SECTION 28DA OF CUSTOMS ACT 1962 AND CAROTAR RULES 2020- IS REMEDY BETTER THAN DISEASE

INTRODUCTION TO FREE TRADE AGREEMENTS

In international trade, Free trade agreements (FTAs) have significant importance, it not only facilitates international cooperation but also forces local industries to become more competitive and rely less on government subsidies. It enables low price goods for consumers with a wide range of variety, access to the new market, and increased investments.

India is a signatory to bilateral trade agreements with numerous countries like Sri Lanka, Afghanistan, Bhutan, ASEAN, Malaysia, etc .India is also a signatory to regional free trade agreements such as SAFTA, 14 RTAs are in force in India with a dozen more under negotiation.

FTAs incorporated between countries facilitate preferential treatment in form of tariff concessions which are granted to goods originating from exporting countries. For granting preferential tariff concessions or duties, the source of the goods has to be determined following the cardinal principle of Rules of origin.

CLAIM OF TARIFF CONCESSIONS UNDER FTA

Before the addition of Section 28DA of the Customs Act and CAROTAR rules 2020, the preferential duties were claimed by importers by supplying a certificate of origin (CoO) issued by the competent authority of the state-designated in Free Trade Agreements along with the relevant documents such as invoice, Bill of Entry at the time of customs clearance.

In India, the authority which issues a Certificate of Origin is the Indian Chamber of Commerce or Trade promotion Council of India certifying that the commodities exported are of Indian origin, wholly manufactured or produced in India.

SECTION 28DA OF THE CUSTOMS ACT AND CAROTAR RULES 2020

Section 28DA was inserted into the Customs Act 1962 via clause 110 of Finance Act 2020 and to Customs (Administration of Rules of Origin under Trade agreements) rules, 2020 on 10th September 2020. . The rule aims to supplement the existing certification process of Rules of Origin and provides grounds for verification of Certificate of origin. The objective behind the enactment of this legal provision is to prevent trade malpractices by preventing dishonest importers to avail the facility of preferential trade duties.

The new provision makes it incumbent on the importer to possess relevant information as to the origin country including the regional value content and product-specific criteria and for this purpose provides a form involving the basic minimum information that the importer should possess for importing goods at preferential tariff rates. The provision further provides two-fold conditions where the importer shall be subjected to verification- in case of doubt regarding the genuineness of Certificate of Origin (CoO) arising due to mismatch in signatures, deficiency in the format of the certificate, or doubt on the accuracy of information such as whether the product qualifies as originating goods or where there is a reasonable apprehension that a product is not produced/ manufactured in a particular country. The section puts the onus on the importer to take reasonable care to ensure the accuracy and truthfulness of the furnished information.

REMEDY BETTER THAN DISEASE OR NOT?

It is well said that the implementation of any provision might bring different conclusions than what was actually intended to achieve. The pith and substance of this provision are that the onus is completely on the Indian importers with wide discretionary powers possessed by custom authorities who have the power to temporarily suspend the preferential tariff concessions pending verification. The import of identical goods can also be rejected, where at the verification of such goods imported by another Indian importer from the same producer or exporter to found to be inconsistent to the prescribed conditions.

DISADVANTAGES TO IMPORTERS

The difficulties that the importers tend to face after the implementation of Section 28 DA of the Customs Act 1962 and the CAROTAR RULES 2020 are as follows:

• The information to be obtained has a large scope and the rules lack the substance of exact nature of the documents/proof that needs to be obtained to satisfy revenue officers of the genuineness of the claim of preferential duty.
• The information required to be supplied to be revenue officer may be confidential such as protection under intellectual property and the importer may be unwilling to share the same.
• No substantively defined level of verification needs to be carried out to satisfy the tax officers of the genuineness of the claim. What is meant by “due diligence” can differ from one officer to another leading to an indiscriminate perspective?
• In an instance where the customs officer to satisfy himself of the genuineness at any stage sought for a notice issued under section 28 DA (9) but at the time of demand of notice, the Indian importer may have ceased business transactions with the supplier, rendering it impossible to present the notice to the customs officer.
• The investment by the importer may be based on the promised FTA tariff; the denial of the same is contrary to the doctrine of estoppel.

CONCLUSION

It can be concluded that though the insertion of Section 28DA to the Customs Act 1962 aimed at providing a strict reform to existing laws, it gave undivided and open-ended power to the customs officers which can be misused on various grounds.

The probability of malpractices such as misuse of Certificate of Origin and revenue leakage should be either eliminated by stricter laws along with limited powers and executive supervision so that the law enacted to prevent the misuse does not end up opening floodgates for more unethical practices. The Government of India to curb trading malpractices should amend the FTAs itself by incorporating appropriate safeguards. The CAROTAR should be amended to give effect to the object of the act leaving no scope for subjective interpretation. Certificate of Origin should be seen less as an assurance and more as a retroactive check

FAQs

• When was Section 28DA of Customs Act 1962 inserted and what the legal provision intended to achieve?

Section 28DA was inserted by the amendment of 2020 which supplemented the element of rules of origin. The importer in addition to Certificate of Origin was bound to possess all relevant information to “satisfy” the customs officer for which, a minimum requirement form is prescribed.

• When did Section 28DA of Custom Act 1962 and CARTROR Rules 2020 come into operation?

Section 28DA of Custom Act 1962 and CARTROR Rules came into the operation on 21st September 2020.

[Author Megha Solanki, Final Year Student B.A LLB (Hons) of Fairfield Institute of Management & Technology.]

Dr. V.K. Saraswat,Ms Prachi Priya,Mr. Aniruddha Ghosh https://niti.gov.in/writereaddata/files/document_publication/FTA-NITI-FINAL.pdf

PUBLIC NOTICE NO. 114/2020, Guidelines regarding the implementation of Section 28DA of the Customs act 1962 and CAROTAR, 2020 in respect of Rules of origin under Trade agreements and verification of Certificates of Origin, dated 10th September 2020