CAROTAR 2020- Bonus or Burdensome for Importers

[Kapil Mahani]

CAROTAR 2020-Availment of Preferential rate of duty

A.   What is CAROTAR

The Customs (Administration of Rules of Origin under Trade Agreements) Rules, 2020 (CAROTAR, 2020), was notified on 21st August 2020 by the Central Board of Indirect Taxes and Customs. It came into force with effect from 21 September 2020. It was introduced for administering the verification of the country of origin of the goods imported under preferential tariff FTAs with different countries.

B.   Comparison between Pre and Post implementation of CAROTAR 2020

* Increase in information requirement to substantiate the origin

**Increased dependence on global suppliers for real time information

C.    Additional Information required on Bill of Entry

• Details of Treaty/Free Trade Agreement
• Certificate of Origin reference number along with date of issuance (Produce Certificate of Origin covering each item on which preferential rate of duty is claimed)
• Originating Criteria [either (a) Wholly Obtained or (b) not Wholly Obtained]
  • If not Wholly Obtained state whether General Rule is applicable or Products Specific Rule (PSR)
  • Specify the Products Specific Rule (PSR), if applicable
• Indicate if accumulation/cumulation is applied (Yes/No)
• Indicate if the Certificate of Origin is issued by a third country (Back to Back)-Yes/No
  • If yes, then country of Issuing Authority (Which will be different from Country of Origin)
• Transport of Goods: (Directly from Country of Origin/through another country)

D.   Possession of requisite information before Import of Goods

Primary Information-

• Description of Goods
• Production Process of the Imported Goods
• Originating Criteria fulfilled by Imported goods

In case of Wholly Obtained Goods

Process through which goods claimed to be wholly obtained along with backup documentation

• Whether manufactured by producer of final good
• Whether procured by producer locally from a third party
• In case procured from third party, did producer of final good seek conformation and documentary proof of origin of these component

In case of Not Wholly Obtained Goods

• Production process involved and Originating Criteria
• Details of origin of each Originating input material along with back up documentation
  • Whether manufactured by producer of final good
  • Whether procured by producer locally from a third party
  • In case procured from third party, did producer of final good seek conformation and documentary proof of origin of these component
• Additional Criteria-Value content, Change in tariff classification, process rule, accumulation/cumulation
• Direct Shipment/Back-to-back shipment

Author Comments

Taxpayers should evaluate the countries from which preferential rate of duty is being claimed under trade agreements. Depending upon whether the imported items are wholly obtained or not wholly obtained, Company must possess the requisite information at the time of importation of goods.

Further, the questionnaire is required to be prepared in respect of each SKU in advance along with the backup documentation as per Form I.

In case the importer fails to provide the requisite information for any reason, a proper officer can cause further verification consistent with the relevant trade agreement or its rules of origin. In the event of a conflict between a provision of CAROTA rules and a provision of the Rules of Origin, the provision of the Rules of Origin shall prevail to the extent of the conflict.

Thus, the company needs to ensure that the proper originating criteria are being met while claiming the benefit of the free trade agreement.