Contents

Unit 5..................................................................................................................................... 1
Unit 6 Customs and Tariff Law: Exam-Oriented Notes ........................................................... 6
Unit 7................................................................................................................................... 10
Unit 8................................................................................................................................... 15
Unit 9 1. Miscellaneous Provisions in Customs Law ............................................................. 19

Unit 5
1. Customs Valuation
Definition and Importance:
Customs valuation determines the assessable value of imported goods for levying customs
duties, ensuring transparency and uniformity in duty assessment.

Legal Framework:

 Section 14, Customs Act, 1962:

o Section 14(1): Valuation based on transaction value (price paid or payable,
including costs up to the place of importation) for goods not subject to tariff
value.
o Section 14(2): Tariff value prescribed for specific goods (e.g., crude palm oil,
crude palm-olein, crude soyabean oil, brass scrap, poppy seeds).
 Customs Valuation (Determination of Value of Imported Goods) Rules, 2007:
Implements valuation methods, aligned with the WTO Valuation Agreement.
 Key Principle: Valuation reflects the economic value of goods, avoiding arbitrary or
fictitious values.

Valuation Methods (Customs Valuation Rules, 2007):

1. Transaction Value (Rule 3): Price actually paid or payable, adjusted per Rule 10,
subject to conditions (see below).
2. Transaction Value of Identical Goods (Rule 4): Value of identical goods imported
at or about the same time.
3. Transaction Value of Similar Goods (Rule 5): Value of similar goods if identical
goods are unavailable.
4. Deductive Value (Rule 7): Based on resale price in India, adjusted for deductions
(e.g., commissions, profits).
5. Computed Value (Rule 8): Based on cost of materials, fabrication, and profit.
6. Residual Method (Rule 9): Reasonable means consistent with valuation principles
when other methods fail.
Conditions for Transaction Value (Rule 3, Document):

 Seller has no control over imported goods.

 Sale price is the sole consideration (no additional payments).
 Sale proceeds are not shared with the exporter.
 Buyer and seller are not related (or relationship does not influence price, per Rule
3(3)).
 Case Law: Associated Cement Companies Ltd. v. Commissioner of Customs (2001) –
Burden on importer to prove transaction value reflects market conditions.

Adjustments (Rule 10, Document):

 Inclusions:
o Ex-factory price, carriage, freight, insurance up to the port of shipment,
loading charges, and value of buyer-supplied goods/tooling (FOB to CIF
conversion).
o Commissions, brokerage, packing, royalties, license fees, transport, insurance,
and handling charges up to the place of importation.
 Exclusions: Post-importation costs (e.g., inland transport, duties/taxes in India).
 Case Law: Eicher Tractors Ltd. v. Commissioner of Customs (2000) – Royalties
included only if a condition of sale.

Computation of Assessable Value (Document):

1. Ex-factory price of material.

2. Carriage, freight, insurance up to the port of shipment.
3. Loading charges at the shipping port.
4. Value of goods/tooling supplied by the buyer.
5. Freight and insurance from FOB to CIF (Cost + Insurance + Freight).

Rejection of Transaction Value (Rule 12):

 Rejected if price is influenced (e.g., related party transactions) or lacks

documentation.
 Case Law: Tata Iron & Steel Co. Ltd. v. Commissioner of Customs (2000) –
Transaction value rejected if not at arm’s length.

Practical Application:

 For problem-based questions, verify if transaction value meets Rule 3 conditions. If

rejected, apply Rules 4–9 sequentially. Calculate assessable value by adding Rule 10
inclusions, citing Eicher Tractors for royalties or Associated Cement for
documentation.
 Example: If a question provides FOB value and freight/insurance costs, compute CIF
value and adjust for inclusions (Rule 10).

2. WTO Valuation Agreement

Overview:
The Agreement on Implementation of Article VII of GATT 1994 (WTO Valuation
Agreement) establishes global standards for customs valuation, ensuring fair, uniform, and
neutral practices. It is incorporated into Indian law via Section 14, Customs Act, 1962 and
Customs Valuation Rules, 2007.

Key Principles:

1. Transaction Value Priority (Article 1): Primary method, adjusted as necessary.

2. Sequential Application (Articles 2–7): Alternative methods applied in order if
transaction value is inapplicable.
3. Transparency: Prohibits arbitrary or fictitious values (e.g., minimum values,
domestic prices in exporting country).
4. Non-Discrimination: Valuation must not vary based on the source of goods.

Valuation Methods (Articles 1–7):

 Article 1: Transaction value, adjusted per Article 8.

 Article 2: Transaction value of identical goods.
 Article 3: Transaction value of similar goods.
 Article 5: Deductive value (resale price-based).
 Article 6: Computed value (cost-based).
 Article 7: Fallback method (reasonable means).
 Article 8: Adjustments for inclusions (e.g., commissions, royalties, transport costs).

Key Provisions:

 Related Party Transactions (Article 1.2): Transaction value acceptable if the

relationship does not influence price, proven by market comparability.
 Exclusions (Article 8): Post-importation costs and taxes in the importing country.
 Importer’s Rights (Article 11): Right to appeal valuation decisions.
 Transparency (Article 12): Valuation laws must be published.
 Case Law: Collector of Customs v. Nippon Bearing (1996) – Indian courts uphold
WTO principles for commercial reality.

Indian Implementation:

 Customs Valuation Rules, 2007 mirror Articles 1–7.

 Section 14(1) aligns with Article 1 by prioritizing transaction value.
 Case Law: Essar Oil Ltd. v. Commissioner of Customs (2004) – Adherence to WTO
sequential application mandatory.

Practical Application:

 In exam scenarios, ensure compliance with WTO principles (e.g., sequential

application, no arbitrary values). For related party transactions, cite Article 1.2 and
Tata Iron & Steel to prove market-based pricing.
 Example: If a question involves imports between subsidiaries, argue for transaction
value acceptance if price aligns with market rates (Rule 3(3)).
3. Transaction Value of Identical and Similar Goods
Overview:
When transaction value is rejected (e.g., related party influence, lack of documentation),
identical or similar goods values are used per Rules 4 and 5, Customs Valuation Rules,
2007, aligned with Articles 2 and 3, WTO Valuation Agreement.

Identical Goods (Rule 4, Document):

 Definition (Rule 2(1)(c)): Goods identical in physical characteristics, quality,

reputation, and produced in the same country. 4
 Conditions:
o Imported at or about the same time.
o Produced by the same manufacturer; if unavailable, use other manufacturers’
prices in the same country.
o If multiple values exist, use the lowest value.
o Adjustments for differences in commercial levels or quantities, supported by
evidence (e.g., price lists).
 Case Law: Hyderabad Industries Ltd. v. Commissioner of Customs (2002) – Minor
branding differences do not disqualify identical goods if physical characteristics
match.

Similar Goods (Rule 5):

 Definition (Rule 2(1)(e)): Goods not identical but with similar characteristics,
components, and functionality, produced in the same country.
 Conditions: Same as identical goods, with adjustments for commercial level/quantity.
 Case Law: Grasim Industries Ltd. v. Commissioner of Customs (2003) – Functional
interchangeability determines similarity.

Sequential Application:

 Apply Rule 4 before Rule 5; move to Rules 7–9 if neither applies.

 Case Law: Commissioner of Customs v. Hewlett Packard India (2007) – Skipping
identical goods to similar goods without justification is invalid.

Practical Application:

 For problem-based questions, determine if goods are identical (same characteristics)

or similar (comparable functionality) based on Rule 2 definitions. Adjust for
commercial levels/quantities, citing Rule 4(2)/5(2) and evidence requirements
(Document).
 Example: If importing laptops from the same country but different models, argue for
identical goods (same specs) or similar goods (comparable functionality), citing
Hyderabad Industries or Grasim Industries.
4. Warehousing in Customs
Overview:
Customs warehousing allows importers to store goods in bonded warehouses under customs
control, deferring duty payment until clearance, facilitating trade and inventory management.

Legal Framework:

 Sections 57–73, Customs Act, 1962: Govern warehousing provisions.

 Customs (Warehousing) Regulations, 2016: Operational guidelines.
 Key Principle: Goods remain under customs supervision, with duty payable only
upon clearance for home consumption.

Types of Warehouses:

 Public Warehouses (Section 57): Appointed for multiple importers.

 Private Warehouses (Section 58): Licensed for specific importers.
 Special Warehouses (Section 58A): For sensitive goods (e.g., gold, hazardous
materials), with stricter controls.

Key Provisions:

 Warehousing Bond (Section 59): Importer executes a bond (double the duty amount)
to ensure compliance.
 Warehousing Period (Section 61):
o Capital goods: 5 years.
o Other goods: 1 year (extendable with interest on duty).
o Perishable/hazardous goods: Shorter periods as prescribed.
 Clearance (Section 68): Goods cleared for home consumption on payment of duty
plus interest (if applicable).
 Removal/Transfer (Section 67): Goods may be transferred to another warehouse or
exported without duty payment.
 Destruction/Loss (Section 70): Duty remitted for goods lost/destroyed (except by
willful act).
 Penalties (Section 72): Duty and penalties for improper removal or non-accounting
of goods.
 Case Law: Kesoram Rayon v. Collector of Customs (1987) – Importer liable for duty
on goods removed without permission.

Practical Application:

 For problem-based questions, calculate warehousing period and interest (Section 61).
Check compliance with bond requirements (Section 59) and clearance procedures
(Section 68). Cite Kesoram Rayon for improper removal scenarios.
 Example: If goods are stored beyond the permitted period, compute interest (Section
61(2)) and argue for extension feasibility.
Unit 6
Customs and Tariff Law: Exam-Oriented
Notes
1. Assessment in Customs
Assessment in customs refers to the process of determining the duty liability on imported or
exported goods under the Customs Act, 1962. It involves classification, valuation, and
calculation of duties based on the Customs Tariff Act, 1975 and Customs Valuation Rules,
2007. The process is initiated with the filing of a Bill of Entry (imports, Section 46) or
Shipping Bill (exports, Section 50) through the Indian Customs Electronic Data
Interchange System (ICES).

 Key Stages:
o Filing of Import General Manifest (IGM) or Export General Manifest
(EGM) (Sections 30, 41).
o Submission of Bill of Entry/Shipping Bill for assessment.
o Classification using Harmonized System of Nomenclature (HSN) codes.
o Valuation based on transaction value (Customs Valuation Rules, 2007).
o Duty payment (Section 47) and clearance with an Out of Charge (OOC)
order for imports.
 Legal Implications:
o Misclassification or undervaluation may lead to reassessment, penalties, or
confiscation (Sections 111, 113).
o Disputes trigger adjudication under Section 28, with appeals to
Commissioner (Appeals), CESTAT, or higher judiciary.

2. Self-Assessment (Section 17, Customs Act, 1962)

Self-assessment requires importers/exporters to determine their duty liability independently,
promoting trade facilitation while ensuring compliance.

 Process:
o Importer (under Section 46) or exporter (under Section 50) self-assesses duty
on goods.
o Duty calculation based on HSN classification, transaction value, and
applicable rates (Customs Tariff Act, 1975).
o Bills of Entry/Shipping Bills filed electronically via ICES.
 Verification:
o Customs authorities select bills for verification based on risk parameters
(akin to scrutiny assessment).
o No separate section for scrutiny; included in self-assessment framework.
 Re-assessment:
o If self-assessment is incorrect, the proper officer re-assesses the duty.
o Importer/exporter may agree and amend the Bill of Entry/Shipping Bill to pay
the differential duty.
 o If disputed, a speaking order must be passed within 15 days from re-
assessment (Section 17(5)).
 Legal Provisions:
o Section 17(1): Duty to be self-assessed by importer/exporter.
o Section 17(2): Verification by proper officer.
o Section 17(4): Re-assessment if self-assessment is incorrect.
o Section 17(5): Speaking order requirement unless importer agrees.
 Practical Application:
o For problem-based questions, check if the importer/exporter correctly
classified goods and applied the transaction value. If not, analyze re-
assessment and the need for a speaking order.

3. Provisional Assessment (Section 18, Customs Act, 1962)

Provisional assessment is invoked when final duty liability cannot be determined
immediately, ensuring clearance while safeguarding revenue.

 Situations for Provisional Assessment:

o Importer/exporter unable to self-assess (e.g., lack of information).
o Proper officer requires chemical examination or testing of goods.
o Necessary documents not produced, and further enquiry is needed.
o Documents produced, but further enquiry is deemed necessary.
 Procedure (Customs (Finalisation of Provisional Assessment) Regulations, 2018):
o Importer/exporter must execute a bond (thrice the duty amount for
warehousing) with security (Bank Guarantee or cash deposit).
o Proper officer intimates the need for documents within 15 days.
o Documents to be submitted within 15 days + 3 months (by Customs Officer)
+ 3 months (by AC/DC) + unlimited time (by Commissioner).
o Finalization: Appeal to commissioner
 If documents submitted: Within 2 months from receipt.
 If not submitted: Within 2 months from the allowed submission
period.
 Legal Provisions:
o Section 18(1): Conditions for provisional assessment.
o Section 18(2): Execution of bond and security.
o Regulations, 2018: Timelines for document submission and finalization.
 Practical Application:
o In problem questions, identify the reason for provisional assessment (e.g.,
missing documents) and verify compliance with bond/security requirements.
Check timelines for finalization.

4. Interest
Interest provisions ensure timely payment of duties and refunds, balancing revenue protection
and fairness.

 On Differential Duty:
 o If final assessment > provisional assessment, differential duty is payable with
interest @15% p.a. from the first day of the month of provisional
assessment until payment (Section 18(3)).
 On Delayed Refunds:
o If final assessment < provisional assessment, excess duty is refunded within 3
months from finalization.
o If not refunded within 3 months, interest @6% p.a. is payable for the delay
period (Section 27).
 Legal Provisions:
o Section 18(3): Interest on differential duty.
o Section 27(2): Interest on delayed refunds.
 Practical Application:
o Calculate interest liability in problem questions by identifying the provisional
assessment date and final payment/refunded date. Ensure correct interest rates
are applied.

5. Refund
Refunds arise when excess duty is paid, subject to statutory conditions.

 Process:
o Refund of differential duty upon final assessment (Section 18) or erroneous
payment (Section 27).
o Application under Section 27 within 6 months from payment (1 year for
individuals/public bodies).
o Refund processed within 3 months from finalization; else, interest @6% p.a.
applies.
 Conditions:
o Subject to the doctrine of unjust enrichment (Section 27(2)).
o Refund granted only if the duty burden has not been passed to the customer.
o If burden is passed, the refund is credited to the Consumer Welfare Fund
(Section 27(2)).
 Legal Provisions:
o Section 18(4): Refund upon finalization of provisional assessment.
o Section 27(1): Application for refund.
o Section 27(2): Unjust enrichment and Consumer Welfare Fund.
 Practical Application:
o In problem questions, verify if the refund claim is filed within time and
whether the duty burden was passed. If passed, argue for transfer to the
Consumer Welfare Fund.

6. Doctrine of Unjust Enrichment

The doctrine prevents importers/exporters from retaining refunds when the duty burden has
been passed to customers, ensuring fairness.

 Legal Principle:
o Refunds are granted only if the duty burden is borne by the claimant and not
shifted to others (e.g., customers).
 o If the burden is passed (e.g., included in sale price), the refund is credited to
the Consumer Welfare Fund (Section 27(2)).
 Statutory Basis:
o Section 27(2): No refund if it leads to unjust enrichment.
o Burden of proof lies on the claimant to show the duty was not passed on.
 Application in Customs:
o Applies to refunds under Sections 18 (provisional assessment) and 27
(erroneous payment).
o Common in cases of overpaid duties due to misclassification or valuation
errors.
 Practical Application:
o For problem questions, analyze invoices/purchase orders to determine if the
duty was included in the sale price. If yes, argue for transfer to the Consumer
Welfare Fund.

7. Mafatlal Industries Ltd. & Ors. v. UOI (1997)

This landmark Supreme Court case solidified the doctrine of unjust enrichment in Indian tax
law.

 Facts:
o Mafatlal Industries sought a refund of excess excise/customs duty, claiming it
was not passed to customers.
o The Revenue argued that refunds should be denied if the duty burden was
shifted, to prevent unjust enrichment.
 Key Holdings:
o Refunds of duties/taxes are subject to the doctrine of unjust enrichment.
o The claimant must prove that the duty burden was not passed to customers
(e.g., through pricing evidence).
o If the burden is passed, the refund is credited to the Consumer Welfare Fund
to protect consumer interests.
o The doctrine applies to all tax refunds, including customs and excise, under
Article 265 (no tax without authority of law).
 Impact:
o Codified in Section 27(2) of the Customs Act, 1962.
o Strengthened the legal framework for refund claims, ensuring revenue
protection and fairness.
 Practical Application:
o Cite Mafatlal in problem questions involving refund disputes. Argue that the
claimant must provide evidence (e.g., cost sheets) to disprove unjust
enrichment.

8. Practical Notes for Problem-Based Questions

 Assessment Disputes:
o Check compliance with Sections 17 (self-assessment) and 18 (provisional
assessment).
o Verify classification (HSN codes) and valuation (transaction value).
 o Analyze if a speaking order was required (Section 17(5)) or if adjudication
was initiated (Section 28).
 Refund Claims:
o Ensure the claim is filed within 6 months (Section 27(1)).
o Apply the doctrine of unjust enrichment (Section 27(2), Mafatlal case).
o If the burden is passed, argue for transfer to the Consumer Welfare Fund.
 Interest Calculations:
o For differential duty: 15% p.a. from the first day of the provisional
assessment month (Section 18(3)).
o For delayed refunds: 6% p.a. after 3 months from finalization (Section 27(2)).
 Penalties:
o Contravention of provisional assessment provisions may attract a penalty up to
Rs. 50,000 (Section 18).
o Misclassification/undervaluation may lead to confiscation (Sections 111, 113)
and penalties (Section 124).
 Adjudication:
o Show Cause Notice (SCN) mandatory before confiscation/penalty (Section
124).
o Monetary limits for adjudication (Chart 5.3):
 Commissioner: > Rs. 2 crore.
 Additional/Joint Commissioner: Rs. 50 lakh–2 crore.
 Deputy/Assistant Commissioner: Rs. 10 lakh–50 lakh.
 Superintendent: ≤ Rs. 10 lakh.
 Customs Frontier:
o Goods cross the customs frontier only upon clearance from a bonded
warehouse (Section 2(4), IGST Act; Section 2(11), Customs Act).
o Import complete only when goods cross the customs barrier (J.V. Gokal v.
ACST, AIR 1960 SC 595).

Unit 7

Customs and Tari Law: Exam-Oriented Notes

1. Enforcement Powers of Customs
Overview

Customs officers are empowered under the Customs Act, 1962, to regulate imports/exports,
prevent smuggling, and protect revenue, ensuring compliance with customs laws.

Key Provisions and Powers

 Section 2(34): Defines "proper o icer" as a customs o icer assigned specific functions
by the Central Board of Indirect Taxes and Customs (CBIC) or the Commissioner of
Customs under Section 5.
  Section 7: CBIC can appoint customs ports, airports, Inland Container Depots (ICDs),
and Land Customs Stations (LCS) for unloading/loading goods.
 Section 11: Central Government may prohibit importation/exportation of goods to
prevent smuggling, protect public health, or maintain economic stability.
 Search and Seizure:
o Section 100-101: Power to search suspected persons in customs areas or
elsewhere if suspected of carrying dutiable/prohibited goods.
o Section 105: Search premises on reasonable belief that goods liable to
confiscation are concealed.
o Section 106: Stop and search conveyances (vessels, aircraft, vehicles) in Indian
customs waters or land.
o Section 110: Seizure of goods/documents suspected of being smuggled or
liable to confiscation. Goods must be returned within 6 months if no Show
Cause Notice (SCN) is issued, extendable by Commissioner.
 Arrest:
o Section 104: Arrest persons for o enses punishable under the Act (e.g.,
smuggling), subject to Code of Criminal Procedure, 1973.
 Summons and Examination:
o Section 108: Summon persons to give evidence or produce documents.
Statements are admissible under the Indian Evidence Act, 1872.
 Indian Customs Waters (Section 2(28)): Extends to 24 nautical miles, allowing
customs o icers to arrest, search vessels, and confiscate goods.
 Exemption Power:
o Section 11N: Central Government may exempt goods from provisions of
Chapters IVA (illegal imports) and IVB (illegal exports).

Practical Application

 Scenario: If goods are suspected of being smuggled, verify if the o icer had reasonable
belief (Section 105/110) and followed procedural safeguards (e.g., SCN within 6
months).
 Case Law: Canon India v. Commissioner of Customs (2021) upheld DRI o icers as
"proper o icers" for enforcement actions.

2. Penalties under the Act

Overview

Penalties deter violations like evasion, misdeclaration, and smuggling, imposed after
adjudication with adherence to natural justice.

Key Provisions

 Section 112: Penalties for improper importation (Section 111 violations):

o Duty-involved: Up to 10% of duty evaded or ₹5,000 (higher).
o No duty: Up to value of goods or ₹5,000 (higher).
o Abetment: Similar penalties.
 Section 114: Penalties for improper exportation (Section 113 violations):
o Duty-involved: Up to 10% of duty evaded or ₹5,000 (higher).
o Prohibited goods: Up to value of goods or ₹5,000.
  Section 114A: Penalty for short-levy/non-levy due to fraud, collusion, or willful
misstatement:
o Equal to duty evaded, plus interest (Section 28AA).
o Reduced penalties (15-50%) if duty/interest paid before SCN.
 Section 117: General penalty for unspecified contraventions: Up to ₹1,00,000.
 Section 135: Criminal penalties for smuggling or fraud, including imprisonment up to 7
years.

Legal Principles

 Mens Rea: Required for serious o enses (Section 114A, fraud cases).
 Natural Justice: Right to hearing and cross-examination mandatory (CBEC Circular
1053/02/2017-CX).
 Proportionality: Penalties must match violation severity (Mangali Impex Ltd. v. UOI,
2016).

Practical Application

 Scenario: For misdeclared goods, compute penalty under Section 112 based on duty
evaded or goods’ value. Verify if Section 114A applies for fraud.
 Exam Tip: Check SCN specificity and adjudication process compliance.

3. Confiscation of Goods
Overview

Confiscation transfers ownership of violating goods to the government, following seizure and
adjudication.

Key Provisions

 Section 111: Confiscation of improperly imported goods, e.g., prohibited goods,

misdeclared goods, or non-compliant with exemption conditions.
 Section 113: Confiscation of goods attempted for improper export, e.g., prohibited
goods or false declarations.
 Procedure:
o Section 110: Seizure of goods liable to confiscation.
o Section 124: SCN and hearing mandatory before confiscation order.
o Section 122: Adjudication by proper o icer based on goods’ value.
 Section 2(39): Defines "smuggling" as acts rendering goods liable to confiscation under
Section 111 or 113.

Legal Principles

 Reasonable Belief: Seizure requires suspicion of violation (Section 110).

 Natural Justice: SCN and hearing are prerequisites (Section 124).
 Time Limit: SCN must be issued within 6 months of seizure (Section 110), extendable.
Practical Application

 Scenario: For seized misdeclared goods, confirm Section 111 applicability and SCN
issuance within 6 months. Check hearing compliance.
 Case Law: Om Prakash v. UOI (2011) emphasized procedural safeguards for valid
confiscation.

4. Redemption Fine
Overview

Redemption fine allows retrieval of confiscated goods by paying a fine in lieu of

confiscation, balancing enforcement and fairness.

Key Provisions

 Section 125:
o Discretionary fine imposed by adjudicating authority, not exceeding market
value of goods (excluding duty).
o Prohibited goods generally not redeemable unless exceptional.
o Payment of fine does not waive other penalties/duties.
 Conditions:
o Goods must be physically available for confiscation.
o Fine payable within 3 months, or goods may be sold.

Legal Principles

 Discretion: Authority must justify fine imposition (CBEC Manual, 2023).

 Proportionality: Fine must reflect o ense gravity.

Practical Application

 Scenario: For confiscated goods, calculate maximum fine (market value minus duty).
Verify if goods are prohibited, a ecting redemption.
 Exam Tip: Ensure goods were seized and available for confiscation to justify fine.

5. Departmental Adjudication
Overview

Adjudication by customs officers determines violations, penalties, or confiscation, ensuring

administrative efficiency.

Key Provisions

 Section 2(1): Defines "adjudicating authority" as any authority (except CBIC,

Commissioner (Appeals), or CESTAT) competent to pass orders under the Act.
 Section 122: Adjudication powers based on goods’ value:
 o Commissioners: Unlimited.
o Deputy/Assistant Commissioners: Up to ₹10 lakh (Notification 50/2018-
Customs).
 Section 124: SCN and hearing mandatory before adjudication.
 Section 137: Compounding of o enses under Customs (Compounding of O ences)
Rules, 2005.

Legal Principles

 Natural Justice: Hearing and cross-examination rights are mandatory (CBEC Circular
1053/02/2017-CX). custom area
 Jurisdiction: Only proper o icers under Section 5 can adjudicate (Canon India case).
 Quantification: Penalties/duties cannot exceed SCN amounts.

Practical Application

 Scenario: Verify o icer’s rank, SCN issuance, and Section 124 compliance. Discuss
appellate remand if adjudication is flawed.
 Exam Tip: Highlight jurisdictional or procedural errors to challenge adjudication.

6. Demand and Interest (SCN)

Overview

Show Cause Notices (SCNs) initiate duty recovery proceedings, with interest for delayed
payments, ensuring revenue protection.

Key Provisions

 Section 28: Recovery of duties not levied, short-levied, or erroneously refunded:

o Normal period: 2 years from relevant date.
o Extended period (fraud, collusion, misstatement): 5 years.
o SCN must specify amount and grounds.
 Section 28AA: Interest on delayed payment at 15% p.a. (Notification 33/2016-Customs
(N.T.)), calculated from the first day of the month succeeding the due date.
 Section 28BA: Provisional attachment of property during Section 28 proceedings to
protect revenue, with Commissioner’s approval, valid for 6 months (extendable to 2
years).
 Voluntary Payment:
o Payment before SCN waives notice for non-fraud cases.
o Fraud cases: Penalty reduced to 15% if paid within 30 days of SCN.
 Relevant Date (Section 28):
o Non-levied duty: Date of clearance order.
o Provisional assessment: Date of final adjustment.
o Erroneous refund: Date of refund.
 Section 28AAA: Recovery of duties from instruments (e.g., licenses) obtained
fraudulently, with 18% interest.
Legal Principles

 Natural Justice: SCN must provide clear grounds and hearing opportunity.
 Validation: Section 97, Finance Act, 2022, validates SCNs by DRI o icers.
 Unjust Enrichment: Refunds subject to proving duty incidence not passed on (Section
27).

Practical Application

 Scenario: For duty demand, verify SCN issuance within 2/5 years and grounds for
extended period. Calculate interest under Section 28AA.
 Exam Tip: Challenge SCN validity on procedural errors (e.g., missing DIN, no hearing).

Unit 8

Customs and Tari Law: Exam-Oriented Notes

1. Penalties & Prosecution
Overview

Penalties and prosecutions under the Customs Act, 1962, deter violations such as evasion,
misdeclaration, and smuggling. Penalties are administrative, while prosecutions involve
criminal liability, both requiring adherence to natural justice.

Key Provisions for Penalties

 Section 112: Penalties for improper importation of goods liable to confiscation under
Section 111:
o Duty-involved: Up to 10% of duty evaded or ₹5,000 (whichever is higher).
o No duty: Up to the value of goods or ₹5,000 (whichever is higher).
o Abetment: Similar penalties.
 Section 114: Penalties for attempted improper exportation under Section 113:
o Duty-involved: Up to 10% of duty evaded or ₹5,000 (whichever is higher).
o Prohibited goods: Up to the value of goods or ₹5,000.
 Section 114A: Penalty for short-levy or non-levy of duty due to fraud, collusion, or willful
misstatement:
o Equal to duty evaded, plus interest under Section 28AA (15% p.a., Notification
33/2016-Customs (N.T.)).
o Reduced penalties (15-50% of duty) if duty and interest paid before Show Cause
Notice (SCN).
 Section 117: General penalty for contraventions not covered elsewhere: Up to
₹1,00,000.
 Section 28B: Excess duty collected from buyers must be deposited with the Central
Government, with SCN issued for non-compliance.
Key Provisions for Prosecution

 Section 132: False declarations or documents: Imprisonment up to 6 months, fine, or

both.
 Section 133: Obstructing customs o icers: Imprisonment up to 6 months, fine up to
₹50,000, or both.
 Section 134: Refusal to be X-rayed: Imprisonment up to 6 months, fine, or both.
 Section 135: Evasion of duty or smuggling:
o Duty evasion > ₹50 lakh or prohibited goods: Imprisonment up to 7 years and
fine.
o Other cases: Imprisonment up to 3 years, fine, or both.
o Second/subsequent conviction: Imprisonment up to 7 years with minimum 1
year (unless special reasons recorded).
 Section 135A: Preparation for smuggling: Imprisonment up to 7 years and fine.
 Section 136: O enses by customs o icers (e.g., connivance in smuggling):
Imprisonment up to 3 years, fine, or both.
 Section 140: O enses by companies: Liability extends to persons in charge unless they
prove lack of knowledge or due diligence.

Legal Principles

 Mens Rea: Required for prosecutions under Section 135 (C.C Madras v. Bhoormal,
1974, held that prosecution must prove guilty intent for smuggling o enses).
 Natural Justice: SCN, hearing, and cross-examination mandatory for penalties (CBEC
Circular 1053/02/2017-CX).
 Proportionality: Penalties must be commensurate with violation (Mangali Impex Ltd. v.
UOI, 2016).
 Cognizance: Section 137 requires Commissioner’s sanction for prosecution.
Compounding of offenses
Practical Application

 Scenario: For misdeclared goods evading ₹60 lakh duty, apply Section 112 for penalty
(10% of ₹60 lakh) and Section 135 for prosecution (up to 7 years imprisonment). Verify
mens rea and SCN compliance.
 Exam Tip: Distinguish between administrative penalties (Section 112/114) and criminal
prosecution (Section 135). Cite Bhoormal to emphasize mens rea.

2. Compounding
Overview

Compounding allows settlement of offenses by paying a compounding amount, avoiding

protracted litigation, under Customs (Compounding of Offences) Rules, 2005.

Key Provisions

 Section 137(3): O enses under the Act can be compounded, except:

o O enses under Section 135 (smuggling) where duty evaded exceeds ₹1 crore.
o Cases involving narcotics or national security.
 o Repeat o enders for the same o ense.
 Compounding Process (Customs (Compounding of O ences) Rules, 2005):
o Application to Chief Commissioner of Customs or Commissioner (for lesser
amounts).
o Compounding amount: Fixed as per CBIC guidelines, not exceeding penalty/duty
evaded.
o Payment within 30 days concludes proceedings.
 Section 127A-127N: Settlement Commission provisions allow compounding for
complex cases, subject to full disclosure and cooperation.

Legal Principles

 Voluntary Disclosure: Compounding encourages honest admissions to avoid

prosecution.
 Discretionary Power: Compounding authority must act judiciously, ensuring fairness.
 Finality: Payment of compounding amount concludes proceedings, barring further
prosecution (CBEC Circular 1053/02/2017-CX).

Practical Application

 Scenario: For duty evasion of ₹50 lakh, check eligibility for compounding under Section
137(3). If not a repeat o ense, calculate compounding amount and verify application to
Chief Commissioner.
 Exam Tip: Highlight exclusions (e.g., ₹1 crore threshold) and procedural compliance.

3. Presumption of Culpable Mental State

Overview

Presumption of culpable mental state shifts the burden to the accused to disprove intent in
customs offenses, facilitating prosecution.

Key Provisions

 Section 138A: In prosecutions for o enses under the Act, courts presume culpable
mental state (intent, knowledge, or belief) unless the accused proves otherwise.
o Applies to o enses requiring mens rea, e.g., Section 135 (smuggling, duty
evasion).
o Accused must disprove intent on a balance of probabilities, not beyond
reasonable doubt.
 Section 138B: Statements made to customs o icers under Section 108 are presumed
relevant and admissible, subject to Indian Evidence Act, 1872.

Legal Principles

 Burden of Proof: C.C Madras v. Bhoormal (1974) clarified that while prosecution must
establish the o ense, Section 138A shifts the burden to the accused to disprove mens
rea once prima facie evidence is shown.
 Fairness: Accused retains the right to rebut presumption through evidence.
  Natural Justice: Presumption does not override the right to a fair trial.

Practical Application

 Scenario: In a smuggling case under Section 135, prosecution relies on Section 138A
to presume intent. Accused must provide evidence (e.g., lack of knowledge) to rebut.
Cite Bhoormal to discuss burden shift.
 Exam Tip: Emphasize Section 138A’s role in easing prosecution’s burden and accused’s
rebuttal opportunity.

4. C.C Madras v. Bhoormal (1974)

Case Summary

 Facts: Bhoormal was charged with smuggling gold under Section 135. The prosecution
relied on seized gold and statements, presuming culpable mental state.
 Issue: Whether mens rea is required for prosecution under Section 135 and the extent
of the accused’s burden to disprove intent.
 Held: Supreme Court ruled that:
o Mens rea is essential for smuggling o enses under Section 135.
o Section 138A presumes culpable mental state, but the accused can rebut it on
a balance of probabilities.
o Prosecution must establish prima facie case; thereafter, burden shifts to
accused.
 Significance: Clarified the role of Section 138A in prosecutions and reinforced the need
for mens rea, balancing enforcement with fairness.

Practical Application

 Scenario: In a prosecution question, cite Bhoormal to argue that mens rea is required
for Section 135 o enses, and Section 138A shifts the burden to the accused after
prosecution’s prima facie case.
 Exam Tip: Use Bhoormal to strengthen arguments on mens rea and presumption in
smuggling cases.

Exam Strategy
 Problem-Based Questions:
o Identify violation and applicable provision (e.g., Section 112 for penalty, Section
135 for prosecution).
o Verify mens rea (Bhoormal) and procedural compliance (SCN, hearing).
o For compounding, check eligibility under Section 137(3) and Customs
(Compounding of O ences) Rules, 2005.
o Apply Section 138A for presumption and rebuttal in prosecution cases.
 Case Laws: Cite Bhoormal (mens rea, burden shift), Mangali Impex (penalty
proportionality).
 Revision Tip: Memorize section numbers, penalty thresholds, and compounding
exclusions for quick recall.
Unit 9

1. Miscellaneous Provisions in Customs Law

The sources mention various sections covering miscellaneous aspects of Customs Law,
primarily listed under Chapter XVII of the Customs Act, 1962, and other relevant sections
mentioned elsewhere in the text. 17

 Scope (Chapter XVII): Includes provisions relating to Conveyances, duty deferment,

licensing of Customs House Agents, appearance by authorised representatives,
delegation of power, etc.. Sections covered are 141 to 161.
 Price of Goods to Indicate Duty (Section 28C): Every person liable to pay duty
must, at the time of clearance, prominently indicate the amount of duty in
documents like assessment forms and sales invoices. This duty amount will form part
of the price at which the goods are sold.
 Presumption of Duty Incidence Passed On (Section 28D): Any person who has
paid duty on goods is deemed to have passed on the full incidence of such duty to
the buyer, unless the contrary is proved by them.
 Interest on Delayed Payment of Duty (Section 28AA): Notwithstanding
court/tribunal orders or other provisions, a person who has not paid duty or interest or
has short-paid it must pay interest on the amount from the due date or the date it
becomes payable until payment. The interest rate was fifteen per cent per annum
w.e.f. 1.4.2016 as per Notification No. 33/2016 - Customs (N. T.) dated 1st March,
2016. This payment can be made before a show-cause notice is served based on self-
ascertainment or amount ascertained by the proper officer. Paying the duty with
interest before notice results in the proceedings being deemed concluded, though a
notice can still be issued for any remaining amount. No show-cause notice is served if
the amount is less than rupees one hundred.
 Recovery of Duties in Certain Cases (Section 28AAA):
o Instruments (scrip, authorisation, license, certificate) obtained under the
Foreign Trade (Development & Regulation) Act for a reward scheme under
the Foreign Trade Policy by collusion, willful misstatement, or suppression of
facts, and subsequently utilized, are subject to recovery action.
o The amount is recoverable from the person to whom the instrument was
issued.
o The importer may also be subject to action under Section 28.
o This section applies to utilization made after the Finance Act, 2012 became
effective.
o Interest @ 18% is payable from the date of utilization until the date of
recovery.
o A show-cause notice must be issued by the proper officer for recovery.
 Provisional Attachment to Protect Revenue (Section 28BA):
 o During the pendency of proceedings under Section 28 or Section 28B, if the
proper officer believes it is necessary to protect revenue interests, they may
provisionally attach property belonging to the person served with a notice
under Section 28(1) or 28(4).
o This requires previous approval of the Principal Commissioner or
Commissioner of Customs.
o Attachment is made in accordance with rules under Section 142.
o Provisional attachment ceases after six months from the order date.
o The Principal Chief Commissioner or Chief Commissioner can extend this
period for reasons recorded in writing, up to a total extension of two years.
o Time spent during settlement proceedings before the Settlement Commission
is excluded from the extension period.
 Sums Due Notwithstanding Reference (Section 131): Even if a reference was made
to the High Court or Supreme Court, or an appeal preferred to the Supreme Court
(before the National Tax Tribunal Act, 2005), sums due to the Government under a
Section 129B order remain payable in accordance with that order.
 Exclusion of Time for Copy (Section 131A): (Details not fully provided in the
source, but the section title indicates time taken for obtaining a copy of an order might
be excluded from limitation periods).
 No Acquiescence by Commissioner (Section 131BA): Where the Commissioner of
Customs has not filed an appeal, application, revision, or reference against an order
based on an instruction or direction from the Board:
o No party can argue the Commissioner has acquiesced in the decision by not
filing.
o The appellate authority (Commissioner (Appeals), Tribunal, Court) shall
consider the circumstances under which the Commissioner did not file the
appeal.

2. Advance Rulings

The Advance Rulings scheme is covered in Chapter 5B (Sections 28E to 28M) of the
Customs Act.

 Advantages: Ensures clarity and certainty of tax liability, avoids protracted litigation,
provides speedy decisions, is inexpensive, and offers transparency.
 Activity: Defined as import or export, including any new business.
 Application (Section 28H): An applicant seeking an advance ruling may apply in the
prescribed form and manner, stating the specific question.
 Questions on which Ruling can be Sought:
o Classification of goods under the Customs Tariff Act, 1975.
o Applicability of a notification issued under Section 25(1) having a bearing on
the rate of duty.
o Principles for determining the value of goods.
o Applicability of notifications regarding duties under the Customs Act, CTA
1975, and any other law charging duty like customs duty.
o Determination of the origin of goods.
 Procedure on Receipt of Application (Section 28I): The Authority may, after
examining the application and records, either allow or reject the application by order.
 Circumstances for Rejection: The Authority shall not allow the application if the
question is:
 o Already pending in the applicant's case before any Customs officer, the
Appellate Tribunal, or any Court.
o The same as a question already decided by the Appellate Tribunal or any
Court.
 Binding Nature (Section 28J): An advance ruling pronounced by the Authority shall
be binding:
o On the applicant.
o On the Principal Commissioner of Customs, or customs authorities
subordinate to him, in respect of the applicant.
o The ruling is binding unless there is a change in law or facts on which it was
based.
 Ruling Void in Certain Circumstances (Section 28K): An advance ruling becomes
void if the Authority finds it was obtained by the applicant through fraud or
misrepresentation of facts. When a ruling is void, the applicant is liable to be
proceeded against as if the ruling had never been made.
 Powers and Procedure of Authority (Section 28L, 28M): The Authority has powers
of a civil court for certain purposes (summoning, requiring documents, issuing
commissions). It can regulate its own procedure.

3. Settlement Commissions

The Settlement Commission mechanism is provided under Chapter 14A of the Customs Act.

 Purpose: To settle customs disputes expeditiously without much strain. Cases are
settled at the instance of the assessee who accepts liability without contesting.
 Definitions (Section 127A):
o "case" means any proceeding under the Customs Act or other Acts for levy,
assessment, and collection of duty, or appeal/revision related thereto, pending
before a proper officer or the Central Government on the date of
application under Section 127B(1). An appeal or revision filed after the expiry
of the limitation period and not admitted is not a pending proceeding.
o "Settlement Commission" means the Customs, Central Excise and Service
Tax Settlement Commission.
 Constitution and Composition: Constituted by the Central Government with a
Principal Bench at Delhi and additional Benches. Decisions are by majority. The
Chairman can constitute larger or special benches. The Commission regulates its own
procedures.
 Powers:
o Exclusive jurisdiction to exercise powers and perform functions of
customs/excise/service tax officers.
o Can grant immunity from prosecution for offences under the Customs Act.
Can withdraw immunity if conditions are not complied with.
o Can grant waiver (wholly or partly) from imposition of penalty or fine for the
case under settlement. Cannot waive interest.
o Can order provisional attachment of applicant's property if necessary to
protect revenue interests.
o Order is conclusive and cannot be re-opened in proceedings under the Acts.
 Application to the Commission (Section 127B):
o Certain categories of people fulfilling requirements can apply.
 o Applicant must deposit the additional duty with interest along with the
application.
o An applicant generally has only one opportunity for settlement in their
lifetime.
o Exporters under DEEC, EOU/EPZ can apply if they failed to fulfill export
obligations due to reasons beyond their control.
o Cases involving valuation disputes or relating to interpretation of law and
notifications can be taken up.
o Section 127B(5) allows persons other than the applicant mentioned in Section
127B(1) to make an application.
 Procedure on Receipt of Application (Section 127C):
o Within 7 days, the Commission issues a notice to the applicant to explain why
the application should proceed.
o Within 14 days of the notice, the Commission orders whether to allow or
reject the application. If rejected, proceedings abate.
o If no notice or order within the periods, the application is deemed allowed.
o If allowed (or deemed allowed), the Commission calls for a report and records
from the Principal Commissioner/Commissioner within 7 days. The
Commissioner must furnish the report within 30 days. If the Commissioner
(Investigation) does not furnish a report, the Commission can proceed without
it.
o The Commission examines records and reports, gives the applicant and
Commissioner an opportunity to be heard, examines further evidence, and
passes an order on matters covered by the application and referred to in
reports.
o Rectification of Errors: The Commission can, within three months of
passing the order, amend it to rectify any error apparent on the face of
record, either suo motu or on being notified. No amendment enhancing
liability can be made without notice and opportunity of being heard.
o Settlement Order: The order provides terms including duty, penalty, interest,
payment method, and other matters to make settlement effective. If rejecting,
it states reasons.
o Minimum Settlement Amount: The settlement amount shall not be less
than the duty liability admitted by the applicant under Section 127B.
o Void Settlement: The settlement is void if subsequently found to have been
obtained by fraud or misrepresentation of facts. If void, original
proceedings revive from the stage the application was allowed, and the proper
officer can complete proceedings within two years of receiving
communication that the settlement became void.
o Recovery: If amounts due under the order are not paid within 30 days of
receipt, they are recovered with interest according to Section 142 provisions.

4. Appeals & Provisions

Appellate provisions are primarily in Chapter XV of the Customs Act.

 Appeals to Commissioner (Appeals) (Section 128):

o Any person aggrieved by a decision/order by an officer lower than a
Commissioner of Customs can appeal to the Commissioner (Appeals).
 o Appeal must be filed within 60 days from the date of communication of the
decision/order.
o The Commissioner (Appeals) may allow filing within a further 30 days if
satisfied there was sufficient cause for delay.
o Appeal must be in the prescribed form and manner.
 Procedure in Appeal (Section 128A):
o Appellant must be given an opportunity to be heard if requested.
o Commissioner (Appeals) may allow new grounds of appeal if omission was
not willful/unreasonable.
o Commissioner (Appeals) makes further inquiry if necessary and passes an
order confirming, modifying, or annulling the original decision/order.
o An order enhancing penalty/fine, confiscating goods of greater value, or
reducing refund shall not be passed without giving the appellant a
reasonable opportunity to show cause.
o Order must state points for determination, decision, and reasons.
o Commissioner (Appeals) should aim to hear and decide appeals within six
months.
o The order is communicated to the appellant, adjudicating authority, and
Commissioner of Customs.
 Appellate Tribunal (Section 129):
o The Central Government constitutes the Customs, Excise and Service Tax
Appellate Tribunal (CESTAT).
 Appeals to the Appellate Tribunal (Section 129A):
o Appeals lie to the Appellate Tribunal against orders passed by:
 Commissioner of Customs as an adjudicating authority.
 Commissioner (Appeals) under Section 128A.
 Board or Appellate Commissioner under old Section 128.
 Board or Principal Commissioner before or after Finance Act, 2017.
o Certain orders are not appealable by persons (e.g., orders related to
transit/transshipment, drawback).
o Value Limits for Tribunal Discretionary Refusal: The Tribunal may refuse
to admit an appeal against an order of the Commissioner (Appeals) (under
clauses (b), (c), or (d) of 129A(1)) where:
 Value of confiscated goods (without fine option under Section 125),
OR
 Difference in duty involved / duty involved in a disputed case (except
rate of duty/valuation issues), OR
 Amount of fine or penalty determined
 Does not exceed two lakh rupees.
o Appeals against orders of the Committee of Chief Commissioners or
Commissioners of Customs related to rate of duty/valuation are to be heard by
a Special Bench of the Tribunal.
o Departmental Appeals: The Committee of Commissioners of Customs (two
Chief Commissioners or Commissioners) can direct the proper officer to
appeal to the Tribunal if they find a Commissioner (Appeals) order is not
legal/proper. If the Committee differs, it refers to the jurisdictional Chief
Commissioner, who may direct the appeal.
o Time Limit for Filing: Appeal must be filed within three months from the
date the order is communicated to the Commissioner or other party.
 o Cross-Objections: The party against whom an appeal is preferred can file a
memorandum of cross-objections within forty-five days of receiving the
appeal notice. This is treated as an appeal.
o Condemnation of Delay: Tribunal may admit appeal/cross-objections after
expiry if satisfied there was sufficient cause for delay.
o Appeal Fee: Appeals must be accompanied by a fee based on the amount of
duty/interest demanded and penalty levied:
 ≤ ₹5 lakh: ₹1,000
 ₹5 lakh ≤ ₹50 lakh: ₹5,000
 ₹50 lakh: ₹10,000
 No fee for departmental appeals by Committee/Commissioner.
o No Fee for Small Cases: No fee is payable by any person if the disputed
amount (similar categories as discretionary refusal, but different limit) does
not exceed 50 Lakh rupees.
 Orders of Appellate Tribunal (Section 129B):
o Tribunal can pass orders confirming, modifying, or annulling the appealed
order. It may refer the case back to the authority with directions.
o Decisions on points of difference are by majority. If members are equally
divided, the point is referred to the President of the Tribunal, who may hear it
or refer it to another member. The decision is then by majority of members
who heard it.
o Tribunal has powers of a civil court (summoning, requiring documents,
issuing commissions).
o Proceedings are deemed judicial proceedings.
 Powers of Committee/Board to Direct Appeals (Section 129D):
o Committee of Chief Commissioners may examine records of a
Commissioner's adjudicating order and direct the Commissioner to apply to
the Tribunal for determination of specified points. If the Committee differs, it
refers to the Board, which may direct the appeal.
o Commissioner of Customs may examine records of a subordinate
adjudicating authority's order and direct that authority to apply to the
Commissioner (Appeals) for determination of specified points.
o Orders under 129D(1) or (2) must be made within three months of
communication of the adjudicating order. The Board may extend this by
another 30 days for sufficient cause.
o Applications made in pursuance of such direction are heard as if they were
appeals against the original order.
o No order levying or enhancing duty shall be made under this section unless the
person affected is given notice to show cause within the Section 28 time limit.
 Appeal to Supreme Court (Section 130E): An appeal lies to the Supreme Court
from:
o Any High Court judgment if the High Court certifies it as a fit case for appeal.
o Any order passed by the Appellate Tribunal (before National Tax Tribunal
establishment) related to the rate of duty or value for assessment.
 Hearing Before Supreme Court (Section 130F): Provisions of the Code of Civil
Procedure, 1908 related to appeals apply.
 Deposit Pending Appeal (Section 129E): The Tribunal or Commissioner (Appeals)
shall not entertain any appeal unless the appellant has deposited:
 o 7.5% of the duty demanded, penalty imposed, or both, against a
decision/order of an officer lower than a Commissioner (for appeal to
Commissioner (Appeals) under Section 128(1)).
o 7.5% of the duty demanded, penalty imposed, or both, against a
decision/order of a Commissioner as adjudicating authority or Commissioner
(Appeals) (for appeal to Tribunal under Section 129A(1)(a) or (b)).
o 10% of the duty demanded, penalty imposed, or both, for appeal to Tribunal
against certain orders of the Committee of Chief
Commissioners/Commissioners (Section 129A(1A)).
o The maximum deposit amount is ₹10 Crores. (Note: This Section was
amended by Finance Act, 2014 w.e.f. from a date yet to be notified, replacing
earlier provisions about full or partial deposit).
 Interest on Delayed Refund of Deposit (Section 129EE): Interest is payable on the
amount deposited under Section 129E (or Section 35F of Central Excise Act) if it is
required to be refunded consequent to the order of the appellate authority.