Third Party Invoicing to be Accepted
in FTA, Trade Agreement to Prevail over Sec 28D of Customs Act, 1962
·
Preferential claims have been
denied in such cases without conducting verification of COO with the issuing
authority to check its authenticity and I or
accuracy of information contained therein.
·
Third-party
invoicing is a common business practice and a few trade agreements explicitly
provide for it.
·
The
information being sought and the process of verification must be consistent with the trade agreement.
·
CAROTAR does not obligate the
importer to provide commercially confidential information, pertaining to the
exporter/third-party. Also, CAROTAR does not require an issuing authority or a
seller to use a specific or same currency for declaring value in COO and
invoice respectively.
·
CBIC vide its Instruction No.
19/2022-Customs dated 17.08.2022 has reiterated that in the event of conflict
between the provisions of the trade agreement and CAROTAR read with Section 28
DA, the provisions of the trade agreement shall prevail to the extent of the
conflict.
The Board is in receipt of various representations,
citing difficulties encountered in import clearance where third-party
invoicing, allowed under the provisions of a trade agreement, has been used.
1.1 It has been represented that certain field
formations are questioning the origin status of products imported under FTAs
with third-party invoicing, particularly under the ASEAN-India ITA (AIFTA),
upon comparing the value recorded on the certificate of origin (COO) and that
declared on the third-party invoice. Instances have also been brought to notice
where preferential claims have been denied in such cases without conducting
verification of COO with the issuing authority to check its authenticity and I
or accuracy of information contained therein.
2. In
this regard, it is to note that third-party invoicing is a common business
practice and a few trade agreements explicitly provide for it. For example,
Article 22 of Operational Certification Procedures for the Rules of Origin for
the AIFTA states that:
"The Customs Authority in the importing
Party shall accept an AIFTA Certificate of Origin where the sales invoice is
issued either by a company located in a third country or an AlFTA
exporter for the account of the said company, provided that the product meets
the requirements of the AIFTA Rules of Origin."
3. It is pertinent to
underline here that the purpose of a COO is to serve as a proof that the goods
qualify as originating within the terms of an FTA, irrespective of whether
third-party invoicing is involved or not. On the other hand, the seller's invoice,
including a third-party invoice where applicable, is the document relevant for
customs valuation.
4. Where
the proper officer has reason to believe that the subject product does not meet
the prescribed originating criteria, he/she may seek information and supporting
documents in relation to the originating status of the product, as may be
deemed necessary, from the importer, consistent
with the trade agreement. When the requisite information is not provided by
the importer or the information furnished is insufficient to assess origin
criteria, the laid down process of verification gets triggered in terms of the
Customs (Administration of Rules of Origin under Trade Agreements) Rules, 2020
(CAROTAR in brief) read with Section 28 DA of the Customs Act, for which a
reference is to be made by the proper officer to the issuing authority through
the FTA Cell (under the Directorate of International Customs).
5. Further,
it may be noted that both - the information being sought and the process of
verification must be consistent with the
trade agreement. It may also be noted that CAROTAR does not obligate the
importer to provide commercially confidential information, pertaining to the
exporter/third-party. Also, CAROTAR does not require an issuing authority or a
seller to use a specific or same currency for declaring value in COO and
invoice respectively.
6. Rule
5(5) of CAROTAR provides that the proper officer may deny a preferential duty
claim without causing further verification on the basis of the information and
documents furnished by the importer and available on record. However, it is emphasised that if the concerned trade agreement does not allow for outright denial
without causing a verification in accordance with provisions laid down in the
subject agreement, the provision of the trade agreement shall prevail. CBIC
vide its Instruction No. 19/2022-Customs dated 17.08.2022 has reiterated that
in the event of conflict between the provisions of the trade agreement and
CAROTAR read with Section 28 DA, the provisions of the trade agreement shall
prevail to the extent of the conflict.
7. In
cases where non-compliance of origin criteria is established after following
the due process, an speaking order must be passed
following the principles of natural justice as well as the specific obligations
in this regard covered in the respective FTA. Merely pointing out that the
value addition is artificially inflated by wrongfully adding certain ineligible
elements (e.g. freight) may not be sufficient to
reject a claim, unless it is demonstrated that the value addition calculated as
per formula prescribed in the trade agreement does not meet the threshold
percentage point when such elements are removed.
8. It is requested that
customs formations under your jurisdiction may be suitably sensitized on the
issues elaborated above.
F. No. 20000/6/2015-0SD(ICD)