1. LEVY OF CUSTOMS DUTY
The ‘charging section’ of the Customs Act, 1962 is section
12 which provides for levy of duty on imports as well as on exports at the
rates which are prescribed under the Customs Tariff Act, 1975 read along with
the relevant exemption notification. The taxable event to attract customs duty
is import into or export from India. The export duties are applicable to a
handful of commodities. In the case of Apar India Ltd., the Hon’ble Supreme
Court has held that rate of duty will be the rate prevailing on the date of
filing of bill of entry under section 46 or granting permission for entry
inwards whichever is later."
2. TYPES OF DUTIES
The various types of customs duties are:
i. Basic duty
It may be at the standard rate or in the case
of import from some countries, at the preferential rate. The effective rate
shall be determined after considering the notification, if any.
ii. Additional customs duty
This is equal to the Central Excise duty
leviable on the product manufactured in India and if the said product is not
manufactured in India then on like product manufactured in India.
Proviso to section 3(2) of the Customs Tariff
Act provides that
(a) where the imported goods are notified
under section 4A of Central Excise Act, and
(b) in relation to the goods on which the MRP
is required to be printed either under the provisions of Standards of
Weights & Measures Act, or the rules made thereunder, or under any other
then in such case the value of imported goods
shall be deemed to be the retail price declared on the imported article less
abatement allowed as per the notification issued under sub-section (2) of
section 4A of Central Excise Act.
As per the proviso to section 3(2) of the
Custom Tariff Act in case of an article imported into India for which tariff
value has been fixed under section 3(2) of the Central Excise Tariff Act,
the value for the purpose of computing CVD would be deemed to be tariff
iii. Additional duty of customs in lieu of sales
This is leviable in order to provide a level
playing field to indigenous goods, which have to bear sales tax, local tax
and other charges.
Notification No. 102/2007-Cus dated 14-9-2007
allows refund of said duty if the importer on subsequent sale of goods has
paid appropriate amount of sales tax or VAT as the case may be. The importer
shall have neither taken the credit of additional duty of customs nor shall
not have passed on credit of such additional duty of customs to any person.
The importer is also required to substantiate that the incidence of duty has
been borne by him.
iv. Antidumping/safeguard duty
This is leviable with a view to protecting
domestic manufacturer of certain goods from unfair injury out of
international competitive rates.
v. Education Cess
This is leviable at the rate of 2% on aggregate
of basic customs duty and additional customs duty. (vide Finance (VI)
Secondary and Higher Education Cess. is
leviable at the rate of 1% on aggregate of basic customs duty and additional
customs duty w.e.f. 1-3-2007. (vide Finance Act, 2007).
3. PROCEDURE OF IMPORT-EXPORT
Goods may be imported in or exported from India
through sea, air, land, by post or as a baggage with passengers. The procedure
to be followed would vary depending on the mode of import or export. Normally,
import procedures have to be followed by both; i.e., the importer as well as
by the person-in-charge of conveyance.
As per the provisions of section 30 of the
Customs Act, the person-in-charge of a vessel or an aircraft or a vehicle
carrying imported goods or any other person as specified by the Government
shall deliver to the proper officer an Import Manifest or Import Report as per
the following time limit:
(i) in the case of a vessel or an aircraft
prior to arrival of the vessel or the aircraft and
(ii) in the case of a vehicle within 12
hours after its arrival in the customs station.
In case of default, a penalty up to rupees fifty
thousand can be levied on the person-in-charge if he does not deliver the
manifest or report to the proper officer within the time period and does not
show sufficient cause for the delay.
Procedures for Import
The importer is required to submit necessary
details like the description of the product, name of the supplier, invoice
number, bill of lading number, quantity of goods, classification, rate per
unit etc. in order to get the bill of entries prepared under EDI (Electronic
Data Interchange system). However in case of custom house, where manual bills
of entries are processed, the importer either himself or through agent is
required to submit the bill of entry along with the documents mentioned above.
The bill of entry can be for the purpose of warehousing of goods or for
clearance for home consumption. The following steps are normally taken for the
clearance of goods:
(i) Filling of Bill of Entry for home
consumption or warehouse or in case of EDI system submitting the details.
(ii) Appraisement of Bill of Entry — In case of
first appraisement, inspection is done first then duty is assessed. In case
of second appraisement, assessment is done first and duty is assessed.
(iii) Payment of duty — The duty assessed has
to be paid.
(iv) Inspection of cargo is done where second
appraisement method is followed.
(v) The cargo is then delivered.
In case of exports instead of Bill of Entry the
exporter has to submit Shipping Bill or submit the data, like description of
export product, FOB value, quantity unit, invoice No., Bill of Lading, etc, to
enable authorities to prepare shipping bill in EDI system.
Section 17 as replaced by the Finance Act, 2011
has introduced the self assessment procedure. The importer is now along with
the above information is required to give details of duty payment required to
be made on importation of goods. The self assessment will be verified by the
proper officer and if required he may tests imported goods. He may also ask
for various records in addition to the documents already submitted. In case
after examination of documents it is found that the duty is to be reassessed
he will reassessed the duty. The proper officer shall pass an order with in 15
days from the date of reassessment of the Bill of entry, in case importer or
the exporter does not agree with the reassessment.
The importer of goods can file the warehouse Bill
of Entry and may store such goods in an authorised warehouse upon execution of
bond and clear the goods from such warehouse as and when needed as per the
provisions of the Act. Goods other than capital goods intended for use in a
100% EOU can be warehoused for a period of three years and for capital goods
to be used in a 100% EOU the time period is five years. In relation to any
other goods, except those mentioned aforesaid the time limit is one year. The
interest free period for which goods may remain warehoused is up to ninety
days, for goods other than to be used by a 100% EOU. The owner of any
warehoused goods can relinquish his title to the goods upon payment of rents,
interests, other charges and penalties, before the proper officer has made an
order for clearance of goods for home consumption.
4. CLASSIFICATION OF GOODS UNDER THE ACT
Section 2 of the Customs Tariff Act, 1975 provides that the
custom duty shall be levied at the rate specified in the schedules to the Act
read with exemption notification if any. Thus the customs duty is
leviable under the Customs Act, 1962 on the basis of value or quantity as
specified in the Import Tariff to the Customs Tariff Act, 1975. Basic customs
duty is charged in accordance with the First Schedule to the Customs Tariff
Act, 1975 which is import Tariff. There are 21 sections in the Import Tariff,
divided into 98 Chapters in all, with section notes and chapter notes. These
notes are statutorily binding in nature. The interpretation of the Tariff
schedule is strictly governed by six "Interpretative Rules" incorporated in
First Schedule itself. Imported goods are to be classified under the
appropriate headings, sub-headings, sub-division to sub-headings strictly, in
accordance with section notes, chapter notes that are appearing in the Tariff.
In the event when classification cannot be made as above
and when more than one classification appear appropriate under the Tariff and
goods imported do not find appropriate classification, then a resort to,
"Interpretative Rules" may be taken.
5. VALUATION OF GOODS
The quantification of customs duty payable
essentially requires the calculation of the ‘value’ for customs purpose. As
per the provisions, customs duty is payable as a percentage of ‘value’ often
called ‘Assessable Value’ or ‘Customs Value’. The value may either be (a)
‘Value’ as defined in section 14(1) of Customs Act, or (b) ‘Tariff Value’
prescribed under section 14(2) of Customs Act.
Tariff value is the value that is fixed by
Central Government for any class of imported goods or exported goods.
Government takes into consideration trends of value of such or like goods
while fixing tariff value. Once so fixed, duty is payable as percentage of
Customs value as calculated as per section 14(1)
is the ‘value’ normally used for calculating customs duty payable. As per
section 14(1) ‘value’ for the purpose of customs duty is the
(a) Price at which such or like goods are
ordinarily sold or offered for sale and the
(b) Price is for delivery at the time and place
of importation and such
(c) Price is in course of international trade,
where neither seller nor buyer has interest in the business of the other or
one of them has no interest in the business of the other and the,
(d) Price is the sole consideration for sale or
offer for sale.
The price mentioned above has to be computed for
customs duty purpose at the rate of exchange, as on date of submission of bill
of entry, as fixed by the Central Government. As per the provisions contained
in section 14(1A) of the Act, the ‘price’ referred to above, in case of
imported goods has to be determined in accordance of the Customs Valuation
Rules, 1988. Subject to three conditions laid down in section 14(1) of Customs
Act, 1962, of time, place and special circumstances, price of imported goods
is to be determined in terms of provisions contained in section 14(1A) and in
accordance with the provisions contained in Valuation (Determination of Price
of Imported Goods) Rules, 1988. The ‘Special Circumstances’ have been
statutorily provided in Rule 4(2) and in the absence of these exceptions it is
mandatory for customs authorities to accept the price actually paid or payable
for the goods in a particular transaction. Valuation Rule 4(2) deals with the
extraordinary or special circumstances under which the transaction value of
the goods cannot be accepted. They are as follows:
(a) The sale is not in the ordinary course of
trade under fully competitive conditions.
(b) The sale involves any abnormal discount or
reduction from the ordinary competitive price.
(c) The sale involves special discount limited
to exclusive agents.
(d) Non-existence of objective and quantifiable
data with regard to the adjustments required to be made, under the
provisions of rule 9, to the transaction value.
(e) Restrictions of a non-statutory nature or
non-commercial nature on the disposition or use of the goods after import,
which substantially affect the value of the goods.
(f) Sale or price being subject to some
condition or consideration for which a value cannot be determined.
(g) There exists an additional consideration,
direct or indirect.
(h) Buyer and seller are related and the
relationship has influenced the price. The assessable value has to be
adjusted where the buyer has undertaken some value-adding activities in
relation to the goods, and such activities fall under the adjustments
provided under rule 9 of the valuation rules. If no such adjustment is
provided in rule 9, and the activities of the buyer are on his own account;
i.e., they do not result in an indirect payment to the seller even though
they result in a benefit to the seller, then the assessable value need not
be adjusted. Costs for construction, erection, assembly, maintenance or
technical assistance undertaken after the import of goods like plant,
machinery or equipment should be distinguished, in the contract or invoice,
to ensure that these costs are not included in the assessable value. The
onus is now on the customs department to prove that the invoice price is not
genuine or that the price is unbelievably or ridiculously low. The
department cannot plead that it has discharged the onus by merely producing
the manufacturer’s price list or quotation or published prices or computer
print outs of previous imports by other importers as evidence of the so
called ordinary international price. The department must establish the
existence of special circumstances mentioned in the law. If they (revenue
authorities) do not establish this by leading adequate evidence, they will
have to accept the transaction value under rule 4(1). The transaction value
need not be uniform for all customers. It has been consistently held by the
Hon’ble Supreme Court that all customers have bargaining power and as long
as the discount is based on commercial considerations, the same is
permissible and the assessable shall be net of discount. According to Rule 5
of the Valuation Rules, the transaction value to be determined on the basis
of identical goods imported into India at the same time. Rule 6 allows this
on the basis of the value of similar goods imported into India at the same
The CEGAT laid down in the Hydro Krimp case that
comparable goods should be of same quality and specification and from same
manufacturer and country of production. They should be roughly in the same
quantity. The imports should belong to the same commercial world.
Rule 7 of the Valuation Rules allows the value to
be determined on the basis of deductive method in cases where there are no
contemporaneous imports. Here also the decision of the CEGAT is relevant. The
deductive value is based on the unit price at which the imported goods or
identical goods or similar imported goods are sold in the greatest aggregate
quantity to unrelated persons in India. The following deductions are
(i) the commission usually paid or agreed to be
paid or the additions usually made for profits and general expenses in
connection with sales in India of imported goods of the same class or kind.
(ii) usual costs of transport and insurance and
associated costs incurred within India.
(iii) the customs duties and other taxes
payable in India by reason of importation or sale of goods. Alternatively,
transaction/assessable value may be determined under rule 7A. It consists of
(a) the cost or value of material and
fabrication or other processing employed in producing the imported goods;
(b) an amount for profit and general expenses
equal to that usually reflected in sales of goods of the same class or
kind as the goods being valued which are made by producers in the country
of exportation for export to India;
(c) the cost or value of all other relevant
In a case, where the value cannot be determined
by any of the aforesaid rules, then resort will be made to Rule 8, Residual
Method, under which the value shall be determined using reasonable means
consistent with the principles and the general provisions of the rule.
6. RATE OF DUTY AND VALUATION AND TIME OF
The rate of duty and tariff valuation shall be as
(a) In the case of goods directly cleared for home
consumption the date of the presentation of the bill of entry.
(b) In case of goods cleared from warehouse, the date
when bill of entry is presented for home clearance of such goods from the
warehouse. In case, bill of entry is submitted prior to arrival of the
vessel or the aircraft, the date would be the later of the date of
submission of the bill of entry and the grant of entry inward to the vessel.
7. ADVANCE RULINGS
The provisions relating to advance rulings are covered in
Chapter VB of the Act. Advance rulings can be sought by a residents and/ or
non-residents in case of joint ventures in India, and by wholly owned
subsidiaries of foreign companies proposing to undertake business activity in
India. The Advance Ruling can be sought on matters regarding classification
and valuation of goods, notifications having a bearing on rate of duty and
notifications issued under the Customs Tariff Act and any other duty
chargeable in the manner as duty of customs, under any other law for the time
being in force.
The advance ruling authority created under section 245(O)
of the Income-tax Act, 1961 will be considered as advance ruling authority
under the Central Excise Act and the Customs Act also.
8. ASSESSMENT OF CUSTOMS DUTY
Under the Customs Act there are basically two systems for
assessment of duty. These are:
(a) First appraisement: In case of First appraisement the
assessment of goods is done only after the goods are examined first. This
system is generally not resorted to except in cases where complete documents
are not submitted by the importer, it is not possible for the appraiser to
determine the value or classification of the goods or for any other reasons,
on the basis of the documents as produced by the importer, or the importer
himself requests for the examination of goods before payment of goods.
(b) Second appraisement: This type of system is normally
followed practically. Second appraisement means making the assessment on the
basis of the declaration and submission made by the importer; i.e., on the
strength of documents such as invoice, catalogue, literature showing the
composition and use, price lists etc. as produced by the importers. Under
this system goods are examined after assessment and collection of duty. The
goods are examined on a selective basis on the basis of risk assessment or
on the basis of specific intelligence report.
However, on importation of any goods capable of being
easily identified, any duty has been paid on clearance of such goods for
home consumption, such duty shall be refunded to the person if the goods are
found defective or otherwise not in conformity with the specification agreed
upon provided the goods have not been repaired or used after importation.
The following conditions shall be satisfied :-—
(a) The goods are identified to the satisfaction of the
Assistant Commissioner or Deputy Commissioner.
(b) The importer does not claim drawback under any of
the provisions of the Act.
(c) The goods are exported or the importer relinguishes
its title to the goods and abandons them to customs or such goods are
9. DEMAND, RECOVERY AND REFUND OF DUTY
A demand for duty arises in cases where duty on
goods has not been levied though such goods are leviable to duty or duty has
been short levied or refunded erroneously. The Act provides the provisions for
the recovery of such duty.
Section 28 specifies the procedure to the
department for recovery thereof by service of a show cause notice for demand
within the specified time limits and thereafter by considering the
representation, if any, made by the person on whom such demand notice is
The notice must be issued within one year from
relevant date. The above period of limitation is extended to five years in
case the short levy or non-levy or refund was due to collusion, misstatement,
suppression of facts or fraud by the Importer/ Exporter.
Where the assessee notices the short levy or
non-levy, he can pay it along with interest, without a show cause notice and
inform the jurisdictional officer accordingly. If the assessee does not pay
the short levy or non-levy in full, he will be liable to pay interest under
sections 28AA and 28AB on the whole amount including the amount part paid.
The refund of duty is subject to the principle of
‘no unjust enrichment’. Refund of duty is granted to the importer only when he
is able to substantiate that the burden of the customs duty levied and paid
under Customs Act claimed in refund has not been passed on to the customer.
The Hon’ble Supreme Court in the case of Solar Pesticides has held that, even
in case of imported goods that have been consumed in the manufacture of final
product, the importer is required to substantiate similarly.
Application for refund must be made in the
prescribed form in duplicate within one year from the relevant date one year
as the case may be. If application is found complete in all respects, the
applicant will be issued an acknowledgement in prescribed form within ten
days. If application is found incomplete, it will be returned and a fresh
application shall be filed removing the deficiencies.
10. CUSTOMS DUTY DRAWBACKS
The term ‘drawback’ refers to the amount of duties of
Customs and Central Excise, whether in whole or in part, levied on the inputs
of goods exported, which is remitted or paid back by Government on export of
commodities. The goods to be entitled for drawback, they must be exported to a
foreign port. The object of the relief provided by the drawback provision is
to enable the goods to be disposed of in a foreign market as if they had never
been taxed on account of Customs and Central Excise duties. Drawback for
Customs purposes means, the refund of duty of customs and duty of Central
Excise that are chargeable on imported and indigenous materials used in the
manufacture of exported goods. Drawback, as the name itself suggests, is
procedure to relieve export goods of duties suffered by them at various stages
of manufacture. Sections 74 to 76 and notifications issued thereunder provide
for the quantification of the amounts of and the procedure to claim drawback.
The drawback is in respect of duties paid on:
(a) Imported goods which are exported as such (without
(b) Imported goods which are exported after use
(c) Imported materials used in the manufacture of goods
exported. According to Finance Act, 2003, exporters may be able to claim
refund of duty and interest paid by him, if he has not passed on the
incidence of such duty and interest to any other person. Section 27 of the
Customs Act is amended for the purpose. Section 75A of the Customs Act has
been amended so as to reduce the period from two months to one month beyond
which interest is payable to the claimant, after filing a drawback claim.
11. APPELLATE PROVISIONS AND PROCEDURES
The Appellate provisions in Customs are almost
the same as in Excise, which have already been covered under the respective
article, which may please be referred to.
Penalty for improper importation of goods
12.1 For improper importation of goods
(i) any person who does or omits to do any act
or abets doing or omission of such act on goods which are liable for
(ii) who acquires possession or in any way
concerned with carrying, removing, depositing, harbouring, keeping,
concealing, selling or purchasing, or in any other manner dealing with any
goods which he knows or has reason
to believe are liable to confiscation under section 11.
shall be liable for penalty of the various
amounts specified in section 112
12.2 For short levy or non levy of duty in
As per section 114(A) where demand for duty
arises on account of collusion, or any wilful misstatement or suppression of
fact, the person is liable for penalty equal to the duty amount. As per first
proviso if the duty, interest is paid within 30 days from the date of
communication of the order, the penalty amount shall be reduced to 25% of the
duty. However, the benefit of reduction in penalty is available only when the
penalty amount is also paid.
12.3 For use of false and incorrect materials
As per section 114(AA), if any person knowingly
or intentionally makes, signs, or uses or causes to make any declaration,
statement or document which falls or is incorrect in any material particular,
he shall be liable for penalty not exceeding 5 times the value of goods.
12.4 For not expressly mentioned
Any person who contravenes the provision of this
Act or abets in such contravention and where no expressed penalty is provided
elsewhere shall be liable for penalty up to Rs. 1 lakh under section 117.
Section 135 of the Customs Act provides that any
a) In respect of any goods knowingly concerned in
mis declaration of value or any fraudulent evasion or attempt of evasion of
any duty or any prohibition for the time being imposed under the Act or
b) acquires possession of or is in any way
concerned in carrying, removing, depositing, harbouring, keeping, concealing,
selling or purchasing or in any other manner dealing with any goods which he
knows or has reason to believe are liable to confiscation or
c) attempts to export any goods which he knows or
has reason to believe are liable to confiscation or
d) fraudulently avails of or attempts to avail of
drawback or any exemption from duty provided under this Act in connection with
export of goods.
he shall be punishable with an offence
(i) in case the offence relates to goods,
market price of which exceeds Rs. 1 crore, evasion of duty exceeding Rs. 30
lakhs, such categories of prohibited goods notified by central government or
fraudulently availing drawback exceeding Rs. 30 lakhs with an imprisonment
for term which may extend to seven years or with fine.
(ii) in any other case, for imprisonment which
may extend to three years or fine or both.