CUSTOMS

Brief Background of Customs Law

Customs duty is on import into India and export out of India. As per ancient custom,

a merchant entering a kingdom with his goods had to make a suitable gift to the King.

In the course of time, this ‘custom’ was formalised into ‘Customs Duty’. This is collected

on imports (and occasionally on exports too). The word ‘Customary’ is derived from

‘customs’, which indicates that it is a very old tax. Taxes on goods were levied on various

goods right from the Veda period.

British established its first Board of Revenue in 1786 at Calcutta. General rate of import duty
was 10%, which was reduced to 7.5%. Customs duty in India is linked with history of textile
industry. British manufacturers wanted to export their products to India and due to their
pressure, duty on cotton goods was abolished. Import duty on cotton goods @ 5% was
introduced in 1894. After independence, manufacturing industry grew and trade expanded.
Customs Act, 1962 was passed to consolidate Sea Customs Act, Land Customs Act and
provisions for air customs.

CONSTITUTIONAL PROVISIONS

The Customs Act, was enacted by the Parliament in the year 1962, as per the List I of the Union
List Parliament has an exclusive right to make laws. The Customs Act regulates import and
export, protecting the Indigenous industry from other countries and so on. The Central

Government of India has power to make rules under section 156 of Customs Act, 1962, and

also has the power to issue Notifications from time to time for the purpose of smooth

functioning and effective administration of the Act. As per section 157 of the Custom Act,

1962, Central Board of Indirect Tax and Customs (CBIC), has been empowered to make
regulations, consistent with provisions of the Act. The Commissioner of Customs has the power
to issue the Public notices which are also called trade notices. The power to enact the law is
provided under the Constitution of India under the Article 265, which states that ―no tax shall
be levied or collected except by authority of law . Entry No. 83 of List I to Schedule VII of the
Constitution empowers the Union Government to legislate and collect duties on import and
exports.

The Customs Act, 1962 is the basic statute which governs entry or exit of different categories
of vessels, aircrafts, goods, passengers etc., into or outside the country. The Act extends to the
whole of the India.

Customs Act, 1962 just like any other tax law is primarily for the levy and collection of duties
but at the same time it has the other and equally important purposes such as:

(i) regulation of imports and exports;

(ii) protection of domestic industry
(iii) prevention of smuggling
(iv) conservation and augmentation of foreign exchange and so on.

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

LEVY OF CUSTOM DUTY

There are four stages in any tax structure,

 levy,
 assessment,
 collection and
 postponement.

The basis of levy of tax is specified in Section 12, charging section of the

Customs Act. It identifies the person or properties in respect of which tax or duty is to be

levied or charged. As per Section 12, customs duty is imposed on goods imported into or
exported out of India as per the rates specified under the Customs Tariff Act, 1975 or any other
law.

On analysis of Section 12, we derive the following points:

(i) Customs duty is imposed on goods when such goods are imported into or exported out of
India;

(ii) The levy is subject to other provisions of this Act or any other law;

(iii) The rates of Basic Custom Duty are as specified under the Tariff Act, 1975 or any other

law;

(iv) Even goods belonging to Government are subject to levy, though they may be exempted

by notification(s) under Section 25. Custom Tariff Act, 1975 has two schedules. Schedule I

prescribes tariff rates for imported goods, known as ―Import Tariff and Schedule II ‖

contains tariff for export goods known as ―Export Tariff

Custom duty refers to the tax imposed on goods when they are transported across the
international borders. In simple terms, it is the tax that is levied on import and export of goods.
The government uses this duty to raise it’s revenues, safeguard domestic industries and regulate
movement of goods. The liability to pay custom duty commences as soon as goods enter the
territorial water of India. No duty is leviable on goods which are in transit in the same ship or
if goods are in transit from obe ship to another. No custom duty is leviable on sample goods.
Basic custom duty The term territorial waters is sometimes used informally to refer to any area
of water over which a sovereign state has jurisdiction.

Section 12 declares that duties of customs shall be levied on all goods imported into India. The
goods imported shall have to be valued under section 14 of the Customs Act and the duty
payable shall have to be determined according to the rates specified under section 15 of the
Customs Act,1962 read with the Tariff Act. Under section 46(1) of the Customs Act every
importer of goods is required to make an entry for home consumption or warehousing in the
prescribed form. The goods may be unloaded only at the approved place and under the
supervision of the customs officer as per section 31 of the Customs Act.

The basic condition for levy of customs duty is import/export of goods i.e. goods become liable
to duty when there is import into or export from India.

— Import means bringing into India from a place outside India [Section 2(23)].

— Export means taking out of India to a place outside India [Section 2(18)].
— "India" includes the territorial waters of India [Section 2(27)]. The limit of the territorial
waters is the line every point of which is at a distance of twelve nautical miles from the nearest
point of the appropriate baseline.

Though the taxable event is import/export yet it is difficult to determine the exact time of levy.

For the purpose of chargeability under section 12 , taxable event occurs when the goods enter
the territorial water. Import duty would be applicable when goods enter the territorial waters
of India and goods may be valued and the duty quantified and collected later tax laid down in
section 14 and section 15 of the customs act.

in Kiran Spinning Mills v. CC it has been held that import is completed only when

goods cross the customs barrier. The taxable event is the day of crossing of 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 barrier would be crossed

when they are sought to be taken out of the customs and brought to the mass of goods

in the country.

NATURE AND RESTRICTIONS ON EXPORTS AND IMPORTS-LEVY

Under section 111 and Section 113, any goods which are imported or attempted to be imported
and exported or attempted to be exported, contrary to any prohibition imposed by or under the
Customs Act or any other law for the time being in force shall be liable to confiscation.

Section 112 of the Customs Act provides for penalty for improper importation and Section 114
of the Customs Act provides for penalty for attempt to export goods improperly.

The terms "Prohibited Goods" have been defined in sub-section 33 of Section 2 of the Customs Act
as meaning "any goods the import or export of which is subject to any prohibition under the Customs
Act or any other law for the time being in force" In respect of prohibited goods the Adjudicating
Officer may impose penalty upto five times the value of the goods.

1) Under section 11 of the Customs Act, the Central Government has the power to
issue Notification under which export or import of any goods can be declared as
prohibited. The prohibition can either be absolute or conditional. The specified
purposes for which a notification under section 11 can be issued are
 maintenance of the security of India,
 prevention and shortage of goods in the country,
 conservation of Foreign Exchange,
 safeguarding balance of payments etc.

The Central Govt. has issued many notifications to prohibit import of sensitive goods such
as coins, obscene books, printed waste paper containing pages of any holy books, fictitious
stamps, explosives, narcotic drugs, etc.

2) Under Export and Import Policy, laid down by the DGFT, in the Ministry of
Commerce, certain goods are placed under restricted categories for import and
export. Under section 3 and 5 of the Foreign Trade (Development and Regulation)
Act, 1992, the Central Government can make provisions for prohibiting,
restricting or otherwise regulating the import of export of the goods. As for
example, import of second hand goods and second hand capital goods is restricted.
Some of the goods are absolutely prohibited for import and export whereas some
goods can be imported or exported against a licence. For example export of
human skeleton is absolutely prohibited whereas export of cattle is allowed
against an export licence. All packaged commodities imported into India shall
carry the name and address of the importer, net quantity in terms of standard unit
of weights measures, month and year of packing and maximum retail sale price
including other taxes, local or otherwise. In case any of the conditions is not
fulfilled, the import of packaged products shall be held as prohibited, rendering
such goods liable to confiscation.
3) Another restriction is that the import of a large number of products, presently
numbering 133, are required to comply with the mandatory Indian Quality
Standards (IQS) and for this purpose exporters of these products to India are
required to register themselves with Bureau of Indian Standards (BIS). Non-
fulfillment of the above requirement shall render such goods prohibited for
import.
4) Import and export of some specified goods may be restricted/prohibited under
other laws such as Environment Protection Act, Wild Life Act, Indian Trade and
Merchandise Marks Act, Arms Act, etc. Prohibition under those acts will also
apply to the penal provisions of the Customs Act, rendering such goods liable to
confiscation under section 111(d) of the Customs Act (for import) and 113 (d) of
the Customs Act (for export).
 5) Any Importer or Exporter for being knowingly concerned in any fraudulent
evasion or attempted evasion of any prohibition under the Customs Act or any
other law for the time being in force in respect to any import or export of goods,
shall be liable to punishment with imprisonment for a maximum term of three
years (seven years in respect of notified goods) under section 135 of the Customs
Act. Any person who is reasonably believed to be guilty of an offence, punishable
under section 135, may be arrested under the provisions of section 104 of the
Customs Act.
6) it is advisable for the Trade to be well conversant with the provisions of EXIM
Policy, the Customs Act, as also other allied Acts. They must make sure that
before any imports are effected or export planned, they are aware of any
prohibition/restrictions and requirements subject to which alone goods can be
imported/exported, so that they do not get penalised and goods do not get involved
in confiscation etc. proceedings at the hands of Customs authorities.

CLEARANCE OF GOODS FROM THE PORT, INCLUDING BAGGAGE

Import as defined under the Customs Act, 1962 refers to bringing something to India
from an outside location. Levying taxes on such imports is an essential feature of the
import procedure. This tax or duty becomes leviable when the cargo enters the territorial
waters of India. These procedures are also referred to as customs clearance. It involves
preparation and submissions of the necessary documentation which substantiates payment
of duties, assessment of the goods, keeps a check on import of illegal goods and
maintains a record of the same.

The type of documents required for customs clearance usually depends on the type of goods
being shipped. It may also vary depending on the country of origin and the destination of the
cargo. However, as a thumb rule, there are a set of general documents that most businesses
need to comply with when importing or exporting goods. Which are :

1. Pro Forma Invoice The Pro Forma Invoice documents the intention of the exporter
to sell a predetermined quantity of goods or products. This invoice is generated as per
the outlined terms and conditions agreed upon between the exporter and the importer,
through a recognised medium of communication such as email, fax, telephone or in
 person. It is similar to a ‘Purchase Order’, which is issued prior to completing the
sales transaction.
2. Customs Packing List The customs packing list states the list of items included in
the shipment that can be matched against the pro forma invoice by any concerned
party involved in the transaction. This list is sent along with the international
shipment and is especially convenient for transportation companies as they know
exactly what is being shipped. Individual customs packing lists are secured outside
each individual container to minimise the risk of exporting incorrect cargo
internationally.
3. Country of Origin or COO Certificate The Country of Origin Certificate is a
declaration issued by the exporter that certifies that the goods being shipped have
been completely acquired, produced, manufactured or processed in a particular
country.
4. Customs Invoice A customs invoice is a mandatory document for any export trade.
The customs clearance department will ask for this document first as it contains
information about the order, including details such as description, selling price,
quantity, packaging costs, weight or volume of the goodsetc . A customs
representative will match this information with the order and decide whether to clear
this for forwarding or not.
5. Shipping Bill A shipping bill is a traditional report where the downside is asserted
and primarily serves as a measurable record. This can be submitted through a custom
online software system (ICEGATE).
To obtain the shipping bill, the exporter will need the following documents:
 Packing list (with various details
 Export License
 Invoices (with all relevant information
 Purchase Order
 Letter of Credit
6. Bill of Lading Bill of Lading is a legal document issued by the carrier to the shipper.
It acts as evidence of the contract for transport for goods and products, mentioned in
the bill provided by the carrier. It also includes product information such as type,
quantity, and destination that the goods are being carried to. This bill can also be
treated as a shipment receipt at the port of destination where it must be produced to
the customs official for clearance by the exporter. Regardless of the form of
 transportation, this is a must-have document that should accompany the goods and
must be duly signed by the authorised representative from the carrier, shipper, and
receiver.
7. Bill of Sight Bill of Sight is a declaration from the exporter made to the customs
department in case the receiver is unsure of the nature of goods being shipped. The
Bill of Sight permits the receiver of goods to inspect them before making payments
towards applicable duties. Applying for a bill of sight becomes necessary as it acts as
a substitute document if the exporter does not have all the must-have information and
documents needed for the bill of entry. Along with the bill of sight, the exporter also
needs to submit a letter that allows for the clearance of goods by customs.
8. Letter of Credit Letter of credit is shared by the importer’s bank, stating that the
importer will honour payment to the exporter of the sum specified to complete the
transaction. Depending on the terms of payment between the exporter and importer,
the order is dispatched only after the exporter has this letter of credit.
9. Export License Businesses must have an export license that they can provide to
customs in order to export or forward any products. This only needs to be produced
when the shipper is exporting goods to an international destination for the very first
time. This type of license may vary depending on the type of export you intend to
make. This can be done by applying with the licensing authority, and the permit is
eventually issued by the Chief Controller of Exports and Imports.
10. Health Certificates Health Certificate is applicable only when there are food
products that are of animal or non animal origin involved in international trade. The
document certifies that the food contained in the shipment is fit for consumption by
humans and has been vetted to meet all standards of safety, rules and regulations prior
to exporting. This certificate is issued by authorised governmental organisations from
where the shipment originates.

AUTHORITIES - POWERS AND FUNCTIONS

officers working in various wings of Customs, Excise and Service tax department remain
aware of legal provisions relating to Customs Act, 1962; Central Excise Act, 1944 and the
Finance Act, 1994.

In addition to exercising powers under three indirect tax statutes, they also derive powers
under NDPS Act,1985; PITNDPS Act, ChemicalmWeapons Convention Act,2000 etc.
3. Classes of officers of customs.— There shall be the following classes of officers of
customs, namely:-

a. Chief Commissioners of Customs;

b. Commissioners of Customs;

c. Commissioners of Customs (Appeals);

(cc) Joint Commissioners of Customs;

d. Deputy Commissioners of Customs;

e. Assistant Commissioners of Customs or Deputy Commissioner of

Customs;

f. such other class of officers of customs as may be appointed for

the purposes of this Act.

4. Appointment of officers of customs. —

a. The Board may appoint such persons as it thinks fit to be officers

of customs.

b. Without prejudice to the provisions of sub-section (1), Board may authorise a Chief
Commissioner of Custom or a Joint or Assistant Commissioner of Customs or Deputy
Commissioner of Customs to appoint officers of customs below the rank of Assistant
Commissioner of Customs or Deputy Commissioner of Customs.

4. Powers of officers of customs. -

a. Subject to such conditions and limitations as the Board may impose, an officer of customs
may exercise the powers and discharge the duties conferred or imposed on him under this
Act.

b. An officer of customs may exercise the powers and discharge the duties conferred or
imposed under this Act on any other officer of customs who is subordinate to him.

c. Notwithstanding anything contained in this section, a Commissioner ( Appeals) shall not

exercise the powers and discharge the duties conferred or imposed on an officer of customs
other than those specified in Chapter XV and section 108.
 2. Entrustment of functions of Board and customs officers on certain other officers. - The
Central Government may, by notification in the Official Gazette, entrust either
conditionally or unconditionally to any officer of the Central or the State Government or a
local authority any functions of the Board or any officer of customs under this Act.

POWERS OF CUSTOM AUTHORITY

POWERS OF CUSTOM AUTHORITY

Sec 100. Power to search suspected persons entering or leaving India, etc.

Sec 101. Power to search suspected persons in certain other cases.

Sec 103. Power to screen or X-ray bodies of suspected persons for detecting secreted

goods.

264

Sec 104. Power to arrest.—

Sec 105. Power to search premises.

Sec 106. Power to stop and search conveyances.—

Sec 106A. Power to inspect.

Sec 107. Power to examine persons.

Sec 108. Power to summon persons to give evidence and produce documents.

Sec 109. Power to require production of order permitting clearance of goods imported

by land.

Sec 109A. Power to undertake controlled delivery.

Sec 110. Seizure of goods, documents and things.

Sec 144. Power to take samples

SEARCH AND SEIZURE

Sec 100. Power to search suspected persons entering or leaving India, etc.—

(1) If the proper officer has reason to believe that any person to whom this section applies
has secreted about his person, any goods liable to confiscation or any documents relating

thereto, he may search that person.

(2) This section applies to the following persons, namely:—

(a) any person who has landed from or is about to board, or is on board any vessel within the

Indian customs waters;

(b) any person who has landed from or is about to board, or is on board a foreign-going

aircraft;

(c) any person who has got out of, or is about to get into, or is in, a vehicle, which has

arrived from, or is to proceed to any place outside India;

(d) any person not included in clauses (a), (b) or (c) who has entered or is about to leave

India;

(e) any person in a customs area.

Sec 101. Power to search suspected persons in certain other cases.—

(1) Without prejudice to the provisions of section 100, if an officer of customs empowered in

this behalf by general or special order of the Principal Commissioner of Customs or

Commissioner of Customs], has reason to believe that any person has secreted about his

person any goods of the description specified in sub-section (2) which are liable to

confiscation, or documents relating thereto, he may search that person.

(2) The goods referred to in sub-section (1) are the following:—

(a) gold;

(b) diamonds;

(c) manufactures of gold or diamonds;

(d) watches;

(e) any other class of goods which the Central Government may, by notification in the
Official Gazette, specify.

Sec 103. Power to screen or X-ray bodies of suspected persons for detecting secreted

goods.—

(1) Where the proper officer has reason to believe that any person referred to in sub-section

(2) of section 100 has any goods liable to confiscation secreted inside his body, he may

detain such person and produce him without unnecessary delay before the nearest magistrate.

(2) A magistrate before whom any person is brought under sub-section (1) shall, if he sees no

reasonable ground for believing that such person has any such goods secreted inside his

body, forthwith discharge such person.

(3) Where any such magistrate has reasonable ground for believing that such person has any

such goods secreted inside his body and the magistrate is satisfied that for the purpose of

discovering such goods it is necessary to have the body of such person screened or X-rayed,

he may make an order to that effect.

(4) Where a magistrate has made any order under sub-section (3), in relation to any person,

the proper officer shall, as soon as practicable, take such person before a radiologist

possessing qualifications recognized by the Central Government for the purpose of this

section, and such person shall allow the radiologist to screen or X-ray his body.

(5) A radiologist before whom any person is brought under sub-section (4) shall, after

screening or X-raying the body of such person, forward his report, together with any X-ray

pictures taken by him, to the magistrate without unnecessary delay.

(6) Where on receipt of a report from a radiologist under sub-section (5) or otherwise, the

magistrate is satisfied that any person has any goods liable to confiscation secreted inside his

body, he may direct that suitable action for bringing out such goods be taken on the advice

and under the supervision of a registered medical practitioner and such person shall be bound
to comply with such direction: Provided that in the case of a female no such action shall be

taken except on the advice and under the supervision of a female registered medical

practitioner.

(7) Where any person is brought before a magistrate under this section, such magistrate may

for the purpose of enforcing the provisions of this section order such person to be kept in

such custody and for such period as he may direct.

(8) Nothing in this section shall apply to any person referred to in sub-section (1), who

admits that goods liable to confiscation are secreted inside his body, and who voluntarily

submits himself for suitable action being taken for bringing out such goods.

SEZ UNITS

A special economic zone (SEZ) is a dedicated zone wherein businesses enjoy simpler tax and
easier legal compliances. SEZs are located within a country’s national borders. However, they
are treated as a foreign territory for tax purposes. This is why the supply from and to special
economic zones have a little different treatment than the regular supplies. In simple words,
even when SEZs are located in the same country, they are considered to be located in a foreign
territory. SEZs are not considered as a part of India. Based of this it can be clearly said that
under GST, any supply to or by a Special Economic Zone developer or Special Economic Zone
unit is considered to be an Inter state supply and Integrated Goods and Service tax (IGST) will
be applicable .

The chief objectives of the SEZ Act are:

 To create additional economic activity.

 To boost the export of goods and services.
 To generate employment.
 To boost domestic and foreign investments.
 To develop infrastructure facilities.

Advantages of SEZs to Businesses

o Businesses are entitled for myriad of benefits and incentives along with a simplified
operating environment
 o Duty-free import of raw materials for production
o 100% income tax exemption on export income for SEZ units for the first 5 years,
thereafter 50% for the next 5 years
o Setup of businesses without any hassles of licenses or lengthy procedures
o No license is required for imports, including second-hand machineries
o Exemption from Goods and Service Tax (GST)
o External commercial borrowing by SEZ units up to US $500 million annually

Who can set up SEZs in India?

o Any private, public, joining sector, or state government or its agencies are permissible to
set up an SEZ for hassle-free trade activities
o A foreign agency is also allowed to establish SEZs in India
o For that, prior approval is required from the respective state governments. As well, it must
be ensured that the SEZs satisfy in terms of water, electricity, etc.