Optitax's presentation on carotar [07 jan 2021]

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CAROTAR-2020
P R E S E N T A T I O N O N
CUSTOMS (ADMI NI ST RAT I ON OF RUL ES OF ORI GI N
UNDER T RADE AGREEMENTS) RUL ES, 2 0 2 0
India offers substantial concession in the basic customs duty on import of specified goods originating from
certain countries/regions. The concession is offered subject to fulfilment of origin criteria and related
compliances. The framework in this regard is made stringent in the latest past that has made importers
more answerable.
07 Jan 2021

Optitax’s
0 1 BACKGROUND & HIGHLIGHTS OF CAROTAR
0 2 BASIS FOR DECLARATIONS IN THE BOE
0 3 FORM - I DISSECTED
0 4 FACTORS FOR DUE DILIGENCE & INFORMATION REQUIRED
0 5 VERIFICATION PROCESS
0 6 CONSEQUENCES OF DENIAL OF PREFERENTIAL RATE BENEIFT
0 7 ISSUES & CHALLENGES UNDER CAROTAR
0 8 ROLE OF ADVISOR
0 9 ABOUT OPTITAX’S
1 0 ANNEXURE - FAQ ISSUED BY CBIC FOR CAROTAR
Click on heading to access
the respective slide

Optitax’s
A
ASEAN The Association of South East Asian Nations
B
BCD Basic Custom Duty
BOE Bill of Entry
C
CAROTAR/
CAROTAR RULES
Customs (administration of rules of origin under
trade agreements) rules – 2020
CBIC Central Board of Indirect Taxes and Customs
CC Change of Chapter in CTC
CEPA Comprehensive economic partnership agreement
CECA Comprehensive Economic Cooperation Agreement
CoO Certificate of Origin
Custom Act Customs Act, 1962
CTC
Change in Tariff Classification - Criterion for use of
non-originating in producing export good
CTH Change in Chapter Heading in CTC
CTSH Change in Chapter Sub-heading in CTC
DFTP Duty Free Tariff Preference Scheme
DVC/RVC/LVAC Local, Regional or Domestic Value-addition Content
D
F
FTA Free Trade Agreement
GATT General Agreement on Trade and Tariff
G
H
HSN Harmonized System of Nomenclature
I
ICEGATE Indian Customs Electronic Gateway
V
VA Verifying Authority
W
WTO World Trade Organisation

Optitax’s
WTO member countries may render ‘most favored nation’ status to each other and enter into FTA/PTA, to offer substantial BCD concession on imports.
Only compliance required to avail such concession was submitting CoO issued by the respective authority of exporting country
Some of the counterpart Countries in addition to CoO, have introduced stringent controls on such imports to verify the genuineness of the origin of
goods in exporting country. However, India till recently did not have controls except for submitting CoO
In view of increase in trade irregularities & undue exemptions being claimed, it was long overdue to introduce changes on the compliance front.
Accordingly, Indian Government amended the Customs Act in ‘Budget 2020’ and issued CAROTAR to enable stringent controls
In the present regime, the importers are required to take utmost care on such imports and carry due diligence to ensure genuineness of the origin of
goods. A failure to do so may attract denial of benefits, seizure of goods and invocation of penal provisions
In the subsequent slides, we have provided a brief overview of the changes in law and the standard procedure to be followed, in order to be compliant
and to avoid any penal implications
▪ To comply with the provisions of FTA/PTA wise Rules of origin as well as CAROTAR, the importers need to conduct basic level due diligence to verify the
appropriateness of origin of the goods imported in India and collate the details required for preparation of Form – I of CAROTAR
▪ Obligation is cast on importers to retain the information in the prescribed form which can substantiate the country of origin. The Officers are
empowered to investigate into origin of goods and can even seize and confiscate the goods
▪ Further, the importer is required to make appropriate declarations while filing the BOE

Optitax’s
Are the goods wholly
obtained ?
No Yes
Is there a ‘product specific
rule’ (PSR) applicable ?
Goods such as live animal/fish,
minerals, fruits and vegetables,
produced or obtained without
any non-originating input
material incorporated satisfy
the criteria of ‘wholly obtained’
goods
Goods/HSN that invite PSR have
different criteria than the general
Yes
No
Goods produced from non-
originating obtained material is
required to meet ‘general criteria’
Option to be selected
while filing BOE - ‘CCOG’
Option to be
selected while filing
BOE - ‘COOP’
Option to be
selected while filing
BOE - ‘COWO’
FLOW CHART TO MAP THE CORRECT CRITERIA USED FOR DETERMINING ORIGIN
▪ Please note that CAROTAR does not mandate submission of additional documents at the time of filing BOE
▪ However, the importer is required to have exhaustive information relating to origin of goods to be filled in Form I which is
required to be submitted only on demand. The critical contents of Form I are explained in the subsequent slides
Filing of the BoE also requires dichotomous
(Yes/No) reply to each of the following
aspects whether:
▪ ‘Accumulation/Cumulation’ is used
▪ CoO is issued by a third country (back-to
back)
▪ Shipment is transported directly from
country of origin
While filing the online BoE, an importer is
required to
▪ Declare availment of the preferential rate
of duty and provide an undertaking &
indicate the tariff notification & date
▪ Furnish number of the CoO & Indicate
criteria of origin by selecting proper
buttons, as detailed in the flow chart
below

Optitax’s
FORM – I
(Under Rule 4 of CAROTAR)
FORM I is the key compliance introduced under CAROTAR. We have dissected the
same to make importers aware of changes to be made in their internal processes to
capture the required details before the import of goods
FORM – I is divided into
three sections
FORM – I is required to be
maintained for FIVE years
from date of import
I
SECTION
GUIDANCE
NOTES
II
SECTION
DETAILS TO BE
FILLED AFTER
FILING BOE III
SECTION
DETAILS TO BE
FILLED BEFORE
FILING BOE
This section
provides notes for
understanding the
origin criteria
Particulars of BOE,
Customs station &
classification
Minute details of criteria
of origin of non WO goods
to be filled before filing of
BOE
▪ The importer needs to confirm if the exhaustive information required to be filled in sections II & III of Form I can be derived from
his suppliers
▪ The importer need to keep in mind the possibility of scrutiny of the details in FORM – I by the Customs officials any time during
the limitation period of FTA/PTA/Custom Act
▪ The factors of due diligence & information required is explained in the following slides

Optitax’s
MANDATORY INFORMATION REQUIRED FOR ALL GOODS
PARTICULARS OUR COMMENTS Ref in CAROTAR or Form – I
Contents of
CoO
Examine if the CoO is issued in the prescribed format as per the respective Rules of origin Rule 3(2)(a) & Rule 6
The CoO must mention the criterion applied to the imported goods Form I, Sec III, Part A, Sr. 1
Description of goods in CoO must match with that in the supplier’s invoice Form I, Sec II (d)
Check if CoO is issued by a third country Rule 3(1)(d)(v)
Check if alteration in the CoO is authenticated by the Issuing Authority Rule 3(2)(b)
Indicate whether CoO is issued retrospectively Form I, Sec III, Part B, Sr. 2(g)
Check whether validity period has expired or not Rule 3(2)(c)
Classification
of the goods
Ensure HSN of the imported goods is eligible for preferential treatment in related tariff
notification
Rule 4(a)
Review HSN for correctness. (A challenge to the HSN classification may invite other stringent rule
for determining origin. Hence a review of classification is must, especially for a new import)
Form I, Sec III, Part B, Sr. 1
Regional
value content
of imported
goods
Know the actual regional value content in percentage terms of the imported the goods Form I, Sec III, Part B, Sr. 2(d)(i)
Identify and state only names of components such as material, profit, labour, overhead cost, etc.
that build up the value content
(Please note that supplier’s confidential cost details are not required – Refer para 9.3 of the CBIC
CAROTAR Brochure dated 8 Oct 2020)
Form I, Sec III, Part B, Sr.
2(d)(ii)
Direct/indirect Indicate whether the shipment is routed through another country before arrival at port of import Form I, Sec III, Part B, Sr. 2(h)
Preservation
of record
Please ensure that record of Form – I is preserved for a period of five years from the date of filing
of BOE
Rule 4(b)

Optitax’s
MANDATORY INFORMATION REQUIRED FOR WHOLLY OBTAINED GOODS
Basis to
substantiate
wholly
obtained
goods
In case of wholly obtained goods, explain process of such determination
Form I, Sec III, Part A, Sr. 1
Note 1
MANDATORY INFORMATION REQUIRED FOR NON – WHOLLY OBTAINED GOODS
Production
process
Explain production process in brief. E.g. for a electronic circuit: surface mount PCB → populating
components → soldering→ testing → packaging
Form I, Sec III, Part A, Sr. 1
Note 2
Originating
material used
The names of the raw materials and/ or components originating in the country of export used for
production of export goods
Form I, Sec III, Part B, Sr. 1Whether originating material is also manufactured by the manufacturer of final goods exported?
In case originating material procured from third party, whether the producer of final goods has
sought conformation and documentary proof of origin of these component?
Non-
originating
material
Identify HS classification of the non-originating materials in case change in classification is
required
Form I, Sec III, Part B, Sr. 2(e)

Optitax’s
Verification on random basis by risk
management system [rule 6(1)(c)]
Whether importer has provided
complete information in form –
I/ other documents?
YES
In course of import, Customs officer
doubts origin criteria under Rule 5
Customs doubts authenticity or
genuineness of the CoO rule 6(1)(a)
03
02
01
Customs raises a verification request with the Verification
Authority (VA) in the country of export
Whether VA/supplier has provided
requested information?
NO
YES Customs asks for additional information/visit
to supplier’s place of manufacture
VA provides information to Indian customs
directly or at the premises of the supplier
on their visit
Customs considers evidence on
record & response of the VA/supplier
as per rules of origin
Whether Custom
officer is satisfied
with information
provided by the
importer?
Claim of preferential
rate of duty is restored
Customs may issue notice for denial
of preferential rate in terms of the
Section 28DA of the Customs Act YES
NO

Optitax’s
CONSEQUENCES
During pendency of verification
preferential treatment is suspended
for live & future consignments
During pendency of
verification importer may opt
for provisional assessment
If benefit is finally denied, the
provisional assessment will be
finalized & effective rate will
apply
Future shipments of same
goods will be denied
preferential treatment
Past imports of identical
goods shall meet same
treatment
Past period covered may
stretch to five years
SCN may be issued and
penal provisions may be
invoked for past period
Impact other imports of identical
goods in India from the same
supplier by any importer in India in
cases other than the denials under
Rule 3

Optitax’s
▪ Initially, owing to rigorous implementation of CAROTAR in the backdrop of faceless assessment by Indian Customs, importers
were asked to execute bond and BG for each shipment under FTA/PTA. This resulted into inordinate delays in clearances
▪ However, the situation has improved as Board has issued a Circular wherein the number of procedural parameters based on
which verification was done by Custom authorities are substantially reduced. This has positively impacted the clearances
▪ On a separate note, for a faster resolution of a query, if raised by Customs, importer must put in place a robust collection of
information for filling up the Form – I. We have narrated a few issues and the suggested actionable points
ISSUES/CHALLENGES SUGGESTED WAY FORWARD
Customs raises a scrutiny of a shipment resulting in a delay for out of
charge
Appropriately filled Form – I to be uploaded on ICEGATE for scrutiny by
the customs authorities and a responsible company official or person
with core expertise in customs to be designated to represent on any
further queries raised by the Customs authorities
Upon suspension of preferential treatment, Customs may ask for full
duty payment for out of charge release of goods
Importer may request for provisional assessment and fore-armed with
requisite bond and bank guarantees as security
If importer is unsuccessful in satisfying the Customs about the challenge
to origin criteria and this results in the spread of such challenge to
identical imports in past
Importer shall keep record of history of import of goods. While
responding to query from Customs, the background history will help to
determine the extent of possible damage in case preferential rate is
denied
Customs may demand information that is proprietary to business based
abroad and the supplier feels uneasy to provide the same
Importer may resort to two-fold approach. Firstly, the importer may
explain to the supplier the importance of proving origin to Indian
Customs for enjoying the preferential tariff. Secondly, the importer can
try to settle the queries by providing the information that is already
available with him

Optitax’s
ISSUES/CHALLENGES SUGGESTED WAY FORWARD
Customs actions over ride provisions of the FTA/PTA
CAROTAR does not override the provisions of the Rules of Origin
provided for in the international agreements (refer Rule 8(3) of
CAROTAR. However, this needs case-specific analysis
Supplier may not provide required information in the Form - I and/or
cite business confidentiality
▪ Supplier may be appraised the importance of the information from
Indian legal perspectives
▪ Simplified questions relevant to their outlook may be thrown back
▪ Where deemed fit, include saving clauses in the purchase contracts
Customs may demand Cost sheets indicating various components of
value addition
▪ Cost sheet details are not prescribed in the new provisions
▪ Citing para 9.3 of the CBIC Flyer on CAROTAR Customs may be
requested to take Form – I on record and release the shipment

Optitax’s
Conduct due diligence of documents &
processes to identify risk & process gaps
Educate supply chain team
Address vendor apprehensions & explain contents
of Form – I from an international perspective
End to end handholding of CAROTAR/FTA
compliances - Form – I, bond & BG, finalization
of provisional assessments
Day to day advisory in CAROTAR/ FTA
Representations including litigation
Optitax’s provides advisory
for exercising reasonable care
to ensure the accuracy and
authenticity of the
information to be possessed /
maintained under CAROTAR
and the circumstances arising
therefrom
R O L E O F
A D V I S O R

Optitax’s
In today’s world, professional specialization has become an absolute necessity to safeguard any future financial/statutory risk
due to non-compliance
Optitax’s is incorporated with the moto to provide specialised services in the field of indirect taxation such as GST, Service Tax,
VAT, Excise, Customs & Foreign Trade Policy
We have a dedicated team of professionals with sound knowledge of Indirect Tax laws (GST, Foreign Trade Policy, Customs, etc)
and having combined experience with Central Excise department & big four consulting firms. It helps in getting thorough
insight of every related aspect of given transaction and in turn in taking appropriate tax positions by the clients
We assist clients by way of advisory and compliance in indirect taxes such as GST, Customs, Foreign Trade Policy and includes
legal metrology and legacy work in Services Tax, Excise and VAT. Other areas where we add value for clients are deployment
of resources, obtaining indirect tax refunds, export incentives under Foreign Trade Policy, Customs concessions (imports under
free trade agreement, import of goods at concessional rate), etc
TeamAchievement Innovation Training
Listed in
“10 Best Legal Start-Ups – 2019”
across India by Silicon India Start-up
City – V Legal: The Law is Simplified
Strong team of experienced
professionals, consisting of CA, CS,
lawyers and other qualified and
experienced support staff
Constantly innovate to find new
ways to bring value to our clients
through hard work and continuous
efforts at self-improvement
Expertise in providing customised
training to various corporates & also
frequently addressed at various
forums like CII, ICAI, ICSI etc on
Indirect Tax

Optitax’s
01 Is the Form-I, appended with the Rules, required to be submitted at the time of import?
Section 28DA of the Customs Act requires an importer to possess sufficient information about origin of imports, where
preferential tariff treatment has been claimed. Form-I helps guide and assist an importer in assessing origin of goods. An
importer is NOT required to submit this Form at time of filing customs declaration. However, when there is a doubt on the
declared country of origin, the customs officer may ask origin-related details from the importer, in which case the importer
would have to submit the Form along with supporting documents
02
My firm files multiple number of Bills of Entry (B/E) and filling Form-I for each B/E will be very voluminous. Can I be
exempted from submitting it?
The details as required in terms of Form-I focus on process and thus would remain same for identical shipments, provided the
production process does not alter. Therefore, the same set of information can be utilized in filling up Form -I for identical
shipments, unless there is any change in the production process or manner of processing. Further, it is re -iterated that Form-I
is not required to be submitted to Customs while filing Bill of Entry.
03 I am unable to receive all information as prescribed under the Rules. Can I still import goods, claiming preferential tariff treatment?
Yes. However, in such cases, the origin-related information may be sought by Indian customs from the verification authorities in the exporting
country, where timelines are relatively lengthier.
04 What kind of supporting documents am I supposed to procure, in terms of rule 4?
The rules do not lay down any specific standard for same. It could range from an email communication from exporter, informing the various origin-
related details, to photographs of the production site, demonstrating the process which a good undergoes in an exporting party.

Optitax’s
05 What will happen if I am unable to receive all information from the exporter?
Where a customs officer requisitions information in terms of rule 5, but the importer is unable to produce it, the officer sh all
i. initiate overseas verification in terms of rule 6. In such cases, the preferential tariff treatment may be suspended till
conclusion of verification, and goods may be assessed provisionally with bond and security as stated in the rules
ii. verify assessment of all subsequent bills of entry filed by the importer with the claim of preferential duty as stated in rul e
8(1).
It may thus be noted that non-possession of origin-related information does not prohibit an importer to import. However, it
may lead to overseas verification in case there is a doubt on declared origin of goods. Also, subsequent imports of the
importer will not be facilitated by the Risk Management System of customs. Therefore, an importer is expected to observe due
diligence to best of his abilities and possess origin-related information before importing the goods. It is expected that the
same would be incorporated into the overall business process and necessary checks are done at the time of deciding to
procure the goods.
06 Do I need to provide business confidential details like cost break-up of goods?
The rules do not mandatorily seek the information on cost break-up or proprietary production process. It should be submitted
if available. About requirement to know “components which constitute value addition” [Section III, Part B, Entry 2(d) of the
Form], the importer is not expected to know exact figures. Only the description of major components that have been taken
into calculation of domestic value addition, e.g. material, labor, profit etc., need to be stated. For example, there can be
instances where the value addition is majorly on account of value of originating material OR on account of profit. In case
further details are required, customs will contact the Verification Authority of exporting country.

Optitax’s
07
Can tariff treatment be denied on identical goods when previous consignment was denied preferential tariff in terms of Rule3?
No. Attention is drawn to the scenarios under rule 3, where preferential tariff treatment can be denied without verification of origin on
account of non-compliance of procedures or conditions laid out in the Agreement itself, such as expired validity period of CoO or
incomplete CoO. On the other hand, rule 7 (identical goods) can be invoked only when it is determined that origin criteria have not been
met.
08
Form-I (Section III) requires the production process to be recorded. The “production process” can be very elaborate going into
intricate technical details. Alternatively, it can also be described briefly. In what manner the production process is requir ed to be
recorded in Form-I?
An importer should know the originating criteria based upon which a non-originating good has undergone the required transformation.
For example, if the prescribed transformation requires change at sub-tariff heading level (CTSH), importer should know if same was met
through process of distillation/assembly of components/stamping/cutting etc. Thus, the production process can be recorded in a brief
manner, clearly incorporating the way it meets the prescribed originating norms.
09 What is meant by identical goods in terms of rule 7?
Where it is determined that goods originating from an exporter or producer do not meet prescribed origin criteria, this outcome shall
apply on identical goods from the same exporter or producer. For example, if producer X manufactures televisions and refrigerators in
country A and verification reveals that the production process undertaken by X is unable to meet the required originating criteria for the
refrigerators, then this result will be applicable to subsequent imports of refrigerators from country A, produced by X. Verification result
shall not apply to televisions manufactured by producer X or refrigerators manufactured by other producers in country A.
10 What action will be taken in case there is a conflict between the Trade Agreement and CAROTAR 2020?
The obligation on importer flows from the domestic law not from the trade agreements. However, origin-related provisions of the trade agreements
have been incorporated in the domestic law by way of notifying rules of origin of each trade agreement under section 5 of the Customs Tariff Act. In
this regard, rule 8(3) of CAROTAR clearly states that in the event of a conflict, the provision of rules of origin shall prevail to the extent of conflict.

Optitax’s
Brief title Reference Comment URL
Section
28DA
Section 28DA of the Customs Act, 1962
introduced vide clause 110 of the Finance Act,
2020
Amendment to Customs law
https://www.indiabudget.gov.in/doc/Finance_Bill.pdf
(Refer clause 108)
Notification
Notification no. 81 / 2020 Customs (NT) dated 21
August 2020 of DoR, MoF, GoI
CAROTAR 2020 / CAROTA Rules
https://www.cbic.gov.in/htdocs-cbec/customs/cs-
act/notifications/notfns-2020/cs-nt2020/csnt81-
2020revised.pdf
Circular
Circular no. 38/2020 Customs dated 21 August
2020 of the CBIC
Guidelines for departmental
authorities
circulars/cs-circulars-2020/Circular-No-38-2020.pdf
Instruction
Verification of Preferential Certificate Of Origin in
terms of CAROTAR
Additional Guidelines for
departmental authorities
https://www.cbic.gov.in/resources//htdocs-
cbec/customs/cs-instructions/cs-instructions-2020/cs-ins-20-
2020.pdf
Public
Notice
Public Notice no: 120 / 2020 dated 17 September
2020 of the JNCH, Maharashtra
Prescribes mandatory actions by
importer on ground
http://www.jawaharcustoms.gov.in/pdf/PN-2020/PN-120-
2020.pdf
Amending
notification
Notification no. 90/2020 - Customs (N.T.), dated
17th September, 202
Amending the BoE form to suit
CAROTAR 2020
act/notifications/notfns-2020/cs-
nt2020/csnt_caa_dri_90.pdf
Amending
circular
Circular no. 42/2020 - Customs, dated 29th
September 2020 amending Circular no. 38/2016 –
Customs, dated 22.08.2016
Providing for 100% surety in
cases where an enquiry has been
ordered under CAROTA Rules
cbec/customs/cs-circulars/cs-circulars-2020/Revised-
Circular-42_2020-amending-Circular-38_2016.pdf
Guidelines Departmental Brochure
Guidelines for trade – not having
legal force
cbec/customs/CarotarBrochure_8thOct2020.pdf

Optitax’s
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Optitax’s Consulting LLP
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Email : ravi@optitaxsconsulting.com
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Disclaimer:
The content of this GST updates are solely for informational purpose. It dose not constitute professional advice/recommendation of firm. Neither the author nor
firm & its affiliates accepts any liabilities for any loss/damage of any kind arising out of information in this GST updates nor for actions taken in reliance thereon

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