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Dated: 13.11.2024

Technical Barrier to Trade (TBT)- Understanding Quality Control Order and BIS on Captive Consumption in India

Technical barriers to trade (TBTs) are regulations and standards that can restrict trade by making it difficult for producers to export goods to other countries. These barriers can include:  

• Technical regulations: Outlining product characteristics, such as size, weight, packaging, ingredients, and shelf-life conditions  
• Standards: Approved by a recognized body and providing for common use  
• Rules, guidelines, or characteristics: For products or related processes and production methods that are voluntary to comply with  
• Testing and certification requirements: To ensure product quality, safety, or performance  
• Labelling, marking, and packaging requirements: For products  
• Production or post-production requirements: For products  

TBTs can be used to protect consumers, preserve natural resources, or ensure product safety. However, they can also be used to discriminate against imports and protect domestic industries.  Almost every country in this world imposes/invokes TBTs to protect their trade and so has India done.

However, as the regulatory landscape evolves gradually and the Government agencies involved in the process learn in due course, the process of invoking TBTs in India might also see some major changes going forward, in terms of relaxations for Manufacturers who import goods for “Captive consumption” as an “Actual user” of the goods here in India. This includes many Multi national corporations having their manufacturing base/units in India. This is a positive anticipation from the Trade and Industryand is not assured or guaranteed as of now.

Lets understand the regulatory framework of TBTs and whether “An Actual User” falls under the ambit of QCO/BIS or not.

There are multiple aspects of TBT that are enshrined in the FTD&R Act, 1992 of DGFT, Quality Control Order issued by various Departments & Line Ministries, Bureau of Indian Standards (BIS) Act, 2016 and the Indian Customs Act, 1962.

FTD&R Act-DGFT:

DGFT is empowered as per the FTD&R Act, 1992 to regulate the Export & Import Policy in India. The same is reflected in Foreign Trade Policy (FTP) as revised from time to time. The current FTP in force is FTP 2023. As per the FTP 2023 Para 11.03 read with Section-6 of the FTD&R Act, 1992 an “Actual User” condition is required to import certain goods in India, which is at the sole discretion of the Central Government.

The definition of an actual user is given in FTP Para 11.03 read with Section-6 of the Foreign Trade (Development and Regulation) Act, 1992 is as follows:

• Actual User (Industrial)

A person who uses imported goods for manufacturing in their own industrial unit or for their own use in another unit.

• Actual User (Non-Industrial)

A person who uses imported goods for their own use in a commercial establishment, laboratory, research institution, university, educational institution, hospital, or service industry.

An “Actual User” is a person (either natural or legal) who is authorized to use imported goods in his/its own premise which has a definitive postal address.

The actual user condition is a mechanism to control imports and restrict the identity of the importer. The importer must prove to customs that they are an actual user of the goods.  

The actual user condition is one of the terms and conditions that may be included in an authorization. Other terms and conditions include:

• Description, quantity, and value of goods
• Export obligation
• Minimum value addition to be achieved
• Minimum export/import price
• Bank guarantee, legal undertaking, or bond with Customs Authority/RA
• Validity period of import/export 

The QCO factor:

Quality Control Order (QCO) require that products conform to Indian standards, manufacturers obtain certification from the Bureau of Indian Standards (BIS), and no one can sell, import, distribute, or exhibit a product covered by a QCO without a standard mark.

In India there has been a slew of QCO issued in the last 6 months and many more are yet to come. One can keep a track of the same from the Bureau of Indian Standard (BIS) website https://www.bis.gov.in/upcoming-qcos-notified-and-due-for-implementation/.

How does QCO Impact the Industry in India:

1. The Primary function of the QCO is to enforce the BIS Standards, which is otherwise Voluntary in nature.

The Mandates of BIS & QCO:

1. BIS has the mandate only to formulate the Quality Standards and not to enforce them. BIS has the mandate to promote the adoption of BIS standards largely but not to enforce them itself, as per Sub-section 2 of Section 9 of the BIS Act, 2016.
2. As per Section 16(1) of the BIS Act, 2016 it is the Central Government that has to issue Notification to enforce the BIS standards, in consultation with the BIS office of course. However, it is the Central Government that decides which Department or Line Ministry will issue the Quality Control Order (QCO) to enforce a particular BIS Standard in India.
3. Once the QCO is issued, it prohibits all activities like manufacture, import, distribute, sell, hire, lease, store or exhibit for sale any such goods, article, process, system or service under sub-section (1) of section 16 from the date of enforcement of QCO.
4. The term “Sale” has been defined in Sub-section 34 of Section 2 of the BIS Act, 2016.
5. So, as per the above the Mandate of QCO, and in turn the BIS enforcement, is only applicable on “SALE” & no other purpose, as envisaged in the law.

Bureau of India Standard (BIS) Mandate:

The mandate of BIS under the BIS Act, 2016 can be understood only by understanding few important Definitions as given below-

1. BIS Act 2016, Section-2 (9): “Consumer” is Defined as per 2 (d) of the Consumer Protection Act, 1986. Consumer is defined as one who buys any goods for a consideration which has been paid or promised or partly paid and partly promised, or under any system of deferred payment and includes any user of such goods other than the person who buys such goods for consideration paid or promised or partly paid or partly promised, or under any system of deferred payment when such use is made with the approval of such person, but does not include a person who obtains such goods for resale or for any commercial purpose;

Explanation: For the purposes of sub-clause (i), “commercial purpose” does not include use by a consumer of goods bought and used by him exclusively for the purpose of earning his livelihood, by means of self-employment;

• BIS Act, 2016 Section-2(34): “Sale” means to sell, distribute, hire, lease or exchange of goods, article, process, system or service for any consideration or for commercial purposes;- Refer to Explanation given against Section-2(9)(i) of BIS Act, 2016 related to “Commercial Purpose” to draw a clear inference.
• BIS Act, 2016 Section-2(35): “Seller” means a person who is engaged in the sale of any goods, article, process, system or service; The mere reading of the definition makes it abundantly clear that it does not include any other class of “Person” apart from “Seller”, e.g. Captive Consumer or an Actual User.

Mandate under the Customs Act, 1962 on Imports:

1. Refer to the Definition of “Notified Goods” as per sub-section (d) of section 11A in the Indian Customs Act, 1962.
2. Section 11B of the Customs Act, 1962 reads as “Power of Central Government to notify goods—If, having regard to the magnitude of the illegal import of goods of any class or description, the Central Government is satisfied that it is expedient in the public interest to take special measures for the purpose of checking the illegal import, circulation or disposal of such goods, or facilitating the detection of such goods, it may, by notification in the Official Gazette, specify goods of such class or description.
3. Section 11G of the Customs Act, 1962 reads as “Sections 11C, 11E and 11F not to apply to goods in personal use.—(1) Nothing in sections 11C, 11E and 11F shall apply to any notified goods which are— (a) in personal use of the person by whom they are owned, possessed or controlled, or (b) kept in the residential premises of a person for his personal use.
4. The Definition of “Person” as above should be construed with the definition given under sub-section 3A of Section-2 of the Customs Act, 1962. It reads as “beneficial owner” means any person on whose behalf the goods are being imported or exported or who exercises effective control over the goods being imported or exported;
5. Section 11E sub-section 2 of Customs Act, 1962 reads as “Every person who owns, possesses or controls any notified goods and who uses any such goods for the manufacture of any other goods, shall maintain (in such form, in such manner and containing such particulars as may be specified by rules made in this behalf) a true and complete account of the notified goods so used by him and shall keep such account at the intimated place”.
6. It is also abundantly clear that possessing “Notified goods” is not a crime under the customs law. However, the record keeping and intimation is required as a part of the procedure under the Customs law in India. In the case of imports of such “notified goods”, the place of storage and intimation is automatically declared when the Bill of Entry (BoE) is filed by an “Actual user” of the “notified goods” as per Section 11E sub-section 2 of Customs Act, 1962. The Rule referred above will be as per the Warehousing Rules and removal of goods thereof, under the Customs Act, 1962.

Conclusion:

1. The DGFT has clearly defined the word “Actual User” in Para 11.03 of FTP 2023 read with Section-6 of the FTD&R Act, 1962.
2. An “Actual User” who imports any goods notified under the QCO before or after its enforcement date is not violating any law under the BIS Act, 2016, as the enforcement of QCO/BIS is mandated only for “Sale” & not “Captive Consumption”.
3. The “Actual user” will fall under the Definition of “Consumer” read with the Explanation related to “Commercial Purpose” under the BIS Act, 2016.
4. Section 11G of the Customs Act, 1962 reads as “Sections 11C, 11E and 11F not to apply to goods in personal use.—(1) Nothing in sections 11C, 11E and 11F shall apply to any notified goods which are— (a) in personal use of the person by whom they are owned, possessed or controlled, or (b) kept in the residential premises of a person for his personal use.
5. Further, the Definition of “Person” as per Section 11G (1) (a) above should be read in conjoint to the definition given under sub-section 3A of Section-2 of the Customs Act, 1962. It reads as “beneficial owner” means any person on whose behalf the goods are being imported or exported or who exercises effective control over the goods being imported or exported;

This Article is Authored by: Mr. Ravi Shekhar Jha, BALLB/Mob: +91-9999005379 & email id is intelconsul@gmail.com

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1. The authors view are based on his/her interpretation of the relevant information/documents, applicable law, and government policy and there is no assurance that a court or tribunal or regulatory body or other governmental authority may not interpret it differently.

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