European companies should know about BIS registration in India

Before you start importing or manufacturing your product in India, it is wise to check whether you need a mandatory BIS registration. This is a hallmark issued by the Indian government to guarantee the quality of specific products. There are registration options for around 900 products, but for more than 300 products BIS registration is actually mandatory. For example, foodstuffs, household electrical products chemicals, cement and steel. In this article, we explain what a BIS registration is and how you can obtain one.

What does BIS stand for?

The 'BIS' in BIS certification stands for the Bureau of Indian Standards, which is the national certification body of India. The bureau was established in 1986 with the aim of: 

• offer consumers safe goods of reliable quality

• minimising health risks for the consumer

• human, plant and animal safety

• environmental safety

• prevention of misleading commercial practices

• promotion of a culture of quality through the application of good manufacturing practice

• educating the industry in various aspects of standardisation and testing

• promotion of exports and encouragement of import substitution

• monitoring the distribution of plant species

• minimising waste

The BIS Product Certification System is one of the largest in the world, with over 26500 licence holders for more than 900 products. BIS certification allows licensees to use the popular ISI mark on their product, which in India is synonymous with a quality product. Within the BIS Product Certification System, there are four different ways or 'schemes' by which producers can apply for registration depending on their product.

The four different BIS Certification Schemes

1. The normal procedure for domestic manufacturers 

The applicant must submit the BIS certification application with the required documents and the required fee. After submitting the application, a preliminary factory assessment is carried out by a BIS employee. Subsequently, samples are tested at the factory and samples are also taken for independent testing in an external laboratory. BIS certification is granted if the samples meet the standards. Under this method, BIS certification is expected to be granted within 4 months of the application being submitted.

2. Simplified procedure for domestic manufacturers 

In the simplified procedure, in addition to the documentation required for the BIS registration, the applicant must also enclose a test report of a sample by a laboratory recognised by the BIS. If the test report is satisfactory, an inspection of the factory site is carried out by a BIS employee. The BIS certification is granted if the verification by the BIS officer is sufficient. With this method, it is expected that the licence will be granted within 30 days after submitting the BIS certification application with the required documents and the test report.

3. ECO Mark Scheme 

BIS license for environmentally friendly products is granted under a scheme separate from the normal BIS certification process. Eco-friendly products must meet additional requirements to qualify for the ECO mark. However, the licensing procedure is similar to that of the scheme for domestic producers.

4. Foreign Manufacturers' Certification Scheme (FMCS).

Foreign manufacturers should apply for their BIS registration, if mandatory, through the FMCS. In addition, it is also possible to obtain the registration as a foreign manufacturer if it is not mandatory for your product. 

Applying for a BIS registration through the Foreign Manufacturers' Certification Scheme (FMCS)

Over 300 products, ranging from air conditioners to aluminium foil, require foreign producers to apply for BIS certification. In addition, a mandatory registration is required for 49 electronic & IT products that are not on the standard list, because the application for that certification does not go through the FMCS. More about this specific application can be found here.  

To obtain the BIS registration, you first need to apply to the BIS and pay the application fee for registration. Please be aware that a separate application is required for each product. The application to the BIS can be done by two entities:

• Your Indian liaison or branch office (as long as it has all the rights of the Reserve Bank of India to file an application) 

• A legally appointed agent in India

It is highly recommended to choose the second option. The process starts with a lot of paperwork in which you have to demonstrate how the quality of the product is guaranteed. It has to be explained on paper exactly how the production processes work, from the purchase of the raw materials to the ways in which the final product is tested. Only a local expert with specific experience in applying for BIS certification for international companies will understand how everything needs to be documented and submitted. If you place this task with your local entity and they start without experience, you are bound to experience a delay of several months.

Once your representative has submitted everything, your application will be examined by the BIS. If it is found to be complete, your application will be officially registered. A visit to your production facility is then scheduled with your Indian representative. The costs for this visit are at your expense and include working days, travel and accommodation expenses and the BIS employee's daily allowance. During the visit, the inspector will check the following items:

• Whether your production process and your testing facilities meet Indian standards

• The competence of your permanent test staff

• Whether samples of your product meet the requirements of the Indian standard.

The BIS inspector does not only carry out tests on site, but also takes samples which you must have tested by an external BIS-approved laboratory in India. The costs for these tests are also for you.

If the BIS considers the results of the inspection sufficient and the independently tested samples also meet the Indian standard, you will receive your BIS registration. Your representative must then sign the terms of the BIS agreement. This means that you are willing to comply with the Scheme of Testing and Inspection (STI) and will pay the annual minimum marking fee and the licence fee. 

Minimum marking fee and licence fee 

You have to pay the annual minimum marking fee (amount depends on your product) and the licence fee (₹1000) once the BIS registration is granted. Thereafter, you may pay the marking fee either quarterly or annually. A BIS licence is normally granted for the duration of one year, but extension options of up to 5 years are available for most products.

The renewal process is much simpler than the initial BIS registration as it does not require a visit to your facility. When applying for a renewal, you must submit the following documents:

1. Renewal form

2. Production details of products marked ISI

3. Extended bank guarantee (six months longer than the validity of the licence)

4. Proof of payment of the marking fees

No Objection Certificate

It sometimes happens that the code of your product indicates to customs that a BIS registration is required, but this is not the case. It also happens regularly that customs confuses products that are "similar" to your product and fall under the "mandatory certification". Your product is then detained by the authorities, leading to considerable delays, and you may even be fined.  

In order to prevent this, a special "No Objection Certificate" (NOC) can be requested from BIS, which proves that the material is not subject to "compulsory certification". BIS checks on a case-by-case basis, using test reports, product specifications, declarations and other evidence, whether a NOC is applicable. However, the fee for this certificate is limited. It takes approximately two months to obtain an NOC. A NOC is issued for every import of the same product and must be presented together with the cargo documents. 

Merchant Trading: export directly from your Indian factory and avoid double import duties

India is becoming a very popular manufacturing location for European companies because of its large talent pool of highly skilled workers, low costs, excellent knowledge of the latest technology and strategic location. This makes India not only a great manufacturing hub, but also the perfect home base from where the region can be easily supplied. More and more European companies are therefore choosing India as a manufacturing location to export their products to neighboring countries.

If you use India as a regional manufacturing hub, you naturally want to be able to export your products directly from the factory, rather than having to send them to your European headquarters first. This direct way of exporting is called merchant trading. In this article, we explain how merchant trading from India works and how to get the right permits.

Merchant Trading as a European company

Merchant Trading means that a shipment of goods takes place from one foreign country to another foreign country through an "intermediary" or "merchant" in a third country and without entering or leaving the merchant's country. Merchant trading thus helps companies avoid paying double import duties.

Let's simplify this with an example. A Dutch company has a subsidiary in India that manufactures its products. The Dutch company has found a Singaporean customer who wants to buy the products manufactured in India. Instead of importing the products to the Netherlands and then exporting them to Singapore, the Dutch company asks the Indian subsidiary to deliver the products directly to the buyer in Singapore. This means the products never enter or leave the Netherlands.

In this case, we speak of merchant trading because:
- the supplier of the goods to be exported is the subsidiary in India;
- the buyer of the goods to be exported is the customer in Singapore;
- the merchant or intermediary is the parent company in the Netherlands.

But we speak of merchant trading not only when a subsidiary is involved, but also when a company purchases the products it will ship to the customer from a third party.

For example, the Dutch company receives an order from a customer in the US for a specific product that it does not produce itself from a customer in the US. The Dutch company places an order with a supplier in India who manufactures the product and asks the Indian supplier to ship the goods directly to the customer in the US. Again, the goods do not enter or leave the Netherlands, so again in this example the Dutch company is the merchant trader.

In this example, the Indian supplier sends its invoice to the Dutch company, which then sends its own invoice to the American customer. In the example where the goods are delivered by the Indian subsidiary, the international and local transfer pricing rules apply to the sale of the goods from the Indian subsidiary to the Dutch parent company.

Paying GST (VAT) on a Merchant Trade

According to the IGST Act delivery to a location outside India by an Indian supplier is treated as delivery of goods between two Indian states. In the CGST Act states that activities or transactions are not treated as a supply of goods if the goods are delivered from one place in a non-taxable territory to another place in a non-taxable territory without the goods entering India.

This means that in our examples, where the goods are supplied from India, the IGST Act applies and GST is payable. In the case where the trader is the Indian company, the CGST Act applies and no GST is due either.

Required documents for Merchant Trading from India.

The documents needed to ship goods from the supplier to the customer depend on the specific products being sold and whether the Indian company is the supplier or the merchant in the deal. If the latter, at least 13 documents must be submitted to enable the Merchant Trade. It is therefore strongly recommended to work with a local expert in this field, who can advise you on how best to set up the merchant trade and support you in obtaining all the necessary documentation.

Our experts are available to answer all your questions on this topic and to help you successfully complete your first merchant trade.

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Shashank Verma

Vice President of Supply Chain Management

This article was written in collaboration with vice president of Supply Chain Management, Shashank Verma.

Verma has over 22 years of experience in establishing business strategies, managing the supply chain of hundreds of European companies, establishing sound logistics in India and other related functions with a focus on revenue growth and profit maximization of organizations.

India's major taxes: you need to know about the Goods and Services Tax (GST)

The Goods and Services Tax (GST) is the Indian version of VAT. Anyone doing business in India will eventually have to deal with it. The GST was introduced in 2017 to make the country's complex existing tax system more manageable.

Despite having made doing business in India considerably easier, the GST tax can still be a challenge for European companies starting their operations in India. In this article, we'll explain how the tax works and how it affects you as a foreign entrepreneur.

The old, Indian GST tax system consisted of an accumulation of indirect taxes, excise taxes and surcharges levied not only at the national level, but also at the state level and even at the city level. A major tax collected by Indian states was the Value Added Tax (VAT), but there was no fixed national rate for it.

States independently determined what VAT was charged for a product, resulting in much red tape for businesses. In addition, state-to-state sales also required a Central State Tax (CST) to be paid to the national government, further underscoring the fragmentation of the old tax system.

All these different taxes from different Indian governments brought about a waterfall effect and made tax evasion and corruption relatively easy. Indian tax authorities were losing a lot of revenue as a result, so change was much needed. 

One centralized sales tax

With the new Goods and Services Tax, there came one centralized sales tax for all of India in 2017. It unifies all taxes by product type and is levied at the national level in New Delhi.

There are five rates, ranging from 0% to 28%, under which 1211 categories of goods and services are divided. Under the GST system, tax is charged at any point when value is added to the product and a sale occurs. This runs up to the final sale to the customer. To clarify this a simplified example: 

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In addition, GST is a destination-based tax. This means that if a product is manufactured in the state of Andhra Pradesh, but sold in Karnataka, the entire tax goes to Karnataka. A big improvement from the previous system where tax had to be paid at each step to a different government body. 

The benefits of Goods and Services Tax

The list of benefits of a centralized sales tax is long. First, the GST greatly simplifies India's unwieldy tax system. In addition, the GST makes it possible to effectively make India a single market in which free movement of goods between states becomes a reality.

This allows companies to organize their distribution from a central nationwide warehouse - and not have to set it up separately in each state. Furthermore, tax evasion becomes more difficult, increasing revenues for the Indian treasury. The above benefits in turn lead to positive macroeconomic effects: doing business in India becomes easier, (foreign) investment increases, the Indian government itself can invest more, and the Indian economy will grow faster.

But the GST also has disadvantages

The GST is far from perfect because it still does not bring taxes together under one roof. In fact, there are 38 different ones: a separate GST for all 29 states (SGST) and the seven "union territories" (UTGST), a federal GST (CGST) and an integrated GST (IGST) for interstate supplies of products and services.

Despite the fact that the GST system is supposed to eliminate the water vale effect and thus lower the price of products, certain products have actually become significantly more expensive. For example, since the introduction of the new tax, products such as shampoo and deodorant suddenly fall into a higher tax rate. 

What does the GST mean for you as a European entrepreneur in India?

All European companies wishing to start their own branch, joint venture or any other type of sales organization in India will face this tax. To pay this tax, you will need a PAN number and must register with the GST portal where you will get your unique GSTIN code. Through this portal, a tax form has to be submitted and paid every month.

European companies that only export to India hardly have to deal with the taxes. However, it is important to understand how the GST taxes the Indian distributor or importer you are working with.

GST is one of India's most important taxes, besides of course Corporate Tax and all sorts of other taxes such as Minimum Alternate Tax (MAT), Dividend Distribution Tax (DDT), Custom Duty and Excise Duty.