CAROTAR RULES: ADDING TO THE PLIGHT OF IMPORTERS
Updated: Sep 29
This post is authored by Talin Bhardwaj and Pulkit Gera, Associate Editors at RGNUL Financial and Mercantile Law Review (RFMLR).
Free Trade Agreements (FTAs) are agreements which aim to liberalize trade between two or more countries by reducing tariffs and quotas on the goods traded between those countries. FTAs also provide certain protection to the traders and thereby, are essential for removing the barriers to international trade. In this context, the “Rules of Origin” play an important role to determine a product’s country of origin. On the basis of these rules, various nations decide upon the tariffs and concessions to be given on those products that are covered under the FTA signed by the nations. Recently, the department of revenue under the ministry of finance notified the Customs (Administration of Rules of Origin under Trade agreements) Rules, 2020 (“CAROTAR Rules”) which would be applicable from September 21, 2020. The major objective of these rules is to curtail the abuse of the relaxations provided to other countries by the virtue of signing a FTA with India and thereby, reduce the possibility of dumping of certain products.
Analysing the CAROTAR Rules:
Under the previous rules, for claiming preferential rates of duty, the importer was required to submit Certificate of Origin (CoO) issued by a competent body and the documentation of the goods like bill of entry and invoice. However, the CAROTAR Rules, 2020 requires importer to possess detailed information of the goods in addition CoO, bills of entry and invoice, to satisfactorily prove the country of origin alleged by him. Form-I annexed in the rules, provides a comprehensive list of documents including but not limited to product manufacturing process, originating criteria as per Rules of Origin, regional value content etc., which the importer in all probability is required to possess before the import of the goods and produce the same to the proper officer within ten working days from the date of such information or documents being sought.[i]
Further, CAROTAR Rules, 2020 read with Section 28DA of the Customs Acts, 1962 requires the importer to exercise reasonable care to the credibility and truthfulness of any information supplied to the authorities for claiming of preferential rates of duty. In case the importer fails to provide requisite information or provide any information which appears to be forged or erroneous, the proper officer can send a verification proposal to the Verification authority i.e. exporting country or country of origin, for verifying the relevant documents submitted by importer, under Point 6 of the CAROTAR Rules. Thus, under these new rules, the procedure for claiming preferential rate of duty has become more stringent and onerous for importer.
In order to claim the preferential rate of tariffs under the FTAs, the foreign traders would now need to fulfil a very extensive and elaborate criteria provided under the CAROTAR Rules. This is beneficial for India in two major ways. Firstly, the high threshold to prove the country of origin and the strict scrutiny created by the CAROTAR Rules would reduce the chances of dumping of certain products. In recent times, the Indian markets have been experiencing the problem of severe dumping in products such as inter alia steel, optical fibers, phosphoric acid, rubber and some electronic products. The CAROTAR Rules provide an effective solution to tackle this situation as the increased stringency would in effect increase the level of transparency. The foreign traders would be strictly scrutinized, whereby all the products that are imported, need to be registered into the bill of entry along with all the relevant documents indicating the prices and the quantities of the various products being brought into India. Thus, essentially, the traders have a heavy burden to prove the country of origin and supply all the requisite details to the customs authority. Secondly, the abuse of the liberalized trade provisions provided under the FTAs have caused detriment to the domestic traders in terms of the excessively reduced prices of the imports. The CAROTAR Rules would act as a deterrent for the traders to engage in such malpractices and would therefore, help in protecting the interests of the domestic traders.
Even though, the firm documentation of the CAROTAR Rules, 2020 will help in mitigating the exploitation of the Free Trade Documents (FTA’s) by the importers, nevertheless, it might lead increase in the exploitation of powers by the officers concerned and corruption practices. Point 5 of the CAROTAR Rules gives extensive powers to the Principle Commissioner of the customs and the Commissioner of Customs to disallow the claim of preferential rate of duty without any verification. This arbitrary power with the officers can lead to unreasonable denial of the importers claims and increase in cases of bribery for getting the claims accepted. Moreover, The above rule contradicts to the Rules of Origin such as Customs Tariff (Determination of Origin of Goods under the Comprehensive Economic Cooperation Agreement between Republic of India and Republic of Singapore), where the verification process is mandatory and does not work on the discretion of officer concerned.
Further, point 6(7) of the COROTAR Rules, 2020, provides the officer an option to deny the claim of preferential rate to the importer in case the Verification Authority fails to respond to the verification request or to provide the requested information in the manner as specified under the CAROTAR Rules read with Rules of Origin. The above provision goes against the principle of natural justice as it imposes undue liability on the importer for the mistake committed on the part of verification authority.
The intent behind the introduction of the CAROTAR Rules was to prevent the traders from claiming concessions and benefits by abusing the provisions of the FTA and subsequently protect the interests of the domestic traders. Notwithstanding the benefits and the limitations of the CAROTAR Rules, it is certain that the traders would now undergo an extensive scrutiny while importing various goods. The rules came into effect a week prior i.e. September 21, 2020 and thus, its effectiveness cannot be gauged to the fullest at this point of time.
[i] CAROTAR Rules, 2020, Ministry of Finance, Department of Finance, No. 81/2020- Customs (N.T.), Point 8.