Union Commerce Ministry has threatened to bring back the licence raj to control the import of non-essential goods if traders fail to declare the correct product classification of the goods they import into India and ship it under the residual classification "other items". The ministry action comes two days after Union Minister of Commerce & Industry and Railways, Piyush Goyal publically stated that no imports will be allowed without HSN code into the country.
The "other" problem is very high in over 170 tariff lines whose cumulative imports could exceed $68 billion. Most of these goods belong to broad categories and sectors such as chemicals and petrochemicals, telecom, heavy industries, electronics and steel.
In a letter on January 17, the Directorate General of Foreign Trade (DGFT) reminded the trade and industry to specify the eight-digit HS Codes wherever it exists while filing their 'bills of entry' at the time of import. The authority had in October last year flagged that many importers are not doing the due diligence in mentioning correct HS Codes and are casually using it for 'others' category, which is a residual code category. The latest trade notice says that despite clear advisory given earlier, imports under the 'others' category continue to be widely used in the bills of entry. The DGFT notice stated that the matter will be reviewed soon and in the event of non-compliance, and continued mis-classification by the importers, "government may consider bringing a licensing regime" for all items imported under the "others" category by shifting these items from "free" to "restricted" category. It also asked the traders to suggest appropriate HS Codes at eight-digit level, if existing codes are not sufficient to cover the goods they are importing at the moment.
Misclassification of goods is done to camouflage the actual size of imports of goods. It can result in customs duty evasion as duty changes according to tariff codes. The Commerce Ministry also says that misclassification results in import of low-quality products.
Along with the plans to move such items to the "restricted" category that requires import licences, the government can also increase the customs duty on them to discourage imports and strengthen local manufacturing. Setting mandatory quality standards for such products are also being discussed as less that 10 percent of India's national tariff lines are regulated for safety, health and environmental friendliness.