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Customs DutyAjay Babu BandiPractising Chartered Accountant

M.Com, FCMA,ACA,IFRS(Certified)

Customs duty is a duty or tax, which is levied by the Central Government on import of goods into, and export of goods from IndiaAlso referred to in Kautilyas Arthasastra as Shulka

Sources of Customs law Customs Act ,1962Customs Tariff Act, 1975Rules and Regulations (Customs valuation Rules 2007)(Baggage Rules 1998)(Export Manifest Regulations 1976)

Levy of Customs duty

Application of the Act (scope)The customs Act 1962 applies to whole of IndiaIndia includes territorial waters (12 nautical miles or 22 km) of IndiaNotified designated areas in Continental Shelf of India (CSI) and Exclusive Economic Zone of India (EEZI)EEZI 200 nautical miles from baseline

Other important termsIndian Customs Waters Sec 2(28) waters extending into the sea up to the limit of contiguous zone of India Contiguous zone of India -> 12 nautical miles beyond the Indian territorial waters24 nautical miles from baseline

Chargeability of Customs Duty (Sec.12)Import and Export : Duties of customs should be levied on all Imported and Exported GoodsPersons Liable : Importer and Exporter, including Government

Significance of Customs WatersArrest of the suspected persons u/s 104Stop and search of vessels u/s 106 ..ANDConfiscation of vessels u/s 115

Rates of Duty

Determination of duty where goods consist of articles liable to different rates of duty (Sec.19)

Taxable Event The taxable event in customs is Importation of goods into India, or Exportation of goods from India

Taxable Event in case of ImportsIn case of goods cleared for home consumption --- the taxable event being reached at the time when the goods reach the customs barriers and bill of entry for home consumption is filed

Taxable Event in case of ExportsExport of goods when the goods cross the territorial waters of India. If ship sinks within the territorial waters, export is NOT complete

Goods..

Drawings, Designs & ManualsGoods includes any other kind of Movable PropertySo..all tangible and Movable articles brought to India as Baggage /Postal Price /Cargo are GoodsAccordingly.. Drawings ,Designs ,Manuals & Technical Matter are GoodsCase : Associated Cement Companies Ltd

Conveyance Sec. 2(9)includesA vesselAn aircraft andA vehicle

Vehicle Sec. 2(42)meansConveyance of any kind used on land and includes a Railway Vehicle

Duty to be paid on goods derelict, Jetsam, Flotsam, wreck etcAll goods derelict, jetsam, flotsam and wreck brought to India , shall be dealt with as if they were imported in IndiaThus , even though such goods had not been actually imported, they would be liable to import dutyHowever, if such goods are entitled to be admitted duty-free under this act, duty would not be levied

Derelict This refers to any cargo ,vessel etc abandoned in the sea with no hope of recoveryJetsam This refers to goods jettisoned from the vessel to save her from sinkingFlotsam- Jettisoned goods which continue floating in the sea are called flotsamWreck -This refers to cargo or vessel or any property which are Cast ashore by tides after ship wreck

Illustration A fishing trawler operating in high seas, beyond the territorial waters of India, finds a ship wrecked in mid sea and brings Jetsam and Flotsam into India, along with fish caught by it. Fish which are intentionally brought into India would be liable to Customs DutyJetsam and Flotsam brought into India would also be liable to Customs Duty in the same manner as Fish

Reduction in customs liability in certain casesPilferage of Goods u/s 13Damage and deterioration of goods u/s 22Remission of duty of goods lost, destroyed or abandoned u/s 23Denaturing or Mutilation of Goods u/s 24Exemption granted by notification or by special order u/s 25

Pilferage of Goods u/s 13Pilferage refers to Petty theft i.e., to steal the goods ,especially in small quantities Importer not liable if..pilferage takes place..After the imported goods were unloaded and..Before the proper officer has made an order for clearance for :-Home consumption or deposit in a warehouseImporter is liable , if such goods are restored to the importer after pilferage

Approved Custodian : Liability u/s 45(3)If any imported goods are Pilfered, after unloading thereof in a customs area, while in the custody of a person approved by the commissioner u/s 45(1), such Custodian shall be liable to pay Duty on such goods

Damaged and Deteriorated Goods u/s 22 Effect.. The duty will be reduced proportionately to the reduction in value Valuation.. Owner has the option (a) value may be ascertained by the proper officer ..or(b) Damaged goods may be sold by (i) Public auction or(ii) tender or (iii) any manner with the consent of the owner

Lost, Destroyed or Abandoned Goods u/s 23Lost means.. Lost otherwise than as a result of pilferage or destroyedTime any time before clearance for Home consumptionEffect.. If goods are proven lost or destroyed to the satisfaction of AC or DC , he shall remit the duty on such goods

Lost, Destroyed or Abandoned Goods u/s 23Abandoned Goods meaning.. Owner may relinquish his title to the GoodsTime any time Before making of order for clearance for :-Home consumption or deposit in a warehouseEffect.. Owner shall be liable to pay the duty on such goodsException .. Owner cannot abandon duty goods if an offence appears to have been committed

Denaturing or Mutilation of Goods u/s 24Meaning.. Rendering of such goods unfit for its use or purposeEffect.. Such goods carry less duty because of the reduction in their end use purposeChargeable to duty ..if ..Such goods had been imported in denatured or mutilated form

Comparison of Provisions of (1) Pilfered Goods, (2) Damaged or Deteriorated goods and (3) Lost, Destroyed or Abandoned Goods

Point of DistinctionPilfered Goods (Sec.13)Damaged or Deteriorated Goods (Sec.22)Lost, Destroyed or Abandoned Goods (Sec.23)1.Physical AvailabilityGoods lost by theft, not physically availablePhysically available but in a damaged formLost/destroyed- Not available Abandoned - available2. Qty LostSmall QuantitiesAny quantityAny quantity3. Duty liabilityNOT leviableleviable but amount reduced proportionately i.e. abatementLost/destroyed- leviable but AC/DC may grant remission Abandoned - Owner not liable

Point of DistinctionPilfered Goods (Sec.13)Damaged or Deteriorated Goods (Sec.22)Lost, Destroyed or Abandoned Goods (Sec.23)4. Nature of benefitStatutory benefit . Cannot be denied by Proper OfficerStatutory benefit . But damage is estimated by Proper OfficerBenefit is given by statute, but discretion is available to AC/DC5. Burden of ProofImporter need not proveImporter should prove that it is not due to his wilful act/negligence/defaultDue to natural causes, should be proved by improter6.RestorationIf pilfered Goods are restored , duty is payableNo question of restoration, as they are not missingnot possible since goods are physically lost/destroyed

Point of DistinctionPilfered Goods (Sec.13)Damaged or Deteriorated Goods (Sec.22)Lost, Destroyed or Abandoned Goods (Sec.23)7. AbandonmentNo question of abandonment, as they are not available at allwhere goods are sold by public auction, they are deemed abandonedSec. 23 covers situations of abandonment/ surrender also8. Time pointAfter unloading and before clearanceAll imported and warehoused goodsAny time before clearance9. Warehoused goodsNot applicableApplicableApplicable