Introduction
Section 28DA was introduced in the Customs Act, 1962 vide Finance Act, 2020 (12 of 2020) with effect from 27 March 2020. This section sets out the procedure to be followed, by an importer as well as the proper officer under the Customs Act, when the importer stakes a claim for preferential rate of duty under a Free Trade Agreement (‘FTA’).
While a Certificate of Origin is essential for an importer to claim the benefit of preferential rate of duty under the FTA, this section provides that the mere possession of a Certificate of Origin would not absolve the importer from its responsibility to exercise reasonable care to ensure that the goods qualify as originating goods for preferential rate of duty under the FTA.
Proposed amendment to Section 28DA
The Finance (No.2) Bill, 2024 has proposed the amendment of Section 28DA by substituting the term ‘Certificate of Origin’ with ‘Proof of Origin’ and re-defining the term ‘Issuing Authority’.
The term ‘Certificate of Origin’, as it stands now, is defined under Explanation (a) to sub-section 11 of Section 28DA as a certificate issued in accordance with an FTA, certifying that the goods fulfil the country-of-origin criteria and such other requirement as specified in the FTA.
The term ‘Proof of Origin’, which is proposed to replace the term ‘Certificate of Origin’, has a much wider connotation. It has been defined as a certificate or declaration issued in accordance with an FTA, certifying or declaring, as the case may be, that the goods fulfil the country-of-origin criteria and other requirements specified in the FTA. This means that what is envisaged under the term ‘Proof of Origin’ is not only a Certificate of Origin issued by an Issuing Authority but also a declaration issued by an approved exporter to the effect that the goods fulfil the origin criteria as provided in the FTA.
The term ‘Issuing Authority’, as it stands now, is defined to mean an authority designated for the purpose of issuing Certificate of Origin under an FTA. The proposed amendment seeks to revise the above definition to mean an authority or person designated for the purposes of issuing proof of origin under an FTA. This proposed amendment is in line with the amendment proposed in the definition of the term ‘Certificate of Origin’. This reinforces the legislative intent to bring within the purview of the term ‘Proof of Origin’ a declaration issued by a designated person as to the origin of the goods, in addition to a certificate issued by a designated authority.
Why the proposed amendment?
It is worth noting that some of the recent FTAs signed by India with countries such as Australia, the United Arab Emirates (UAE) and the European Free Trade Area (EFTA) States specifically provide for Proof of Origin either in the form of a Certificate of Origin issued by a designated authority in the exporting country or an origin declaration issued by an approved exporter.
The India-Australia Economic Cooperation and Trade Agreement (India-Australia ECTA) at Article 4.15, which sets out the provisions with respect to Certificate of Origin, provides that the parties shall, after two years from the date of entry into force of the agreement, review this article and consider the introduction of declaration of origin by an approved exporter as a valid proof of origin. Consequently, the Rules of Origin notified pursuant to the ECTA also does not provide for such an origin declaration as on date. It may be noted that the ECTA came into force on 29.12.2022, thus, we may expect some development on this front towards the end of this calendar year.
Likewise, the Customs Tariff (Determination of Origin of Goods under the Comprehensive Economic Partnership Agreement between India and the United Arab Emirates) Rules, 2022, notified pursuant to the ratification of the India-UAE Comprehensive Economic Partnership Agreement (India-UAE CEPA), at Rule 14 clearly recognises an origin declaration issued by an approved exporter in terms of Rule 34 as a valid proof of origin. Rule 34 provides that both the parties shall endeavour to negotiate and implement provisions allowing the respective competent authorities to recognise an origin declaration made by an approved exporter. However, unlike the ECTA, the CEPA does not provide any timeline for its implementation.
Even the recently signed India-EFTA Trade and Economic Partnership Agreement (India-EFTA TEPA) at Article 13 of the Rules of Origin Chapter provides for a self-declared certificate of origin or origin declaration issued by an exporter. It also provides the procedure for issuance of origin declaration by an EFTA exporter, however, complete machinery provisions are yet to be put in place. In any case, the TEPA is yet to be ratified and has not come into force as on date.
It, thus, appears that the proposed amendment to Section 28DA of the Customs Act, 1962 is to align with India’s obligations under the aforementioned FTAs, that is, to recognise the self-declared certificate of origin issued by an approved exporter as a valid proof of origin apart from the conventional certificate of origin issued by the designated authority.
Way forward
The recognition of the self-declarations issued by approved exporters as a valid proof of origin is a welcome move. It will put faith in the exporters and help ease the administrative burden on the government machinery, as it does away with the requirement to verify each and every export consignment which will be subject to preferential rate of duty for adherence to the origin rules. It will also save cost, time and effort spent by the exporters in applying to the Issuing Authority for a Certificate of Origin to enable its’ customers in the importing country to claim preferential rate of duty benefit.
It is understood that this benefit will not be available to all exporters but only to those exporters that are approved in this regard after due verification in accordance with the Rules and will be subject to periodic monitoring. Also, the parties to the FTAs will be permitted to verify the authenticity of these self-declarations. These check and balances will be in place to ensure that the benefits available under the FTAs are not misused.
Nevertheless, the proposed amendment is seen as a trade facilitation measure and is a step in the right direction to achieve the objective of free flow of trade between the countries that are signatories to the trade agreement.
[The authors are Senior Associate and Partner, respectively, in Customs practice at Lakshmikumaran & Sridharan Attorneys, Mumbai]
