The Indian Finance Act, 2020 incorporated many changes in the customs law and procedures, including administration of Rules of Origin under Trade Agreements. A new Chapter VAA has been incorporated in the Customs Act, 1962 to provide for enabling provision for administering the preferential tariff treatment regime under various trade agreements, including FTAs, etc.
As per WTO's statistics, there are 305 regional trade agreements in force as on date. India has entered into 15 free trade agreements, and one unilateral DFTP (Duty Free Tariff Preference) Scheme.
Each FTA contains a set of rules of origin, which prescribes the criteria that must be fulfilled for goods to attain 'originating status' in the exporting country. Such criteria are generally based on factors such as domestic value addition and substantial transformation in the course of manufacturing/processing. For instance, the originating criteria finalised under a trade agreement could be domestic value addition of minimum 30% plus substantial transformation through Change in Tariff Sub-Heading (CTSH). Under the South Asian Free Trade Area (SAFTA), the general criteria are Change of Tariff Heading (CTH) plus 30 per cent for LDCs, vs. 40 per cent for non-LDCs.
India issued a Customs (Administration of Rules of Origin under Trade Agreements) Rules, 2020 (CAROTAR,2020) dated August 20, 2020, to be implemented from September 21. Thus 30 days' time has been given to importers and other stake holders to familiarise with the new provisions. Where customs officer has given a discretionary authority for "a doubt" on genuineness/authenticity of the COO or on the accuracy of the information contained therein. The officer empowered to send a verification request to the designated authority in the exporting country through a nodal officer in the importing country.
Accordingly, Chapter VAA and section 28DA were inserted in the Customs Act, 1962, vide clause 110 of Finance Act, 2020. The new section inter alia provides for "a basic level of due diligence" on the part of an importer to satisfy himself that the claimed originating criteria have been met, and that mere submission of a Certificate of Origin may not be sufficient. For this purpose, the importer is required to possess "sufficient" origin related information. The first point of query into origin of goods, in case of doubt, will now be the importer, shifting from G2G to B2G model. Section 28DA further provides for verification of origin from foreign authorities, temporary suspension of preferential treatment, and situations under which a claim can be denied, or a certificate can be rejected.
The Rule (sec 4) requires an importer to possess sufficient information about the origin of goods, where preferential tariff treatment is claimed. To help guide importers and also to indicate the scope of such information, details have been provided in the Form I of CAROTAR, 2020. An importer is not required to submit this Form at time of filing customs declaration. However, when there is doubt on the declared country of origin, the customs officer may ask origin-related details from the importer, in which case the importer would have to submit the Form along with supporting documents.
The form focuses on the process through which a good has attained origin i.e. if goods are produced entirely from inputs from that country or also included inputs from third country. Even an input such as preservative should be added to the cost of materials (by value or weight). In the formation, the percentage of preservative in a product may be 0.03 – 0.05 percent. If a supplier/producer mentions that goods have non-originating components but meets the originating criteria, it is advised to check if the claimed originating criteria applies to that specific tariff heading. An importer should ask these questions to ensure that the claim is valid and to diminish chances of erroneous claim.
Section 28DA of the Customs Act requires an importer to possess sufficient information about origin of imports, where preferential tariff treatment has been claimed. Form-I helps guide and assist an importer in assessing origin of goods. Moreover, the importer is required to keep origin related information specific to each Bill of Exchange (BE) for minimum five years from date of filing B/E.
This new rule is frightening for an Indian importer of the fate of consignments from SAPTA countries due to uncertainty of tax. This uncertainty will remain even up to five years after import. The import from Bangladesh and other SAPTA countries may drastically fall due to such stringent rule and discretionary authority of Customs official. The request for verification may be sent within five years from the date of claim of preferential tariff treatment, unless specified otherwise in the trade agreement, and the preferential tariff treatment to the goods can also be temporarily suspended pending the verification. Further, according to amendments in Section 111 of the Customs Act, relating to confiscation of goods, the goods imported under claim of preferential tariff treatment and found to contravene the provisions of the new Chapter VAA or the Rules, will also be liable to confiscation. The law has amended giving discretionary power to the customs official and they can apply the investigation according to their choice.
The writer is a Legal Economist.