Insertion of Chapter VAA

  • The Bill proposes to introduce Chapter VAA of the Customs Act stipulating a scheme for administering the verification of the country of origin of the goods imported under preferential tariff FTAs with different countries.
  • The new Chapter empowers the proper officer to go beyond the mere acceptance of the origin certificate produced by the Importer and undertake verification of such certificate in case the same is found to be insufficient or non-satisfactory, by requiring additional information and documents consistent with the Trade agreement.
  • Under the new scheme proposed under Section 28DA, for claiming the preferential duty rate under the trade agreement, the importer must:
    • Make a declaration that the goods qualify for the preferential duty treatment by virtue of their origin;
    • Possess sufficient information to fulfill determination criteria, viz., regional value content, product specific criteria, etc. stipulated in specified Trade agreement;
    • Furnish such further information, as may be prescribed in the rules.
    • Exercise reasonable care as to the accuracy and truthfulness of the information
  • Where the proper officer has reasons to believe that the country of origin criteria prescribed in the Trade agreement has not been met, he may require the importer to furnish further information consistent with the Trade agreement in support of its claim.

Suspension of preferential treatment

  • In case where the importer fails to provide the requisite information, the proper officer, for any reasons to be recorded in writing, may carry out his own verification. Pending such verification, the officer may temporarily suspend the preferential tariff treatment to such goods. The Principal Commissioner of Customs or the Commissioner of Customs has been empowered to disallow the preferential rate even without further verification.
  • During the suspension period, the goods may be released on the request of the importer on submission of security equivalent to the differential amount of duty under provisional assessment and the preferential duty claimed.
  • While the preferential duty claim is under suspension, the officer shall inform the Issuing Authority of the reasons for such suspension and shall seek necessary information with a view to determine the origin of goods within prescribed time.
  • Depending upon the provision of information by the issuing authority or its satisfactory nature, the proper officer shall restore or, as the case may be, disallow the preferential treatment giving reasons in writing.
  • Such verification may be sought within five years from the date of claim of such preferential duty treatment by the Importer.
  • Interestingly, where the verification establishes non-compliance of country of origin criteria, the officer has been entrusted with the powers to reject the preferential tariff treatment to the imports of the identical goods from the same producer or exporter, unless proved otherwise.
  • While the new Chapter grants power to the proper officer to reject the preferential treatment to imported goods after due verification, in certain cases the officer may right away refuse such preferential treatment where:
    • The tariff entry itself is not eligible for preferential treatment under the trade agreement
    • The certificate of origin contains in-complete description;
    • The certificate of origin is altered in any way without any authentication by issuing authority, or
    • The certificate of origin is expired.
  • Section 111 and Section 156 of the Customs Act has also been proposed to be amended to respectively authorize the Custom Authorities to confiscate the goods in case of contravention of the provision of this chapter, and to delegate the power to prescribe rules in relation to the specified timelines, circumstances, etc. for the administration of ROO under the Trade agreement to the Government.


The implementation of ROO in India has been a matter of concern for GOI for quite some time. Pursuant to many red flags raised by the intelligence agencies, in the past, (i) adverse impact of FTAs on the revenue, (ii) deteriorating manufacturing activities in India, and (iii) misuse of treaty benefits on imports from non-FTA countries, the Government has initiated a review of various FTAs and the procedures laid down thereunder. The violation of ROO and value addition norms has been under the scanner of the Government despite some existing regulations prescribed in this context.

While there have been country specific regulations [as stipulated in Notification No. 55/2011-Cus. (N.T.), dated August 1, 2011 and Notification No. 29/2015-Cus. (N.T.), dated March 10, 2015 etc.] which empowers the customs authority to make a request to the certificate issuing authority, for a verification of origin, there appears to be lack of enforcement. With the objective to ensure desired administration of preferential tariff treatment under FTAs, the proposed amendment seeks to pose stringent obligations on the importers to adhere to the ROO.

The proposed amendments also confer wide powers on the Customs Authorities. While it remains to be seen how these provisions are implemented, claiming preferential treatment is going to be quite cumbersome. Further, while the Government of India has power to regulate import process for claiming preferential duty rate, India's trading partners may raise concerns on the additional rules proposed in the Bill.

Amendment to Section

  • Section 11(2)(f)
    • Customs Act is proposed to be amended to expand the powers of the Government to impose prohibition (either absolutely or subject to such conditions) on import or export of any goods in order to prevent injury to the economy being caused by uncontrolled import or export of such goods. Currently, such prohibition exists only on import and export of gold and silver.


This step appears to be in continuation of the efforts by the Government to safeguard interest of the domestic industry and to take corrective steps to control sudden surges that harm the domestic industry.

  • Section 28
    • Section 28 of the Customs Act, as amended by the Finance Act, 2018 inter alia provided for a definite time frame for adjudication of demand notices ranging from six months to one year depending upon charges of collusion, suppression ,etc., failure of which would lead to the lapse of assessment proceedings. The existing Explanation 4 to Section 28 of the Customs Act provided that such amendment would apply only with respect to notices issued on/after March 29,2018.
    • Now, the above Explanation 4 is proposed to be substituted in order to explicitly clarify that all cases where notice has been issued before March 29, 2018, shall continue to be governed by the provisions of the Section 28 which existed before enactment of Finance Act 2018, notwithstanding, any judgement, decree, order of an any Court, Appellant Tribunal, or provision of any law, to the contrary.
    • This amendment is proposed to come into effect, retrospectively, from March 29, 2018.


This amendment appears to be brought into overrule the judgment of the Punjab and Haryana High Court in the case of Harkaran Dass Vedpal v. Union of India [2019(368) ELT 546 (P&H)] wherein it held that amendment to Section 28 is retroactive and time limitation of adjudication would apply to past notices as well treating such notices issued on March 29,2018.

  • Section 28AAA
    • Section 28AAA of the Customs Act is proposed to be amended to widen its scope so as to provide for recovery of duty from a person against utilization of instruments issued under any other law, or under any scheme of the Central Government, in addition to the Foreign Trade (Development and Regulation) Act, 1992.

New System of "Electronic Duty Credit Ledger" under Customs

  • Section 51B is proposed to be inserted in Chapter VIIA of the Customs Act to provide for creation of an "Electronic Duty Credit Ledger" in the customs automated system.
    • The duty credit will be given in lieu of duty remission of duties / taxes on inputs used in the manufacturing of exported goods or such other benefit as may be prescribed;
    • This duty credit may be used by the person to whom it is issued or may also be transferred to another person in the prescribed matter;
    • Separate notification will be issued to specify the manner of issuance and use of duty credit including time-limit of usage;
    • To correspond to this change, amendment has also been proposed under Section 28AAA, whereby duty credit if obtained by misstatement or suppression can be recovered in the manner prescribed therein.

Introduction of "tariff rate quota" as a safeguard measure

  • Section 8B of the CTA relates to imposition of "Safeguard Duty" in cases when an article is imported into India in increased quantities to cause serious injury to the domestic industry. It is proposed to substitute Section 8B of the CTA to expand the scope of safeguard measures by including TRQ and "other safeguard measures" (such as other non-tariff barriers);
  • In a TRQ system, the imports within the quota are charged at a lower (in-quota) tariff rate, while a higher (out-of-quota) tariff rate is used for imports above the concessionary level. The following key factors will be taken into account by the Government where a TRQ is used as a safeguard measure:
    • It shall generally not fix such quota lower than the average level of imports in the last three representative years unless otherwise deemed necessary to prevent or remedy serious injury;
    • The Government may allocate such TRQ to supplying countries having substantial interest;
  • Sub-section 10 of the proposed Section 8B of the CTA also empowers the Government to provide for rules relating to manner in which TRQ may be allocated among the supplying countries, manner of implementing TRQ and other safeguard measures and manner of their application.


The proposed Section empowers the Government to apply additional safeguard measures. Prior to this proposed substitution, India could impose safeguard measure only in the form of safeguard duty and not in the form of quantitative restrictions or other non-tariff barriers. TRQ has already been permitted as a safeguard measure in the WTO Agreement on Safeguards, in which India is a member country. The use of this measure is globally quite prevalent by the WTO members, including the EU, Japan, Canada and the US. The proposed provisions shall enable regulating surge in imports in a systematic way. While on one side the TRQ system protect domestic producers to face competition from large quantities of imports, on the other side, it allows consumers and producers in the importing country to enjoy benefits, of lower priced products at-least for a limited "in-quota" period as against a system of single safeguard duty rate.

Strengthening the laws against circumvention of Anti-Dumping and Countervailing duties

  • To tighten the circumvention of Anti-Dumping and the Countervailing duties, the Anti-Dumping Duty Rules [i.e. Customs Tariff (Identification, Assessment and Collection of Anti-Dumping Duty on Dumped Articles and for Determination of Injury, 1995], and the Countervailing Duty Rules [i.e. Customs Tariff (Identification, Assessment and Collection of Countervailing Duty on Subsidized Articles and for Determination of Injury), Rules 1995] have been amended vide Notification 09/2020 Customs (N.T.) dated February 2, 2020 and Notification 10/2020 Customs (N.T.) dated February 2, 2020, respectively.
  • The Anti-Dumping Duty Rules are amended to strengthen the anti-circumvention measures by making them more comprehensive and wider in scope. As per the substituted Rule 25, "circumvention" shall be considered where (a) a change in the trading patterns between any country and India (or between individual companies in any country and India) as a result of practice, process or work that cannot be adequately explained by legitimate reasons or economic justifications other than the circumvention of Anti-Dumping Duties, and (b) where there is evidence of injury / dumping in comparison with the past normal prices for the like product. This enhances the scope which was previously limited to three specified circumvention practices, viz. (i) importation of subject goods in unassembled, unfinished or incomplete form (ii) by way of minor alteration in appearance and form and (iii) goods routed through any other exporter or country which was earlier not notified for Anti-Dumping Duty. Also, as per sub-rule 2(d) of the new Rule 25, any scenario which renders the imposition of Anti-Dumping Duty as ineffective shall be considered as circumvention.
  • The Countervailing Duty Rules have been amended to enable investigation and imposition of duties into situations of circumvention of the said duty. Under the current Countervailing Duty Rules there is no provision for initiating an anti-circumvention investigation. However, the Rules have been amended to introduce such investigation powers similar to as available under the Anti-Dumping Duty Rules. Certain other changes have been made to bring clarity in the provisions including insertion of definition of "like article" and "period of investigation".


The issues relating to situations in which anti-circumvention investigations could be initiated have been a matter of debate and under judicial scanner of various High Courts. The amendment seeks to adopt the provisions similar EC Regulations / ASCM respectively and attempts to widen the powers of the authorities to initiate such anti-circumvention investigation. Since the AD agreement contains no equivalent circumvention provisions there is no WTO contravention as such. We can, at best hope that authorities do not reach out too far in order to enforce these powers.

Product Specific Notifications

  • Notification No. 01/2020-Customs (SG): This notification provides definitive clarity on the products subject to safeguard duty under Notification No. 1/2018-Customs (SG).


This appears to be intended to clear up certain confusion in previous imports (particularly in 2018) wherein many items, other than the subject product (solar cells and modules), that are classified under heading 8541 in the CTA, were being assessed for levy of safeguard duty. The notification clearly identifies only the subject products upon which the duty will be levied.

  • Notification No. 03/2020-Customs (ADD): This notification rescinds the relevant customs notifications from 2016 and 2019 which levied AD duty levied on Purified Terephthalic Acid.


The AD duties on PTA have been abolished in the interest of larger public interest and to bolster the potential of the textile sector, as PTA is a key raw material for this industry. Another key input for the textile sector, mono ethylene glycol, is also subject to an anti-dumping investigation currently.

Introduction of 'Health cess'

  • With a view to give impetus to the domestic industry, as also to generate resource for health infrastructure and services, the Bill proposes to introduce a duty of customs, known as Health cess, on the import of medical equipment (falling under headings 9018 to 9022) at the rate of 5% ad valorem on the import value of such goods.
  • However, the cess is not proposed to be imposed on medical devices which are exempt from BCD and inputs/ parts used in the manufacture of medical devices. Further, Export Promotion scrips shall not be used for payment of the said cess.

Download: Union Budget 2020 – Customs & International Trade – An Analysis

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