Third Country Invoicing under FTAs - Has the JNCH mitigated the concerns of Trade and Industry?

 

Anjali Hirawat, Partner & Antara Bhide, Associate, Lakshmikumaran & Sridharan Attorneys

 

This article discusses the impact of the recent Public Notice No. 55/2024 dated 24.06.2024 issued by the Commissioner of Customs, NS-III, JNCH, Nhava Sheva which prescribes guidelines for verification of Country-of-Origin Certificates ("COO") issued under various Preferential Trade Agreements/Free Trade Agreements ("FTAs") and involving third-country invoicing transactions. This Public Notice No. 55/2024 was issued superseding an earlier Public Notice No. 33/2024 dated 20.03.2024 on the same issue against which the industry at large had raised concerns.

 

Introduction

 

Public Notice No. 33/2024 dated 20.03.2024 recognised the following difficulties being faced by the customs authorities in verification and defacement of COOs issued in transactions involving third-party invoicing:

 

-      COO does not mention the FOB value in the relevant column;

-      Third-country invoice does not indicate the FOB value mentioned in the COO;

-      Third-country invoice indicates a greater number of items than mentioned in the COO;

-      Bill of entry presented on the basis of third-country invoice indicates a CTH which is other than the CTH mentioned in the COO.

 

In the above circumstances, the Public Notice No. 33/2024 required the importers to submit the invoice of exporter of originating country. This caused hardship to the Trade as the importers were not in a position to submit such invoices and clearance of import consignments were held up. The requirement to submit such invoices was questioned by the exporters / third party alike and raised concerns that the authorities were seeking commercially sensitive information. It was found that such requirement was also not envisaged by the Rules of Origin of the FTAs read with the Customs (Administration of Rules of Origin under Trade Agreements) Rules, 2020 ("CAROTAR, 2020").

 

It appears that the Board intervened based on the representations received from the Trade. As a result, the Public Notice No. 33/2024 has been superseded by Public Notice No. 55/2024 dated 24.06.2024.

 

Analysis of Public Notice No. 55/2024

 

This article shall endeavour to compare and analyse the guidelines laid down vide both the Public Notices and analyse the impact of the latest Public Notice.

 

Non-inclusion of FOB value in third-country invoice

The Public Notice No. 33/2024 compelled the importers to ensure that the third-country invoice indicates the FOB value mentioned on the COO along with other costs and services. In absence of the same, the importers were left with no choice but to submit the invoice of the exporter of the originating country on the basis of which the COO was issued.

 

With the issuance of Public Notice No. 55/2024, while details of the third-country invoice are to be mentioned in the COO, the mandate of indicating the FOB value as mentioned in the COO along with other costs and services in the third-country invoice has been done away with and the Trade is no longer required to submit the invoice of the exporter for availing benefit under the relevant FTAs.

 

Going forward, the requirement is only to indicate the freight and insurance amounts in the third-country invoice and no other costs and services need to be indicated. Alternatively, the importer will need to submit freight certificate and insurance receipt. This certificate is also to be submitted in case the freight has been paid by any person other than the Shipper indicated on the Bill of Lading.

 

It is pertinent to note that the inclusion of third-country invoice details in the COO is beneficial for correlation of the documents and ease of verification. This is already being done by majority of the Trade. Further, though the freight and insurance amounts are to be mentioned on the third-country invoice, this does not raise any concerns regarding sensitive information being sought by the Department as these amounts are already disclosed by the importers on the Bills of Entry. In fact, the ambiguity caused by usage of the term other costs and services in Public Notice No. 33/2024 no longer exists.

 

The above analysis is only relevant for those COOs which have a specific column for FOB value, for e.g. India-UAE CEPA, India-Australia ECTA and India-Japan CEPA.

 

Mismatch in Customs Tariff Heading in COO and third-country invoice

As per the Public Notice No. 33/2024, in case of difference in Customs Tariff Heading ("CTH") mentioned in the COO and the third-country invoice, the importer was again compelled to submit the invoice of the exporter of the originating country on the basis of which the COO was issued and amend the Bill of Entry in accordance with the CTH mentioned in the COO. Whereas the Public Notice No. 55/2024 now permits the importer to self-declare the preferred CTH in the Bill of Entry and the same shall be scrutinised and decided upon by a proper officer. Similarly, difference in product description, if any, shall also be scrutinised accordingly.

 

Though the importers have been given the option to choose their preferred CTH, the procedure and outcome of self-declaring the preferred CTH is left open-ended by the Department. In case of mis-match between the CTH mentioned in the COO and Bill of Entry, it is likely that the Customs authorities will object to the FTA benefit claimed. This aspect should be taken up with the JNCH, by the Trade, so that FTA benefit is not denied due to classification dispute, if the other classification is otherwise covered by FTA exemption notification.

 

Greater number of items mentioned in the third-country invoice than COO

Where the third-country invoice covered a greater number of items as opposed to the COO, the Public Notice No. 33/2024 required the importer to submit the invoice of the exporter and amend the Bill of Entry in accordance with the items mentioned in the COO. Now, the Public Notice No. 55/2024 clarifies that the FTA benefit shall be accorded only to the items mentioned in the COO and the remaining items shall be assessed at merit rate. This guideline is in accordance with the Rules of Origin provisions, understanding of the Trade and is logical.

 

FOB value mentioned in third-country invoice is same as that in COO

The Public Notice No. 55/2024 states that the FOB value indicated in the third-country invoice (where incoterms are FOB) cannot be identical to the FOB value mentioned in the COO and if both the FOB values are identical it would imply that the profit and other charges of the third-country supplier are added to the value.

 

In such a scenario, the Public Notice No. 55/2024 now requires the importer to provide an explanation for the above at the time of self-assessment of the Bill of Entry and ensure that both the FOB values are in the same currency. This guideline is only for the ease of verification of documents and the same should be followed.

 

It is to be borne in mind that the COO is required to indicate the FOB value of the exporter in the originating country and that such FOB value alone is taken into consideration for value addition calculation. It is not relevant as to whether the FOB value mentioned in the third-country invoice is higher or lower than the FOB value mentioned in the COO and in fact, the FOB value mentioned in the third-country invoice can be lower than the FOB value mentioned in the COO due to commercial considerations. The Customs authorities should not mix up between the two FOB values, while the FOB value mentioned in the third-country invoice will be relevant for assessment of customs duty, the FOB value mentioned in the COO alone is relevant for calculation of value addition for purposes of FTA benefit.

 

Option of early clearance of goods

The importer can seek early clearance of the goods by furnishing Bond and Bank Guarantee or cash deposit, if the importer requires more time to submit information and supporting documents as sought by the proper officer. Thus, awaiting the scrutiny of such documents, the Trade can seek to clear the goods under provisional assessment instead of payment of merit rate of duty under protest.

 

Conclusion

 

Public Notice No. 55/2024 has scrapped the earlier guidelines much to the relief of the Trade. The latest Public Notice is likely to ease the difficulties being faced by the Trade. The intent behind the Public Notice appears to be to ensure that the FTA benefits are extended to eligible goods only and third-country invoicing is not used as a route to circumvent the same. It also seeks to ensure that the value addition calculation is done based on the FOB value of the exporter only and expenses up to the port of export alone are included.

 

Though the applicability of this Public Notice is confined to Nhava Sheva, taking a cue from the same it is possible that similar guidelines may be issued by other port authorities as well. In view of the same, the importers claiming FTA benefit in case of third country invoicing should prepare themselves accordingly to facilitate clearance of their imports. With the issuance of these guidelines, it is hoped that the Customs authorities shall resolve issues of verification of COOs within a short period of time.

 

[Date: 02/07/2024]

 

(The views expressed in this article are strictly personal.)