1

LEVY OF AND EXEMPTIONS

FROM CUSTOMS DUTY

LEARNING OUTCOMES
After studying this chapter, you would be able to:

 comprehend the basic concepts of customs law.

 gather knowledge of Constitutional provisions behind

customs law.

 understand the broad provisions relating to customs law.

 analysis of determining factors to levy customs duty.

 identify the points and circumstances of levy of customs duty.

 analysis and application of procedure for assessment of duty.

 analyse and apply provisions pertaining to remission,

abatement and exemptions under customs law.

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 1.2 CUSTOMS & FTP

UNIT – I : INTRODUCTION TO CUSTOMS LAW

1. BASIC CONCEPTS
Meaning of word “customs”
Customs is a form of indirect tax. Standard English dictionary defines the term
‘customs’ as duties imposed on imported goods/less commonly exported goods.
This term is usually applied to those taxes which are payable upon goods or
merchandise imported or exported.
Historical Background
The term ‘customs’ derives its colour and essence from the term ‘custom’, which
means a habitual practice or course of action that characteristically is repeated in
like circumstances. Duties on import and export of goods have been levied from
time immemorial by all the countries. In the times, when the predominant system
of governance was monarchy, it was customary for a trader bringing the goods to
a particular kingdom to offer certain offerings as gifts to the King for allowing him
to sell his goods in that kingdom. Over a period of time, the system of governance
took a paradigm shift from monarchy in favour of democracy.
Kautiliya’s Arthashastra also refers to shulka (Customs Duty) consisting of import
duty and export duty to be collected at the city gates on both goods coming in and
going out. Subsequently, the levy of tax on goods imported into the country was
organised through legislation during the British period.
The Customs Act was passed and promulgated in India by the Parliament in the
year 1962 which replaced the erstwhile Sea Customs Act, 1878. Further, the
Customs Tariff Act was passed in the year 1975 to replace the Indian Tariff Act,
1934. The Customs Tariff Act was amended in the year 1985 to move in times with
and to deal with the complexities resulting from the rapid development in science
and technology and consequent industrial development and expansion of
manufacturing and trading activities. The Customs Act, as it stands now,
consolidates the entire law on the subject of import and export duties, which were
earlier contained in various enactments like the Sea Customs Act, 1878, Inland
Bonded Warehouses Act, 1896 and the Land Customs Act, 1924. Thus, now the
Customs Act and Customs Tariff Act stands as a complete code in itself as to the
levy and collection of duties on import and export of goods.

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 LEVY OF AND EXEMPTIONS FROM CUSTOMS DUTY 1.3

2. CONSTITUTIONAL PROVISIONS
Article 265 of the Constitution provides that “No tax shall be levied or collected
except by authority of law”. All the enactments enacted by the Parliament should
have its source in the Constitution of India. The power for enacting the laws is
conferred on the Parliament and on the legislature of a State by Article 245 of the
Constitution. The said Article provides:
Subject to the provisions of this Constitution, Parliament may make laws for the
whole or any part of the territory of India, and the legislature of a State may make
laws for the whole or any part of the state. No law made by the Parliament shall
be deemed to be invalid on the ground that it would have extra-territorial
operation.
Article 246 governs the subject matter of the laws made by the Parliament and by
the legislature of a State. The matters are listed in the Seventh Schedule to the
Constitution.
The seventh schedule is classified into three lists as follows:
List I [referred as Union List]
This list enumerates the matters in respect of which the Parliament has an exclusive
right to make laws. Entry 83 of Union List has given the power to the Union to
frame laws to levy duties of Customs including export duties.
List II [referred as State List]
This list enumerates the matters in respect of which the legislature of a State has
an exclusive right to make laws.
List III [referred as the concurrent list]
This list enumerates the matters in respect of which both the Parliament and,
subject to List I, legislature of a State, have powers to make laws.
Parliament has a further power to make any law for any part of India not comprised
in a state, notwithstanding that such matter is included in the State List.
Article 286 of the Constitution provides for restrictions as to imposition of tax on
certain supply of goods or services or both. The said Article provides as follows-
No law of a State shall impose, or authorise the imposition of, a tax on the supply
of goods or services or both, where such supply takes place-
(a) outside the State; or

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 1.4 CUSTOMS & FTP

(b) in the course of the import of the goods or services or both into, or export
of the goods or services or both out of, territory of India.
Further, the said Article provides that Parliament may by law formulate principles
for determining when a supply becomes, import of export.
Thus, the power to levy customs duties on import/export, as well as the power to
legislate the principles to determine whether a transaction qualifies as
import/export, lies solely with the Union, i.e. the Parliament of India.

3. OVERVIEW OF CUSTOMS LAW

The Customs Act, 1962 extends to the whole of India and, save as otherwise
provided in this Act, it applies also to any offence or contravention thereunder
committed outside India by any person. The entire gamut of the Act is grouped
into seventeen chapters.

The following table presents an overview of the said chapters and aims at securing the
reader’s understanding of the provisions of the Act in a proper perspective.

Ch. Chapter Heading Sections Content

No.

I Preliminary 1&2 Short title and definitions

II Officers of Customs 3 to 6 Classes, appointment and powers

of the customs officers.

III Appointment of 7 to 10 Appointment of ports, Airports,

Customs ports, landing stations and customs area
airports etc.

IV Prohibition on 11 Power to prohibit the import or

importation and export of goods.
exportation of
goods

IVA Detection of 11A to Notified goods, control over

illegally imported 11G storage, sale, accounting,
goods and transportation etc.
prevention of the
disposal thereof

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 LEVY OF AND EXEMPTIONS FROM CUSTOMS DUTY 1.5

IVB Detection and 11H to Notified goods, storage,

prevention of illegal 11M transportation etc.
export of goods

IVC Exemption from Ch. 11N Central Government’s power to

IVA and Ch. IVB grant exemption.

V Levy and exemption 12 to Dutiable goods, valuation, rate of

of Customs duty 28BA duty, assessment, remission,
exemption, interest on delayed
payments.

VA Indicating amount 28C & Price of goods and passing of

of duty in the price 28D incidence of duty
of goods

VB Advance rulings 28E to Authority, application, procedure,

28M applicability and powers.

VI Control over 29 to 43 Arrival/departure reports,

conveyances Import/Export general manifest,
carrying imported entry inwards, place time and
or export goods restrictions on loading/unloading,
water borne goods etc.

VII Clearance of goods 44 to 51 Bill of entry, shipping bill, clearance

for home
consumption/warehousing and
exportation, storage of goods,

VIIA Payments through 51A and Payment of duty, interest, penalty,

electronic cash 51B etc. and ledger for duty credit
ledger and
electronic duty
credit ledger

VIII Goods in transit 52 to 56 Transit and transhipment

procedures

IX Warehousing 57 to 73A Appointment & licensing of

warehouse, bonding of goods,

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 1.6 CUSTOMS & FTP

period of warehousing, payment of

rent and charges, clearance of
warehoused goods, allowance for
volatile goods

X Drawback 74 to 76 Drawback allowable, Interest

allowable, prohibition and
regulation

XA Special Provisions 76A to Omitted in view of the introduction

relating to Special 76N of a separate Act namely, Special
Economic Zone Economic Zones Act, 2005

XI Special provisions 77 to 90 Declaration, rate of duty and

relating to valuation, exemption and
baggage, goods procedures
imported or
exported by posts
and stores

XII Coastal goods and 91 to 99 Entry, restrictions, clearance,

vessels carrying loading and unloading and
coastal goods application.

XIIA Audit 99A Audit

XIII Searches, Seizure 100 to Powers and procedures of search,

and Arrest 110A seizure and arrest.

XIV Confiscation and 111 to Powers and procedures for

penalties 127 confiscation and for levy and
collection of penalties.

XIVA Settlement of cases 127A to Application for settlement,

127N procedure, powers of settlement
commission, inspection etc.

XV Appeals and 128 to Procedure and time limits for

revision 131C appeals and revisions

XVI Offences and 132 to Cognizable offences and

prosecutions 140A procedures for prosecution.

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 LEVY OF AND EXEMPTIONS FROM CUSTOMS DUTY 1.7

XVII Miscellaneous 141 to Recovery of sums due, power to

161 take samples, licensing of custom
house agents, liability of principal
and agent, delegation of powers,
general power to make rules etc.

SOME IMPORTANT DEFINITIONS

Beneficial Owner means any person on whose behalf the goods are being
imported or exported or who exercises effective control over the goods being
imported or exported [Section 2(3A)].
Board means the Central Board of Indirect Taxes and Customs constituted under
the Central Boards of Revenue Act, 1963 [Section 2(6)].
Customs area means the area of a customs station or a warehouse and includes
any area in which imported goods or export goods are ordinarily kept before
clearance by Customs Authorities [Section 2(11)].
Customs Station means any customs port, customs airport, international courier
terminal, foreign post office, or land customs station [Section 2(13)].
Warehouse means a public warehouse licensed under Section 57 or a private
warehouse licensed under Section 58 or a special warehouse licensed under Section
58A [Section 2(43)].
Export with its grammatical variations and cognate expressions, means taking out
of India to a place outside India [Section 2(18)].
Import with its grammatical variations and cognate expressions means bringing
into India from a place outside India [Section 2(23)].
India includes the territorial waters of India [Section 2(27)].
Meaning and significance of territorial waters of India
As per Territorial Waters, Continental Shelf, Exclusive Economic Zone and other
Maritime Zones Act, 1976, territorial waters of India extend to 12 nautical miles into
sea from the appropriate base line.
Goods are deemed to have been imported if the vessel enters the imaginary line
on the sea at the 12th nautical mile i.e. if the vessel enters the territorial waters of
India. Therefore, a vessel not bound to India should not enter these waters.

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 1.8 CUSTOMS & FTP

India includes not only the surface of sea in the territorial waters, but also the air
space above and the ground at the bottom of the sea.
Indian customs waters [Section 2(28)]
Indian customs waters means the waters extending into the sea up to the limit of
Exclusive Economic Zone under section 7 of the Territorial Waters, Continental
Shelf, Exclusive Economic Zone and other Maritime Zones Act, 1976 and includes
any bay, gulf, harbour, creek or tidal river.
If a person has committed any offence punishable under customs law within the
Indian customs waters, he may be arrested. Also, goods may be confiscated and
vessel be stopped in the Indian customs waters if the same is found to be used in
the smuggling. Further, prohibited goods can also be confiscated if brought within
the Indian customs waters.

ANALYSIS
Indian customs waters cover both the Indian territorial waters and exclusive
economic zone as well. Indian territorial waters extend up to 12 nautical miles (nm)
from the base line Whereas, exclusive economic zone of India is an area beyond
the Indian territorial waters. The limit of exclusive economic zone is 200 nautical
miles from the nearest point of the baseline. Therefore, Indian customs waters
extend to a total of 200 nm from base line.

Few other important terms

1. Baseline
It is the lower water mark along the coast.
2. Continental Shelf of India
Continental shelf is the part of the sea floor adjoining a land mass where the depth
gradually increases before it plunges into the ocean deeps. The maximum depth
of sea water in the continental shelf is 200 meters. Continental shelf of India
extends beyond the limit of its territorial waters throughout the natural
prolongation of its land territory to the outer edge of the continental margin or to
a distance of 200 nautical miles from the baseline.

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