On August 24, we have written to the Directorate General of Foreign Trade (DGFT) requesting for clarification regarding implementation of the import licence for import of laptops, tablets, all-in-one personal computers, and ultra small form factor computers and servers.
This is in reference to the DGFT Notification No.23/2023 dated August 3, 2023, (the Notification) regarding amendment in Import Policy of Items under HSN Code 8471 wherein imports of Laptops, Tablets, all-in-one personal computers, ultra small form factor computers and servers (covered items) are brought under the ‘restricted’ category which could earlier be imported freely.
Our submission highlighted the following:
- Clarify that the Notification is not applicable to imports by the STPI units.
Para 6.01(d) of the Foreign Trade Policy 2023 (FTP) states that all types of goods, except for prohibited goods may be imported by STPI units. Further, Para 6.05(b) of the FTP mentions that the Letter of Permission/ Letter of Intent issued to an STPI-unit by concerned authority, would be construed as an authorisation for all purposes.
Therefore, we understand that STPI units will not require any additional import authorisation for importing restricted items.
However, imports coming into an STPI unit must undergo customs procedures and therefore can be questioned at the border. Moreover, as per feedback from the industry, different STPI authorities are interpreting the need for an additional import licence differently. Some are asking for specific approval by DGFT and mentioning that there is a cap on the overall number of items that can be imported.
Accordingly, it is requested that a clarification regarding the applicability of the Notification on STPI units be provided by DGFT. This will enable the industry to be fully compliant with the Notification and undergo seamless customs clearance at the time of import.
Recommendation: Give instructions to on ground authorities clarifying that units in the Software Technology Parks of India (STPI), are not required to obtain an import licence for importing covered items.
- Clarify that the Notification is not applicable to imports by the Special Economic Zone (SEZ) units.
Rule 27(1) of the SEZ Rules states that an SEZ-unit can import or procure from Domestic Tariff Area (DTA), other SEZ units or STPI units, all types of goods that are required for authorised operations. Further, the proviso specifies the approvals required for procuring prohibited items, and for procuring restricted items from DTA for specific purposes. However, the SEZ rules do not require any additional import authorisation that may be required for importing or procuring restricted goods for authorised operations by SEZ units.
Therefore, we understand that SEZ units will not require any additional import authorisation and all applicable conditions are as provided in the SEZ Rules.
However, imports coming into an SEZ unit must undergo customs procedures and therefore can be questioned at the border. The customs authorities may take a view that the SEZ Rules are silent on whether the letter of permission is the required authorisation for all purposes and therefore, they may ask for an additional import authorisation. Moreover, as per feedback from the industry, different development commissioners are interpreting the need for an additional import licence differently. Some are asking for specific approval by DGFT and mentioning that there is a cap on the overall number of items that can be imported.
Accordingly, it is requested that a clarification regarding the applicability of the Notification on SEZ units be provided by DGFT. This will enable the industry to be fully compliant with the Notification and undergo seamless customs clearance at the time of import.
Recommendation: Give instructions to on ground authorities clarifying that units in the SEZ, are not required to obtain an import licence for importing covered items.
3. Clarify whether the Notification is applicable to covered items that are capital goods being used for the provision of goods and services.
We refer to para 1 (vi) of the Notification:
Laptops, tablets, all-in-one personal computers, ultra small form factor computers and servers which are an essential part of a capital good shall be exempted from the import licencing requirements.
For the ITeS industry, the covered items function as capital goods which are used for the provision of services. They may or may not be embedded into another capital good.
For example:
- a server may function as a server itself. It may also be a part of a server rack which may be a part of a larger automatic data processing machine, and hence an essential part of a capital good.
- A laptop with advanced computing capacity may function as a laptop or as a server. It may also be attached to a data processing machine, and hence become an essential part of a capital good.
In the above situations, a laptop, computer, server can function as capital goods themselves or be plugged into another capital good. This function is interchangeable. It may be difficult to ascertain at the time of import that an imported covered item would be used as a capital good itself or as an essential part of a capital good. Therefore, for ease of doing business and to avoid ambiguity and ensuring proper compliance, we request that the exemption given under para 1(vi) be made available where covered items are capital goods.
Recommendation: amend para 1(vi) as follows:
Laptops, tablets, all-in-one personal computers, ultra small form factor computers and servers which are capital goods shall be exempted from the import licencing requirements.
4. Exempt the data centre industry from the notification until manufacturing capabilities in India are developed.
As per feedback from the industry, high-end high-capability servers that are needed for establishing data centres are not available in India, and therefore these are being imported. As per news reports of July 2023, we understand that some companies have committed to manufacturing high-end servers in India, however, it is reasonable to expect that starting the production and the distribution of such items will take some time.
Considering this, the requirement to obtain a licence for importing servers can be a significant roadblock for the data centre industry.
Recommendation: Grant an exemption to the data centre industry from the requirement to obtain an import licence for importing servers. This exemption may be revised once high-capacity servers are available adequately in India.
5. Make the process for obtaining an import licence streamlined and efficient.
As per feedback from the industry, currently the turnaround time for granting an import licence takes between 7-12 weeks. We understand that the process for granting an import licence requires the recommendation of the Inter-Ministerial Committee, which meets once a month.
In this regard, we highlight the concerns and recommend solutions below. These concerns exist even today as the industry applies for import licences for restricted items. However, currently, the number of restricted items for which an import licence is required by the IT/ITeS industry is less, and consequently the number of applications needed to be filed are less. Now, with the Notification soon to be in effect, the expanded scope of the items and large number of applications will result in compounding the existing concerns, leading to significant challenges for the industry.
Concerns with the import application process
-
- The IT/ITeS industry imports laptops, computers and servers due to unavailability of adequate items in India. With the import license, the time period for import cycle for the industry is expected to be increased to 13-19 weeks or 3 to 5 months, which is seen as a significant concern, assuming that the imports itself are not restricted. To illustrate:
- Once a requirement for acquiring a laptop, computer, server etc. is received, it may take upto 2-3 weeks for the industry to close the negotiations with the manufacturer abroad, which will lay out the details of price and specifications.
- Thereafter, it normally takes another 4 weeks for the manufacturer to fulfil the order and items are received by the company in India. Thereafter, either the company uses the items captively (i.e., for use by employees, use for providing IT enabled services etc.) or trades it further. Given that the industry competes in the global market, the competitiveness of the supply chain is an advantage that customers value and prefer.
- With the Notification in effect, if 7-12 weeks time is added to the overall timelines for the companies in India to provide the services to the customers, or if there is uncertainty in timelines, it will significantly impact their competitive advantage. This will have an overall negative impact on the industry and ultimately, our services exports.
Recommendation: To enable ease of doing business and avoid disruption to business activities, we request that the turnaround time of granting the import licence be reduced to 4-6 days.
-
- Review the requirement of model number to be provided during application: As per the current application process for import licence for restricted items, details of model number need to be provided in the application. In practice, the details of the model number are received from the manufacturer only towards the end of the manufacturing process. Sometimes, it is also possible that the model number details received from the manufacturer are different from the actual imported item. This happens because of reasons such as, the initially manufactured item turned out to be defective and therefore a different item with the same specifications is sent in the consignment. These variations in the model number may be intimated only just before import, and if an application is made at this time, waiting for 6-12 weeks may lead to significant delays.
Recommendation: To enable ease of doing business and avoid disruption to business activities, we request that the requirement to provide make and model number be removed. Application form must be short and ask for minimal details such as generic description of the items. Thereafter, a bulk licence must be granted for a specified period of time. In any case, DGFT has access to line-by-line details of imports made as per the import declarations submitted in the Bill of Entry. Therefore, post-import monitoring may be done as needed. In addition, we request that the turnaround time of granting the import licence be reduced to 4-6 days.
-
- Review the information needed in the import application process: We understand that some of the details and information sought in the application form may be irrelevant in case of importing new items. For example, details of the residual life of the imported item, details of the installed capacity of the unit that is importing the item, details of the capacity of the imported item etc. While we understand that these details may be relevant in case of importing used items, as the question of whether the items will be used or discarded as e-waste is pertinent to be evaluated before granting a licence. However, it may not be relevant in the case of importing new items for trading purposes, as the question of the life and use of a product need not be ascertained. Providing some of these details may not be possible, for example, there is no meaning of the term ‘residual life’ for new items, because residual life of a product is defined only after it has been refurbished. The Application form also asks for details of ‘model number’.
Therefore, in this case, it is not clear if the appropriate response in the application form against this question will be ‘Not Applicable’.
Recommendation: We request that the current import licencing process be evaluated and revamped in light of the fact that new laptops, tablets, computers and servers may be imported by the industry in large quantities for either captive use or trading.
-
- Review the requirement for multiple port wise licence: As per the current process, separate registration of the import licence must be obtained for each port. This is because even though the process for filing application is digital, the import licence is sent to the importer via post, in physical form. There is no integrated channel of communication between DGFT, customs authorities and port authorities, to share information of valid import licences against each Import-Export Code (IEC). Currently, in case the port of registration is different from the port of import, either the items are moved to the port where the registration has already been obtained, or additional registration for the port of import is sought. This is possible because items are few in number and the instances of importing restricted items are also few. Further, the registration process at different ports is different. Some port authorities ask for a bank guarantee, the processing timelines is different etc. The challenges in obtaining registrations at different port will now be compounded because of the increase in the number of restricted items being imported.
Recommendation: the customs clearance systems must enable centralised registration process for all DGFT licences, where the information of import authorisation can be automatically shared with all ports against each IEC. If a separate registration is required for ports, it should be integrated for all ports. This will enable the utilisation of the import licence across all ports and be a significant step towards ease of doing business and in line with making the processes digital.
-
- Need to define timelines for import license process: As per the current process of obtaining an import licence for restricted items, if there is a deficiency in the Application form, a deficiency memo is received by the applicant. However, there are no timelines prescribed for receiving such memo. This is likely to further contribute towards the uncertainty of timelines associated with applying for an import licence.
Recommendation: We request that definite timelines must be prescribed for the number of days from the submission of application within which deficiency memo may be issued, the number of days within which applicant may respond to the deficiency memo and the number of days within which the application may be disposed-off (whether granted or rejected) thereafter.
-
- Impact of rejection of applications needs to considered: Currently, very few number of restricted items are being imported and there is no provision to appeal the decision to reject the application for import licence. However, with the new requirement for all imports, the lack of domestically available options and the all-pervasive nature of laptops and computers which are used by all companies, including SMEs and start-ups, rejection of an import licence may lead to significant disruption for businesses.
Recommendation: We request that the application form must ask for minimal details and generic description of products. Thereafter, a bulk licence must be granted for a specified period of time. In any case, DGFT has access to line-by-line details of imports made as per the import declarations submitted in the Bill of Entry. Therefore, post-import monitoring may be done as needed.
6. Whether the Notification is applicable to ultra small form factor servers and ultra small form factor computers, or, servers and ultra small form factor computers.
We refer to para 1 of the Notification:
Import of laptops, tablets, all-in-one personal computers, and ultra small form factor computers and servers falling under HSN 8471 shall be ‘restricted’ and….
Thereafter, we refer to the paragraph titled ‘effect of notification’ of the Notification:
Import of laptops, tablets, all-in-one personal computers, and ultra small form factor computers, servers under HSN 8471 is ‘restricted’ with….
We also refer to the paragraph titled ‘effect of notification’ of DGFT Notification No. 26/2023 dated August 4, 2023:
Import of laptops, tablets, all-in-one personal computers, ultra small form factor computers and servers falling under HSN 8471 till….
Given the difference in the way the list of covered items has been mentioned in the notifications, it is not clear whether the Notification applies to:
- both, ultra small form factor servers and ultra small form factor computers, or,
- to servers and ultra small form factor computers.
Recommendation: Clarify whether the Notification is applicable to ultra small form factor servers and ultra small form factor computers, or, servers and ultra small form factor computers.
For more information, kindly write to garima@nasscom.in with a copy to policy@nasscom.in.
