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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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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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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 LEVY OF AND EXEMPTIONS FROM CUSTOMS DUTY 1.9

UNIT – II : LEVY AND EXEMPTIONS

1. DETERMINING FACTORS
Three stages of imposition of taxes and duties
All taxes and duties are imposed in three stages, which are levy, assessment
and collection:-
(a) Levy is the stage where the declaration of liability is made and the
persons or the properties in respect of which the tax or duty is to be
levied is identified and charged.
(b) Assessment is the procedure of quantifying the amount of liability. The
liability to pay tax or duty does not depend upon assessment.
(c) The final stage is where the tax or duty is actually collected. The
collection of tax or duty may for administrative or other reasons be
postponed to a later time.
The liability towards customs duty is broadly based upon the following 3
factors:
1. the goods, the point and the circumstances under which the customs
duty becomes leviable;
2. the procedure, the mechanism and the organization for determining the
amount of customs duty and collection thereof;
3. the exemption to the levy either on grounds of morality or equity or as
a result of the discretionary powers vested in the Government as a tool
for planning tax structure and control of economic growth of the
country.
The customs duty is considered to be levied on the goods and not on the
person importing the goods or paying the duty. Equitability requires charging
of duty at the same level if the circumstances of importation are similar. This
has given rise to a deemed provision under section 12 of the Customs Act to
provide that customs duty shall be leviable in the same manner on goods
imported by government or other non-government parties.

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2. POINT AND CIRCUMSTANCES OF LEVY

CHARGING SECTION [SECTION 12]
1. This section is the charging section of the Act. Except as provided in this Act,
or any other law for the time being in force, duties of customs shall be levied
at such rates as may be specified under the Customs Tariff Act, 1975 (51 of
1975), or any other law for the time being in force, on goods imported into
and exported from India [Sub-section (1)].

2. The provisions of sub-section (1) shall apply in respect of all goods belonging
to Government as they apply in respect of goods not belonging to Government
[Sub-section (2)].

Hence, there is no general exemption to goods imported by Government. But

imports by Indian Navy, specific equipment required by police, Ministry of Defence,
Costal Guard etc. are fully exempt from customs duty by virtue of specific
notifications subject to fulfillment of conditions and/or procedure set out in the
notification.

The following propositions arise from the above provisions:-

1. Duties of customs shall be levied on import or export of goods. In other

words, the taxable event is import or export of goods.

2. However, it may be noted that this levy is subject to other sections in the Act.
For instance:

Section 13 – no duty on pilfered goods.

Section 22 – reduced duty on damaged goods.

Section 23 – remission of duty on destroyed goods.

3. The duty shall be charged at such rates as may be specified under the
Customs Tariff Act, 1975.

4. Government goods shall be treated at par with non-Governmental goods for

the purposes of levy of customs duty.

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 LEVY OF AND EXEMPTIONS FROM CUSTOMS DUTY 1.11

ANALYSIS OF SECTION 12
(a) Charge on goods
The charge of customs duty is considered to be on the goods and not on the
person importing them or paying the duty. Being such, it is expected to be
passed on to the buyer.
(b) Taxable event-Import of goods into India/export of goods from India
Section 12 makes it abundantly clear that importation or exportation of goods
into or out of India is the taxable event for payment of the duty of customs.
Earlier, a lot of problems were faced in determining the point at which the
importation or exportation takes place. The root cause of the problem was
the definition of “India” given by section 2(27). Under the said section, India
includes territorial waters of India. Consequently, even an innocent entry of
a vessel into the territorial waters of India would result in import of goods.
Further, it was almost impossible to determine when exactly the vessel
crossed the territorial waters limit. But this matter is no longer res integra.
Relevant judgments regarding the determination of taxable event
The main test for determining the taxable event is the happening of the event
on which the charge is affixed.
I. Imports
(a) In case of goods cleared for home consumption
The Supreme Court observed that import of goods will commence
when they cross the territorial waters, but continues and is completed
when they become part of the mass of goods within the country; the
taxable event being reached at the time when the goods reach the
customs barriers and bill of entry for home consumption is filed.
[Garden Silk Mills v. UOI 1999 (113) E.L.T. 358 (S.C.)]
(b) In case of goods cleared for warehousing
In case of warehoused goods, the custom barriers would be
crossed when they are sought to be taken out of customs and
brought to the mass of goods in the country.
[Kiran Spinning Mills v. Collector of Customs 1999 (113) E.L.T. 753 (S.C.)]

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II. Exports
Export of goods is complete when the goods cross the territorial waters
of India.
DISTINCTION BETWEEN CLEARANCE FOR HOME CONSUMPTION AND
CLEARANCE FOR WAREHOUSING
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. The goods may instead of being cleared for home consumption be
deposited in warehouse and cleared at a later time. When the goods are deposited
in the warehouse the collection of customs duty will be deferred till such goods are
cleared for home consumption. The revenue for the Government is safeguarded by
the importer executing a bond binding himself in a sum equal to thrice the amount
of duty assessed on the goods at the time of import. The importer is also liable to
pay interest, rent and charges for storage of goods in warehouse.
DUTY LIABILITY IN CERTAIN SPECIAL CIRCUMSTANCES
(A) Re-importation of goods [Section 20]
If goods are imported into India after exportation therefrom, such goods shall
be liable to duty and be subject to all the conditions and restrictions, if any, to
which goods of the like kind and value are liable or subject, on the importation
thereof.
CONCESSIONS IN THIS REGARD
However, the following notifications have provided certain concessions in this
regard:
(i) Concessional duty payable in case of re-importation of goods
exported under duty drawback, exported for repairs, etc.

S. Description of goods exported Amount of import duty

No. payable if re-imported

1. Goods exported- Amount of incentive

(i) under claim for duty drawback; availed of at the time of
export
(ii) under claim for refund of
integrated tax paid on export
goods;

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 LEVY OF AND EXEMPTIONS FROM CUSTOMS DUTY 1.13

(iii) under bond without payment

of integrated tax
In case of point (iv)
(iv) under duty exemption scheme
amount of IGST and
(DEEC/ Advance
compensation cess
Authorisation/ DFIA) or Export leviable at the time and
Promotion Capital Goods place of importation of
Scheme (EPCG)** goods subject to
specified conditions.

2*. Goods other than those falling Duty of customs (Basic

under S. No. 1 exported for Customs duty, IGST and
repairs abroad GST compensation cess)
which would be leviable if
the value of re-imported
goods after repairs were
made up of the fair cost
of repairs carried out
including cost of
materials used in repairs
(whether such costs are
actually incurred or not),
insurance and freight
charges, both ways.

3. Goods other than falling under S. NIL

No. 1 & 2 above

Conditions to be satisfied for claiming the above two

concession/exemptions :-
(a) Time-limit for re-importation
The time limit for re-importation is 3 years which can be extended
further for a period up to 2 years.
In case of goods exported under DEEC/Advance Authorisation
/DFIA or EPCG or Duty Entitlement Passbook Scheme (DEPB) or
any reward scheme of Chapter 3 of Foreign Trade Policy, such
time limit is 1 year which can be extended further for a period
upto 1 year.

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(b) Same goods

The exported goods and the re-imported goods must be the
same. The goods shall not be deemed to be the same if these are
re-imported after being subjected to re-manufacturing or
reprocessing through melting, recycling or recasting abroad.
(c) No change in ownership
In case of goods at S. No. 2, the ownership of the goods should
not have changed.

However, these concessions would not be applicable if-

• re-imported goods had been exported by 100% Export Oriented
Undertaking (EOU) or a unit in Free Trade Zone (FTZ).
• re-imported goods had been exported from a public/private
warehouse.
• re-imported goods which fall under Fourth schedule to the Central
Excise Act, 1944 (tobacco products and petroleum products)
[Notification No. 45/2017 Cus. dated 30.06.2017]
Clarification regarding applicability of Notification No. 45/2017 Cus
dated 30.06.2017 on goods which were exported earlier for exhibition
purpose/consignment basis
CBIC has clarified vide Circular No. 108/27/2019 GST dated 18.07.2019 1
that the activity of sending / taking the specified goods (i.e. goods sent /
taken out of India for exhibition or on consignment basis for export
promotion except the activities satisfying the tests laid down in Schedule I
of the CGST Act, 2017) out of India do not constitute supply within the
scope of Section 7 of the CGST Act as there is no consideration at that
point in time. Since such activity is not a supply, the same cannot be
considered as ‘zero rated supply’ as per the provisions contained in Section
16 of the IGST Act, 2017. Also, there is no requirement of filing any
LUT/bond as required under section 16 of IGST Act, 2017 for such activity
of taking specified goods out of India.
Therefore, no integrated tax is required to be paid for specified goods at
the time of taking these out of India, the activity being not a supply, hence

1
the same has already been discussed in Chapter-2 of GST.

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 LEVY OF AND EXEMPTIONS FROM CUSTOMS DUTY 1.15

the situation of Notification No. 45/2017-Customs dated 30.06.2017 (goods

exported under bond without payment of integrated tax) requiring
payment of integrated tax at the time of re-import of specified goods in
such cases is not applicable.
It is clarified that such cases will fall more appropriately under residuary
entry 2 of the said Notification and thus the exemption is available.
Further, this clarification is also applicable to cases where exports have
been made to related or distinct persons or to principals or agents, as the
case may be, for participation in exhibition or on consignment basis, but,
such goods exported are returned after participation in exhibition or the
goods are returned by such consignees without approval or acceptance,
as the case may be, the basic requirement of ‘supply’ as defined cannot be
said to be met as there has been no acceptance of the goods by the
consignees. Hence, re import of such goods after return from such
exhibition or from such consignees will be covered under residual entry of
the Notification No. 45/2017 dated 30.06.2017, provided re-import
happens before 6 months from the date of delivery challan.
[Circular No. 21/2019 Cus dated 24.07.2019]

(ii) Exemption to re-import of goods and parts thereof for repairs,

reconditioning, reprocessing, remaking or similar other process

S. Particulars Time-limit Other conditions to be

No. for re- satisfied
importation
from the
date of
exportation
1. Goods manufactured 3 years (a) Goods must be re-
in India and re- exported within six
imported for repairs or In case of months (extendable
for reconditioning export to till one year) of the
other than the Nepal, such date of re-
specified goods time-limit is importation.
10 years. (b) The Assistant

2
no customs duty, IGST and GST compensation cess is payable on re-import.

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2*. Goods manufactured 1 year Commissioner/Deputy

in India and re- Commissioner of
imported for Customs is satisfied
(a) Reprocessing as regards identity of
(b) Refining the goods.
(c) Re-making (c) The importer at the
(d) Subject to any time of importation
process similar to executes a bond.
the processes
referred to in
clauses (a) to (c)
above.

[Notification No.158/95 Cus. dated 14.11.1995 as amended vide Notification

No. 60/2018 Cus dated 11.09.2018]
Note: In 2* above, if any loss of imported goods is noticed during such
operation, such loss shall be exempted from whole of the custom duties subject
to the satisfaction of Assistant/ Deputy Commissioner of Customs.
The exemption is available even if quantity re-imported is short or low in quantity
as long as nature and variety of goods is same.
Illustration 1
A machine was originally imported from Japan at ` 250 lakh in July on payment
of all duties of customs. The said machine was exported (sent-back) to supplier
for repairs in December and re-imported without any re-manufacturing or re-
processing in October next year after repairs. Since the machine was under
warranty period, the repairs were carried out free of cost.
However, the fair cost of repairs carried out (including cost of material
` 6 lakh) would have been ` 9 lakh. Actual insurance and freight charges (to
and from) were ` 3 lakh. The rate of basic customs duty is 10% and integrated
tax is 12%. Ignore GST compensation cess & Agriculture infrastructure and
development cess.
Compute the amount of customs duty payable (if any) on re-import of the
machine after repairs. The ownership of the machine has not been changed
during the period.
Note: The importer intends to avail exemption, if any, with regard to re-
importation of goods which had been exported for repairs abroad.

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Answer
As per Notification No. 45/2017 Cus. dated 30.06.2017, duty payable on re-
importation of goods which had been exported for repairs abroad is the duty
of customs which would be leviable if the value of re-imported goods after
repairs were made up of the fair cost of repairs carried out including cost of
materials used in repairs (whether such costs are actually incurred or not),
insurance and freight charges, both ways. However, following conditions
need to be satisfied for availing this concession:
(a) goods must be re-imported within 3 years, extendable by further 2
years, after their exportation;
(b) exported goods and the re-imported goods must be the same;
(c) ownership of the goods should not change.
Since all the conditions specified above are fulfilled in the given case, the
customs duty payable on re-imported goods will be computed as under:

Particulars `

Value of goods re-imported after exports [` 9 lakh 12,00,000

(including cost of materials) + ` 3 lakh]

Add: Basic customs duty @ 10% (A) 1,20,000

Add: Social Welfare Surcharge @ 10% on ` 1,20,000 (B) 12,000

Value for computing integrated tax 13,32,000

Integrated tax @ 12% (` 13,32,000 x 12%) - (C) 1,59,840

Customs duty and integrated tax payable [(A) +(B)+ (C)] 2,91,840

(B) Goods derelict, wreck etc. [Section 21]

All goods, derelict, jetsam, flotsam and wreck brought or coming into India,
shall be dealt with as if they were imported into India, unless it be shown to
the satisfaction of the proper officer that they are entitled to be admitted
duty-free under this Act.

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ANALYSIS OF SECTION 21
The concept of ‘goods brought into India’ is not confined to goods which are
intentionally brought into India, but also extends to derelict, jetsam, flotsam
and wreck brought or coming into India. This implies that apart from goods
which are normally imported in the course of international trade, flotsam, and
jetsam, which are washed ashore and derelict and wreck brought into India
out of compulsion are also treated on par with trade goods.

Meaning of the various terms

Derelict – This refers to any cargo, vessel, etc. abandoned in the sea with no
hope of recovery.
Jetsam – This refers to goods jettisoned from the vessel to save her from
sinking.
Flotsam – Jettisoned goods which continue floating in the sea are called
flotsam.
Wreck – This refers to cargo or vessel or any property which are cast ashore
by tides after ship wreck.

Illustration 2
Distinguish between Jetsam and Flotsam
Answer
Jetsam and Flotsam are goods which are jettisoned (i.e. thrown with speed)
from the vessel into the sea to reduce weight of vessel to prevent it from
sinking. They are not abandoned goods. Jetsam gets sunk whereas Flotsam
does not sink but floats. Duty is payable on both unless they are entitled to
be admitted free of duty.
C. Customs (Import of Goods at Concessional Rate of Duty) Rules, 2017
The salient features of the rules are discussed hereunder:
1. Application [Rule 2]: These rules shall apply to an importer, who
intends to avail the benefit of an exemption notification issued under
section 25(1) of the Customs Act, 1962 and where the benefit of such
exemption is dependent upon the use of imported goods covered by
that notification for the manufacture of any commodity or provision of

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output service. These rules shall apply only in respect of such exemption
notifications which provide for the observance of these rules.
2. Definition [Rule 3]: In these rules, unless the context otherwise
requires, -
(a) Capital goods: means goods, the value of which is capitalised
in the books of account of the importer.
(b) Exemption notification: means a notification issued under section
25(1) of the Customs Act, 1962.
(c) Information: means the information provided by the manufacturer
who intends to avail the benefit of an exemption notification.
(d) Job work: means any treatment, process or manufacture,
consistent with the exemption notification undertaken by a
person on goods belonging to the importer except gold,
jewellery and articles thereof, and other precious metals or
stones; and the term “job worker” shall be construed
accordingly.
(e) Jurisdictional Custom Officer: means an officer of Customs of a
rank equivalent to the rank of Superintendent or an Appraiser
exercising jurisdiction over the premises where either the
imported goods shall be put to use for manufacture or for
rendering output services.
(f) Manufacture: means the processing of raw materials or inputs
by the importer in any manner that results in emergence of a new
product having a distinct nature or character or use or name; and
the term “manufacturer” shall be construed accordingly.
(g) “Output service” means supply of service excluding after-
sales service, utilizing imported goods.‘
3. Importer to give prior information [Rule 4]
The importer shall provide information to the Deputy
Commissioner of Customs, or, as the case may be, the Assistant
Commissioner of Customs having jurisdiction over the premises
where the imported goods shall be put to use for manufacture of
goods or for rendering output service except after-sales service,
about the following particulars, namely: —

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(i) the name and address of the importer and his job worker, if any;
(ii) the goods produced or process undertaken at the manufacturing
facility of the importer and/or his job worker, if any, or both;
(iii) the nature and description of imported goods used in the
manufacture of goods at the premises of the importer or the job
worker, if any;
(iv) nature of output service rendered utilising imported goods.
4. Procedure to be followed [Rule 5]
(i) The importer who intends to avail the benefit of an exemption
notification shall provide information -
(a) in duplicate, to the Deputy/ Assistant Commissioner of
Customs having jurisdiction over the premises where the
imported goods shall be put to use for manufacture of
goods or for rendering output service, the estimated
quantity and value of the goods to be imported, particulars
of the exemption notification applicable on such import and
the port of import in respect of a particular consignment for
a period not exceeding 1 year; and
(b) in one set, to the Deputy/ Assistant Commissioner of
Customs at the Custom Station of importation.
(ii) The importer who intends to avail the benefit of an exemption
notification shall submit a continuity bond with such surety or
security as deemed appropriate by the Deputy/ Assistant
Commissioner of Customs having jurisdiction over the premises
where the imported goods shall be put to use for manufacture of
goods or for rendering output service, with an undertaking to pay
the amount equal to the difference between the duty leviable on
inputs but for the exemption and that already paid, if any, at the
time of importation, along with interest, at the rate fixed by
notification issued under section 28AA of the Customs Act, 1956,
for the period starting from the date of importation of the goods
on which the exemption was availed and ending with the date of
actual payment of the entire amount of the difference of duty that
he is liable to pay.

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 LEVY OF AND EXEMPTIONS FROM CUSTOMS DUTY 1.21

(iii) The Deputy/ Assistant Commissioner of Customs having

jurisdiction over the premises where the imported goods shall be
put to use for manufacture of goods or for rendering output
service, shall forward one copy of information received from the
importer to the Deputy/ Assistant Commissioner of Customs at
the Custom Station of importation.
(iv) On receipt of the copy of the information, the Deputy/ Assistant
Commissioner of Customs at the Custom Station of importation
shall allow the benefit of the exemption notification to the
importer who intends to avail the benefit of exemption
notification.
5. Importer to give information regarding receipt of imported goods
and maintain records. [Rule 6]
(1) The importer shall provide information of the receipt of the
imported goods in the premises, where the imported goods shall
be put to use for manufacture of goods or job work or for
rendering output service within two days (excluding holidays, if
any) of such receipt to the Jurisdictional Customs Officer.
(2) The importer shall maintain an account in such manner to clearly
indicate the quantity,-
(i) and value of goods imported;
(ii) of imported goods consumed;
(iii) of goods sent for job work, nature of job work carried out;
(iv) of goods received after job work;
(v) of goods re-exported, if any, under rule 7; and
(vi) remaining in stock, according to bills of entry,
and shall produce the said account as and when required by the
Deputy Commissioner of Customs, or, as the case may be, the
Assistant Commissioner of Customs having jurisdiction over the
premises or where the imported goods shall be put to use for
manufacture of goods or for rendering output service.
(3) The importer shall submit a quarterly return, in the form appended
to these rules to the Deputy Commissioner of Customs, or, as the
case may be, the Assistant Commissioner of Customs having

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jurisdiction over the premises where the imported goods shall be

put to use for manufacture of goods or for rendering output service,
by the tenth day of the following quarter;
6. Procedure for allowing imported goods for job work. [Rule 6A]
(1) The importer shall send the imported goods except gold,
jewellery and articles thereof; and other precious metals or
stones for job work, for manufacture of goods, after giving an
intimation in duplicate to the Jurisdictional Customs Officer of
his intention to do so.
(2) The importer shall also specify the following particulars,
namely: —
(i) name and address of the job worker;
(ii) nature and description of the job work to be carried on the
imported goods in the manufacturing process;
(iii) quantity and description of the goods intended to be sent
to the job worker.
(3) The Jurisdictional Customs Officer shall forward a copy of the
intimation along with the particulars specified above to the
concerned Customs officer under whose jurisdiction the
premises of the job worker is situated.
(4) The importer shall send the goods to the premises of the job
worker enclosing a challan, specifying the description and
quantity of the goods.
(5) The maximum period for which the goods can be sent to the
job worker shall be six months from the date of issue of challan.
(6) In case the importer is unable to establish that the goods sent
for job work have been used as per the particulars of job work,
the Jurisdictional Customs Officer shall take necessary action
against the importer under rules 8 and 8A.
(7) The job worker shall
(i) maintain an account of receipt of goods, manufacturing
process undertaken thereon and the waste generated, if
any, during such process;

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 LEVY OF AND EXEMPTIONS FROM CUSTOMS DUTY 1.23

(ii) produce the account details before the Jurisdictional

Customs Officer as and when required by the said
officer;
(iii) after completion of the job work send the processed
goods to the importer or to another job worker as
directed by the Importer for carrying out the remaining
processes, if any, under the cover of a challan or the
challan of the principal manufacturer duly endorsed by
him.
7. Re-export or clearance of unutilised or defective goods [Rule 7]
(i) The importer who has availed benefit of an exemption
notification, prescribing observance of these rules may re-export
the unutilised or defective imported goods, within 6 months from
the date of import, with the permission of the jurisdictional
Deputy/ Assistant Commissioner of Customs having jurisdiction
over the premises where the imported goods shall be put to use
for manufacture of goods or for rendering output service.
However, the value of such goods for re-export shall not be less than
the value of the said goods at the time of import.
(ii) The importer who has availed benefit of an exemption notification,
prescribing observance of these rules may also clear the unutilised
or defective imported goods, with the permission of the
jurisdictional Deputy/ Assistant Commissioner of Customs having
jurisdiction over the premises where the imported goods shall be
put to use for manufacture of goods or for rendering output service,
within a period of 6 months from the date of import on payment of
import duty equal to the difference between the duty leviable on
such goods but for the exemption availed and that already paid, if
any, at the time of importation, along with interest, at the rate fixed
by notification issued under section 28AA of the Customs Act, for
the period starting from the date of importation of the goods on
which the exemption was availed and ending with the date of actual
payment of the entire amount of the difference of duty that he is
liable to pay.
(iii) The importer, with the permission of the jurisdictional Deputy
Commissioner of Customs or, as the case may be, Assistant

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Commissioner of Customs having jurisdiction over the

premises where the imported goods shall be put to use for
manufacture of goods or for rendering output service, may
clear the imported capital goods, after having been used for
the specified purpose, on payment of duty equal to the
difference between the duty leviable on such goods but for the
exemption availed and that already paid, if any, at the time
of importation, along with interest, at the rate fixed by the
notification issued under section 28AA of the Act, on the
depreciated value allowed in straight line method, as
specified below, namely : —
(i) for every quarter in the first year @ 4%;
(ii) for every quarter in the second year @ 3%;
(iii) for every quarter in the third year @ 3%;
(iv) for every quarter in the fourth and fifth year @ 2.5%;
(v) and thereafter for every quarter @ 2%.
Explanation. –
(1) For the purpose of computing rate of depreciation for any
part of a quarter, a full quarter shall be taken into
account.
(2) There shall be no upper limit for such depreciation.
(3) The depreciation shall be allowed from the date when
the imported capital goods have come into use for the
purpose as specified in the exemption notification upto
the date of its clearance.
8. Recovery of duty in certain case [Rule 8]: The importer who has
availed the benefit of an exemption notification shall use the goods
imported in accordance with the conditions mentioned in the
concerned exemption notification or take action by re-export or
clearance of unutilised or defective goods under rule 7 and in the event
of any failure, the Deputy Commissioner of Customs or, as the case may
be, Assistant Commissioner of Customs having jurisdiction over the
premises where the imported goods shall be put to use for manufacture
of goods or for rendering output service shall take action by invoking
the Bond to initiate the recovery proceedings of the amount equal to

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 LEVY OF AND EXEMPTIONS FROM CUSTOMS DUTY 1.25

the difference between the duty leviable on such goods but for the
exemption and that already paid, if any, at the time of importation,
along with interest, at the rate fixed by notification issued under section
28AA of the Customs Act, for the period starting from the date of
importation of the goods on which the exemption was availed and
ending with the date of actual payment of the entire amount of the
difference of duty that he is liable to pay.
Notwithstanding anything specified in these rules in relation to
removal and processing of imported goods for job work, the
importer shall be responsible for ensuring that the said goods are
used in accordance with the purposes provided in the exemption
notification and in the event of failure to do so, the Jurisdictional
Deputy Commissioner of Customs, or, as the case may be, the
Assistant Commissioner of Customs having jurisdiction over the
premises where the imported goods shall be put to use for
manufacture of goods or for rendering output service, shall take
action under these rules, without prejudice to any other action which
may be taken under the Act, rules or regulations made thereunder
or under any other law for the time being in force.
9. Penalty [Rule 8A]
The importer or a job worker who contravenes any of the provisions
of these rules or abets such contravention, shall be liable to a penalty
to an extent of the amount specified under clause (ii) of sub-section
(2) of section 158 of the Act without prejudice to any other action
which may be taken under the Act, rules or regulations made
thereunder or under any other law for the time being in force.‖
[Notification No. 68/2017 Cus (NT) 30.06.2017 and Circular No. 25/2017
Cus dated 30.06.2017]

3. PROCEDURE, MECHANISM AND

ORGANISATION FOR ASSESSMENT OF DUTY
MEANING OF ASSESSMENT
In the context of the customs duty, the term assessment means quantification of
the amount of duty payable. The process of assessment involves the following
stages.

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a. Determination of the quantity and total value of the consignment.

b. Determination of the proper tariff classification of the goods.
c. Determination of the appropriate rate of duty after considering the various
exemptions, abatements, remissions.
d. Determining whether the goods are to be cleared for home consumption or
to be deposited in the warehouse.
VALUATION OF GOODS [SECTION 14]
The method of valuation has been explained in detail in chapter 4.
DATE FOR DETERMINING THE RATE OF DUTY AND TARIFF VALUATION
OF IMPORTED GOODS [SECTION 15]
Section 15 prescribes the relevant date for determining the rate of duty and tariff
valuation, if any, applicable to any imported goods in the following manner:

In case of The rate of duty and tariff

valuation shall be the rate and

Date of presentation of bill of entry

Goods entered for home OR
consumption Date of entry inwards of the
vessel/arrival of the aircraft or vehicle
whichever is later.

Goods cleared for home Date on which a bill of entry for

consumption from the home consumption in respect of
warehouse such goods is presented

Any other goods Date of payment of duty

(1) Bill of entry is presented on 1st January, the vessel arrives on 3rd January.
In this situation, relevant date for determination of the rate of import duty
is 3 January, because though for procedural purposes, the Bill of Entry was filed
rd

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 LEVY OF AND EXEMPTIONS FROM CUSTOMS DUTY 1.27

on 1st January for the purpose of determining the rate of duty and tariff valuation
of such goods, Bill of Entry will be deemed to have been filed on 3rd January.
In respect of baggage and goods imported by post, the provisions of section 15
will not be applicable as they are independently covered by other sections.
Relevant case laws
Section 15 has generated a lot of interest in terms of case law development. In
Bharat Surfacants Pvt. Ltd. v. UOI 1989 (43) ELT 189, the Supreme Court held that
the rate of duty and tariff valuation would be done on the date of final entry of the
ship. In this case, a ship entered Bombay and made prior entry on 04.07.1981 at
which time the duty was 12.5%. Since there was no space, the ship proceeded to
Karachi and after that came back to Bombay on 23.07.1981 and was granted final
entry on 04.08.1981 when the duty rate had been revised to 15%. The Supreme
Court held that the rate applicable would be 15% only since the formality of entry
inward could be done only on 04.08.1981.
It would also be important to note that date of contract is not relevant and only
the date of importation is relevant as per the decision of the Supreme Court in
Rajkumar Knitting Mills P. Ltd. vs CC 1998 (98) ELT 292.
It is also relevant to note that Section 15 deals with only the rate of duty and tariff
valuation and not the valuation under Section 14.

Illustration 3
An importer imported consignment of goods chargeable to duty @ 40% ad valorem.
The vessel arrived on 31st May. A bill of entry for warehousing the goods was
presented on 2nd June and the goods were duly warehoused. In the meantime, an
exemption notification was issued on 15th October reducing the effective customs
duty to 25% ad valorem.
Thereafter, the importer filed a bill of entry for home consumption on 20th October
claiming 25% duty. The customs Department charged higher rate of duty @ 40% ad
valorem. Give your views on the same, discussing the relevant provisions of the
Customs Act, 1962.

Answer
According to section 15(1)(b) of the Customs Act, the relevant date for
determination of rate of duty and tariff value in case of goods cleared from a
warehouse is the date on which a bill of entry for home consumption in respect of
such goods is presented. Therefore, the relevant date for determining the duty in

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 1.28 CUSTOMS & FTP

the given case will be 20th October (the date on which the bill of entry for home
consumption is presented) and thus, the relevant rate of duty will be 25%.

4. REMISSION, ABATEMENT AND EXEMPTIONS

The Customs Act provides for remission, abatement and exemptions from customs
duty in certain circumstances. These provisions are discussed in the subsequent
paragraphs.
NO DUTY ON PILFERED GOODS [SECTION 13]
If any imported goods are pilfered after the unloading thereof and before the
proper officer has made an order for clearance for home consumption or deposit
in a warehouse, the importer shall not be liable to pay the duty leviable on such
goods. However, where such goods are restored to the importer after pilferage,
the importer becomes liable to duty.

ANALYSIS OF SECTION 13
The logic behind this section is that when the goods are not under the control of
the importer, he should not be required to pay duty on such goods.
(a) Conditions to be satisfied for exemption from duty
a. The imported goods should have been pilfered.
b. The pilferage should have occurred after the goods are unloaded, but
before the proper officer makes the order of clearance for home
consumption or for deposit into warehouse.
c. The pilfered goods should not have been restored back to the importer.
The term ‘pilfer’ means “to steal, especially in small quantities; petty theft”.
Therefore, the term does not include loss of total package.

(b) Circumstances in which pilferage can be claimed

In order to claim pilferage the following circumstances should exist:
a. there should be evidence of tampering with the packages;
b. there should be blank space for the missing articles in the package; and
c. the missing articles should be unit articles [and not part articles]

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 LEVY OF AND EXEMPTIONS FROM CUSTOMS DUTY 1.29

(c) Pilferage noticed at the time of removal of goods by the importer

The pilferage of goods would normally be noticed at the time of physical
verification of goods by the customs authorities. However, in some
circumstances, it may so happen that the pilferage may be observed only at
the time of removal of goods by the importer. In such case, the order for
clearance, or as the case may be, for bonding would already have been
passed. Therefore, the importer has to ask for survey either by the steamer
agents or by the insurance surveyors and the report issued by them would
form the basis for claiming remission. As in such the circumstances, the duty
would already have been paid, the remission is allowed in the form of a
refund.
(d) Following points merit consideration
1. If goods are pilfered after the order of clearance is made but before the
goods are actually cleared, duty is leviable.
2. Section 13 deals with only pilferage. It does not deal with
loss/destruction of goods.
3. Provisions of section 13 would not apply if it can be shown that
pilferage took place prior to the unloading of goods.
4. In case of pilferage, only section 13 applies and claim of refund under
section 23(1) is not permissible.
5. Section 13 applies to the goods which are under the custody of the
custodian under section 45. The goods, even though held by the
custodian appointed by the Collector, are held by him for the purposes
of customs formalities. Any pilferage noticed during the period is on
the account of the Customs formalities. Section 13 and section 45 are
independent provisions. In other words, whether duty is paid/ payable
by the custodian or not, remission cannot be denied to the importer by
the Department.
REMISSION OF DUTY ON GOODS LOST, DESTROYED OR ABANDONED
[SECTION 23]
(a) Remission of duty
Without prejudice to the provisions of section 13, where it is shown to the
satisfaction of the Assistant Commissioner of Customs or Deputy Commissioner
of Customs that any imported goods have been lost (otherwise than as a result
of pilferage) or destroyed, at any time before clearance for home consumption,

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the Assistant Commissioner of Customs or Deputy Commissioner of Customs

shall remit the duty on such goods. [Sub-section (1)].

ANALYSIS
1. An analysis of section 23 shows that it comes into play after the duty
has been paid and even after an order for home consumption has been
passed, but before the goods are actually cleared, and then it is found
that they have been lost/destroyed. In that case the provision is not
that goods will not be liable to duty, but duty paid on such goods shall
be remitted by the Assistant/Deputy Commissioner of Customs.
2. In respect of the goods which have been pilfered after they have been
unloaded but before the goods are cleared for home consumption or
deposit in a warehouse, section 13 would apply and the importer would
not be liable to pay the duty. In cases where section 23 is attracted, the
importer is entitled to remission of duty.
3. The remission of duty is permissible only in the case of total loss of
goods. This implies that the loss is forever and beyond recovery. The
loss referred to in this section is generally due to natural causes like fire,
flood, etc.
4. The loss referred to in sub-section (1) may be at the warehouse also.
5. In the above situation, the loss/ destruction have to be proved to the
satisfaction of the Assistant Commissioner or Deputy Commissioner.
Thereupon, he may pass remission orders canceling the payment of
duty. In case duty has already been paid, refund can be obtained after
getting the remission orders.
(b) Right to relinquish the title to the goods-abandonment of goods
The owner of any imported goods may, at any time before an order for
clearance of goods for home consumption under section 47 or an order for
permitting the deposit of goods in a warehouse under section 60 has been
made, relinquish his title to the goods and thereupon he shall not be liable
to pay the duty thereon. [Sub-section (2)].
However, the owner of any such imported goods shall not be allowed to
relinquish his title to such goods regarding which an offence appears to have
been committed under this Act or any other law for the time being in force.

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ANALYSIS
1. Meaning of relinquish
“Relinquish” means to give over the possession or control of, to leave
off.
2. The aforementioned right can be exercised at any time before the
passing of the order for clearance for home consumption or an order
permitting the deposit of goods in a warehouse. Before that date, it is
open to the importer to relinquish the title to the goods.
3. Goods abandoned by importers
Sometimes, it may so happen that the importer is unwilling or unable
to take delivery of the imported goods. Some of the likely causes may
be:
(i) the goods may not be according to the specifications;
(ii) the goods may have been damaged or deteriorated during voyage
and as such may not be useful to the importer;
(iii) there might have been breach of contract and, therefore, the
importer may be unwilling to take delivery of the goods.
In all the above cases, the goods having been imported, the liability to
customs duty is imposed and, therefore, the importer has to relinquish
his title to the goods unconditionally and abandon them.
Relinquishment is done by endorsing the document of title, viz. Bill of
Lading, Airway Bill, etc. in favour of the Principal
Commissioner/Commissioner of Customs along with the invoice. If the
importer does so, he will not be required to pay the duty amount.
However, the owner of any such imported goods shall not be allowed
to relinquish his title to such goods regarding which an offence appears
to have been committed under this Act or any other law for the time
being in force.
(c) Distinction between section 13 and section 23
The provisions of section 13 and section 23 can be better appreciated after
going through the following points of distinction:-

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Basis Pilferage of goods Loss or destruction of

under section 13 goods under section
23

Meaning The word ‘pilfer’ The word ‘lost’ or

means to steal, ‘destroyed’ refers to
especially in small total loss of goods i.e.
quantities; petty theft. loss is forever and
beyond recovery.
Abandonment of
goods is possible
where the importer is
unwilling/unable to
take the delivery of the
imported goods.

Duty on goods The importer shall not The duty paid on such
be liable to pay the goods shall be
duty leviable on such remitted to the
goods. importer.

Subsequent Where the pilfered In case of destruction

restoration of goods goods are restored to of goods, the
the importer after restoration is not
pilferage, the possible.
importer become
liable to duty.

Warehoused goods Provisions of section Provisions of section

13 are not applicable 23 apply to
to warehoused goods. warehoused goods
also.

Onus to prove the The onus to prove the The importer has to
pilferage/destruction pilferage does not lie prove the
or loss of goods on the importer as it is loss/destruction to the
obvious at the time of satisfaction of the
examination by the Assistant/Deputy
proper officer. Commissioner of
Customs.

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 LEVY OF AND EXEMPTIONS FROM CUSTOMS DUTY 1.33

Time of occurrence The imported goods The imported goods

of pilferage or must have been must have been
loss/destruction pilfered after the lost/destroyed at any
unloading thereof and time before clearance
before the proper for home consumption
officer has made an under section 47.
order for clearance for
home consumption or
deposit in a
warehouse.

ABATEMENT OF DUTY ON DAMAGED OR DETERIORATED GOODS

[SECTION 22]
Where it is shown to the satisfaction of the Assistant Commissioner of Customs or
Deputy Commissioner of Customs -
(a) that any imported goods had been damaged or had deteriorated at any time
before or during the unloading of the goods in India; or
(b) that any imported goods, other than warehoused goods, had been damaged
at any time after the unloading thereof in India but before their examination
under section 17, on account of any accident not due to any wilful act,
negligence or default of the importer, his employee or agent; or
(c) that any warehoused goods had been damaged at any time before clearance
for home consumption on account of any accident not due to any wilful act,
negligence or default of the owner, his employee or agent,
such goods shall be chargeable to duty in accordance with the provisions of
sub-section (2) [Sub-section (1)].
The duty to be charged on the goods referred to in sub-section (1) shall bear
the same proportion to the duty chargeable on the goods before the damage
or deterioration which the value of the damaged or deteriorated goods bears
to the value of the goods before the damage or deterioration [Sub-section (2)].
For the purposes of this section, the value of damaged or deteriorated goods
may be ascertained by either of the following methods at the option of the
owner:-
(a) the value of such goods may be ascertained by the proper officer, or

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(b) such goods may be sold by the proper officer by public auction or by
tender, or with the consent of the owner in any other manner, and the
gross sale proceeds shall be deemed to be the value of such goods
[Sub-section (3)].

ANALYSIS
(a) Cases where the abatement is available
Abatement is available if the goods are damaged/deteriorated under any of
the following circumstances:

S.No. Goods
damaged/deteriorated

1. before or during unloading

2. by accident after unloading but Provided such accident is not

before examination for due to any wilful act,
assessment by the customs negligence or default of the
authorities importer, his employee or
agent
3. by accident in warehouse
before their actual clearance
from such warehouse

Meaning of damage
The term ‘damage’ denotes physical damage to the goods. This implies that
the goods are not fit to be used for the purpose for which they are meant.
Meaning of deterioration
‘Deterioration’ is reduction in quality of goods due to natural causes.

(b) Amount of duty chargeable after abatement

Value of damaged / deteriorated goods *
Duty on goods before damage / deterioration ×
Value of goods before damage / deterioration

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Illustration 4
If the value of goods is ` 10,000 and after damage the value is ` 2,000 then
duty payable on ` 10,000/- should be appropriately reduced to 20% (proportion
of 2000 to 10000).
(c) *Valuation of the damaged or deteriorated goods
The value shall be:-
(a) Value ascertained by the proper officer
or
(b) The proper officer may sell such goods by public auction/tender or if
the importer agrees, in any other manner and the gross sale proceeds
shall be deemed to be the value of such goods.

Illustration 5
Peerless Scraps, imported during August, by sea, a consignment of metal scrap
weighing 6,000 M.T. (metric tons) from U.S.A. They filed a bill of entry for home
consumption. The Assistant Commissioner passed an order for clearance of goods
and applicable duty was paid by them. Peerless Scraps thereafter found, on taking
delivery from the Port Trust Authorities (i.e., before the clearance for home
consumption), that only 5,500 M.T. of scrap were available at the docks although they
had paid duty for the entire 6,000 M.T., since there was no short-landing of cargo.
The short-delivery of 500 M.T. was also substantiated by the Port-Trust Authorities,
who gave a “weighment certificate” to Peerless Scraps.
On filing a representation to the Customs Department, Peerless Scraps has been
directed in writing to justify as to which provision of the Customs Act, 1962 governs
their claim for remission of duty on the 500 M.T. not delivered by the Port-Trust.
You are approached by Peerless Scraps as “Counsel” for an opinion/advice. Examine
the issues and tender your opinion as per law, giving reasons.

Answer
As per provisions of section 23, where it is shown to the satisfaction of Assistant or
Deputy Commissioner that any imported goods have been lost or destroyed,
otherwise than as a result of pilferage at any time before clearance for home
consumption, the Assistant or Deputy Commissioner shall remit the duty on such
goods. Therefore, duty shall be remitted only if loss has occurred before clearance
for home consumption.

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In the given case, it is apparent from the facts that quantity of scrap received in
India was 6000 metric tonnes and 500 metric tonnes thereof was lost when it was
in custody of Port Authorities i.e. before clearance for home consumption was
made. Also, the loss of 500 MT of scrap cannot be construed to be pilferage, as
loss of such huge quantity cannot be treated as “Petty Theft”.
Hence, Peerless Scraps may take shelter under section 23 justifying his claim for
remission of duty.
DENATURING OR MUTILATION OF GOODS [SECTION 24]
Section 24 of the Customs Act, 1962 empowers Central Government to make rules
for permitting to denature/mutilate the imported goods, which are ordinarily used
for more than one purpose, so as to render them unfit for one or more of such
purpose.
If any imported goods can be used for more than one purpose and duty is leviable
on the basis of its purpose of utilisation, then denaturing or mutilation of such
goods is useful. By denaturing, goods are made unfit for other purposes. After
denaturing process, goods can be used only for one purpose and accordingly duty
can be levied.
Denaturing of Spirit Rules, 1972 specify procedure for denaturing spirit.
(2) Ethyl Alcohol which is not denatured attracts a higher rate of customs
duty as it can be used for industrial as well as human consumption
purposes. Whereas, denatured ethyl alcohol can only be used for industrial
purposes and hence attracts lower rate of duty. Assuming undenatured ethyl
alcohol is imported, but is to be used by the importer for industrial purposes only,
then importer may make a request for denaturing of Ethyl Alcohol. Certain very
bitter chemicals can be added to denature the spirits as per Rules and once they
are denatured, they attract the lower rate of duty.
EXEMPTION FROM CUSTOMS DUTY [SECTION 25]
Central Government’s power to grant exemption
The power to grant exemption from payment of customs duty is given to Central
Government. The power of the Central Government to alter the duty rate structure
is known as delegated legislation. The reason for calling it delegated legislation is
because the power is delegated by the Parliament to the Central Government. This
power is always subject to superintendence and check by Parliament.
a. 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,

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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.
Where any exemption is granted subject to any condition, such exemption
shall, unless otherwise specified or varied or rescinded, be valid up to
31st day of March falling immediately after two years from the date of
such grant or variation.
b. 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 factors:
a. Moral grounds, where the duty should not be levied at all. Some of the
instances, which may be given, are;
(i) Where the goods do not reach the Indian soil at all.
(ii) Where the goods have reached the Indian soil but are not available for
consumption.
(iii) Where the goods get damaged or deteriorated in transit.
b. Discretionary provision, where the exemption is used for controlling the
economy and industrial growth of the country.
Interpretation of Exemption Notifications
In Kasinka Trading v. U.O.I. 1994 (74) E.L.T. 782, the Supreme Court held that the
power to exempt includes the power to modify or withdraw in terms of Section 21

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of the General Clauses Act, 1897. It was held that even a time bound exemption
notification issued under section 5A of the Central Excise Act, 1944, or section 25
of the Customs Act, 1962 can be modified and revoked if it is in public interest and
the doctrine of Promissory Estoppel cannot be invoked since a notification cannot
be said to be making a representation or a promise to a party getting benefit
thereof.
The Supreme Court has held in Pankaj Jain Agencies v. U.O.I. 1994 (72) E.L.T. 805
that a Notification is to take effect from the date of the publication in the Official
Gazette. In ITC Ltd. v. CCE 1996 (86) E.L.T. 477, the Supreme Court reiterated this
view and said that non-availability of the Gazette on the date of issue of the
notification will not affect the operativeness and enforceability of the notification
particularly when there are radio announcements and press releases explaining the
changes on the very day
An exemption notification cannot be withdrawn and duty cannot be demanded
with retrospective effect [Honest Corporation v. State of Tamil Nadu 1999 STC 113
(HC)].
Effective date: Section 25 of the Act provides that the date of effect of the
notification will be the date of its issue for publication in the Official Gazette.
The following issues need to be kept in mind in case of general exemption.
(i) Where the exemption notification does not mention the date of its effect, the
notification comes into effect from the date of its issue by the Central
Government for publication in the Official Gazette.
(ii) Where the exemption is through a special order, the above rules do not apply.
Special orders are issued separately for each case and communicated to the
beneficiary directly by the Government. The beneficiary can claim refund for
the period reckoned from the date of its issue.
Sub-section 2A empowers the Government to issue clarifications to the
notifications within one year from the issue of the notification and such
clarifications will have retrospective effect.
EXEMPTION FROM CUSTOMS DUTY ON IMPORTED GOODS USED FOR
INWARD PROCESSING OF GOODS [SECTION 25A]
Where the Central Government is satisfied that it is necessary in the public interest
so to do, it may, by notification, exempt such of the goods which are imported for
the purposes of repair, further processing or manufacture, as may be specified

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therein, from the whole or any part of duty of customs leviable thereon, subject to
the following conditions, namely:—
(a) the goods shall be re-exported after such repair, further processing or
manufacture, as the case may be, within a period of one year from the date
on which the order for clearance of the imported goods is made;
(b) the imported goods are identifiable in the export goods; and
(c) such other conditions as may be specified in that notification.
EXEMPTION FROM CUSTOMS DUTY ON RE-IMPORTED GOODS USED
FOR OUTWARD PROCESSING [SECTION 25B]
Notwithstanding anything contained in section 20, where the Central Government
is satisfied that it is necessary in the public interest so to do, it may, by notification,
exempt such of the goods which are re-imported after being exported for the
purposes of repair, further processing or manufacture, as may be specified therein,
from the whole or any part of duty of customs leviable thereon, subject to the
following conditions, namely :—
(a) the goods shall be re-imported into India after such repair, further processing
or manufacture, as the case may be, within a period of one year from the date
on which the order permitting clearance for export is made;
(b) the exported goods are identifiable in the re-imported goods; and
(c) such other conditions as may be specified in that notification.”.
LIST OF IMPORTANT JUDICIAL DECISIONS ON SCOPE OF EXEMPTION
NOTIFICATIONS
A. General Principles

Particulars Citation

1. Exemption notifications represent U.O.I. v. Paliwal Electricals P. Ltd

the policy of the Government evolved 1996 (83) E.L.T. 241 (S.C.)
to sub-serve public interest and public
revenue. It is a part and parcel of the
enactment subject to it not being
against Article 14 of Constitution.

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2. Supervening public equity Shrijee Sales Corporation v. U.O.I.

overrides principle of promissory 1997 (89) E.L.T. 452 (S.C.)
estoppel. Time bound notification can
be withdrawn.

3. Exemption notification is a class U.O.I. v. Jalyan Udyog 1993 (68)

of delegated or conditional E.L.T. 9 (S.C.)
legislation. Power can be used not
only for raising revenue but also to
regulate the economy and for serving
social objectives.

4. Classification between small and Murthy Match Works v. AC 1978 (2)

big manufacturers not discriminatory. E.L.T. J429 (S.C.)

5. Choice of date in exemption ITC Bhadrachalam Paper Boards

notifications cannot be questioned Ltd. v. CCE 1994 (71) E.L.T. 334
being a question of policy. (S.C.)

6. Exemption notification not valid if Ramdhan Pandey v. State of UP

it does not recite public interest. 1993 (66) E.L.T. 547 (S.C.)

7. Public interest means an act MJ Exports v. CCE 1992 (59) E.L.T.

beneficial to general public. 112 (T) [approved by SC]

8. In case of omission to claim Hero Cycles Ltd. v Union of India

exemption does not result in denial of 2009 (240) E.L.T. 490 (Bom.)
benefit. [maintained by SC]

9. For purpose of claiming Boc India Ltd. v State of Jharkhand

exemption from payment of tax 2009 (237) E.L.T. 7 (S.C.)
applicable to a commodity, assessee
must bring on record sufficient
materials to show that it comes within
the purview of notification.

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 LEVY OF AND EXEMPTIONS FROM CUSTOMS DUTY 1.41

B. How to Interpret?

Particulars Citation

1. Notification to be treated as a CCE v. Parle Exports P. Ltd. 1988

part of the enactment itself. (38) ELT 741 (SC)

2. Interpretation given at the time

of enactment or issue to be given
weight.

3. (a) Exemption notification HMM Ltd. v. CCE 1996 (87) E.L.T.

should be construed strictly and 593 (SC)
reasonably having regard to the
language employed.

(b) Strictness of construction does Swadeshi Polytex Ltd. v. CCE 1989

not mean that circuitous process (44) E.L.T. 794 (SC)
should be followed. Strictness should
also result in giving full effect.

(c) Express language to be given GSFC Ltd. v. CCE 1997 (91) E.L.T. 3
effect. Supposed intention to be (SC)
gathered from language used.

(d) Exemption notification not to be CC v. United Electrical Industries

rendered nugatory or purposeless. Ltd. 1999 (108) E.L.T. 609 (SC).
The word singular includes plural.

4. (a) Exemption notification Novopan India Ltd. v. CCE 1994

construable strictly. (73) E.L.T. 769 (SC)

(b) Exemption notification need not SG Glass Works P. Ltd. v. CCE 1994
be construed strictly when there is no (74) E.L.T. 775 (S.C.)
doubt or ambiguity in it.

5. Liberal construction which Rajasthan Spg. & Wvg. Mills Ltd. v.

enlarges the term and scope of CCE 1995 (77) E.L.T. 474 (S.C.)
notification not permissible.

6. Exemption notification to be read CCE v. Shibani Engineering

as an ordinary man would read it. The Systems 1996 (86) E.L.T. 453 (S.C.)

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word “and” to be read conjunctively

as any one would do so.

7. Expressions used in the Act Prestige Engg. India Ltd. v. CCE

should be understood in the same 1994 (73) E.L.T. 497 (S.C.)
sense if used in Rules and
notifications.

8. (a) Exemption cannot be claimed BK Industries v. U.O.I. 1993 (65)

on the strength of Finance Ministers E.L.T. 465 (S.C.)
Budget speech. Doypack Systems P. Ltd. v. U.O.I.
(b) Notings on Government files 1988 (36) E.L.T. 201 (S.C.)
cannot be used as an aid in
construction.

9. Exemption notification to be Bombay Chemicals P. Ltd. v. CCE

interpreted differently from statute. 1995 (77) E.L.T. 3 (SC), Novapan
Strict interpretation applicable to find India Ltd. v. CCE 1994 (73) E.L.T.
out whether a subject falls under the 769 (S.C.)
exemption. Once this is solved, liberal
interpretation to be given by reading
the notification as a whole.

10. (a) Substantive conditions in MCF Ltd v. Dy. Commissioner 1991

notification to be satisfied (55) E.L.T. 437 (S.C.); Thermax P.
mandatorily since it may facilitate Ltd. v. CCE 1992 (61) E.L.T. 352
fraud or introduce administrative (SC); Formica India Division v. CCE
inconveniences. Non- observance of 1995 (77) E.L.T. 511 (SC)
procedural conditions condonable. Indian Aluminium company Ltd. v.
(b) If non-observance of procedural Thane Municipal Corporation
condition may facilitate fraud or 1991 (55) E.L.T. 454 (S.C.).
administrative convenience,
exemption can be denied.

11. Burden to prove eligibility to Mysore Metal Industries v. CCE

exemption notification on the 1988 (36) E.L.T. 369 (S.C.); Motiram
claimant. tolaram v. U.O.I. 1999 (112) E.L.T.
749 (SC)

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12. Exemption cannot be denied on a Prince Khadi Woollen Handloom

ground not originally contended. Prod. Coop. Indl. Society v. CCE
1996 (88) E.L.T. 637 (SC)

13. Assessee can opt for that CCE v. Indian Petro Chemicals
notification which is more beneficial. 1997 (92) E.L.T. 13 (SC); Abrol
Watches Pvt. Ltd v. CC 1997 (92)
E.L.T. 311 (S.C.)

14. A particular item not expressly CC v. Perfect Machine Tools Co. P.

excluded does not mean that it is Ltd 1997 (96) E.L.T. 214 (S.C.)
included.

15. Benefit not to be extended on the Faridabad CT Scan Centre v. DG

ground that such benefit is wrongly Health Services 1997 (95) E.L.T.
extended to others. 161 (S.C.)

16. In interpreting an earlier Johnson & Johnson Ltd. v. CCE

notification, narrow or broader view 1997 (92) E.L.T. 23 (S.C.)
to be taken can be decided based on
subsequent notification.

17. Assessee cannot suffer on Kuil Fireworks Industries v. CCE

account of illegal act of Department. 1997 (95) E.L.T. 3 (S.C.)
Exemption notification applicable.

18. Words in Tariff Schedule to be CC v. Lekhraj Jessumal & Sons

interpreted keeping in mind the rapid 1996 (82) E.L.T. 162 (S.C.)
march of technology as industry is
not static.

TEST YOUR KNOWLEDGE

1. What are the provisions relating to effective date of notifications issued under
section 25 of the Customs Act, 1962?
2. An importer imported certain inputs for manufacture of final product. A small
portion of the imported inputs were damaged in transit and could not be used
in the manufacture of the final product. An exemption notification was in force
providing exemption in respect of specified raw materials imported into India

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for use in manufacture of specified goods, which was applicable to the imports
made by the importer in the present case.
Briefly examine whether the importer could claim the benefit of the aforesaid
notification in respect of the entire lot of the inputs imported including those
that were damaged in transit.
3. M/s Pure Energy Ltd. is engaged in oil exploration and has imported software
containing seismic data. The importer is entitled to exemption from customs
duty subject to the condition that an “essentiality certificate” granted by the
Director General of Hydrocarbons is produced at the time of importation of the
goods. Though the importer applied for the certificate within the statutory time
limit prescribed for the same, the certificate was not made available to the
importer within a reasonable time by the Director General of Hydrocarbons.
The customs department rejected the importer’s claim for exemption.
Examine briefly whether the department’s action is sustainable in law.
4. Explain, with reference to decided case law, whether clearances from Domestic
Tariff Area (DTA) to Special Economic Zone is chargeable to export duty under
the SEZ Act, 2005 or the Customs Act, 1962.
5. M/s. XYZ, a 100% export oriented undertaking (100% E.O.U. in short) imported
DG sets and furnace oil duty free for setting up captive power plant for its power
requirements for export production. This benefit was available vide an
exemptions notification. They used the power so generated for export
production but sold surplus power in domestic tariff area.
Customs Department has demanded duty on DG sets and furnace oil as surplus
power has been sold in domestic tariff area. The notification does not
specifically restrict the use of imported goods for manufacture of export goods.
Do you think the demand of the Customs Department is valid in law.
6. Referring to section 25 of the Customs Act, 1962, discuss the following:
(i) Special exemption
(ii) General exemption
7. Write a brief note on the following with reference to the Customs Act, 1962:
(i) Remission of duty on imported goods lost
(ii) Pilfered goods
8. Distinguish between Pilfered goods and Lost/destroyed goods

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9. Goods manufactured or produced in India, which were earlier exported and

thereafter imported into India will be treated at par with other goods imported
into India. Is the proposition correct or any concession is provided on such
import? Discuss briefly.
10. Write a brief note on stages of imposition of taxes and duties.
11. Discuss the provisions relating to denaturing or mutilation of goods.
12. Briefly explain the provisions relating to abatement of duty on damaged or
deteriorated goods under section 22 of the Customs Act, 1962.
13. Briefly explain the following with reference to the provisions of the Customs
Act, 1962:
(i) Indian customs waters
(ii) India
14. Distinguish between Indian territorial waters and Indian custom waters.
15. Write a brief note on the constitutional provisions governing the levy of customs
duties.
16. Examine the validity of the following statements:
(a) A beneficial owner of imported goods is a person on whose behalf the
goods are being imported.
(b) Customs area does not include a warehouse.
(c) Customs station includes international courier terminal.
17. Rock & Rock India Ltd. imported a consignment from U.S.A (by sea). The value
of consignment was ` 7,50,000 and total duty payable was ` 1,50,000.
Company filed bill of entry for home consumption but before inspection and
clearance for home consumption it found that the goods were damaged.
On filing a representation to the Customs Department, proper officer refused
the claim for abatement because goods were already unloaded. The proper
officer is in agreement with the claim that the value of goods has come down
to only ` 1,50,000.
Examine the issue with reference to the relevant statutory provisions and
calculate the amount of total duty payable:

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Would your answer be different in the above case if the goods get deteriorated
after unloading and examination but before clearance for home consumption,
and value comes down to ` 7,00,000 ?

ANSWERS/HINTS
1. Date of effect of every notification issued will be the date of its issue by the
Central Government for publication in the Official Gazette, unless provided
otherwise in the notification. Issue means signed by competent authority and
sent for publication to Government press.
The provision is made as there may be delay of one or two days in publishing
in Gazette e.g. if the notification is issued on 2nd November and published in
Official Gazette on 4th November, the notification will be effective from 2nd
November.
However, where any exemption is granted subject to any condition, such
exemption shall, unless otherwise specified or varied or rescinded, be
valid up to 31st day of March falling immediately after two years from
the date of such grant or variation.
The above rules do not apply to exemptions granted through special orders.
Special orders are issued separately for each case and communicated to the
beneficiary directly by the Government.
2. The facts of the case are similar to the case of BPL Display Devices Ltd. v.
CCEx., Ghaziabad (2004) 174 ELT 5 (SC) wherein the Supreme Court has held
that the benefit of the notifications cannot be denied in respect of goods
which are intended for use for manufacture of the final product but cannot
be so used due to shortage or leakage.
The Apex Court has held that no material distinction can be drawn between
loss on account of leakage and loss on account of damage. The benefit of
said exemption cannot be denied as inputs were intended for use in the
manufacture of final product but could not be so used due to
shortage/leakage/damage. It has been clarified by the Supreme Court that
words “for use” have to be construed to mean “intended for use”.
Therefore, the importer can claim the benefit of the notification in respect of
the entire lot of the inputs imported including those that were damaged in
transit.
3. This issue has been addressed by the Supreme Court in the case of
Commissioner of Customs v. Tullow India Operations Ltd. (2005) 189 ELT 401

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(SC). The Apex Court has observed that if a condition is not within the power
and control of the importer and depends upon the acts of public
functionaries, non-compliance of such a condition, subject to just exceptions
cannot be held to be a condition precedent which would disable it from
obtaining the benefit for all times to come.
In the given case also the certificate has not been granted within a reasonable
time. Therefore, in view of the above-mentioned judgement, the importer
M/s Pure Energy Ltd. cannot be blamed for the lapse by the authorities. The
Directorate General of Hydrocarbons is under the Ministry of Petroleum and
Natural Gas and such a public functionary is supposed to grant the
essentiality certificate within a reasonable time so as to enable the importer
to avail of the benefits under the notification.
4. In the case of Tirupati Udyog Ltd. v. UOI 2011 (272) E.L.T. 209 (A.P.), it is held
that the clearances of goods from DTA to Special Economic Zone are not
chargeable to export duty either under the SEZ Act, 2005 or under the
Customs Act, 1962 on the basis of the following observations:-
• The charging section needs to be construed strictly. If a person is not
expressly brought within the scope of the charging section, he cannot
be taxed at all.
• SEZ Act does not contain any provision for levy and collection of export
duty on goods supplied by a DTA unit to a Unit in a Special Economic
Zone for its authorised operations. Since there is no charging provision
in the SEZ Act providing for the levy of customs duty on such goods,
export duty cannot be levied on the DTA supplier.
• Reading section 12(1) of the Customs Act, 1962 along with sections
2(18), 2(23) and 2(27) makes it apparent that customs duty can be levied
only on goods imported into or exported beyond the territorial waters
of India.
Since both the SEZ unit and the DTA unit are located within the territorial
waters of India, supplies from DTA to SEZ would not attract section 12(1)
[charging section for customs duty].
The above view has also been confirmed in Essar Steel v. UOI 2010 (249) ELT
3 (Guj.) [maintained by SC] wherein the Departmental appeal has been
dismissed by Supreme Court on 12.07.2010 - 2010 (255) ELT A115.
5. The facts of the case are similar to the case of Commissioner v. Hanil Era
Textile Ltd. 2005 (180) ELT A044 (SC) wherein the Supreme Court agreed to

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the view taken by the Tribunal that in the absence of a restrictive clause in
the notifications that imported goods are to be solely or exclusively used for
manufacture of goods for export, there is no violation of any condition of
notification, if surplus power generated due to unforeseen exigencies is sold
in domestic tariff area.
Therefore, no duty can be demanded from M/s XYZ for selling the surplus
power in domestic tariff area for the following reasons:
(i) They have used the DG sets and furnace oil imported duty free for
generation of power, and
(ii) such power generated has been used for manufacturing goods for
export, and
(iii) only the surplus power has been sold, as power cannot be stored.
6. (i) Special Exemption: As per section 25(2) of the Customs Act, 1962, 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, ` 100. This type of exemption is called as ad hoc
exemption. Order under section 25(2) is not required to be published
in the Official Gazette.
(ii) General Exemption: As per section 25(1) of the Customs Act, 1962, 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.
However, where any exemption is granted subject to any condition,
such exemption shall, unless otherwise specified or varied or
rescinded, be valid up to 31st day of March falling immediately
after two years from the date of such grant or variation.
Further, this exemption applies to all importers while exemption under
section 25(2) is for specific importer and specific goods under import.
7. (i) Remission of duty on imported goods lost: Section 23(1) of the
Customs Act, 1962 provides for remission of duty on imported goods

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lost (otherwise than as a result of pilferage) or destroyed, if such loss or

destruction is at any time before clearance for home consumption.
Such loss or destruction covers loss by leakage. Duty is payable under
this section but it is remitted by Assistant/Deputy Commissioner of
Customs if the importer is able to prove the loss or destruction. Thus,
unless remitted, duty has to be paid and burden of proof is on the
importer. The provisions of this section are applicable for warehoused
goods also.
(ii) Pilfered goods: Section 13 provides that if imported goods are pilfered
after unloading thereof but before the proper officer has made an order
for clearance for home consumption or deposit in a warehouse, no duty
is payable on the goods, unless the pilfered goods are restored to
importer. In such a case, duty on pilfered goods is payable by the Port
authorities. Also, the importer does not have to prove pilferage.
However, the loss must be only due to pilferage. Section 13 is not
applicable for warehoused goods.
8.

Pilfered goods Lost/Destroyed goods

1. Covered by section 13 Covered by section 23(1)
2. No duty payable on such Duty paid on such goods to be
goods remitted
3. Department gets No such compensation
compensation from the
custodian [Section 45(3)]
4. Petty theft by human being Loss/Destruction by fire, flood etc
(Act of God)
5. Restoration possible Restoration is not possible
6. Occurrence is after unloading Occurrence may be at any time
and before Customs clearance before clearance for home
order for home consumption consumption
or warehousing
7. Occurrence in warehouse not Occurrence in warehouse is
recognized recognized

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8. Duty need not be calculated Duty should be calculated for

determining the remission amount
9. No need to prove pilferage. It Should be proved and remission
is quite obvious sought for

9. The given proposition is correct i.e., goods produced in India, which were
earlier exported and thereafter imported into India will be treated at par with
other goods imported into India [Section 20 of the Customs Act, 1962].
However, the following concessions are being provided in this regard:
(i) Maximum import duty will be restricted to duty drawback or refund
availed or integrated tax not paid at the time of export.
(ii) Where the goods were originally exported for repairs, the duty on re-
importation is restricted to the fair cost of repairs including cost of
materials used in repairs whether such costs are actually incurred or not,
insurance and freight charges, both ways done abroad.
The above two concessions are given subject to the condition that:
(a) the re-importation is done within 3 years or 5 years if time is
extended.
(b) the exported goods and re-imported goods must be the same.
In case of point (ii) above, the ownership of the goods should also
not have changed.
However, these concessions would not be applicable if-
• re-imported goods had been exported by EOU or a unit in
FTP
• re-imported goods had been exported from a public/private
warehouse
• re-imported goods which fall under Fourth schedule to the
Central Excise Act, 1944.
[Notification No. 45/2017 Cus dated 30.06.2017]
(iii) When exported goods come back for repairs and re-export, the re-
imported goods other than the specified goods can avail exemption
from paying of import duty subject to the following conditions:
(i) the re-importation is for repairs only

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 LEVY OF AND EXEMPTIONS FROM CUSTOMS DUTY 1.51

(ii) the time limit is 3 years. In case of Nepal, such time-limit is 10 years.
(iii) the goods must be re-exported after repairs
(iv) the time limit for export is 6 months (extendable to one year).
[Notification No. 158/95 Cus. dated 14.11.1995 as amended vide
Notification No. 60/2018 Cus dated 11.09.2018]
10. [Refer para 1-Unit II]
11. [Refer para 4 -Unit II]
12. [Refer para 4 -Unit II]
13. [Refer para 3 -Unit I]
14. [Refer para 3 -Unit I]
15. [Refer para 2 -Unit I]
16. (a) The statement is valid. Section 2(3A) defines beneficial owner to mean
any person on whose behalf the goods are being imported or exported
or who exercises effective control over the goods being imported or
exported.
(b) The statement is not valid. The definition of customs area includes
within its ambit a warehouse too.
The customs area is defined to mean 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.
(c) The statement is valid. International courier terminal and foreign post
office are included within the scope of customs station as defined under
section 2(13) of the Customs Act, 1962.
As per the amended section 2(13), a customs station means any
customs port, customs airport, international courier terminal, foreign
post office or land customs station.
17. The abatement of duty is allowed where it is shown to the satisfaction of the
Assistant/Deputy Commissioner of Customs that, inter alia, any imported
goods, other than warehoused goods, had been damaged at any time after
the unloading thereof in India but before their examination, on account of
any accident not due to any wilful act, negligence or default of the importer.

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Thus, in view of the above-mentioned provisions, the stand taken by the

proper officer of refusing the claim for abatement is not valid in law.
The duty to be charged on the damaged goods shall be reduced in proportion
to the reduction in the value of goods on account of damage.
Thus, in the given case, the amount of total duty payable
= [` 1,50,000/` 7,50,000] x ` 1,50,000 = ` 30,000
The abatement of duty is allowed in case of deterioration only if such
deterioration occurs before or during the unloading of goods. Since in this
case, imported goods have deteriorated before clearance for home
consumption but after unloading, abatement of duty will not be allowed and
full duty will have to be paid.

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 LEVY OF AND EXEMPTIONS FROM CUSTOMS DUTY 1.53

SIGNIFICANT SELECT CASES

1. In case of import of crude oil, whether customs duty is payable on the

basis of the quantity of oil shown in the bill of lading or on the actual
quantity received into shore tanks in India?
Mangalore Refinery & Petrochemicals Ltd v. CCus. 2015 (323) ELT 433
(SC)
Facts of the Case: The assessee imported crude oil. On account of ocean
loss, the quantity of crude oil shown in the bill of lading was higher than the
actual quantity received into the shore tanks in India. The assessee paid the
customs duty on the actual quantity received into the shore tanks.
Point of Dispute: The Department contended that the quantity of crude oil
mentioned in the various bills of lading should be the basis for payment of
duty, and not the quantity actually received into the shore tanks in India. This
was stated on the basis that duty was levied on an ad valorem basis and not
on a specific rate. The assessee contended that it makes no difference as to
whether the basis for customs duty is at a specific rate or is ad valorem,
inasmuch as the quantity of goods at the time of import alone is to be looked
at.
Tribunal’s Observations: The Tribunal accepted the Department’s
contentions on the basis of the following reasons:
(i) Duty ought to be levied on the total payment made by the assessee
irrespective of the quantity received.
(ii) An ad valorem duty would necessarily lead to this result but duty levied
at the specific rate would not. The quantity of goods to be considered
in the latter case will only be the quantity of crude oil received in the
shore tank.
(iii) Section 14 of the Customs Act, 1962 kicks in when the duty is on an ad
valorem basis and sections 13 and 23 of the Act do not stand in the way
because it is not the question of demanding duty on goods not
received, but it is the demand of duty on the transaction value. In spite
of the “ocean loss”, the assessee has to make payment on the basis of
the bill of lading quantity.
Supreme Court’s Observations: The assessee raised the issue before the
Supreme Court. The Apex Court noted the following:

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 1.54 CUSTOMS & FTP

(i) The levy of customs duty under section 12 of the Act is only on goods
imported into India. Goods are said to be imported into India when they
are brought into India from a place outside India. Unless such goods
are brought into India, the act of importation which triggers the levy
does not take place.
(ii) If the goods are pilfered after they are unloaded or lost or destroyed at
any time before clearance for home consumption or deposit in a
warehouse, the importer is not liable to pay the duty leviable on such
goods. This is for the reason that the import of goods does not take
place until they become part of the land mass of India and until the act
of importation is complete which under sections 13 and 23 happen only
after an order for clearance for home consumption is made and/or an
order permitting the deposit of goods in a warehouse is made.
(iii) Under section 23(2), the owner of the imported goods may also at any
time before such orders have been made relinquish his title to the
goods and shall not be liable to pay any duty thereon. In short, he may
abandon the said goods even after they have physically landed at any
port in India but before any of the aforesaid orders have been made.
This again is for the good reason that the act of importation gets
complete when goods are in the hands of the importer after they have
been cleared either for home consumption or for deposit in a
warehouse.
(iv) Further, as per section 47 of the Customs Act, the importer has to pay
import duty only on goods that are entered for home consumption.
Obviously, the quantity of goods imported will be the quantity of goods
at the time they are entered for home consumption.
The Supreme Court stated that Tribunal’s reasoning for concluding that the
bill of lading quantity alone should be considered for the purpose of valuing
the imported goods is incorrect in law. The Apex Court examined each of the
reasons given by the Tribunal as under:
(i) The Tribunal lost sight of the fact that a levy in the context of import
duty can only be on imported goods, that is, on goods brought into
India from a place outside of India. Till that is done, there is no charge
to tax.

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(ii) The taxable event in the case of imported goods is “import”. The
taxable event in the case of a purchase tax is the purchase of goods.
The quantity of goods stated in a bill of lading would perhaps reflect
the quantity of goods in the purchase transaction between the parties,
but would not reflect the quantity of goods at the time and place of
importation. A bill of lading quantity, therefore, could only be validly
looked at in the case of a purchase tax but not in the case of an import
duty.
(iii) The Tribunal wholly lost sight of sections 13 and 23 of the Act. Where
goods which are imported are lost, pilfered or destroyed, no import
duty is leviable thereon until they are out of customs and come into the
hands of the importer. It is clear, therefore, that it is only at this stage
that the quantity of the goods imported is to be looked at for the
purposes of valuation.
(iv) The basis of the judgment of the Tribunal is on a complete misreading
of section 14 of the Customs Act. First and foremost, the said section
is a section which affords the measure for the levy of customs duty
which is to be found in section 12 of the said Act. Even when the
measure talks of value of imported goods, it does so at the time and
place of importation, which again is lost sight of by the Tribunal.
(v) The Tribunal's reasoning that somehow when customs duty is ad
valorem the basis for arriving at the quantity of goods imported
changes, is wholly unsustainable. Whether customs duty is at a specific
rate or is ad valorem does not make the least difference to the statutory
scheme. Customs duty whether at a specific rate or ad valorem is not
leviable on goods that are pilfered, lost or destroyed until a bill of entry
for home consumption is made or an order to warehouse the goods is
made. This is for the reason that the import is not complete until what
has been stated above has happened.

Supreme Court’s Decision: The Supreme Court set aside the Tribunal’s
judgment and declared that the quantity of crude oil actually received into a
shore tank in a port in India should be the basis for payment of customs duty.

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2. Are the clearance of goods from DTA to Special Economic Zone

chargeable to export duty under the SEZ Act, 2005 or the Customs Act,
1962?
Tirupati Udyog Ltd. v. UOI 2011 (272) ELT 209 (AP)[ maintained by SC]

High Court’s Observations and Decision: The High Court, on the basis of
the following observations, inferred that the clearance of goods from DTA to
Special Economic Zone is not liable to export duty either under the SEZ Act,
2005 or under the Customs Act, 1962:-
• A charging section has to be construed strictly. If a person has not been
brought within the ambit of the charging section by clear words, he
cannot be taxed at all.
• SEZ Act does not contain any provision for levy and collection of export
duty for goods supplied by a DTA unit to a Unit in a Special Economic
Zone for its authorised operations. In the absence of a charging
provision in the SEZ Act providing for the levy of customs duty on such
goods, export duty cannot be levied on the DTA supplier by implication.
• With regard to the Customs Act, 1962, a conjoint reading of section
12(1) with sections 2(18), 2(23) and 2(27) of the Customs Act, 1962
makes it clear that customs duty can be levied only on goods imported
into or exported beyond the territorial waters of India. Since both the
SEZ unit and the DTA unit are located within the territorial waters of
India, section 12(1) of the Customs Act 1962 (which is the charging
section for levy of customs duty) is not attracted for supplies made by
a DTA unit to a unit located within the Special Economic Zone.

Notes:
1. Chapter X-A of the Customs Act, 1962, inserted by the Finance Act 2002,
contained special provisions relating to Special Economic Zones.
However, with effect from 11-5-2007, Chapter X-A, in its entirety, was
repealed by the Finance Act, 2007. Consequently, Chapter X-A of the
Customs Act is considered as a law which never existed for the purposes
of actions initiated after its repeal and thus, the provisions contained in
this chapter are no longer applicable.
2. Karnataka High Court in case of CCE v. Biocon Ltd. 2011 (267) ELT 28 has
also taken a similar view as elucidated in the aforesaid judgment.

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