TaxTMI 
TaxTMI 
TaxTMI 
2025 (12) TMI 958
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....mission by the Applicant: 2.1 The Applicant is a company registered under the Companies Act, 2013 and headquartered at Navi Mumbai, Maharashtra. The Applicant is engaged in the business of providing end to end EXIM compliance consultancy and holds a valid Importer Exporter Code ('IEC') AAECJ6675P. As a proposed business transaction, they seek to engage in distribution, sales and marketing of toys, games and similar other goods in India. In this regard, they seek to import electronic/non-electronic toy/toy parts into India from China and seeks to avail the benefit of preferential customs duty under the Asia- Pacific Trade Agreement ('APTA') on the import of its products. The APTA creates benefits for the importer, in the form that the importer shall not be liable to pay the Basic Customs Duty (BCD) to a certain extent on the goods so imported, as provided for in the exemption notification issued by the Government of the respective contracting countries. 2.2 The applicant submitted that for implementation of the preferential tariff benefit agreed to be granted on imports from the notified countries under APTA, the Central Government vide Notification no. 94/2006....
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....rds and design specifications. Once such products are manufactured, they are directly to be shipped from the manufacturing facility in China to the Applicant in India. The Applicant will purchase such products from the Supplier on a principal-to-principal basis for the purpose of sale and distribution of the products in India. Thus, in the said transaction flow, while the legal title of the product passes from the Supplier to the Applicant, the products are physically shipped from the manufacturing facility in China to be imported by the Applicant into India. Thus, the Applicant proposes to procure the product on the basis of what is generally understood as third-party invoicing. The sequence of the proposed transaction is explained as under: 2.5 The applicant submitted that the third-country invoicing refers to a transactional arrangement wherein the invoice accompanying the Preferential Certificate of Origin, used for customs clearance in the importing country, is issued not by the exporting entity but by an entity based in a different country, which may not necessarily be a signatory to the same Free Trade Agreement (FTA). This concept pertains to a transaction structure wher....
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....e exporter. 2.7 The applicant submitted that Customs Circular No. 53/2020 dated 08.12.2020 clarifies that third party invoicing can be accepted while claiming preferential tariff treatment in terms of Duty- Free Tariff Preference Scheme for Least Developed Countries ("DFTP") in respect of 'wholly obtained' goods. The said Circular was issued to avoid unnecessary disputes arising in case of third- party invoicing, especially since the Notification and the Rules under DFTP are silent on third party invoicing. It is pertinent to note that similar difficulty and disputes are being faced by the trade and industry in the context of APTA as well, since the Notification and Rules of Origin are silent on third- country invoicing under APTA. 2.8 The Applicant sought an advance ruling for the following questions, i. Whether the concept of third-party invoicing is allowed under the Asia-Pacific Trade Agreement (APTA)? ii. If the answer to question (i) is in affirmative, whether the Applicant can claim exemption under the Customs Notification No. 50/2018 dated 30.06.2018? iii. If the answers to questions (i) and (ii) are in the affirmative, whether, the ....
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........ ..................... 3.It is pertinent to underline here that the purpose of a COO is to serve as a proof that the goods qualify as originating within the terms of an FTA, irrespective of whether third-party invoicing is involved or not. On the other hand, the seller's invoice, including a third-party invoice where applicable, is the document relevant for customs valuation. 3.4 The applicant submitted that in light of the text of the above CBIC Instruction, it can be gleaned that third-party invoicing is considered to be a common and established business practice under FTAs. While few trade agreements provide for such provision explicitly, the COO issued within the framework of an FTA needs to be considered for examining the originating criteria under the terms of an FTA without considering whether the transaction involved third-party invoicing or not. 3.5 The applicant further submitted that in the context of least developed nations (LDCs), the Customs Circular No. 53/2020 dated 08.12.2020 ("Customs Circular") clarifies that third-party invoicing can be accepted while claiming preferential tariff treatment in terms of the DFTP Scheme for LDCs in r....
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....Public Notice, the authority categorically recognises the practice of third-country invoices under FTAs. 3.8 The applicant submitted that on a harmonious reading of the Rules of Origin, CBIC Instruction, Customs Circular and the Public Notice, the applicant is of the opinion that as long as the local value addition criterion has been satisfied, the preferential tariff treatment must be accorded to both 'wholly obtained goods' and 'not wholly obtained goods'. The applicant further placed its reliance on the following decisions, holding that the statutory provisions and Circular must be interpreted harmoniously: (a) Verizon Communication India Pvt. Ltd. v. Assistant Commissioner, Service Tax, 2017 (9) TMI 632 - DELHI HIGH COURT [para. 48] (b) C.S.T., Service Tax -Ahmedabad v. M/s. Sorath Builders, 2018 (3) TMI 1810 - CESTAT AHMEDABAD [para. 7] 3.9 The Applicant further submitted that in the case of Boston Scientific Pvt. Ltd. [CAAR/Del/Boston/36/2023], The CAAR, Delhi interpreted the scope of "third-country invoicing" under the ASEAN-India Free Trade Agreement ("AIFTA"). It is significant to highlight that the AIFTA expressly permits third-coun....
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....istant Commissioner of Customs, as the case may be, that the goods in respect of which the benefit of this exemption is claimed are originating from the notified countries, and satisfy the origin criteria in accordance with the provisions of Rules of Origin. 3.12 The applicant submitted that as mentioned above, the concept of third-party trade has also been acknowledged by the Rules of Origin issued under the APTA and thus, the proposed transaction structure of the Applicant should be eligible for preferential benefit under APTA. Further, Rule 2 of the Rules of Origin contains provisions governing originating criteria of goods and specifies that goods shall be deemed to have originated in the exporting country if they are consigned directly according to Rule 6 and conform to the following conditions: a. Products wholly produced or obtained in the exporting participating state as defined in Rule 3; or b. Products not wholly produced or obtained in the exporting participating state, provided that the said products are eligible under Rule 4 or Rule 5. 3.13 The applicant submitted that Rule 4 of the Rules of Origin contains provisions governing goods not wholly ....
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.... that if the conditions of the notification are satisfied, the importer has to be given benefit of the exemption. The relevant extract of the judgment is reproduced below: "At the time of filing the Bills-of-Entry, the Department cannot assume events that are likely to happen later if the conditions of the Notification are satisfied, the importer has to be given the benefit of the concession / exemption." 3.16 The applicant further made a reference to the decision of CESTAT in the case of M/s SOTC Travels Services Pvt. Ltd. Vs. Pr. Commissioner of C. Ex., Delhi-I [2021 (55) G.S.T.L. 332 (Tri. - Del)], wherein it was held that if the substantive conditions to the notifications granting exemption stand fulfilled, exemption cannot be denied. The relevant extract of the judgment is reproduced below: "It is only to ensure that there is no evasion of tax and that services have been rendered specifically to those diplomatic missions/consular officers to whom a certificate has been issued by the Protocol Officer that the Notifications require a correlation to be established between the invoices and the undertakings. Once these two documents can be correlated, though no....
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....anisha Pharma Plasto Pvt. Ltd. [1999 (112) ELT 22 (Del)] which was affirmed by the decision of the Hon'ble Mumbai CESTAT in the case of Sima Khatib [2004 (166) ELT 119 (Tri-Mum)], wherein it was held that it is a settled position of law that the opinion given by WCO is very relevant for interpretation of the provisions of the Customs Act and the rules made thereunder. 3.20 The applicant further submitted that the provision of 'third party invoicing' has also been recognized under various foreign trade agreements. Some of the FTAs which categorically provide for third-country invoicing are AIFTA (ASEAN-India FTA), India-Chile FTA, India-Korea FTA, and India-Malaysia FTA. 3.21 The applicant submitted that in view of the above, third-party invoicing is a commonly accepted practice, and the guidelines as framed by the WCO are required to be adhered to, in the interest of facilitating ease of trade. Accordingly, they submitted that COO produced in relation to third party invoicing, should be accepted for availment of exemption in terms of the Exemption Notification, on import of the goods from China. 3.22 The applicant further submitted that acceptance of COO in the....
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....ication authorities. 3.25 The applicant submitted that under the FTAs, it is fundamentally the goods which become eligible to the preferential tariff if they satisfy the origin criteria under the rules of origin. Therefore, once eligible, the third country invoicing should not change that situation. There is no prescription under law that mandates the Indian Custom authority to initiate investigation in case of availment of benefit of preferential tariff treatment under the agreement other than the cases involving palpable fraud or fraudulent practice being adopted by the importer. The applicant placed its reliance on the 'WCO Origin Compendium' issued by the WCO dated May 2017. The said compendium, in the context of proof of origin, provide as follows: Minor errors in proof of origin to be disregarded "Where the originating status of the goods is not in doubt, the discovery of minor discrepancies between the statements made in the proof of origin and those made in the documents submitted to the Customs authority of the importing country should not ipso facto invalidate the proof of origin, provided that the documents evidently correspond to the product....
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....ing state cannot be dishonoured/rejected by the customs department unless said certificate is cancelled by the issuing authority. 3.30 The applicant submitted that in light of the aforesaid judicial precedents, COO issued by the competent authority qualifying the origin criteria cannot be challenged by the Custom Authorities, so as to deny the exemption benefit, provided that the originating criteria have been met in the exporting country as evidenced by the COO, the custom department is not entitled to deny the exemption benefit. Therefore, such COO is sacrosanct and cannot be questioned by Indian customs authorities. 3.31 The applicant submitted that in view of the above submissions, the Applicant is entitled to the benefit of concession in the proposed transaction as provided under the Exemption Notification, provided the imported goods duly satisfy the originating criteria under Rules of Origin. 4. Port of Import and reply from Jurisdictional Commissionerate 4.1 The applicant in their CAAR-1 indicated that they intend to avail the benefit under Notification No. 50/2018-Customs dated 30.06.2018 and benefits of country of origin of goods in case of third-party invoici....
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.... be allocated to the Indian market. c. Bills of Lading/airway bills and packing lists issued at the point of export identify the Applicant as consignee/importer for consignments allocated to India; the goods are physically shipped directly from the Chinese manufacturer to India. d. Certificates of Origin (COOs) are issued by the competent Chinese issuing authority in the form prescribed under the APTA Rules of Origin and the Applicant will retain the COO(s) for the relevant shipments along with supporting documents to enable their verification of origin in the event of an inquiry. 6.2 The applicant further submitted that the Bill-to / Ship-to third-party invoicing model, as described above, is common in global supply chains and is recognised in international practice by the World Customs Organisation's Guidelines on Rules of Origin. 6.3 The applicant also sought to revise the questions. The revised questions on which Ruling is Sought by the Applicant are as follows: a. Whether the concept of third-party invoicing is allowed under the Asia-Pacific Trade Agreement (APTA)? b. If the answer to question (i) is in affirmative, whether the App....
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....ter rather than the Swiss supplier? d. Whether non-mentioning of the name of the third-party supplier invoicing the Applicant in Box 1 of the Certificate of Origin, is acceptable? e. Whether mentioning of the Chinese exporter as known to the COO issuing authority in China, in Box 1 is acceptable for grant of preferential benefit to the Applicant? f. How compliance with Box 1 (requiring exporter details to match the invoice) of the Certificate of Origin would be determined in the cases of third-party trade? 7.3 At the outset, I find that the issue raised at the Sr. No. 08 in the CAAR-1 form is squarely covered under Section 28H(2) of the Customs Act, 1962 being a matter related to the applicability of a notification issued under Section 25(1) of the Customs Act, 1962. I further find that the applicant is a holder of an Importer Exporter Code (IEC) and thereby, is a valid applicant under Section 28E (c) of the Customs Act, 1962 for filing application under Section 28H of the Customs Act, 1962. 7.4 The applicant seeks to avail preferential duty benefits under the Asia-Pacific Trade Agreement (APTA), as implemented in India by Notification No. 94/2006-C....
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....rts or produce Value of undetermined origin f.o.b. price x 100 ≤55% (d) The value of the non-originating materials, parts or produce shall be: (i) the c.i.f. value at the time of importation of materials, parts or produce where this can be proven; or (ii) The earliest ascertainable price paid for the materials, parts or produce of undetermined origin in the territory of the Participating State where the working or processing takes place. (e) Whether or not the requirements of Rule 2(b) are satisfied, the following operations or processes are considered to be insufficient to confer the status of originating products: 1. Operations to ensure the preservation of products in good condition either for transportation or storage (ventilation, spreading out, drying, chilling, placing in salt, sulphur dioxide or other aqueous solutions, removal of damaged parts, and like operations); 2. Simple operations consisting of removal of dust, sifting or screening, sorting, classifying, matching (including the making-up of sets of articles), washing, painting, cutting up; 3. Changes of packaging and breaking up and ass....
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....bserve that for eligibility to preferential treatment under APTA, the imported goods must qualify as originating products under Rule 2, which requires that they be either wholly produced in the exporting Participating State (Rule 3) or, if not wholly produced, must satisfy the value-addition requirement that non-originating materials do not exceed 55% of the FOB value, with the final manufacturing process undertaken in that State, excluding the list of simple or minimal operations that cannot confer origin (Rule 4). Origin may also be established through cumulation, provided the aggregate originating content from Participating States is at least 60% of the FOB value (Rule 5). Further, the goods must satisfy the direct consignment requirement (Rule 6), meaning they are shipped directly or only transit through non-Participating States without entering trade or undergoing processing other than what is necessary to preserve them. Finally, preferential treatment may be claimed only when supported by a valid Certificate of Origin issued by the designated authority of the exporting Participating State (Rule 8). Further, I observe that these rules have no provision regarding third-count....
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....The relevant text of the instruction is as under: Subject: Clarification on certain aspects of origin procedures under free trade agreements (FTAs) - regarding. The Board is in receipt of various representations, citing difficulties encountered in import clearance where third-party invoicing, allowed under the provisions of a trade agreement, has been used. 1.1 It has been represented that certain field formations are questioning the origin status of products imported under FTAs with third-party invoicing, particularly under the ASEAN-India FTA (AIFTA), upon comparing the value recorded on the certificate of origin (COO) and that declared on the third-party invoice. Instances have also been brought to notice where preferential claims have been denied in such cases without conducting verification of COO with the issuing authority to check its authenticity and / or accuracy of information contained therein. 2. In this regard, it is to note that third-party invoicing is a common business practice and a few trade agreements explicitly provide for it. For example, Article 22 of Operational Certification Procedures for the Rules of Origin for the AIFTA....
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....rnt that Certificates of Origin (COOs) issued in terms of customs notification no 29/2015-cus (N.T), dated 10.03.2015 and with third party invoicing were earlier being accepted by the proper officer but that same has been discontinued after implementation of CAROTAR, 2020. 3. The matter has been examined. The notification no 29/2015-cus (N.T), dated 10.03.2015 is silent upon provisions for third party invoicing, i.e. commercial invoice for goods originating in the LDC is issued in the third country and not by the consignor in the exporting country. In some other notified preferential rules of origin, where specific provision for third party invoicing is provided, the origin of the good is nonetheless based upon the value addition done in the country of origin alone, with Free on Board (FoB) in country of origin being the base for arriving at the local value content. 4. With regard to notification no 29/2015-cus (N.T), read with notification no. 96/2008- Cus, dated 13.08.2008, which offers unilateral tariff concessions to LDC, the Board is of the view that where value of goods does not have impact on the originating status, i.e the originating criteria is 'whol....
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....ly held that when an exemption notification prescribes specific conditions the assessee must comply with such conditions strictly and fully. The judgment distinguished between substantive conditions, which go to the core eligibility for exemption and must be complied with rigorously, and procedural conditions, which exist to facilitate implementation and may allow some degree of flexibility if the essential purpose is satisfied. The exact text of Para 22 and 23 is as under: "22 The law is well settled that a person who claims exemption or concession has to establish that he is entitled to that exemption or concession. A provision providing for an exemption, concession or exception, as the case may be, has to be construed strictly with certain exceptions depending upon the settings on which the provision has been placed in the Statute and the object and purpose to be achieved. If exemption is available on complying with certain conditions, the conditions have to be complied with. The mandatory requirements of those conditions must be obeyed or fulfilled exactly, though at times, some latitude can be shown, if there is a failure to comply with some requirements which are dir....
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.... some minor or inconsequent aspects which cannot be described as the "essence" or the "substance" of the requirements. Like the concept of "reasonableness", the acceptance or otherwise of a plea of "substantial compliance" depends upon the facts and circumstances of each case and the purpose and object to be achieved and the context of the prerequisites which are essential to achieve the object and purpose of the rule or the regulation. Such a defence cannot be pleaded if a clear statutory prerequisite which effectuates the object and the purpose of the statute has not been met. Certainly, it means that the Court should determine whether the statute has been followed sufficiently so as to carry out the intent for which the statute was enacted and not a mirror image type of strict compliance. Substantial compliance means "actual compliance in respect to the substance essential to every reasonable objective of the statute" and the court should determine whether the statute has been followed sufficiently so as to carry out the intent of the statute and accomplish the reasonable objectives for which it was passed. Fiscal statute generally seeks to preserve the need to comply strictly w....
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....h explicitly permits third-country invoicing whereas APTA has no such provisions. iv. The applicant has further relied on a number of judgments regarding the Sacrosanctity of the Certificate of Origin, however, none of the case law submitted pertains to third-country invoicing in the matter of APTA. 7.14 The applicant has further relied on the "Guidelines on Certificate of Origin" issued by the WCO in July 2014. I have gone through the same and I observe that the Guidelines on Certificates of Origin issued by the World Customs Organization (WCO) are, by their very nature, advisory instruments intended to promote uniformity and best practices among customs administrations. These guidelines do not possess any binding legal force unless their contents are expressly incorporated into a bilateral or multilateral agreement or formally adopted by the participating countries through their domestic legal processes. Consequently, the WCO guidelines cannot be relied upon to create, expand, or imply any right-such as the permissibility of third-party invoicing-that is not already provided for in the substantive Rules of Origin governing a particular preferential scheme. In the abse....
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....referential duty benefit under APTA may be granted in a third-party invoicing scenario only if the applicant demonstrates to the satisfaction of the Deputy / Assistant Commissioner of Customs, as the case may be, that: i. the goods satisfy the originating criteria under Rules 2-5, ii. the goods satisfy the direct consignment requirement under Rule 6, and iii. the Applicant establishes complete documentary linkage between the COO issued by the exporting APTA State, the transport documents, and the third- country commercial invoice. c. If the answers to questions (i) and (ii) are in the affirmative, whether the mentioning of the words "To Order" in Box 2 would facilitate the availability of preferential benefit to the Applicant even if the Box 1 indicates the name of Chinese exporter rather than the Swiss supplier? Ans. Not Applicable, the phrase "To Order" in Box 2 of the COO is NOT a basis for preferential eligibility. It merely indicates procedural handling of third-party trade. d. Whether non-mentioning of the name of the third-party supplier invoicing the Applicant in Box 1 of the Certificate of Origin, is acceptable? ....