Dispute Resolution & ADR – Is ODR a humpless 'Camel' (See 'THE INSIGHT')Guarantees by Directors – whether supply of service? (See 'THE INSIGHT')Whether Social Welfare Surcharge is payable by importers under exports schemes? (See 'THE INSIGHT')Production Linked Incentive Scheme (PLI) for Automobile & Auto Components (See 'THE INSIGHT')Need for judicious application of CAROTAR, 2020 (See 'THE INSIGHT')Will Govt permit Input Tax Credit on GST if paid on Petrol & Diesel? (See 'THE INSIGHT')Key Highlights of the 45 th GST Council Meeting (See 'THE INSIGHT')Fertiliser industry - Inverted duty structure & subsidy - refund woes (See 'THE INSIGHT')ITC on Food supply services arranged at Factory canteen for employees (See 'THE INSIGHT')Ease of Doing Business & Custom Audit (See 'THE INSIGHT')TP - Where assessee has advanced loan to its AE, rate of interest would be based upon rates prevailing in country where loan is utilised: ITAT (See 'TOG Latest')Service tax - Denial of credit at recipient's end cannot be justified by Department without reopening the assessment at dealer's end: CESTAT (See 'TOG Latest')Service tax - Re-credit is an adjustment/correction of the excess reversal which was not required to be made by them: CESTAT (See 'TOG Latest')I-T - Trust which misuses status conferred upon it by Section 12AA is not entitled to retain & enjoy said status - Bogus donations completely misused by 'Trusts' calls for cancellation of registration granted to it u/s 12AA & 80G: SC (See 'TOG Latest')TP - ALP adjustment is mandated only in respect of International transactions & not transactions entered into by taxpayer with independent unrelated parties: ITAT (See 'TOG Latest')
Tax on Go


Need for judicious application of CAROTAR, 2020
By Ramesh Chandra Jena, Advocate
Oct 05, 2021

TRADE Agreements are based on the principles of WTO agreements. Trade agreements are between two or more countries or trading blocs that primarily agree to reduce or eliminate customs tariff and non tariff barriers on substantial trade between them normally cover trade in goods (such as agricultural or industrial products) or trade in services (such as banking, construction, trading etc.).

The Ministry of Commerce & Industry, (Department of Commerce), the Government of India has been taken number steps for negotiating with the various countries to enter into trade agreements for imports of goods on concession of Customs duty or preferential rates under the Customs Tariff. The various Trade Agreements are summarised as under:

(i) FTA ( Free Trade Agreements)

(ii) PTA( Preferential Trade Agreement)

(iii) CECA( Comprehensive Economic Cooperation Agreement)

(iv) CEPA( Comprehensive Economic Partnership Agreement )

Accordingly, Ministry of Finance , Department of Revenue, the Government of India, in order to provide benefit of concession of Customs duty or preferential rates of Tariff under the various trade agreements. The Government of India has issued time to time Notifications for Customs Tariff (Determination of Origin of goods under the Preferential Trade Agreements) with Member States of the Association of Southeast Asia Nations (ASEAN), South Asian Free Trade Area (SAFTA). These Notifications provides Tariff rates under various Chapter heading/sub-heading of all goods for concessional Customs duty/preferential rates for the goods imported from various countries under FTA. The preferential rates/concession of Customs duty are provided for imported goods under Trade Agreements were notified under the customs Notifications issued in terms of Section 5 of the Customs Tariff Act, 1975. The C.B.I&C also have issued time to time circulars for clarification on preferential rates for imported goods as well as Guidelines for Provisional Assessment under Section 18 of the Customs Act 1962 and implementations of Section 28DA of the Customs Act, 1962. The C.B.I & C has been issued Notification & Circular on CAROTAR, 2020, in respect of Rules of Origin under Trade Agreements (FTA /PTA /CECA/CEPA)/for verification of Certificates of Origin.

Conditions of preferential Tariff under Trade Agreements:

The Rules of Origin are important in the context of making an assessment on the application of preferential tariff under an FTA. Hence, without the rules of origin, the preferential tariffs under an FTA cannot be implemented. Moreover, the non-members to the FTA are not provided with the benefit of the preferential tariffs, agreed between the FTA partners. The rules of origin are enforced through a certificate of origin that is issued by authorised agencies of the trading partner.

Procedure for obtaining Certificate of Origin:

A Certificate of Origin is a certificate that is used to identify the country of manufacturing of any goods. It is a necessary instrument for import for cross-border trades, as agreed upon by trade agreements and treaties by nations. The overseas exporter is required to apply to the authorised agencies of his jurisdiction for issuance of the certificate of origin and he should shipped goods along with the Certificate of Origin.

Procedure to avail concession of Customs duty:

Upon receipt of shipment of imported goods at the port of discharge, the importer has to file Bill of Entry under Section 46 of the Customs Act, 1962 and in the said Bill of Entry, the importer has to mention the details such as Serial Number of Certificate of Origin, date of issue of Certificate of Origin for claiming exemption of Basic Customs duty or preferential rates of duty as per Customs Tariff and also mention the Notifications Number issued under various Trade Agreements.

Verification of Certificate of Origin:

"Verification" means verifying genuineness of a certificate of origin or correctness of the information contained therein in the manner prescribed by the respective Rules of Origin. The Government of India, Ministry of Finance (Department of Revenue) issued a set of rules is called the Customs (Administration of Rules of Origin under Trade Agreements) Rules, 2020 (in short CAROTAR, 2020) vide Notification No.81/2020-Customs (N.T.) dated 21.08.2020 and these rules apply to import of goods into India where the importer makes claim of preferential rate of duty in terms of a trade agreements.

The very objective of the these CAROTAR, 2020 rules for verification of Certificate of Origin by the Customs Authority at the time of assessment of Bill of Entry for imported goods clear for home consumption and allow benefits of concession of Customs duty or preferential rates of duty as specified under Tariff Notifications were issued under the various Trade Agreements.

The assessing officer on the basis of information and documents received, if the proper officer is satisfied that the origin criteria prescribed in the respective Rules of Origin have been met, he shall accept the claim and inform the importer in writing within fifteen working days from the date of receipt of said information and documents.

Where the importer fails to provide requisite information and documents by the prescribed due date or where the information and documents received from the importer are found to be insufficient to conclude that the origin criteria prescribed in the respective Rules of Origin have been met, the proper officer shall forward a verification proposal in terms of rule 6 to the nodal officer nominated for this purpose.

The assessing officer cannot denied the benefits of concession Customs duty or preferential rates to importer under various trade agreements without verification of Certificate of Origin as prescribed vide C.B.I&C, Circular No.38/2020-Customs., dated 21.08.2020 and CBIC vide its Notification No.81/2021-Customs (N.T.) dated 21.08.2021 (CAROTAR Rules 2020) prescribed as per clause 3 of point no-8 that "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".

Denial of benefits to the importers:

The field formation officers of Customs/assessing officers of Customs having their own interpretation and denying the benefits of concession Customs duty or preferential rates duty under Tariff Notifications under various Trade Agreements in the following grounds:

(i) The Physical copy of Certificate of Origin against Bill of Entry for home consumption has not been submitted along with other documents for assessment of BoE for which benefits of Customs duty are not permitted,

(ii) The Bill of Entry has been self-assessed under RMS without claiming exemption , so amendment or re-assessment Bill of Entry for extending benefits of Customs duty under Trade Agreements are not allowed,

(iii) Certificate of Origin has been issued retroactively or retrospectively after the imported goods have been shipped to importer benefits under Trade Agreements are not allowed,

(iv) Imported goods are directly warehoused for verification of Certificate of Origin beyond the stipulated time of verification CoO and thereby instantly passing of benefits of concession of Customs duty are being denied to the importer.

(v) Rejection of Certificate of Origin for minor discrepancy and thereby denying benefit of preferential rates as per Tariff Exemption Notification.

Recent Board Instruction:

In view of difficulties being faced by Trade in implementation of CAROTAR, 2020 has been issued vide Circular No.38/2020-Customs, dated 21.08.2020, wherein directions were issued to the field formations to ensure judicious application of CAROTAR,2020, follow prescribed timelines strictly and avoid unnecessary delays or use of arbitrary practices during clearance of goods. It is observed that bulk verification requests are still pending from Verifying Authorities in terms of Rule 6(1)(b) of CAROTAR,2020, without citing appropriate grounds and without mentioning specific information to be sought from the Verification Authority

Therefore, vide this recent instruction No. 18/2021-Cus., dated 17-08-2021,it is reiterated that while forwarding a Verification Request to the Board under Rule 6(1)(b) of CAROTAR,2020, the proper officer must clearly indicate the reasons to believe why goods are not meeting the prescribed origin criteria and specific information required to be obtained from the Verifying Authority that the proper officer consider necessary to determine the origin and the verification requests should be communicated to the Board within the prescribed timelines of CAOROTAR,2020.

Judicial pronouncements:

The Hon'ble High Court of Tripura in the case of Shri Pijush Banik vs. Union of India, reported in - TOG-343-HC-TPR-CUS-2021, observed that the petitioner was not afforded any opportunity to meet the purported deficiency for which the clearance has been refused. No observation on the legality or regularity of the process of verification on merit is called for at this stage, considering that the verification is still inconclusive. But in the emerged circumstances, the assessing officer and the other respondent authorities are directed to provisionally assess the duty and to release the goods on obtaining an indemnity bond, to be submitted by the petitioner binding himself to deposit the duty or the difference between the duty that would be assessed by the competent authority on verification and the preferential duty within a period of 7(seven) days. In the event of failure to deposit the assessed duty on completion of verification within the said stipulated time, the payable duty shall carry interest at the rate of 15% per annum from 26.09.2020 till the said duty is deposited. The provisional assessment in respect of the goods covered under the Bill of Entry dated 26.09.2020 shall be completed within a period of two days from the date of receipt of a copy of this order. After furnishing of the indemnity bond, those goods be released within next 24 (twenty four) hours.

The Hon'ble Tripura High Court in the case of Shri Goutam Roy vs. Union of India, reported in - TOG-861-HC-TPR-CUS-2021,observed that " Having appreciated the submissions made by the counsel for the parties and the averments made in the writ petition and in the reply, the pertinent question which emerges and is falls for consideration whether the verification is random verification falling under Rule 6(1)(c) of the CAROTAR, 2020 or the verification falls under the category leveled by Rule 6(1)(b) of the CAROTAR, 2020. The petitioner has brought categorical allegation against the respondents that he has furnished all requisite documents and information for clearance but the imported goods have been ware-housed without any reason being disclosed to the petitioner whether those goods were held up for any verification regarding the Certificate of Origin produced by the petitioner for availing the concessional rate of the customs duty or for any other reason. This allegation has been levelled in para-7 of the writ petition and in reply thereof, the respondents have evaded any specific reply. They have simply stated that -

"assessment/clearance of goods has not been stopped. Only preferential treatment of customs duty has been denied till the doubt on the Country of Origin certificate is resolved."

The said reply does not conform to any verification under Rule 6(1)(b) of the CAROTAR, 2020 which is structured on the failure to provide the requisite information, as no such information was asked from the petitioner. The said verification cannot be treated as prima facie verification under Rule 6(1)(b) of the CAROTAR, 2020, rather it would prima facie come under Rule 6(1)(C) of the CAROTAR, 2020. Thus, Rule 5(b) of CBEC's circular No.38/2016-Cusoms dated 22.08.2016 will apply in the present case. After thorough verification, if some defects is located, such verification will take a different character. In the present case, the respondents have stated that the petitioner has furnished the subsequent statement which conforms to the nature of container. Hence, the respondents are directed to release the imported goods under the Bill of Entry No.659390/INP/AGT-LCS/2020-21 dated 26.12.2020 on obtaining an indemnity bond to be submitted by the petitioner binding himself to deposit the duty meaning the difference between the duty that would be assessed by the competent authority on verification and the preferential duty which has been paid by the petitioner."

To sum up: The Certificate of Origin is the identity of origin of goods and exemption of Customs duty or preferential rates as per Customs Tariff were notified under various trade agreements. Trade agreement is based on the principles of WTO agreements to give relief to imported goods and remove Customs Tariff barriers between trading countries. The provisions of Rules CAROTAR, 2020, the verification of Certificate of Origin should be followed by the assessing officers of Customs for extending benefits of Customs duty and for minor discrepancy in the Certificate of Origin importer should not be harassed or denied the benefits of concession of Customs duty. The Certificate of Origin is valid for twelve months from the date of shipments of imported goods hence in case of certificate of origin issued retroactively benefits should be allowed. Further, even in the absence of physical copy of Certificate of origin the benefits should not be denied. In view of COVID-19 pandemic C.B.I & C vide its Circular No. 19/2021-Cus., dated 16.8.2021 has clarified that in the absence of original copy of certificate of origin, imports clearance may be assessed and cleared provisionally in terms of section 18 (1) of the Customs Act, 1962; the final assessment in terms of section 18(2) of the Customs Act, 1962 may be done subsequently on submission of the original certificate of origin by the importer. It is hoped that the field formations follow the essence of the CBIC circular and ensure that the importers are not inconvenienced for any minor lapses.


[The views expressed are strictly personal.]