Consumer goods and medicine supply to be hurt as imports held back in ports over FTA abuse

Customs officials hold imports of consumer goods and medicines over concerns of FTA abuse for paying lower import duties.

Supply of consumer goods and medicines may face hurdles as there are import clearance delays in India as customs authorities are holding them back in various ports, sources who did not wish to be named told the Economic Times.

FMCG, appliances, and medicine supply likely to be impacted

Customs officials are concerned that MNCs (Multinational companies) are importing goods to India by routing them to countries with which India has an FTA (Free trade agreement), leading to lower import duties.

They denied clearance or FTA duty benefits at several ports, including Nhava Sheva, India’s second-largest container port located in Navi Mumbai, according to the article.

Clearances have been blocked and it could lead to supply issues, an unidentified source told the Economic Times.

Third-party invoicing played an important part of this. That’s when an MNC uses another company to handle its billing process.

In this case however, the billing companies are located in countries other than the source of origin of the goods, creating concerns for customs officials that they are therefore being used to abuse FTA provisions. Third party invoicing is permitted under FTAs.

Most instances of third-party invoicing are seen in the cases of white goods (Appliances), fast-moving consumer goods (FMCG), chemicals and pharmaceuticals, according to the report.

Authorities have sought payment of differential customs duty with interest in cases of third-party invoice or, even the full duty in some cases, another person told the Economic Times, adding that no reason had been provided for the rejection of re-assessment requests.

Abuse of rules of origin is a key concern for revenue authorities. India introduced the Customs (Administration of Rules of Origin under Trade Agreements) Rules that provides for verification of exports from the exporting country on certain grounds to address this, according to the report.