CHAPTER 1 INTRODUCTION

The Custom duty derived its value from the word “custom” under which whenever a merchant entered a
Kingdom with his merchandise, he had to give some gift to the king. Subsequently, this custom formalized
into the levy of custom duty or tax on goods imported into and exported from the country was organized
through various laws during the British period.

Custom Duty is an indirect tax, imposed under the Customs Act formulated in 1962. The power to enact
the law is provided under the Constitution of India under the Article 265, which states that no tax shall be
levied or collected except by authority of law‖. Entry No. 83 of List I to Schedule VII of the Constitution
empowers the Union Government to legislate and collect duties on import and exports. The Customs Act,
1962 is the basic statute which governs entry or exit of different categories of vessels, aircrafts, goods,
passengers etc., into or outside the country.

The Act extends to the whole of the India. It is a type of indirect tax levied on goods imported into India
as well as on goods exported from India. Taxable event is import into or export from India. India includes
the territorial waters of India which extend upto 12 nautical miles into the sea to the coast of India.

In India, the basic law for levy and collection of customs duty is Customs Act, 1962. It provides for levy and
collection of duty on imports and exports, import/export procedures, prohibitions on imports and exports
of goods, penalties, offences, etc. The Central Board of Excise & Customs (CBEC) is the apex body for
customs matters.

It besides raising revenue for the Central Government also helps the government to prevent the illegal
imports and illegal exports of goods from India. The Central government has emergency powers to
increase import or export duties whenever necessary after a notification in the session of Parliament.

Section 12 of the Custom Act provides that duties of customs shall be levied at such rates as may be
specified under the Customs Tariff Act, 1975 or other applicable Acts on goods imported into or exported
from India.

1|Page
 CHAPTER 2 LEVY OF CUSTOM DUTIES

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.

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. As per
section 12, Customs duties are levied on the goods imported into, or exported from, India at the rates
specified in the schedules to the Customs Tariff Act, 1975. The first schedule prescribed the rates of duty
on imports and Second schedule prescribe the rates of duty on exports.

Provisions under IGST Act, 2017 Applicable for imported goods: Through ordinance, The President of
India extended the Act to the state of Jammu & Kashmir also with effect from 8th

July, 2017. Accordingly, goods imported into India are now subjected to IGST, not CVD (Counter Vailing
Duty) and Special CVD. However, petroleum products and tobacco products are outside the scope of GST
and hence CVD and special CVD are applicable to them as usual. Relevant Provisions under IGST Act: As
per section 5 of the IGST Act that Subject to the provisions of subsection (2), there shall be levied a tax
called the integrated goods and services tax on all inter-State supplies of goods or services or both, except
on the supply of alcoholic liquor for human consumption, on the value determined under section 15 of
the Central Goods and Services Tax Act and at such rates, not exceeding forty per cent., as may be notified

2|Page
by the Government on the recommendations of the Council and collected in such manner as may be
prescribed and shall be paid by the taxable person.

Provided that the integrated tax on goods imported into India shall be levied and collected in accordance
with the provisions of section 3 of the Customs Tariff Act, 1975 on the value as determined under the said
Act at the point when duties of customs are levied on the said goods under section 12 of the Customs Act,
1962. The integrated tax on the supply of petroleum crude, high speed diesel, motor spirit (commonly
known as petrol), natural gas and aviation turbine fuel shall be levied with effect from such date as may
be notified by the Government on the recommendations of the Council.

3|Page
 CHAPTER 3 PROVISIONS REGARDING EXEMPTION FROM CUSTOM DUTIES

Under the section 25 of Custom Act, 1962, exemptions are of two kinds. One type which is in common
use, is under Sub-section (1), in public interest, where there is a general exemption in respect of any
article or class of articles. Such exemptions may be absolute or subject to certain conditions specified
in the relevant notifications. Other is under Sub-section (2), the exemptions granted may be applicable
to specific cases and these will be by a special order. These have to be done in respect of any goods of
strategic or secret nature or for charitable purpose, which are stated in such order.

Notifications exempting goods under Sub-section (1) have to be laid before Parliament, as soon as
may be, after their issue and the Parliament may amend or reject them. This shows that such
notifications are in exercise of “sovereignty” i.e. legislative powers. On the other hand, special order
under Sub-section (2) is an executive order because it is not required to be published and it grants
exemption specifically and not generally.

Sub-sections (4) and (5), puts it beyond doubt that every exemption notification shall, unless
otherwise provided, come into force on the date of its issue by the Central Government for publication
in the Official Gazette. The Finance Act, 2016 has removed the statutory obligation for publication of
notifications by the Directorate of Publicity and Public Relations and for their sale to the public. The
notifications shall however, also continue to be published in the Gazette of India, as usual.

This amendment has been made in order to do away with the practical problem caused about effective
date of notifications by recent Supreme Court judgement in Collectors v. New Tobacco Co. (1998) 97
E.LT. 388 (S.C.).

However, exemptions granted under Section 25(1) of the Customs Act, can operate only in respect of
such duty as is specifically mentioned in the particular notification. Thus, a notification exempting
goods from the levy of basic customs duty cannot by itself exempt such goods from the levy of
countervailing duty or additional duty leviable under the Tariff Act nor can exemption from levy of
countervailing duty or additional duty, wholly or partially, result in exemption of the goods from the
levy of basic customs duty, wholly or partially.

In order to obtain a keen insight and to understand the philosophy or rationale underlying the grant
of exemptions under Section 25 it is pertinent to note the explanation given by the Ministry of Finance
to the Public Accounts Committee of the Lok Sabha, which had made some observations regarding
manner and reasons underlying grant of exemptions from customs duty [PAC (5th Lok Sabha) (1974-
75), 135th Report p. 55]. The Ministry of Finance had explained that the exemptions from customs
duty were granted for one or more of the following reasons:

(i) in accordance with the General Agreement on Trade and Tariff certain concessions agreed to
by India have to be implemented through exemption notifications;

(ii) in cases, where indigenously manufactured finished products using imported raw materials
are placed at a disadvantageous position vis-a-vis imported finished products on account of high
incidence of import duties leviable on imported articles, the industries concerned have to be given
tariff assistance by bringing down, through exemption notifications, the import duties applicable in
the case of imported raw materials to a level necessary for the removal of the disadvantages;

4|Page
(iii) in cases where component/raw materials required for the initial setting up, assembly or
manufacture of machinery/finished product are assessable to duty at a higher rate than what is
leviable on the machinery/finished product, the tariff anomaly has to be set right through exemption
notifications, equalising the two rates; (iv) certain raw materials/semi-finished products are imported
for producing finished products which are to be exported later. In such cases, exemptions from import
duties have to be given in the interest of export promotion; and

(v) some exemptions have to be given on humanitarian grounds like relief, rehabilitation, and
repatriation of Indians, etc.

Accordingly, exemptions of the types enumerated above are given under Section 25(1) of the Customs
Act, 1962. Ad hoc exemptions, however, are given under Sub-section (2) of the said section only under
the designed conditions after the amendment of this sub-section by the Finance Act, 1999.

In supersession of the Office Memorandum dated 8th October, 1996, the Finance Minister has
approved the following guidelines for consideration of request for exemption from customs duty
under Section 25(2) of the Customs Act, 1962 as amended by the Finance Act, 1999:

(a) Imports of secret goods by Government.

(c) Imports by Central Policy Organisation for equipping their forces may be allowed free of duty.
(d) State Police Organisations may be allowed to import free of duty equipments required for
antisubversion, anti-terrorism and intelligence work.

(e) Imports by Charitable Institutions which are providing all their services free where the imports
are required for use in hospitals, educational institutions, etc., may be allowed free of duty.

All ad hoc exemptions from duty to non-governmental organisation will be issued subject to the
conditions that the imported goods will not be put to any commercial use and will not be sold, gifted
or parted by the importer in any manner without the prior permission of the Ministry of Finance. The
imported goods will be kept available for inspection by Customs Officers.

5|Page
 CHAPTER 4 REFUND OF CUSTOM DUTIES

REFUND OF EXPORT DUTY IN CERTAIN CASES (SECTION 26)

Where on the exportation of any goods any duty has been paid, such duty shall be refunded to the
person by whom or on whose behalf it was paid, if -

(a) the goods are returned to such person otherwise than by way of re-sale;
(b) the goods are re-imported within one year from the date of exportation; and
(c) an application for refund of such duty is made before the expiry of six months from the date
on which the proper officer makes an order for the clearance of the goods.

REFUND OF IMPORT DUTY IN CERTAIN CASES (SECTION 26A)

Section 26A provides for refund of import duty in certain cases.

As per sub section (1) of section 26A, where on the importation of any goods capable of being easily
identified as such imported goods, any duty has been paid on clearance of such goods for home
consumption, such duty shall be refunded to the person by whom or on whose behalf it was paid, if;

(a) the goods are found to be defective or otherwise not in conformity with the specifications
agreed upon between the importer and the supplier of goods:

However, no duty shall be refunded where the goods have been worked, repaired or used after
importation except where such use was indispensable to discover the defects or non-conformity with
the specifications.

(b) the goods are identified to the satisfaction of the Assistant Commissioner of Customs or
Deputy Commissioner of Customs as the goods which were imported;

(c) the importer does not claim drawback under any other provisions of this Act; and
(d) (i) the goods are exported; or
(ii) the importer relinquishes his title to the goods and abandons them to customs; or
(iii)such goods are destroyed or rendered commercially valueless in the presence of the proper
officer, in such manner as may be prescribed and within a period not exceeding thirty days from
the date on which the proper officer makes an order for the clearance of imported goods for home
consumption under section 47:

The period of thirty days may be extended by the Commissioner of Customs for a period not exceeding
three months where sufficient cause being shown (first proviso to section 26A).

However, these provisions shall not apply to the goods regarding which an offence appears to have
been committed under this Act or any other law for the time being in force (Second proviso to section
26A).

6|Page
An application for refund of duty shall be made before the expiry of six months from the relevant date
in such form and in such manner as may be prescribed [section 26(2)].

As per section 26(3), no refund shall be allowed in respect of perishable goods and goods which have
exceeded their shelf life or their recommended storage-before-use period.

Section 26(4) provides that the Board may, by notification in the Official Gazette, specify any other
condition subject to which the refund under sub-section (1) may be allowed.

7|Page
 CHAPTER 5 CONCLUSION AND SUGGESTION

Hence by seeing above we can conclude that Custom duty is a variant of Indirect Tax and is applicable
on all goods imported and a few goods exported out of the country. Duties levied on import of goods
are termed as import duty while duties levied on exported goods are termed as export duty. Countries
around the world levy custom duties on import/export of goods as a means to raise revenue and/or
shield domestic institutions from predatory or efficient competitors from other countries.

Custom duty in India is defined under the Customs Act, 1962 and enables the government to levy duty
on exports and imports, prohibit export and import of goods, procedures for importing/exporting and
offences, penalties etc. All matters related to custom duty fall under the Central Board of Excise &
Customs (CBEC). The CBEC, in turn, is a division of the Department of Revenue of the Ministry of
Finance. CBEC formulates policies that concern collection or levying of custom duties, custom duty
evasion, smuggling prevention and administrative decisions related to customs formations.

Hence we can say that it is a type of indirect tax, which is levied on products imported into a country
across the borders of its territory. For example, goods being imported into India from other countries
are charged with Basic Customs Duty, Integrated Goods and Services Tax and other applicable duties.

8|Page