FTA provisions to prevail in case of conflict over Rules of Origin on imported goods: CBIC

Tax board writes to customs officers urging compliance

August 19, 2022 07:36 pm | Updated 10:29 pm IST - New Delhi

Exemptions specified in a Free Trade Agreement (FTA) with regard to country of origin will prevail in case of conflict between revenue department and importer, the Finance Ministry has said.

In an instruction to chief commissioners, the Central Board of Indirect Taxes and Customs (CBIC) said the customs field officers should be sensitive to applying CAROTAR and maintain consistency with the provisions of relevant trade agreement or its Rules of Origin.

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

It empowers the customs officers to ask the importer to furnish further information, consistent with the trade agreement, in case the officer has reasons to believe that the country-of-origin criteria have not been met. Where the importer fails to provide the requisite information, the officer can make further verification consistent with the trade agreement.

"In the event of a conflict between a provision of these rules and a 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 the instruction issued on August 17, the CBIC wrote to the chief commissioners saying: "The officers under your charge should be sensitive to applying CAROTAR maintaining consistency with the provisions of relevant trade agreement or its Rules of Origin."

India has inked FTAs with several countries, including the UAE, Mauritius, Japan, South Korea, Singapore, and ASEAN members.

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

The 'rules of origin' provision prescribes for minimal processing that should happen in the FTA country so that the final manufactured product may be called originating goods in that country.

Under this provision, a country that has inked an FTA with India cannot dump goods from some third country in the Indian market by just putting a label on it. It has to undertake a prescribed value addition in that product to export to India. Rules of origin norms help contain dumping of goods.

KPMG in India, Partner Indirect Tax, Abhishek Jain said the CAROTAR regulations required the companies availing of benefit under FTAs to maintain and furnish information in Form I which essentially put some onus on the importer to ensure that the benefit was taken in line with the rules stipulated under the relevant FTAs.

"In order to avoid any unnecessary harassment, the circular reiterates that the information to be asked by the customs officer should be consistent with the provisions of trade agreements/FTAs and should not go beyond it under the garb of CAROTAR provisions," Mr. Jain said.

EY India Tax Partner Saurabh Agarwal said this instruction allays importers' concerns to a larger extent, wherever FTA-based exemptions are being availed.

"Currently, the CAROTAR rules require extensive submission of data and facts, where in certain cases the requirement even goes beyond the stipulated conditions under the bilateral/multilateral FTAs signed between the countries. This clarification affirms our long-standing position that provisions of FTAs shall prevail over the CAROTAR rules wherever any conflict arises," Mr. Agarwal.

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