Photo: Bloomberg
Photo: Bloomberg

Claiming free trade deal relief to get tougher for importers

  • Importers will have to declare origin of goods and comply with value addition to claim duty benefits under FTAs
  • New provisions also provide for denial of benefit in certain cases

New Delhi: Businesses claiming customs duty relief meant for imports from India’s free trade agreement (FTA) partner countries are set to face stricter scrutiny with the Finance Bill, 2020, proposing greater compliance, and powers for officials to deny such benefits.

A new chapter being introduced in the Customs Act, 1962, requires importers to declare the origin of goods and comply with value addition needed in the exporting country for the item to be eligible for duty benefits promised under the FTAs. Documents explaining provisions in the Finance Bill say the proposal allows “time-bound verification of the claims from the exporting country in case of doubt."

The new provisions, which will come into force once the Bill is signed into a law, also provide for denial of benefit in certain cases.

“Pending verification, preferential tariff treatment shall be suspended and goods shall be cleared only on furnishing security equal to differential duty. In certain cases, the preferential tariff treatment may be denied without further verification," say budget documents. This places the legal onus of declarations being made in respect of certificate of origin of the goods on the importer of goods, according to consultancy PwC.

Preferential tariff agreed upon under FTAs are granted relying upon rules of origin relating to imported items. India has preferential access, economic cooperation and FTAs with about 54 countries and bilateral trade pacts with about 18 groups or countries.

As per the PwC analysis, an importer mandatorily needs to possess value-addition or costing-related data in respect of goods imported under an FTA. Hence, before utilising an FTA, companies will have to obtain such costing-related information from their overseas suppliers, although the customs authorities in India may ask for such information if needed. If the information sought by the customs authorities is not provided, it could lead to suspension of benefit until the completion of verification by the authorities. During this period, goods can be released on furnishing security amount equal to the benefit under the FTA. Officials are also empowered to confiscate goods in case of proven instance of non-compliance.

"Importers will no longer be able to take the plea of non-possession of costing information of the overseas manufacturer as a legitimate reason for any FTA related violation. In view of greater scrutiny of future FTA claims and proposal for statutory incorporation of such measures, importers need to prepare on data, information and documentary support for the validity of their claim," PwC said in a an analysis shared on Thursday.

The move comes amid India’s trade deficit with some FTA treaty partner countries in Asia such as South Korea and Japan.

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