S.

SASIKALA
ASSISTANT PROFESSOR
PG AND RESEARCH DEPARTMENT OF COMMERCE
SRI SANKARA ARTS AND SCIENCE COLLEGE
ENATHUR KANCHIPURAM.

BUSINESS TAXATION ( UNIT 5 )

CUSTOMS DUTY

Goods are imported in or exported from India through sea, air or land. Goods may even
come through post parcel or as baggage when passengers travel in and out of the country.
The Customs Act was formulated in the year 1962 to prevent the illegal import and export
of goods. Moreover, all imported goods are subject to the duty to affording protection to
indigenous industries as well as to keep the imports to a minimum in the interests of Indian
companies and to secure the exchange rate of the Indian currency. In this article, we look
at customs duty in India in detail.

Objective of Customs Act and Customs Duty

The following purposes are the reason why Customs Duty is levied on the import and
export of goods in India.

1. To restrict the imports for conserving foreign exchange.

2. To protect the imports and exports of goods for achieving the policy objectives of
the Government.

3. To regulate export
 4. To co-ordinating legal provisions with other laws dealing with the foreign
exchange such as the Foreign Trade Act and the Foreign Exchange Regulation Act.

5. To safeguard domestic trade.

6. To protect the revenue of resources.

7. To protect the industries in India from unfair competition.

8. To prevent the smuggling of goods and activities related to the same.

9. To prevent the dumping of goods.

Mode of Levy of Customs Duty

They are three modes of imposing Customs Duty. They are as follows:

Specific Duties

A Specific Custom Duty is a kind of duty imposed on every unit of a commodity imported
or exported. For example, INR 10 on each metre of cloth imported or INR 1,000/- on each
TV set imported. In these cases, the value of the commodity is not taken into consideration.

Ad Valorem Duties
Ad Valorem is the Latin for ‘According’ to the ‘Value’ or ‘Worth’. Ad Valorem custom
duty is a duty imposed on the total value of a commodity imported or exported. For
example, 10 per cent of the F.O.B value of cloth imported or 20 per cent of the C.I.F value
of TV sets imported. In the case of Ad Valorem custom duty, the physical units of
commodity are not taken into consideration. Therefore it is the method of charging duty,
tax, or fee according to the value of the goods and services, instead of by a fixed rate, or by
the weight or the quantity.

Compound Duties

Compound custom duty is a combination of specific and Ad Valorem custom duties. In

this case, the quantity, as well as the value of the commodity, is taken into consideration
while computing tariff.

Exemptions from Customs Duty

There are a few exemptions from Customs duty, and they are as follows.

 The Central Government can grant exemptions by issuing a notification. Capital

goods and spares can be imported under “project imports” at concessional/ Nil rate
of customs duty.

 Section 25 of the Customs Act authorises the Central Government to issue

notification granting exemption from customs duty partially or wholly on any
goods.
  The exemptions may be in respect of primary duty or auxiliary duty.

 General or specific exemptions may be granted. While general exemptions are in

respect to the user of goods, specific exemptions are in respect of various products.

 The exemptions are also granted subject to fulfilment of certain conditions.

TYPES OF CUSTOMS DUTY

Basic Customs Duty

Basic custom duty is the duty imposed on the value of the goods at a specific rate. The
duty is fixed at a specified rate of ad-valorem basis. This duty has been imposed from
1962 and was amended from time to time and today is regulated by the Customs Tariff Act
of 1975. The Central Government has the right to exempt any goods from the tax.

Countervailing Duty (CVD)

This duty is imposed by the Central Government when a country is paying the subsidy to
the exporters who are exporting goods to India. This amount of duty is equivalent to the
subsidy paid by them. This duty is applicable under Sec 9 of the Customs Tariff Act.

Additional Customs Duty or Special CVD

In order to equalize imports with locals taxes like service tax, VAT and other domestic
taxes which are imposed from time to time, a special countervailing duty is imposed on
imported goods. Hence, is imposed to bring imports on an equal track with the goods
produced or manufactured in India. This is to promote fair trade & competition practices in
our country.

Safeguard Duty

In order to make sure that no harm is caused to the domestic industries of India, a
safeguard duty is imposed to safeguard the interest of our local domestic industries. It is
calculated on the basis of loss suffered by our local industries.

Anti Dumping Duty

Often, large manufacturer from abroad may export goods at very low prices compared to
prices in the domestic market. Such dumping may be with intention to cripple domestic
industry or to dispose of their excess stock. This is called ‘dumping’. In order to avoid
such dumping, Central Government can impose, under section 9A of Customs Tariff Act,
anti-dumping duty up to margin of dumping on such articles, if the goods are being sold at
less than its normal value. Levy of such anti dumping duty is permissible as per WTO
agreement. Anti dumping action can be taken only when there is an Indian industry
producing ‘like articles’.

National Calamity Contingent Duty

This duty is imposed by Sec 129 of the Finance Act. The duty is levied on goods like
tobacco, pan masala or any items that are harmful for health. The rate of the tax varies
from 10% to 45% and different rates are applied for different reasons.

Education Cess on Customs Duty

At the prescribed rate is levied as a percentage of aggregate duties of customs. If goods are
fully exempted from duty or are chargeable to nil duty or are cleared without payment of
duty under prescribed procedure such as clearance under bond, no cess would be levied.

Protective Duties

Tariff Commission has been established under Tariff Commission Act, 1951. If the Tariff
Commission recommends and Central Government is satisfied that immediate action is
necessary to protect interests of Indian industry, protective customs duty at the rate
recommended may be imposed under section 6 of Customs Tariff Act. The protective duty
will be valid till the date prescribed in the notification.

Scope and Coverage of Customs Law

Customs Law in India is covered under many Acts, rules, regulations and notifications.
Some of the essential laws concerning Customs Duty has been mentioned below.

The Customs Act of 1962

The Customs Act of 1962 is the most crucial Act that provides for the implementation and
collection of duty on goods imported and exported in the country. This Act also deals with
the Import and Export procedures, Prohibitions on importation and exportation of goods,
penalties, offences and much more.

The Customs Tariff Act of 1975

The Customs Tariff Act of 1975 contains two schedules. Schedule-1 gives the
classification and rate of duties for imports. On the other hand, Schedule-2 gave
classification and rated of duties for exports. In addition to these two schedules, the
Customs Tariff Act makes provisions for duties like additional duty (CVD), special duty,
anti-dumping duty and protective duties.

Note: The Customs Act of 1962 regulates the levy of duties of customs while the Customs
Tariff Act of 1975 fixes the rates of the taxes.

Rules under the Customs Act

The Section 156 of the Customs Act of 1962 states that the Central Government has been
empowered to make regulations that are consistent with the provisions of the Act and to
carry out the main purposes of the Act. Multiple rules have been framed under these
powers. The principal rules of this Act have been mentioned below.

1. The Customs Valuation Rules of 1988: For the valuation of imported goods for
calculating duty payable.
 2. The Customs and Central Excise Duties Drawback Rules of 1995: The mode of
calculating rules of duty drawback on exports.

3. Re-export of Imported Goods

4. Baggage Rules of 1998: This stated the rules and allowances for bringing in
baggage from abroad by Indian and tourists who visited the country. Duty-free
baggage allowance carried by an international passenger, when coming to India is
INR 50,000/- per individual. Before the 31st of March, 2016, the amount was INR
45,000/-. With effect from the First of April, 2016, all international passengers
travelling to India need not file declarations if not carrying dutiable goods as part
of the baggage they bring along with them.

5. Customs Rules of 1996: This states the import of goods at a concessional rate of
duty for manufacture of excisable goods. It also provides the procedure to be
followed when goods are imported into India for export purposes.

Regulations under the Customs Act

Under Section 157 of Customs Act of 1962, the Board has the authority to make rules that
are consistent with provisions of the Act to carry out the purposes of the Act. Various
regulations have been framed under these powers such as the ones stated below.

1. Project Import Regulations of 1986: Procedures for project imports

2. Customs House Agents Licensing Regulations of 1984

 IMPORTANT DEFINITION UNDER CUSTOMS ACT

[(1) “adjudicating authority” means any authority competent to pass any order or
decision under this Act, but does not include the Board, 2 [Commissioner (Appeals)]
or Appellate Tribunal;

(1A) “aircraft” has the same meaning in the Aircraft Act, 1934 (22 of 1934);

(1B) “Appellate Tribunal” means the Customs, Excise and 3 [Service Tax] Appellate
Tribunal constituted under section 129;]

(2) “assessment” includes provisional assessment, reassessment and any order of

assessment in which the duty assessed is nil;

(3) “baggage” includes unaccompanied baggage but does not include motor vehicles;

(4) “bill of entry” means a bill of entry referred to in section 46;

(5) “bill of export” means a bill of export referred to in section 50;

(6) “Board” means the 4 [Central Board of Excise and Customs constituted under the
Central Boards of Revenue Act, 1963 (54 of 1963)];

(7) “coastal goods” means goods, other than imported goods, transported in a vessel
from one port in India to another;

5
[(7A) “Commissioner (Appeals)” means a person appointed to be a Commissioner
of Customs (Appeals) under sub-section (1) of section 4;]

6
[(8) “Commissioner of Customs”, except for the purposes of Chapter XV, includes
an Additional Commissioner of Customs;]

(9) “conveyance” includes a vessel, an aircraft and a vehicle;

(10) “customs airport” means any airport appointed under clause (a) of section 7 to
be a customs airport;
(11) “customs area” means the area of a customs station and includes any area in
which imported goods or export goods are ordinarily kept before clearance by
Customs Authorities;

(12) “customs port” means any port appointed under clause (a) of section 7 to be a
customs port 7 [and includes a place appointed under clause (aa) of that section to be
an inland container depot];

(13) “customs station” means any customs port, customs airport or land customs
station;

(14) “dutiable goods” means any goods which are chargeable to duty and on which
duty has not been paid;

(15) “duty” means a duty of customs leviable under this Act;

(16) “entry”, in relation to goods means an entry made in a bill of entry, shipping
bill or bill of export and includes in the case of goods imported or to be exported by
post, the entry referred to in section 82 or the entry made under the regulations made
under section 84;

(17) “examination”, in relation to any goods, includes measurement and weighment

thereof;

(18) “export”, with its grammatical variations and cognate expressions, means
taking out of India to a place outside India;

(19) “export goods” means any goods which are to be taken out of India to a place
outside India;

(20) “exporter”, in relation to any goods at any time between their entry for export
and the time when they are exported, includes any owner or any person holding
himself out to be the exporter;

(21) “foreign-going vessel or aircraft” means any vessel or aircraft for the time
being engaged in the 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—

(i) any naval vessel of a foreign Government taking part in any naval exercises;

(ii) any vessel engaged in fishing or any other operations outside the territorial
waters of India;

(iii) any vessel or aircraft proceeding to a place outside India for any purpose
whatsoever;

8
[(21A) “Fund” means the Consumer Welfare Fund established under section 12C
of the Central Excises and Salt Act, 1944 (1 of 1944)*;]

(22) “goods” includes—

(a) vessels, aircrafts and vehicles;

(b) stores;

(c) baggage;

(d) currency and negotiable instruments; and

(e) any other kind of movable property;

(23) “import”, with its grammatical variations and cognate expressions, means
bringing into India from a place outside India;

(24) “import manifest” or “import report” means the manifest or report required to
be delivered under section 30;

(25) “imported goods” means any goods brought into India from a place outside
India but does not include goods which have been cleared for home consumption;
(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;

(27) “India” includes the territorial waters of India;

(28) “Indian Customs Water” means the 9 [waters extending into the sea upto 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;

(29) “land customs station” means any place appointed under clause (b) of section 7
to be a land customs station;

(30) “market price”, in relation to any goods, means the wholesale price of the
goods in the ordinary course of trade in India;

10
[(30A) "National Tax Tribunal" means the National Tax Tribunal established
under section 3 of the National Tax Tribunal Act, 2005 (49 of 2005);]

(31) “person-in-charge” means,—

(a) in relation to a vessel, the master of the vessel;

(b) in relation to an aircraft, the commander or pilot-in-charge of the aircraft;

(c) in relation to a railway train, the conductor, guard or other person having the
chief direction of the train;

(d) in relation to any other conveyance, the driver or other person-in-charge of

the conveyance;

(32) “prescribed” means prescribed by regulations made under this Act;

(33) “prohibited goods” means any goods the import or export of which is subject to
any prohibition under this 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;

(34) “proper officer”, in relation to any functions to be performed under this Act,
means the officer of customs who is assigned those functions by the Board or
the 11 [Commissioner of Customs];

(35) “regulations” means the regulations made by the Board under any provision of
this Act;

(36) “rules” means the rules made by the Central Government under any provision
of this Act;

(37) “shipping bill” means a shipping bill referred to in section 50;

(38) “stores” means goods for use in a vessel or aircraft and includes fuel and spare
parts and other articles of equipment, whether or not for immediate fitting;

(39) “smuggling”, in relation to any goods, means any act or omission which will
render such goods liable to confiscation under section 111 or section 113;

(40) “tariff value”, in relation to any goods, means the tariff value fixed in respect
thereof under sub-section (2) of section 14;

(41) “value”, in relation to any goods, means the value thereof determined in
accordance with the provisions of 12 [sub-section (1) or sub-section (2) of section 14];

(42) “vehicle” means conveyance of any kind used on land and includes a railway
vehicle;

(43) “warehouse” means a public warehouse appointed under section 57 or a private

warehouse licensed under section 58;

(44) “warehoused goods” means goods deposited in a warehouse;

(45) “warehousing station” means a place declared as a warehousing station under

section 9.
 OFFICERS OF CUSTOMS

1. Classes of officers of customs.— There shall be the following classes of

officers of customs, namely:-

1. Chief Commissioners of Customs;

2. Commissioners of Customs;
3. Commissioners of Customs (Appeals);
(cc) Joint Commissioners of Customs;
4. Deputy Commissioners of Customs;
5. Assistant Commissioners of Customs or Deputy Commissioner of
Customs;
6. such other class of officers of customs as may be appointed for the
purposes of this Act.
2. Appointment of officers of customs. —

1. The Board may appoint such persons as it thinks fit to be officers of

customs.
2. Without prejudice to the provisions of sub-section (1), Board may
authorise a Chief Commissioner of Custom or a Joint or Assistant
Commissioner of Customs or Deputy Commissioner of Customs to
appoint officers of customs below the rank of Assistant Commissioner
of Customs or Deputy Commissioner of Customs.
3. Powers of officers of customs. -

1. Subject to such conditions and limitations as the Board may impose, an

officer of customs may exercise the powers and discharge the duties
conferred or imposed on him under this Act.
2. An officer of customs may exercise the powers and discharge the
duties conferred or imposed under this Act on any other officer of
customs who is subordinate to him.
3. Notwithstanding anything contained in this section, a Commissioner
( Appeals) shall not exercise the powers and discharge the duties
 conferred or imposed on an officer of customs other than those
specified in Chapter XV and section 108.
4. Entrustment of functions of Board and customs officers on certain other
officers. - The Central Government may, by notification in the Official
Gazette, entrust either conditionally or unconditionally to any officer of the
Central or the State Government or a local authority any functions of the
Board or any officer of customs under this Act.

CUSTOM DUTY DRAWBACK

Duty Drawback Scheme aims to provide the refund/ recoupment of custom and excise
duties paid on inputs or raw materials and service tax paid on the input services used in the
manufacture of export goods.

Customs Act, 1962

The Duty Drawback provisions are described under Section 74 and Section 75 under the
Customs Act, 1962. This Act laid down the various restrictions and conditions to claim
drawback of duties under certain situations.

 Section 74: As per section 74, if the re-exports of imported goods, which are
identified quickly and within two years from the date of payment of duty on the
importation. Then an exporter is eligible to claim 98% of the duty paid by him as
drawback under section 74.

 Section 75: As per section 75, if the export of goods manufactured or processed
out of imported material with value addition, then a drawback should be allowed of
 duties of customs chargeable on any imported materials of a class or description. If
sale proceeds not received within the stipulated period, a drawback is to be
reversed or adjusted. Duty Drawback under section 75 can be claimed either as a
fixed percentage depending upon the value of goods exported.

Goods Eligible for Drawback

The following are the eligible goods for the duty drawback.

 To export goods imported into India

 To export goods imported into India after having been taken for use

 To export goods manufactured/produced out of imported material

 To export goods manufactured/produced out of indigenous material

 To export goods manufactured /produced out of imported or and indigenous

materials.

Eligibility Criteria

The below following are the minimum criteria to claim for processing drawback claim.

 Any individual must be the legal owner of the goods at the time the goods are
exported.
  You must have paid customs duty on imported goods.

 Duty drawback is available on most goods on which customs duty was paid on
importation and which has been exported.

Documents Required

The below following are the documents required for processing drawback claim.

 Triplicate copy of the Shipping Bill

 Copy of the Bill of entry

 Import Invoice

 Proof of payment of duty paid on the importation of goods.

 Approval from the Reserve Bank of India for re-exports of goods

 Copy of the Bill of Lading or Airway bill.

 Copy of the Bank Certified Invoices.

 Sixtuplicate Copy of AR-4

 Export invoice and packing list.

  Freight and Insurance certificate

 Copy of the Test report of goods

 Modvat Declaration

 A worksheet showing the drawback amount claimed

 DEEC Book and licence copy where applicable.

 Transhipment certificate where applicable

 Blank acknowledgement card in duplicate

 Pre-receipt for drawback amount on the reverse of Shipping Bill duly signed on the
Rs1/- revenue stamp

Duty Drawback Rates

The following are the drawback rates of which import duty with the fixed percentage shall
be allowed in respect of used goods after their importation and which have been out of
customs control.

S. The period between the date of clearance and the date when the Percent of drawback
No. goods are placed under Customs control for export

1. Not more than 3 months 95%

2. More than 3 months but not more than 6 months 85%

3. 6-9 months 75%

4. 9-12 months 70%

5. 12-15 months 65%

6. 15-18 months 60%

7. More than 18 months Nil

Procedure for Claiming Duty Drawback

The procedure for claiming duty drawback on export goods (whether AIR or Brand Rate)
to be claimed at the time of export and requisite particulars filled in the prescribed format
of Shipping Bill/Bill of Export under Drawback. If the processing of documents has been
computerised, then the exporter is not required to file any separate application for claiming
duty drawback. In the case of manual export, a separate application is to be submitted for
claiming duty drawback. The claim is to be accompanied by certain documents as laid
down in the Drawback Rules 1995. Triplicate copy of the shipping bill becomes the
application only after the Export General Manifest is filed.