Customs department seeks to allay free-trade agreements misuse concerns

The Customs department sought to allay fears of importing companies on the requirement to show documents revealing confidential cost structure from overseas firms as the government tightens noose over misuse of free-trade agreements (FTAs). 

However, experts say the department still possesses the power to delay the clearance of cargo.  The new rules that came into effect from September 21 tell importers to show certificates of origin from exporting countries. This is for the Customs authorities to check whether value addition has happened in countries where India has these agreements. 

Many such agreements have a clause that at least 35 per cent value addition needs to happen in these countries on products for which raw materials have been imported from third countries. 

Importing companies feared that this would require them to produce a detailed cost structure of these products. 

Allaying fears, the frequently asked questions (FAQs) released by the department clarified that the rules do not mandatorily seek information on cost break-up or proprietary production process. 

“It should be submitted, if available,” one of the FAQs said. 

Importers are expected to reveal components which constitute value addition. However, one of the FAQs said the importer is not expected to know exact figures on “components which constitute value addition”. “Only the description of major components that have been taken into calculation for domestic value addition, that is, material, labour and profit, among others, need to be stated.”

In case further details are required, the Customs will contact the verification authority of the exporting country, the FAQ added.

Abhishek Jain, tax partner at EY, said power with the Customs to further question the data remains. “While FAQs provide relief, practical challenges at the ground level still remain with companies facing delayed clearance.” 

The department has raised its vigil on import of mobiles, white goods, set top boxes, cameras and other electronic products, besides agarbattis, from countries with which India has FTA since September 21.

A new provision was introduced in February in the Customs Act for strict verification of rules of origin of imports under FTAs. The rules for implementation of this provision were issued in August.