[The Viewpoint] Customs Law: Harmonized System amended to reflect advancement in technology

The import of goods into India is governed by the Foreign Trade Policy as well as the Customs Tariff Act, 1975. Both of these enactments are based on the Harmonized Commodity Description and Coding System (Harmonized System), which is a multipurpose international product nomenclature developed by the World Customs Organization.

The system is used by more than 200 countries for customs and trade purposes. It is also extensively used by governments, international organizations and the private sector for many other purposes such as internal taxes, trade policies, monitoring of controlled goods, rules of origin, freight tariffs, transport statistics, price monitoring, quota controls, compilation of national accounts, and economic research and analysis. The rates of tax under the Goods and Services Tax (GST) regime are also based on the Harmonized System.

The Supreme Court has also recognised importance of the Explanatory Notes issued by the World Customs Organization as having strong persuasive value for classification of goods under the various Acts.

With effect from January 1, 2022, the Harmonized System has been amended to recognize new products emerging from technological advancement and identifying product lines for addressing environmental and social concerns. Through the Finance Act, 2021, the customs tariff has been amended with effect from this year to reflect the changes in the Harmonized System.

Some of the important changes include introduction of specific entries for the following items:

• Luminaries and light fittings for use with LED light sources

• Pre-fabricated buildings or modular units of steel

• Unmanned aircraft including drones

• Electrical and electronic waste and scrap of battery accumulators principally for the recovery of metals

• Smart phones

• Additive manufacturing also referred to as 3D printing i.e., the formation of physical objects based on a digital model by successive addition and layering, consolidation and solidification of a material

Waste management is critical for India, as waste if properly managed can be a resource, but when poorly managed, can have harmful effects on the environment such as pollution, climate change etc. The introduction of a specific heading for electrical and electronic waste recognizes the need for regulation of the import of such waste in terms of the Basel Convention. Only waste that can contribute to the economy should be allowed, as India cannot afford to become the dumping ground for the world.

Various items which can be used to threaten the security of India have also been given separate headings to facilitate restriction/regulation of their import. These include unmanned aerial vehicle such as drones and items for dual use like radioactive materials.

With technological advancement, it is increasingly difficult to classify products, especially as they perform functions of multiple devices. The classic example being smartphones, which work not only as telephones but can perform the function of a computer, a camera and also provide navigational aid. By creating a separate heading, these items can be identified as a separate commodity.

An entry has also been introduced for additive machines i.e., 3D printing machines which are being used to make a variety of products. The volume of global trade of 3D printing machines has shown a substantial growth. These are products of the future, having a transformational effect on how production is carried out.

The amendment based on the Harmonized System Nomenclature brings the customs tariff in line with the current realities of global trade. They not only allow the government to restrict and regulate the trade of these items, but also to impose heavy duties where the import is to be discouraged and low or no duty, where import is to be encouraged. These changes are a welcome step in the smooth implementation of customs law.

Reena Asthana Khair is a Senior Partner & Head - International Trade & Indirect Taxation Practice at Kocchar & Co.

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