Basics of Customs Duty

CA Final Paper 8 (Chapter1) Indirect Tax Laws

Gajendra Maheshwari BCom(H), ACA, ICWA, LLM

Agenda Background Legal Framework

Important Terms

Basic Concepts

General procedure for import and export

Background

Background Entry 83 of Union List in Seventh Schedule to Constitution

empowers Central government to levy the customs duty Customs duty is levied generally on all the goods imported into

India and very few goods exported from India There are various types of duties such as Basic Customs Duty

(‘BCD’), Additional customs Duty (‘ACD’), Special Additional Duty (‘SED’), etc.

Background The duty is paid on transaction value

Rationale for levy Regulation of imports and exports Protection of domestic industry in India Collection of revenue

Legal Framework

Legal Framework Customs Law comprises of various Acts, Rules, Regulations and Notifications Key Acts related to customs The Customs Act 1962 (‘The Act’) Provides for levy and collection of duty, import/ export

procedures, restrictions on import and export of goods, offences, penalties, etc

Legal Framework The Customs Tariff Act 1975 (‘The Tariff’) The Tariff provides classification and duty rates of various

goods. The Tariff is divided into two parts (i.e. Schedule 1 and 2) which provide classification and rate of duties for imports and exports, respectively

Also provides for duties like additional duty, preferential duty, anti-dumping duty, protective duties etc.

Legal Framework Key Rules under the Act and the Act and the Tariff

Name Purpose Customs Valuation (Determination of Price of imported Goods) Rules, 2007

Valuation of imported goods for calculating duty

Customs Valuation (Determination of Value of Export Goods) Rules, 2007

Valuation of exported goods for calculating duty

Baggage Rules, 1998 Rules and allowances for bringing in baggage from abroad by Indians and tourists

Legal Framework Key Rules under the Act and the Act and the Tariff

Name Purpose Project Import Regulations, 1986

Procedures for of goods for specified project

Customs House Agents Licensing Regulations, 1984

Regulation of customs House Agents (CHA)

Other Rules & Regulations

Rules regarding the determination of origin of goods, transshipment of goods, Import and Export manifest, Manufacture in Warehouse, Shipping Bill and Bill of Export (Form) etc.

Legal Framework Notification and Circulars issued under the Act and Tariff Department of Revenue issues notifications and circulars from time to time to grant exemption from customs duty, notify exchange rates, tariff values, appointment and transfer of officials, appointment of adjudicator or to provide clarifications

Important Terms

Important Terms Import [Section 2(23)] Bringing into India from place outside India Importer [Section 2(26)] Importer, in relation to any goods at any time between their

importation and the time when they are cleared for home consumption, includes any owner or any person holding himself out to be the importer

India [Section 2(27)] Land mass + Territorial water of India (12 nautical mile into sea

from the base line) + air space above and the ground at the bottom of the sea

Important Terms Goods [Section 2(22)] Inclusive definition - (includes vessels, aircraft, vessels, stores

and baggage's, currency and negotiable instrument any other movable property)

Imported Goods [Section 2(25)] Any goods brought into India from a place outside India but

does not include goods which have been cleared for home consumption

Dutiable goods [Section 2(14)] Goods [Section 2(22)] + specified in customs tariff

Important Terms Stores [Section 2(38)] Goods for use in a vessel or aircraft and includes fuel and

spare parts and other article of equipment, whether or not immediate for fitting

Prohibited Goods [Section 2(33)] Any goods the import or export of which is subject to any

prohibition under the Customs Act or any other law for the time being in force but does not include any such goods in respect of which the conditions subject to which the goods are permitted to be imported or exported have been complied with

Important Terms Conveyance [Section 2(9)] includes vessels (by sea), an aircraft (by air) and a vehicle (by

land)

Person in-charge Master of vessel (Vessel) Commander or pilot in charge of the aircraft (Aircraft) Conductor, guard or other person having the chief direction

of the train (Railway train) Driver or other person in of the conveyance (Driver or other

person)

Important Terms Responsibility of person in-charge Responsible for submitting the Import manifest and Export

manifest Ensures that the conveyance comes through appropriate

route and lands at appropriate place Ensures that goods unloaded after written order Goods loaded after proper permission

Important Terms Foreign going vessel or aircraft [Section 2(21)] Vessel or Aircraft for carriage of goods or passengers between

any port or airport in India and any port or airport outside India, whether touching any intermediate port or airport in India or not, and includes – a) Any naval vessel of any foreign Government taking part in

any naval exercises; b) any vessel engaged in fishing or any other operations

outside the territorial waters in India c) Any vessel or aircraft proceeding to a place outside India

for any purpose whatsoever

Place for Import/ Export Customs Area [Section 2(11)] Customs Station + Area in which goods ordinary kept before

clearance of goods (e.g warehouse) Customs Station [Section 2(13)] Any customs port [appointed under Section 7(a) and includes

inland customs depot], customs airport [appointed under Section 7(a)] or land customs station

Place for Import/ Export Warehouse [Section 2(43)] Public warehouse appointed under section 57 or private

warehouse licensed under Section 58. A warehouse is a place where goods after landing are permitted to be stored without payment of duty

Smuggling [Section 2(39)] Any act or omission which will render such goods liable to

confiscation under Section 111 and 113

Document for Import/Export

Bill of Export [Section 2(5) read with Section 50] Section 50 provides that the exporter shall make entry thereof

by presenting to proper officer in the case of goods to be exported by land, a bill of export in prescribed form

Shipping Bill [Section 2(37) read with Section 50] Shipping Bill means the shipping bill referred in Section 50.

Section 50 provides that the exporter shall make entry thereof by presenting to proper officer in the case of goods to be exported vessel or aircraft, a shipping bill in prescribed form

Document for Import/Export

Import Report or Import Manifest [Section 2(24) read with Section 30]

Import report or Import Manifest means the report required to be delivered under Section 30. Section 30 provides that the person in charge or the person as may be notified by the Central Government, in the case of a vessel or an aircraft, deliver to the proper officer an import manifest prior to the arrival of the vessel or aircraft and in case of a vehicle, deliver an import report within twelve hours after its arrival in the customs station, in prescribed form

Basic Concepts

Basic Concepts Customs law comprise of a variety of provisions: Duty related provisions Levy of import & export duty Exemption from the duty Valuation and Assessment of goods

Procedural provisions Clearance of imported goods & export of goods Goods in transit Warehousing Baggage, Courier and post

Basic Concepts Regulatory provisions Appointment of customs ports, airports, warehousing

stations Prohibition of import & export of goods Detection and prevention of illegal import & export of

goods Miscellaneous provisions Penalty, Offence and Prosecution, Appeal, Advance

Ruling, Settlement

Key provisions Some of the key sections under the Customs Act are: Section 12 – Charging Section which provides for levy of

customs Duty Section 14 – Valuation of goods for customs Duty purpose Section 23 – Notice of payment of duties and interest Sections 45 to 51 – Procedure for Import & Export of goods Sections 57 to 73 – Provision for warehousing of goods Sections 74 to 76 – Provision for drawback Section 111 – Confiscation of improperly imported goods

Type of Duties - Import Key customs Duties Basic customs Duty (BCD) Duty levied under Section 12 of Customs Act Levied as a percentage of Value as determined under

Section 14(1)

Additional customs Duty (ACD) Levied on imported excisable goods to counter balance the

Excise Duty, which is leviable on similar goods if manufactured in India. Some people prefer it to call ‘Countervailing Duty' (CVD)

Type of Duties - Import Special Additional Duty (SAD) Levied on imported goods to counter balance the Value

Added Tax (VAT), which is leviable on similar goods if sold in India.

Type of Duties - Import Other Customs Duties Protective Duties Tariff commission recommends Central Government to

levy protective duty at recommended rates to protect interests of Indian Industry

Anti Dumping Duty - is levied to protect domestic industry from cheap imports of goods

Safeguard duty - Imposed on specified goods imported in large quantities and under such conditions that they might cause serious injury to domestic industry

Type of Duties - Export Export duty At present, levied only on hides, skins and leather, snake

skins, hides, skins and leathers, fur lamb skins, certain specified minerals and metals

Depending on the economic scenario export duty is levied on the goods to discourage exports

Question 1 The import completes at the following stage: a) When goods enter into territorial water of India b) When goods reach at customs station c) When bill of entry for home consumption is filed d) When the goods are cleared for home consumption Answer d) Import is completed when the goods imported are cleared for

home consumption

Question 2 Whether clearance from Domestic Tariff Area (‘DTA’) to Special Economic Zone (‘SEZ’) is subject to export duty? Answer: In case of Tirupati Udyog Ltd. Vs UOI 2011 (272) E.L.T 209 (A.P) it was held that the this transaction is not chargeable to export duty either under SEZ Act, 2005 or under the Customs Act, 1962 on the basis of the following observations The charging section needs to be constructed strictly. If a

person is not expressly brought within the scope of charging section, he can not be taxed at all

No provision in SEZ related to levy and collection of export duty

Question 2 Reading of section 12(1) along with sections 2(18), 2(23) and

2(27) makes it apparent that customs duty can be levied only on goods imported into or exported beyond territorial waters in India. Since, both the SEZ unit and the DTA unit are located within the territorial waters in India, supplies from DTA to SEZ would not attract Section 12(1)

Theoretical Question Indian Customs Water [Section 2(28)] The waters extending into the sea up to the limit of contiguous zone of India under section 5 of the Territorial Waters, Continental Shelf, Exclusive Economic Zone and other Maritime Zones Act, 1976 (80 of 1976) and includes any bay, gulf, harbour, creek or tidal river Significance of Indian Customs Waters If an officer of customs has reason to believe that any person

in India or within the Indian customs waters has committed an offence punishable under Section 132 or section 133 or section 135 or Section 135 A or Section 136, he may arrest such person informing him of the grounds for such arrest

Theoretical Question (contd..)

Where the customs officer has reason to believe that any vessel in India or within the Indian customs water has been, is being, or is about to be, used in the smuggling of any goods or in the carriage of any smuggled goods, he may stop any such vehicle, animal or vessel or, in case of aircraft, compel it to land

Any vessel which is or has been within the Indian customs waters is constructed, adapted, altered or fitted in any manner for the purpose of concealing goods shall be liable to confiscation

Theoretical Question (contd..)

Customs officer has the power to search any person who has landed from/ about to board/ is on board any vessel within Indian customs waters and who has secreted about his person, any goods liable to confiscation or any documents related thereto

Any goods which are brought within the Indian customs waters for the purpose of being imported from a place outside India, contrary to any prohibition imposed by or under this Act, or any law for the time being in force, shall be liable to confiscation

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