Import of Coal and Coke under AIECTA
April 22, 2022
EXECUTIVE SUMMARY
The Australia India Economic Cooperation and Trade Agreement (AIECTA) is indeed a bonanza for India Inc. This Note addresses the benefit of Import Coal or Coke under the AIECTA arrangement.
Heavy metal manufacturing Industries and Power Plants (including Captive Power Plants) invariably consumes huge amount of Coal for their requirements for thermal energy.
India imports the coal requirement to the extent of 40 % from Indonesia followed by 20 % from Australia. South Africa and US constitutes a total of around 20% of the remaining imports. If your current imports are from Australia, it would make sound sense to import the same in terms of AIECTA once it comes into force. If you are an importer from the US or from South Africa, there is an additional supply chain that can be explored since the cost savings achieved would be humongous if the said imports are to be procured from Australia under the AIECTA treaty.
DUTIES AND TAXES ON IMPORT OF COAL AND COKE
- The Standard Rate of Customs Duty on Coal and Coke stands at 10%.
- The effective rate of duty as set out in General Exemption No. 183 for Coal is at 1% (Entry 141) and for Coke is at 5% (Entry 142).
- AIDC was introduced in the Finance Bill of 2021 and the effective BCD rate on Coal was reduced from 2.5% to 1% to set off the levy of AIDC of 1.5%. AIDC is levied on the Transaction Value derived as per Section 14 of the Customs Act 1962. The AIDC rates were notified vide Notification No. 11/2021 – Customs dated 01.02.2021.
- AIDC shall be nil where BCD has been exempted under an FTA. SWS shall be levied on AIDC – Annexure C of TRU circular bearing No. 334/02/2020 read with notification bearing no. 11/2021 and Public notice 14/2021.
- Social Welfare Surcharge which was introduced vide Section 110 of the Finance Act 2018 is levied on the Aggregate duties, taxes and cesses levied under Section 12 of the Customs Act 1962.
- SWS, as clarified in Circular bearing number 3/2022 – customs dated 01.02.2022, shall be Nil when the aggregate of customs duties (which form the base for computation of SWS) is zero even though SWS has not been exempted.
- IGST and GST compensation cess is exempted from levy of SWS as per Notification No. 13/2018-Customs dated 02.02.2018.
Cost saving analysis assuming an import value of Rs. 10 Cr of Coal and Coke respectively is as under:
All types of coal fall under the Classification of 2701, 2702, 2703. The following table sets out the savings if you are to directly import Coal under the AIECTA treaty.
|
# |
Particulars |
Normal Route (Rs.) |
AIECTA route (Rs.) |
|
A |
CIF |
10,00,00,000.00 |
10,00,00,000.00 |
|
B |
BCD @1% on A |
10,00,000.00 |
– |
|
C |
AIDC @1.5% on A |
15,00,000.00 |
– |
|
D |
Social Welfare Surcharge @10% on (B+C) |
2,50,000.00 |
– |
|
E |
IGST @5% on (A+B+C+D) |
51,37,500.00 |
50,00,000.00 |
|
F |
Cost to importer |
10,78,87,500.00 |
10,50,00,000.00 |
|
G |
Traders margin @5% on F |
53,94,375.00 |
|
|
H |
Total Cost |
11,32,81,875.00 |
|
|
I |
IGST or (CGST+SGST) @5% on H |
56,64,093.75 |
|
|
J |
Selling price by Trader |
11,89,45,968.75 |
|
Pls Note: The Compensation Cess shall be levied at the rates specified under Notification No. 1/2017 – Compensation Cess (rate) dt. 28.06.2017 [Schedule to Central Goods and Service Tax (Compensation to states)] where in under entry 39, 40 and 41, there shall be GST compensation cess of Rs.400 per tonne of all types of coal. The same is not exempted under the FTA route as well. The Compensation Cess was Introduced for a period of 5 years and shall be applicable up to July 2022 unless notified otherwise.
Also note under the AIECTA, the preferential tax benefit for all types of coal shall be effective immediately i.e., date of entry into force of the Agreement with the exception of Bituminous Coal bearing HSN 27011200 where the Duty elimination shall be made in 5 equated annual instalments.
All types of Coke fall under the classification of 2704. The following table sets out the savings if you are to directly import Coke under the AIECTA treaty.
|
# |
Particulars |
Normal Route (Rs.) |
AIECTA route (Rs.) |
|
A |
CIF |
10,00,00,000.00 |
10,00,00,000.00 |
|
B |
BCD @5% on A |
50,00,000.00 |
– |
|
C |
AIDC (NA) |
– |
– |
|
D |
Social Welfare Surcharge @10% on (B+C) |
5,00,000.00 |
– |
|
E |
IGST @5% on (A+B+C+D) |
52,75,000.00 |
50,00,000.00 |
|
F |
Cost to importer |
11,07,75,000.00 |
10,50,00,000.00 |
|
G |
Traders margin @5% on F |
55,38,750.00 |
|
|
H |
Total Cost |
11,63,13,750.00 |
|
|
I |
IGST or (CGST+SGST) @5% on H |
58,15,687.50 |
|
|
J |
Selling price by Trader |
12,21,29,437.50 |
|
Note: Agriculture Infrastructure Development Cess is not applicable on Coke.
The Tariff elimination on all types of Coke shall be effective immediately i.e., date of entry in Force of the AIECTA
It is pertinent to bear in mind that when a trader imports the same and either warehouses the same in the Customs Port, he is also expected to pay the warehousing charges and such other charges which has to be loaded in the sale price when he trades the same in the DTA market. It is equally to be borne in mind that irrespective of whether you are importing the same directly or the trader in India imports the same, the logistics cost practically will remain the same with a slight margin of difference owing to economies of scale. However, considering the sizeable nature of cost savings You will be able to achieve, it makes sound economy to make use of the AIECTA treaty and go for imports. Alternatively, You can also renegotiate the existing contract if your domestic procurement comes in as imported from Australia to achieve the much required cost reduction by asking the trader to import the same from Australia under the treaty and to pass the benefits to you.
INTRODUCTION
Coal is a combustible sedimentary rock which mostly comprises of carbon along with variable amounts of other elements such as hydrogen, oxygen, sulphur and nitrogen.
Coal is used as a fuel. It is extensively used in generation of electricity and in manufacturing industries in smelters (metallurgical coal) for metals such as Iron, Copper, Steel and Aluminium, among others.
Coke is produced by heating coal and oil in the absence of air. It is a fuel which has a high carbon content with very little impurities and is majorly used in the blast furnace for smelting of Iron ore.
TYPES OF COAL
Coal is classified into various types based on their volatility. Coal basically can be of two types namely, thermal coal (Steaming coal) like the ones used for generation of electricity and Coking coal (Metallurgical Coal) which is used in metal smelters. Further coal can be classified into:
- Anthracite coal, the highest rank of coal, having highest heating value. This type of coal is used majorly in metal industry.
- Bituminous coal, a dense sedimentary rock, usually black. This type of coal is used in generation of electricity and is the raw material for producing Coke.
- Sub-bituminous coal, whose properties range between those of lignite and those of bituminous coal, is used primarily as fuel for steam-electric power generation.
- Lignite, or brown coal, the lowest rank of coal, which used almost exclusively as fuel for electric power generation
IMPORT AND EXPORT OF COAL AND COKE
Coal
Import
Even though India has reserves of coal ranging up to 319.02 Billion tonnes, the quality of the coal is not suited for the manufacturing industry therefore the industry, including the Steel authority of India Limited (SAIL) heavily relies on import of good quality coal, to bridge the gap between the Coal requirement vis a vis the indigenous availability of coal, for their activities.
India majorly imports Coal from Indonesia which is rich in coal reserves. Below is a graphical representation of the Import undertaken by India on a country wise basis:
As it can be seen from the graphical representation, India imports 20% of coal from Australia.
The import figures is as under for the last 6 years:
Export:
In 2020, India exported $67.6M in Coal except anthracite or bituminous, not agglomerate, making it the 14th largest exporter of Coal. The main destination of Coal except anthracite or bituminous, not agglomerate exports from India are Nepal ($54.2M), Bangladesh ($8.61M), Bhutan ($4.76M), Saudi Arabia ($35.5k), and Indonesia ($8.91k).
Comparatively India is a very small exporter of Coal and effectively is a net importer of Coal.
Coke
Exports
In 2020, India exported $24M in Coke, making it the 21st largest exporter of Coke in the world. The main destination of Coke exports from India are Bhutan ($20.4M), Nepal ($1.5M), Bangladesh ($1.27M), South Korea ($354k), and Qatar ($200k).
Imports
In 2020, India imported $632M in Coke, becoming the 1st largest importer of Coke in the world. India imports Coke primarily from: Poland ($191M), China ($102M), Japan ($98.2M), Colombia ($87.4M), and Switzerland ($37.2M).
(Source: OEC world.)
As far as coke is concerned as well, India is a net importer of Coke.PREFERENTIAL TARIFF TREATMENT
All types of coal fall under the Tariff Heading of 2701, 2702 and 2703 while Coke falls under the heading 2704.
The Effective basic customs duty (BCD) on all types of Coal is at 2.5% whereas the Effective BCD on import of Coke is at 5%
With the AIECTA being signed off, the agreement offers preferential tariff treatment on import of Coal and Coke from Australia subject to adherence to the Rules of origin and the CAROTAR.
The AIECTA sets out Rules of Origin, the product shall be considered as originating in Australia if they are:
- WO – wholly obtained or produced in the territory of Australia. (Mined, Extracted, Produced) or,
- QVC – Value addition Criteria: production process of manufacture is undertaken entirely in the territory of Australia, using non-originating materials, provided that all non-originating materials have undergone at least a change in tariff sub-heading (CTSH) level of the Harmonized System, and the QVC of the good is not less than 35 per cent of the FOB value as per build-up formula or 45 per cent of the FOB value calculated as per build-down formula or,
- PSR – In adhere to the Product Specific Rules annexed.
In the case of Coal, since coal is mined and no production process is undertaken, necessarily the Coal shall have to satisfy criteria (1) i.e., should be wholly originating in Australia.
In the case of Coke, the whole of the manufacturing process shall have to be undertaken in Australia and in case the raw material i.e., coal is not originating in Australia there would be a requirement of a change in tariff subheading of the coal to that of coke and also an originating content of 45% of FOB value.
It must be noted that product specific rules do not apply on neither Coal nor Coke.
TARIFF REDUCTION ELIMINATION OFFERED UNDER THE AIECTA
Annex 2A sets out the method of Tariff Reduction/elimination. The relevant extract for coal and coke is extracted below.
The relevant explanations for the terminology used is as under:
- EIF – Eliminated from date of entry
- E – Duty elimination
- R – Reduction of Duty
- T – Tariff rate quota
- C – Other condition
- EL – Exclusion List
- “Number of years in which customs duty will be eliminated /reduced” indicates the number of years in which customs duties on originating goods classified under the tariff lines will be reduced or eliminated under equal annual instalments
- the term “year” means, with respect to the first year, the period from the date of entry into force of this Agreement until 31 December of the same year and, with respect to each subsequent year, the twelve-month period which starts on 1 January of that year
Therefore, as it can be seen below when Coal or Coke is imported from Australia, subject to adherence to the Rules of Origin and CAROTAR, the BCD rate shall be eliminated (Nil) with effect from the date of entry in force of the AIECTA, with the exception of Bituminous Coal which shall get a phased elimination of the BCD over 5 equal annual instalments over 5 years.
This option may turn out to be a viable option to be considered as India already imports nearly 20% of its total coal imports from Australia and the BCD cost shall drop down to Nil.
Annex 2A – Coal and Coke
|
SL.No. |
HSCode |
Description by Book |
Customs Effective Rates |
AIDC |
Number of years in which duty will be eliminated /reduced. |
(E), (R), (T), (C), (EL) |
|---|---|---|---|---|---|---|
|
|
27 |
Mineral fuels, mineral oils, and products of their distillations; bituminous substances; mineral waxes |
|
|
|
|
|
|
2701 |
Coal Briquettes Ovoids and Similar Solid Fuels Manufactured from Coal |
|
|
|
|
|
|
270111 |
Anthrcite Coal W/N Pulvrsd but Nt Aglomrtd |
|
|
|
|
|
1933 |
27011100 |
Anthracite |
1 |
1.5 |
EIF |
E |
|
|
270112 |
Bitumns Coal W/N Pulvrsd but Nt Aglomrtd |
|
|
|
|
|
1934 |
27011200 |
Bituminous coal |
1 |
1.5 |
5 |
E |
|
|
270119 |
Other Coal: |
|
|
|
|
|
1935 |
27011910 |
Coking coal |
1 |
1.5 |
EIF |
E |
|
1936 |
27011920 |
Steam coal |
1 |
1.5 |
EIF |
E |
|
1937 |
27011990 |
Other |
1 |
1.5 |
EIF |
E |
|
|
270120 |
Briquets Ovtids And Smlr Sld Fuils from Coal |
|
|
|
|
|
1938 |
27012010 |
Anthracite agglomerated |
1 |
1.5 |
EIF |
E |
|
1939 |
27012090 |
Other |
1 |
1.5 |
EIF |
E |
|
|
2701 |
Coal Briquettes Ovoids and Similar Solid Fuels Manufactured from Coal |
|
|
|
|
|
|
270111 |
Anthrcite Coal W/N Pulvrsd but Nt Aglomrtd |
|
|
|
|
|
1933 |
27011100 |
Anthracite |
1 |
1.5 |
EIF |
E |
|
|
270112 |
Bitumns Coal W/N Pulvrsd but Nt Aglomrtd |
|
|
|
|
|
1934 |
27011200 |
Bituminous coal |
1 |
1.5 |
5 |
E |
|
|
270119 |
Other Coal: |
|
|
|
|
|
1935 |
27011910 |
Coking coal |
1 |
1.5 |
EIF |
E |
|
1936 |
27011920 |
Steam coal |
1 |
1.5 |
EIF |
E |
|
1937 |
27011990 |
Other |
1 |
1.5 |
EIF |
E |
|
|
270120 |
Briquets Ovtids And Smlr Sld Fuils from Coal |
|
|
|
|
|
1938 |
27012010 |
Anthracite agglomerated |
1 |
1.5 |
EIF |
E |
|
1939 |
27012090 |
Other |
1 |
1.5 |
EIF |
E |
|
|
2704 |
Coke And Semi-Coke of Coal, Of Lignite or Of Peat, Whether or Not Agglomerated; Retort Carbon Coke and Semi/Coke Of |
|
|
|
|
|
|
270400 |
Coal/Lignite/Peat W/N Agglomerated; Retort Carbon |
|
|
|
|
|
1944 |
27040010 |
Retort carbon (gas carbon) |
5 |
|
EIF |
E |
|
1945 |
27040020 |
Coke and semi-coke of lignite or of peat |
5 |
|
EIF |
E |
|
1946 |
27040030 |
Hard coke of coal |
5 |
|
EIF |
E |
|
1947 |
27040040 |
Soft coke of coal |
5 |
|
EIF |
E |
|
1948 |
27040090 |
Other |
5 |
|
EIF |
E |
Operational Procedure
To be able to avail the benefits under the AIECTA, the most critical document is the Certificate of Origin Issued by the designated authority of the Exporting Country, which shall have to be filed by the exporter and provided to the importer and the same shall have to be presented by the importer at the time of clearance of goods (Time of filing the Bill of Entry) to avail the benefits. The process flow is as follows:
It is pertinent to note that the Customs officer may question the legitimacy and the accuracy of information provided. The importer may be requested to provide more information, or a verification request may be sent to designated authority of exporting country. Therefore, it is advised that a declaration be obtained from the exporter setting out all the relevant information such as the procurement process, production process, the computation demonstrating satisfaction of originating criteria (For PSR or CTSH+% VA), and any such other information as may be required.