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Tax Insights

23 December 2022

Indian Government notifies Rules of Origin for trade in goods under the India- Australia ECTA

In brief

In April 2022, India and Australia signed a comprehensive economic cooperation and trade agreement (ECTA).

The ECTA covers approximately 90% of the bilateral trade between the two countries. In 2020, Australia was India’s seventh largest trade partner, with bilateral trade valued at US$24.3bn; for Australia, India was the sixth largest goods and services export market, valued at US$16.9bn.

The ECTA is expected to grow the bilateral trade to US$45–50bn in the next five years, with Australia looking to make India one of its top three export markets by 2035, as well as the third largest investment destination in Asia.

India and Australia have completed the legal process relating to the implementation and operationalisation of the ECTA. The ECTA will come into effect from 29 December 2022. Pursuant to that, the Central Board of Indirect Taxes and Customs has rolled out the Rules of Origin (RoO) notification relating to the eligibility requirement to claim the preferential customs duty on trade in goods under the ECTA.¹ The notification will come into effect 29 December 2022.

In detail

Key f eatures of the RoO under the ECTA as being operationalised in the notification are outlined below.

• For the product to be eligible for preferential customs duty benefit, it needs to meet one of the following origin criteria:

- It is wholly obtained in the territory of one or both of the contracting parties.

- It is produced entirely in the territory of one or both of the parties using non-originating materials, provided the good so produced satisfies all applicable requirements: (1) The non-originating material has undergone a change at the six-digit level. (2) The qualifying value content (QVC) is not less than 35% of the free-on-board (FOB) value as per the build-up formula, or 45% of the FOB value as per the build-down formula computed in the prescribed manner or as per the product-specific RoO. However, goods specified in Annexure B to the RoO are subject to compliance with product -specific rules.

1 Notification No. 112/2022-Customs (NT) dated 22 December 2022

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• QVC is to be computed using either of the two methods listed below, with the final manufacture before export to be undertaken by the party of export:

(a) The build-down formula is based on the value of the non-originating materials:

(𝑸𝑽𝑪 =𝑭𝑶𝑩 𝒗𝒂𝒍𝒖𝒆 − 𝒗𝒂𝒍𝒖𝒆 𝒐𝒇 𝒏𝒐𝒏−𝒐𝒓𝒊𝒈𝒊𝒏𝒂𝒕𝒊𝒏𝒈 𝒎𝒂𝒕𝒆𝒓𝒊𝒂𝒍𝒔

𝑭𝑶𝑩 𝒗𝒂𝒍𝒖𝒆 𝒙 𝟏𝟎𝟎)

(b) The build-up formula is based on the value of the originating materials:

(𝑸𝑽𝑪 =𝑽𝒂𝒍𝒖𝒆 𝒐𝒇 𝒐𝒓𝒊𝒈𝒊𝒏𝒂𝒕𝒊𝒏𝒈 𝒎𝒂𝒕𝒆𝒓𝒊𝒂𝒍𝒔

𝑭𝑶𝑩 𝒗𝒂𝒍𝒖𝒆 𝒙 𝟏𝟎𝟎)

• To determine the origin, guidance is provided on the QVC computation, de-minimis criteria, minimal or insuf ficient operations or processes, treatment of packing material, indirect material, accessories, spares and tools, etc.

• A certif icate of origin (CoO) establishing the origin criteria to be issued by an issuing body or authority as notif ied, of an exporting party, upon an application by an exporter, producer or their authorised

representative.

• The CoO will be in written or electronic format, duly carrying a unique number signed and sealed by the issuing authority manually or electronically in English language, specifying that the good is originating and meets the requirements of the specified origin criteria, contains information in the format prescribed as per the minimum information requirements.

• The CoO is to be valid for 12 months from the date on which it is completed or issued, covering single or multiple goods including two or more invoices issued for single importation, provided the goods are eligible in terms of the origin criteria.

• The CoO to be issued within five working days of the date of exportation and can be issued retrospectively as well, marked as ‘issued retrospectively’ with the reasons for issuing retrospectively recorded in writing.

However, the CoO cannot be issued retrospectively beyond 12 months from the date of shipment.

• The exporter or producer is to file an application electronically and furnish the minimum information required in the prescribed format, along with other documents and details as prescribed for the issuance of a CoO, including but not limited to, the breakup of costs and any other relevant elements such as profits. The same is to be retained for a period of five years from the date of issue.

• For claiming the preferential customs duty benefit, the importer needs to:

- make a declaration confirming the origin of the goods;

- have a valid CoO while making the declaration;

- provide a copy of the CoO to the importing party, if required; and

- demonstrate, if required, that the goods satisfy the consignment guidelines of the rules.

• The importing party can seek additional documents or information from the importer in support of the claim.

• The minimum information requirements filed by the exporter or producer can be subject of pre-export verif ication in terms of the risk management system as may be adopted by each party.

• Third-party invoicing, termed as ‘non-party invoicing’, is to be eligible for the benefit under the ECTA, subject to the fulfilment of the conditions and compliances as prescribed in the RoO.

• Post importation claim of preferential customs duty benefit provided and seeking refund of any excess duties paid if the importer has not made such a claim at the time of importation, subject to conditions and compliances. The f acility can be availed within 12 months after the date of import or a longer period if specified in the importing party’s laws and regulations subject to the laid down procedure.

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• CoO waiver is provided if the importing party agrees to it or does not require the importer to present the same as per their national laws.

• Pref erential customs duty benefit to be extended to the originating goods which, on the date of enforcement of the rules, are in the process of being transported from the exporting party to importing party or have not been released from customs control, including such goods stored in a bonded warehouse regulated by the customs administration of the importing party subject to conditions.

• The importer must retain records relating to importation under the ECTA in terms of the importing party’s local laws or at least for f ive years from the date of importation.

• Any exporter or producer who incorrectly represents any material information relevant to the origin determination is liable to be penalised under the laws and regulations of the exporting party.

• If the importer believes that the claim for preferential customs duty benefit is based on incorrect information, thereby impacting the validity or accuracy of the CoO, the importer needs to correct the importation

document and pay any customs duty and, if applicable, penalties. However, authorities, while imposing a penalty, will give due consideration to voluntary disclosure by the importer, provided the error is corrected and duties are repaid.

• Guidelines are provided for the issuance, presentation and verification of the CoO; maintenance and preservation of records; consultation and data interchange by the notified authorities under the ECTA; and restoration or suspension or denial of benefits and penal implications on non-compliance.

The takeaways

Operationalisation of the ECTA with Australia will enable further consolidation of bilateral trade and allow access to respective domestic markets, thereby opening business opportunities. Once the tariff notification is rolled out for the ECTA, Indian businesses need to evaluate the benefit extended on the inbound and outbound trade f rom the perspective of supply chain optimisation and enhanced access to a new market, covering a large cross section of goods or sectors.

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In this document, “PwC” refers to PricewaterhouseCoopers Private Limited (a limited liability company in India having Corporate Identity Number or CIN : U74140WB1983PTC036093), which is a member firm of PricewaterhouseCoopers International Limited (PwCIL), each member firm of which is a separate legal entity.

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