New customs rules that kick in from Monday put the onus on importers to prove that goods enjoying concessional duty must have 35% value addition in the country with which India has a free trade agreement (FTA) failing which the importer will be denied FTA benefits for future consignments of identical goods, finance ministry officials said.
The new rules have been implemented particularly to check the unprecedented surge in almost duty-free import of Chinese goods through some of the 10 countries with which India has liberal trade arrangements under the Association of Southeast Asian Nations (Asean) FTA, two officials said requesting anonymity.
India signed the Asean FTA in 2009 with Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand and Vietnam. The Central Board of Indirect Taxes and Customs (CBIC) on August 21 notified—the Customs (Administration of Rules of Origin under Trade Agreements) Rules, 2020 or CAROTAR, 2020 —requiring detailed disclosures by importers to claim concessional duty benefits under trade agreements like FTAs. The CAROTAR 2020 will be enforced from September 21, 2020.
The officials said the Asean FTA allows imports of most of the items at nil or concessional basic customs duty rate from the 10 Asean countries and most of the imports are from five members—Indonesia, Malaysia, Thailand, Singapore and Vietnam. “The benefit of concessional customs duty rate applies only if an Asean member country is the ‘country of origin’ of goods. This means that goods originating from China and routed through these countries will not be eligible for customs duty concessions under the FTA,” one of the officials said.
The country of origin is determined by applying a certain set of conditions with respect to goods other than natural products native to these countries. The required condition is that a value addition of at least 35% of the export value of goods must have been contributed by the Asean member country, he said.
“In addition, the goods should undergo some appreciable transformation. But rules are blatantly violated,” he said. Currently, a ‘country of origin’ certificate, issued by a notified agency in the country of export, is produced by the importer and there is no additional obligation on them to prove the origin of goods.
Probes have revealed that the rules of origin, under respective FTAs, were not being followed in the true spirit, a second official said. “In a number of cases, it was discovered that items from Non-Asean countries were being diverted into India through Asean countries with mere packing or repacking, assembly or some minor processes and declaring 35% value addition,” he said.
This malpractice is rampant in electronic items such as mobile phones, television sets, set-top boxes, air conditioners, electronic parts and telecom equipment, he said.
“The FTA partner countries have been exporting these goods without having the necessary technological capacity to achieve required value addition. Moreover, rules of origin were flouted even in products like aggarbatti, arecanut, black pepper, etc,” he added.