Focus Point : Tax Street - November 2020

A flagship publication that captures key developments in the areas of Tax and Regulatory

Introduction

We are pleased to present the latest edition of Tax Street - our newsletter that covers all the key developments and updates in the realm of taxation in India and across the globe for the month of November 2020.

• The 'Focus Point' covers an insight into the significance of the Customs (Administration of Rules of Origin under Trade Agreement) Rules, 2020.
• Under the 'From the Judiciary' section, we provide in brief, the key rulings on important cases, and our take on the same.
• Our 'Tax Talk' provides key updates on the important tax-related news from India and across the globe.
• Under 'Compliance Calendar', we list down the important due dates with regard to direct tax, transfer pricing and indirect tax in the month.

Focus Point

An insight into the significance of the Customs (Administration of Rules of Origin under Trade Agreement) Rules, 2020

As part of its commercial, strategic and diplomatic endeavors over the decades, India has entered into various Preferential Trade Agreements (PTAs) and Free Trade Agreements (FTAs) with different countries and trade blocs. The countries/ trade blocs with which India has such trade agreements include ASEAN, Mercosur, Malaysia, South Korea, etc. As part of such PTAs and FTAs, India provides complete or partial exemptions from Customs duty on import of specified commodities from these countries.

Such concessional imports require adherence to certain conditions such as the fulfillment of the 'Regional Value Content' (RVC) or the 'origin criteria.' The origin criteria intend to ensure that the partial or full Customs duty exemption benefits are provided only for goods originating from countries/trade blocs with which India has entered into PTAs/FTAs.

In recent times, certain Indian manufacturers have raised apprehensions with the government that the Customs duty exemption benefits under these trade agreements are misused by some importers by claiming benefit in respect of goods which do not originate from the specified countries, thereby hampering domestic manufacturing as well as resulting in a disadvantage to non-FTA importers. In certain cases, even the Indian Customs authorities were seeking to deny Customs duty exemption benefits to importers by disputing the regional value content mentioned in the Certificate of Origin. However, such action on the part of the Customs authorities was struck down by the courts in several cases.

Introduction of CAROTAR

A need was felt for Indian Customs officials to have wider powers to deny Customs duty exemption benefits to importers in case of inadequate information. Therefore, Hon'ble Finance Minister, in her Budget speech on 1 February 2020, announced the insertion of Chapter VAA - Administration of Rules of Origin Under Trade Agreement, in the Customs Act, 1962. Thereafter, the Customs (Administration of Rules of Origin under Trade Agreement) Rules, 2020 [CAROTAR] were notified vide Notification No. 81/2020- Customs (N.T.) and made effective from 21 September 2020 for importers making claim of a preferential rate of duty under any trade agreement.

The CAROTAR are in addition to the Rules of Origin, which have been already notified under various PTAs/FTAs, and intend to provide further powers to the Customs officials to inquire into imports where they have a reason to believe that the origin criteria has not been met.

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The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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