Govt plugs loopholes in imports of QCO items

The commerce ministry has notified the enabling provisions for imports of inputs that are subject to Quality Control Orders (QCOs), by holders of advance authorisation for physical exports (AA), export-oriented units (EOU) and units in Special Economic Zones (SEZs). The idea is to regulate and prevent misuse of such imported items. 

Through notification no. 44, dated November 24, 2000, the commerce ministry had stipulated that import of items that are subject to compliance with the Indian quality standards would be allowed only from manufacturers and exporters of such products to India registered with the Bureau of Indian Standards (BIS). Later, the Director General of Foreign Trade (DGFT) clarified through Policy Circular no.40 dated February 20, 2001, that such compliance to quality standards shall not be applicable on imports made under AAs, by EOUs and SEZ units and imports for re-export purposes. In that dispensation, there was no mechanism to monitor the end use of such QCO items once the imports were made under AAs or by EOUs or SEZ units.

The latest notification no.69/2023 plugs that loophole. It prescribes pre-import conditions and says that such items imported under AA or by EOUs or SEZ units must be used in the manufacture of export products. Such inputs, or the goods manufactured from such inputs, cannot be transferred to the domestic tariff area (DTA). Import of such items under Duty Free Import Authorisations (DFIA) or AA for deemed exports will not be allowed. Exemption from QCOs shall be specially endorsed in the AA. If such inputs are not utilised by AA holders for manufacture of goods exported in discharge of export obligation against the same AA, they should be destroyed and the AA holders should pay 10 per cent of the CIF value as composition fees in addition to duties/taxes/cess exempted. The facility of clubbing two or more AAs under Para 4.36 of Handbook of Procedures (HBP) will not be available. The EOUs should give an undertaking to the Customs at the time of import that such imported inputs are required for use in the manufacture of goods that will be exported and a copy of the undertaking must be given to the jurisdictional Development Commissioner (DC). SEZ units are not required to give such a declaration. 

The new disciplines imposed on imports of items subject to QCOs are well intended. However, some points deserve attention. The exemption from mandatory QCOs will be applicable only in respect of QCOs issued by the Ministry of Steel and the Department for Promotion of Industries and Internal Trade. The government can consider extending the exemption to the QCOs issued by other ministries, such as ministry of consumer affairs and ministry of electronics also. The AA holders are required to destroy such imported goods unutilised in the manufacture of export goods in the presence of Customs authorities. However, they are available only in major cities whereas many manufacturing units are located far away in the hinterland.  Keeping that problem in view, the DGFT has allowed self-declaration about destruction of unutilised material by exporters, in the case of imports of drugs from unregistered dealers under AA. Similar dispensation for QCO items can be considered. Also, the DGFT can put up an updated list of such QCO items on its website so that exporters need to refer to only one source of information.

Email: tncrajagopalan@gmail.com