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Indian Customs Logistics

Larry DisenhofGroup Director, Export Compliance

Cadence Design Systems, Inc.2012

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Cadence India (Pvt.) Ltd.

Established circa 1987

Noida EPZ / SEZ Bangalore STPIR&D and Support Sales and Service

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Infrastructure

• In a word: SUBSTANDARD

– Roads & Rail

– Ports

– Airports

– Utilities

• However: Rebuilding and Privatizing

– Highway network

– Airports

– Ports

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Roads and Infrastructure

• 3.5million km of roads – Roadways handle 65% of freight – Only 2% are highways, handling 40% of all passenger traffic– Goods from Gurgaon to Mumbai can take 10 days by road

• “India’s 6 million trucks now average 19.8 kmph vs. Washington DC at 74kmph” Bloomberg, 6/27/12

• National Highway Development Project NHDP

– Kicked off with 2001 start of Quadrilateral project– Public / Private partnership– Major projects underway, major progress seen– New plans announced to add 1,600km of roads with at least 6

lanes

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Golden Quadrilateral Create 4-6 lane highways Corresponds to Quadrilateral rail lines that carry 75% of all rail cargo

Phase 1 complete 5,900km Linking Delhi, Mumbai, Chennai and Kolkata Completed at under 50% of budget!

NS-EW ProjectPhase 2 total 7,300km4/5th completeLinking the outer state capitalsDirect link between New Delhi, Hyderabad and Begaluru

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Pre-Yamuna Expressway

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State Border Tax Receipt

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Ports Infrastructure

• Seaports handle 95% of India Trade by volume– 65 – 70% trade by value

– 12 major ports regulated by central government

– 137 minor/intermediate ports regulated by state governments• 129 are operational

• Major shift towards “Landlord Ports” operations– Push towards capital projects through Public-Private initiatives

• Ports rank low against international standards– Low productivity, capacity, efficiency

• Lack of equipment, training, uneconomic labor practices

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Ports Infrastructure

• 12 Major Ports, handling 70% of the port traffic– 11 operated by Port Trust of India

• 70% dry and liquid bulk• 30% containers

– Handled 287 million tons (MT) in 2000– Handled 229 million tons in just April – August 2012

• Down 3.5% from 2011

• Annualized 560 MT

– Average Ship turnaround decreased from 8.1 days in 1990 to 4.3 days in 2009-10

• Average turnaround time in Singapore is < 1 day

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Utilities

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Air Infrastructure

• 35% of India trade by value is handled by air• Campaign to rebuild airports nationwide

– Government investing $30b in next 10 years– Public-Private partnerships

• 30 year concession period to build, operate and maintain• Concession allows for private commercial development• Government retains voting share in corporation

– Greenfield• Bangalore, Hyderabad

– Greater leeway in planning

– Brownfield• New Delhi, Mumbai, Nagpur

– Stricter timetables and monitoring

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Air Infrastructure

• Airport projects– Hyderabad opened March 2008

• 7m passengers / year

– Bangalore opened June 2008• 10m – 12m passengers / year

• 3 Lakh tons cargo

• Road access a major problem

– (1) 6 lane highway

» Ring road, high-speed rail and Trumpet interchange planned

– Proposed IT-ITES SEZ in the Airport Premises

» Green building and energy-efficiency concept

» Approx 50km away from the city

1 lakh = 100,000 MTMetric tonne = 2,205 lbs3 lakh = 661,500,000 lb

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Air Infrastructure

• Airport Projects– Mumbai – master plan began 2006– New Delhi – master plan 2006

• Phase 1 – new terminal, access roads, infrastructure• Phase 2 – 2012 includes expanded cargo area • Phase 3 – 2016 (depending on traffic) new terminal, increased cargo

facilities

– Nagpur – master plan MOU 2006• 51% government, 49% private ownership• Expanded airport to increased cargo capacity

– 870,000 tonnes expected• SEZ and IT Park • Boeing Repair facility• Plan to include full multi-modal capabilities

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Historical Perspective

• Through the 1990s

– Lead time for delivery 12-20 days

• 3 days transit, balance in Customs’ clearance

– No automation

• Notification by mail

– Ignorance of technology

• Inspectors had no understanding of the basics of computer hardware

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Existing Conditions – Air Freight Imports

Delivery 2-3 days from touchdown

• International flights arrive and depart overnight• Airlines release manifests at 2pm day of arrival• Customs clearance the following day• Metropolitan areas impose daytime restrictions on

trucks– Palletized goods limited to large trucks - subject to restrictions– Special permission needed for daytime deliveries

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What Causes Delays

• Insufficient Paperwork

– Details missing or confusing

• Certifications lacking

– Wood packaging – stamp required on the pallet

• Questions on valuation

– Variance from the norm

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SEZ, STPI, EHTP, BIO-Tech Zones

• These Zones are treated as foreign territory

– Entire site is considered a warehouse

– No routine inspection by Customs of export and import cargo

– Zone officials responsible for “Customs” inspection

– Exempted from customs duties and other taxes

– Domestic suppliers are subject to applicable rebates on export duties

– Consumables & spares have 3 year life, Capital has 5 year life

– Capital Goods are those essential for production

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SEZ, STPI, EHTP, BIO-Tech Zones

• Goods leaving the zones

– The government has provided incoming tax exemptions – so they are paying attention!

• Inter-zone duty-free transfer allowed if there is a valid reason for the transfer

• Goods can be sold into Domestic Tariff Area (DTA) upon payment of duties

• Disposal or movement of the goods requires written permission from Assistant Zone Commissioner

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Best Practices – Preparing a shipment

• Sort items according to zone tax exemptions

– Ship production items separately from office and/or sales items

• Written description must tie to visual inspection

– List external components – CPU, monitors, accessories

– Record all major items by serial number

– Do not list internal components

• If they can’t see it, it doesn’t exist

– Listing unseen internal parts creates a potential “backorder”

• However include the costs of internally-added options

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Best Practices – Preparing a shipment

• Used equipment – ask for guidance from consignee

– Certified Engineer certificate may be required

• Valuing lease / loan equipment

– Whereas we might sell to our local subsidiary and have them handle the local loans, our customers are in SEZs so we must ship to them directly

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Zone Importing Best Practices

• Get all paperwork pre-approved by your consignee• Send signed invoices and AWB information to

consignee prior to expected arrival– Paperwork is part of submittal required in order to bypass

airport Customs inspection and transfer cargo to the Zone

• Route shipment to land at the airport closest to Zone• Request confirmation of delivery by consignee• Keep records for eventual equipment disposal

– Disposal options, “Junk” letters

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SEZ deliveries

– Consignee must provide specially stamped quintuplicate Bill of Entry with BL, AWB and CI to SEZ Customs Official at place of landing

– Container or Truck is sealed for transport to SEZ; marks and numbers on seal to be verified at SEZ gate

– Upon verification, goods delivered to office for self-inspection

– Office manager inspects cargo and reports same to SEZ officials on duplicate copy of Bill of Entry

• SEZ official may re-inspect goods in cases of discrepancies to approve the corrected paperwork

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STPI deliveries– Consignee must provide “intimation” with cover letter, Bill of

Entry, Pro-forma/CI to STPI Customs Official at place of landing prior to arrival of shipment

– Delivery is made to consignee’s premises, email is sent to STPI Bonding official for inspection

• Goods cannot enter into office until inspection and sign-off by Official

• Bonding Official to arrive within 1 week

• In cases of discrepancies, re-inspection by Bonding official to take place within 1 week to 1 month, depending on justification

– New in 2012:

• Test Model of “Self-Bonding” introduced.

• Self Bonding- Consignee Opens the Package and confirms the authorities on proper/improper receipt of the goods.

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SEZ and STPI Audits and Recordkeeping

• SEZ– Annual Customs audit of records and materials– Annual report to show Positive Net Exports– You must keep detailed records for eventual disposal of

equipment

• STPI– No post-installation inspections

– Quarterly reports on Positive Net Exports,

– Annual report by Chartered Accountant required

• Detailed records audit within every 3 years

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Experiences

• Sharing equipment with a co-resident subsidiary– Transfer across the hall = “Entering the DTA”

• The 14 digit serial number– If the paperwork doesn’t match the actual – you could be

smuggling! At the least, you’ll lose a week.

• Shipping consumer products– In 20 years of shipping, these are the only items to have “gone

missing” at the airport. • HAND CARRY HAND CARRY HAND CARRY

• Shipping employee belongings– Ensure you know what’s inside.

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Credits

Cadence Design Systems India team

Shridharan M. – SEZ Noida

Jayan S. - STPI, Bangalore