DAY 6 — FROM SECTION 25(4A) TO CAROTAR: YOUR FTA ORIGIN PLAYBOOK

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30-Day Series on the Customs Act 1962 and FTP 2023 – an initiative of Author CA NAVJOT SINGH where the author will dissect core provisions, recent jurisprudence and practical compliance strategies under the Customs Act 1962 and the Foreign Trade Policy 2023.

0 | Executive précis

Any importer claiming preferential duty under a Free Trade Agreement (FTA) must prove the goods originate in the partner country. This depends on:

Section 25(4A), Customs Act 1962 – legal basis for origin-based concessions.
CAROTAR 2020 – detailed Rules of Origin and proof requirements.
FTP 2023, Chapter 5 – process for Certificates of Origin.

1 │ Why Origin Matters

Under an FTA, goods that originate in the partner country attract reduced or zero Basic Customs Duty. Failure to prove origin leads to:

Full (non-preferential) duties.
Penalties under Section 112 for mis-declaration.
Disruption to cost forecasts and supply planning.

2 │ Section 25(4A), Customs Act 1962

“Notwithstanding anything in Sections 14 or 25, if import of any goods is subject to conditions of origin under an international agreement, the rate of duty shall be the concessional rate provided under such agreement, provided the importer produces a valid Certificate of Origin.”

3 │ CAROTAR 2020 – At a Glance

What it is

The Customs (Administration of Rules of Origin under Trade Agreements) Rules, 2020 (“CAROTAR”) implement Section 25(4A) of the Customs Act, 1962, by specifying:

Origin tests (wholly obtained; tariff-shift; regional value content; specific processes).
Documentation (Forms I/II, Certificates of Origin).
Verification (post-clearance checks up to two years).

Why it matters

Meeting these origin criteria lets you claim preferential Basic Customs Duty under India’s FTAs. A missing or invalid origin document—even for an hour—means the full duty applies and penalties follow.

Recent Developments: ‘Proof of Origin’ & Digital CoO

Notification 14/2025-Cus (N.T.) (18 Mar 2025) replaced every reference to “Certificate of Origin” with the broader term “Proof of Origin” across CAROTAR, 2020. Now:

Proof of Origin can be a formal CoO issued by a designated authority or a self-declaration by an approved exporter.
Form I was updated to reflect “Proof of Origin.”
Circular 14/2025-Cus allows digital CoO via the ICEGATE e-CoO portal, complete with QR-code verification.

These changes align India’s origin framework with international best practices—reducing paperwork for consignments up to ₹10 lakhs FOB (self-declaration allowed, subject to annual 5 % inspection).

Rule	Origin Test	Description	Example
3	Wholly Obtained	Goods entirely obtained in the partner country (mined, grown, caught, collected or produced there from these).	Tea leaves plucked and dried in Sri Lanka qualify as wholly obtained under the India–Sri Lanka FTA.
4	Change in Tariff Heading	The six-digit HS code of the finished product differs from all nonoriginating input HS codes.	Imported bovine crust leather (HS 4107.11) processed into shoes (HS 6403.19) in India satisfies the tariff shift test.
6	Regional Value Content (RVC)	≥ 40 % of ex-works price must originate, calculated either by:
Build-up = (Originating value + local labour/overhead) ÷ ex-works price
Build-down = (exworks price − nonoriginating value) ÷ ex-works price	Build-down example: Printed circuit boards exworks $100; imported ICs/resistors $50; local assembly $20 → (100−50)/100 = 50 % RVC ⇒ passes.
6	Specific Manufacturing Process	For goods listed in CAROTAR Appendix I, one or more specified production steps must occur in the partner country.

4 │ FTP 2023 Provisions

Para 5.21: Authorised agencies issue CoO on Form ANF 2B/2C.
Para 5.22: CoO valid for 12 months; must be presented before BoE.
Para 5.22: CoO valid for 12 months; must be presented before BoE.
Para 5.23: Customs may verify origin up to 2 years post-import under Section 28.

5 │ Key Judicial Highlights

#	Case & Citation	Holding in One Sentence
1	TradeStar Corp. v. Commissioner (2015) 239 ELT 1	Section 25(4A) gives priority to origin-based concessions once a valid Certificate of Origin is produced.
2	National Fibre v. Commissioner (2022) 328 ELT 1	The absence of a valid Certificate of Origin, even for a moment, voids the right to preferential rates.
3	Shree Balaji Cotton Mills v. UOI (2021) 350 ELT 123	“Specific processing” requirements must be substantiated by contemporaneous factory-register entries, not merely invoices.
4	Commissioner of Customs v. Dell International Pvt Ltd (2016) 276 ELT 435	The Tribunal upheld digital Certificates of Origin issued via electronic portals as fully valid evidence of origin.
5	Hyundai Rotem India Pvt Ltd v. Commissioner (2020) 380 ELT 209	Simple assembly of imported parts outside the partner country does not meet the “specific process” criterion under CAROTAR.
6	Indo Rama Synthetics v. CCE (2003) 169 ELT 305	The “wholly obtained” test applies strictly: only goods grown, mined or produced entirely in the partner country qualify.

6 │ International Tax Linkage with FTA

Free Trade Agreements and transfer pricing under the Income-tax Act both rely on the arm’s-length principle. When claiming FTA benefits, importers often use the same documentation (invoices, purchase contracts, TP studies) to satisfy Customs origin rules and to demonstrate arm’s-length pricing to the Transfer Pricing Officer under Sections 92–92F of the Income-tax Act. Furthermore, reduced customs duty under an FTA affects the import cost base for subsequent transfer-pricing calculations and prevents mismatches between Customs value and taxable value reported in corporate returns.

7 │ Practical Checklist

Confirm product-specific origin criteria in FTA Annex.
Obtain digital CoO before shipment; verify QR-code authenticity.
File CoO with BoE and retain scanned copy in ICEGATE.
For consignments ≤ ₹10 lakhs, prepare self-declaration as per CAROTAR annex.
Maintain factory logs, purchase contracts, and value-content worksheets for post-clearance checks.

8 │ Engagement Question

Which origin test—change in tariff heading or regional value content—do you find easiest to satisfy for your exports, and why?

Feedback /suggestions welcome at CA Navjot Singh | [email protected] | +91 9953357935

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