1. LEVY OF CUSTOMS DUTY

The ‘charging section’ of the Customs Act, 1962 is section 12 which provides for levy of duty on imports as well as on exports at the rates which are prescribed under the Customs Tariff Act, 1975 read along with the relevant exemption notification. The taxable event to attract customs duty is import into or export from India. The export duties are applicable to a handful of commodities. In the case of Apar India Ltd., the Hon’ble Supreme Court has held that rate of duty will be the rate prevailing on the date of filing of bill of entry under section 46 or granting permission for entry inwards whichever is later.”

2. TYPES OF DUTIES

The various types of customs duties are:

i. Basic duty

It may be at the standard rate or in the case of import from some countries, at the preferential rate. The effective rate shall be determined after considering the notification, if any.

ii. Additional customs duty

This is equal to the Central Excise duty leviable on the product manufactured in India and if the said product is not manufactured in India then on like product manufactured in India.

Proviso to section 3(2) of the Customs Tariff Act provides that

1. where the imported goods are notified under section 4A of Central Excise Act, and

2. in relation to the goods on which the MRP is required to be printed either under the provisions of Standards of Weights & Measures Act, or the rules made thereunder, or under any other law then in such case the value of imported goods shall be deemed to be the retail price declared on the imported article less abatement allowed as per the notification issued under sub-section (2) of section 4A of Central Excise Act.

iii. Additional duty of customs in lieu of sales tax

This is leviable in order to provide a level playing field to indigenous goods, which have to bear sales tax, local tax and other charges.

Notification No. 102/2007-Cus dated 14-9-2007 allows refund of said duty if the importer on subsequent sale of goods has paid appropriate amount of sales tax or VAT as the case may be. The importer shall have neither taken the credit of additional duty of customs nor shall not have passed on credit of such additional duty of customs to any person.

iv. Antidumping/safeguard duty

This is leviable with a view to protecting domestic manufacturer of certain goods from unfair injury out of international competitive rates.

v. Education Cess

This is leviable at the rate of 2% on aggregate of basic customs duty and additional customs duty. (vide Finance (VI) Act, 2004)

Secondary and Higher Education Cess. is leviable at the rate of 1% on aggregate of basic customs duty and additional customs duty w.e.f. 1-3-2007. (vide Finance Act, 2007).

3. PROCEDURE OF IMPORT-EXPORT

Goods may be imported in or exported from India through sea, air, land, by post or as a baggage with passengers. The procedure to be followed would vary depending on the mode of import or export. Normally, import procedures have to be followed by both; i.e., the importer as well as by the person-in-charge of conveyance.

Import Manifest

As per the provisions of section 30 of the Customs Act, the person-in-charge of a vessel or an aircraft or a vehicle carrying imported goods or any other person as specified by the Government shall deliver to the proper officer an Import Manifest or Import Report as per the following time limit:

1. in the case of a vessel or an aircraft prior to arrival of the vessel or the aircraft and

2. in the case of a vehicle within 12 hours after its arrival in the customs station.

In case of default, a penalty up to rupees fifty thousand can be levied on the person-in-charge if he does not deliver the manifest or report to the proper officer within the time period and does not show sufficient cause for the delay.
Procedures for Import

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 etc. in order to get the bill of entries prepared under EDI (Electronic Data Interchange system). However in case of custom house, where manual bills of entries are processed, the importer either himself or through agent is required to submit the bill of entry along with the documents mentioned above. The bill of entry can be for the purpose of warehousing of goods or for clearance for home consumption. The following steps are normally taken for the clearance of goods:

1. Filling of Bill of Entry for home consumption or warehouse or in case of EDI system submitting the details.

2. Appraisement of Bill of Entry — In case of first appraisement, inspection is done first then duty is assessed. In case of second appraisement, assessment is done first and duty is assessed.

3. Payment of duty — The duty assessed has to be paid.

4. Inspection of cargo is done where second appraisement method is followed.

5. The cargo is then delivered.

In case of exports instead of Bill of Entry the exporter has to submit Shipping Bill or submit the data, like description of export product, FOB value, quantity unit, invoice No., Bill of Lading, etc, to enable authorities to prepare shipping bill in EDI system.
Warehousing

The importer of goods can file the warehouse Bill of Entry and may store such goods in an authorised warehouse upon execution of bond and clear the goods from such warehouse as and when needed as per the provisions of the Act. Goods other than capital goods intended for use in a 100% EOU can be warehoused for a period of three years and for capital goods to be used in a 100% EOU the time period is five years. In relation to any other goods, except those mentioned aforesaid the time limit is one year. The interest free period for which goods may remain warehoused is up to ninety days, for goods other than to be used by a 100% EOU. The owner of any warehoused goods can relinquish his title to the goods upon payment of rents, interests, other charges and penalties, before the proper officer has made an order for clearance of goods for home consumption.

4. CLASSIFICATION OF GOODS UNDER THE ACT

Section 2 of the Customs Tariff Act, 1975 provides that the custom duty shall be levied at the rate specified in the schedules to the Act read with exemption notification if any. Thus the customs duty is leviable under the Customs Act, 1962 on the basis of value or quantity as specified in the Import Tariff to the Customs Tariff Act, 1975. Basic customs duty is charged in accordance with the First Schedule to the Customs Tariff Act, 1975 which is import Tariff. There are 21 sections in the Import Tariff, divided into 98 Chapters in all, with section notes and chapter notes. These notes are statutorily binding in nature. The interpretation of the Tariff schedule is strictly governed by six “Interpretative Rules” incorporated in First Schedule itself. Imported goods are to be classified under the appropriate headings, sub-headings, sub-division to sub-headings strictly, in accordance with section notes, chapter notes that are appearing in the Tariff.

In the event when classification cannot be made as above and when more than one classification appear appropriate under the Tariff and goods imported do not find appropriate classification, then a resort to, “Interpretative Rules” may be taken.

5. VALUATION OF GOODS

The quantification of customs duty payable essentially requires the calculation of the ‘value’ for customs purpose. As per the provisions, customs duty is payable as a percentage of ‘value’ often called ‘Assessable Value’ or ‘Customs Value’. The value may either be (a) ‘Value’ as defined in section 14(1) of Customs Act, or (b) ‘Tariff Value’ prescribed under section 14(2) of Customs Act.

Tariff value

Tariff value is the value that is fixed by Central Government for any class of imported goods or exported goods. Government takes into consideration trends of value of such or like goods while fixing tariff value. Once so fixed, duty is payable as percentage of this value.

Customs value

Customs value as calculated as per section 14(1) is the ‘value’ normally used for calculating customs duty payable. As per section 14(1) ‘value’ for the purpose of customs duty is the

1. Price at which such or like goods are ordinarily sold or offered for sale and the

2. Price is for delivery at the time and place of importation and such

3. Price is in course of international trade, where neither seller nor buyer has interest in the business of the other or one of them has no interest in the business of the other and the,

4. Price is the sole consideration for sale or offer for sale.

The price mentioned above has to be computed for customs duty purpose at the rate of exchange, as on date of submission of bill of entry, as fixed by the Central Government. As per the provisions contained in section 14(1A) of the Act, the ‘price’ referred to above, in case of imported goods has to be determined in accordance of the Customs Valuation Rules, 1988. Subject to three conditions laid down in section 14(1) of Customs Act, 1962, of time, place and special circumstances, price of imported goods is to be determined in terms of provisions contained in section 14(1A) and in accordance with the provisions contained in Valuation (Determination of Price of Imported Goods) Rules, 1988. The ‘Special Circumstances’ have been statutorily provided in Rule 4(2) and in the absence of these exceptions it is mandatory for customs authorities to accept the price actually paid or payable for the goods in a particular transaction. Valuation Rule 4(2) deals with the extraordinary or special circumstances under which the transaction value of the goods cannot be accepted. They are as follows:

1. The sale is not in the ordinary course of trade under fully competitive conditions.

2. The sale involves any abnormal discount or reduction from the ordinary competitive price.

3. The sale involves special discount limited to exclusive agents.

4. Non-existence of objective and quantifiable data with regard to the adjustments required to be made, under the provisions of rule 9, to the transaction value.

5. Restrictions of a non-statutory nature or non-commercial nature on the disposition or use of the goods after import, which substantially affect the value of the goods.

6. Sale or price being subject to some condition or consideration for which a value cannot be determined.

7. There exists an additional consideration, direct or indirect.

8. Buyer and seller are related and the relationship has influenced the price. The assessable value has to be adjusted where the buyer has undertaken some value-adding activities in relation to the goods, and such activities fall under the adjustments provided under rule 9 of the valuation rules. If no such adjustment is provided in rule 9, and the activities of the buyer are on his own account; i.e., they do not result in an indirect payment to the seller even though they result in a benefit to the seller, then the assessable value need not be adjusted. Costs for construction, erection, assembly, maintenance or technical assistance undertaken after the import of goods like plant, machinery or equipment should be distinguished, in the contract or invoice, to ensure that these costs are not included in the assessable value. The onus is now on the customs department to prove that the invoice price is not genuine or that the price is unbelievably or ridiculously low. The department cannot plead that it has discharged the onus by merely producing the manufacturer’s price list or quotation or published prices or computer print outs of previous imports by other importers as evidence of the so called ordinary international price. The department must establish the existence of special circumstances mentioned in the law. If they (revenue authorities) do not establish this by leading adequate evidence, they will have to accept the transaction value under rule 4(1). The transaction value need not be uniform for all customers. It has been consistently held by the Hon’ble Supreme Court that all customers have bargaining power and as long as the discount is based on commercial considerations, the same is permissible and the assessable shall be net of discount. According to Rule 5 of the Valuation Rules, the transaction value to be determined on the basis of identical goods imported into India at the same time. Rule 6 allows this on the basis of the value of similar goods imported into India at the same time.

The CEGAT laid down in the Hydro Krimp case that comparable goods should be of same quality and specification and from same manufacturer and country of production. They should be roughly in the same quantity. The imports should belong to the same commercial world.

Rule 7 of the Valuation Rules allows the value to be determined on the basis of deductive method in cases where there are no contemporaneous imports. Here also the decision of the CEGAT is relevant. The deductive value is based on the unit price at which the imported goods or identical goods or similar imported goods are sold in the greatest aggregate quantity to unrelated persons in India. The following deductions are available:

1. the 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.

2. usual costs of transport and insurance and associated costs incurred within India.

3. the customs duties and other taxes payable in India by reason of importation or sale of goods. Alternatively, transaction/assessable value may be determined under rule 7A. It consists of the following:

(a) the cost or value of material and fabrication or other processing employed in producing the imported goods;

(b) an amount for profit and general expenses equal to that usually reflected in sales of goods of the same class or kind as the goods being valued which are made by producers in the country of exportation for export to India;

(c) the cost or value of all other relevant expenses.

In a case, where the value cannot be determined by any of the aforesaid rules, then resort will be made to Rule 8, Residual Method, under which the value shall be determined using reasonable means consistent with the principles and the general provisions of the rule.

6. RATE OF DUTY AND VALUATION AND TIME OF LEVY/INCIDENCE

The rate of duty and tariff valuation shall be as applicable on

(a) In the case of goods directly cleared for home consumption the date of the presentation of the bill of entry.

(b) In case of goods cleared from warehouse, the date when bill of entry is presented for home clearance of such goods from the warehouse. In case, bill of entry is submitted prior to arrival of the vessel or the aircraft, the date would be the later of the date of submission of the bill of entry and the grant of entry inward to the vessel.

7. ADVANCE RULINGS

The provisions relating to advance rulings are covered in Chapter VB of the Act. Advance rulings can be sought by a residents and/ or non-residents in case of joint ventures in India, and by wholly owned subsidiaries of foreign companies proposing to undertake business activity in India. The Advance Ruling can be sought on matters regarding classification and valuation of goods, notifications having a bearing on rate of duty and notifications issued under the Customs Tariff Act and any other duty chargeable in the manner as duty of customs, under any other law for the time being in force.

The advance ruling authority created under section 245(O) of the Income-tax Act 1961 will be considered as advance ruling authority under the Central Excise Act and the Customs Act also.

8. ASSESSMENT OF CUSTOMS DUTY

Under the Customs Act there are basically two systems for assessment of duty. These are:

1. First appraisement: In case of First appraisement the assessment of goods is done only after the goods are examined first. This system is generally not resorted to except in cases where complete documents are not submitted by the importer, it is not possible for the appraiser to determine the value or classification of the goods or for any other reasons, on the basis of the documents as produced by the importer, or the importer himself requests for the examination of goods before payment of goods.

2. Second appraisement: This type of system is normally followed practically. Second appraisement means making the assessment on the basis of the declaration and submission made by the importer; i.e., on the strength of documents such as invoice, catalogue, literature showing the composition and use, price lists etc. as produced by the importers. Under this system goods are examined after assessment and collection of duty. The goods are examined on a selective basis on the basis of risk assessment or on the basis of specific intelligence report.

However, on importation of any goods capable of being easily identified, any duty has been paid on clearance of such goods for home consumption, such duty shall be refunded to the person if the goods are found defective or otherwise not in conformity with the specification agreed upon provided the goods have not been repaired or used after importation. The following conditions shall be satisfied :-—

1. The goods are identified to the satisfaction of the Assistant Commissioner or Deputy Commissioner.

2. The importer does not claim drawback under any of the provisions of the Act.

3. The goods are exported or the importer relinguishes its title to the goods and abandons them to customs or such goods are destroyed.

9. DEMAND, RECOVERY AND REFUND OF DUTY

A demand for duty arises in cases where duty on goods has not been levied though such goods are leviable to duty or duty has been short levied or refunded erroneously. The Act provides the provisions for the recovery of such duty.

Section 28 specifies the procedure to the department for recovery thereof by service of a show cause notice for demand within the specified time limits and thereafter by considering the representation, if any, made by the person on whom such demand notice is served.

The notice must be issued within six months from relevant date, except in cases of import by an individual for personal use or by government or by any educational, charitable, research institution or hospital, where the time limit for such an issue is one year. The above period of limitation is extended to five years in case the short levy or non-levy or refund was due to collusion, misstatement, suppression of facts or fraud by the Importer/ Exporter.

Where the assessee notices the short levy or non-levy, he can pay it along with interest, without a show cause notice and inform the jurisdictional officer accordingly. If the assessee does not pay the short levy or non-levy in full, he will be liable to pay interest under sections 28AA and 28AB on the whole amount including the amount part paid.

Refunds

The refund of duty is subject to the principle of ‘no unjust enrichment’. Refund of duty is granted to the importer only when he is able to substantiate that the burden of the customs duty levied and paid under Customs Act claimed in refund has not been passed on to the customer. The Hon’ble Supreme Court in the case of Solar Pesticides has held that, even in case of imported goods that have been consumed in the manufacture of final product, the importer is required to substantiate similarly.

Application for refund must be made in the prescribed form in duplicate within six months or one year as the case may be. If application is found complete in all respects, the applicant will be issued an acknowledgement in prescribed form within ten days. If application is found incomplete, it will be returned and a fresh application shall be filed removing the deficiencies.

10. CUSTOMS DUTY DRAWBACKS

The term ‘drawback’ refers to the amount of duties of Customs and Central Excise, whether in whole or in part, levied on the inputs of goods exported, which is remitted or paid back by Government on export of commodities. The goods to be entitled for drawback, they must be exported to a foreign port. The object of the relief provided by the drawback provision is to enable the goods to be disposed of in a foreign market as if they had never been taxed on account of Customs and Central Excise duties. Drawback for Customs purposes means, the refund of duty of customs and duty of Central Excise that are chargeable on imported and indigenous materials used in the manufacture of exported goods. Drawback, as the name itself suggests, is procedure to relieve export goods of duties suffered by them at various stages of manufacture. Sections 74 to 76 and notifications issued thereunder provide for the quantification of the amounts of and the procedure to claim drawback. The drawback is in respect of duties paid on:

1. Imported goods which are exported as such (without use)

2. Imported goods which are exported after use

3. Imported materials used in the manufacture of goods exported. According to Finance Act, 2003, exporters may be able to claim refund of duty and interest paid by him, if he has not passed on the incidence of such duty and interest to any other person. Section 27 of the Customs Act is amended for the purpose. Section 75A of the Customs Act has been amended so as to reduce the period from two months to one month beyond which interest is payable to the claimant, after filing a drawback claim.

11. APPELLATE PROVISIONS AND PROCEDURES

The Appellate provisions in Customs are almost the same as in Excise, which have already been covered under the respective article, which may please be referred to.

12. PENALTIES

Where no express penalty is provided, the maximum penalty for contravention of any provision of the ACT is Rupees one lakh (earlier ten thousand). Similarly maximum penalty of Rupees fifty thousand (earlier five thousand) is prescribed for contravention of any of the RULES. Also maximum penalty of Rupees Two Thousand (earlier two hundred) has been prescribed for contravention of a REGULATION.