Customs clearance: Heartless, not faceless; why has faceless assessment brought so much angst to trade?

October 20, 2020 5:30 AM

Customs clearance is not just assessment, but is all about logistics and supply chain management, of which customs and payment of duties/taxes is a very small part.

The other issues raised by exporters were about MEIS (Merchandise Exports from India Scheme) funds and faceless assessment by customs authorities.The other issues raised by exporters were about MEIS (Merchandise Exports from India Scheme) funds and faceless assessment by customs authorities.

By Ajay Agnihotri

Just two months ago, the introduction of faceless assessment was being celebrated as a major reform by the Central Board of Indirect Taxes and Customs (CBIC). Now, going by stakeholder feedback, it is nothing short of a disaster. All freight forwarders are complaining of delays in clearance and a general mayhem in customs clearance. In a web-conference meeting held earlier this month, representatives of the Federation of Freight Forwarders’ Associations in India (FFFAI) informed the CBIC that clearance times were delayed by over 48 hours as a rule, and at least 20% of the import consignments were being delayed by a week or more.

Not only is this pinching India with a slide in Ease of Doing Business rankings, but is also adding to costs through higher demurrage. A number of export industries are very dependent on timeliness of imports. Delays (and demurrage) not only add to costs, making then uncompetitive, but also disrupt supply chain, leading to cancellation of export orders. At least two leading automobile manufacturers, Ford and Hyundai, have represented against delays including the effect on exports. Similarly, AEO importers are also known to have represented against delays, including some seeking exemption from the ‘faceless’ process.

Why has faceless assessment brought so much angst to trade? Is it a case of the doctor misdiagnosing the ailment or just an aspirational idea for TRPs? The answer to this lies in understanding the customs clearance environment. The customs clearance is not a mere assessment process. Instead, it is all about logistics and supply chain management, of which customs and payment of duties/taxes is a very small part; which, in any case, are being completed digitally. The actual process of taking out goods through airlines, shipping lines, ports and airports, and onto domestic transport, is an intensively physical process.

The automation of customs process, which has been going on since 2005, was to clear 80-90% of imports and exports without any officer interface. This programme is being managed by the Directorate General of Analytics and Risk Management, earlier called the Risk Management Division, through use of complex algorithms to select imports and exports for facilitation. Once a consignment is ‘facilitated’, neither an officer gets to see the importers’ declaration (bill of entry for imports or shipping bill for exports), nor does he get to examine the goods. So, 80% of the cargo does not experience customs intervention any way. Now, why did the CBIC undertake such a massive revamp of assessment for the remaining 20% consignments and upset the apple cart? Was it just a case of ‘keeping up with the Joneses’ (read: CBDT)?

In the case of income tax or GST, the entire system is accounts based. In the case of income tax, assessment is an annual affair and there is nothing time-sensitive about it. In the case of GST, the government scaled new heights in reform by dispensing with assessment. If you have no assessment, where is the need for any facelessness. In contrast, the customs clearance of goods is physical, highly time-sensitive and goods cannot be removed without payment of duty. In such an environment, how crippling will faceless assessment be, only time will tell. Until then, we shall wait and watch how the CBIC plans to execute the Prime Minister’s profound musing on LinkedIn on April 19, 2020, when he noted: “India, with the right blend of the physical and the virtual, can emerge as the global nerve centre of complex modern multinational supply chains in the post-Covid-19 world.”

The author, an advocate, is a retired IRS officer

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