FTA overrides CAROTAR 2020 - Conflicts Explained

The CBIC vide.?Instruction No. 19/2022-Customs, dated August 17, 2022, has instructed Customs officials to give Free Trade Agreement ('FTA') an overriding treatment over Customs (Administration of Rules of Origin under Trade Agreements) Rules, 2020 (‘CAROTAR’) where CAROTAR is inconsistent with FTA.

GABA & CO. | Remarks | Reason for Instruction

In terms of Indian Constitution and various Supreme Court decisions, the?Principle of Duality?is being followed when it comes to enforcement of agreements or treaties with a Foreign State in India.

The Supreme Court had, in numerous cases, held that where there is no domestic law, adherence to foreign treaties /agreements is mandatory. However, if there is an inconsistent domestic law, the sovereignty of Indian Parliament cannot be diluted even if it results in dishonouring the agreement.

Now, CAROTAR specifically grants FTA an upper hand and even if it had not, being a subordinate legislation, FTA or Rules of Origin would always have overridden CAROTAR.

What made the conflict intense is the enactment of Section 28DA and giving a sovereign backing to such Section as well as CAROTAR.

We have, for your understanding, quoted a couple of instances of inconsistencies between FTA and CAROTAR as well as FTA and Section 28DA.

1)?COO Issued Retroactively (CAROTAR v. FTA)

• In the COVID times, many shipments were delayed and due to lockdown, Certificate of Origin ('COO') could not be produced at the time of filing of Bill of Entry ('BE').
• Now, FTAs provide that COO can be issued retroactively. However, Rule 3(1)(d) of the CAROTAR mandates mentioning COO details at the time of filing BE.
• Prior to CAROTAR, Hon'ble CESTAT referred to various FTAs and held that COO can be produced even after filing BE.

2)?COO issued post its expiry (Section 28DA v. FTA)

• Section 28DA(10) provides an overriding provision and states that preferential treatment may be denied where COO is produced after its expiry.
• Now, for instance, Indian ASEAN FTA provides that COO can be produced after its expiry in certain exceptional circumstances (in our view, COVID was one such case).
• Therefore, there is a clear conflict between a domestic law and an agreement. The present instruction by CBIC would certainly help in these cases.

There are number of other conflicts which, for the sake of keeping the update brief, we are not mentioning.

Finally, it is pertinent to mention that this instruction is not issued to restrict the officials to ask for excessive information. All the FTAs empower each member country to ask for these information unconditionally as long as the purpose is to ascertain the country of origin.

Hope you find the above an interesting read.

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Disclaimer:

The views expressed in the update are strictly personal, based on our understanding of the underlying law. We are not responsible for any injury, loss or cost arising to any person who refers this update and acts or refrains from any act accordingly. We would suggest that a detailed legal advice must be sought before relying on this update.