Insertion Of Sub-Sections 18(1B) And (1C) And Its Impact On Provisional Assessment Timeline In Cases Of Verification Of Origin In Terms Of FTA

Sub-section 18(1B) is proposed to provide a time limit of two years for finalisation of provisional assessment. The time of two years is to be counted from the date of provisional assessment. This period is further extendable by a period of one year by the Principal Commissioner or Commissioner of Customs for want of sufficient causes or reasons. The sub-section has been inserted to avoid unnecessary delay in finalisation of assessments and bring a uniform timeline.

However, the time limit provided in sub-section 18(1B) shall not be applicable from the date of provisional assessment in certain cases wherein the proper officer is unable to finalise the assessment of duty due to certain reasons. In this regard, sub-section 18(1C) is proposed to list out the situations when the time limit provided under clause (1B) shall not be applicable. In such cases, the two-year period shall apply from the date when such reason ceases to exist.

Following are the reasons listed down in sub-section 18(1C)-

1. Information is sought from an authority outside India through a legal process; or
2. An appeal in similar matter of the same assessee is pending before an appellate authority; or
3. An interim order of stay has been issued by an appellate authority; or
4. The Board has, in a similar matter, issued a specific direction to keep the matter pending; or
5. The assessee has a pending application before the Settlement Commission or the Interim Board.

Analysis of Sub-section 18(1C)(a) of the Act

Sub-section 18(1C)(a) specifically provides that when an information is being sought from an authority outside India through a legal process, the time limit of two years shall not be applicable from the date of provisional assessment. Rather, such period shall become applicable only once the information sought is received by the department.

One of the reasons for excluding the above scenario for the purposes of calculating the period of two years could be that once some information is sought from an authority outside of India, the proper officer would not be able to finalise the assessment till the time the same is received. It is understood that such finalisation of assessment of duty would be subject to the information gathered.

However, the provision nowhere enumerates in which cases information is being sought from an authority outside India through a legal process. One such instance contemplated is where information is sought from the government authorities in the exporting country for verification of origin of goods imported by an assessee availing the benefit of Foreign Trade Agreements (“FTA”).

Timeline provided for verification under FTA and CAROTAR

Benefit of tariff concession under an FTA is available to an importer only if the conditions mentioned in the respective agreements have been met with. These conditions include fulfilment of origin criteria, regional value content, etc. The same is supported by a Certificate of Origin (“COO”) issued by the exporting country confirming the origin of the goods.

However, there are instances wherein the customs department in India may request an authority in the exporting country to initiate the verification process for the purposes of determining whether the goods imported into India from the territory of the exporting country qualify as originating goods. The verification process could also be initiated for verifying the authenticity of COO, accuracy of any information contained in COO, or the authenticity and accuracy of the supporting information and documents, which may relate to the breakup of costs, profits, etc., as provided in the respective agreements for the determination of origin of the goods.

The verification procedure is provided in the Rules of Origin chapter contained in each FTA. The procedure also provides the time limit for responding to the verification request and information sought from the exporting country. However, where the agreement is silent on this aspect, the Customs (Administration of Rules of Origin under Trade Agreements) Rules, 2020 (“CAROTAR”) ought to be followed and complied with.

CAROTAR was introduced to regulate and lay down compliances to be followed by assessees for import of goods into India wherein the assessee makes claim of preferential rate of duty in terms of a trade agreement. As per Rule 6(3)(b) of CAROTAR, in absence of a timeline provided in the agreement for furnishing the response to the verification request made, information is to be provided within a period of sixty days. Further, where the information requested for is received within the prescribed timeline, as per Rule 6(6), the proper officer shall conclude the verification within forty-five days of receipt of the information.

In cases where the FTA specifically provides for a timeline to furnish the response, the CAROTAR need not be followed to that extent. The Customs Tariff (Determination of Origin of Goods under the India-Australia Economic Cooperation and Trade Agreement) Rules, 2022 provides for a period of ninety days, which can be extended by sixty days where the question relates to determination of origin of goods. The Customs Tariff (Determination of Origin of Goods under the Comprehensive Economic Partnership Agreement between the Republic of India and Japan) Rules, 2011 provides for a period of three months which is extendable to a period of two months for any additional information sought.

Computation of timeline for finalisation of assessment wherein the assessee has availed benefit of preferential rate of duty

In view of the proposed provisions and relevant Rules of Origin, it seems that the exclusion under sub-section 18(1C)(a) shall be triggered in cases where the department has requested for information for the purposes of verification under FTA. Till the time no information has been sought, the timeline provided under sub-section 18(1B) shall become applicable and the department will have to finalise the assessment accordingly.

Further, in cases wherein the department has sought information from the exporting country for verification of the origin conditions under FTA, the time limit for computing two years for finalisation of provisional assessment shall start from the date of receipt of the information from the exporting country.

However, the ambiguity remains in cases wherein there is delay on the part of the customs department in seeking information from the exporting country. Thus, ideally, the computation of two years period in all cases should be from the date of provisional assessment with the only exclusion being the time period involved in obtaining the information from the exporting country.

Proposed insertion of sub-section 18(1B) read with sub-section 18(1C) is a welcome amendment vide the Finance Bill. The provisions aim to combat the delay in finalisation of the assessments by the department. Further, the introduction of strict timelines within the Act is likely to bring transparency to the effect that the assessees can now approach the department to know the status of the pending investigation or verification basis which the goods were cleared provisionally.

The proposed amendment is also likely to reduce litigation and unnecessary costs to the trade by providing certainty in assessments. It is aimed as a measure to promote ease of doing business in India.

Authors: Anjali Hirawat, Partner and Shruti Khanna, Senior Associate at Lakshmikumaran & Sridharan Attorneys. Views are personal.