During the budget session of the Parliament a new provision was incorporated into the Customs Act, 1962. The new provision deals with the verification rules of origin of imports under Free Trade Agreements.
Importers will have to mandatorily submit proof of 35 percent value addition in goods from the country of origin to claim duty concession under free trade agreements (FTAs). The Ministry of Finance has said that without furnishing such proof, the importers may not get their benefits. This provision will be in effect from September 21, 2020.
This provision was introduced primarily to address the concerns of duty evasion that is done by routing exports to India under FTAs however, this comes amidst extensive criticism by the industry. Unlike earlier, a mere certificate from the exporter would not suffice and shall be the duty of the importer to ensure that true value addition has been done to goods. A senior government official said,
“Merely a certificate by the exporters would not suffice. If importers are not able to satisfy the customs that good have been manufactured with at least 35 percent value addition, FTA benefits would be denied,”
The Customs department will now step up its inspection of imports of mobiles, white goods, set-top boxes, and cameras and other electronic products, and agarbattis from countries with which India has FTAs. Also, the goods must undergo some appreciable transformation (as prescribed for products separately in the FTA by way of product-specific criteria).
Sources told The Economic Times that “In addition, the goods should undergo some appreciable transformation (as prescribed for the product separately in the FTA by way of product-specific criterion)”. The same Source, illustrating that “if a mobile is exported from, say, Indonesia to India, then it would qualify of being Indonesian origin only if such mobile is made significantly in Indonesia and 35% of its FoB value is contributed by Indonesia,” the official further explained.
The Customs Department is all set to closely scrutinize imports of mobile phones, white goods, set-top box, agarbatti, camera, and other electronic products for preventing any misuse of rules of origin, under respective FTAs, were not being followed in the true spirit. This move will keep a strong check on the rampant malpractice specifically in the electronic items industry.
-Dhananjai Shekhawat (LC Content Writer)
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