FTA provisions will apply in case of conflict of origin rules on imported goods: CBIC

The Finance Ministry has said that the exemption specified in the Free Trade Agreement (FTA) with respect to the country of origin will be applicable in case of conflict between the Department of Revenue and the importer.

In a direction to the Chief Commissioners, the Central Board of Indirect Taxes and Customs (CBIC) said that the customs sector authorities should be sensitized to implement CAROOT and maintain consistency with the provisions of the relevant trade agreement or its substantive rules .

The Customs (Administration of Rules of Origin under Trade Agreements) or CAROTAR Rules, came into force from September 21, 2020.

It empowers customs authorities to ask the importer to submit further information consistent with the trade agreement if the official has reason to believe that the criteria for the country of origin have not been met. Where the importer fails to provide the required information, the officer may conduct further verification in accordance with the trade agreement.

“In the event of a conflict between the provision of these Terms and the provision of the Rules of Origin, the provision of the Rules of Origin shall prevail to the extent of the conflict,” according to the CAROTAR Rules.

In a directive issued on August 17, the CBIC wrote to chief commissioners saying: “The officers under your charge should be sensitized to implement CAROTAR while maintaining consistency with the provisions of the relevant trade agreement or its substantive rules.”

India has signed FTAs ​​with several countries including the United Arab Emirates, Mauritius, Japan, South Korea, Singapore and ASEAN members.

Under an FTA, trading partners agree to reduce or eliminate import/customs duties on the maximum number of goods traded between them, in addition to easing norms to promote trade in services and investments.

The ‘law of origin’ provision sets out the minimum processing that must take place in an FTA country so that the final manufactured product can be called a goods of origin in that country.

Under this provision, a country that has signed an FTA with India cannot dump goods from a third country into the Indian market by merely applying a label. He has to add a specified value to that product for export to India. The Rules of Origin help prevent the dumping of goods.

KPMG, Partner Indirect Taxes in India, Abhishek Jain said that as per CAROTAR rules companies seeking benefits under FTAs ​​are required to maintain and furnish information in Form I, which is mandatorily required by the importer to ensure that But imposes some responsibility that the profit was taken in accordance with the rules. prescribed under the relevant FTA.

“To avoid any unnecessary harassment, the circular reiterates that the information sought by the Customs Officer should be in conformity with the provisions of trade agreements/FTAs and should not be extended beyond the garb of CAROOT provisions,” Mr. Jain said.

Saurabh Agarwal, tax partner, EY India, said the directive largely addresses the concerns of importers wherever FTA-based exemptions are being availed.

“Currently, CAROTAR rules require comprehensive presentation of data and facts, where in some cases the requirement exceeds the conditions prescribed under bilateral/multilateral FTAs ​​signed between countries. This clarification is our Reaffirms the long-term position that the provisions of the FTAs ​​follow the rules of CAROOT wherever any dispute arises,” Mr. Agarwal.