What is CAROTAR and Its Impact on Industry?
In the new era of international business, India continues to simplify its customs and trade compliance regime to encourage transparency, prevent misuse of Free Trade Agreements (FTAs), and adopt ethical trade practices. One such paradigmatic shift in this direction is the CAROTAR Rules — a very significant development that tightens origin certification and compliance for import goods.
This article explains what is CAROTAR, its full form, objectives, benefits, and its impact on the industry.
The CAROTAR full form is Customs (Administration of Rules of Origin under Trade Agreements) Rules, 2020. Also known as CAROTAR 2020, the regulations were released by Central Board of Indirect Taxes and Customs (CBIC) of the Department of Revenue, Ministry of Finance.
The CAROTAR Rules, in essence, bridge the gap between India's Free Trade Agreements (FTAs) and customs administration. The rules ensure that preferential tariff advantage importers under FTAs merit it by adhering to origin requirements and providing sufficient proof of entitlement.
Background and Objective of CAROTAR 2020
Before CAROTAR 2020, preferential duty benefit was being availed of by importers on the basis of a Certificate of Origin (COO) issued by the exporting country alone. But in most cases, the certificates were being used fraudulently with consequential loss of revenue and trade distortions to Indian producers.
In order to prevent all these drawbacks, CAROTAR 2020 came into force with effect from 21st September 2020.
The primary objective was to:
- Prevent misused of FTA provisions.
- Provide transparency and traceability to import transactions.
- Improve verification of origin-related statements.
- Protect local producers against unfair trade practices.
Basically, CAROTAR Rules supplement the application of Rules of Origin (ROO) in various FTAs for ensuring that only actually originating goods take advantage of tariff concessions.
Principal Provisions of CAROTAR Rules
The CAROTAR Rules 2020 lay down specific obligations and compliance criteria for importers benefiting from preferential rates of duty.
a) Importer's Responsibility
- Importers are, therefore, obligated to be actively engaged in origin verification. They must:
- Maintain sufficient information on the production and origin of products.
- Possess all the documents necessary to establish that the products are eligible as per the origin requirements.
- Provide additional information to the customs authorities when requested.
b) Minimum Information Requirement
Importers must collect and maintain minimum origin data as stipulated in Form I pursuant to the carotar regulations.
The following are captured:
- Process of production information.
- Origin country.
- Value addition or transformation data.
- HS code classification and origin specifications.
This informs importers appropriately before availing preferential duty benefits.
c) Customs Verification
Customs officers have the right to:
- Deny preferential treatment where origin is doubtful.
- Request supporting documents or clarification.
- Obtain confirmation from the exporting country's issuing authority.
This confirmation process is an added measure of due diligence and prevents false declaration.
d) Record Keeping
There should be maintenance of all origin documents and supporting documents at least for five years from the import date, enabling post-clearance audit and verification of compliance.
e) Suspension or Denial of Benefit
In case of any discrepancy or non-conformity discovered by customs authorities, preferential duty advantage might be denied or suspended until due verification.
With these provisions, CAROTAR Rules 2020 make importers accountable and ensure fair trade practices.
Importance of CAROTAR Rules
The CAROTAR 2020 regime is of utmost importance to the Indian trade environment for various reasons:
- Avoids Revenue Leakage:
Ensures tariff concessions merely to actual imports meeting origin criteria.
- Defends Domestic Industry:
Prevents non-qualifying imports from taking advantage of lower tariffs and displacing domestic manufacturers.
- Increases Compliance Culture:
Favors importers under a self-declaration and evidence-based verification system.
- Encourages Ethical Trade:
Introduces accountability and transparency in trade practice under FTAs.
- Sympathizes with the 'Atmanirbhar Bharat' Mission:
Through fair competition, CAROTAR indirectly supports domestic industries and domesticity.
CAROTAR Impact on Industry
The CAROTAR 2020 launch has significantly impacted importers as well as the overall trade landscape. Let's explore the major outcomes:
a) Increased Compliance Burden
Imports are now required to obtain complete manufacturing and origin information from overseas suppliers. It increases documentation, coordination, and verification burden.
b) Increased Transparency
Although raising compliance requirements, CAROTAR Rules encourage greater visibility and traceability of the goods, leading to increased supply chain transparency and risk mitigation.
c) Reduced Misuse of FTAs
The robust verification system under CAROTAR Rules 2020 has effectively restricted abuse of preferential duty claims, thereby preventing loss of customs receipts.
d) Level Playing Field for Domestic Manufacturers
By weeding out fake FTA claims, CAROTAR 2020 offers a level playing field for domestic manufacturers to compete on, strengthening the Indian manufacturing base.
e) Improved Trade Credibility
India's strict compliance enforcement of origin through CAROTAR Rules enhances its credibility as a compliant and credible trading nation.
f) Early Implementation Challenges
During the early implementation period, the companies faced challenges in the form of lack of unawareness, supplier cooperation, and rule compliance. Sectors have been gradually adjusting to the new system through awareness programs organized by CBIC and professional advisors.
CAROTAR and Free Trade Agreements
CAROTAR is coordinated closely with India's network of FTAs and PTAs, such as with ASEAN, Japan, South Korea, etc.
It ensures tariff privileges under such arrangements are only extended to products that truly originate from the partner country, as per the Rules of Origin (ROO).
As an example, goods from Vietnam under India–ASEAN FTA have to meet origin conditions, such as value addition or tariff classification transformation. As per CAROTAR Rules, the importer should ensure and maintain support documents before availing them.
Thus, CAROTAR 2020 acts as an interface between FTA policy commitments and customs enforcement mechanisms.
CAROTAR Rules Compliance
Importers' compliance with CAROTAR Rules is mandatory. A guide follows step by step:
1. Identify Applicable FTA:
Verify the trade agreement for your imported goods.
2. Get a Valid Certificate of Origin:
Ensure the exporter provides a valid CAROTAR certificate by an authorized entity.
3. Check Origin Information:
Review the manufacturing process, origin requirements, and supporting records to determine eligibility.
4. Keep Minimum Information (Form I) in hand:
Have all required information ready to be submitted at customs upon request.
5. File Correctly at Customs:
Enter FTA and origin properly into the Bill of Entry.
6. Respond to Customs Queries:
Support authorities if more verification or clarification is required.
7. Keep Records for Five Years:
Keep all records relating to the carotar certificate, supplier information, and import facts for audit in the future.
Common Challenges Faced by Importers
While beneficial, implementation of CAROTAR Rules 2020 poses operational concerns:
- Lack of access to foreign suppliers' production details.
- Misunderstanding of Rules of Origin under different FTAs.
- Delay in customs clearance verification.
- Inconsistent documentation and recordkeeping.
- Lack of in-house specialist interpreting CAROTAR compliance requirements.
To mitigate the above concerns, businesses frequently rely on specialist advisory companies and trade consultants.
How SKMC Global Can Help
SKMC Global provides turnkey services for firms dealing with import, export, and customs compliance under CAROTAR Rules.
Our expert team assists clients:
- Understanding Applicability:
Determining whether your products qualify for FTA benefits under CAROTAR 2020.
- Documentation & Advisory:
Preparation and verifying Form I, ensuring accuracy, and maintaining all necessary origin records.
- Certificate Management:
Guiding importers by verifying and maintaining their CAROTAR certificate and coordinating with exporters for compliance details.
- Customs Liaison & Representation:
Handling customs inquiries, verification notices, and compliance filing efficiently.
Importers, following our advice, can minimize risks, avoid delays, and attain smooth trade operations under varied FTAs.
Conclusion
The introduction of CAROTAR 2020 has transformed India's customs compliance landscape. The CAROTAR Rules, by integrating the Rules of Origin system with customs facilitation, ensure transparency, accountability, and fairness in trade.
Though the process of compliance demands effort, the long-term benefits — such as preventing abuse of FTAs, safeguarding national industries, and developing trade credibility — surpass the impediments by a significant factor.
Early implementation of CAROTAR Rules 2020 by importers not only ensures compliances but also provides them with a competitive edge by means of virtuous and transparent trade practices.
With the professional assistance of SKMC Global, your business can harmonize CAROTAR documentation, maintain impeccable records, and enjoy FTA benefits in good faith without facing regulatory hurdles.