Can Indian customs authorities question a Certificate of Origin issued under a free trade agreement without first following the verification mechanism prescribed by the treaty itself? This question is now before the Supreme Court in Rajasthan Metals v. Union of India1, pending before a Bench of Justice K.V. Viswanathan and Justice Manmohan.
The dispute arises from imports of copper tubes and pipes from Vietnam under the ASEAN-India Free Trade Agreement (AIFTA)2. Rajasthan Metals claimed preferential tariff treatment on the basis of a Certificate of Origin (CoO) issued by the designated Vietnamese authority under the Customs Tariff (Determination of Origin of Goods) Rules, 2009. Rule 13 recognises the CoO as the foundational document supporting a preferential tariff claim.
Indian customs authorities, however, initiated proceedings proposing denial of the benefit on the ground that the goods allegedly failed to satisfy the Regional Value Content (RVC) requirement under Rule 5, which mandates that at least 35% of the FOB (Free on Board) export value of the goods must originate from ASEAN member countries. According to the Revenue, the origin declarations were unreliable because the raw material inputs may have originated from non-ASEAN jurisdictions. A show cause notice was issued, following which the Delhi High Court declined to interfere and directed the parties to pursue adjudication before the customs authorities. Rajasthan Metals thereafter approached the Supreme Court under Article 136 of the Constitution. The Supreme Court’s interim order is significant because it restrains the adjudicating authority from passing any final order while the matter remains pending. More importantly, the case raises a broader issue concerning the relationship between treaty-based verification mechanisms and the independent powers exercised by domestic customs authorities.
The Treaty Verification Framework
The petitioners’ principal argument rests on the verification mechanism built into AIFTA itself. Article 24 of the Agreement contemplates inter-governmental consultation in disputes concerning origin determination. The operational details are incorporated into Indian law through Rules 16 and 17 of the Rules of 2009. Together, these provisions establish a structured verification process under which the importing country may seek retroactive verification from the issuing authority where doubts arise regarding the authenticity or correctness of a Certificate of Origin. In exceptional circumstances, customs authorities may also conduct verification visits to the exporting country, subject to procedural safeguards including prior notice and an opportunity for the exporter to respond.
Rajasthan Metals argues that while customs authorities may scrutinise origin claims, they cannot disregard a facially valid Certificate of Origin without first invoking this treaty-prescribed mechanism. According to the petitioners, unilateral domestic determinations bypassing these procedures undermine the framework contemplated under AIFTA itself.
The petitioners drew support from Union of India v. Azadi Bachao Andolan3, where the Supreme Court treated a Tax Residency Certificate issued under a treaty framework as ordinarily conclusive absent fraud or treaty-based challenge. Although the analogy is not exact, the broader principle advanced is that treaty-based certifications cannot casually be disregarded by domestic authorities.
The Revenue’s Reliance on Section 28DA
The Union’s response rests principally on Section 28DA of the Customs Act, 1962, introduced through the Finance Act, 2020, which strengthened customs authorities’ powers over preferential duty claims under free trade agreements. Section 28DA states that production of a Certificate of Origin does not absolve the importer from exercising “reasonable care” regarding the correctness of the claim and authorises customs authorities to seek verification, suspend preferential treatment, and in certain cases disallow the benefit altogether. The Revenue is also likely to rely on Rule 16(b)4, which permits customs authorities to seek information from importers before initiating treaty verification. The core issue, however, is whether such domestic inquiry can culminate in denial of preferential treatment without first invoking the treaty verification mechanism under Rules 16 and 17.
The respondents further argued that Section 28DA creates an independent statutory framework empowering customs authorities to verify origin claims, relying on Gramophone Company of India v. Birendra Bahadur Pandey5. The petitioners, however, emphasise that Section 28DA(4)(i)6 itself permits only “further verification consistent with the trade agreement,” arguing that domestic verification must conform to, rather than bypass, the treaty mechanism.
Conclusion
The implications of the dispute extend beyond AIFTA. India has entered into several free trade agreements incorporating similar origin verification frameworks, including agreements with Japan, South Korea, Sri Lanka, and ASEAN member states. The Supreme Court’s ruling may therefore shape the future enforcement architecture of India’s preferential trade regime as a whole. A ruling favouring the petitioners would strengthen procedural certainty for importers by requiring customs authorities to adhere closely to treaty-prescribed verification mechanisms before denying preferential treatment. Conversely, a ruling favouring the customs authorities would affirm broader domestic enforcement powers under Section 28DA and CAROTAR7, the 2020 framework governing verification of origin claims under free trade agreements, potentially expanding customs scrutiny over preferential imports.
At its core, the case asks whether the phrase “consistent with the trade agreement” in Section 28DA represents a meaningful procedural safeguard or merely a formal acknowledgment without substantive restraint. The Supreme Court’s answer may ultimately determine the practical value of Certificates of Origin within India’s free trade framework.
Citations
Expositor(s): Adv. Aparna Shukla, Intern Divyanshi Srivastava
