Do a better job in drafting rules

The commerce ministry has amended the provision on re-import of exported goods. The amendment is an example of changes made with good intentions creating more problems.

Paragraph 2.38 of the Foreign Trade Policy (FTP) said "goods or parts, except restricted under ITC (HS) thereof, on being exported and found defective, damaged or otherwise unfit for use may be imported for repair and subsequent re-export. Such goods shall be allowed clearance without an Authorisation and in accordance with customs notification."

This provision did no particular harm, although it did raise doubts as to what happens if an exporter re-imports his goods that are not found defective, damaged or unfit for use eg when the buyer does not take delivery. Customs, however, raised no particular issues. Whenever the exporter wanted to repair and re-export the re-imported goods, he could execute a bond and clear the re-imported goods under notification no. 158/95-Cus dated November 14, 1995, and whenever the exporter envisaged no repair or re-export, he could surrender the drawback or excise rebate or any benefits he had taken at the time of export and clear the re-imported goods under notification no. 94/96-Cus dated December 16, 1996. The ministry has now added a sentence in Para 2.38 of the FTP, stating: "However, re-export of such defective parts/spares by companies/firms and original equipment manufacturers shall not be mandatory if they are imported exclusively for undertaking root cause analysis, testing and evaluation purpose." What this means is that upon re-import of defective goods exported, the exporter has two options - he can either furnish a bond that he will repair and re-export the goods or give an undertaking that he will use the re-imported goods exclusively for undertaking root cause analysis, testing and evaluation.

What about a situation where the exporter merely wants to repair the re-imported goods and sell these in the domestic market or, after necessary evaluation, he finds the goods can be sold in the domestic market? Does the new amendment close those options? Is the option of simply clearing the defective goods under notification 94/96-Cus dated December 26, 1996, available? The FTP does not fairly answer the questions but I expect the Customs will take a practical view and allow the option of the said notifications 158/95 or 94/96 for clearance of re-imported goods. But, exporters can justifiable be nervous about the FTP not being unambiguous. The ministry should, therefore, examine the provisions on re-import of exported goods. In particular, Clause 3(k) and Clause 3(l) of the Foreign Trade (exemption from application of Rules in certain cases) Order, 1993, needs a re-look. The said order and clauses referring to re-import of exported goods (under Section 20 of the Customs Act, 1962, and certain Customs exemption notifications) were notified in 1993. Since then, many changes have taken place. Section 20 of the Customs Act, 1962, was amended in 1995, prescribing duty payment upon re-importation of exported goods. Several notifications referred to in the said Clauses 3(l) and 3(k) have been rescinded. Exemption notifications have since been issued to cover re-import of exported goods. Such cases of out-dated provisions and poor drafting of legal rules that impose unnecessary transaction costs on importers and exporters must be critically examined by the Second Task Force on Transaction Costs.

Email: tncr@sify.com