Customs department may quiz importers on FTA claims

NEW DELHI: Indian customs authorities will now be able to question the valuation of imports under free trade agreements (FTA) for up to five years with the country proposing a significant shift in the domestic framework of rules of origin to tackle largescale imports.The rules of origin are criteria to determine the source country of a product, based on which they either get tariff concessions or are subjected to duties.“Retrospective verification of costing data, value-addition compliance and certificate of origin can be conducted by the customs authorities over a period of five years from the date of import, unless there is a specific time limit prescribed in the FTA... Customs officers will be empowered to check for violations in claims by importers,” said an official aware of the details. “They can enquire and question the claims made in the last five-year period.”Further, a certificate of origin submitted by an importer will no longer be the threshold for availing concessional benefits.Customs authorities can ask importers to substantiate and satisfy scrutiny undertaken on the question of origin.The February 1 budget proposed to amend the customs law by introducing stringent provisions related to rules or origin to strengthen the hands of customs officers to check abuse of FTA provisions.There have been several cases of abuse of rules or origin provisions over the past few years.The Directorate of Revenue Intelligence (DRI) had also come across the use of fake documents purporting to show that the goods came from a country with which India has a trade pact.However, industry executives said it could lead to harassment of importers, given the five-year period. The government has been trying to curb imports through tighter origin norms in trade pacts.A new chapter in the Customs Act on administration of rules of origin under trade agreements gives the government the power to suspend or refuse preferential tariff treatment in case of incomplete information or verification and noncompliance, respectively. A number of these provisions were only enumerated via notifications.“Unless otherwise specified in the trade agreement, any request for verification shall be sent within a period of five years from the date of claim of preferential rate of duty by an importer,” according to the proposed change in the finance bill.The government has been trying to curb imports through tighter origin norms in trade pacts. India’s trade deficit was $118.1 billion in the April-December period, down from $148.2 billion in the year earlier.As per the chapter, importers now have to declare that the items qualify as originating goods, or meet rules of origin norms. They must possess sufficient information about their origin criteria and regional value content.It also states that a submission of a certificate of origin “shall not absolve the importer of the responsibility to exercise reasonable care”. 73922296 GIVING MORE TEETHFormer Central Board of Indirect Taxes and Customs (CBIC) chairman Najib Shah said, “The proposed changes in the Customs Act with the introduction of Sec 25 DA should strengthen the hands of the Customs Authorities and ensure misuse is curbed.”Importers will need to respond satisfactorily to questions over the source of goods.“Going forward, trade needs to show more diligence vis-a-vis compliance with rules of origin as mere submission of certificate of origin may not suffice and there is likelihood of closer scrutiny by customs,” said Rahul Shukla, executive director, PwC.In certain instances, certificates of origin may be deemed inapplicable.“Interestingly, similar validation process is prescribed in rules of origin notified for FTAs,” said Shukla. “Hence, how the proposed amendment is operationalised vis-a-vis existing regulations notified under a bilateral or multilateral agreement will be interesting to see.”PROTECTIONIST MOVEThe move is protectionist, said some industry representatives.“The government has given absolute power to customs officers and, with the power to question retrospectively, it has created more scope for harassment,” said an expert.“The utilisation of FTAs is anyway low and such harassment will further discourage people from using the preferential routes,” said a Delhi-based exporter.A total of 11.9 million preferential certificates of origin were issued between FY06 and FY19 amounting to total trade of $307.04 billion.

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