CUSTOMS ACT, 1962

INTRODUCTION

In the ancient days it was a “custom” that any merchant entering any kingdom with his
goods had to present a valuable gift to the king. Over the years, this ‘custom’ was
regularised and legalised into ‘custom duty’.

After independence Indian manufacturing industry grew and there was expansion in the trade.
Customs Tariff Act, 1934 was found to be inadequate to meet the expansion of industry and
trade. Tariff commission was formed, which recommended adoption of Brussels Trade
Nomenclature of customs cooperation council. Accordingly customs Act was passed in 1962
and Tariff Act 1975 was also passed which came into effect in 1976.

Custom Tariff Act provided explanatory and interpretative rules for proper classification of
goods. However, later on customs cooperation council developed a new system of
Nomenclature known as “HAROMONISED COMMODITY DESCRIPTION AND
CODING SYSTEM” which takes into account the latest changes in technology and pattern
of International Trade.

HSN (HARMONISED SYSTEM OF NOMENCLATURE) schedule is expected to give the

following benefits:

a.​ Reducing classification disputes

b.​ Common code for goods in International trade
c.​ Facilitating computerization of customs classification and assessment work
OBJECTIVES OF CUSTOMS ACT​

1. Safeguarding domestic trade: To safeguard domestic trade by imposing duty on imported

goods.

2. Reducing Import: To discourage imports.

3. Revenue resources: To levy and collect adequate revenue resources for the economic
development of India.

4. Protection of Indian industry: To protect Indian industry in the interest of trade,

commerce and economy.

5. Prevention smuggling activities: To provide necessary powers to the Central Government

to prevent smuggling activities.

6. To prevent dumping of goods: To ensure that the home markets do not become a
dumping grounds for foreign goods.

LEVY AND COLLECTION OF CUSTOMS DUTY

Customs duties are the sole prerogative of the Indian parliament. Under Article246 of the
constitution of India, parliament has the exclusive power to enact laws relating to customs
duties. The levy of duties of customs is regulated by the customs Act 1962 while the rates of
duties are fixed by the customs Tariff Act, 1975.

The Customs Act empowers central board of excise and customs and commissioners of
customs for collection of duty and enforcement of other allied Acts. The customs enforce
control over the movements of goods and persons across the borders of our country by
restricting the points of entry and exit at or through which alone the movement of cargo and
persons can take place.

Taxable event

Goods become liable to import duty or export duty when there is "Import into or Export
from India.
Taxable Event for Import Duty: The taxable event is the day of crossing customs barrier
and not on the date when goods landed in India or had entered territorial waters. In the
case of goods which are in the warehouse the customs barriers would be crossed when they
are sought to be taken out of the customs and brought to the mass of goods in the country.

Taxable event for Export Duty: In case of exports, export commences when goods cross
customs barrier, but export is completed when it crosses territorial waters. Thus "taxable
event" occurs only when goods cross territorial waters.

Explanation:

Territorial Waters of India: Territorial waters mean that portion of sea which is adjacent to
the shores of a country. On 22nd March 1956, president of India had issued a proclamation
that Territorial waters of India shall extend up to 6 nautical miles from the base line. This was
extended to 12 nautical miles w.e.f. 30th Sept. 1967.

Levy of duty on imports and exports: Section 12 of the customs act provides for levy of
duty on imports and exports. Import duty is levied on all items. Export duty is levied only on
a few items.

SCOPE

The Customs Act empowers the Central Government to enact the following rules, to
implement purpose of the Act
 ✔​ The Customs Valuation Rules, 1988

✔​ Duty Drawback rules, 1995

✔​ The Baggage Rules, 1998

✔​ Re-Export of imported goods Drawback of Customs Rules, 1995

POWERS OF CUSTOMS AUTHORITIES

•​ Appointment of Customs ports & airports

•​ Approval of landing places

•​ Approval of warehousing stations

•​ Approval of boarding stations

POWERS, SEARCHES, SEIZURES & CONFISCATION

•​ The main objective of the Customs Act is to prevent illegal imports & exports.

•​ Sec 100 to 110 provides customs officers with certain powers.

✔​ Power to search suspected persons entering or leaving India

✔​ Power to screen or X-Ray bodies of suspected persons
✔​ Power to arrest
✔​ Power to search premises
✔​ Power to stop & search conveyance
✔​ Power to inspect
✔​ Power to examine persons
✔​ Power to summon persons to furnish documents.

✔​ SEIZURE OF GOODS, DOCUMENTS

o​ Seizures of goods can take place if the customs officer suspects any foul

✔​ CONFISCATION OF GOODS

●​ Goods unloaded at an unauthorized place

●​ Goods imported through unspecified route
 ●​ Prohibited goods
●​ Unmentioned goods
●​ Concealed goods
●​ Unspecified material
●​ Goods concealed in any package
●​ Goods removed without permission
●​ Smuggled goods
●​ Conveyance used for smuggling
●​ Goods attempted to be improperly exported

PENALTY

Penalty is imposed in the following cases,

✔​ Importing prohibited goods

✔​ Improper valuation

✔​ Dutiable goods

DIFFERENT TYPES OF CUSTOMS DUTIES:

The tariff rates for customs duties are specified in customs Tariff Act, 1975. The types of
duties are as under:

1.​ Basic customs duty

2.​ IGST
3.​ Social welfare charges
4.​ Protective duties
5.​ Countervailing duty on subsidised goods
6.​ Anti-Dumping duty on dumped articles
7.​ Special additional duty of customs (Prior to GST Law)
8.​ Additional customs duty (Prior to GST Law)
9.​ Compensation Cess (Now we have social welfare charges)

The above duties are explained below:

 •​ Social Welfare Surcharge (SWS) ON Imports [w.e.f 02-02-2018]1. Social Welfare
Surcharge - A social welfare surcharge has been imposed on imported goods @ 10%
of total customs duties (excluding certain duties) w.e.f 02-02-2018. Hence, effective
rate of BCD = 10% general rate of basic custom duty (BCD) + SWS @ 10% of BCD
= 11%.

•​ No EC & SHEC W.E.F 02-02-2018 -Education cess @ 2% & Secondary & Higher
Education Cess @ 1% was leived at total 3% on total import duties (excluding certain
duties). Now, no EC & SHEC is leviable on imports from 02-02-2018 & Section 94 of
Finance Act, 2007 providing for levy of EC/SHEC have been omitted.

•​ No Social Welfare Surcharge (SWS) is levied on Export Goods

•​ SWS is for providing and financing education, health and social security. It is
leviable on the aggregate of duties, taxes and Cesses leviable on such goods.

•​ SWS is not charged on • Safeguard Duty • Countervailing duty • Anti Dumping

Duty • SWS itself on imported goods • IGST • GST compensation Cess

BASIC CUSTOMS DUTY

•​ This is the standard rate at which the Basic Custom Duty is applicable. There are two
sub-types of Basic Custom Duty. One is standard custom duty which is levied at the
standard rates prescribed in the schedule. There is another rate which is called the
Preferential Rate. It is leviable only for those countries which are specified in the
schedule.

•​ Preferential rate is applied only where the owner of the article (importer) claims at
the time of importation, with supporting evidence, that the goods are chargeable
with the preferential rate of duty and if importer fails to claim with supporting
evidence then duty to be charged as standard rates.

•​ The rates of Custom duty are specified in first and second schedule of Section 2 of
customs tariff act 1975 (First Schedule enlist the goods liable to import duty and
Second Schedule enlist the goods liable to export duty). There are different rates for
different goods but general basic rate is 10%.

INTEGRATED TAX [SECTION 3 (7) OF THE CUSTOMS TARIFF ACT, 1975]

 •​ IGST (Integrated Goods and Services Tax) is a component under GST law, which is
levied on goods being imported into India from other country

•​ It has subsumed various customs duties including Countervailing Duty (CVD) and
Special Additional Duty of Customs (SAD)

PROTECTIVE DUTIES

•​ Protective duties are recommended by Tariff commission to Central Government

when immediate action is necessary to protect interests of Indian industry.
Protective duties are imposed by a notification which should be introduced in
parliament. The protective duty is valid till the date prescribed in the notification. The
duty can be reduced, rescinded or increased by a notification.

SAFEGUARD DUTY

•​ Safeguard duty is imposed for the purpose of protecting the interests of any
domestic industry in India. It is product specific.

•​ While calculating Safeguard duty we should not calculate the education cess and
secondary and higher education cess.

•​ The Central Government of India can impose provisional safeguard duty, pending
final determination upto 200 days.

•​ The duty imposed under this section shall be in force for a period of 4 years from the
date of its imposition and can be extended with the total period of levy not exceeding
10 years.

ANTI DUMPING DUTY

•​ This duty is country specific.

•​ It is imposed on imports of a particular country.

•​ Dumping exists when a product is exported from one country to another country at an
export price which is less than its normal value prevailing in the exporting
country.
 •​ The difference between the normal value and the export price is the dumping
margin based on which the Anti Dumping Duty is imposed.

•​ While calculating Anti-dumping duty we should not calculate the education cess and
secondary and higher education cess.

GST COMPENSATION CESS

•​ GST Compensation Cess is levied to provide cushion and compensation to the states
for loss of revenues due to transition by states from previous regime to tax in GST.

•​ GST compensation cess would be applicable only on supply of those goods and
services that have been notified by the Central Government.

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

COUNTERVAILING DUTY ON SUBSIDIZED ARTICLES

•​ provides that the countervailing duty on subsidized articles is imposed if any country
directly or indirectly, pays subsidy upon the manufacture or production or exportation
of any article.

•​ Such subsidy includes subsidy on transportation of such article.

•​ Conditions:

1.​ Such articles are imported into India.

2.​ The importation may or may not be from the country of manufacture. The article may
be in the same condition as when exported from the country of manufacture
PRIOR TO GST LAW

SPECIAL ADDITIONAL CUSTOMS DUTY

Special Countervailing duty is levied to counter balance the effect of the sales Tax, local tax,
value added tax or other charges. Due to GST, Additional custom duty and special
Countervailing duty is levied on few cases.

The imported goods shall in addition to basic customs duty and additional duty shall also be
liable to special additional duty,

which shall be levied at a rate to be specified by the Central Government Such rate shall be
notified by the central govt.

having regard to the maximum sales tax, local tax or any other charge.

At present the special CVD rate is 4%

ADDITIONAL CUSTOMS DUTY OR COUNTERVAILING DUTY

 •​ In order to make it comparable with the goods produced in India, another duty called
Additional Customs Duty is levied. It is also called as Countervailing Duty. It is
levied at the same rate on which excise duty is applicable to similar products
manufactured in India.

•​ It is imposed when excisable articles are imported in order to offset the excise duty
leviable on similar goods manufactured within the state. Additional customs duty is
imposed to keep the prices of home products with the imported products. Additional
customs duty is leviable on alcoholic liquor imported and some other goods like
stainless steel manufactured for household use and transformer oil.

CLASSIFICATION OF GOODS

Customs duty is imposed by the Government on the goods crossing national boundaries.
Customs duties are levied as per Section 12 of the customs Act. Customs rates are specified
in the First schedule (for imports) and Second schedule (for exports) of the customs Tariff
Act, 1975 which has replaced the Indian tariff Act, 1934 which originally provided for the
levy of import and export duties. The 1934 tariff act was based on Brussels Nomenclature,
which was designed to achieve the international comparability to the tariff to enable smooth
dealings between countries.

HSN schedule of classification : New Import schedule which First schedule of the Tariff Act
1975, provides for a more comprehensive tariff laying down clear notes to minimise areas of
disputes between the assesses and the department. The new schedule is based on
“Harmonised commodity description" which came into effect on February 28th 1986. This
HSN was developed by customs co-operation council. HSN system is an internationally
adopted “Nomenclature standard" used by all the countries to ensure uniformity in
classification in International trade.

Features of HSN classification: HSN is a multipurpose nomenclature and it helps in

standardisation and transmission of data. HSN is to facilitate computerization of customs
classification and assessment of data in ensuring uniformity in classification. The following
are the features of HSN:
1. Content of HSN: HSN is a six digit code with headings at the 5th and6th levels. First two
digits refer to chapter, 3rd and 4th digits refer to the specific item and 5th and 6th digits refer
to sub-classification.

2. Multi-purpose Nomenclature: HSN is a multi purpose nomenclature. It is helpful in

standardisation of trade documentation and transmission of data.

3. Pattern of HSN: HSN pattern comprises 97 chapters, with general interpretation rules,
section notes, chapter notes and sub-heading notes.

4. Special needs: Chapter 98 of the HSN system has been designed for special needs like
project imports, Laboratory chemicals, passenger baggage etc.

Identification of duty free imports: Chapter 99 of the system has been designed to identity
certain imports which are duty free.

Rates of duty: The rates of duty have been transposed into the new schedule maintaining the
levels of duty on individual items.

ASSESSMENT OF DUTY

Procedure for Assessment:

Section 17 of the customs Act deals with assessment of the procedure for assessment :

1. Examining and Testing of goods : In the case of imported goods and the goods meant for
export which are intimated to the customs officer will be examined and tested by the proper
officer without any delay for the purpose of assessment of duty.

2. Submission of documents: In order to assess the duty the appropriate officer may require
the importer or exporter to produce any contract, brokers note, policy of insurance, catalogue,
other documents etc

3. Methods of Assessment of Duty:

First and Second Systems of Assessment

There are two systems of assessment. Section 17(2) provides for assessment after
examination of goods and Section 17(4) provides for assessment on the basis of documents,
followed by inspection and testing of goods.

First appraisement System: This is also called 'first check procedure". It is followed if the
appraiser is not able to make assessment on the basis of documents submitted and deems that
inspection is necessary. Goods are examined first and then they are assessed. This method is
followed only if assessment is not possible on the basis of documents. The importer himself
may also request first check procedure, if he cannot give all required details regarding
description and value of goods at the time of filing of Bill of Entry. The authorised examiner
examines the goods as per examination order and records his findings. The goods are then
assessed to duty by appraiser.

"Second appraisement System or Reassessment of duty: This is also called "Second

Check Procedure” which is normally followed when assessment is done of documents and
then goods are examined. Such examination is not mandatory. It is done on selective basis on
the basis of "risk assessment” or specific intelligence report". Usually second appraisement is
done if the statement furnished by the importer or exporter is found to be false.

EDI Assessment:

In the EDI system, the Cargo declaration in Electronic form is sent to assessing officer. All
the required processing and computations are done in Electronic form itself. Query can be
raised by the assessing officer in the system itself. Facility of tele-enquiry about status of
documents is provided in major customs stations. On completion of assessment, copy of bill
of entry is printed.

Approval of Assessment:

Assessment has to be approved by Assistant Commissioner, if the value is more than Rs.
One lakh. On approval, duty payable is typed by a pin-point type writer in order to prevent
tampering.

Provisional Assessment: Section 18 of the customs act deals with provisional assessment.
Following are the situations in which provisional assessment is made:
 a)​ Non production of documents: Where the importer or exporter is unable to furnish
any documents or any information required for assessment of duty.
b)​ Further enquiry: Where the proper officer deems it necessary to make further
enquiry.
c)​ Testing and examining: Where the proper deems it necessary to carry out tests on
imported goods or export goods for the purpose of assessment of duty there on.
For goods provisionally assessed as above, final assessment shall be made as follows:
a)​ In the case of goods cleared for home consumption or exportation: In this case the
amount paid provisionally shall be adjusted against the duty finally assessed. In case
the amount paid is in excess or falls short of the finally assessed amount, the excess is
refunded or deficit shall be collected.
b)​ In the case of warehoused goods: Where the duty finally assessed is in excess of duty
provisionally assessed, the importer may be required to execute a bond for a sum
equal to twice the amount of excess duty.

(4) Assessment of duty where goods consist of Articles liable to Different Rates of Duty:
Section 19 consists of provisions to deals with determination of duty where articles are liable
to different rates:
a)​ Quantity based duty: Articles liable to duty in relation to quantity will be chargeable
to that duty.
b)​ In the case of Articles liable to duty with reference to value: If the articles are liable
to the same rate, such rate shall be chargeable. If different rates are applicable, highest
rate shall be charged.
c)​ Value of any article liable to different rates: If the importer proves regarding value of
any of the articles to different rates of duty, then such articles shall be assessable to
duty separately at rates applicable to them.
d)​ Accessories and spare parts: Accessories and spare parts of maintenance and
repairing implements for any articles will be chargeable at the rate of customs duty
applicable to the articles.
(5) Reimportation of Goods manufactured in India: Section 20 of the Customs Act
contains provisions in relation to the duty on re-importation of goods produced or
manufactured in India. The provisions are as under:

a)​ Liable for duty: The Indian goods exported earlier, if being imported into India, the
goods are liable to duty on the importation thereof.
b)​ Reimportation within three years: In case of Reimportation within a period of three
years after exporting them the duty drawbacks will be the duty payable on import.
c)​ Export in bond without payment of duty: Where the goods were exported in bond
without payment of duty, duty is leviable as under:
i.​ Leviable on the imported materials used in the manufacture of goods.
ii.​ The excise duty leviable on the indigenous materials used in the manufacture
of goods.
iii.​ Excise duty, if any, leviable on the goods, on payment of customs duty equal
to the aggregate amount of all such duties calculated at the rates prevailing at
the time and place of the importation of the goods.
(6) Goods, Derelict, wreck, etc.: According to Section 21 of the Customs Act, all goods,
derelict, jetsam, flotsam, wreck etc., brought into India shall be dealt with as if they were
imported into India, unless the proper officer is satisfied that those goods are entitled to be
admitted duty free.
Derelict: Derelict refers to a property, whether vessel or cargo abandoned at sea without any
hope of recovering it.
Jetsam: Jetsam refers to goods thrown overboard into the sea in order to lighten a ship to
prevent it from sinking.
Flotsam: Flotsam refers to goods floating in the ship after a shipwreck.
Wreck: Wreck is the property washed up ashore with the ebb and flow at the time after ship
wreck.

VALUATION OF GOODS UNDER CUSTOMS ACT

Most of the customs duties are advalorem. Goods are to be valued for purposes of customs
duty assessment. The customs valuation rules, 1988 follow the GATT provisions for
valuation of goods. As per the GATT provisions the value of the goods for duty purpose is
transaction value or fully commercial and genuine invoice price. Imported goods are to be
valued in accordance with rules for customs valuation made by the Central Government
under Section 14(1A)

Customs Value

According to Section 14(1) the value of dutiable goods shall be deemed to be the price at
which such goods are ordinarily sold at the time and place of importation or exportation in
the course of international trade where:

1.​ The buyer and seller have no interest in the business of each other.
2.​ One of them has no interest in the business of the other.
3.​ The price is the sole consideration for the sale or offer.
4.​ The sale is to be calculated with reference to the rate of exchanges as in force on the
date on which a bill of entry is presented or a shipping bill or bill of export is
presented.
5.​ The Board is empowered to fix the Tariff value for any class of goods whether
imported or exported.
Fundamental Elements to determine Customs value
The important ingredients as per Section 14(1) to determine the value of goods for
customs purpose are as follows:
1.​ Price ordinarily offered: The price at which such or similar goods are ordinarily
sold or offered for sale. Similar goods shall be like kind and quality.
2.​ Price for delivery: The Price for delivery at the time and place of importation and
exportation. Time and place do not refer to precise movement of time when goods
are loaded from the ship. All expenses up to the destination port including
unloading, handling charges freight and Transit insurance have to be included.
3.​ Price in the course of international trade: Price in the course of international
trade refers to price movement of goods from one country to another and implies
not only a period during which the movement is in progress, but also connected
relation.
4.​ No interest in each other’s business: The buyer and seller should have no interest
in the business of each other.
5.​ Price to be the sole consideration: The price should be the sole consideration for
the sale or offer for sale. Either the buyer or seller should have no interest in the
business of other.
 6.​ Rate of exchange: Price shall be calculated with reference to rate of exchange
which is determined by the Central Government.

Fixation of Tariff value by Central Government

For any class of goods imported or to be exported, the tariff value can be determined by the
Central Government. The Government fixes the value having regard to the trend of the value
of such similar goods. When the tariff values are fixed by the Government, the duty will be
chargeable with reference to such values only.
GATT Valuation
According to Article VII, of General Agreement on Tariffs and Trade, Customs value of
imported goods shall be based on their actual value or the actual value of similar goods but
not based on the value of the goods of national origin or an arbitrary or fictitious value. The
concepts of GATT valuation of goods are as follows:
1.​ Actual value of goods: Customs value of goods shall be actual value or the actual
value of merchandise.
2.​ Price at designated time and place: Actual value should be the price at which, at
a designated time and place, such or like merchandise is sold or offered for sale in
the course of trade under fully competitive conditions.
3.​ Nearest ascertainable equivalent value: If actual value is not ascertainable,
customs value shall be based on the nearest ascertainable equivalent of such value.
4.​ Content of Actual price: The actual value is to be represented by invoice price
plus any charges for legitimate costs plus any abnormal discounts and reductions
from the ordinary competitive price.

Principles of GATT valuation:

1. Neutral in effect: Valuation system should be neutral in its effect and on case be used as a
disguised means of providing additional protection. Price should not be artificially increased
for levying the customs duty.

2. Dumping duty not to be used: Valuation should not lead to combat dumping of goods by
foreign exporters.

3. Protection against unfair competition: Valuation system should protect trade against
unfair competition arising from under valuation.
4. General application: Valuation system should be based on general application without
distinction between the source of supply.

5. Simple and equitable criteria: Dutiable value should be based on simple and equitable
criteria which do not conflict with commercial practices.

6. Commercial documents to be basis of valuation: Valuation system should keep

formalities to the minimum and valuation should be based on commercial documents.

7. Quick clearance of goods: Valuation system and process should not prevent the quick
clearance of goods.

8. Accessible to public: Provisions concerning customs valuation should be accessible to the

general public and it should be clear and precise to enable the traders to estimate in advance
the value of goods for customs purposes.

9. Safeguarding secrets: Valuation system should protect trade and business secrets.

METHODS OF VALUATION FOR CUSTOMS:

Based on GATT valuation code, the new valuation rules, 1988 were framed. The new
valuation rules consist of many independent methods of valuation to be used in “hierarchical
order”. The following are the methods of valuation:

1. Transaction value of goods.

2. Transaction value of identical goods

3. Transaction value of similar goods

4. Deductive value method

5. Computed value method

6. Residual method.

These methods are explained below. They are used in hierarchical order.
1. Transaction value of goods

As per rule 3 of customs valuation rules, 1988, the value of any imported goods shall be the
transaction value. This is the primary method of valuation. Transaction value means the
actual price at which the goods are sold. The actual price shall be inclusive of:

(a) Specified costs and services such as commission, brokerage, cost of containers and
package.

(b) Proportionate value of goods and services supplied by the buyers, free of cost or at
concessional rate, for use in production / sale for export of he goods, like tools, material etc.

(c) Royalties and licence fees related to the imported goods required to be paid by the buyer.

(d) Other payments made or to be made by the buyers as a condition of sale.

When the transaction value cannot be ascertained, then other alternative methods can be used
in hierarchical order. If the first method cannot be used, then the second should be used and
so on.

2.​ Transaction value of identical goods

As per rule 5, if the transaction value of goods cannot be ascertained, their value shall be the
value of identical goods. Identical goods according to rule2©: “Imported goods according to
rule2 means imported goods which are similar in all respects”, in the sense physical
characteristics, quality and reputation of the goods valued except for minor differences which
do not affect the value of goods. The identical goods should have been produced in the same
country in which goods being valued are produced. Sale of identical goods taking place under
any of the three conditions may be used:

1.​ A sale at same commercial level but in different quantities.

2.​ A sale at a different commercial level but in substantially the same quantities or

3.​ A sale at a different commercial level and different quantities.

 On ascertaining sale under any one of the above conditions, value of goods shall be made
by making adjustments for (a) quantity factors only (b) commercial level factors only ©
quantity and commercial level factors.

3.​ Transaction value of similar goods (Rule 6)

If actual price cannot be ascertained and value of identical goods cannot be determined as
per rule 5, then the goods will be valued at transaction value of similar goods.

Features of similar goods:

Similar goods are defined in Rule 2( e ) as under:

(a)​ Similarity: Imported goods which though not identical in all respects, have
identical characteristics and components such as, quality, reputation and existence of
trademark and are commercially interchangeable with the goods being valued.

(b)​ Production in the same country: The similar goods should have been produced in
the same country as in the same country as in the case of goods to be valued.

(c)​ Engineering and art work: Imported goods in respect of which certain services like
engineering, art work etc; were undertaken in India free of charge or at concessional rates
will be excluded from the preview of similar goods.

4. Deductive value method (Rule 7)

When the goods cannot be valued under the above three methods, deductive value as per
rule 7 is used to value the imported goods. If the imported goods being valued are sold in
India in the same condition as they are imported, and this is at or about the same time
when valuation of the goods in question is to be done, then the value of goods shall be
based on the unit price at which the imported goods or identical or similar imported goods
are sold in the greatest aggregate quantity to persons who are not related to the seller in
India. From the unit price the following deductions shall be made:

(a)​ The usual commission that is paid or the usual additions to profits and general
expenses for such class or kind.

(b)​ The usual cost of transport, insurance etc.

(c)​ Customs duties and taxes payable on account of import or sale of the goods.
If similar goods or identical goods are not sold in India, then the value of goods shall be
based on the unit price at which identical or similar goods are sold after further processing.
However, due allowance will be made in respect of the value added for processing and the
deductions referred above.

4.​ Computed value method (Rule 7A)

This method is not incorporated in the customs rules 1988, thereby it is not a permissible
method of valuation. The GATT provides for reversing the sequence of the computed
value method with that of deduction value method at the option of the importer. Computed
value is the sum of the cost or value of materials, fabrication or other processing, profit
and general expenses, cost of transport, loading and unloading and cost of insurance.

5.​ Residual method(Rule 8)

This is the last method of valuation and known as the residual method. This method is used
when all the above methods of valuation of goods fail to arrive at the valuation of goods fail
to arrive at the valuation goods. Under this method, the basis of valuation is the selling price
for export to India. The value of the imported goods under this method should be based on
previously determined customs values to the extent possible. While valuing goods the
following shall not be taken as base:

(a)​ selling price of the goods produced in India.

(b)​ System of accepting highest of the alternative values.

(c)​ The price of the goods on the domestic market of the country of exportation.

(d)​ The price of the goods for export to a country other than India.

(e)​ Minimum customs value.

(f) Arbitrary or fictitious values.

Cost and services to be considered to determine Transaction value (Rule 9):

While arriving at the transaction value the following cost and services have to be added to the
price actually paid/ payable to the extent they are incurred by the buyer but are not included
in the price for Imported goods.

(a)​ Cost of Services:

 i.​ Commission and brokerage except buying commission.3
ii.​ Cost of containers
iii.​ Cost of packing
(b)​Value of goods and services
i.​ Materials and components incorporated in the imported goods.
ii.​ Tools, dies, moulds etc., used in the production of imported goods.
(c)​ Royalties and licence fee if any.
(d)​Value of any part of the proceeds of any subsequent resale, disposal pr use of
imported goods that accrues to the seller.
(e)​ Cost of Transport etc.

As per rule 9(2) the value of imported goods should include:

i.​ Cost of transport of goods to the place of importation.

ii.​ Loading, unloading, and handling charges associated with the delivery of
imported goods at the place of importation.
iii.​ The cost of Insurance.

Declaration of value by importer (Rule 10)

The importer or his agent shall furnish-

(a)​ A declaration disclosing full and accurate details relating to the value of imported
goods.
(b)​The invoice of the manufacturer or producer of the imported goods in cases where the
goods are imported from or through a person other than manufacturer or producer;
and
(c)​ Any other statement, information or document as considered necessary by the proper
officer for determination of the value of imported goods under these rules.

The provisions of the Customs Act, 1962 relating to confiscation, penalty and
prosecution shall apply to cases where wrong declaration, information, statement or
documents or furnished

Rejection of Declared Value (Rule 10A)

 The value declared by the importer may be rejected by the proper officer. He may ask the
importer to furnish further information including documents or other evidence and if, the
proper officer has reasonable doubt about the truth or

Settlement of dispute (Rule11):

At the request of the importer, the proper officer shall intimate the importer in writing
the reasons for suspicion of the truth or accuracy of value declared in relation to goods
imported by the importer and provide a reasonable opportunity of being heard, before taking
a final decision. Any dispute between the proper officer and the importer regarding value of
imported goods shall be resolved with the provisions contained in sub-section 1 of section14
of the Customs Act, 1962.(i.e. applying deemed value).

IMPORT AND EXPORT PROCEDURE

Imports and exports of any country are subject to control for reasons of revenue and to
provide protection to home made goods and also regulate the development of economy.
Customs duties are levied on goods imported into or exported from India. Import and Export
of goods to place by sea, air, rail or road. It can also take place through post parcel or as
baggage with passengers. Procedure for clearance of goods imported by post differs in
various aspects from that applicable for imports by sea and air .the differences are essentially
in the mode of payment of duty, the Customs Act, 1962 has clearly specified a set of
procedures in respect of imports by land, air or sea.

IMPORT PROCEDURE:

1.​ Arrival at customs port/airport only: section 29 provides that person-in-charge of

vessel of an aircraft entering India shall call or land at customs port or customs airport
only. It can land at any other place by accident, stress of weather or other unavoidable
cause. In such case he shall report to nearest police stationer customs officer . While
arriving by land route, the vehicle should come by approved route on ‘land customs
station’ only.
2.​ Import manifest/Report: Person-in-charge of vessel, air craft or vehicle has to submit
Import-Manifest/report or Import General Manifest [IGM]. In case of vessel or aircraft,
 it is called import manifest, while in case of vehicle, it is called import report. IGM can
be submitted electronically through floppy where EDI facility is available. Form of
manifest has been prescribed in various regulations issued by CBE & C. The manifest
/report provides details of cargo to be unloaded.
3.​ Grant of entry inward by customs officer (section 31): Unloading of cargo can start
after customs officer grants ‘entry inward’ which is granted only when berthing
accommodation is granted to a vessel.
4.​ Unloading of reported goods only (sec.32, 33 and 34): according to section 32 only
those goods specified in the imported manifest can be unloaded . Unloading can be done
only at approved place and under supervision of customs officer.
5.​ Filing of import bills of entry (Sec. 46(1) : bill of entry is a very vital and import and
document which every importer has to submit under section 46. The bill of entry should
be in prescribed form. Bill of entry should be submitted in quadruplicate. Original and
duplicate are to be submitted customs .triplicate is for the importer and fourth copy is
meant for bank making remittances. bill of entry contains details in the form of (1)
importer “s” name (2) address (3) vessel’s name (4) line number(5) port of shipment (6)
country of origin (7) nature of quality of packages (8) customs tariff heading (9)
exemption notification number (10) total duty
6.​ Assessment of goods: Appraisers of customs department assess the goods on submission
of bill of entry (a)invoices (b) packing specification (c) payment particulars
(d)catalogues (e)broker’s note (f) insurance policy. These documents will be helpful in
proper classification and valuation of the goods. The declaration made in the bill of entry
is verified by the physical examination of the cargo before the duty is assessed.
7.​ Approval of assessment: the assessment has to be approved by the assessment
commissioner, if the value is more than Rs.100000 .after the approval, duty payable is
typed by ‘pin point typewriter’ so that it cannot be tampered with.
8.​ Customs clearance from view of import policy: Customs authorities also check goods
from the other acts, regulating imports and exports. Import license and import
restrictions are checked. Each importer and exporter has to get import and export code
number (ICENo) from the director general of foreign trade. The code is based on the
PAN of income tax.
9.​ Payment of duty: if goods are to be removed to a Warehouse , duty payment is not
required. Goods can be taken to a warehouse under a bond without payment of duty.
However, if goods are to be removed for home consumption, payment of customs duty is
 required. Duty can be paid either in cash or through P.D. Account. A P.D. account means
provisional duty account. This is a current account. The importers pay lump sum amount
in the account and get credit on the amount paid. The importer can pay the customs duty
by debiting the amount in P.D. account. If the importer does not have an account , he can
pay duty by cash using TR-6 challan. If payment is made by cheque or demand draft, the
payment will be deemed to have been received on the data on which the cheque or DD is
cleared. The payment is to be made within 5 working days after the bill of entry is
returned to the importer for payment of duty. If the duty is not paid within 5 working
days, interest is payable.
10.​Disposal if goods are not cleared in 30 days: according to section 48 of customs act,
goods must be cleared within 30 days after unloading customs officer can grant
extension. Otherwise, goods can be sold after giving notice to importer. However,
animals, perishable goods and hazardous goods can be sold anytime – even before 30
days. Arms and Ammunition can be sold only with permission of central government.
 EXPORT PROCEDURE:

1.​ Initial steps to be taken by the exporter:

(a) obtain business identification number.
(b) open current account with designated bank for credit of duty drawback claim.
(c) register licenses/ advance licenses at the customs station if the exports are under
export promotion scheme.

2. Shipping to be submitted by an exporter: Shipping bill and bill of export

regulations form shall be submitted along with the packing list, invoices , export contract,
letter of credit.
 3. Declaration of exporter: Exporter has to make appropriate declaration in prescribed
form in case of exporter of goods for drawback and other appropriate declaration.

4. Export duty is payable: Export duty is levied on very few articles and cess is payable
on certain commodities under various act. The duty and cess is to be paid before export is
allowed.

5. Entry of goods for exportation [section 50]: As per section 50 of the customs act,
the exporter is required to present a shipping bill to proper officer of customs. The shipping
bill is filed only after an entry outwards has been granted for the particular vessel or aircraft
by which the goods are to be exported.

6. Clearance of goods for exportation (section 51): After the shipping bill being filed,
goods are presented for the customs appraisal. Appraisal is done by scrutinising the document
and physical check. If the customs officer is satisfied that goods are not prohibited and the
exporter has paid the duty, the order for shipment is made on the duplicate copy of the
shipping bill. This is known as’ Let Export’ orders.

7. Check in customs: Documents submitted are processed by customs authorities and the
following are checked:

(a)value and classification of goods under drawback schedules

(b)export duty /cess if payable .

(c)advance license and shipping bill are checked to ensure that description in invoice and
final products specified in advance license matches.

8. Examination of goods before export: On the passing of the shipping bill, the goods are
presented to shed appraiser(exports) in dock for examination. Goods will be examined by
examiner. This inspection is necessary to ensure that prohibited goods are not exported and
goods tally with description of invoice.

9. “Let Export” order by customs authorities: Customs officer will verify the contents and
after he is satisfied that goods are not prohibited for exports and that export duty, if applicable
is paid, will permit clearance by giving ‘ Let ship’ or ‘Let Export’ order.

10. Goods not to be loaded on vessel until entry outward granted section (39&40):

The master of vessel will load goods on entry outward being granted by proper officer.
11. Conveyance to leave on return order:

The vessel or aircraft which carries export goods can leave on a return order given by
customs officer which is given only after(a) export manifest is submitted.(b)shipping bill or
bills of export are submitted (c) duties on stores consumed or paid (d) no penalty is leviable
(e) export duty is paid .

12. Notice of short supply: As per notice of ‘short export rules, 1963, if any goods
mentioned in shipping bill or bill of export and cleared for exportation are not exported , the
exporter shall , within 7 days from the date of departure of the conveyance by which the
goods are intended to be exported , furnished the particulars to the customs authorities . the
notice is known as short-shipment/shutout notice. Any exporter who fails to comply with this
provision is liable to pay penalty not exceeding Rs.100.

BAGGAGE
Meaning of Baggage: Customs Act, 1962 contains special provisions regarding baggage,
goods imported /exported by post and stores. “Baggage means baggage of a passenger,
accompanied or unaccompanied, and comprises trunks or bags and the personal belongings of
the passenger contained therein.
Baggage does not include motor vehicle.

Regulations in respect of Baggage (Sec. 81]

1. Declaration by owner of the Baggage (Sec. 77]

The owner of any baggage shall make a declaration of its proper authority for the purpose of
clearing it.
Classification of Tourists: Tourists are broadly classified under three categories:

a.​ Indians going abroad for a short period and returning to India
b.​ Indians who have gone abroad for work and coming back after a few years
c.​ Foreign tourists coming to India for sightseeing or business purpose

Green and Red channels: Customs have provided two channels, namely green channel and
Red channel at airports.

Green channel: A passenger going through the green channel is not expected to carry any
dutiable goods. If there carries he can be penalised for false declaration.

Red channel: A passenger carrying dutiable goods is required to pass through red channel.
He shall make declaration of contents of baggage to the proper officer. When he passes
through red channel and makes the declaration, the goods cannot be confiscated though they
may be found in commercial quality.

2. Rate of duty and Tariff valuation (Sec. 78):

As per section 78 of the Customs Act the rate of duty and Tariff valuation applicable to
baggage shall be there rate and valuation in force on the date of declaration
3. Exemption in case of bonafide baggage:
According to Baggage Rules , 1998 the provisions of baggage rules are applicable to three
different categories of persons (a) Resident from India (b) Tourists visiting India and (c)
Persons transferring their residence.
Rules relations to exemption (Sec. 79)
a)​ Exemptions applicable to only bonafide baggage: Bonafide baggage includes
“wearing apparel, personal effects, household effects meant for personal use of
passenger or family members traveling with him and not for sale or gift. Jewellery
including articles made wholly or mainly of gold, in reasonable quantity scouting to
status of passenger, tools of draftsman, instruments of physician or surgeon.”
Bonafide luggage is not to include alcoholic liquor exceeding half pint, perfumed
spirit exceeding two ounces in open or unopened bottles, cigars, cheroots exceeding
50, piano, pianola and radio.
b)​ Export certificate: Any person leaving India should take expert certificate for taking
Jewellery, Camera, laptop etc. Otherwise customs duty will be leviable while bringing
back the goods.
c)​ General free allowances: In addition to personal effects (Other than Jewellery) a
passenger of specified age is allowed general free allowance, if Indian residents are
returning from countries other than Nepal, Bhutan, Myanmar or China
d)​ Limited exemption to Jewellery: In the case of passenger residing abroad for over
one year, Jewellery can be imported duty free upto specific value in case of
Gentlemen passenger (Rs. 50,000) and specified value in case of lady passenger.(Rs.
1,00,000)
e)​ Concessions to persons transferring residence (TR): A person who is transferring
his residence to India is eligible to bring used personal and household articles to India
without duty. This exemption is allowed to all persons coming to India for residence
in India after specified years. (Indian residents).
f)​ Exemption to laptop: Laptop brought by a person along with baggage is exempt
from customs duty provided the person is above 18 years of age.

Unaccompanied Baggage: Baggage includes unaccompanied Baggage brought before or

after arrival of passenger within the prescribed period. Bonafide unaccompanied luggage is
also allowed under the above rules.
Concession to Tourists: A tourist is a person who is not normally resident in India , and
enters India for a stay of not more than six months in the course of twelve months period.
Tourists come from legitimate non-immigration purpose such as touring, recreation, sport,
health, study, religious pilgrimage or business.

Exemption to Baggage of tourists: a) Used personnel effects b) Foreign tourists are allowed
to bring articles upto specified value for making gifts.

Detention: In some cases goods brought in by tourist may be prohibited in India. If the
tourist makes declaration in respect of those goods, the goods are temporarily detained by
customs authorities. The goods will be returned to the tourist when he leaves India.

Transshipment of Baggage: In some cases the unaccompanied Baggage land at one customs
station but the passenger may like to clear the goods from another customs station. In such
cases, such baggage may be permitted to be transported by air or passenger train under to
supervision of officer of Customs. The passenger will have to make arrangements for
transport and pay for supervision charges.

Fully exempt Baggage

In the following cases baggage is fully exempt from customs duty.
1.​ Re-imported personal property
2.​ Food stuff upto RS. 50000
3.​ Free replacement under warranty of private property of passengers.
4.​ Free gifts and donations to red Cross, care or government of India
5.​ Samples, prices lists, prototypes etc.
6.​ Agricultural products
7.​ News papers, drawings and other goods specified.

CUSTOMS DUTY DRAW BACK

Customs duty draw back is,
•​ Rebate of duty chargeable
•​ Rebate of duty of excise
Prohibition:
•​ Goods at the market price which is less than the amount of drawback
 •​ Goods where drawback is less than fifty rupees
•​ Goods which are likely to be smuggled back to India

PROCEDURE FOR CLAIMING DUTY DRAWBACK

•​ Filing of shipping bill
The exporter is required to file a shipping bill in triplicate along with a copy of
invoice.

•​ Declaration
Required declarations must be made by the exporter by duly signing the declaration.
•​ Bill of export
The triplicate (third copy) of the Bill of Export is the drawback copy and must be
marked as drawback claim copy.
•​ Passing of bill by Assistant Commissioner
On receipt of the shipping bill or bill of export by the customs officers, it is checked
and verified. On passing the bill of export by the Assistant Commissioner the
duplicate and triplicate are handed over to the exporter for scrutiny. The examiner
(customs authority) subscribes his report on duplicate/ triplicate copies with the words
“Let export order be given”.
•​ Submission of Let Export order be given to the drawback department
The triplicate copy is to be submitted to the drawback department.
•​ Drawback claim
Drawback claim has to be submitted within 3 months after, “let export order be given”
is issued.
•​ Credited to exporter’s account
The account of the exporter is credited in drawback ledger after the sanction is issued
by the Assistant Commissioner.

REFUND CUSTOMS DUTY

•​ When customs duty is paid in excess, it is refunded by the department.

DOCUMENTS TO BE SUBMITTED ALONG WITH REFUND CLAIMS

✔​ Copy of bill of entry
✔​ Customs attested invoice
 ✔​ Packing specifications
✔​ Acceptance of order/contract/letter of credit
✔​ Documentary evidence

DEFINITIONS:
•​ Adjudicating Authority
Authority empowered to pass an order under the Act
•​ Baggage
All durable articles imported by a passenger
Does not include vehicles & alcoholic drinks
●​ Goods [Section 2(22)] includes –
a) Vessels, aircrafts and vehicles;
b) Stores;
c) Baggage;
d) Currency and negotiable instruments;
e) Any other kind of movable property.
The concepts of movability and marketability in respect of goods laid out under the Central
Excise law shall also be applied in respect of Customs law also
•​ Importer
​ ​ Owner/Person who imports goods
•​ Imported Goods
​ ​ Goods brought into India
•​ Indian Customs Waters
​ ​ Waters extending into the sea upto the limit of India – Bay, Gulf & Harbor
•​ Prohibited Goods
​ ​ Goods subject to prohibition under the Customs Act
•​ Market Price
​ ​ The wholesale price of the goods
•​ High Sea
Beyond 200 nautical miles, the area is known as high sea. All counties have equal rights to
high sea.
•​ Person in charge
✔​ ​ Vessel – The master of the vessel
✔​ Aircraft – Pilot/Commander
✔​ Train – Conductor/ Guard
✔​ Vehicles - Driver