Vikram’s company regularly imported electrical components for use in its Indian manufacturing operations. When a new supplier offered the same products from a country covered by an Indian Free Trade Agreement, the commercial advantage appeared obvious.
The normal Basic Customs Duty on the shipment was 10%, while the preferential rate available under the trade agreement was substantially lower. On an assessable value of ₹1 crore, the concession could create a meaningful reduction in landed cost.
The overseas supplier also provided a Certificate of Origin. Believing that the certificate was sufficient, Vikram’s customs broker filed the Bill of Entry and claimed the preferential tariff.
Customs did not accept the claim automatically.
The proper officer asked for information showing how the goods had acquired originating status in the exporting country. Vikram could not provide a manufacturing flow, regional-value-content calculation, details of non-originating materials or evidence that the applicable product-specific rule had been satisfied.
The preferential claim was rejected, and the shipment was assessed at the normal rate of duty.
The problem was not simply a missing document. Vikram had treated the Certificate of Origin as conclusive proof when it was only one part of the required compliance framework.
What Is a Preferential Tariff Claim?
India has entered into several Free Trade Agreements, Preferential Trade Agreements, Comprehensive Economic Cooperation Agreements and Comprehensive Economic Partnership Agreements.
Under these arrangements, eligible goods originating in a partner country may be imported at a reduced or nil customs-duty rate.
However, the concession is not available merely because goods are shipped or invoiced from an FTA partner country. They must qualify as “originating goods” under the rules prescribed for the relevant trade agreement.
This distinction prevents goods produced in a non-member country from being routed through an FTA country only to obtain a lower duty rate in India.
The importer must therefore establish two matters:
- The correct preferential-duty notification applies to the imported product.
- The goods satisfy the rules of origin prescribed under the relevant agreement.
A Certificate of Origin supports the claim, but the underlying manufacturing and sourcing facts must also support the certificate.
A Certificate of Origin Is Not Enough by Itself
Vikram believed that Customs was required to grant the concession once he produced a valid-looking Certificate of Origin.
That assumption overlooked Section 28DA of the Customs Act, 1962, and the Customs (Administration of Rules of Origin under Trade Agreements) Rules, 2020, commonly known as CAROTAR.
The official government explanation of CAROTAR 2020 states that an importer must exercise due diligence before importing goods and ensure that they satisfy the prescribed originating criteria.
Customs may examine whether the certificate is genuine, whether the information mentioned in it is accurate and whether the goods actually qualify under the applicable origin rules.
The importer is expected to possess sufficient origin-related information and produce it when requested. Simply forwarding the supplier’s certificate without understanding its basis may not meet this responsibility.
How Goods Acquire Originating Status
Goods can qualify as originating in different ways depending on the relevant agreement and product.
Wholly Obtained Goods
Some products are obtained entirely within one country. Examples may include agricultural produce harvested there, minerals extracted there or animals born and raised there, subject to the wording of the applicable agreement.
These goods may satisfy a “wholly obtained” rule if the relevant conditions are met.
Substantially Transformed Goods
Manufactured products often contain raw materials, parts or components sourced from multiple countries.
Such goods may qualify only if sufficient manufacturing or processing occurred in the FTA partner country. Product-specific rules may require:
- A change in tariff classification
- A prescribed percentage of regional value content
- A specified manufacturing process
- A combination of tariff change and value addition
- Compliance with additional conditions under the agreement
Simple activities such as repacking, labelling, sorting or minor assembly may not be sufficient to confer origin.
The exact rule depends upon the product’s HS classification and the trade agreement being used.
Why Vikram’s Claim Failed
The Certificate of Origin described the goods under one tariff heading, while the Indian Bill of Entry used a different classification.
That mismatch affected more than the paperwork. Product-specific origin rules are often linked to the HS heading or subheading of the imported goods. If the classification is incorrect or inconsistent, Customs may be unable to confirm which origin criterion applies.
When the proper officer requested supporting information, Vikram could not establish:
- Where the principal raw materials had originated
- Which non-originating inputs were used
- What manufacturing processes occurred in the exporting country
- Whether the required tariff-classification change had taken place
- How regional value content had been calculated
- Whether the goods were shipped directly as required
- Why the tariff classification differed across the documents
The supplier had obtained the certificate through its local process but had not shared the supporting origin worksheet or production details with Vikram.
Without this information, Vikram could not demonstrate reasonable due diligence. Customs therefore had grounds to question whether the preferential rate was available.
Common Reasons for FTA Claims Being Questioned
Preferential tariff claims can face verification or rejection for several reasons:
- The Certificate of Origin is incomplete, altered or in an incorrect format.
- The certificate was issued retrospectively without meeting the applicable conditions.
- The issuing authority or signature cannot be authenticated.
- The invoice, packing list and certificate contain inconsistent descriptions.
- The HS classification differs between the origin certificate and Bill of Entry.
- The required value-addition percentage cannot be demonstrated.
- The product fails the prescribed change-in-tariff-classification test.
- Only minimal processing occurred in the exporting country.
- Third-party invoicing conditions were not followed.
- Direct-consignment or transport requirements were not satisfied.
- The importer cannot produce origin information requested under CAROTAR.
- The verification authority in the exporting country does not confirm the claim within the applicable procedure.
The presence of one discrepancy does not automatically prove that the goods are non-originating. However, unresolved inconsistencies can create sufficient doubt for Customs to seek further information or initiate verification.
What Customs Can Do During Verification
Where Customs has doubts about the origin claim, the proper officer may request information from the importer and, where necessary, initiate verification through the designated authority in the exporting country.
Preferential treatment may be temporarily suspended while verification is pending. The goods may, depending on the circumstances and applicable procedure, be provisionally assessed against security for the differential duty.
A claim may be denied where the importer fails to provide the required information, the origin criterion is not satisfied, the certificate is not confirmed or another ground specified under the legal framework applies.
Rejection can result in:
- Payment of differential customs duty
- Applicable interest
- Delay in clearance and additional port costs
- Review of earlier imports using similar certificates
- Reassessment of product costing and customer pricing
- Exposure to penalties in cases involving incorrect declarations
The financial impact can therefore extend far beyond one shipment.
What Vikram Should Have Done Before Importing
Before placing the purchase order, Vikram should have identified the relevant FTA notification and confirmed the product’s correct Indian tariff classification.
He should then have obtained a written origin-compliance package from the supplier containing:
- A valid Certificate of Origin
- Product description and HS classification
- Applicable origin criterion
- Manufacturing-process summary
- List of major originating and non-originating inputs
- Regional-value-content calculation, where applicable
- Evidence of tariff transformation
- Direct-shipment and transport documents
- Details supporting third-party invoicing, if used
- Confirmation that records would be available during verification
The purchase agreement should also have required the supplier to cooperate with origin verification and compensate the importer where an inaccurate certification caused additional duty or commercial loss.
The Larger Takeaway
An FTA benefit is a conditional customs concession, not an automatic discount.
Importers remain responsible for testing whether the goods satisfy the applicable origin rules—even when a Certificate of Origin has been issued by an authorised body in the exporting country.
The safest approach is to evaluate tariff classification, origin criteria and supporting evidence before the goods are shipped. Once a consignment reaches an Indian port, missing manufacturing records can be difficult to obtain within customs-clearance timelines.
A lower purchase price has limited value if the planned duty benefit cannot survive verification.
Shunyatax Global Insights
Preferential tariff planning requires coordination between the importer, foreign supplier, customs broker, procurement team and tax advisers.
Businesses should maintain a shipment-level origin file and periodically review repeated FTA claims. Any change in supplier, manufacturing location, input sourcing, product composition or HS classification may affect the goods’ originating status.
If you or your business is facing problems involving an FTA claim rejection, Certificate of Origin verification, CAROTAR compliance, customs classification or differential-duty demand, Shunyatax Global can provide professional guidance to help you move forward with clarity and confidence.
Contact Shunyatax Global
Phone: +91 94615 14198
Email: office@shunyatax.in
Website: www.shunyatax.in
Disclaimer: The names and figures used in this article are illustrative. Preferential tariff eligibility depends on the applicable trade agreement, customs notification, product classification, origin rule and transaction documents. This content is intended for general information and does not constitute legal, customs, tax or financial advice.