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What is the measure of 'sufficient information' in claiming FTA benefits?

NOVEMBER 11, 2024

By Shweta Jain, Partner RSA Legal Solutions

UNDER Free Trade Agreements (FTAs), importers could previously claim preferential duty benefits based solely on possessing a Certificate of Origin (CoO). This certificate served as evidence that the goods originated from a participating country, entitling the importer to preferential duty rates. However, this process had a notable gap: it required no additional information from the importer about the exporter, which sometimes led to misuse of FTA benefits without verifiable substantiation of the goods' origin.

To address this, India introduced the Customs (Administration of Rules of Origin under Trade Agreements) Rules, 2020 (CAROTAR). CAROTAR aims to ensure that importers claiming preferential duty rates have "sufficient information" about the origin of goods, requiring additional supporting documentation and due diligence in proving compliance with origin criteria under FTAs.

Section 28DA of the Customs Act, 1962

Section 28DA, introduced in the Customs Act, 1962, outlines specific obligations for importers seeking preferential duty rates under FTAs which reads as under:

"(1) An importer making claim for preferential rate of duty, in terms of any trade agreement, shall,--

(i) make a declaration that goods qualify as originating goods for preferential rate of duty under such agreement;

(ii) possess sufficient information as regards the manner in which country of origin criteria, including the regional value content and product specific criteria, specified in the rules of origin in the trade agreement, are satisfied;

(iii) furnish such information in such manner as may be provided by rules;

(iv) exercise reasonable care as to the accuracy and truthfulness of the information furnished.

(2) The fact that the importer has submitted a proof of origin issued by an Issuing Authority shall not absolve the importer of the responsibility to exercise reasonable care."

Section 28DA(2) further emphasizes that simply holding a Certificate of Origin does not relieve the importer from ensuring the accuracy of the origin claim. Our focus here will be on Clauses (ii) and (iii) of subsection (1), which are central to understanding "sufficient information."

Interpreting 'Sufficient Information'

The term "sufficient information" is not explicitly defined in the Customs Act or CAROTAR thereby creating ambiguity around what level of detail is required. However, a combined reading of Clauses (ii) and (iii) suggests that the information possessed should be detailed enough to satisfy origin criteria and should be submitted according to prescribed rules. This interpretation implies that information furnished in the mandated format under CAROTAR, specifically in Form I, should meet the sufficiency standard since all the required information is part of the prescribed Form I. Further, the details required in Form I are so exhaustive that the importer always gets the same filled by the exporter since it is his information and not of the importer.

CAROTAR, 2020 and Rule 4 Requirements

CAROTAR's Rule 4 details the information importers must maintain to substantiate the origin criteria. Under Rule 4, an importer claiming preferential duty must:

"(a) possess information, as indicated in Form I, to demonstrate the manner in which country of origin criteria, including the regional value content and product specific criteria, specified in the Rules of Origin, are satisfied, and submit the same to the proper officer on request.

(b) keep all supporting documents related to Form I for at least five years from date of filing of bill of entry and submit the same to the proper officer on request.

(c) exercise reasonable care to ensure the accuracy and truthfulness of the aforesaid information and documents."

Rule 4 appears to be broadly worded. According to this rule, the information needs to be possessed in Form I to demonstrate the manner in which country of origin criteria, including the regional value content and product specific criteria, specified in the Rules of Origin, are satisfied, and submit the same to the proper officer on request. Therefore, this satisfies Section 28DA (1)(ii). Now question arises as to what is "all supporting documents" related to Form I.

Can it be said that all kind of backup documents related to costing of the product, import data of the supplier, 5 year balance sheets of the supplier, the cost of goods supplied by the overseas supplier by indicating the quantity, cost of raw materials, labour cost and overhead expenses, names of the suppliers of the exporter from whom the importer has purchased and at what price, etc. are the supporting documents or any thing else.

Confidentiality Concerns and Customs Authority Requests

The Central Board of Indirect Taxes and Customs (CBIC) has issued several circulars clarifying that customs authorities should not request confidential information from importers that the exporter cannot reasonably disclose to the importer. For instance, Instruction 23/2024-Cus dated 21.10.2024 emphasized that confidential information of the exporter cannot be demanded by the customs officials from the importer in the garb of sufficient information.

The element of sufficiency has no boundaries. What may be sufficient according to the importer may not be sufficient according to the authorities. Moreover, this is such an open-ended question whether the confidential information can be within the ambit of 'sufficient information'.

Resolving Sufficiency and Confidentiality Issues

The term "sufficient information" should ideally balance the importer's ability to demonstrate origin compliance without overstepping into confidential data. If exporters insist certain details are confidential, authorities should respect this boundary, as emphasized in CBIC guidance and not say that this is the 'sufficient information' which the importer was required to furnish and has failed to furnish.

Moreover, the provisions of CAROTAR read with Section 28DA along with notifications and circulars also provide that any information sought by the authorities should be within the vires of the trade agreement by India with the other country. In case of any conflict between CAROTAR and Trade Agreements, it is the trade agreement that shall prevail and not the provisions of CAROTAR.

In furtherance to the above, it should also be noted by the authorities that Form I is not a part of Certificate of Origin but it is the information which is required as per Rule 4 of the CAROTAR to be possessed by the importer.

Verification as a Recourse

While importers are expected to furnish necessary information, there are scenarios where customs authorities find the documentation insufficient. Section 28DA(4) read with Rule 5 (4) very clearly provides that 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.

This process helps ensure that customs authorities do not summarily deny preferential treatment. Instead, they are expected to use verification methods consistent with the Trade Agreement's terms, offering a more structured approach to reconciling compliance with confidentiality concerns.

Therefore, the authorities can get the information through the method of verification. If they seek to deny the benefit to the importer without seeking recourse to the verification method, then that should be in accordance with that specific trade agreement.

Conclusion

CAROTAR and Section 28DA establish a framework for importers to demonstrate origin compliance in trade agreement claims. However, interpreting "sufficient information" remains complex, especially when it intersects with confidential data. CBIC circulars suggest customs authorities should respect confidentiality and seek verification if needed, rather than denying benefits prematurely.

[The views expressed are strictly personal.]

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