities to export the specific goods.
      • Explanation:Example: GoodsExporting andagricultural Servicesproducts Taxmight (GST) is applicable on most imports. Importers need to register for GST to obtainrequire a GSTINphytosanitary (Goods and Services Tax Identification Number) to pay and manage GST on their imports.
      • Example: An importer of fabrics needs to have a GSTIN to pay the Integrated GST (IGST) that is levied on imported goods, similar to GST on domestic supplies.certificate.
    • AdditionalDocumentation RegistrationsCheck: To confirm that all required documents for customs clearance are properly prepared and submitted.
      • Example: Ensuring the shipping bill is correctly filled with all necessary details.
    • Duty Determination: To ascertain if any export duty is applicable to the cargo.
      • Example: Some countries might levy a duty on the export of certain raw materials.
    • Duty Collection (if applicable):
        If
      • export Explanation:duty Dependingis onapplicable, the naturecustoms ofdepartment goodscollects orit specificbefore schemes,allowing additionalthe registrationscargo mightto be necessary.leave.
      Examples:

      General Procedure:

      • SEZ (Special Economic Zone) Registration:Responsibility: IfThe operatingexporter, withinoften or importing into/from an SEZ, specific SEZ registrations are required.
      • FTA (Free Trade Agreement) Registrations: To avail preferential duty rates under FTAs with certain countries, specific certifications or registrations might be needed.
      • APEDA (Agricultural & Processed Food Products Export Development Authority) Registration: For importing certain agricultural and processed food products, registration with APEDA may be mandatory.

Step 2: Arrival of Goods & Bill of Entry Filing

  • Explanation: Once goods arrive at an Indian port (sea or air), the importer must formally declare these goods to customs by filingthrough a "BillCustoms ofHouse Entry."Agent This document(CHA), is a legal declarationresponsible for customs purposes.
  • Process:
    • Goods Arrive at Indian Ports/Airports: Physical arrival of the imported consignment.
    • Filing of Bill of Entry (BOE) via ICEGATE (Indian Customs Electronic Gateway):
      • Explanation: The Bill of Entry is filed electronically through ICEGATE, the online portal of Indian Customs. This is a move towards digitalobtaining customs clearance.
      • Example:Legal AnRequirement: importerAccording to Sec 40 of machinerythe arrivingCustoms atAct, Chennaia portconveyance (vessel, aircraft, or vehicle) cannot load goods without customs permission.
      • Mandatory Process: Every consignment leaving the country via sea, air, or land must undergo customs clearance.

      Registration Procedure for Exporters:

      1. Permanent Account Number (PAN): Every exporter needs a PAN issued by the income tax authority.
      2. Business Identification Number (BIN): The Director General of Foreign Trade (DGFT) issues a BIN to the exporter against their PAN. This is sent electronically to customs.
        • Example: Think of BIN as a unique identifier for your export business within the customs system.
      3. Bank Account Registration: The exporting company must have a current account in a designated bank and register the authorized foreign exchange dealer code for realizing export proceeds and receiving incentives.
      4. Registration of Other Entities: Airlines, shipping lines, airports, and ports handling export-import cargo also need to register with the customs system. This helps in correlating consignment details, especially in EDI-based clearance.
      5. Registration for Export Promotion Schemes: Exporters using export promotion schemes need to register their licenses/DEEC books with the customs station where the goods will filebe cleared.

      Processing of Shipping Bill:

      • A shipping bill is required for exports by sea or air.
      • A bill of export is required for exports by land.
      • Different copies of the Billshipping bill/bill of Entryexport electronicallyexist throughfor ICEGATEdutiable beforegoods, theyduty-free cangoods, takeand stepsgoods eligible for duty drawback.

      Types of Customs Clearance Procedures:

      • Manual Custom Clearance Procedure
      • Digital Custom Clearance Procedure (using Electronic Data Interchange - EDI)

      Manual Export Clearance Procedure:

      Stage I: Document Submission

      • The exporter submits the following documents along with the shipping bill to clearthe customs house:
        • (a) Invoice: Details the goods, their price, quantity, etc.
          • Example: A commercial invoice for a shipment of cotton shirts would list the number of shirts, price per shirt, total value, etc.
        • (b) Packing List: Specifies the contents of each package in the shipment.
          • Example: A packing list might show that carton number 1 contains 50 blue shirts, carton number 2 contains 75 red shirts, and so on.
        • (c) Guaranteed Remittance (GR) Form: A declaration that the export proceeds will be realized.
        • (d) Application for Removal of Excisable Goods (ARE) Form: Required for excise clearance if the goods are subject to excise duty.
        • (e) Pre-shipment inspection certificate: Issued by an export inspection agency, certifying the quality of the goods.

      Stage II: Assessment

      • The assessing officer reviews the submitted documents.
      • They check:
        • Value of goods
        • Duty-drawback classification (if applicable)
        • Rate of export duty (if applicable)
        • Compliance with the prevailing EXIM policy (export-import policy).
      • There's a separate group for assessing shipping bills related to DEEC/DEPB (export promotion schemes).
      • The assessing officer compares the goods' description in the invoice and DEEC shipping bill with the DEEC book.
      • Samples of the goods might be drawn for testing to verify their authenticity.

      Stage III: Physical Examination

      • After the shipping bill is approved by the export department, the cargo is presented to the shed appraiser (export) for physical examination.
      • The appraiser supervises the examination, which is conducted by the customs examiner.

      Stage IV: "Let Export" Order and Loading

      • Once the goods pass the physical examination, the shed appraiser issues a "Let Export" order.
      • After this, the exporter or their agent can load the goods onto the vessel under the supervision of a preventive officer.
      • KeyDiscrepancies: DetailsIf any inconsistencies are found, the shipping bill is sent back for review or amendment.
      • Misdeclaration: If there's a misdeclaration, the export is not allowed, and action is taken against the exporter.

      Digital Export Clearance Procedure (EDI):

      Stage I: Data Entry and Verification

      • The exporter or CHA fills the declaration in the prescribed format through the customs service center (IT system).
      • The system generates a checklist for data verification.
      • If the data is correct, the system generates a shipping bill number, which is endorsed on the printed checklist and given to the exporter/CHA.
      • For dutiable items, the exporter pays the duty along with a TR-6 challan generated by the system.

      Stage II: Dock Entry and Document Submission

      • The goods are allowed to enter the dock based on the checklist with the shipping bill number.
      • The exporter/CHA submits the checklist along with original documents (invoice, packing list, GR forms, ARE forms, etc.) to the customs officer.
      • The customs officer verifies the documents against the received goods and hands over the original documents to the shed appraiser for physical examination.

      Stage III: Physical Examination by Customs Officer

      • A customs officer designated by the shed appraiser physically examines the cargo.
      • They enter their observations into the system and return all original documents to the shed appraiser.

      Stage IV: "Let Export" Order and Shipping Bill Generation

      • If the shed appraiser is satisfied with the customs officer's report regarding the quantity and description, they may issue a "Let Export" order.
      • The system generates the shipping bill in two copies: one for customs and one for the exporter.
      • A third copy is generated after the submission of Entry:the Export General Manifest (EGM) by the shipping line.
      • Shipping lines must electronically submit the shipping bill-wise EGM to customs within seven days of the ship's sailing.

      Stage V: Loading Permission

      • The exporter/CHA submits their copy of the shipping bill, duly signed by the dock appraiser, to the preventive officer.
      • The preventive officer then allows the cargo to be loaded onto the ship.
      • Containerized Cargo: For containers, the preventive officer supervises the stuffing at the docks, ensures the container is properly sealed, and records the container and seal numbers. They also endorse the shipper's copy of the shipping bill and may stamp a "shipped on board" seal.

      Documents Required for Customs Clearance (Export):

      1. Shipping Bill: An application for export clearance containing details of the goods, vessel, destination port, exporter details, etc. Crucial for initiating the export process.
        • Importer Details:Example: Name,A address,shipping IEC,bill GSTINwould state that 100 cartons of themangoes importer.
          • are
        • being HS Code (Harmonized System Code): Classification code of the imported goods as per the global Harmonized System of Nomenclature. This code determines the applicable duty rates.
          • Example: HS Code for "Laptops" will be differentexported from "MobileChennai Phones,"port andto dutyDubai ratesby cana varyspecific based on the HS code.vessel.
        • Value:ProForma Invoice: DeclaredSimilar valueto ofa purchase order, detailing the importedproduct goods,being whichsold formsbased on agreed terms between the basis for duty calculation.
        • Port of Import: Name of the port or airport where goods have arrived.
        • Duties Payable: Self-assessment of applicable customs dutiesexporter and taxes.

Step 3: Customs Examination & Duty Assessment

importer.
  • Explanation:Example: AfterA filingProForma theinvoice Billmight list 50 units of Entry, customs authorities examine the declared information and assess the duties and taxes payable. This step ensures accurate valuation and correct duty application.
  • Process:
    • Verification of BOE & Documentation: Customs officers scrutinize the Bill of Entry and accompanying documents (like invoice, packing list, etc.) for accuracy and completeness.
    • Customs Valuation as per WTO (World Trade Organization) Norms:
      • Explanation: Customs valuation is the process of determining the taxable value of imported goods. India follows WTO valuation norms, primarily based on the transaction value (price actually paid or payable).
      • Example: If an importer declares a verymachine lowat value$100 foreach, expensivetotaling goods, customs may re-assess the value based on comparable prices or other valuation methods to prevent undervaluation and duty evasion.$5000.
    • CustomsBill Duties:Of Lading or Airway Bill: AssessmentIssued by the carrier (shipping line or airline) as evidence of the contract for shipping goods. It contains details of the product, quantity, and applicationdestination. ofNeeds varioussignatures duties:from the exporter, carrier, and receiving party. Produced at the destination for shipment receipt and customs clearance.
      • BCD (Basic Customs Duty): The primary customs duty levied on imported goods, rate varies based on HS code and government policy.
      • IGST (Integrated Goods and Services Tax): GST levied on imports, equivalent to GST on domestic goods.
      • CVD (Countervailing Duty): Levied to counter subsidies provided by the exporting country to their manufacturers.
      • Anti-Dumping Duty: Imposed to protect domestic industries from goods being "dumped" (sold at unfairly low prices) by foreign exporters.
      • Social Welfare Surcharge:Example: A surcharge levied on aggregate duties to fund social welfare schemes.

Step 4: Physical Examination & Risk-Based Inspection

  • Explanation: Customs may decide to physically examine the imported goods to verify the declarations made in the Bill of Entry.Lading Thefor levela sea shipment would identify the vessel, port of examinationloading, dependsport onof a risk-based approach.
  • Risk-Based Inspection Channels: Indian Customs uses a channel system to streamline inspection based on risk assessment:
    • Green Channel:
      • Explanation: For importers with a good track recorddischarge, and low-riskdetails goods. Shipments underof the Greencargo. ChannelAn areAirway generallyBill not subject to physical inspection or detailed document checks. Clearance is expedited based on trust and past compliance.
      • Example: A reputed company importing standard components with a history of compliant imports might have their shipments routed throughserves the Greensame Channelpurpose for fasterair clearance.freight.
    • OrangeLetter Channel:Of Credit: Provided by the importer's bank, guaranteeing payment to the exporter. Ensures the exporter will receive the invoice amount.
    • Packing List: A detailed list of items in the export shipment, allowing buyers/importers to verify against the ProForma invoice. Mandatory for customs clearance.
      • Explanation:Example: ForA shipmentspacking consideredlist tomight beshow the dimensions and weight of moderateeach risk.package Onlycontaining documentelectronic checks are conducted, no physical examination of goods.
      • Example: A new importer with moderately sensitive goods might be assigned the Orange Channel, where customs will verify the documents thoroughly but not physically inspect the cargo.components.
    • RedExport Channel:License: Required for exporting specific goods like chemicals, medicines, petroleum products, and precious metals.
    • Insurance Certificate: Confirms that the goods are insured against loss or damage during transit.
    • Certificate Of Origin (COO): Issued by the exporting company, stating the country where the goods were made or processed. Helps determine the origin of the goods.
      • Explanation:Example: ForA high-riskCOO shipmentswould orstate importersthat witha compliance concerns. Detailed physical inspectionbatch of goodstextiles iswas mandatory,manufactured alongin with thorough document scrutiny.
      • Example: Shipments of goods that are frequently mis-declared, or from importers with a history of violations, are likely to be routed through the Red Channel for comprehensive examination.India.
    • SampleCommercial TestingInvoice: A key customs document containing all essential details about the order, including goods description, selling prices, quantities, packaging costs, weights, and measurements. Used by customs at the destination to determine import value.

      • New Developments in Customs Clearance Procedures:

      • Focus on Speed and Efficiency: Increased global trade necessitates faster customs clearance.
      • Kyoto Convention: India is a signatory to the International Convention on the Simplification and Harmonization of Customs Procedures (forKyoto specificConvention), categories):which aims to modernize customs procedures.
      • Key Elements of Modern Customs Procedures:
        • Maximum Explanation:use Forof certainautomated goodssystems like(EDI).
          • chemicals,
        • Risk foodmanagement products,techniques or(risk pharmaceuticals,assessment sampleand testingselectivity mayof becontrols).
          • required
        • Use of pre-arrival information for selectivity.
        • Electronic funds transfer for duty payments.
        • Coordinated interventions with other agencies.
        • Easy access to verifyinformation quality,on composition,customs orrequirements.
          • compliance
        • System of appeals in customs matters.
        • Formal consultation with standards.
        • Example: Imported food items might be subjected to sample testing by food safety authorities to ensure they meet health and safety standards before being allowed into the market.trade.

    Step 5: Duty Payment & Customs Out of Charge

    • Explanation: Once duties are assessed and examination (if any) is completed, the importer must pay the applicable customs duties and taxes. After payment confirmation, customs grants "Out of Charge," which is the final clearance for the goods.
    • Process:
      • Duty Payment via ICEGATE/Banks:
        • Explanation: Duty payments are typically made electronically through ICEGATE or through designated banks authorized by customs.
        • Example: Importers can use net banking or credit/debit cards via ICEGATE to pay customs duties online.
      • Customs Clearance Granted: Upon successful duty payment and completion of all checks, customs authorities grant clearance.
      • 'Customs Out of Charge' Order Issued: A formal order, often electronic in digital systems, is issued by customs, signifying that the goods are cleared and can be moved out of customs control.
      • Goods Transported to Warehouse/Importer's Premises: After obtaining the 'Out of Charge' order, the importer can arrange for the transportation of goods from the port/airport to their warehouse or intended destination.

    This step-by-step procedure ensures that all legal and financial formalities are completed before imported goods are released for domestic use in India. Digital platforms like ICEGATE have significantly streamlined this process, making it more efficient than traditional manual methods.

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