Retail sets must be classified according to their essential characteristics

We make and export hair-dye for applying on human hair. Invariably, we supply a brush along with the hair-dye. The invoice is made for the hair-dye only. Now, we want to import a machine for making the brush under the EPCG (Export Promotion Capital Goods) scheme. Please guide us on how we should work out the annual average exports and how the invoicing should be done.

 

Firstly, the brush you supply has no stand-alone utility or commercial value since it can be used only as an accessory for applying the hair-dye. Second, Rule 3(b) of the General Rules for Interpretation of Customs tariff (relevant extracts) says that ‘goods put up in sets for retail sale, ..., shall be classified as if they consisted of the material ..., which gives them their essential character’. Since the hair-dye and the brush are goods put up in sets for retail sale, they should not be classified separately but as ‘hair-dye’ that gives the set the essential characteristics. The text of the Accessories (Conditions) Rules, 1963 also support the same view, as the brush is essential for application for the ointment and so is compulsorily supplied with the ointment. Besides, no charge is made separately for the brush because its price is included in that of the ointment. Third, the EPCG scheme allows import of capital goods for pre-production, production, and post-production, even if required for only part of the production process for making the export product. So, in my opinion, you should describe the export product as ‘hair-dye with brush’ and the entire value should be considered for calculating the annual average exports as well as discharge of export obligation.

 

Our bank says that the balances in our EEFC (Exchange Earners Foreign Currency) account should be converted to INR by the end of the same month in which the inward remittances in foreign exchange were credited in the account. Is this correct?

 

No. Para 3.1 (6) of the RBI Master Direction no.14/2015-16 dated January 1, 2016 (as amended) says that ‘the sum total of the accruals in the EEFC account during a calendar month should be converted into INR on or before the last day of the succeeding calendar month after adjusting for utilization of the balances for approved purposes or forward commitments’. So, the conversion of the foreign currency balances in the EEFC account at a particular month end into INR is required only at the end of the next month. Here again, if you have any commitments to make an outward remittance later, for example payment for imports, the amount of such commitment need not be converted into INR.

 

We are merchant exporters, procuring goods at 0.1 per cent IGST from a manufacturer. He says that we must prepare the e-way bill for his movement of goods from his factory. Is this correct? 

 

Apparently, the manufacturer is relying on condition (vi) of the notification 41/2017-IT(Rate) dated 23rd October 2017, which says that ‘the registered recipient shall move the said goods from the place of the registered supplier’.