Explaining the rules on who evaluates imported goods from related party

Questions from exporter, travel agent, packing company about taxes answered.

We are an EOU in Rajasthan. We want to import machinery from our joint venture partner (49 per cent shareholder in the EOU). We want to understand how the custom clearance, Bill of Entry, etc will be complied with. Do any specific rules or compliances need to be complied with?

This will be an import from a related party. The Customs Valuation laws require such transactions to be examined as to whether the relationship has influenced the price. The Central Board of Excise and Customs had issued detailed instructions vide Circular Nos. 1/98-Customs, dated January 1, 1998, 11/2001-Customs, dated February 23, 2001, 20/2007-Cus., dated May 8, 2007, and 5/2016-Cus., dated February 9, 2016, prescribing the procedure to be observed by Custom Houses for referring cases to Special Valuation Branches and time lines to be followed for finalising such cases. You may go through these instructions. They are applicable for free of cost and duty-free imports also. The other procedures are the same as for your imports from unrelated parties. 

We are tour operators. We sell tour packages to international tour operators and they in turn resell the same to their customers. These foreign tourists (customers) arrive in India and we extend our tour operating services to them (as per the agreement we have with international tour operators). The value of services rendered to these foreign tourists is charged to international tour operators’ A/C, and they periodically settle their dues through foreign remittances. Our services are considered service exports as per 9.51(ii) of FTP and we are entitled to SEIS claims. However, according to JDGFT, para 9.51(ii) pre-supposes the physical presence of both the service provider (us), and the service recipient (international tour operator) in India at the time of delivery of service, and since this is not being followed, we are not entitled to SEIS claim. Your view on the above is requested.

I think there is some merit in  DGFT taking a view that since you are billing the international tour operator located abroad and not tourists, your service does not fall under Para 9.51 (ii) of FTP. However, in my view, the SEIS benefit cannot be denied, as the service would then get covered under Para 9.51 (i) of FTP, i.e., supply of a “service” from India to any other country (Mode 1 – cross-border trade).

We avail of packing credit, running account facility. We presented the export bill for negotiation/purchase to the bank. Can the bank allow the proceeds of bill negotiated/purchased to be credited to our current account when there is no overdue in the packing credit account? We have not availed of packing credit against the order under which the export bill in question is drawn. The account is otherwise regular. Please clarify and advise.

When there is no outstanding in the packing credit account, I do not see any reason why the bank cannot accede to your request to credit the proceeds of your export bill negotiated/purchased to your current account.