Duty Exemption on Dexolac 2 Import – CAAR Mumbai Ruling

In re Nutricia International Private Limited (CAAR Mumbai)

Question 1: Whether the Dexolac 2 (product in question) proposed to be imported into India fulfil the regional value content criteria prescribed under Rule 5 of Notification No. 189/2009-Cus (NT) dated 31.12.20099 and therefore, exempt under Sr. No. 157 of the Notification No. 46/2011-Cus dated 01.06.2011 governing import of goods from ASEAN Countries, including Indonesia?

Answer in respect of Question 1: This cannot be answered at this stage in advance ruling. The applicant has to submit a valid Certificate of Origin and prove to the satisfaction of the Deputy Commissioner of Customs or Assistant Commissioner of Customs, as the case may be, that the goods in respect of which the benefit of this exemption is claimed are of the origin of the countries as mentioned in Appendix I or Appendix II, as the case may be, in accordance with provisions of the Customs Tariff (Determination of Origin of Goods under the Preferential Trade Agreement between the Governments of Member States of the Association of Southeast Asian Nations (ASEAN) and the Republic of India) Rules, 2009, published in the notification of the Government of India in the Ministry of Finance (Department of Revenue), Notification No. 189/2009-Cus (NT) dated 31.12.2009

Question 2: Whether the Dexolac 2 (product in question) proposed to be imported into India fulfil the criteria of change in tariff of non-originating materials at sub-heading level prescribed under Rule 5 of Notification No. 189/2009-Cus (NT) dated 31.12.2009 and therefore, exempt under Sr. No. 157 of the Notification No. 46/2011-Cus dated 01.06.2011 governing import of goods from ASEAN Countries, including Indonesia?

Answer in respect of Question 2: Dexolac 2 (product in question) proposed to be imported into India fulfil the criteria of change in tariff of non-originating materials al subheading level prescribed under Rule 5 of Notification No. 189/2009-Cus (NT) dated 31.12.2009, however, as to the eligibility for said exemptions, Answer in respect of Question 1 is applicable.

Question 3: Whether the activities carried out by the Exporter-Manufacturer of Dexolac 2 will be hit by minimal operations and processes prescribed under Rule 7 of Notification No. 189/2009-Cus (NT) dated 31.12.2009?

Answer in respect of Question 3: The activities carried out by the Exporter-Manufacturer of Dexolac 2 will not be hit by minimal operations and processes prescribed under Rule 7 of Notification No. 189/2009-Cus (NT) dated 31.12.2009.

FULL TEXT OF THE ORDER OF CUSTOMS AUTHORITY OF ADVANCE RULING, MUMBAI

M/s. Nutricia International Private Limited (having IEC No. 0511096381) and hereinafter referred to as ‘the applicant’, in short) filed two applications (CAAR-1) for advance ruling before the Customs Authority for Advance Rulings, Mumbai (CAAR in short). The said applications were received in the secretariat of the CAAR, Mumbai on 28.03.2024 along with enclosures in terms of Section 2811 (I) of the Customs Act, 1962 (hereinafter referred to as the ‘Act’ also). The applicant is seeking advance ruling on the following questions:

Question 1: Whether the Dexolac 2 (product in question) proposed to be imported into India fulfil the regional value content criteria prescribed under Rule 5 of Notification No. 189/2009-Cus (NT) dated 31.12.2009 and therefore, exempt under Sr. No. 157 of the Notification No. 46/2011-Cus dated 01.06.2011 governing import of goods from ASEAN Countries, including Indonesia?

Question 2: Whether the Dexolac 2 (product in question) proposed to be imported into India fulfil the criteria of change in tariff of non-originating materials at sub-heading level prescribed under Rule 5 of Notification No. 189/2009-Cus (NT) dated 31.12.2009 and therefore, exempt under Sr. No. 157 of the Notification No. 46/2011-Cus dated 01.06.2011 governing import of goods from ASEAN Countries, including Indonesia?

Question 3: Whether the activities carried out by the Exporter-Manufacturer of Dexolac 2 will be hit by minimal operations and processes prescribed under Rule 7 of Notification No. 189/2009-Cus (NT) dated 31.12.2009?

2. Applicant has submitted as follows:

2.1 The Applicant is, inter alia, engaged in the manufacturing, marketing, distributing and selling of infant and adult nutrition products under its various brands viz. “DEXOLAC”, “PROTINEX”, “FAREX”, etc. The Applicant proposes to import a new product, viz., ‘Dexolac 2’ (“subject goods”) into India from PT Sari Husada, Indonesia (“Supplier”). ‘Dexolac 2’ is intended to be imported in a packed condition i.e., ready for retail sale in the ‘as imported’ condition. The Supplier is the manufacturer of the subject goods and the processes for manufacture of the subject goods takes place in the factory of the Supplier located at Indonesia.

2.2 ‘Dexolac 2’ is a powered milk substitute suitable for infant babies from 6 to 12 months. ‘Dexolac 2’ contains milk fat with Beta Palmitate which improves energy intake and calcium absorption, thereby, strengthening the bones. It contains nutrients that support overall growth and development. The Supplier manufactures ‘Dexolac 2’ using inputs either procured locally (from Indonesia) and sourced from countries outside of Indonesia. The inputs used in manufacture of ‘Dexolac 2’ and their source of procurement are tabulated below:

Table – 1

2.3 The Supplier undertakes the manufacturing and packaging of the subject goods within its factory in Indonesia. The flow chart showing the process undertaken to manufacture the subject goods is enclosed with the application. The detailed statement showing the illustrative cost break-up of ‘Dexolac 2’ in this regard is enclosed with the application.

2.4 The preferential duty benefit under the AIFTA is affected vide Notification No. 46/2011-Cus dated 01.06.2011 (“AIFTA Notification”) issued by the Central Government under Section 25(1) of the Customs Act, 1962. Sr. No. 157 of the Notification No. 46/2011-Cus dated 01.06.2011 exempts goods falling under Customs Tariff Sub-heading 1901 10. The aforesaid benefit is available subject to the goods fulfilling the rules of origin requirement. The rules pertaining to determination of originating criteria for availing benefits under the AIFTA are provided in the Customs Tariff [Determination of Origin of Goods under the Preferential Trade Agreement between the Governments of Member States of the Association of Southeast Asian Nations (ASEAN) and the Republic of India] Rules, 2009 (“Rules of Origin”) notified by the ‘Government of India vide Notification No. 189/2009-Cus (NT) dated 31.12.2009 issued under Section 5(1) of the Customs Tariff Act, 1975. The Applicant intends to avail the benefit of concessional rate of duty under the AIFTA Notification on Dexolac 2 imported from the Supplier. The Applicant submits that Dexolac 2 in question in the present application is classifiable under Tariff Item 1901 1090 of the Customs Tariff as ‘Preparations suitable for infants or young children, put up for retail sale’, as the product is a powered milk substitute used for infants. Relevant portion of the Customs Tariff is extracted below:

Sr. No. 157 of the said Notification provides for complete exemption from payment of duty with respect to goods covered under Tariff Item 1901 1090. The relevant portion of the Notification has been extracted below for reference:

2.5 Rule 3 of the Rules of Origin states that the goods imported by a party shall be considered as originating if they confirm to the origin requirements under any one of the following: Wholly Obtained or Produced Products (Rule 4); or

Not Wholly Produced or Obtained Products (Rule 5).

Rule 4 provides for an exhaustive list of goods which are covered under ”Wholly Obtained or Produced Products”. Broadly, it covers goods which are grown and harvested or raised or extracted in the territory of one or both member countries. Examples of such goods include live animals born and raised there, minerals extracted from earth, marine life extracted from the sea, etc. As per the Applicant, Rule 4 is not applicable to ‘Dexolac 2’ as they are not covered in the list provided therein. As per the Applicant, ‘Dexolac 2’ will be covered under ‘Not Wholly Obtained or Produced Products’ provided for under Rule 5 of the Rules of Origin. In order to avail the benefit of concessional rate of duty under the AIFTA, the following criteria stipulated under Rule 5 of the Rules of Origin are required to be satisfied cumulatively:

(i) The non-originating materials have undergone at least a change in tariff at sub-heading level i.e., six-digit level.

(ii) The AIFTA content (materials obtained from ASEAN Countries and India) is not less than 35% of the FOB Price.

(iii) The final process of manufacture must be performed within the territory of the exporting party.

Further, in terms of Rule 6 of the Rules of Origin – Cumulative rule of origin, any material originating in one AIFTA country, viz., India in the present case, and used in the manufacture of finished goods in another AIFTA country, viz., Indonesia in the present case, the said material shall be treated as originating in Indonesia. Accordingly, if any material is procured from India by the Supplier and used in manufacture of Dexolac in Indonesia, then the said material will be treated as material originating in Indonesia and the value of said material shall be included in the calculation of regional value content (RVC). ‘the Applicant submits that the conditions mentioned in Sr. Nos. (ii) and (iii) of para 2.5 above are satisfied in their present case. The Applicant submits that the non-originating materials utilized in the manufacturing of the subject goods have undergone a change in tariff at sub-heading level as can be seen from the Table below:

Table – 2

The Applicant submits that the final processes of manufacture, viz., blending of minerals and carbohydrate sources, sieving and removal of foreign particles, quality check and packaging process are undertaken by the Supplier in their factory in Indonesia. The said final manufacturing processes render the subject goods fit for consumption and export. Therefore, the subject goods satisfy7 the condition in Sr. No. (iii) of para 2.5 supra.

2.6 Annexure 1 to the Rules of Origin prescribes the method of computing the FOB price for determining RVC. The same is summarized below:

a. FOB Price = Ex-factory price and other costs.

b. Ex-factory price includes production cost and profit.

c. Production cost includes cost of raw materials, labour and overheads.

d. Other cost includes expenses such as transportation, storage and warehousing, port handling, etc.

For the purpose of the present case, the illustrative FOB Price of Dexolac 2 is taken as 5.20 EUR per unit as tabulated below –

Table – 3

As mentioned supra, the subject goods are manufactured by the Supplier using inputs procured locally from Indonesia and by way of import. The inputs procured locally from Indonesia and which qualify to be AIFTA material are tabulated below with their illustrative cost:

Table – 4

As mentioned supra, Rule 5(2) of the Rules of Origin provides two formulae for calculation of AIFTA content i.e., the Direct Method and the Indirect Method. In terms of Rule 5, the AIFTA content can be calculated using cither of the two methods. The same have been discussed below:

(i) Determination of RVC under the Direct Method:

Under the Direct Method, the cost of the originating material used in the manufacturing of the subject goods along with other costs, etc. should be at least 35% of the FOB price of the subject goods. As mentioned supra, in the present case, the total value of ‘Dexolac 2’ is 5.20 EUR per unit. The following items are to be considered for ascertaining the RVC under Direct Method as per the Applicant –

Table – 5

2.7 The rationale for including the above items for ascertaining the RVC content as per the Direct Method are as follows:

a. In terms of Rule 9(2) of the Rules of Origin, where goods are subject to an ad valorem percentage criterion, the value of the packages and packing materials for retail sale shall be taken into account in its origin assessment, in case the packing is considered as forming a whole with the products. The packaging materials indicated at Sr. Nos. 1 to 7 in the Table 5 above will form a whole with the subject goods since the Applicant will be selling the subject goods to end-consumers along with the packaging, viz., the subject goods are sold in retail packed in aluminium foil and in folding box. Therefore, the packaging materials from Sr. Nos. 1 through 7 in the above table being primary packaging materials will be included in the AIFTA material cost.

b. Furthermore, the materials listed at Sr. Nos. 8 to 10 are raw materials originating in Indonesia and used for the manufacture of the subject goods and thus, are to be included in the AIFTA material cost for calculation of RVC.

c. The material listed at Sr. No. 11 is a raw material sourced by the Supplier from India. Material originating from India and used in manufacture of final products in Indonesia for exporting to India shall be treated as material originating in Indonesia. Thus, it is included in the AIFTA material cost for calculation of RVC.

d. Further, Sr. Nos. 12 through 15 of the above table are costs/profit specifically pertaining to manufacturing of the subject goods. Labour Cost, Overhead Costs and Profits are to be included for calculation of RVC, as the same are provided under the Direct Method formula.

e. The item ”Import Duty” mentioned at Sr. No. 16 of the above table will also be included as the same is provided under paragraph 2(iv) of Annexure I under the Rules of Origin.

f. The Annexure I to the Rules of Origin further defines “Other Costs” as the costs incurred in placing the products in the ship for export, including but not limited to, domestic transport costs, storage and warehousing, port handling, brokerage fees, service charges, etc. Therefore, ‘Inland Transportation Costs’, and ‘Transportation Costs to Border’ [Sr. Nos. 17 and 18 of the above table] will be included in “Other Costs” as provided for under the Direct Method of calculation of RVC.

Substituting the values (in percentage terms) in the formula prescribed under Direct Method-[AIFTA] = 15.16% + 4.12% + 13.54% +8.73% + 22.78% = 64.34% > 35%

In view of the above, the RVC of the subject goods works out to be 64.34%, which is higher than the prescribed threshold. Therefore, as per the Applicant, the subject goods satisfy the RVC criterion under the Direct Method.

Further and without prejudice, the inputs mentioned in Sr. Nos. 1, 5 and 6 in ‘fable 4 supra were procured by the Supplier from third party manufacturer in Indonesia. The said third party manufacturer manufactures the said inputs using materials procured locally from Indonesia and materials imported from outside ASEAN countries as tabulated below:

Table – 6

Even if it is assumed that the value of imported components used in the manufacture of inputs is to be excluded in computing the AIFTA material value, the subject goods still satisfy the value addition criteria inasmuch as the value addition in Indonesia is more than 35% as can be seen from the below formula under the Direct Method -[AIFTA] = 9.80% + 4.12% + 13.54% +8.73% + 22.78% = 58.98% > 35%

In view of the above, the RVC of the subject goods works out to be 58.98%, which is higher than the prescribed threshold. Therefore, as per the Applicant, the subject goods satisfy the RVC criterion under the Direct Method even if such an interpretation is entertained.

(ii) Determination of RVC under the Indirect Method

Under the Indirect Method, the value of the non-originating (non-AIFTA) materials (along with goods of undetermined origin) used in the manufacturing of the subject goods should be less than 65% of the FOB price of the subject goods. The details provided with respect to non-AIFTA materials are as follows:

Table – 7

Substituting the above values in the formula-

AIFTA = 1.75/5.20 * 100 = 33.63%] < 65% FOB Price

In view of the above, the value of the non-originating materials works out to be 33.63% of the FOB price, which is less than the stipulated threshold of 65% provided under the Indirect Method. Therefore, as per the Applicant, the subject goods satisfy the RVC criterion under the Indirect Method.

2.8 Rule 7 of the Rules of Origin enumerates certain processes which will qualify as minimal operations and processes. It states that if only these specified processes are carried out exclusively or cumulatively in the territory of a party, then the goods arising out of such processes will not qualify as originating in the party. Examples of such processes are disassembly of products into parts, simple mixing of products, simple operations consisting of washing, painting, cutting, etc.

In the present case, the subject goods undergo the following activities / processes in Indonesia:

The process flow chart explaining the above is enclosed with the application. The above activities carried out by the Supplier in Indonesia are much more than the simple operations mentioned in Rule 7 of the Rules of Origin as can be seen from the above Table. Therefore, it is the Applicant’s view that the activities carried out by the Supplier in Indonesia in respect of ‘Dexolac 2’ are not hit by minimal operations stipulated under Rule 7 supra. For the above reasons, the Applicant is of the view that they are eligible to claim the preferential duty benefit under the AIFTA Notification on the subject goods intended to be imported by them.

3. The Commissioner of Customs, NS-1, Jawaharlal Nehru Customs House, Nhava Sheva which is the concerned jurisdictional Customs Commissionerate has responded to the subject application vide letter dated 27.06.2024 wherein section 28DA of the Customs Act, 1962 is reproduced and further comments on the subject application are provided as under:

3.1 The applicant in his application furnished IEC Number 0511096381 and subject to the satisfaction of the Authority appears eligible under the provisions of 28-E(c) of the Customs Act, 1962. However, the application seeking eligibility to claim the benefit under ASEAN-India free trade agreement (AIFTA) on import of infant milk-based formula “Dexolac 2” from Indonesia under (AIFTA) and under Third-Party invoicing [Bill-to-Ship-to transaction model] powder is not something that require advance ruling and the applicability of AIFTA Notification is to be decided under Section 28 DA of the Customs Act, 1962 read with relevant FTA notification and CAROTAR 2020 for every bill of entry filed by the assessing officer based on the submissions, documents and information of the importer, including FORM-1 on case to case basis. Hence, this docs not fall under the purview of Advance Ruling and thus the application should not be allowed.

3.2 As per the section 28DA, the ASEAN India Free Trade Agreement, Custom Notification No. 189/2009-Cus (NT) dated 31.12.2009) and the Custom Exemption Notification No. 46/2011-Cus dated 01.06.2011 has clearly laid down procedure for claim of preferential rate of duty wherein the applicability of Preferential rate is decided on case to case basis. So there is no need of Advance ruling in this matter as the mandatory requirement under the AIFTA, Customs Notification No. 46/2011-Cus dated 01.06.2011, Section 28 DA and CAROTAR 2020 need to be verified in each case.

3.3 Importer’ submission:

Whether Benefit of exemption under ASEAN-India Free Trade Agreement is available on import.?

Department’s submission:

Yes.

Importer’s submission:

Whether the ‘Dexolac 2’ fulfils the criteria of regional value addition and minimal value addition under the ASEAN-India Free Trade Agreement?

Department’s submission:

Origin Criteria is to be decided under Section 28 DA of the Customs Act, 1962, AIFTA Agreement, Customs Notification No. 189/2009-Cus (NT) dated 31.12.2009 Exemption Notification No. 46/2011-Cus dated 01.06.2011 and CAROTAR 2020 for every bill of entry filed by the assessing officer based on the submissions, documents and information provided by the importer including scrutiny of FORM- 1.

3.4 The importer has a poor compliance history and that the importer has already imported the product “Dexolac 2” and has not complied with BIS requirements. The imported product requires BIS compliance and the same was confirmed by the Concerned Agency. However, the importer doesn’t have the required certificate. Hence the matter is being adjudicated by the office.

4. Response of the applicant to the comments of Customs Commissionerate i.e. NS-I, JNCH are as under:

5. A personal hearing in the matter was conducted on 20.06.2024 in office of the CAAR, Mumbai. During the personal hearing the authorized representatives of M/s. Nutricia International Pvt. Ltd., Anjali Hirawat( Advocate), and Antara Bhide (Advocate) reiterated their written submission filed with the application. They relied upon the case law in the matter of the same applicant vide CAAR Ruling No. CAAR/Mum/ARC/75 & 76/2024 dated 15.05.2024 on specifically asked that whether any appeal is filed/stay is granted against the said order, the submitted that there no appeal is filed or no stay is granted in the matter so far in best of their knowledge

Nobody appeared for the said personal hearing from both the concerned jurisdictional Commissionerates. The office of this authority has not received any relevant records/comments from Customs Commissionerate of Air Cargo Complex, Mumbai on the subject application till date.

6. I have considered all the materials placed before me in respect of the subject goods. I have gone through the submissions made by the applicant during the personal hearing as well as the additional submissions made subsequently. The comments received from the jurisdictional commissioner i.e. Nhava Sheva, JNCII have also been perused and placed on record. 1 proceed to deliberate upon the issue on the basis of documents, submissions and information available on record and relevant provision of law.

7. I observe that in accordance with Rule 5 of the AIFTA Rules of Origin, the goods not being wholly produced or obtained shall be deemed to be originating if all the following conditions are satisfied by the applicant:

(i) the AIFTA content is not less than 35 percent of the FOB value; and

(ii) the non-originating materials have undergone at least a change in tariff subheading (CTSI I) level i.e., at six digits of the Harmonized System:

Provided that the final process of the manufacture is performed within the territory of the exporting party.

Rule 5(2) of the AIFTA Rules of Origin provides that the 35% AIFTA content can be determined using the following methods:

(i) Direct Method: Under this method the total of AIFTA material cost, Direct labour cost, direct overhead cost, other costs and profit is to be taken into consideration and the same should be above or equal to 35% of FOB value.

(ii) Indirect Method: Under this method, value of imported non-AIFTA material and value of undetermined originating materials/parts or produce is considered which should be under or less than 65% of FOB value.

I find that these are the most important aspects for examination of present CAAR-1 application.

8. The applicant in the CAAR-1 form has submitted that the proposed product of import, i.e. “Dexolac 2” is manufactured by the supplier located in Indonesia, They have also submitted an indicative calculation of the AIFTA content of the “Dexolac 2”; I find that the applicant has not submitted any valid Certificate of Origin in the present case, rather the applicant has submitted some tables {reproduce supra) showing the value of each input used to manufacture the subject product i.e. “Dexolac 2”. The applicant has also indicated that what percentage each input constitutes in the total FOB price of “Dexolac 2”. In these indicative calculations and the method used, the applicant, has shown that in the “Dexolac 2” the total of AIFTA material cost, packaging material cost, Direct labour cost, direct overhead cost, other costs and profit of the supplier have been taken into consideration and the same is above or equal to 35% of FOB value. I concur in general with the applicant’s calculation, insofar as, Import Duty, insurance, In-land transportation, transportation cost to border, warehousing fixed cost, margin of the supplier on raw materials imported for manufacturing the subject goods (shown at point no. 1 1 in Table-5) and profit of supplier are added to reach the minimum 35% RVC criterion.

9. Further, it is quite obvious from the methods stipulated in the Rule 5(2) of the AIFTA Rules of Origin used for calculating the RVC content, that the applicant’s calculation is justifiable, insofar as, cost of raw materials of AIFTA party origin, packaging material cost, labour cost, overhead cost and insurance cost are added to reach the minimum 35% RVC criterion. In view of the method of computing the FOB price specified in Annexure 1 to the Rules of Origin, I concur with the applicant’s calculation, insofar as, Ex-factory price (cost of raw materials, labour cost and overhead cost and profit of the manufacturer) and other costs i.e. transportation, storage, and warehousing, port handling charges are added to reach the minimum 35% RVC criterion. Rule 9 having title “Treatment of Packing” inter-alia states that where a product is subject to an ad valorem percentage criterion, the value of the packages and packing materials for retail sale shall be taken into account in its origin assessment, in case the packing is considered as forming a whole with products. Therefore, I find force in the view of the applicant that the packaging materials cost will be included in the AIFTA material cost.

10. However, I find that calculations shown in the tables above have only referential value. The applicant has described value (in EUR) of various components used to manufacture the subject product i.e. “Dexolac 2”. It appears from these indicative calculations that minimum RVC content criterion is fulfilled by the applicant that is around 58.98% of FOB price of “Dexolac 2”. But, it is quite obvious that value is not something that can be pegged at a fixed number, these are subject to market condition. The values shown by the applicant may fluctuate as per the market condition in future.

11. It has been submitted by the applicant that the all the non-originating material have undergone a complete change in tariff sub-heading at six digits’ level of the Harmonized system from pre-production stage to post-production stage. The applicant has submitted that the supplier at Indonesia manufactures the subject goods using inputs either procured locally or sourced from countries outside Indonesia. The inputs used in manufacturing of the subject goods and their source of procurement, as submitted by the applicant, are tabulated in Table-1 (para 2.2 supra). Further, Tablc-2 (para 2.5 supra) shows the HSN codes of the non-originating materials. The applicant submitted that the subject goods are classifiable under Tariff Item 1.901.10.90 of the Customs Tariff.

On examination of each and every item mentioned in Table-2 of non-originating components it is observed that the non-originating materials have undergone at least a change in tariff sub-heading (CTSH) level i.e. at six digit of the Harmonised System from pre-production stage to postproduction stage and accordingly I find that the applicant fulfils the condition of Rule 5(1 )(ii).

12. Further, the applicant also described the manufacturing process of the subject product i.e. “Dexolac 2” carried out by the manufacturer in Indonesia to substantiate the fact that the activity undertaken in Indonesia is a part of manufacturing process in the originating country. Further, Rule 7 of the Rules of Origin states that a product shall not be considered originating in a party if the following operations are undertaken exclusively by itself or in combination in the territory of that party: disassembly of products into parts, simple mixing of products, simple operations consisting of washing, painting, cutting, etc. India-Malaysia FTA, India-UAE FTA, India-Mauritius FTA or India-Japan FTA define the term “simple” as “an activity which needs neither special skills nor machines, apparatus or equipment especially produced or installed to carry out the activity”.

However, In the present case, the subject product ‘”Dexolac 2″ is manufactured in Indonesia by the operations namely dry blending, magnetized sifter, rotary magnet, inspection-X-ray scanning and rejection and packing as explained in detail by the applicant in para 2.8 (supra) and I am of the view that these activities carried out by the supplier in Indonesia is much more than the simple operations mentioned in Rule 7. These activities cannot be considered simple operations like washing, painting, cutting, mixing etc. The applicant has declared that the carbohydrates and mineral need to be handled in controlled conditions of temperature and humidity and ingredients are mixed at validated RPM of blender for defined time to make uniform blend of finished product to deliver the declared nutrient delivery per serve. The product is passed through a rotating magnetic to remove any metallic contaminants in the product and avoid any food safety hazard. Further, X-ray inspection is also performed. Therefore, on the basis of the submissions of the applicant in para 2.8, I concur with the applicant’s contention that the activities carried out in Indonesia in respect of the subject goods would not hit by minimal operations and processes prescribed under Rule 7.

13. Operational Certification Procedures for the Rules of Origin for the AIFTA are enumerated in Appendix D of the ‘Agreement on trade in goods under the Framework Agreement on Comprehensive Economic Cooperation between the Republic of India and the association of Southeast ASIAN Nations’. Article 1 of the said Procedures states that the AIFTA Certificate of Origin shall be issued by the Government authorities (issuing Authority) of the exporting party. Article 3 ibid states that for the purposes of determining originating status, the issuing Authority shall have the right to call for any supporting documentary evidence or carry out any checks considered appropriate. Article 4 ibid slates that the exporter and /or the manufacturer of the products qualified for preferential tariff treatment shall apply in writing to the issuing Authority of the exporting Party requesting for the pre-exportation verification of the origin of the products. The result of the verification, subject to review periodically or whenever appropriate, shall be accepted as the supporting evidence in verifying the origin of the said products to be exported thereafter. The pre-exportation verification may not apply to products, the origin of which by their nature can be easily verified. Article 5 ibid inter-alia states that the exporter or his authorised representative shall submit a written application for the AIFTA Certificate of Origin together with appropriate supporting documents proving that the products to be exported qualify for the issuance of an AIFTA Certificate o f Origin. Article 6 ibid inter-alia states that the issuing Authority shall, to the best of their competence and ability, carry out proper examination upon each application for the AIFTA Certificate of Origin io ensure that: (i)……; (ii)….; (iii) other statements of the AIFTA Certificate of Origin correspond to supporting documentary evidence submitted’,…….. Article 10 ibid states that the AIFTA Certificate of Origin shall be issued by the issuing Authority of the exporting Party at the time of exportation, or within three (3) working days from the date of shipment whenever the products to be exported can be considered originating in that Party within the meaning of AIFTA Rules of Origin.

From the articles discussed above it is amply clear that submission of a Certificate of Origin at the time of claiming benefits of the preferential treatment is a mandatory condition.

The issuing Authority in Indonesia will ensure that minimum RVC content criterion is fulfilled and it is very categorically stated in article 3 that the for the purposes of determining originating status, the issuing Authority shall have the right to call for any supporting documentary evidence or carry out any checks considered appropriate. Therefore, it is observed that the supplier/exporter in Indonesia has to satisfy the issuing Authority of Indonesia that the subject product to be exported by them fulfil all the condition of the AIFTA to be certified as a AIFTA party origin product.

13.1 It is observed that the submission of Certificate of Origin is a mandatory condition and it has io be submitted by the importers so that the Customs authorities legally accept the claim in the importing country that the particular goods qualify for the preferential tariff treatment accorded by the law. Only those importers with a valid Certificate of Origin are allowed to claim preferential tariff treatment for originating goods.

13.2 Certification and verification are procedural aspects of rules of origin but they are of no less importance. Even if a product fulfils the substantive origin criteria, it will not be entitled to preferential treatment unless it complies with the procedural requirements. Most importantly, to be eligible for preferential treatment, a consignment must be accompanied by a proof of origin. Proof of origin or certificate of origin is unequivocally accepted in trade agreements throughout the world. For the purposes of implementing the Rules of Origin under the AIFTA, the Operational Certification Procedures on the issuance and verification of the AIFTA Certificate of Origin and, the other related administrative requirements are followed.

13.3 In view of the above, the importer M/s. Nutricia International Private Limited has to submit Certificate of Origin issued by the issuing Authority of Indonesia and as per the proviso of the Notification No. 46/2011-Cus dated 01.06.2011, the importer has to prove to (he satisfaction of the Deputy Commissioner of Customs or Assistant Commissioner of Customs, as the case may be. that the goods in respect of which the benefit of this exemption is claimed are of the origin of the countries as mentioned in Appendix I or Appendix II, as the case may be, in accordance with provisions of the Customs Tariff (Determination of Origin of Goods under the Preferential Trade Agreement between the Governments of Member States of the Association of Southeast Asian Nations (ASEAN) and the Republic of India) Rules, 2009, published in the notification of the Government of India in the Ministry of Finance (Department of Revenue). Notification No. 189/2009-Cus (NT) dated 31.12.2009

13.4 I am of the view that the concerned jurisdictional Customs Commissionerate is right in their contention that the applicability of AIFTA Notification is to be decided under Section 28DA of the Customs Act, 1962 read with relevant FTA notification and CAROTAR 2020 by the assessing officer based on the submissions, documents and information of the importer, including FORM-1 on case to case basis for every bill of entry filed. The ASEAN India Free Trade Agreement, Custom Notification No. 189/2009-Cus (NT) dated 31.12.2009 and the Custom Exemption Notification No. 46/2011-Cus dated 01.06.2011 have clearly laid down procedure for claim of preferential rate of duty wherein the applicability of Preferential rate is decided on case to case basis. Conditions/provisions and procedures stipulated in AIFTA, Customs Notification No. 46/2011-Cus dated 01.06.2011

I find that the Sr. No. 157 of the Notification No. 46/2011-Cus dated 01.06.2011, as amended, reads as follows:

Indonesia is listed in the Appendix 1 of this notification. The benefit of exemption under Notification No. 46/2011-Cus dated 01.06.2011 is available to all goods falling under sub heading 1901 10 of the first schedule of the Custom Tariff Act, 1975. As the subject product i.e. “Dexolac 2” are claimed to be classifiable under CTI 1901 1090, it can be construed that subject goods can also fall under the purview of Sr. No. 157 on fulfilling the conditions of the notification.

14. The department has objected the imports made in the past by the applicant on the basis of non-fulfilment of BIS which is not the subject matter in the instant application before this authority. Similarly, the classification of the subject import goods “Dexolac 2” is also not questioned in the present application. The only limited questions in this application which are asked have been discussed in detail hereinabove. Accordingly, based on the submissions made by the applicant, above discussions, observations, findings, the Customs Tariff [Determination of Origin of Goods under the Preferential Trade Agreement between the Governments of Member States of the Association of Southeast Asian Nations(ASEAN) and the Republic of India] Rules, 2009 and also previous AAR rulings CAAR/Mum/ARC/75 & 76/2024 dated 15.05.2024 passed by CAAR, Mumbai and F.no. VIII/CAAR/Delhi/Boston/52/2023 dated 22/12/2023 passed by Advance Ruling Authority, Delhi on the similar matter, my answers in the matter in respect of the questions asked in the present CAAR- I application are as follows:

Question 1: Whether the Dexolac 2 (product in question) proposed to be imported into India fulfil the regional value content criteria prescribed under Rule 5 of Notification No. 189/2009-Cus (NT) dated 31.12.20099 and therefore, exempt under Sr. No. 157 of the Notification No. 46/2011-Cus dated 01.06.2011 governing import of goods from ASEAN Countries, including Indonesia?

Answer in respect of Question 1: This cannot be answered at this stage in advance ruling. The applicant has to submit a valid Certificate of Origin and prove to the satisfaction of the Deputy Commissioner of Customs or Assistant Commissioner of Customs, as the case may be, that the goods in respect of which the benefit of this exemption is claimed are of the origin of the countries as mentioned in Appendix I or Appendix II, as the case may be, in accordance with provisions of the Customs Tariff (Determination of Origin of Goods under the Preferential Trade Agreement between the Governments of Member States of the Association of Southeast Asian Nations (ASEAN) and the Republic of India) Rules, 2009, published in the notification of the Government of India in the Ministry of Finance (Department of Revenue), Notification No. 189/2009-Cus (NT) dated 31.12.2009

Question 2: Whether the Dexolac 2 (product in question) proposed to be imported into India fulfil the criteria of change in tariff of non-originating materials at sub-heading level prescribed under Rule 5 of Notification No. 189/2009-Cus (NT) dated 31.12.2009 and therefore, exempt under Sr. No. 157 of the Notification No. 46/2011-Cus dated 01.06.2011 governing import of goods from ASEAN Countries, including Indonesia?

Answer in respect of Question 2: Dexolac 2 (product in question) proposed to be imported into India fulfil the criteria of change in tariff of non-originating materials al subheading level prescribed under Rule 5 of Notification No. 189/2009-Cus (NT) dated 31.12.2009, however, as to the eligibility for said exemptions, Answer in respect of Question 1 is applicable.

Question 3: Whether the activities carried out by the Exporter-Manufacturer of Dexolac 2 will be hit by minimal operations and processes prescribed under Rule 7 of Notification No. 189/2009-Cus (NT) dated 31.12.2009?

Answer in respect of Question 3: The activities carried out by the Exporter-Manufacturer of Dexolac 2 will not be hit by minimal operations and processes prescribed under Rule 7 of Notification No. 189/2009-Cus (NT) dated 31.12.20099.

15. I rule Accordingly.

(Prabhat K. Rameshwaram)
Customs Authority for Advance Rulings,
Mumbai.