Navigating the Legal Labyrinth: The Regulatory Landscape for Importing Second-hand Capital Goods into India

Exim Vidya

India’s need for the import of Capital Goods continue and we continue to be a net importer of Capital goods. One can understand the need for Imported Capital goods on account of the availability of advanced technology could be well understood, however, we continue to import second-hand capital goods also in large numbers. If you deep dive into the reason for such imports you can notice several benefits.

ADVANTAGES OF IMPORT OF CAPITAL GOODS

Cost Savings: Second-hand capital goods are typically cheaper than new ones. This can significantly reduce the initial investment required for setting up or expanding operations, allowing businesses to allocate their capital more efficiently.

Faster Setup: Since second-hand capital goods are readily available, beneficial for industries where time-to-market is critical, as it allows companies to start operations sooner and capitalize on market opportunities.

Access to Advanced Technology: Importing second-hand capital goods may provide access to technologies that are otherwise unavailable or prohibitively expensive in the domestic market.

Flexibility: Second-hand capital goods offer businesses greater flexibility in adjusting their production capacity to fluctuating demand levels. Instead of committing to the high cost of new equipment.

Environmental Sustainability: Supporting Circular Economy. Reusing and repurposing second-hand capital goods can contribute to environmental sustainability by extending the lifespan of existing equipment and reducing the demand for new manufacturing, which in turn reduces resource consumption and greenhouse gas emissions.

Reduced Risk – Importing second-hand capital goods can be advantageous for businesses looking to test new markets or product lines without making a significant upfront investment.

However drawbacks of imported Capital Goods such as 1) service and spare support 2) Condition of CG 3) Obsolesce of technology 4) Residual life of CG 5) Operating cost & Efficiency 6) Regulations 7) IPR issues 8) Post import Compliance etc. Having decided strategy to go for Second Hand Capital Goods it is important to prepare yourself.

There is a famous quote by Abraham Lincoln: “Give me six hours to chop down a tree and I will spend the first four sharpening the axe.”

PREPARATION OF IMPORT OF SECOND HAND CAPITAL GOODS

Para 2.31 in FTP defines the policy for the import of Second hand/ used goods in India. It is important to check FTP and understand whether CG is free for import of Restricted.

Most of the challenges in the Import of Second-hand Capital Goods are faced in customs and in the valuation area. The Trade Compliance Officer must be involved from the first stage when the import is planned, his inputs are critical in finalizing value of imports, documentation & packing etc.

A. Ref CBIC Circular no 07/2020 dated 5.2.2020

It is an important step to check if the sale of second-hand machinery has met all the requirements stipulated in the Customs Valuation Rules 2007 for Determination of Valuation of Imported Goods it is necessary to obtain inspection/appraisal reports from a qualified / empanelled Chartered Engineer. There are two ways to get a CE certificate.

I. Chartered Engineer Certificate at Origin: A certificate issued at Origin by a reputed company is preferred as it saves time. The report of the overseas Chartered Engineer should be as per the format given in Form A

II. Empanelled Chartered Engineer Certificate at Destination port: In the event it is not possible to procure a CE certificate from overseas then a Chartered Engineer empanelled locally by Custom House can issue CE certificate after examination as per Form B.

Inspection at the destination port has challenges due to space constraints and packages being in the Customs location. Unpacking /repacking costs will be extra in addition to detention costs.

It is advisable to get a draft of CE certificate before the final is issued.


This is an abridged version of the EXIM Vidya segment published in the May 2024 issue of Logistics Insider magazine. To read the complete segment, click here.


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