Do procedural lapses in complying with non-tariff measures warrant harsh penal provisions?

India’s trade policy has witnessed a marked shift from tariff-based protection to non-tariff measures aimed at safeguarding health, safety, environment, and quality standards. Over the past decade, regulatory instruments, such as Quality Control Orders (QCOs), Steel Import Monitoring System (SIMS), Chip Import Monitoring System (CHIMS), import licensing regimes, etc., from sectoral agencies have become integral to import governance. While these measures serve legitimate public policy objectives, they have also introduced certain technical and procedural requirements that may pose practical difficulties to comply. The trend reflects India’s commitment to global standards and consumer protection, but it simultaneously raises concerns about ease of doing business, particularly when minor technical lapses attract penal provisions not only under the Foreign Trade Laws but also under the Customs laws.

Procedural lapses are minor deviations from prescribed rules that do not affect the core objective of the law. In the recent past, industries faced practical difficulties in adhering to procedural conditions, though unintentional and sometimes under inevitable scenarios; yet they are being penalised by the authorities in the field.

To obtain a CHIMS license, the application shall be submitted before filing the Bill of Entry with customs. It should be completed between 15 and 60 days prior to the expected arrival of the imports in India. Similarly, under SIMS, the importer can apply for registration not earlier than 60 days and not later than 7 days before the expected arrival of the import consignment. However, procedural delays sometimes occur in obtaining these licenses.

Importers may unintentionally fail to comply with procedural requirements like timely filing of returns, certificates, records, etc., though the substantial condition of ‘actual user’ or ‘end-use’ criteria for duty exemptions or authorizations has been met. However, the penalty should not be imposed for these bona fide procedural lapses without fraud, gross willful neglect, or intent.

Recently, in the case of M/s Voestalpine High Performance Metals India Pvt Ltd, the Customs Authorities imposed a penalty for importing the goods without having the necessary BIS marking, though it fulfilled the substantive requirements under the BIS Regulations. The Mumbai Bench of the CEASTAT has held that the object of BIS laws is to ensure that only goods of a prescribed standard enter the Indian market, and that this object is satisfied once the required marks are affixed prior to clearance. The absence of BIS marking at the time of import into India was a curable defect and, thus, the CESTAT set aside the confiscation and held goods cannot be held as ‘prohibited goods’ under Section 111(d).

In the case of M/s Greenlam Industries Ltd., the CESTAT, Principal Bench, Delhi, has dealt with the consequences of a procedural lapse in registering under the Paper Import Monitoring System (PIMS). The CESTAT has held that the non-compliance with a procedural condition should not be construed as a mandatory provision leading to harsh consequences. The timeline for obtaining PIMS registration, as specified in the notification, is couched in the term "can" which has been interpreted as directory and not mandatory. Since the importer had submitted the PIMS certificate before the clearance of the goods, it fulfilled the import condition and, thus, the confiscation and penalty were set aside.

In the recent past, there have been a plethora of cases of the above nature where the Tax Tribunals and Courts have come down to support the industries and rescued from the penal provisions and other consequences.

While adopting a liberal approach to procedural lapses would significantly reduce the burden on the importer and align with the government’s trade facilitation objectives, it may raise transitional questions that require clarity. It creates uncertainty and undermines the government’s ease of doing business objectives. For example, when BIS marking is affixed or SIMS/ CHIMS registration is obtained after minor delays, the regulatory purpose is fully achieved. Yet, penalties continue to be levied for technical errors such as incorrect document codes or delayed uploads caused by system glitches in a few cases.

Absence of such a liberal and uniform approach could lead to inconsistent practices across field formations and burden the industries and judiciaries with avoidable litigations, and in certain cases also lead to business continuity issues when goods are not allowed to be cleared from the customs ports. Therefore, as an ease of doing business measure, the CBIC may issue guidelines or instructions to adopt a balanced approach to deserving cases where substantive compliance exists, but where procedural compliance could not be met due to certain unforeseeable or rectifiable reasons. Such a measure would certainly uphold the principle that substance must prevail over form, while safeguarding the government’s regulatory objectives without burdening the trade.

About the authors: Rachit Jain is an Executive Partner, Kalirajan D is an Associate Partner and Saumya Raj is an Associate at Lakshmikumaran & Sridharan Attorneys.

Views expressed in the article are strictly personal.

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