FEMA

Key Features of CAROTAR 2020

The Central Board of Indirect Taxes and Customs notified the Customs (Administration of Rules of Origin under Trade Agreements) Rules, 2020^[1] on August 21, 2020. It was enforced from September 21^st, 2020. It was notified with a view to add to the existing operational certification procedures prescribed under different trade agreements like FTAs, Preferential Trade Agreements, etc. In this article, we shall have a detailed outlook on CAROTAR 2020.

Reason behind CAROTAR 2020

The reasons for this can be summed as under:

• An investigation into FTA imports revealed that the rules of origin under respective FTAs were not being followed in the right spirit.
• Customs officials suspected that China diverts its supplies to India via ASEAN nations, thereby abusing rules of origin to take illegal advantage of duty-free market access under FTA.

Key features of Customs (Administration of Rules of Origin under Trade Agreements) Rules, 2020

The key features of CAROTAR 2020 are as follows:

• These rules define the extent of information to be possessed by the importer;
• These rules mandate the inclusion of specific origin related information in the bill of entry;
• An importer should keep the origin-related information specific to every bill of entry for minimum 5 years. The 5 years period begins from the date of filing the bill of entry;
• The Rules provides for the scenario where verification can be initiated from the exporting country;
•  It sets the timeline for information receipt from verifying authorities that are not provided in trade agreements;
• It sets a timeline to finalise decisions based on the information obtained from the importer or verifying authorities; and
• It provides for the action that can be initiated on the imported identical goods when the goods don’t satisfy the originating criteria.

Rules under Customs (Administration of Rules of Origin under Trade Agreements) Rules, 2020

The rules stated in CAROTAR 2020 are as follows:

1- Preferential Tariff Claim

The importer or his agent is required to make a declaration in the bill of entry stating that they qualify as originating goods to claim the preferential rate of duty under the respective agreement while filing a bill of entry. The importer is required to produce the certificate of origin, thus covering each item claimed under the preferential duty rate.

The importer must enter the following details of the certificate of origin in the bill of entry-

• Reference number of certificate of origin;
• Originating criteria;
• Issuance date of certificate of origin;
• If a third country issues the certificate of origin, details of the same;
• Details, If cumulation or accumulation is applied;
• Details regarding if the goods are directly transported from the country of origin.

The preferential rate of duty claim can be denied without verification in case the certificate of origin is:

• Incomplete and is not as prescribed by the rules of origin;
• Involves alteration that is not authenticated from the issuing authority;
• Is provided after the validity period expiry or;
• Is issued for an item that is not eligible for preferential tariff treatment under the trade agreement.

2- Origin related information to be possessed by the importer- Rule 4

An importer who seeks to claim preferential rate of duty should possess information as provided in Form I of the rules and submit it, when requested, to the proper officer. Form I contains the list of basic minimum information that an importer must know while claiming the preferential rate of duty for import of goods.

The importer should possess all the supporting documents related to Form I for a minimum 5 years period from the filing of the bill of entry. The importer should exercise due care to ensure truthfulness and accuracy relating to the information and documents obtained by him pertaining to Form I.

3- Requisition of Information from the importer

During customs clearance, the proper officer can seek information and documents from the importer in terms of Rule 4, in case he has reason to believe that the origin criteria are not met as prescribed under the respective rules of origin. The importer should provide information and documents to the proper officer on requisition within 10 days from the date of such requisition.

When the proper officer is satisfied that respective rules of origin are satisfied based on the documents and information obtained from the importer, the proper officer shall inform it to the importer in writing within 15 days. In case where the importer is unable to provide the information and documents or if it is found to be insufficient to conclude that the origin criteria are met, the proper officer shall forward a verification proposal to the nodal officer who is appointed in terms of Rule 6.

4- Verification Request- Rule 6

Requests for verification under Rule 6 is made through a nodal officer as designated by the Board. On the occurrence of the following, a proper officer can request for verification of certificate of origin from the verification authority:

• When there is a doubt regarding the authenticity of the certificate of origin or genuineness of the certificate of origin;
• When there is a reason to believe that the  claim by the importer of the preferential rate of duty is invalid;
• When the criteria provided for country of origin in the certificate of origin is not met or;
• When the verification is done on a random basis to verify whether goods meet the origin criteria for due diligence purposes.

When a verification request is initiated during the customs clearance process, the preferential tariff treatment of the imported goods may be suspended till the conclusion of the verification. The proper officer shall finish the verification in 45 days of the receipt of the information requested.

The proper officer can deny the preferential rate of duty claim without any further verification. The proper officer can deny the claim when:

• The verification authority doesn’t respond to the verification request within the due time;
• The verification authority doesn’t provide the requested information in the manner provided in the rules of origin or;
•  The available information and documents provide enough evidence that the imported goods don’t meet the origin criteria that is provided in the respective rules of origin.

5- Identical Goods

When it is determined that the goods of an importer don’t meet the origin criteria as provided in the rules of origin, the customs commissioner or the principal commissioner of the customs can reject claims for identical goods filed before or after the determination of rejected goods imported by the same importer or the producer without any verification further.

When a claim is rejected on identical goods, the customs commissioner or the principal commissioner of the customs can restore the preferential tariff treatment on identical goods with prospective effect. He may restore the same if the exporter or producer modifies the manufacturing or other origin-related conditions with a view to fulfil the origin requirements of the Rules of Origin.

An Overview on the Impact of CAROTAR 2020

These requirements are expected to impact the importers significantly, especially those who legitimately claim Preferential Tariff Treatment. A parallel amendment has been made to the Customs Act to allow the goods confiscation imported on a claim of preferential rate of duty which is in contravention to the provisions of CAROTAR 2020.

There are some other consequential implications due to the CAROTAR. They are as follows:

• Identical goods from the same producer/exporter would be liable to be rejected of Preferential Tariff Treatment without any verification due to the contravention made by the importer.
• Terms such as Reasonable care about accuracy and truthfulness of the information and received documents from the exporter and an officer’s reason to believe to doubt such accuracy for further verification, are not clearly defined. Thus it can lead to an arbitrary extension of the authorities’ jurisdiction.
• Stringent timelines may be imposed on the information submission by the importer and on the response by the verification authority in the exporting country. In case of failure to follow such timelines can cause rejection of Preferential Tariff Treatment.
• The authority can suspend the FTT during verification or permit it on provisional assessment after payment of security equal to differential duty. It could be a long process.
• No reservations on obtaining the information on proprietary business from the exporter/producer. It can give rise to conflicts and disputes among parties.
• There could be a potential investigation of past transactions.

Apart from these, there are some positive impacts that can be expected:

• Despite the various requirements and compliances under CAROTAR 2020, the overriding effect to the rules of origin of the respective agreement will provide an edge to and protect the importer rights.
• The CAROTAR 2020 Rules can be captivating for domestic industry as it looks to bring down frivolous imports at a preferential rate. 

Conclusion

The CAROTAR 2020 lays down minimum basic information that an importer should know before importing goods. These rules allow the importer to know the country of origin and help customs authorities in clearing the goods import under FTAs. It also strengthens customs to check for any misuse of the duty concession under FTAs.  

Read our article: FEMA Guidelines for Export of Goods and Services (Amendment) Regulations, 2021