Preferential customs duty under FTA origin rules upheld where certificate, value addition and manufacturing conditions were satisfied.

Preferential customs duty under Notification No. 26/2000-Cus. was available where the importer satisfied the origin requirements in Rule 7(a) of the 2000 India-Sri Lanka FTA Rules, including a valid certificate of origin, the prescribed value-addition condition, and final manufacturing in Sri Lanka. The record showed that the certificate was issued by the designated Sri Lankan authority, the supporting documents were in order, and the non-originating material used in manufacture did not exceed 65% of FOB value. The rule required value addition in the country of origin and was not limited to material and parts alone, so labour costs were not excluded as suggested by the Revenue. The preferential concession was therefore admissible.

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Issues: Whether the importer was entitled to the preferential rate of duty under Notification No. 26/2000-Cus. on the basis of compliance with the origin requirements in Rule 7(a) of the Customs Tariff (Determination of origin of goods under the Free Trade Agreement between the Democratic Socialistic Republic of Srilanka and the Republic of India) Rules, 2000.

Analysis: The preferential concession depended on satisfaction of the origin rules, including production of the prescribed certificate of origin, compliance with the value-addition requirement, and performance of the final manufacturing process in the exporting country. The record showed that the certificate of origin was duly issued by the designated Sri Lankan authority, the goods were supported by the prescribed documents, and the non-originating material used in manufacture did not exceed the stipulated 65% of FOB value. The rule spoke of value addition in the country of origin and did not confine such addition only to material and parts, excluding labour costs, as suggested by the Revenue. The conditions in Rule 7 were therefore met.

Conclusion: The denial of the preferential concession was not justified and the assessee was entitled to the benefit of Notification No. 26/2000-Cus.

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