TYBCAF - CHAPTER 04

CUSTOMS ACT, 1962 - basics

INTRODUCTION:

• 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 1. import and 2. export, 3. protecting the Indigenous industry
from other countries.
Export - Import license of Equal amt or rebate
Chinese product – cheap – affects own Indian industries.
Importing 100%, 4 ed cess
Cost 50 rs + customs duty 50.= Rs 100
• The Central Government of India has power to make rules FOR 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) - obj,
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.
Definitions:

Adjudicating Authority:

adjudicating authority means any authority competent to pass any order or decision under this Act,
but does not include:

• The Central Board of Excise and Customs (CBE&C),

• CBIC - Central Board of Indirect Taxes & Customs

• Commissioner of Customs (Appeals) or

• Customs, Excise and Service Tax Appellate Tribunal (CESTAT)

Assessment:

As per section 2(2) of the Customs Act, 1962, means determination of the dutiability of any goods
and the amount of duty, tax, cess or any other sum so payable, if any, under this Act or under the
Customs Tariff Act, 1975.

Bill of Export: As per Section 2(5) of the Customs Act, 1962, the exporter of any goods shall
make entry thereof by presenting to the proper officer in the case of goods to be exported by land,
a bill of export in the prescribed form.

Shipping bill in case of goods exported in a vessel or air craft. (WATER WAY OR AIR WAYS)

BOE - obj EXPORT BY LAND – road way

Shipping bill - obj EXPORTBY VESSEL OR AIRCRAFT – air

way or water way

Board: means As per section 2(6) of the Customs Act, board means the Central Board of Indirect
Taxes and Customs. - CBIC

Coastal Goods:
As per section 2(7) of the Customs Act, the term coastal goods means goods, other than imported
goods, transported in a vessel from one port in India to another.

E.g.01. from Chennai port to Mumbai port.

E.G.020 CHENNAI EXPORTING TO US, BREAK AT MUMBAI, SOME GOODS ARE

UNLOADED AT MUMBAI.

Coastal goods means the goods which is transported from one port in India to another port in India,
any imported goods will not be included.

Conveyance: As per section 2(9) of the Customs Act Defines, ‘Conveyance includes a Vessel, an
Aircraft and a Vehicle’. The specific terms are vessel (by sea), aircraft (by air) and vehicle (by
land). – ANY TYPE OF VEHICLE

Customs Area: As per section 2(11) of the Customs Act, customs area means the area of a customs
station and includes any area in which imported goods or exported goods are ordinarily kept before
clearance by Customs Authorities.

Dutiable Goods: As per section 2(14) of the Customs Act, the term is defined to mean any goods
which are chargeable to duty and on which duty has not been paid.

Goods: As per section 2(22) of the Customs Act, the term goods includes

(a) Vessels, aircrafts and vehicles

(b) stores

(c) baggage

(d) currency and negotiable instruments and any other kind of movable property

(It does not include immovable)

Import Report: As per Section 2(24) of the Customs Act, 1962, the person-in-charge of a vehicle
carrying imported goods; deliver to the proper officer an import report within twelve hours after
its arrival in the customs station, in the prescribed form. (time can be extended by further 12 hours
at the discretion of the Commissioner of customs.

This declaration may be filed within 24 hours (12hrs+12hrs) of arrival of the vessel or Aircraft. -
objective

Imported Goods: As per section 2(25) of the Customs Act, the term 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.

Clearance for home consumption implies that, the customs duty on import of the goods has been
discharged and the goods are therefore cleared for utilization or consumption.

Note: customs provide facility to warehouse the goods without payment of duty. Goods can be
cleared after payment of duty and rent of warehouse.

India: As per section 2(27) of the Customs Act, “India includes the territorial waters of India.

The territorial waters extend to 12 nautical miles into the sea from the base line. - objective

1 nautical mile= 1.51 miles (approx)

Therefore, a vessel not intended to deliver goods in India should not enter these waters. – objective

Transit of Goods
These are the goods which enter in India but will not be unloaded in India, these are just transported
through Indian port (without payment of duty.)

A,B,C,D IN SHIP FROM USA

A AND B TRANSFERRED AT MUMBAI PORT.

C AND D TRANSPORT TO AUSTRALIA

(TRANSIT GOODS)

Stores:
As per section 2(38) of the Customs Act, 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.

Person-in-charge: - objective

As per section 2(31) person-in-charge means

(a) Vessel - Master

(b) Aircraft - Commander or Pilot in Charge

(c) Train - Conductor or Guard

(d) Vehicle - Driver

(e) Other Conveyance - Person in Charge (DRIVER OR CAPTAIN)

High Seas:

An area beyond 200 nautical miles from the base line is called High Seas. All countries have equal
rights in this area.

Exclusive Economic Zone: (also known as legal continental shelf)

Exclusive Economic Zone extends upto 200 nautical miles from the base line.
Domestic Tariff Area (D.T.A):

Means the whole of India (including the territorial waters and continental shelf) but does not
include the areas of the Special Economic Zones & 100% Export Oriented Units (EOUs)

A special economic zone (SEZ) is an area in which the business and trade laws are different from
the rest of the country.
 Levy of custom duty:

As per Section 12 of the Customs Act, import or export of goods or services into or out of India is
the taxable event for payment of the duty of customs.

Important points:

1. Customs duty is on goods or services

2. On rates specified in customs tariff act 1962
3. On import or exports

Taxable event for imported goods: (cleared for home consumption).

(i) Unloading of imported goods at the customs port – is not a taxable event

(ii) Date of entry into Indian territorial waters – is not a taxable event

(iii) Date of presentation of bill of entry – is not a taxable event

(iv) Date on which the goods cross the customs barrier (i.e. before clearance of goods for home
consumption) - is a taxable event

Entry Inwards:

The Master of the vessel is not to permit the unloading of any imported goods until an order has
been given by the proper officer granting Entry Inwards of such vessel. Normally, Entry Inwards
is granted only after the import manifest has been delivered.

Rate to be determined-

rate of exchange. – it changes on daily basis

Rate of import duty.

Import 1.1.2020 submitted bill of entry. 10%

Entry inwards – 5.1.2020 – 9%

5.1.20 – 9%

Relevant rate of duty for the imported goods is (i.e. Date of submission of bill of entry or Date of
entry inwards granted to the vessel whichever is later)

Exchange Rate is the rate of CBIC as on the date of submission of Bill of Entry by the importer).

Rate of duty – entry inward or bill of entry which is later

Rate of exchange –date of bill of entry.

Q1. Imports - $ 10000.

Rate of exchange- date of bill of entry – 25th feb -58rs

Assessable Value 10000 $ * 58 RS = 580000.

Rate of duty – 25th feb or 5th march, later

Rate of duty - 5th march - 12%.

Basic Custom duty = 580000*12%.

=RS 69600.

Taxable event for warehoused goods:

when goods have been deposited into a warehouse, and they are removed there from for home
consumption, the relevant date for determination of rate of duty is the date of presentation of ex-
bond bill of entry (i.e. Sub-bill of Entry) for home consumption.
 Type of goods Relevant date

Goods entered for home consumption under Date of presentation of bill of entry
section 46
OR
Date of entry inwards of the vessel/arrival of the
aircraft or vehicle
whichever is later

Goods cleared from a warehouse under section Date of presentation of bill of entry for home
68. consumption.

Other goods Date of payment of duty

Taxable event for exported goods:

taxable event arises only when proper officer makes an order permitting clearance (i.e. entry
outwards) granted and loading of the goods for exportation

Rate of foreign exchange in case of exports:

In case of exports, rate of exchange of the CBIC as in force on the date on which a shipping bill
or bill of export, as the case may be, is presented.

Rate of ex = rate on submission of shipping bill or BOE

Rate of duty for export is the date on which entry outward granted for export and loading of
goods taken place.
Q2. VALUATION - FOB

RATE OF EXCHANGE – SUBMISSION OF SHIPPING BILL -28.2.2018- 65

RS 100000 * 65 = 6500000.

RATE OF DUTY – ENTRY OUTWARD DATE 1.3.2018- 8%

6500000*8%. = RS

RS 520000.

Assessable Value for exported goods:

For the purposes of calculation of export duty, the transaction value, that is to say the price actually
paid or payable for the goods for delivery at the time and place of exportation, shall be the FOB
price of such goods at the time and place of exportation.

Assessable value (for Exported Goods) = free on board (i.e. FOB)

Free on Board (FOB): FOB means all expenditure incurred by exporter upto the point of loading
goods into the vessel or aircraft or vehicle is incurred by the exporter and hence, from importer
point of view it is Free on Board.

Cost Insurance and Freight (CIF): CIF means once the goods are reached to the importer country
port or air port importer has to pay Cost (i.e. FOB value) along with Insurance and Freight from
exporter country to importer country.

Important point: As per our Foreign Trade Policy (2015-2020) all imports into India are
measured in terms of CIF value whereas exports from India are measured in terms of FOB
value.

Exports Imports
Valuation FOB CIF
EXEMPTION FROM CUSTOMSDUTY:

The provisions of Section 25(2) of the Customs Act for exemption from Customs duty are
applicable in respect of goods, which are of secret or strategic nature or are meant for being used
for charitable purposes.

• For the purpose of availment of exemption of Customs duty under the above-mentioned
provisions of the Customs Act, the following categories of goods would be treated to be of
secret or strategic nature:

(a) Imports of secret goods by the Government with a view to meet security
requirements of the country;

(b) Imports to meet country’s defence needs relating to requirements of armed

forces.

(c) Imports by Government Organisations engaged in security operations like

Special Protection Group (SPG) and other Central Police Organisations; and
State Police Organisations, for equipping their forces.

• 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 Board.
Types of CUSTOMS duties:

(1) B.C.D. (Sec. 12 Customs Act, Rate as per Tariff)

(2) Protective duties Sec. 6(1)

(3) Safeguard duty Sec. 8B(1)

(4) Countervailing duty

(5) Anti-dumping duty Sec. 9A

(6) IGST Sec. 3(7)

(7) GST Compensation Cess

(8) Social Welfare Surcharge (w.e.f 2nd February, 2018):

1) B.C.D.- BASIC CUSTOMS DUTY

Goods imported into India are chargeable to basic customs duty (BCD) under Customs Act, 1962.
The rates of BCD are indicated in I Schedule (for Imports) of Customs Tariff Act, 1975.

2) Social Welfare Surcharge (w.e.f 2nd February, 2018):

Social Welfare Surcharge @ 10% on the aggregate duties of customs levied at the time of import.

If goods are Gold, silver including that plated with platinum unworth or in semi-manufactured
form or in powder form, then SWS to be calculated @3%.

3) Integrated Goods and Services Tax (IGST)

IGST (Integrated Goods and Services Tax) is a component under GST law, which is levied on
goods being imported into India from other country. It has subsumed various customs duties
including Countervailing Duty (CVD) and Special Additional Duty of Customs (SAD).
4) GST Compensation Cess: LUXURY PRODUCTS

Under GST regime, Compensation Cess will be charged on luxury products like high-end cars and
demerit commodities like pan masala, tobacco and aerated drinks for the period of 5 years in order
to compensate states for loss of revenue (till 1st July 2022).

Input tax credit be availed on GST Compensation Cess paid on inward supplies

5) Protective Duties:

A duty imposed on imported goods for the protection of the interests of any industry established
in India on the recommendation of Tariff Commission. It is effective only and inclusive of the
date, if any, specified in the First Schedule of the Tariff.

(6) Safeguard Duty:

Safeguard duty is product specific. This duty is applicable for number of years specified from time
to time. (so it is applicable to a particular product for a particular period)

Safeguard duty shall not apply to articles imported by a 100% EOU undertaking or a unit in a FTZ
or in a SEZ unless specifically made applicable.

EOU – EXPORT ORIENTED UNIT

FTZ – FREE TRADE ZONE

SEZ – SPEICAL ECONOMIC ZONES

(7) Countervailing Duty on Subsidized articles:

Duty levied if the articles are imported into India by getting the subsidies from other country.

The amount of countervailing duty shall not exceed the amount of subsidy paid.

It shall be in force for a period of 5 years from the date of its imposition and can be extended for
a further period of 5 years. It has been subsumed under GST.
(8) Anti-dumping duty:

It is imposed on imports of a particular country.

Where any articles exported by an exporter to India at less than its normal value, then, upon the
importation of such article into India, the Central Govt., may impose an anti-dumping duty.
Q3. Goods imported $ 50000,

Part Date Exch rate Rate of duty

Submission of 25.02.20 55 10%
BOE
Entry inwards 6.3..20 58 8%

Q4. Goods exported $ 60000,

Part Date Exch rate Rate of duty

Date of 1.1.2020 66 15%
shipping bill
Permission of 5.1.2020 67 13%
clearance
VALUATION OF IMPORTED GOODS:

Rule 1: Customs Valuation (Determination of Value of Imported Goods) Rules,

2007

Rule 2: Various terms defined like Relative, Transaction Value, Computed Value,
Deductive Value, Similar Goods, and Identical Goods etc.,

Av – value on which the tax is chargeable.

Tv- selling price paid for the prduct

Rule 3: Transaction Value of imported goods:

This method is applicable only when importer satisfies the following conditions:

1. Seller should not have any control on the imported goods. – ownership should be
transferred.

2. The sale price must be sole consideration

3. delivery should be done at place of importation or place of exportation

4. The buyer and seller should not be related –not be relatives

Statement Showing Computation of Assessable value for Imported Goods

Value of Material (at ex-factory price) xxxx

Carriage/freight/insurance up to the port (sea/air) xxxx

of shipment in the exporter’s country

Charges for loading on to the ship at the shipping xxxx

port in the exporter’s country

Free on Board (FOB) (1+2+3) xxxx

FOB xxxx

Add following : If not included in the above xxxx

[Rule 10(1)]

Commission and brokerage (except buying xxxx

commissions) ADD

Packing cost (except cost of durable and xxxx

returnable packing) ADD

Royalties and license fee ADD xxxx

Value of subsequent re-sale if payable to foreign xxxx

supplier (DIVD) NOT TO BE ADDED

Value of material supplied by the buyer free of xxxx

cost NOT TO BE ADDED

FOB value as per the Customs xxxx

Cost of freight if not specified @ 20% of FOB xxxx

value as per Customs [Rule 10(2)]
Or actual which ever is less

Insurance if not specified @1.125% of FOB xxxx

value as per Customs [Rule 10(2)] or actual,
lower

Cost, Insurance and Freight (CIF)/Assessable Value

If any of condition of rule 3 is not satisfied, follow other rules – rule 4 onwards

Rule 4: Transaction value of Identical Goods

Identical goods means the goods must be same in all respects, including physical
quantity

This method is applicable only when following conditions are satisfied:

• Identical goods can be compared with the other goods of the same country from
which import takes place.

• These goods must be valued at a price which is produced by the same manufacturer.

• If price is not available then the price of other manufacturers of the same country
is to be taken into account.

• If more than one value of identical goods is available, lowest of such value should
be taken.

Rule 5: Transaction value of Similar Goods

“Similar goods” includes—

Which although not alike in all respects, have like characteristics and like component
materials which enable them to perform the same functions and to be commercially
interchangeable with the goods being valued having regard to the quality, reputation
and the existence of trade mark.

Rule 6: Determination of value

If the value of imported goods cannot be determined under the provisions of rules 3,
4 and 5, the value shall be determined under the provisions of rule 7 or, when the
value cannot be determined under that rule, under rule 8.

Rule 7: Deductive Value

Based on the request of the importer if the Customs Officer approves, either
deductive method or computed value method as the case may be can be adopted.

In case of deductive method the valuation is as follows:

Assessable is calculated by reducing the post-importation costs and expenses from

this selling price.

Cost less post importation costs

Rule 8: Computed Value

The value of imported goods shall be based on a computed value, which shall consist
of the sum of:—

• The cost or value of materials and fabrication or other processing employed in

producing the imported goods;

• 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.

material + labour + exps + profit (cost sheet)

Rule 9: Residual method

Residual method is also called as Best Judgment Method. This method is applicable
when all aforesaid methods are not applicable. The value determined under this
method cannot exceed normal price at which such or like goods are ordinarily sold
or offered for sale for delivery at the time and place of importation in course of
International Trade, when seller or the buyer are non-relatives and the price is sole
consideration for such sale.

VALUATION OF EXPORT GOODS

Valuation is essential for export goods even though many products are exempted
from export duty under the Customs Law.

Rule 3: Determination of the method of valuation

1. the value of export goods shall be the transaction value.

2. The transaction value shall be accepted even where the buyer and seller are
related, provided that the relationship has not influenced the price.

3. If the value cannot be determined under the provisions of sub-rule (1) and sub-
rule (2), the value shall be determined by proceeding sequentially through rules 4 to
6.

Rule 4: Determination of export value by comparison

The value of the export goods shall be based on the transaction value of goods of
like kind and quality exported at or about the same time to other buyers in the same
destination country of importation or in its absence another destination country of
importation .

Rule 5: Computed value method

If the value cannot be determined under rule 4, it shall be based on a computed value,
which shall include the following:—

• cost of production, manufacture or processing of export goods;

• charges, if any, for the design or brand;

• An amount towards profit.

Cost + lab + exps+ profit

Rule 6: Residual method

If valuation is not possible as per above methods, the value shall be determined using
reasonable means consistent with the principles and general provisions of these rules
provided that local market price of the export goods may not be the only basis for
determining the value of export goods.

Rule 7: Declaration by the exporter - to be given by exporter