Duty-Free Import of Raw Materials for Job Work (Embroidery) in India

Import Duty on Materials Supplied by Foreign Buyer (Job Work Model)

Under Indian customs law, raw materials imported for job work and subsequent re-export can be exempted from import duties. In a “toll manufacturing” or job-work arrangement (foreign buyer supplies inputs free of cost, and finished goods are exported back), you generally do not have to pay basic customs import duty on the materials if you follow the prescribed duty-exemption procedure?cag.gov.in. Specifically, Customs Notification No. 32/1997-Cus (April 1, 1997) (as amended) provides full exemption from basic customs duty on such imports, subject to conditions?optitaxs.com?cag.gov.in:

• Re-export Obligation: All imported materials and the resultant finished products after job work must be re-exported within 6 months from import (extendable by the Customs Assistant/Deputy Commissioner)?optitaxs.com?cag.gov.in. The re-export can be back to the original supplier or to any other party the supplier designates?cag.gov.in. If you fail to re-export within the allowed time, the forgone duties become payable.

• Exclusive Use for Export Order: The imported goods must be used solely for the execution of the export order from the foreign client and cannot be sold or diverted in India?optitaxs.com. Any scrap or waste generated must be disposed of as per specific norms (usually either re-exported, destroyed, or cleared on duty payment as allowed by customs).

• Minimum Value Addition: Generally, the FOB value of the exported product should be at least 10% higher than the CIF value of the imported inputs?optitaxs.com. (Note: For textiles and clothing articles under Chapters 50–63 of the Customs Tariff (e.g. fabrics, garments), this 10% minimum does not apply – any positive value addition is acceptable?optitaxs.com.) In an embroidery job work, since the foreign buyer’s materials are textiles, the value-add requirement is effectively waived or minimal.

• Permitted Ports: Imports and re-exports under this scheme are allowed through specified major ports/airports/ICDs. (The notification lists major ports like Mumbai, Chennai, Delhi ICD, etc. The Customs Commissioner can approve other ports if needed?optitaxs.com.)

If these conditions are met, basic customs duty (BCD) is fully exempt at import. In the Customs Act, 1962, this duty-free import is enabled by Section 25(1) (which allows such exemption notifications in public interest). Section 12 is the charging section for import duties, but Notification 32/97-Cus grants a specific exemption for job-work imports. Additionally, Section 20 and related provisions cover goods imported for repairs or processing and re-export, but Notification 32/97 is the dedicated route for jobbing (processing) contracts.

Important: The duty exemption via Notification 32/97-Cus originally covers basic customs duty (and usually any surcharge on BCD). Integrated GST (IGST) on import, however, is not automatically exempt under this job-work notification?optitaxs.com. In other words, after GST’s introduction, while BCD is exempt, IGST is still levied on the import of free-of-cost materials. The importer (you) would need to pay IGST at the applicable rate on the assessable value of the materials. (Even if the goods are free, customs will determine a value – often based on the supplier’s invoice or value of similar goods – for duty/IGST purposes.) No upfront IGST exemption is provided for job-work imports?optitaxs.com. The good news is that this IGST paid can be taken as Input Tax Credit (ITC) in your GST returns and later refunded since the finished output is exported (see GST section below). The Central Board of Indirect Taxes & Customs (CBIC) has clarified that under such schemes “exemption will be available only from Basic Customs Duty; IGST will be payable on such imports, but can be availed as ITC”?optitaxs.com. (As of recent policy, there have been proposals to ease IGST on job-work imports, but currently you should plan for IGST payment and refund.)

Relevant Legal Provisions and Schemes for Duty-Free Import

To utilize the duty-free import facility for job work, you must adhere to certain provisions under Customs law, Foreign Trade Policy (FTP), and GST law:

• Customs Notification 32/97-Cus and IGCR Rules: Notification 32/97-Cus (as amended) is the primary legal basis for duty-free job-work imports?cag.gov.in. Condition (v) of this notification mandates following the Customs (Import of Goods at Concessional Rate of Duty) Rules – commonly called IGCR Rules – for the procedures?cag.gov.in. (Originally, these were the 1996 Rules for excisable goods; now updated rules apply after GST.) The IGCR framework lays out how to give bond, ensure end-use, and account for the imports. Notably, the IGCR Rules were modernized as IGCR, 2017 Rules, and further replaced by IGCR, 2022 Rules (Import of Goods at Concessional Rate of Duty or for Specified End Use Rules, 2022) effective 10 Sept 2022?linkedin.com. Under these rules, the importer must provide a prior intimation, execute a bond, maintain records, and file periodic returns – details in the next section.

• Customs Act Provisions: While the notification is issued under Customs Act Section 25, other sections facilitate the process. For instance, Section 65 of the Customs Act, 1962 allows manufacturing and other operations in a bonded warehouse (the MOOWR 2019 scheme), which is an alternative route to import duty-free for export. Under Section 65 (read with Warehouse Regulations), you could license your premises as a bonded warehouse, import materials without duty, do the embroidery, and then export without duty (or pay duty only if goods are cleared domestically)?mumbaicustomszone1.gov.in. The MOOWR scheme has become business-friendly (no upfront duty, flexible storage period, single digital account for customs). However, it requires separate registration as a bonded manufacturer. Another pathway is the 100% EOU (Export Oriented Unit) scheme under the FTP and Customs notifications 52/2003-Cus, etc., which similarly permits duty-free import of inputs for export production. An EOU must be exclusively export-focused and involves licensing from the Development Commissioner and customs bonding. These alternatives can be considered if your business will consistently import large volumes for export; they provide duty exemption but come with their own compliance regimes. In summary, without becoming an EOU or bonded manufacturer, you can still avail duty exemption consignment-wise under Notification 32/97-Cus by following the IGCR Rules.

• Foreign Trade Policy (FTP) Provisions: India’s Foreign Trade Policy also recognizes “jobbing” (international job work). FTP 2015-20 (and continued in FTP 2023) defines “Jobbing” as processing or working upon raw materials or semi-finished goods supplied by a foreign client, resulting in export of the processed product?elcina.com. Such imports for re-export are permitted without an import license, as they are essentially deemed imports for export execution. In older FTP (2015-20, Para 2.46), “Import of goods for re-export” (including jobbing contracts under Notification 32/97) was freely allowed, though the policy stipulates that no export incentives like duty remission schemes can be double-counted. (For example, products made under jobbing contracts using duty-free inputs are typically not eligible for rewards schemes like RoDTEP or earlier MEIS, since little domestic duty/tax is suffered that needs remission?taxo.online.) The FTP/Handbook also provide Standard Input-Output Norms (SION) for wastage for many products, which customs references for allowable scrap/waste in job work?customsandforeigntrade.com. Overall, FTP allows and facilitates such job work exports, treating them as a form of export manufacturing service. Ensure you have an Importer-Exporter Code (IEC) (issued by DGFT) as it is mandatory for any import/export activities under the FTP.

• GST Provisions: Under GST law, the service you provide (embroidery or other processing on goods for a foreign client) is treated as an “export of service”, which is zero-rated under the IGST Act. Two key conditions for a service to qualify as export of service are: (a) the service recipient is outside India and (b) the place of supply of the service is outside India. Normally, services performed on goods in India would have the place of supply in India. However, there is a special provision in the IGST Act for goods that are temporarily imported for processing and then exported: in such cases, the place of supply is deemed to be the recipient’s location (outside India)?legalitysimplified.com. This covers your scenario – e.g. cutting/polishing diamonds or doing embroidery on imported fabric and then sending them out is considered performed for a foreign client and qualifies for export treatment?legalitysimplified.com. Thus, your embroidery service charges billed to the foreign client can be treated as an export of service. You can export the service under LUT (Letter of Undertaking) without paying GST, or pay IGST on the invoice and claim refund – typically LUT (no tax) is preferred. On the import of materials, as noted, IGST is payable at customs; but since your output service is zero-rated, you can claim input credit of that IGST. Usually, you would then refund/offset it: e.g. use the ITC to pay any other GST liabilities, or more likely, file for refund of unutilized ITC accumulated from these imports (since your outward supply is zero-rated)?ey.com. Documentation of the export of service (copy of shipping bill, FIRCs for payment of service fees in forex, export general manifest, etc.) will be needed when claiming GST refunds. Also note, since the raw materials are coming free of cost, there is no GST on the import of goods as a supply, because it’s not a supply to you (no consideration, and imports of goods are only taxed under Customs law). So, your GST compliance focus will be on availing input credit for IGST paid at import and on properly treating your service as zero-rated.

Procedure for Duty-Free Import and Re-Export under Job Work

To lawfully receive materials duty-free and export the finished embroidered products, follow this step-by-step procedure:

1. Enter into a Job Work Contract: Have a clear contract/purchase order from the foreign buyer specifying the job work terms. This should detail the materials being supplied free of cost, the processing to be done (embroidery), the timeframe for return, and that the finished goods will be exported back to them. This contract forms the basis of your “export order” for customs purposes and is important for justifying duty-free import.

2. Obtain an IEC (if not already): Ensure you have an Importer-Exporter Code from DGFT (required for both import and export filings). Also, register on the ICEGATE customs portal for filing Bills of Entry/Shipping Bills, and on the GST portal as an exporter ( LUT filing, etc.).

3. Prior Intimation to Customs (IGCR): Before the first import under this arrangement, you need to notify your jurisdictional Customs office of your intent to import goods for job work under the IGCR Rules. Under the latest rules (IGCR, 2022), this is done by filing a one-time prior intimation (electronically, via the ICEGATE portal or by email as interim measure)?mumbaicustomszone1.gov.in?mumbaicustomszone1.gov.in. The intimation includes details like your factory/premises, the nature of processing, the materials to be imported, the estimated quantities and duty foregone, the foreign supplier’s details, and the resulting products to be exported. (Previously, under IGCR 2017, one intimation could cover a year’s requirement?business-standard.com. Now the process is largely online with a unique IGCR Identification Number (IIN) for your intimation, eliminating the need for repetitive permissions?m.economictimes.com?m.economictimes.com.)

4. Execute a Bond/Undertaking: As a condition of duty-free import, you must execute a bond with customs, committing to fulfill the export obligation or else pay the applicable duties and interest. This is often a continuity bond (running bond) covering multiple imports?mumbaicustomszone1.gov.in?mumbaicustomszone1.gov.in. The bond amount is typically equal to the total customs duty liability that would be due on the imported materials (often calculated on CIF value). You may be required to furnish a surety or security (like a bank guarantee) for a percentage of the bond amount, at the discretion of the Customs authority – practices vary, but since this is an export promotion activity, customs may not insist on a high security if you have a good track record. The bond is executed under the IGCR Rules and Section 143 of the Customs Act (which empowers taking bonds for conditional imports). Once in place, this bond covers all imports under the scheme, as long as you keep the bond amount sufficient. (If using the new IGCR portal, the bond filing and approval is also recorded electronically and linked to your intimation reference.)

5. Import Clearance (Bill of Entry): When the foreign buyer ships the raw materials, you will file a Bill of Entry (BOE) for import. On the BOE, declare the correct classification and value of the materials (even if free, mention the value as per invoice or appraised value) and crucially claim the exemption under Notification 32/97-Cus. You will cite the notification number and serial number (if any) in the BOE and also refer to your IGCR intimation number/IIN. No basic duty will be charged if everything is in order. IGST will be calculated – you must pay the IGST (which you can later claim back as ITC). Ensure to attach supporting documents: the commercial invoice (marked “Free of cost – for job work”), packing list, the contract copy or a declaration of the job work order, and a copy of your bond acceptance letter or IIN acknowledgement. Customs may ask for a certificate of origin if needed for any trade compliance, but since you’re not availing an FTA tariff, origin isn’t usually relevant to duty here. After assessment, pay any IGST/cess, and customs will give out-of-charge, releasing the materials to you.

6. Maintain Proper Accounts of Usage: From the time of import, you must track the inventory of the imported materials, usage in job work, wastage, and output. The IGCR rules require you to maintain records (stock registers) of the goods. Each consignment’s details, the quantity used in each export, and balance should be recorded. If there is any scrap or wastage generated (e.g. trim waste, fabric offcuts), note the quantity. Disposal of scrap: ideally, small waste can be exported back or disposed with customs permission. As per the notification, wastage up to the norms (SION) can be disposed of as specified by the AC customs?customsandforeigntrade.com – this could mean you may have to pay duty on scrap if cleared locally, or destroy it under supervision. Commonly for textile embroidery, waste threads/fabric may be negligible or can be shredded; you can seek Customs guidance if any significant waste.

7. Carry Out the Job Work: Perform the embroidery or other processing on the imported materials as per the foreign buyer’s instructions. Note: CBIC has clarified that you may also use some indigenous (Indian) materials in the process if required (for example, you use locally procured thread, or lining fabric in the final product). Using Indian-origin inputs does not violate the “job work” conditions?business-standard.com. (Circular No. 18/2004-Cus explicitly states that inclusion of indigenous materials in the job-work process will not take it out of the scope of “jobbing”?business-standard.com.) Just ensure the foreign supplied inputs remain the main components and that the finished goods are indeed exported.

8. Export the Finished Products: Once the embroidery (job work) is completed, you will export the final product back to the foreign buyer. Prepare a Shipping Bill for export. Usually, this will be a free of charge export of goods, but you should still declare the proper commercial value of the goods (which would include the value of the raw materials + the value addition). In practice, your invoice to the foreign client might only charge the job work fee (since the raw materials were owned by them). However, for customs purposes, it’s advisable to show the total value of the goods being exported and then indicate that it includes materials supplied free and the job charges. (Some companies show two line items: “Raw materials – value supplied free (not charged)” and “Job work charges – $X” to make it clear.) On the Shipping Bill, declare the scheme code/notification for jobbing (if a specific code is given in the ICEGATE system, use that to link back to the import exemption). This links the export to the duty-free import in customs records. No export duty is applicable (as fabrics/garments generally have no export duty). You will export under a GST LUT, so no GST on export. Ensure compliance with RBI/foreign exchange rules – since the goods were imported temporarily, you need to realize the payment for the service (the job charges) in foreign currency. There is no requirement to realize payment for the raw material value (that was not a sale). In shipping documents and the export invoice, you can mention “Goods of foreign origin exported after job work; payment being received for processing charges only.”

9. Submit Proof of Export & Reconciliation: After export, collect all proof: the shipping bill “Let Export” order, the Airway Bill/Bill of Lading, and the Export Manifest. Also, secure the Foreign Inward Remittance Certificate (FIRC) or bank advice showing you received the foreign exchange for the job charges. Within the prescribed time (6 months), you should inform the Customs bond authority that you have fulfilled the export obligation. Under IGCR rules, you will file a quarterly return (or monthly statement under IGCRS 2022) detailing the imports made, goods consumed, and exports completed?mumbaicustomszone1.gov.in?mumbaicustomszone1.gov.in. Essentially, you self-certify that X quantity of import from BOE no.__ has gone into Y quantity of exported product under SB no.__. Attach copies of shipping bills as evidence. If there’s a shortfall or you couldn’t re-export in time, you must inform Customs and either seek an extension or pay the duty for the shortfall. Typically, as long as you have exported the full imported quantity (in same or altered form) within 6 months, you can request bond cancellation or credit. Customs may ask for a simple reconciliation sheet matching each import to the corresponding export. Once satisfied, they will discharge your bond liability for those imports. (Keep all records for a few years, as Customs audits can verify the compliance.)

10. Repeat for Future Shipments: Your initial bond and intimation usually cover multiple shipments. For subsequent shipments under the same job work contract or even new contracts, you do not need a fresh license, but you should update Customs via the required returns or a fresh prior intimation if the product or supplier changes significantly. The continuing bond can be used so long as its amount suffices to cover the cumulative outstanding duty liability at any point. It’s wise to renew/extend the bond yearly (if required by customs) and keep track of all imports vs exports. Going forward, every quarter (or month under new rules) file your utilization returns timely to the Jurisdictional AC (now often by email or through the IGCR online portal)?mumbaicustomszone1.gov.in.

By following the above steps, you effectively operate a duty-free import for export production system. The legal process ensures that the government foregoes the import duty since the materials are not consumed in India’s market but rather leave as part of an export.

Documentation and Compliance Checklist

For smooth operations under this model, ensure the following documentation and registrations are in place:

• Customs Bond/Undertaking: A running bond (with security if asked) filed with Customs, referencing Notification 32/97-Cus and IGCR Rules, covering your duty liability on imports at any given time.

• Job Work Agreement: A formal contract with the foreign buyer specifying it’s a job work arrangement (useful for customs and GST to establish nature of transaction).

• Invoices and Shipping Documents:

  • Import: Supplier’s invoice (marked “no charge” or nominal value, for customs purposes), packing list, bill of entry claiming exemption.

  • Export: Your invoice (indicating the value of goods and job charges), packing list, shipping bill referencing the import exemption scheme, bill of lading/airway bill.

• Registers/Accounts: Stock register of imports and use, output record, waste record. Also maintain an Input-Output register as per SION (if applicable) to show that input-output norms are met.

• Returns under IGCR: Quarterly or monthly statements to Customs about the imported goods utilization and exports. Also, any intimation for extension if you need more time beyond 6 months should be made before expiry of the initial period to avoid violation.

• DGFT/FTP Compliance: While no license is needed, ensure you do not avail multiple benefits on the same exports. For example, if you import duty-free under this scheme, you should not also claim duty drawback for the same imported content (since no duty was paid) – doing so is legally not permissible?business-standard.com?business-standard.com. You may, however, be eligible for drawback on any Indian-origin inputs that suffered duty/GST or for brand rate drawback on certain cases, but typically in pure jobbing, drawback is either nil or very limited. Also, if any export obligation (EO) is being fulfilled (say you also had an Export Promotion Capital Goods license, EPCG), job-work exports might count towards that EO – though the FTP didn’t explicitly list jobbing, it is conceptually similar to Advance Authorization inputs as noted by experts?business-standard.com.

• GST LUT and Returns: File a Letter of Undertaking (LUT) with GST authorities annually to export services without payment of IGST. Maintain GST records to capture the IGST paid on imports as ITC. File GST returns and apply for refunds of unutilized ITC in a timely manner (the refund application can be made for each period where exports occurred – typically on a quarterly or monthly basis). Keep FIRC/BRC as proof of foreign remittance for the service, as GST department may ask for it to verify export of service.

• Recent CBIC Updates: Stay updated with CBIC circulars and notifications. For instance, CBIC Circular 10/2021-Customs (17 May 2021) explained the new facilities in IGCR (like job work outsourcing and one-time intimation)?bcshettyco.com?bcshettyco.com. Circular 18/2022-Customs (Sept 2022) introduced the IGCRS 2022 Rules and an online portal for filings?linkedin.com. Also, CBIC has clarified place-of-supply for such transactions via GST Circular 103/22/2019 (for services on goods imported for processing) which we referenced?legalitysimplified.com. Keeping abreast of these ensures you remain compliant with any changes (for example, if any provision for IGST exemption is introduced in future, or if the return filing procedure changes to an online system entirely).

• Additional Registrations (if scaling up): If you plan to do such operations regularly and on a large scale, consider registrations like Authorized Economic Operator (AEO) for easier customs clearance, or if beneficial, transition to an EOU or MOOWR unit for a more streamlined duty management (these would require separate applications to the Development Commissioner or Customs, respectively, and are beyond the scope of the basic job-work clearance but can be advantageous for long-term operations).

By organizing your business under these guidelines, you can import the foreign buyer’s fabrics, trims, etc., without paying import duty, carry out the embroidery job work, and export the finished goods efficiently. This model is supported by Indian law under the Customs Act (duty exemptions and bonds for import for export), the FTP (allowing jobbing contracts), and GST (treating your service as an export). All compliance – from bonding to timely re-export and documentation – will ensure that your future shipments also flow smoothly under this duty-free job work scheme, without any legal hurdles or unwarranted costs.

Sources:

• Customs Notification No. 32/1997-Cus (Jobbing exemption) – conditions for duty-free import for export orders?cag.gov.in?customsandforeigntrade.com.

• CBEC/CBIC Circulars 18/2004 and 10/2021 – clarification on scope of “job work” and simplified IGCR procedures (one-time intimation, etc.)?business-standard.com?m.economictimes.com.

• Customs (Import of Goods at Concessional Rate of Duty) Rules, 2017 and 2022 – procedural framework for bond, record-keeping, job work outsourcing, and returns?mumbaicustomszone1.gov.in?bcshettyco.com.

• Foreign Trade Policy 2015-20, Para 9.28 – definition of “Jobbing” and related provisions?elcina.com.

• CBIC/Ministry of Finance clarification on GST place of supply for goods temporarily imported for processing (Circular 103/2019) – confirming such transactions qualify as export of services?legalitysimplified.com.

• Expert commentary (TNC Rajagopalan in Business Standard) on job-work imports and obligations?business-standard.com?business-standard.com, and professional guides on “India Jobbing” compliance?

How a Layman Can Start the Job Work Import-Export Process in India

Step 1: Register Your Business
Start by legally registering your business as a proprietorship, partnership, LLP, or private limited company. This is essential before dealing with customs or applying for any licenses.

Step 2: Apply for IEC (Importer Exporter Code)
IEC is mandatory for importing or exporting goods or services. It can be applied for online through the official DGFT portal.

Step 3: Appoint a Licensed Customs Broker (CHA)
A Customs House Agent (CHA) will help you navigate the technical customs procedures, file import/export documents, and claim duty exemptions. Choose a CHA who is familiar with job work-related shipments.

Step 4: Draft a Job Work Agreement with the Foreign Buyer
Prepare a written agreement clearly stating that the foreign buyer is sending materials free of cost for job work. Include the nature of processing, timelines, and the obligation to return the finished goods.

Step 5: Submit Prior Intimation and Execute a Bond with Customs
Before importing, you must file an intimation under the Import of Goods at Concessional Rate (IGCR) Rules with your jurisdictional customs office. You also need to execute a bond promising that the imported goods will be used for export only and returned in finished form within the permitted time.

Step 6: Import the Raw Materials
When the materials arrive, your CHA will file the Bill of Entry with customs. You will claim exemption from Basic Customs Duty under Notification No. 32/1997-Cus. IGST will still be applicable and needs to be paid at the time of import.

Step 7: Carry Out the Job Work
Perform the embroidery or other processing work as per the agreement using the imported materials. You may use some additional local materials if required.

Step 8: Export the Finished Goods
After completing the job work, export the final goods to the foreign buyer. File a Shipping Bill and declare that this is a job work return shipment. Ensure your GST Letter of Undertaking (LUT) is valid to export without charging IGST.

Step 9: Claim Refund of IGST or Input Tax Credit
After export, you can claim a refund of IGST paid at the time of import, or unutilized input tax credit through the GST portal. Maintain all necessary export documents and proof of payment received for the job work.

Step 10: File Reconciliation with Customs
Submit details of how the imported materials were used and confirm that the finished goods were exported. This is done through a quarterly or monthly return under the IGCR rules. Keep records of all imports and exports for verification.

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