Optimizing Project Import: Balancing Risk and Reward

India is known for its unique characteristics, and its customs practices are no exception. The World Customs Organization (WCO), after extensive research and global consensus, developed the Harmonized System (HS) nomenclature, which consists of 97 chapters covering all items.

To maintain its uniqueness, India added Chapter 98 to its HS classification. This strategic addition provides special provisions for certain types of imports and exports, aligning with the country’s economic and developmental objectives. Chapter 98 is unique to India and is not included in the WCO’s standard HS nomenclature. Among the various provisions in Chapter 98, Project Import (under 98.01) is the most important.

Project Imports Scheme is a unique concept wherein all the goods imported for the purpose of setting up of Industrial Project or substantial expansion of existing industrial projects are subject to single classification under heading 98.01 of Custom Tariff Act, 1975 and subject to single rate of duty instead of merit assessment of imported goods.

Under normal process imported goods are classified separately under different tariff headings and assessed to applicable Customs duty.

In case of setting industrial projects, a variety of goods are imported, so their classification and valuation for assessment to duty becomes cumbersome. Most projects are based on milestone/stages, and price break up of each items supplied may not be available. The suppliers of a contracted project do not value each and every item or parts of machinery which are supplied in stages. Hence, ascertaining values for different items delays assessment leading to demurrage and time and cost overruns for the project.

Project Import scheme has two-fold approach

a) To facilitate smooth and quick assessment by a simplified process of classification and valuation, the goods imported under Project Import Scheme are placed under a single Tariff in the Customs Tariff Act, 1975, 98.01

b) To levy flat rates of duty on goods imported for initial set up and substantial expansion of Projects.

Project Imports scheme is governed by

a) Project Import Regulations, 1986- Regulations 1 to 7 covers: Application, definitions, Eligibility, Registration of contract, Amendment to Contract and finalization of Contract.

b) Chapter notes -98

c) Various notifications released by CBIC from time to time Under Project Import Regulations 1986 definitions given in regulations are important especially 1)Industrial Plants 2) Substantial Expansion 3) Unit

Under Projects Imports, the goods allowed to be imported at a concessional flat rate of duty include:

  1. All items of machinery including
  2. Prime movers
  3. Instruments
  4. Apparatus and appliances
  5. Control gear and transmission equipment
  6. Auxiliary equipment (including those required for research and development purposes, testing
  7. and quality control)
  8. All components (whether finished or not) or raw materials for the manufacture of the aforesaid items and their components, required for the initial setting up of a unit, or the substantial expansion of an existing unit.

Spare parts, and other raw materials (including semi-finished material) or consumable stores not exceeding 10% of the value of the goods specified above provided that such spare parts, raw materials or consumable stores are essential for the maintenance of the plant or project.

The Government of India decides the eligibility criteria for project imports through a set of welldefined guidelines and procedures. These criteria are primarily established to ensure that the benefits of the Project Imports Scheme are extended to projects that are of significant national or strategic importance.

The key factors considered in determining the eligibility criteria include but not limited to

1. Nature and Scale of the Project

  • Large-scale Projects: The scheme is typically intended for large-scale infrastructure, industrial, and developmental projects that require significant capital investment.
  • National Importance: Projects that are critical for national development, such as power plants, telecommunications infrastructure, highways, and large manufacturing units.

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

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