Rules of Origin - Detailed Verification

[Ashutosh Nath]

NEWLY INTRODUCED PROVISIONS FOR RULES OF ORIGIN

Rules of origin (‘ROO’), which is a criteria used to define the place where a product was manufactured / originated, is one of the important aspect that customs authorities around the world focus on. In fact, in India, it is required to mention the country of origin (‘COO’) for every products in the bill of entry (‘BOE’) filed upon importation. Mentioning COO in the BOE is relevant for regulating various areas of customs such as determining preferential tariff treatment, arriving at the licensing requirements, levying anti-dumping duty, regulating quota restrictions, etc.

Being such a key area, Indian Government, through Finance Act of 2020, introduced Section 28DA under the Customs Act, 1962 as an enabling provision for administration of ROO under trade agreements. In addition to the introduction of Section 28DA, Central Government also introduced Customs (Administration of Rules of Origin under Trade Agreements) Rules, 2020 (‘CAROTAR, 2020’) on 21 August 2020. Purpose of these regulations is to provide specific provisions and outline roadmap for governance of claims made under the trade agreements by the importers of goods in India.

While Section 28DA has provided the enabling provisions, the exact manner in which the customs authorities will regulate the claims related to preferential duty has been outlined in the CAROTAR, 2020. In order to let the importers align themselves to this new rule, the implementation date of the CAROTAR, 2020 has been scheduled at 21 September 2020.

Vide CAROTAR, 2020, onus of maintaining the requisite documents and checking the correctness & accuracy of the COO through reasonable care has been placed on the importer.

1. Key features of the newly introduced CAROTAR, 2020 are:

1. Declaration by importer/ his agent – Importer/ his agent needs to make a declaration in the BOE and enter the specified details of certificate of origin. Details such as whether the COO has been issued retrospectively and whether the consignment has been shipped directly from the country of origin also need to be given in the BOE. Necessary modifications in the format of bill of entry are being made to accommodate additional details.

2. Cases when claim may be denied without verification – Proper officer may deny the preferential duty claim without verification of details regarding COO and mark it ‘INAPPLICABLE’ in following cases:     

1. 1. it is incomplete and not in accordance with the format;
   2. contains any alteration not authenticated by the issuing authority;
   3. produced after its validity; or
   4. issued for an item which is not eligible for preferential treatment.

3. Origin related information to be possessed by importer – Importer shall possess information in Form-I provided in the CAROTAR, 2020 and documents in support of the information for a period of 5 years from the date of filing the bill of entry. Information, which include regional value content, product specific criteria, etc. shall be possessed prior to import (unless otherwise mentioned).

Form-I is bifurcated into 3 sections:

1. Section I – Guidance for filling this form
2. Section II – Details such as name of the importer, BOE No. & date, customs station of BOE and goods on which preferential rate of duty has been claimed (to be filled after filing the BOE)
3. Section III – Brief description about the production process undertaken in the country of origin, originating criteria used (wholly obtained, regional value content, etc.) and specified information for each originating material or component used in production of goods (to be filled prior to import). If the origin of any of the components cannot be ascertained, it should be treated as non-originating.

4. Requisition of information from the importer – Proper officer has been authorised to call for information maintained in Form-I during the customs clearance or thereafter. If the importer fails to provide the required details within the prescribed time, then the proper officer shall forward a verification proposal to the nodal officer of customs (Director, International Customs Division) for getting the required information from the issuing authority of the COO.

5. Cases in which verification request can be made to verification authority (exporting country/ the country of origin) – In following cases, request for verification can be made to the verification authority:

• Doubts regarding genuineness or authenticity of the certificate of origin for reasons such as mismatch of signatures or seal;
• Country of origin criterion stated in the certificate of origin has not been met/ the claim is invalid;
• On random basis for selected imports

Abovementioned verification request can be made only when importer doesn’t provide the information or provides insufficient information. The preferential treatment may be suspended till the time verification is not concluded. Clearance of goods in such cases can be made based on provisional assessment and furnishing of security equal to the difference between the duty provisionally assessed under section 18 of the Customs Act, 1962 and the preferential duty claimed.

Proper officer may deny the claim without further verification, if the verification authority doesn’t provide or fails to provide information within prescribed timelines or the information provided proves that origin criteria isn’t met.

6. Special provision related to identical goods – If it is determined that goods originating from a particular exporter/ producer do not meet the origin criteria, then Principal Commissioner/ Commissioner of customs, without further verification, may reject other claims for identical goods imported from the same exporter/ producer. Importer needs to be communicated in writing about the rejection of claim. Further, when the origin criteria gets modified by the producer/ exporter according to the requirements, preferential treatment needs to be restored prospectively.

7. If it is found that importer is not taking reasonable care or fails to provide requisite details or documents, system of compulsory verification u/s 17(2) of the Customs Act, 1962 shall be implemented by the proper officer. Under this system, all the subsequent bills of entry under preferential duty claim shall be taken up for verification. Once importer demonstrates that it is exercising reasonable care, compulsory verification shall be discontinued.

8. In case of suppression of facts or willful misstatements or collusions to avail undue benefit, claim shall be disallowed and penalty shall be levied.

1. Where there is a conflict between the CAROTAR, 2020 and the Rules of Origin, latter shall prevail.

2. Challenges of complying with the CAROTAR, 2020:

Some of the challenges of complying with the CAROTAR, 2020 could be:

1. Arranging for the information such as production process, components used in manufacturing/ production and other details required to be maintained in Form-I as these are sensitive information related to business which exporters / producers may hesitate to provide.
2. Exact nature of supporting documents that is to be maintained by the importer as per Form-I is not given.
3. What will constitute a reasonable care is not clarified (ambiguous; can lead to litigation).

3. Conclusion:

To summarize, it can be said that CAROTAR, 2020 will require importers availing the preferential duty benefit under the trade agreements to be much more diligent and cautious. It can also be seen as a barrier in order to reduce the import of goods and consequently, a tool to promote the Make in India and other similar schemes to boost manufacturing in India. It is pertinent to note that availing the preferential benefit from the date of implementation of CAROTAR, 2020, merely relying on the COO from the exporter won’t be sufficient and a due diligence on the part of the importer prior to availing the benefit needs to be done to avoid any future risks. A process needs to be in place to verify each and every certificate received from the exporter/ producer to check the correctness and the accuracy of the COO received from the exporter/ producer.