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Transit checks under GST - adopting TIR system

MARCH 13, 2017

By Neeraj Prasad, IRS

ONE of the oft repeated and much anticipated benefits of GST is expected to be the smooth, un-impeded movement of goods adding tremendously to economic productivity of the country.

Section 80 of the Model GST Law released on 26/11/2016 pertains to inspection of goods in movement and reads as follows:

(1) The Central or a State Government may, require the person in charge of a conveyance carrying any consignment goods, of value exceeding fifty thousand rupees, to carry with him such documents as may be prescribed in this behalf.

(2) The details in documents required to be carried out under sub-section (1) shall be validated in the manner as may be prescribed.

(3) Where any vehicle referred to in sub-section (1) is intercepted by the proper officer at any place, he may require the person in charge of the said vehicle to produce such documents for verification and the said person shall be liable to produce the documents.

These provisions have kept in focus the possibility of tyranny of check-posts, the bane of inter-state trade in the present taxation dispensation. There are checkpoints along the national highways within the territory of every state and at its border. Two fifths of the time lost on roads is, according to one estimate, due to stoppages at state borders. Physical verification of road permits and waybills at checkpoints, administrative delays due to paperwork and entry barriers at multiple locations including across states and into various locations are major sources of inefficiency of the road transportation sector. These prevent companies from maintaining "just-in-time" inventories, and reduce competitiveness by increasing costs. States stop vehicles to verify the necessary documents such as road permits and waybills and to prevent leakages and evasion of taxes.

The India Development Update (October, 2014) issued by World Bank comments as follows:

"Regulatory impediments to the movement of goods across state borders raise truck transit times by as much as one quarter and put Indian manufacturing firms at a significant disadvantage vis-à-vis international competitors. State border check-posts, tasked primarily for diverse sales and entry tax requirements of different states, combine with other delays to keep trucks from moving during 60 percent of the entire transit time. Long transit times and high variability and unpredictability in shipments add to total logistics costs in the form of higher than optimal buffer stocks and lost sales pushing logistics costs in India to two-three times international benchmarks".

Check-posts are essentially there in State VAT administration whereas central government has long forsaken the practice of even transit checks. The anxiety of states of revenue loss in absence of transit checks and check-posts is unlikely to disappear in the GST regime and check-posts in all likelihood would remain a reality .

A possible solution to address the concern of revenue and at the same time allow smooth movement of goods , could lie in the adoption of TIR or Transports International Routers (International Road Transport) for transportation across states in India. The Convention on International Transport of Goods Under Cover of TIR Carnets (TIR Convention) is a multilateral treaty that was concluded at Geneva on 14th November 1975 to simplify and harmonise the administrative formalities of international road transport. (TIR stands for "Transports Internationaux Routiers" or "International Road Transports".) The conventions were adopted under the auspices of the United Nations Economic Commission for Europe (UNECE). As of July 2015, there are 69 parties to the Convention, including 68 states and the European Union.

The TIR Convention establishes an international customs transit system with maximum facility to move goods:

- in sealed vehicles or containers;

- from a customs office of departure in one country to a customs office of destination in another country;

- without requiring extensive and time-consuming border checks at intermediate borders;

- while, at the same time, providing customs authorities with the required security and guarantees.

The TIR system not only covers customs transit by road but a combination is possible with other modes of transport (e.g. rail, inland waterway, and even maritime transport), as long as at least one part of the total transport is made by road. To date, more than 40,000 international transport operators had been authorised (by their respective competent national authorities) to access the TIR system, using more than 3.2 million TIR carnets per year. In light of the expected increase in world trade, further enlargement of its geographical scope and the forthcoming introduction of an electronic TIR system (so-called "eTIR-system"), it is expected that the TIR system will continue to remain the only truly global customs transit system. Due to the large blue-and-white TIR plates carried by vehicles using the TIR convention, the word "TIR" entered many languages such as Turkish as a neologism, becoming the default generic name of a large truck.

Truckers making use of the TIR procedure must first obtain an internationally harmonised customs document, referred to as a TIR carnet. This customs document is valid internationally and as well as describing the goods, their shipper and their destination, represents a financial guarantee. When a truck arrives at a border customs post it need not pay import duties and taxes on goods at that time. Instead the payments are suspended. If the vehicle transits the country without delivering any goods, no taxes are due. If it fails to leave the country with all the goods, then the taxes are billed to the importer and the financial guarantee backstops the importer's obligation to pay the taxes. TIR transits are carried out in bond, i.e. the lorry must be sealed as well as bearing the carnet. The security payment system is administered by the International Road Transport Union (IRU).

This issue requires highest consideration and an agreement under the aegis of GSTC to ensure smooth flow of goods needs to be worked out on lines of TIR before GST is actually rolled out. In a historic event, the first Bangladeshi vehicle laden with imported consignment rolled into a customs depot in New Delhi on 5th September 2016. It has been made possible under the Bangladesh-Bhutan-India-Nepal (BBIN) Motor Vehicles Agreement, which was signed in June last year. The pact allows vehicles to enter each other's territory and does away with trans-shipment of goods from one country's truck to another at the border. Under GST we should not be faced with an embarrassing situation where in the absence of TIR type arrangement goods from Dhaka are reaching Delhi before goods from Kolkata, when despatched on the same day.

(The author is an Additional Commissioner and the views expressed in the article are strictly personal.)

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