UNIT 5

INTRODUCTION

Kautiliya’s Arthashastra also refers to ‘shulka’ consisting of import duty and export duty that
was collected at the city gates on goods coming in and going out respectively.

Subsequently, the levy of customs duty was organized through legislation during the British
period.

Constitutional Provision:

Entry 83 of the Union List of the Seventh Schedule to the Constitution of India is empowered to
levy the customs duty by the Central Government of India.

The term customs is not new for us. It was customary for a trader who brings the goods to a
particular kingdom to offer gifts to the king for allowing him to sell his goods in that kingdom.
The gifts given by the dealer to the king was nothing but a customary practice in those days. In
the modern days, these gifts are collected by the Government of India in the form of Customs
Duty from the importer who imports the goods from a country outside India and from an
exporter who exports the goods to a country outside India.

The Customs Act, was enacted by the Parliament in the year 1962, as per the List I of the Union
List Parliament has an exclusive right to make laws. The Customs Act regulates import and
export, protecting the Indigenous industry from other countries and so on. The Central
Government of India has power to make rules under section 156 of Customs Act, 1962, and also
has the power to issue Notifications from time to time for the purpose of smooth functioning and
effective administration of the Act.

As per section 157 of the Custom Act, 1962, the Central Board of Excise and Customs
(CBE&C), now renamed to Central Board of Indirect Tax and Customs (CBIC), has been
empowered to make regulations, consistent with provisions of the Act. The Commissioner of
Customs has the power to issue the Public notices which are also called trade notices.

Customs Act, 1962 just like any other tax law is primarily for the levy and collection of duties
but at the same time it has the other and equally important purposes such as:

 regulation of imports and exports;

 protection of domestic industry;
 prevention of smuggling;
 Conservation and augmentation of foreign exchange and so on.

Customs Act, 1962 came into force from 1-2-1963. It extends to whole of India. The whole Act
is divided into XVII chapters comprising of 161 sections.
IMPORTANT DEFINATION

LEVY OF CUSTOM DUTY

There are four stages in any tax structure, viz., levy, assessment, collection and postponement.
The basis of levy of tax is specified in Section 12, charging section of the Customs Act. It
identifies the person or properties in respect of which tax or duty is to be levied or charged.
Under assessment, the liability for payment of duty is quantified and the last stage is the
collection of duty which is may be postponed for administrative convenience.

As per Section 12, customs duty is imposed on goods imported into or exported out of India as
per the rates specified under the Customs Tariff Act, 1975 or any other law. On analysis of
Section 12, we derive the following points:

(i) Customs duty is imposed on goods when such goods are imported into or exported out
of India;

(ii) The levy is subject to other provisions of this Act or any other law;

(iii) The rates of Basic Custom Duty are as specified under the Tariff Act, 1975 or any
other law;

(iv) Even goods belonging to Government are subject to levy, though they may be
exempted by notification(s) under Section 25.

Custom Tariff Act, 1975 has two schedules. Schedule I prescribes tariff rates for imported goods,
known as ―Import Tariff‖ and Schedule II contains tariff for export goods known as ―Export
Tariff‖.

TAXABLE EVENT

The basic condition for levy of customs duty is import/export of goods i.e. goods become liable
to duty when there is import into or export from India.

— Import means bringing into India from a place outside India [Section 2(23)].

— Export means taking out of India to a place outside India [Section 2(18)].

— "India" includes the territorial waters of India [Section 2(27)]. The limit of the territorial
waters is the line every point of which is at a distance of twelve nautical miles from the nearest
point of the appropriate baseline.

Though the taxable event is import/export yet it is difficult to determine the exact time of levy.
The provision of assessment and collection of duty will be discussed in other parts.
CASES WHERE CUSTOM DUTY IS NOT LEIVABLE

Central Government’s power to grant exemption:

Article 265 of the Constitution provides that “No tax shall be levied or collected except by
authority of law”. The power of the Central Government to alter the duty rate structure is known
as delegated legislation and this power is always subject to superintendence and check by
Parliament.

General exemption: If the Central Government is satisfied that it is necessary in the public
interest so to do, it may, by notification in the Official Gazette, exempt generally either
absolutely or subject to such conditions (to be fulfilled before or after clearance) as may be
specified in the notification, goods of any specified description from the whole or any part of
duty of customs leviable thereon.

Special exemption: If the Central Government is satisfied that it is necessary in the public
interest so to do, it may, by special order in each case, exempt from payment of duty, any goods
on which duty is leviable only under circumstances of an exceptional nature to be stated in such
order. Further, no duty shall be collected if the amount of duty leviable is equal to, or less than,
one hundred rupees.

Both the above mentioned exemptions may be granted by providing for the levy of duty on such
goods at a rate expressed in a form or method different from the form or method in which the
statutory duty is leviable.

Further, the duty leviable under such altered form or method shall in no case exceed the statutory
duty leviable under the normal form or method.

Rationale for grant of exemption

The power for grant of exemption vests with the Central Government subject to the overall
control of the Parliament. The Government on a rational basis may discretely use this power and
the exemptions may be based on any of the following bases:

1. Moral grounds, where the duty should not be levied at all. Some of the instances, which may
be given, are;

2. Where the goods do not reach the Indian soil at all.

3. Where the goods have reached the Indian soil but are not available for consumption.

4. Where the goods get damaged or deteriorated in transit.

5. Discretionary provision, where the exemption is used for controlling the economy and
industrial growth of the country
 TYPES OF DUTIES UNDER CUSTOMS ACT, 1962

1. BASIC CUSTOM DUTY:

Basic custom duty is levied under section 12 of the Customs Act, 1962 read with section 2 of the
Custom Tariff Act 1975. The duties of custom shall be levied at such rates as may be specified
under the Customs Tariff Act 1975 or any other law for the time being in force. On goods
imported into or exported from India as per the provisions of Section 12 of the Customs Act,
1962.

The rates of Custom duty are specified in first and second schedule of Section 2 of customs tariff
act 1975 (First Schedule enlist the goods liable to import duty and Second Schedule enlist the
goods liable to export duty).

There are different rates for different goods but general basic rate is 10%. Basic duty may
exempted by a notification under section 25.

The basic custom duty may have two rates: (A) Standard rates (B) Preferential rates:

(A) Standard Rates: Standard rate is charged where there is no provision for preferential
treatment.

(B) Preferential Rates: If the goods are imported from the area notified by the government as
preferential area duty to be charged as preferential rates. Preferential rate is applied only where
the owner of the article (importer) claims at the time of importation, with supporting evidence,
that the goods are chargeable with the preferential rate of duty and if importer fails to claim with
supporting evidence then duty to be charged as standard rates.

2. INTEGRATED TAX [SECTION 3 (7) OF THE CUSTOMS TARIFF ACT, 1975]

Any article which is imported into India shall be liable to integrated tax in addition to custom
duties as chargeable. The highest rate at which it has been levied is 28% (as decided at the 14th
GST Council meeting).

3. GOODS AND SERVICES TAX COMPENSATION CESS [SECTION 3 (9) OF

CUSTOM TARIFF ACT 1975].

GST Compensation cess is tax levied under section 8 of GST Compensation To State Act 2017.
It is levied on intra state supply of goods and service and interstate supply of goods and service
to provide compensation to the states for loss of revenue due to implementation of GST Act in
India. Provided that GST compensation cess would be applicable only on supply of those goods
and services that have been notified by the Central Government.
Any article which is imported into India shall, in addition, be liable to the goods and services tax
compensation cess at such rate, as is leviable under section 8 of the Goods and Services Tax
(Compensation to States) Cess Act, 2017 on a like article on its supply in India, on the value of
the imported article as determined under subsection (10) or sub-section (10A), as the case may
be.

4. ADDITIONAL DUTY OF CUSTOMS (SECTION 3 OF CUSTOMS TARIFF ACT, 1975)

This duty, commonly referred to as countervailing duty (CVD), is levied on imported goods in
terms of section 3 of the Customs Tariff Act, 1975 and is equal to the Central Excise duty
leviable on the like goods if produced or manufactured in India. In cases where like article is not
so produced or manufactured in India, this duty will be at such rate which is leviable on the class
or description of articles to which the imported article belongs. If there is more than one rate of
excise duty, then the rate to be applied will be the highest.

This duty is calculated on a value base of aggregate of value of the goods including landing
charges and basic customs duty.

In the case of alcoholic liquors, the additional duty at present is chargeable at a uniform rate as
specified by the Central Government irrespective of varying rates in force in the States.

5. SPECIAL ADDITIONAL DUTY

It is levied to offset the effect of sales tax, VAT, local tax or other charges leviable on articles on
its sale, purchase or transaction in India. It is leviable on imported goods even if article was not
sold in India.

The Central Government may levy additional duty to counter balance the sales tax, value added
tax, local tax or any other charges leviable in the like article on its sale, purchase or
transportation in India. The rate shall be notified by the Central Government which cannot
exceed 4%.

The value of the imported article shall, be the aggregate of the value determined under section
14(1) of the Customs Act, 1962 and any duty of customs chargeable on that article under section
12 of the Customs Act, 1962, and any sum chargeable on that article under any law for the time
being in force as an addition to such additional duty of custom under section 3(1) and section
3(3).

Thus additional duty of custom will be levied on only few products not liable to GST.

6. PROTECTIVE DUTY (SECTION 6 & 7 OF CUSTOMS TARIFF ACT 1975)

Protective duties are levied by the Central Government on being satisfied that circumstances
exist which renders it necessary to protect industries established in India.
As per section 7(1), the protective duty shall be effective only up to and inclusive of the date if
any, specified in the First Schedule.

Section 7(2) provides that the Central Government may reduce or increase the duty by
notification in the Official Gazette. However, such duty shall be altered only if it is satisfied,
after such inquiry as it thinks necessary, that such duty has become ineffective or excessive for
the purpose of securing the protection intended to be afforded by it to a similar article
manufactured in India. If there is any increase in the duty as specified above, then the Central
Government is required to place such notification in the Parliament for its approval.

7. SAFEGUARD DUTY (SECTION 8 OF CUSTOM TARIFF ACT, 1975)

The Central Government may impose safeguard duty on specified imported goods, if it is
satisfied that the goods are being imported in large quantities and they are causing serious injury
to domestic industry. The safeguard duty is imposed for the purpose of protecting the interests of
any domestic industry in India aiming to make it more competitive.

Conditions:

1. Safeguard duty is product specific.

2. It is in addition to any other duty.

3. Education cess and secondary and higher education cess is not payable on safeguard duty.

8. COUNTERVAILING DUTY ON SUBSIDIZED ARTICLES [SECTION 9 OF

CUSTOMS TARIFF ACT 1975].

Section 9(1) provides that the countervailing duty on subsidized articles is imposed if any
country directly or indirectly, pays subsidy upon the manufacture or production or exportation of
any article. Such subsidy includes subsidy on transportation of such article.

Conditions:

1. Such articles are imported into India.

2. The importation may or may not be from the country of manufacture.

The article may be in the same condition as when exported from the country of manufacture.

9. ANTI DUMPING DUTY (SECTION 9 OF CUSTOMS TARIFF ACT, 1975)

Dumping: Dumping means exporting goods to India, at prices lower than the price in the
domestic market of the exporting country, subject to certain adjustments.
When the export price of a product imported into India is less than the normal value of like
articles sold in the domestic market of the exporter the Central Government may, by notification
in the Official Gazette, impose an anti-dumping duty not exceeding the margin of dumping in
relation to such article. Anti dumping duty is country specific i.e. it is imposed on imports from a
particular country.

Normal value means comparable price in the ordinary course of trade, in the exporting country,
after making adjustments to the extent of conditions of sale, taxation, etc.

Computation of Anti-dumping duty: The anti dumping duty is margin of dumping or injury
margin whichever is lower.

Margin of dumping: Difference between export price and normal value of an article.

Normal Value means: comparable price in the ordinary course of trade, in the exporting country,
after making adjustments to the extent of conditions of sale, taxation, etc.

Injury Margin: It means difference between fair selling price of domestic industry and landed
cost of imported product.

Fair Selling price: Price at which the industry have expected to charge under normal
circumstances in the Indian market.

10. PROVISIONAL ANTI DUMPING DUTY

The Central Government may impose Anti dumping duty on provisional basis if determination of
normal value and margin of dumping of an article is pending in accordance with the provisions
of this section and rules made there under and if such anti-dumping duty exceeds the margin as
so determined,-Central Government shall reduce the anti dumping duty and shall also refund the
excess duty so collected.

Determination of Anti dumping duty retrospectively: If the Central Government, in respect of the
dumped article under inquiry, is of the opinion that:

1. There is a history of dumping which cause injury

2. The injury is caused by massive dumping of an article imported in a relatively short time and
is like to seriously undermine remedial effect of anti dumping duty liable to be levied.

3. The central government may by notification in the official gazette levy anti dumping duty
retrospectively from a date prior to the date of imposition of duty, but not beyond ninety days
from the date of notification.
Relevant date for determination of rate of duty and tariff valuation (Section 15)

Under section 15(1), the rate of duty and tariff valuation, if any, applicable to any imported
goods shall be then rate and valuation in force.

1. In the case of goods entered for home consumption under section 46: The date on which a bill
of entry is presented [Section 15(1)(a)].

2. In the case of goods cleared from a warehouse under section 68: The date on which a bill of
entry for home consumption is presented [Section 15(1)(b)].

3. In the case of any other goods: The date of payment of duty [Section 15(1)(c)].

However, if a bill of entry has been presented before the date of entry inwards of the vessel or
the arrival of the aircraft or the vehicle by which the goods are imported, the bill of entry shall be
deemed to have been presented on the date of such entry inwards or the arrival, as the case may
be [Proviso to section 15(1)].

The provisions of this section shall not apply to baggage and goods imported by post [Section
15(2)].

RELEVANT DATE FOR DETERMINATION OF RATE OF EXCHANGE

1. Date of determination of Rate of duty and tariff valuation of Imported Goods [Section 15
of Customs Act, 1962]

Relevant date for determining the Rate of duty and Tariff Valuation of Imported Goods
under Customs Act, 1962 is different for different situations, which are as below:

a. If goods are entered for Home Consumption:

The relevant date is Date of Presentation of Bill of Entry; or Date of entry Inwards of the
vessel or date of arrival of Aircraft or vehicle, whichever is later.

b. If goods are cleared from a warehouse

The relevant date is Date of presentation of Ex-Bond Bill of Entry for Home
Consumption.

c. In case of any other goods

The relevant date is Date of Payment of Duty.

2. Date of determination of Rate of duty and tariff valuation of Export Goods [Section 16 of
Customs Act, 1962]

Relevant date for determining the Rate of duty and Tariff Valuation of Export Goods
under Customs Act, 1962 is different for different situations, which are as below:

a. If goods are entered for Export:

The relevant date is Date of Let Export order by Proper Officer under section 51.

b. In case of any other goods

The relevant date is Date of Payment of Duty

Sec 83. Rate of Duty and Tariff Valuation in Respect of Goods Imported or Exported by
Post. –

(1) The rate of duty and tariff value, if any, applicable to any goods imported by, post shall be
the rate and valuation in force on the date on which the postal authorities present to the proper
officer a list containing the particulars of such goods for the purpose of assessing the duty
thereon :

Provided that if such goods are imported by a vessel and the list of the goods containing the
particulars was presented before the date of the arrival of the vessel, it shall be deemed to have
been presented on the date of such arrival.

(2) The rate of duty and tariff value, if any, applicable to any goods exported by post shall be the
rate and valuation in force on the date on which the exporter delivers such goods to the postal
authorities for exportation.