CUSTOM ACT, 1962
1. LEVY OF CUSTOMS DUTY
Customs Act applies to the whole of India and also to any offence or contravention under the Customs Act committed outside India by any person.
Customs duty is levied on imports into or exports from India vide Section 12 of the Customs Act, 1962 (hereinafter referred to as the ‘Customs Act’) at the rates prescribed under the Customs Tariff Act, 1975 read with the relevant exemption notification/s.
Import[[1]] is defined as ‘import, with its grammatical variations and cognate expressions, means bringing into India from a place outside India’. In the landmark decision of Kiran Spinning Mills v. C. C. 1999 (113) ELT 753 (SC), Hon’ble Supreme Court held that import gets completed only when the goods cross Customs barriers and that is the time when import duty has to be paid.
Export[[2]] is defined as ‘Export, with its grammatical variations and cognate expressions, means taking out of India to a place outside India’. Export means taking goods to a place outside India and such place would include high seas as held in case of Collector of Customs, Calcutta vs. Sun Industries 1988 (35) ELT 241 (SC). It would be pertinent to note that export duties are applicable to a handful of commodities.
In general parlance, the term ‘India’ under customs law extends upto territorial waters of India. However, designated areas[[3]] in Continental Shelf and Exclusive Economic Zone are also declared as part of Indian territory for limited purpose. In the case of Aban Loyd Chiles Offshore Limited and another v. Union of India and Ors. 2008 (227) ELT 24 (SC), it was held that Customs Act and Customs Tariff Act are extended to “designated areas” in Continental Shelf and Exclusive Economic Zone. Hence, taking goods from India to such designated areas may not be treated as ‘export’ under Customs Law. Similarly, bring goods from such designated area to India may not be treated as ‘import’ under Customs Law.
2. TYPES OF DUTIES
The Customs Tariff Act, 1975 (hereinafter referred to as the ‘Customs Tariff Act’) specifies the rate of customs duty. The various types of customs duties are:
Type of Duty | Applicability |
Basic Customs Duty (BCD) | Applicable on all imports except exempted goods |
Integrated Goods and Services tax (IGST) | This duty is levied to countervail the effect of GST in India and is leviable at the rate that is applicable on the supply of like article in India as per the provisions of IGST Act, 2017. |
Goods and Services Tax Compensation Cess | This duty is levied to countervail the effect of GST Compensation Cess in India and is leviable at the rate as per the provisions of GST (Compensation to States) Cess Act, 2017 on supply of like article in India. |
Antidumping / Protective / Safeguard Duty / Countervailing duty/ Special Additional Customs Duty (SAD) | With effect from 01 July 2017, post implementation of GST, Countervailing duty (CVD) and Special Additional Customs Duty (SAD) was made applicable only to those goods which on liable to central excise duty/VAT. These duties[[4]] are imposed to protect the interest of domestic industries |
Social Welfare Surcharge (SWS) | With an object to provide and finance education, health and social security, SWS is levied @ 10% on import of goods except specified goods which are granted exemption from SWS |
Cesses |
|
An example explaining the structure of customs duties on imports in India is provided hereunder:
Particulars | Denoted | Amount in Rs. |
Cost of imported goods | A | 100.00 |
Add: Basic Customs Duty (Assumed @ 7.5%) (7.5% on A) | B | 7.50 |
| C | 107.50 |
Add: Agriculture Infrastructure Development Cess (Assumed @ 7.5%) (7.5% on A) | D | 7.50 |
| E | 115.00 |
Add: Social Welfare Surcharge[[8]] @10% [10%*(B+D)] | F | 1.50 |
| G | 116.50 |
Add: IGST (Assumed @ 18%) (18%*G) | H | 20.97 |
| I | 137.47 |
Add: GST Compensation Cess (Assumed @ 15%) (15% on G) | J | 17.48 |
Total cost of imported goods |
| 154.95 |
Effective Customs Duty (B + D + F + H + J) |
| 54.95 |
Note: Please note that IGST and GST compensation cess would be available as input tax credit under GST Laws subject to fulfillment of prescribed conditions. | ||
3. CLASSIFICATION OF GOODS UNDER THE CUSTOMS TARIFF ACT
The Customs Tariff Act, 1975 has been aligned to a great extent with Harmonized System of Nomenclature (HSN) developed by the World Customs Organisation (WCO). Section 2 of the Customs Tariff Act provides that the custom duty shall be levied at the rates specified in the schedules to the Customs Tariff Act read with exemption notifications, if any. Therefore, on the basis of classification of a product, the rate of duty is determined. Consequently, this becomes a crucial factor while examining Customs implication on any transaction. Further, in this dynamic World, in view of countless products and business models, classification is an exercise in itself. With introduction of GST, classification of goods has become all the more important as 4-digit classification as per Customs is adopted for classification under GST. Further, even the classification rules of Customs are adopted for GST purposes.
There are two schedules to Customs Tariff Act viz:
- First Schedule: Rate of BCD on import of goods
- Second Schedule: Rate of customs duty on export of goods.
The first schedule is divided in 21 sections. These sections contain 98 Chapters in all. Each chapter is divided into headings, sub-headings, tariff heading. India has adopted 8-digit classification Scheme which is outlined as follows:
Particulars | Description | Example |
Section | Broad category | Textile & Textile Articles |
Chapter | Specific description – First 2 Digits | Articles of apparel and clothing accessories, knitted or crocheted |
Heading | Next 2 Digits | Men’s or boy’s shirts, knitted or crocheted |
Sub-heading | Next 2 Digits | Of Cotton |
Tariff heading/item | Next 2 Digits | Shirts, hand crocheted |
The interpretation of the Tariff schedule is strictly governed by six "Interpretative Rules" incorporated in First Schedule itself which are explained in brief hereunder:
Rule | Description |
1 | Titles of Sections, Chapters etc. are only for ease of reference. Legally, classification is governed as per terms of the Heading, Section, Section Notes and Chapter notes |
2 | (a) Incomplete, unfinished or unassembled article having essential character of the complete, finished or assembled article respectively shall be classified as complete, finished or assembled article (b) Reference to any article in an entry includes mixtures or combinations |
3 | (a) If goods are prima facie classifiable under 2 or more headings, most specific description shall be preferred over general (b) Mixtures, composite goods, goods put up in sets for retail sale which cannot be classified as per Rule 3(a), shall be classified as per the essential character (c) If goods cannot be classified as per Rule 3(a) and Rule 3(b), it shall be classified under the heading which occurs last in numeric order |
4 | If goods cannot be classified under above Rules, classification needs to be done under heading appropriate to goods which are most akin |
5 | (a) Specially shaped containers for long term use to be classified with the primary article except containers having essential character (b) Subject to Rule 5 (a) above, packing material and packing containers if are normally used for packing such goods, shall be classified along with those goods except if such packing material or container is suitable for repetitive use |
6 | When more than one entry is available for classification in a heading, sub-headings of same level should be compared |
The above rules have to be resorted to understand the manner of classification of any goods in any chapter heading or sub-heading. Further, certain non-statutory principles developed by Courts are trade parlance, dictionary meanings, meanings under other Acts, expert opinions, ISI specifications, CBIC Circulars, HSN explanatory notes published by World Customs Organization etc.
4. DATE FOR DETERMINING RATE OF DUTY AND VALUATION
Import of goods
The rate of duty and tariff valuation is as applicable on relevant dates[[9]] which is summarized in below mentioned table:
Situations | Relevant Date |
Goods cleared directly for home consumption | Date of presentation of bill of entry (BOE) |
Goods cleared from warehouse for home consumption | Date of presentation of bill of entry for home consumption (popularly known as ‘ex-bond BOE’) |
Any other case | Date of payment of duty |
Notes:
| |
Export of goods
The rate of duty and tariff valuation shall be as applicable on relevant dates[[10]] as specified in below mentioned table:
Situations | Relevant Date |
Goods entered for export under Shipping Bill/Bill of Export | Date of issuance of ‘Let Export Order’ |
Foreign post office | Date on which exporter delivers such goods to Postal Authorities for exportation |
Any other case | Date of payment of duty |
Please note: Separate rules are prescribed for baggage and post and above general are not applicable to baggage and post.
5. ALUATION OF GOODS
Section 14 of the Customs Act provides that the value of imported goods or exported goods shall be the transaction value i.e. ‘price paid or price payable’ for the goods sold for delivery at the time of importation or exportation, where the buyer and seller are not related, and the price is the sole consideration for sale. The term ‘related person’ is defined[[11]] as follows:
For the purpose of these rules, persons shall be deemed to be ‘related’ only if:
- They are officers or directors of one another’s businesses;
- They are legally recognized partners in business;
- They are employer and employee;
- Any person directly or indirectly owns controls or holds five percent or more of the outstanding voting stock or shares of both of them;
- One of them directly or indirectly controls the other;
- Both of them are directly or indirectly controlled by a third person;
- Together they directly or indirectly control a third person; or
- They are the members of the same family
- Sole agent or sole distributor or sole concessionaire associated with any person shall be deemed to be related for the purpose of these rules, if they fall within the criteria of this sub-rule.
Further, the price shall be calculated with reference to the rate of exchange as in force on the date on which BOE for home consumption or Shipping Bill or Bill of Export are presented.
If the value cannot be determined under Section 14 of Customs Act, the importer has to resort to Customs Valuation (Determination of Value of Imported Goods) Rules, 2007 (hereinafter referred to as ‘Import Valuation Rules’) or Customs Valuation (Determination of Value of Export Goods) Rules, 2007 (hereinafter referred to as ‘Export Valuation Rules’) to determine value of goods.
A. Import Valuation Rules
In case, the value cannot be determined under Section 14 of the Customs Act,1962, the value shall be determined on the basis of provisions contained in Customs Valuation (Determination of value of imported goods) Rules, 2007.
Transaction value (TV) in the case of imported goods shall include, in addition to the price as aforesaid, any amount paid or payable for costs and services, including commissions and brokerage, engineering, design work, royalties and license fees, costs of transportation to the place of importation, insurance, loading, unloading and handling charges as prescribed in the rules:
Rule 3: Determination of the method of Valuation:
Transaction value shall be accepted provided all the following criteria are met:
- There is no restriction on disposition or use of goods by the buyer, except restriction imposed by any statutory provisions or limiting the geographical area or restriction does not substantially affect the value of the goods
- The sale or price is not subject to some conditions or consideration for which a value cannot be determined
- No part of proceeds of any subsequent re-sale, disposal or use accrues directly or indirectly to the seller unless adjustable under Rule 10
- Buyer and seller are not related.
Where the buyer and seller are related person, the value shall be accepted provided the examination of the circumstances indicate that the relation did not influence the price. The interpretative notes provide that if the price is determined in a manner which is consistent with normal pricing practice of the industry or consistent with the sales to unrelated buyers or price is adequate to ensure recovery of all cost plus profit which is representative of seller’s overall profits realized over a representative period of time for same class of goods.
If the value of imported goods cannot be determined under Rule 3, value shall be determined by applying following rules (Rule 4 to 9) sequentially:
Rule 4: Transaction value of Identical Goods
Transaction value of identical goods:
- imported at or about the same time
- at the same commercial level and same quantity; or
- otherwise appropriate adjustments of value of goods in terms of commercial level and quantity.
Rule 5: Transaction value of similar goods
The value of similar goods:
- imported or exported at or about the same time
- at the same commercial level and same quantity; or
- Otherwise appropriate adjustments of value of goods in terms of commercial level and quantity
Rule 6: Determination of value when cannot be determined under Rule 3,4 and 5
If value cannot be determined under Rule 3,4 and 5, it has to be determined as per Rule 7 or Rule 8 respectively.
However, at the request of the importer and with the approval of proper officer, order of application of Rules 7 and 8 can be reversed.
Rule 7: Deductive Value
The value of imported goods or of identical or similar goods shall be based on the unit price at which imported goods or identical goods or similar goods are sold at or about the same time (if not available then at the earliest date after importation but before 90 days after such importation) in greatest aggregate quantity to unrelated persons, subject to the following deductions:
- 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
- Usual cost of transport and insurance and associated costs incurred within India
- The customs duties and other taxes payable in India by reason of importation or sale of the goods
Rule 8: Computed Value
The value of imported goods based on a computed value shall be sum of:
- Cost or value of materials and fabrication or other processing employed in producing the imported goods
- Amount of profit and general expenses equal to that usually reflected in sale the same class or kind as the goods being valued which are made by producers in the country of exportation for export to India
- The cost or value of all other expenses under sub-rule (2) of Rule 10
Rule 9: Residual Method
If the value cannot be determined based on the above rules, it shall be determined by applying reasonable means consistent with the principles and general provisions of these rules and on the basis of available data.
Rule 10: Cost and Services
The adjustments shall be made for the following cost and services:
- Expenses incurred by the buyer, but not included in the value of imported goods, namely:
- Commissions and brokerage, except buying commissions;
- Cost of containers;
- Cost of packing (whether for labour or materials);
- The following goods or services supplied by the buyer free of charge or at reduced price for use in connection with production and sale for export of imported goods namely:
- Materials, components, parts and similar items incorporated in the imported goods;
- Tools, dies, moulds and similar items used in the production of the imported goods;
- Materials consumed in the production of the imported goods;
- Engineering, development, art work, design work, and plans and sketches undertaken elsewhere than in India and necessary for the production of the imported goods;
- Royalties and license fees related to the imported goods that the buyer is required to pay, as a condition of sale of goods being valued.
- The value of any part of the proceeds of any subsequent resale, disposal or use of imported goods
- All other payments actually made or to be made as a condition of sale of imported goods by buyer to seller or to third party to satisfy obligation of the seller.
The transaction value shall include the following:
- The cost of transport, loading, unloading and handling charges upto the place of importation
- The cost of insurance upto the place of importation
Situations where transportation or insurance cost are not ascertainable:
| FOB value ascertainable | Transportation cost shall be taken as 20% of the FOB value of the goods |
FOB value not ascertainable but sum of FOB value of goods and cost of insurance is ascertainable | Transportation cost shall be taken as 20% of sum of FOB value of goods and cost of insurance | |
Insurance cost not ascertainable | FOB value ascertainable | Insurance cost shall be taken as 1.125% of FOB value of goods |
FOB value not ascertainable but sum of FOB value of goods and cost of insurance is ascertainable | Insurance cost shall be taken as 1.125% of sum of FOB value of goods and cost of insurance |
In case of import of goods by air even if the cost is ascertainable, such cost shall not exceed 20% of FOB value of goods
In case goods are imported by sea or air and transshipped to another customs station in India, the cost of insurance, transport, loading, unloading, handling charges associated with such transshipment shall be excluded.
Rule 11: Valuation declaration
Importer or his agent shall furnish declaration disclosing full and accurate details relating to the value of imported goods; any other statement, information or document including an invoice of the manufacturer or producer of the imported goods where the goods are imported from or through a person other than the manufacturer or producer
Rule 12: Rejection of declared transaction value
If Customs authorities have reason to doubt the truth or accuracy of the declared value in terms of these Rules, the valuation shall be carried out by other methods
Rule 13: Interpretative Notes
Interpretative notes to be used for interpretation of these Rules (Schedule providing interpretative notes for interpretation of above Rules above is provided with these Rules)
B. Special valuation branch
The Special Valuation Branch ("SVB") is a unit of the Indian custom authorities that investigates valuation of goods during imports between related parties. A special relationship between an Indian importer and a foreign supplier may impact the transaction price of the import and thereby affect the customs duty imposed on such transaction. SVB's function is precisely to examine the impact of such relationship on the invoice value of the imported goods.
C. Export Valuation Rules
In case, the value cannot be determined under Section 14 of the Customs Act, the value shall be determined on the basis of provisions contained in Customs Valuation (Determination of value of export goods) Rules, 2007.
Rules | Description |
3 | Conditions for acceptance of transaction value (TV): |
4 | Determination of export value by comparison: |
5 | Computed Value: |
6 | Best Judged Value/Residual method: |
7 | Valuation declaration: |
8 | Rejection of declared TV: |
6. IMPORT PROCEDURE
The goods may be imported in or exported from India through sea, air, land, by post or as a baggage. The procedure may vary depending on the mode of import or export. Normally, import procedures have to be followed by both: the person-in-charge of conveyance as well as the importer.
A. Procedure for person-in-charge of conveyance
The person-in-charge of a vessel or an aircraft or a vehicle carrying[[12]] imported goods or any other notified person shall present electronically to the proper officer an Import Manifest or Import Report within the following time limits:
- in the case of a vessel or an aircraft, prior to arrival of the vessel or the aircraft, and
- in the case of a vehicle, within 12 hours after its arrival in the customs station.
Section 30A of Customs Act provides that person-in-charge of conveyance or any other notified person should deliver to proper officer the following:
- passenger and crew arrival manifest. Such manifest is to be given before arrival for aircrafts and vessels and upon arrival for vehicles.
- Passenger name record information[[13]] of arriving passenger.
In case of default, penalty upto Rs. 50,000/- can be levied on the person-in-charge. However, in cases where it is not feasible for the importer to deliver the import manifest electronically, the Principal Commissioner of Customs or Commissioner of Customs may allow the same to be delivered in any other manner.
B. Procedure for person-in-charge of conveyance
Earlier, the term ‘importer’ was defined to include any owner or any person holding himself to be importer. However, the Finance Act, 2017 has amended this definition to include beneficial owner also. Beneficial owner is defined under section 2(3A) of the Customs Act as the person on whose behalf the goods are being imported or exported or who exercises effective control over the goods being imported or exported. Hence, the beneficial owner will also have to follow the procedure of import. An importer is required to file Bill of Entry to clear the imported goods from Customs Area. The procedure is discussed in the following paras:
- Time period for submission of bill of entry
Bill of entry (BOE) shall be presented before the end of day (including holidays) preceding the day of arrival of the aircraft, vessel or vehicle at the customs station. However, the importer has option to file advanced BOE, 30 days prior to the expected arrival date of the aircraft, vessel or vehicle. (Section 46 of the Customs Act).
The provision further provides for imposition of charges for delay in presentation of bill of entry without sufficient cause.
- Manner of filing of Bill of Entry
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, PAN and GSTIN of the importer, IGST, Compensation as may be applicable on goods imported, etc. in order to generate the bill of entries in EDI (Electronic Data Interchange system).
The information in the bill of entry would be reconciled with the GST returns. Consequently, the details furnished in Bill of Entry shall be appropriately disclosed in GST returns so as to avail benefit of refund of GST.
- Self-assessment[[14]]
The duties of customs is self-assessed and paid by the importer or exporter of goods. The proper officer may verify such self-assessment made by the assessee and for this purpose, he may examine or test such imported and exported goods and also require assessee to produce documents or information to ascertain duty leviable on such import of export of goods.
If on the basis of this record, the proper Officer is of the opinion that self-assessment is not proper, he may re-assess the goods. In case re-assessment is contrary to self-assessment or there is non-acceptance of such re-assessment by the assessee, proper officer has to pass a speaking Order of re-assessment within 15 days from the date of re-assessment of bill of entry or shipping bill.
- Payment of duty
Every deposit made towards duty, interest, penalty, fee or any other sum payable by a person using authorised mode of payment shall be credited to the electronic cash ledger [[15]] of such person subject to specified conditions.
The amount available in the electronic cash ledger may be used for making any payment towards duty, interest, penalty, fees or any other sum payable under the provisions of Customs Act, 1962 or under the Customs Tariff Act, 1975.
The balance in the electronic cash ledger, after payment of duty, interest, penalty, fee or any other amount payable, may be refunded in such manner as may be prescribed.
Electronic duty credit ledger was implemented vide Finance Act, 2020. Duty credit scrip will be issued in lieu of remission of duty, tax and other financial benefits, subject to certain conditions and restrictions. Duty credit available in duty credit ledger can be used towards payment of duties under Customs Act, 1962 or Customs Tariff Act, 1975. A person can also transfer duty credit to ledger of another person, subject to certain conditions and restrictions.
The customs duty should be discharged in following manner [[16]]:
- on the date of presentation of the bill of entry in the case of self-assessment; or
- within one day (excluding holidays) from the date on which the bill of entry is returned to him by the proper officer for payment of duty in the case of assessment, reassessment or provisional assessment; or
- in the case of deferred payment under the proviso to sub-section (1), from such due date as may be specified by rules made in this behalf.
Failure to pay duty as specified above can attract interest as per the rate notified by the Government.
- Warehousing
- The Principal Commissioner of Customs or Commissioner of Customs, subject to prescribed conditions, can issue license for public/ private warehouse[[17]] including license for EOU/STP/EHTP at the place proposed by the applicant. A separate license under Section 58A of Customs Act may be granted for special warehouse wherein dutiable goods can be deposited. This warehouse shall be locked by proper officer. The entry and removal of any goods shall be with the permission of proper officer.
- The violation of any provisions of the Act, Rules etc. and any condition of the license may lead to cancellation of license.
- The applicant can file an into bond Bill of Entry and store such goods in the warehouse. The bond required to be executed to avail benefit of warehousing provisions should be equivalent to thrice the amount of the duty assessed. The importer is also required to furnish prescribed security along with bond.
- The owner of the warehoused goods can inspect the goods, sort them, show for sale and deal with containers to minimize the loss of goods.
- An owner of the warehoused goods can carry on any manufacturing process or other operations in the warehouse with prior permission of Principal Commissioner of Customs or Commissioner of Customs.
- The time period for warehoused goods will be as follows[[18]]:
Sr. No. | Description of goods | Time period |
1. | Goods (incl. capital goods) for use in EOU/ EHTP/ STP or any warehouse wherein manufacture or other operations have been permitted under Section 65 of Customs Act | Till clearance from the warehouse |
2. | In case of any other goods | Till expiry of 1 year from date of order[[19]] permitting removal of goods from customs station to deposit in a warehouse.
The Principal Commissioner/ Commissioner can extend the warehousing period upto 1 year at a time.
In case the goods are likely to deteriorate, the period of extended period of 1 year may be suitably reduced. |
7. ANUFACTURING AND OTHER OPERATIONS IN BONDED WAREHOUSE
The scheme of manufacturing and other operations in warehouse is provided under Chapter IX of Customs Act. There are three types of warehouses recognized under the Customs law:
- Public Warehouses: The Principal Commissioner of Customs or Commissioner of Customs is empowered to license a public warehouse wherein imported dutiable goods can be deposited
- Private Warehouses: The Principal Commissioner of Customs or Commissioner of Customs can license a private warehouse wherein the dutiable goods imported by or on behalf of the Licensee can be deposited
- Special Warehouses: The Principal Commissioner of Customs or Commissioner of Customs can license a special warehouse wherein certain notified dutiable goods can be deposited.
An owner of the warehoused goods can carry on any manufacturing process or other operations in the warehouse with prior permission of Principal Commissioner of Customs or Commissioner of Customs. Government has introduced specific regulations[20] for regulating the manufacturing process in warehouses. The Scheme facilitates import of inputs and capital goods without payment of duty for manufacturing and other operations in the bonded warehouse. On the other hand, it allows deferral of import duty to the extent manufactured goods are cleared in the domestic market. Unlike, the export incentives given under Foreign Trade Policy, in case of Manufacturing under bonded warehouses, there is no requirement for fulfilment of export obligations or actual user condition or value addition. Hence, an importer may opt to avail the benefits under this scheme of Manufacturing and Other Operations in warehouse.
8. AUDIT
Chapter XIIA is inserted vide Finance Act, 2018 provides for audit. Audit may be carried out for imported goods or export goods or of auditee either in his office or in the premise of the auditee.
Further, the definition of ‘auditee’ is introduced which is wide enough to not only the importer and exporter but also includes approved custodian or licensee of warehouse and other person concerned directly or indirectly in clearing, forwarding, stocking, carrying, selling or purchasing imported goods or export goods or dutiable goods.
9. ADVANCE RULINGS
The provisions relating to advance rulings are covered in Chapter VB of the Customs Act. As per Section 28E of Customs Act, advance rulings can be sought by the following persons:
- holding a valid IEC number; or
- exporting any goods to India; or
- with a justifiable cause to the satisfaction of the Authority,
Advance Ruling can be sought on matters regarding classification, valuation of goods, applicability of notifications on rate and duty of customs, determination of origin of goods and other matters as may be notified.
Earlier the Income Tax Advance Ruling was pronouncing the advance ruling for the Customs matter. Now, Customs Authority for Advance Ruling is constituted for disposing the advance rulings relating to Customs law.
An applicant desirous of obtaining an advance ruling may make an application[[21]] in Form CAAR 1 in quadruplicate along with a fee of Rs. 10,000 and stating the question on which the advance ruling is sought.
The order of Advance Ruling remains valid[[22]] till earlier of the following duration:
- period of three years or
- till there is any change in law or facts on basis of which ruling is given
An appeal[[23]] against the order of Advance Ruling may be filed before the High Court within 60 days from the date of communication of order.
10. DEMAND, RECOVERY AND REFUND OF DUTY
- Demand:
- When can the department demand duty
Section 28 of Customs Act empowers a proper officer to issue a Show cause notice (SCN) for recovery of duty in cases where duty on goods has:
- not been levied
- not paid
- short levied
- short paid
- erroneously refunded
- interest has not been paid or part paid or refunded erroneously,
B. Time limit to issue SCN
- Bona fide cases [Section 28(1) of Customs Act]: SCN is required to be issued within two yearsfrom the relevant date is cases where demand of duty arises for reasons other than collusion, willful mis-statement or suppression of facts with an intent to evade duty. Proper Officer should hold pre-notice consultation as per the Regulation before issuance of demand notice in such bona fide
- Mala fide cases [Section 28(4) of Customs Act]: The time period to issue SCN is five yearsfrom the relevant date in cases where demand duty arises due to collusion, willful misstatement, suppression of facts with an intent to evade duty.
Meaning of “Relevant date”
Cases | Relevant date |
Where duty is not levied or not paid or short-levied or short-paid or interest is not charged | Date on which proper officer makes an order for the clearance of goods |
Where duty is provisionally assessed under Section 18 of Customs Act | Date of adjustment of duty after the final assessment thereof or re-assessment, as the case may be |
Where duty or interest has been erroneously refunded | Date of refund |
Any other case | Date of payment of duty or interest |
C. The proceedings will be considered to be concluded in the following case
- Demand under Section 28(1) of Customs Act i.e. bona fide cases
- Proceedings are concluded if a person pays the amount of duty along with interest and informs the proper officer in writing, prior to issuance of SCN.
In case where SCN has been served, on payment of duty along with interest within 30 days from date of receipt of notice. However, no penalty is payable by Noticee in such cases.
- If SCN is issued under Section 28(4) i.e. Mala fidecases If Noticee has paid amount of duty accepted by him along with interest and penalty within 30 days of receipt of notice and informed Proper Officer in writing. In such cases, the quantum of penalty payable is reduced to 15% of amount of duty accepted by him. If Proper Officer is satisfied that the entire amount with interest and 15% penalty is paid, proceedings are deemed to be concluded. However, proceedings for balance amount of duty, if any, will continue.
D. Time limit for adjudication
In bona fide cases, the adjudication can be completed within 6 months subject to approval from senior officer.
In mala fide cases, the adjudication can be completed within 1 year from the date of notice. An extension is available for further 1 year subject to approval from senior officer.
In case, the proper officer fails to determine within such extended period, such proceedings are deemed to have been concluded as if no notice is issued.
II. Refunds
An application for refund must be made in the prescribed form in duplicate within one year from the date of payment of duty or interest. The term ‘date of payment of duty or interest’ for persons other than an importer shall mean ‘the date of purchase of goods’ by such person. Further, the period of one year does not apply to cases where the duty or interest has been paid under protest.
Refund is granted where the officer is satisfied that the amount is, in fact, refundable, he shall pass an order sanctioning refund. However, refund of duty is granted to a person only when he is able to substantiate that the burden of such customs duty levied and paid under Customs Act has not been passed on to any other person (principle of unjust enrichment) and the claimant has complied with all the provisions of Section 27 of the Customs Act. Proviso to Section 27(2) provides exception to the principle of unjust enrichment. In such cases, the amount is refunded to claimant instead of crediting the refund amount to consumer welfare fund in exceptional situations as provided in Customs Law. Such exceptions are export duty, duty drawback, duty paid by individual on import for his personal use, duty paid in excess before order permitting clearance of goods for home consumption is made and same is evident from bill of entry, etc.
11. INTEREST
Section 28AA provides for payment of interest for customs duty paid voluntarily or on determination under the provisions of Section 28 of the Customs Act (Non-levy, short levy, non-payment, short payment or erroneous refund of duty/duties). Interest rate under this Section is 15% vide Notification 33/2016-Cus (N.T.) dated 1 March 2016 effective from 1 April 2016.
12. PENALTIES
I. For improper importation of goods
- any person who does or omits to do any act or abets doing or omission of such act on goods which are liable to confiscation or
- who acquires possession of or is in any way concerned with carrying, removing, depositing, harboring, 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, shall be liable for penalties in following manner:
Situations | Penalty quantum |
Goods in respect of which any prohibition is in force under any law for the time being in force | Higher of:
|
In case of dutiable goods, other than prohibited goods | Higher of:
|
In the case of goods in respect of which the value stated in the Bill of entry or in the case of baggage, in the declaration is higher than the value thereof | Higher of:
|
II. For improper exportation of goods:
Any person who does or omits to do any act which renders goods liable to confiscation, or abets the doing or omission of such an act, shall be liable to penalty in the following manner:
Situations | Penalty quantum |
Goods in respect of which any prohibition is in force under any law for the time being in force | Higher of:
|
In case of dutiable goods, other than prohibited goods | Higher of:
|
Any other goods | Higher of:
|
III. Reduced Penalty:
Particulars | Penalty in bonafide cases | Penalty in malafide cases |
Cases | Cases other than collusion, wilful misstatement or suppression of facts | Cases of collusion, wilful misstatement or suppression of facts |
Penalty on non-levy, short-levy, short-payment, erroneous refund of customs duty | No penalty | Penalty equal to 100% of Custom duty |
Duty paid along with interest within 30 days from date of issue of SCN | No penalty | Reduced penalty of 15% of Custom Duty |
Duty paid along with interest and penalty as above, within 30 days from date of receipt of Adjudication Order | 25% of Custom Duty | 25% of Custom Duty |
Note: Where the amount of duty payable is increased by the order of Commissioner (Appeals), Appellate Tribunal or Court, the benefit of reduced penalty shall be available provided Custom Duty, interest and reduced penalty are paid within 30 days from receipt of the order increasing Custom Duty liability. | ||
IV. Other Penalties
Situations | Penalty quantum |
if any person knowingly or intentionally makes, signs, or uses or causes to be made, signed or used, any declaration, statement or document which is false or is incorrect in any material particular | Penalty[[24]] upto 5 times the value of goods |
Any person who has obtains any instrument by fraud, collusion, wilful misstatement or suppression of facts and such instrument is utilized by such person or any other person for discharging duty | Penalty[[25]] up to the face value of instrument |
Where a person claims refund relating to goods exported and tax or duty applicable thereon is discharged by utilizing input tax credit availed on invoices obtained by way of fraud, collusion, willful misstatement or suppression of facts. | Penalty[[26]] upto 5 times the value of refund claimed.
|
General Penalty: If any person contravenes the provision of Customs Act or abets any such contravention or fails to comply with the provisions of the Customs Act, where no express penalty is provided elsewhere, penalty shall be levied not exceeding four lakh rupees | Penalty[[27]] upto Rs. 4 lakhs |
13. PROSECUTION
A. Offence relating to evasion of duty
Section 135 of the Customs Act provides that if any person:
- Is knowingly concerned in mis-declaration of value or any fraudulent evasion or attempt at evasion of any duty or of any prohibition for the time being imposed under any law for the time being in force or
- acquires possession of or is in any way concerned in carrying, removing, depositing, harboring, 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
- attempts to export any goods which he knows or has reason to believe are liable to confiscation or
- fraudulently avails of or attempts to avail of drawback or any exemption from duty provided under Customs Act in connection with export of goods,
- obtains any instrument from any authority by fraud, collusion, wilful mis-statement or suppression of facts, where such instrument has been utilized by any person and if duty relatable to utilization of the instrument exceeds Rs. 50,00,000/- , he shall be punishable as under:
Offence | Punishment for first offence | Punishment for second and every subsequent offence |
In case of offence relating to- a. goods whose market price exceeds Rs.1 crore; or b. the evasion or attempted evasion of duty exceeding Rs. 50 lakhs; or c. such categories of prohibited goods as notified by the Central Government; or d. fraudulently availing of or attempting to avail of drawback or any exemption for duty in relation to export of amount exceeding Rs. 50 lakhs | Imprisonment upto 7 years and fine | Imprisonment extending to 7 years and fine |
In any other case | Imprisonment upto 3 years or with fine or with both |
B. Other offences
Offence | Punishment |
Whoever makes, signs or uses, or causes to be made, signed or used, any declaration, statement or document in the transaction of any business relating to the customs, knowing or having reason to believe that such declaration, statement or document is false in any material particular | Imprisonment extending upto 2 years or fine or both |
If any person intentionally obstructs any officer of customs in the exercise of any powers conferred under Customs Act | Imprisonment extending upto 2 years or fine or both |
If any person -
(a) resists or refuses to allow a radiologist to screen or to take X-ray picture of his body in accordance with an order made by a Magistrate, or
(b) resists or refuses to allow suitable action being taken on the advice and under the supervision of a registered medical practitioner for bringing out goods liable to confiscation secreted inside his body | Imprisonment extending upto 6 months or fine or both |
Person preparing to export any goods with an intention to commit offence | Imprisonment extending upto 3 years or fine or both |
A person who publishes any information, that is furnished to customs by an exporter or importer, relating to the value or classification or quantity of goods entered for export from India, or import into India, along with the identity of the persons involved or in a manner that leads to disclosure of such identity, unless required by law or by specific authorisation of such exporter or importer | Imprisonment extending upto 6 months or fine upto Rs. 50,000 or both |
14. SETTLEMENT OF CASES
Any importer, exporter or any other person may, in respect of a case, relating to him make an application before adjudication of a case, to the settlement commission for settlement of “case”. No such application shall be made unless:
- The applicant has filed a bill of entry, or a shipping bill, or a bill of export, or made a baggage declaration, or a label or declaration accompanying the goods imported or exported through post or courier and in relation to such document/s, a SCN has been issued to him by the proper officer;
- The additional amount of duty accepted by the applicant in his application exceeds three lakh rupees;
- The applicant has paid the additional amount of customs duty accepted by him along with interest due under Section 28AA of Customs Act
Application shall not be made under following circumstances:
- For interpretation of classification of the goods
- Case is pending before Appellate Tribunal or any Court
- In relation to goods to which Section 123 of Customs Act applies (i.e. seizure in case of smuggled goods) or to goods in relation to which any offence under the Narcotic Drugs and Psychotropic Substances Act, 1985 has been committed
The application made before settlement commission cannot be withdrawn.
Any person other than applicant may also make an application to Settlement Commission in respect of SCN issued to him in a case relating to applicant which has been settled or pending before Settlement Commission and such notice is pending before adjudicating authority.
Procedure followed by Settlement Commission
Settlement Commission shall within 7 days from the date of receipt of the application issue notice to the applicant, to explain as to why application made by him should be allowed to be proceeded with. After considering the explanation offered by Applicant, the Commission shall accept or reject the application within 14 days from the date of notice. If no notice is issued or no order is passed within the above time limits, the application is deemed to be allowed.
After acceptance of application, the Commission shall within 7 days from the date of Order, call for a report with relevant records from jurisdictional Principal Commissioner of Customs or Commissioner of Customs. Such report shall be provided within 30 days from the date of receipt of communication from Commission. In case no report is submitted within specified time limit, the Commission shall proceed further with the matter on the basis of available record/s.
In case, Commission requires further enquiry or investigation, the Commission may direct the Commissioner (investigation), within 15 days from the date of receipt of jurisdictional Principal Commissioner/Commissioner of Customs report, to make further enquiry or investigation. Such Commissioner (investigation) is required to furnish report within 90 days of receipt of communication from the Commission. In case no report is submitted within specified time limit, the Commission shall proceed further with the matter on the basis of available record/s.
Thereafter, the Commission shall pass the Order after giving an opportunity, as it deems fit relating to the matters covered by the application and any other matter not covered under the application.
Settlement Commission is empowered to rectify any error apparent on the face of record within three months from date of passing the order either suo moto or when such error has been brought to notice by jurisdictional Principal Commissioner/Commissioner of Customs or the applicant. However, no amendment can be made which has effect on enhancement of liability of the applicant unless due procedure of law is followed including providing opportunity of being heard.
15. PERSONAL BAGGAGE
The Baggage Rules, 2016 has rationalized and simplified duty-free allowance for various categories of passenger. The salient features of Baggage Rules are as follows:
- An Indian resident, foreigner residing in India or a tourist of Indian Origin, not being an infant, arriving from any country other than Nepal, Bhutan or Myanmar, is allowed duty free clearance of following goods in his bona fidebaggage:
- Used personal effects and travel souvenirs and
- Articles other than mentioned in annexure-I of the Baggage Rules upto value of Rs. 50,000/- if carried by the person or in accompanied baggage of the passenger. The monetary limit for a tourist of Indian origin is Rs. 15,000/-
- An Indian resident, foreigner residing in India or a tourist, not being an infant, arriving from Nepal, Bhutan or Myanmar, is allowed duty free clearance of following goods in his bona fidebaggage:
Used personal effects and travel souvenirs and
Articles other than mentioned in annexure-I of the Baggage Rules upto value of Rs. 15,000/- if carried by the person or in accompanied baggage of the passenger
If the Passenger is arriving by land, only used personal effects are allowed duty free.
c. If the passenger is infant, only used personal effects are allowed duty free.
d. Annexure I contains the following goods:
- Fire arms
- Cartridges of fire arms exceeding 50
- Cigarettes exceeding 100 sticks or cigars exceeding 25 or tobacco exceeding 125 gms
- Alcoholic liquor or wines in excess of two litres
- Gold or silver in any form other than ornaments
- Flat Panel (Liquid Crystal Display/Light-Emitting Diode/Plasma) television
e. Person residing abroad for more than one year shall be allowed clearance free of duty in his bona fide baggage of jewellery[[28]] up to following limits:
Type of passenger | Limit |
Gentleman | twenty grams with a value cap of fifty thousand rupees |
Lady | forty grams with a value cap of one lakh rupees |
f. The import and export of currency is governed[[29]] in accordance with the provisions of the Foreign Exchange Management (Export and Import of Currency) Regulations, 2015 and the notifications issued thereunder.
16. CUSTOMS DUTY DRAWBACKS
‘Drawback’ scheme is an export benefit of the duties of Customs and Central Excise, Service tax and GST, borne by either imported goods re-exported or by the inputs and input services used in manufacture of exported goods. Following types of drawbacks are available:
- Import of duty paid goods which are exported as such (without use)[[30]]
- Import of duty paid goods which are exported after use [[31]]
- Imported materials used in the manufacture or processing of export goods[[32]]
With effect from 01.10.2017, duty drawback benefit on imported is restricted to customs duties other than IGST and GST Compensation Cess.
Section 75A of the Customs Act provides for interest if drawback is not paid within 1 month from the date of filing drawback claim.
Sections 74 to 76 and notifications issued thereunder provide for the quantification of drawback available to any exporter. Customs and Central Excise Duties Drawback Rules, 2017 provide for procedure to claim drawback.
The basic distinction of drawback in both the situations are as under:
Drawback on export of duty paid goods | Drawback on imported materials used in the manufacture or processing of exported goods |
The goods must be capable of easily identified | Since the goods are used as inputs for manufacturing or processing therefore, there is no criteria of such identity |
Drawback is available for both unused as well as used goods exported | No drawback is available if the goods manufactured from imported material are used in India before exports |
Rate of drawback: | Drawback is allowed as per All Industry Rate (AIR) notified by Drawback directorate. |
The goods shall be re-exported within 2 years form the date of payment of duty or extended time as allowed by Board | There is no time limit for such exportation |
No requirement to bring export proceeds in convertible foreign exchange | Export proceeds shall be brought in convertible foreign exchange |
There is no requirement of minimum value addition | There should not be any negative value addition and minimum value addition, as specified, shall be achieved |
Rates of drawback on export of duty paid goods as notified by Central Government:
Period of use of goods after import | Drawback as a % of import duty paid |
If goods exported as such (unused) | 98% |
Not more than 3 months | 95% |
More than 3 months but not more than 6 months | 85% |
More than 6 months but not more than 9 months | 75% |
More than 9 months but not more than 12 months | 70% |
More than 12 months but not more than 15 months | 65% |
More than 15 months but not more than 18 months | 60% |
More than 18 months | Nil |
Further, in respect of a motor car or goods (other than the goods specified above), imported by a personal and private use, drawback of duty shall be calculated by reducing the import duty paid in respect of such motor car or goods by 4%, 3%, 2 and a half percent and 2% for use for each quarter or part thereof during the period of first year, second year, third year and fourth year respectively.
17. UTHORISED ECONOMIC OPERATOR (AEO)
The objective of the AEO Programme is to provide businesses with an internationally recognized quality mark which will indicate their secure role in the international supply chain and that their Customs procedures are efficient and compliant. A business authorized by the Customs as an AEO can enjoy benefits flowing from being a more compliant and secure company as well as favorable consideration in any Customs proceedings coupled with better relations with Customs The benefits may also include simplified Customs procedure, declarations, etc. besides faster Customs clearance of consignments for AEO status holders. There will be three tiers of certification i.e. AEO-T1, AEO-T2 and AEO-T3. AEO-T3. AEO-T3 receives the highest level of benefit followed by AEO-T2 and AEO-T1.
18. FREE TRADE AGREEMENT (FTA)& PREFERENTIAL TRADE AGREEMENT (PTA)
One of the chief functions of Customs as the guardian of the economic frontier of the country is to administer tariffs, valuation and origin regulations and also strike a fine balance with trade facilitation. Bilateral and plurilateral agreements have become a prominent feature in the multilateral trading system, allowing preferential tariff treatment to partnering countries.
Rules of Origin
“Rules of origin” are the criteria used to define where a product was made/obtained. They are an essential part of trade rules because a number of policies discriminate between exporting countries: quotas, preferential tariffs, anti-dumping actions, countervailing duty.
Types of Rules of Origin:
- Preferential rules of origin – Used to implement trade preferences
- Non-preferential rules of origin – Used for anti-dumping actions, countervailing duty, safeguard measures, origin marking requirements and any discriminatory quantitative restrictions or tariff quotas, as well as those used for trade statistics and government procurement
A new chapter [[33]] was introduced viz. Administration of Rules of Origin under Trade Agreement. The new provision casts additional obligations and responsibilities related to country of origin on importer claiming preferential rate of duty. Additionally, confiscation power is enabled in case of goods imported in contravention of said chapter or rules made thereunder.
19. COMMON CUSTOMS ELECTRONIC PORTAL (CCEP)
Government has notified[[34]] ICEGATE (www.icegate.gov.in) as Common Customs Electronic Portal for facilitating registration, filing of bill of entry, shipping bills, payment of duty, other documents and forms prescribed under Customs Law, etc.
[1] Section 2(23) of the Customs Act, 1962
[2]Section 2(18) of the Customs Act, 1962
[3] Vide notification no. 11/87-Cus dated 14.01.1987
[4] Section 3(3), 3(4), 3(5) and 3(6) of the Customs Tariff Act, 1975
[7] Vide Section 124 of Finance Act, 2021
[8] Exemption is granted to SWS leviable on IGST and GST Compensation Cess vide Notification No. 13/2018-Customs dated 2 February, 2018. In other words, SWS is not to be calculated on IGST and GST Compensation Cess but only on Basic Customs Duty.
[9] Section 15 of the Customs Act, 1962
[10] Section 16 of the Customs Act, 1962
[11] Rule 2(2) of Customs Valuation (Determination of Value of Imported Goods) Rules, 2007
[12] Section 30 of the Customs Act, 1962
[13] As defined under Section 2 (30B) of the Customs Act, 1962
[14] Section 17 of the Customs Act, 1962
[15] Section 51A of the Customs Act, 1962
[16] Section 47 of the Customs Act, 1962
[17] Section 57 and 58 of the Customs Act, 1962
[18] Section 61 of the Customs Act, 1962
[19] Order under Section 60(1) of Customs Act, 1962
[20] Notification No. 69/2019-Cus (N.T.) dated 01.10.2019 - Manufacture And Other Operations In Warehouse (No. 2) Regulations, 2019 and Notification No. 75/2020-Cus. (N.T.), dated 17.08.2020 - Manufacture And Other Operations In Special Warehouse Regulations, 2020
[21] Section 28H(1) of Customs Act, 1962
[22] Section 28J(2) of Customs Act, 1962
[23] Section 28KA of Customs Act, 1962 and substituted vide the Tribunals Reforms Act, 2021 dated 13-08-2021 w.e.f. 04-04-2021
[24] Section 114AA of Customs Act, 1962
[25] Section 114AB of Customs Act, 1962
[26] Section 114AC of Customs Act, 1962
[27] Section 117 of Customs Act, 1962
[28] Rule 5 Baggage Rules, 2016
[29] Rule 7 Baggage Rules, 2016
[30] Section 74 of the Customs Act, 1962
[31] Section 74 of the Customs Act, 1962
[32] Section 75 of the Customs Act, 1962
[34] Notification No. 33/2021-Customs (N.T.) dated 29.03.2021
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