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Strict customs scrutiny of FTA imports from Sept 21; importers must satisfy value addition norm

The move assumes significance in the backdrop of concerns being raised by certain quarters of the domestic industry about misuse of free trade agreement (FTA) benefits from 10-member ASEAN countries. The importer has to possess all documentary proof to prove that the 35 per cent value addition requirement has been met and showing a mere 'certificate of origin' provided by the exporting country to Indian importer would not suffice.

PTI | New Delhi | Updated: 18-09-2020 18:02 IST | Created: 18-09-2020 16:57 IST
Strict customs scrutiny of FTA imports from Sept 21; importers must satisfy value addition norm
Representative image Image Credit: Pixabay

Beginning Monday, Indian customs authorities will strictly scrutinise documents provided by importers claiming duty benefits under free-trade agreements, a move aimed at curbing serious misuse of the concessions under these pacts, finance ministry sources said. Importers will now have to provide sufficient proof to the domestic customs authorities that the goods being imported have a minimum 35 per cent value addition in the country from which it is being exported to India, they said.

"It will be the responsibility of importers to ensure that the goods being imported by them should have been only manufactured or produced on the foreign countries and minimum 35 per cent value addition have taken place in those countries," the sources said. For example, if a mobile is exported from, say, Indonesia to India, then it would qualify to be of Indonesian origin only if such mobile is made significantly in Indonesia and 35 per cent of its value is contributed by that country. The move assumes significance in the backdrop of concerns being raised by certain quarters of the domestic industry about misuse of free trade agreement (FTA) benefits from 10-member ASEAN countries.

The importer has to possess all documentary proof to prove that the 35 per cent value addition requirement has been met and showing a mere 'certificate of origin' provided by the exporting country to Indian importer would not suffice. This certificate has to be shown to the Indian customs to claim duty concessions under FTAs. If it is found that benefit has been wrongly availed in respect of a consignment, the FTA benefit would be denied in subsequent consignments of identical goods, and the importer shall have to pay full applicable duty, the sources said.

"With new mechanism coming into force on September 21, the FTA imports would be under the lens. Importers claiming FTA benefit be prepared for the strict scrutiny by customs," the sources added. They added that the products under the lens will include those in which rampant misuse of FTA relaxations is likely, such as electronic items, refrigerators, air-conditioner, camera, mobiles and telecom equipment, among others.

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 the importer to satisfy the authority of origin of goods even though he/she claims substantial benefit. "Importers claiming FTA benefit should be prepared themselves for the strict scrutiny by customs," the sources said.

They added that the customs department has been engaging with industry and associations to sensitise them on the details of the new rules for verification of rules of origin of FTA imports, which will come into effect from September 21. After the amendments made in the customs law in the Budget session, the government issued these new rules last month as a measure to curb the serious misuse of custom duty concessions under FTAs. The domestic industry, claiming serious damage on accounts of these imports, has been urging the government to take strict action to curb such irregular imports done by flouting FTA provisions.

The finance ministry sources explained that the ASEAN (Association of Southeast Asian Nations) FTA allows imports of most of the items at nil or concessional basic customs duty rate from this 10-nation bloc. Major imports to India are coming from five ASEAN countries -- Indonesia, Malaysia, Thailand, Singapore and Vietnam. The benefit of concessional customs duty rate applies only if 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 ASEAN FTA.

Further, they said investigation into FTA imports in the past few years has revealed that the rules of origin, under respective FTAs, were not being followed in the true spirit. 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/repacking, assembly or some minor processes and declaring 35 per cent value addition or wrongly claiming significant transformation in ASEAN member country.

This practice has been rampant in electronic items like mobile, TVs, set-top box, air conditioners, electronic parts and telecom equipment. The FTA partner countries have been exporting these goods without having the necessary technological capacity to achieve required value addition. The sources said the rules of origin were flouted even in products like aggarbatti, arecanut, black pepper.

In the past five years, the customs authorities have detected fraudulent claims under FTA to the tune of Rs 1,200 crore.


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