India enacts significant changes to Import Tariff Act: PwC

In brief

India has enacted significant changes in the classification of goods under the India Customs Tariff Act, effective January 1, 2022, that will affect duty rates and exemptions.

These changes follow release by the World Customs Organization (WCO) of the 7th edition of the Harmonized System (HS) nomenclature, also effective January 1, 2022. Because India is a party to the HS convention, it has made these numerous changes in its Customs Tariff Act to follow the WCO’s latest HS release.

Action item: Taxpayers need to analyze the impact of these significant changes on their supply chains. These changes will require careful evaluation to assess their impact on Indian imports and to identify correct tariff payments, tariff exemptions, and timely compliance.

In detail

The changes to the India Customs Tariff Act are extensive: 351 amendments at the six-digit level, and the replacement of 347 tariff headings with more than 1,000 new tariff headings. The amendments also include the addition of new explanations, exclusions, and inclusions from chapter notes, and reshuffling of tariff headings within the same chapter headings.

The tariff headings of imports affecting industry in general, such as imports under Chapters 70, 84, and 85, have undergone numerous changes.

The following are a few examples of the latest changes:

New tariff entries such as HS Code 8708.22.00 for windscreens used in motor vehicles; electrical and electronic waste and scrap under heading 8549, with multiple sub-headings (formerly classifiable under the applicable subheadings of chapters 38, 70, 71, 84, 85, 90, 91, and 950); HS Codes 8517.13.00 and 14.00 to cover smartphones and other telephones for cellular networks; and HS Codes 8539.51.00 and 52.00 for LED modules and lamps.
New explanations in the chapter notes such as the addition of definitions of smartphones, flat-panel display modules, LED light sources, and semiconductor devices in Chapter 85.
Reshuffled designations under the same chapter, such as the HS code for road tractors for semi-trailers moved to 8701.21.00, 22.00, 23.00, 24.00, and 29.00 from their earlier classification under 8701.20.10, and 20.90, Motor Vehicles for transport of goods.
Complete replacement of some headings, such as 8539.50.00 for LED lamps replaced with 85.39.52.00.

Assessment of impacts

These changes could have numerous impacts, such as:

Changes in the classification of goods.
Changes to tariff rates, excess/short exemptions claimed, and compliance requirements under related legislation.
Different benefits under programs such as duty drawback and the Remission of Duties and Taxes on Export Products scheme (RoDTEP).
Changes to benefits claimed under Free Trade Agreements (FTAs); for example, coverage of new entries in FTAs or deletion of old entries from FTAs could change a company’s effective tariff rate.
Potential changes in reporting made to the customs/ DGFT authorities, such as filings under the Customs (Administration of Rules of Origin under Trade Agreements) Rules, and under the Manufacturing and Other Operations in Warehouse Regulations resulting from classification changes.
Possible delays in import clearances, demurrage charges, and other procedures resulting from disputes over HS codes.
Modifications to the master data maintained in the ERP.