Understanding the New Provisions for Importing Inputs Under Quality Control Orders

In today’s global trade environment, maintaining quality standards is not just a regulatory requirement but also a competitive necessity. Quality Control Orders (QCOs) are instruments that ensure imports adhere to strict safety, health, and environmental benchmarks. Mandated under the Bureau of Indian Standards (BIS) Act, 2016, these orders play a pivotal role in safeguarding consumer interests and promoting superior production standards. 

However, when it comes to industries engaged in export production, such as units operating under Advance Authorisation, Export Oriented Units (EOUs), and Special Economic Zones (SEZs), rigid compliance to QCOs can sometimes create bottlenecks. Recognizing this challenge, the government has introduced enabling provisions to streamline imports for these entities, while still maintaining the integrity of export-oriented objectives.

Key Highlights of the New Provisions

The government has recently amended the Foreign Trade Policy (FTP) 2023 through Notification No. 71/2023 and an updated Appendix 2Y. These amendments introduce a structured exemption framework for QCO compliance applicable to Advance Authorisation holders, EOUs, and SEZs.

1. Import Provisions for Advance Authorisation Holders

Advance Authorisation allows manufacturers to import inputs duty-free for export production. However, non-compliance with QCOs for such imports is now subject to specific conditions:

• Pre-Import Condition: Inputs must be used exclusively in manufacturing export products, with due allowance for wastage.

• Specific Exemption Endorsement: Holders must request explicit exemptions from QCO compliance, which will be endorsed on the Advance Authorisation. Imports without this endorsement must comply with mandatory QCOs.

• Restriction on DTA Transfers: Inputs or products manufactured using such inputs cannot be transferred to the Domestic Tariff Area (DTA), even if export obligations are regularised.

• Handling Unutilized Imports: Unutilized inputs must either be destroyed under supervision or re-exported.

In addition to the aboveAlternatively, importers shallcan pay applicable duties along with interest and composition fees on unutilised imports. on a Most Favoured Nation (MFN) basis, along with interest and a 10% CIF composition fee.

• Physical Exports Only: The exemption is strictly for physical exports, excluding deemed exports.

• Special Conditions for Textiles: For textile products, the export obligation (EO) period is limited to 180 days from the clearance date of the imported consignment.

Additionally, these exemptions are not extended to imports under the Duty-Free Import Authorization (DFIA) scheme.

2. Provisions for EOUs and SEZs

For Export Oriented Units (EOUs) and Special Economic Zones (SEZs), similar relaxations apply:

• EOUs and SEZs can import inputs without complying with mandatory QCOs if these are exclusively used for export production.

• Undertaking Requirements: Importers must submit an undertaking to Custom authorities and Development Commissioners or the Development Commissioner, affirming that these inputs will not be used for DTA clearance.

These exemptions, too, are limited to physical exports and are not applicable for deemed exports.

3. Expansion of Appendix 2Y: New Ministries Added

The DGFT has expanded the list of ministries and departments that have notified mandatory Quality Control Orders (QCOs). Goods falling under these QCOs, when imported by Advance Authorisation holders, Export Oriented Units (EOUs), and Special Economic Zones (SEZs), are now exempted from complying with the mandatory QCO requirements. This exemption applies to imported goods that are utilized or consumed in the manufacture of export products.

The government has also expanded the list of ministries and departmentsts exempting specific QCOs under Appendix 2Y.. Earlier limited to the Ministry of Steel, Department for Promotion of Industry and Internal Trade (DPIIT), and Ministry of Textiles, the updated list now includes:

• Ministry of Mines

• Department of Chemicals and Petrochemicals

• Ministry of Heavy Industries

• Ministry of Steel

• Department for Promotion of Industry and Internal Trade (DPIIT)

• Ministry of Textiles

This broader scope provides greater flexibility for exporters operating in diverse sectors, ensuring inputs critical for manufacturing export goods can be imported seamlessly.

Major impact of These Changes

These amendments underline the government’s commitment to enhancing the ease of doing business for export-focused industries while maintaining the robustness of its quality frameworks. By enabling specific exemptions from QCO compliance, these changes achieve the dual objective of:

1. Encouraging Export Competitiveness: Exporters can now focus on producing high-quality goods without being hindered by compliance issues at the input stage.

2. Promoting Regulatory Clarity: The conditions laid out for exemptions ensure that exemptions are not misused, maintaining the overall integrity of QCOs.

The inclusion of additional ministries and departments in Appendix 2Y further highlights the government’s intent to facilitate trade across a broader spectrum of industries.

Balancing Compliance and Flexibility

While these provisions offer welcome relief to exporters, the conditions imposed ensure that exemptions are used responsibly. The mandatory destruction, re-export, or payment of duties for unutilized inputs demonstrates the government’s intent to uphold quality and safety standards in the domestic market. Additionally, limiting exemptions to physical exports prevents potential misuse in the DTA.

Conclusion

The amendments to FTP 2023 strike a fine balance between facilitating trade and enforcing quality standards. By addressing the challenges faced by Advance Authorisation holders, EOUs, and SEZs in complying with QCOs, these changes empower exporters to compete globally while ensuring compliance with domestic regulatory frameworks. As global trade becomes increasingly competitive, such measures underscore India’s commitment to supporting its export industries while maintaining the highest quality benchmarks.

For exporters and importers, staying informed about these developments is crucial to leveraging these benefits effectively. With a focus on regulatory clarity and streamlined processes, these provisions pave the way for a more dynamic and export-oriented trade environment.