Export-Import Compliance Explained: Understanding the Rules, HS & AD Codes

The process of imports and exports in India involves getting the necessary licences, arranging for transportation, getting customs clearance, and paying/receiving payments. Exporters and importers are required to obtain an Importer-Exporter Code (IEC) from the Directorate General of Foreign Trade (DGFT). An importer must get an import licence for the product, while exporters need a Registration-Cum-Membership Certificate (RCMC).

Here is a basic overview of each of these processes:

Process for Importers

• Preparation Stage: Ensure you have an IEC, Authorised Dealer (AD) code, import licence, and GST registration (for certain companies).

• Pre-import Checklist: Get a forex-enabled account from the Exchange Control Department. Then, register on the Indian Customs portal and prepare the basic supporting documents and pre-import clearance.

• Import the Product: Place the order, get regulatory approvals, and submit the exporter’s documents to your bank for clearance. Finally, settle the payment.

Process for Exporters

• Basic Registration: Ensure to have a PAN card, GST registration, IEC, and RCMC for exports.

• Pre-shipment Process: Identify HS Code, destination market, and buyers. Negotiate with the buyer and confirm their order placement.

• Shipment Process: Label and package the product, apply for marine and cargo insurance, and prepare the shipment bill. Submit the necessary documents to Indian Customs and your bank.

• Realisation of Export: Follow up with your bank till receipt of payment. Get feedback from the buyer and confirm the receipt.

Here are the mandatory requirements for importing and exporting goods:

Prerequisites for Importers

• IEC: A 10-digit Importer-Exporter Code from DGFT is necessary to send shipments, clear customs, and send or receive forex payments. An IEC is not needed for service imports.

• Import Licence: An importer can apply for either a general import licence to import goods from any country or a special licence for specific countries. These licences are valid for 18-24 months.

• Advance Authorisation: For certain products, importers must get an advance import licence. This includes fuel, oil, catalysts, and raw materials used for exports.

• Import Declaration: Importers need to furnish an import declaration as a Bill of Entry and Business Identification Number (BIN) to the customs authorities along with supporting documents, like a bill of exchange and commercial invoices. This declaration shows the full value and quantity of the imported items.

• Letter of Credit: After getting confirmation of the shipment, the import business will request its bank to issue a Letter of Credit to the foreign exporter.

• Insurance Certificate: Importers need to provide marine insurance policy cover for C&F and FOB contracts and may need to present the insurance certificate.

Prerequisites for Exporters

• IEC: Export businesses must have a valid IEC to receive shipments.

• RCMC: Exporters must obtain a Registration-cum Membership Certificate (RCMC) from the relevant Export Promotion Council (EPC). For uncategorised products, the RCMC is issued by the Federation of Indian Export Organisations.

• Current Account: The exporter needs to have a current bank account with forex transactions enabled with an AD-certified bank.

• Export Licence: This is applicable only for exporting restricted items or for specific export promotion schemes.

• Shipping Bill: It’s the primary document for customs clearance. Once the exporter submits the required declaration, a shipping bill is generated with a shipping bill number.

• Bill of Lading: This document is used by the carrier or freight forwarding company to declare that they have received the product in good condition.

• Commercial Invoice cum Packing List: A merged document with the full commercial invoice and a packing list (for multiple products only).

• Certificate of Origin: Specifies which country the product was manufactured in.

• Proforma Invoice: Agreement between buyer and trusted seller for advance payments.

• Letter of Credit: Issued by the buyer’s (importer bank).

• Inspection/quality Certificate: Issued by the relevant authority after inspection of the order.

• Insurance Certificate: For CIF (cost, freight and insurance) contracts, the exporter must purchase marine and cargo insurance and obtain the insurance certificate.

Understand the legal framework defining export-import compliance procedures in India with the following:

Key Indian Legislations

Customs Act: The Customs Act, 1962 and the Customs Tariff Act, 1975, lay the rules of exports and imports in India and the functioning of the customs authorities.

Foreign Trade Policy: India’s Foreign Trade Policy, 2015-20 and FTP 2023 are measures by the Indian Government to boost the country’s export activities while addressing structural inefficiencies.

Foreign Trade (Development and Regulation) Act: This act defines the central government’s role in regulating imports and exports and licencing requirements for certain products.

Export (Quality Control and Inspection) Act: It defines the role of the Export Inspection Council and ensures that the exported products are meeting quality standards set by buyer countries.

Goods and Services Tax (GST) Act: Exporters can get refunds on taxes paid for manufacturing export goods.

International Framework

WTO Agreements: India is a signatory to several World Trade Organisation (WTO) agreements and must abide by them. This includes the Technical Barriers to Trade (TBT) agreement, Technical Regulations and Standards and the Sanitary and Phytosanitary (SPS) Agreement.

Bilateral Trade Agreements: India has bilateral trade agreements with many countries, allowing for preferential rates and simplified import and export compliance.

FTAs and PTAs: In 2024, India had 13 Free Trade Agreements (FTAs) and 6 Preferential Trade Agreements (PTAs). FTAs provide importers and exporters with mostly unrestricted opportunities, while PTAs are more limited in scope.

What Is HS Code?

Harmonised System (HS) codes are identification codes used to classify products and raw materials for international trade. Their use is accepted by customs authorities around the world and governed by the World Customs Organisation (WCO). In India, the Indian Trade Classification (ITC) HS codes are used for import-export purposes.

It is an 8-digit national classification system used for customs processing in line with international norms. Each code defines a certain goods class or category, allowing importers to comply with specific regulations regarding restricted goods and licensing. Businesses can classify products by their shipping HSN code and use this to determine whether they need import licences.

Structure of HS Codes

The 8-digit ITC-HS code is divided into two schedules, where Schedule I refers to its import rules and regulations, while Schedule II deals with export rules. Schedule I contains 22 sections, which are divided into chapters (99 in total) and further into subheadings. Schedule II contains 98 chapters defining export policies.

Let’s consider an HS code 3015485 to understand the structure:

• The first two digits from the left are 30. This represents Chapter 30, pharmaceutical products, under ‘Section VI- Products of the Chemicals or Allied Industries’.

• Four digits from the left are 3015, representing the heading.

• Six digits from the left are 301548, which represents the subheading.

• Eight digits from the left are 30154855, which shows the regional tariff.

What Is AD Code?

The authorised dealer (AD) code is a 14-digit unique identifier issued by Indian commercial banks under the Reserve Bank of India (RBI) guidelines. It links the bank where the exporter holds a business current account to the customs authorities for clearance and is crucial for international transactions.

Exporters are required to submit the AD code to the Indian Customs along with the Importer-Exporter Code. It ensures export-import compliance by helping the authorities track payments for illicit activities and money laundering. This code helps importers and exporters avail government subsidies and tax incentives from various schemes. The code is also needed for documents, like Bill of Lading, Letter of Credit, etc.

How to Get an AD Code?

Make sure to have a current account with an Indian commercial bank authorised by the RBI to provide AD codes. Here is the process involved:

Step 1: Visit your bank branch in person and ask the representative to apply for an AD code.

Step 2: Provide the necessary documents, including your business PAN, bank account details, and IEC.

Step 3: Once your bank approves the AD application, you will get an AD code letter with the number and the bank’s letterhead.

Step 4: Register your AD code offline by going to the customs office at the ports or online on the Icegate portal of the Indian Customs. Then, register and go to ‘Filing Services’ > ‘e-Sanchit’ and submit your AD code along with supporting documents.

India allows all businesses to export and import any items with a valid IEC code, other than some restricted items. For these, importers and exporters need special licences. Businesses must maintain export-import compliance with the following:

Import Restrictions

Licenced Items: Licenced or restricted products can be imported only with an import licence from the regional licencing authority. These licences are valid for 18-24 months. Defence items, new drugs, seeds and bees are some restricted items.

Prohibited Items: These items cannot be imported into India through regular channels, even with permissions. Wild animals, unprocessed ivory, tallow fat, oils of animal origin, etc., are some prohibited items.

Canalized Items: These items can only be imported via special canalizing agencies such as PEC Limited, various state cooperative banks and rural regional banks. Bulk agricultural products, specific pharmaceuticals and petroleum products are canalized items. The terms and conditions of these exports are stated in our country’s EXIM policy.

Export Restrictions

Restricted Goods: The exporter must obtain an export licence for these goods. Examples include dual-use items and sensitive technology.

Prohibited Goods: These goods cannot be exported at all. Examples include wild animals and animal products with serious infection risks.

STE Goods: These goods can be exported only via designated State Trading Enterprises (STEs). Examples of STEs include the Indian Oil Corporation Ltd., Food Corporation of India, National Fertilizers Ltd., Indian Rare Earth Ltd., National Dairy Development Board, etc.

Indian businesses looking to participate in international trading need to ensure import and export compliance with a variety of rules, regulations and international standards. Before buying and selling goods, keep a checklist of the essential registrations, certifications, quality control standards and customs duties. It’s also advisable to research your buyers and choose a reliable shipping partner.

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