Tightening the Ropes on Administration of Preferential Tariff Treatment under Trade Agreements

February 13,2020
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Mr. Jignesh Ghelani (Partner, Economic Law Practice)
Ms. Sanchita Rungta (Senior Associate)

One of the prominent themes of the Union Budget 2020-21 was to introduce measures to bolster economic development by way of corruption-free, policy driven, good governance and to give an impetus to the domestic manufacturing industry.[1] To this end,  the Government has proposed various changes, including the introduction of enabling provisions, under the Customs Act, 1962 (‘Customs Act’), for stringent administration of preferential tariff benefits (granted in line with trade agreements with various nations).

Setting the Context

In order to give effect to the bilateral/multilateral trade agreements between India and Member States, the Government of India has notified various Customs Notifications, which provides for concessional rates of duties on specified goods, when importing from Member States. In consonance with corresponding trade agreements, Rules of Origin have been put in place requiring the importer to prove that the goods originated in the Member State in order to be eligible for the concessional tariff. A common thread between these rules is that the goods are required to have Minimum Regional Value Content (RVC) of 30% - 35% to qualify as deemed to be originating in a particular Member State. A validation of the same is by issuance of a Certificate of Origin (COO) by the concerned authority of the exporting state.

Existing Mechanism

Under the existing provisions, the COO submitted by importers is considered as sufficient proof of the origin of the goods. In cases where the authenticity or accuracy of the COO is in question, the Customs can request the issuing the authority of the exporting country to perform a retroactive check. In cases where the Customs authority is not satisfied with such retroactive checks, in exceptional circumstances, it can perform a verification visit of the producer’s or exporter’s premise, as per the manner prescribed under such rules.

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