SynopsisThe new faceless customs assessment was meant to ease the documentation in import and export of goods. But it has doubled the work of traders, say experts.
“It really doesn’t work,” says Amrit Manwani, CMD of Sahasra Electronics, describing the faceless assessment programme in customs. Manwani, who owns two factories in the Noida Special Economic Zone (SEZ), says the much-publicised plan has increased the documentation work of importers and exporters, instead of reducing it.
“When faceless assessment was announced, we had high hopes. We thought it would be a great thing, as we could file our entry bills and shipping bills online. But the paperwork of the trading community has now doubled,” says the promoter of the electronic components manufacturing firm. He says it dismayed him when customs officials demanded that the documents be filed physically, too, with the official concerned in the SEZ region. “They say you have to come with the hard copy of the shipping bill and get it approved with a signature. The complex paperwork that used to be the norm in the erstwhile system very much remains.”
This certainly is in contrast to the idea behind the ambitious initiative, called Turant Customs, that the Central Board of Indirect Taxes and Customs (CBIC) launched in June 2020. It was to be implemented across the country by January 1, 2021. Turant Customs uses technology to drastically reduce the time and cost to clear imported goods. Such a move would help India improve its ranking on the ease of doing business index, reduce its logistics cost and do away with a slow and crippling paper-documentation system. However, in several cases, the new system has delayed the clearance process for importers and resulted in additional costs to the traders, claim stakeholders. These delays and the subsequent demurrage are making Indian products uncompetitive in the global markets. These issues are hurting the supply and value chain and leading to cancellation of export orders, say the stakeholders.
“If this is the treatment given to SEZ players, which because of their very status are supposedly accorded the highest priority when it comes to ease of business, one can only imagine the plight of a non-SEZ player,” says Manwani.
SEZs or special economic zones are duty-free enclaves and the entities in these areas have less restrictive regulations and are generally promised faster clearances. The key aim behind SEZs is to promote investments and spur exports. These entities bring business to the country and help to make an international market for Indian products. “Yet this is the treatment they get,” says Manwani.
iStockTurant Customs was supposed to reduce the time and cost to clear imported goods.The Opposition
A typical trading value chain has three segments: exporters and importers; the custom department; and custom handling agents, custom clearing or forwarding agents. Many stakeholders in some of these groups aren’t in favour of the faceless system.
Officials who have been part of a system for 30-40 years are mostly reluctant to change, says Nitin Kunkolienker, President of the Manufacturers’ Association of Information Technology (MAIT). Customs clearing and forwarding agents, for example, might lose some of their powers if the system becomes easier and more transparent, says Manwani. Some of these brokers are unhappy that a faceless system would suddenly negate the rapport and understanding they have developed with local officials over the years. “There is connivance and collusion with the local authorities. Vested interests have been hit,” says Sanjay Agarwal, President of the PHD Chamber of Commerce and Industry.
ET tried to get in touch with senior officials in the Department of Revenue, under the Ministry of Finance, and the CBIC for comments. But they did not reply despite multiple requests.
Customs brokers handle almost 98% of import and export transactions, says AV Vijayakumar, Chairman, Federation of Freight Forwarders’ Associations in India (FFFAI). There are some niggles in the execution of the faceless scheme, he says, adding that a key obstacle is officials not accepting the valuation entries filed by importers or customs brokers. Authorities also question the legitimacy of the benefits claimed under foreign trade agreements and ask for verification. At times, they quote some Supreme Court order and change the classification of goods. They have been lately doing this for the automobile and electronic industries. Traders are left with no option but to go for a re-assessment, which takes a long time and inflates the cost of goods. “Authorities sometimes term a valuation filed by an importer or customs broker as undervalued and arbitrarily load a higher value. This leads to reassessment and delays,” says the chief at the apex body of customs brokers.
Despite these complaints, the government’s intent and the speed at which the system was rolled out has won it some accolades. It has sent a strong message that the government is keen to simplify procedures and make India an investment-friendly destination, says Kunkolienker. “We never thought this would happen this fast. The problem is that there are some black sheep in every department who always work hard to destroy any good attempt by the government.”
The Misclassification Trap
The head of the apex body representing India’s ICT sector says officials misrepresent or misinterpret rules and judicial pronouncements. “We have to keep fighting it” and not let systems like the faceless assessment die.
iStockDespite many hiccups the government’s intent has been lauded by many.In a post-Covid era, technology is the key driver of processes across businesses. Faceless initiatives like Turant Customs will change the way business is done. India cannot afford to not automate systems if it wants to be a global export hub. The government has set an ambitious $400 billion as the export target for FY22.
Introducing the scheme shows the government’s commitment to ease bottlenecks in doing business and to make the country a factory for the world, says trade lobbies. “But the real-world experience has been of delays and additional costs. As a result, the trading community is frustrated with these customs officials. This is demoralising the domestic industry,” says Aggarwal of PHDCCI.
He elucidates how a “misclassification” can put an entity in trouble: PHDCCI had procured oxygen generators for Covid patients and the bill of entry was filed in July 2021. The machines attracted an integrated goods and services tax (IGST) of 5%. However, Aggarwal says, the customs officer concerned classified the machines under another head that attracts 18% IGST. The industry chamber got a show-cause notice and a demand for additional customs duty of Rs 11,56,179. Such acts create an atmosphere of mistrust and create hardship for the assessees.
Stakeholders agree that misdeclaration and under-invoicing have caused major revenue loss for the country, especially in the electronics industry. The government is, thus, wary of not letting traders slip through the loopholes. But that could lead to unfair treatment too, they point out.
Sometimes, industry observers claim, officials slap provisions related to smuggling in genuine cases of undervaluation. Firms have got show-cause notices for transactions done a year ago, with officials claiming those deals were “suspicious”. Such practices wreak havoc on the business community.
“Initially, we had lots of issues,” says FFFAI’s Vijayakumar. “The CBIC had been apprised of these and it had issued circulars to overcome the problems. The latest circular, issued on July 15, has significantly curtailed some issues. Some customs houses are not following that circular. This must be addressed.” Vijayakumar did not share specific instances.
Sahasra’s Manwani blames the trust deficit between the department and exporters & importers. Customs department officials think all businessmen indulge in tax thefts and malpractices, and businessmen continue to think that all bureaucrats are out to get money from them, says Manwani.
Custom of Questions
The faceless system is a “good beginning” to plug the loopholes, says Avneet Singh Marwah, CEO at Super Plastronics Pvt Ltd. But we cannot avoid human intervention. In trade, a customs official might ask for justification from an importer or exporter. How such a situation is handled will depend on the individual, says the CEO of the Noida-based TV manufacturer.
iStockThe problem areas: Firms have got notices for transactions done in the past, with officials claiming those deals were “suspicious”.A faceless assessment framework removes unnecessary human intervention and anonymises the process. But that can cut both ways.
In the erstwhile framework, Kunkolienker explains, offline assessments were done at the ports. Customs officials would know if an importer is a regular, genuine or a fraud. Faceless assessment has removed that valuable human intelligence from the chain. Also, there is no clarity on a lot of backend processes as these are being done at various locations, says Kunkolienker.
This is especially true of valuing imported goods, which is done by the special branch of the customs. The MAIT chief gives an example: The customs officials in Goa would know the usual traders operating from the port there. In the previous system, when such a trader gets a consignment and there is a disagreement over the value of the goods, the officials would initiate an investigation but allow the import. That way, trade wasn’t stopped. In the new system, however, the goods coming through the Goa port could get held up or confiscated over a valuation issue as the processing is being done remotely, and officials here would not know about the importer — good or bad. “We need to scrap the special valuation branch concept. The government can centralise these operations from Delhi. Why do we need a customs house in every port?” asks Kunkolienker.
While valuation is the main litigation issue in the import value chain, another major one is the classification of products.
Lack of Streamlining
In today’s dynamic world, there is a new product or innovation every month. The country’s customs classification policy is more static. An official can label certain electronic products as mobile phones, cameras, phablets or even as personal computers, say experts. “How do we resolve such disputes? These have hurt a lot of industries. We have been demanding the setting up of a convergence cell, comprising officials of the ministries of IT, customs and commerce. In the absence of well-defined guidelines, industries continue to bleed because of high overhead costs,” says Kunkolienker.
iStockThere are many processes of the department which are still to be integrated with the faceless system.The President of the Indian Importers’ Chambers of Commerce & Industry, AK Saxena, can recount many such problems. “If a customs officer goes on leave, no other officer can operate his computer to clear a pending file. This leads to heavy demurrage. We have seen many cases where perishable goods have been ruined because of this delay.”
He says they had met a customs commissioner in Delhi to discuss these problems. “I told him the faceless assessment scheme is adding to the difficulties of importers, it leads to a lot of confusion.” He also presented a detailed note to senior NITI Aayog officials. Both officials, Saxena says, promised to look into the matter and take it up with the CBIC.
Complications are not uncommon during a changeover, says MS Mani, Senior Director, Deloitte India. “Some initial challenges are typical when we move from legacy practices to new practices. These issues will be quickly resolved and the overall time and cost to clear goods will come down significantly.” He contends that the faceless initiative has brought in “significant improvement” by anonymising the assessment process, removing physical interface and ensuring uniformity of assessment across locations. The new framework “may need more time” to bolster sector-specific specialisation and to enhance workload for efficient utilisation of manpower and resources.
Traders, however, point out that several related processes of the department haven’t gone online or have not been integrated with the faceless system. How can work happen in silos when the idea is ease of doing business, they ask.
The faceless scheme needs a facelift, quickly.
(Edited by Ram Mohan)
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