Amendment to Customs Act to confuse traders

The government, through the Finance Bill, 2020 (Clause 108), has proposed to amend the Customs Act, 1962, introducing a new Chapter V AA (Section 28DA) for administration of Rules of Origin (RoO) under Trade Agreements. The idea is to cast onerous responsibilities on the importer and give substantial powers to the Customs to deny exemptions under notifications giving effect to various trade agreements.  

India has entered into 16 preferential or free trade agreements with various countries. In all these agreements, concessional duty is extended on the basis of the origin of the goods. The RoO are clearly spelt out in these agreements. For claiming the exemptions, the importers are required to produce a Certificate of Origin (CoO) issued by designated agencies (issuing authorities) in the exporting country. These are obtained by the sellers and sent to the buyers in India. All the notifications refer to compliance with the RoO and prescribe suitable procedures to deal with verification of origin, when in doubt, in accordance with the agreements. Usually, these require the Customs in India to contact the designated authorities issuing the CoO and where necessary visit the exporter's premises to obtain and verify relevant information and also deny preferential tariff in certain specified circumstances. 

Normally, the importers present to the Customs the CoO duly certified by the issuing authority sent by the seller and claim the exemption. They have no role in getting the CoO certified. It is for the seller to make sure that the goods satisfy the origin criteria, furnish necessary declarations and documents to the issuing authority and it is for that authority to examine the correctness of the declarations or documents and issue the CoO.  

The proposed Section 28DA says mere submission of duly certified CoO shall not absolve the importer of the responsibility to exercise reasonable care. Also, it requires the importer to make a declaration that goods qualify as originating goods for the preferential rate of duty under such agreement, possess sufficient information as regards the manner in which the origin criteria are satisfied, furnish such information and exercise reasonable care as to the accuracy and truthfulness of the information furnished. Most importers will find it difficult to comply with these requirements, as they have no independent means to verify the origin criteria. 

The government now proposes to empower the Customs officers to call for further information, cause further verification and pending verification, suspend the preferential tariff treatment to such goods, and release the goods provisionally against suitable security or cash deposit for differential duty amount. Based on the information available, the Customs can disallow the claim for preferential treatment, straightaway. 

In certain circumstances, the preferential tariff treatment can be refused without verification. Also, unless otherwise specified in the trade agreement, any request for verification can be sent to the issuing authority within five years from the date of claim of preferential duty by the importer. Rules will be made to implement the new provisions. Any goods imported on a claim of preferential rate of duty, which contravenes the provisions of the proposed Section 28DA or the Rules made there-under will be liable for confiscation under Section 111 of the Customs Act, 1962.    

Such provisions may not be acceptable to our trading partners and may not pass the scrutiny of courts. The importers are bewildered. 

---

E-mail: tncrajagopalan@gmail.com