An Introduction to
Indian Customs
(Laws and Procedures)
07 January 2009
Essar House, Mahalaxmi
By K. R. Choudhary
07 January 2009
An Introduction to
Customs
1
An Introduction to Customs
 The purpose, objective and design of the presentation
 Background and History
 Direct and Indirect Taxation in independent India
 Growth path of Customs Duty in Independent India
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An Introduction to Customs
2
The Beginning
As per ancient customs, a merchant entering a kingdom
with his goods ,had to make a suitable gift to king. In the
course of time, this ‘custom’ was formalized into Customs
Duty. This is collected on goods on imports (occasionally
on export goods too)
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3
Index
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Customs Act
Territorial Waters of India
Indian Customs Water
High Sea
Import
Customs House Agent
Import Procedure
Documents for Imports
Advance Bill of Entry
Classification
Valuation of Imported goods for the purpose of Customs Act
Date of determination of Rate of Duty
Exchange Rate
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4
Index (continued)
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Types of Customs Duty leviable
Anti Dumping Duty
Demurrage
Calculation of Customs Duty
Provisional Assessment
Interest on delayed payment
Exemptions
Remission
Relinquishing Title
Transshipment of Goods (TP)
Warehousing
Procedure for warehousing
Details of Licenses
High Sea Sales
Procedure at Custom House (Flow of Documents)
Re-import of goods
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5
Customs Act
1. Customs Act 1962 – Is the main Act, which provides for levy and
collection of Duty, Import / Export procedure, Prohibition, Penalties,
Offences etc.
2. Customs Tariff Act 1975 – Is for the classification and rates of Duty
for Import and Export
3. Rules under Customs Act – Under section 156 of Customs Act,
1962, Central Government has been empowered to make rules,
consistent with Provisions of the Act
4. Notification under Customs Act – Various sections authorize Central
Government to issue notifications
5. Board Circulars – Are instructions and directions to Customs
officials
6. Public Notice – Issued by Commissioner of Customs. Can be issued
for local requirement too.
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6
Territorial Waters of India
 Territorial waters pertain to that portion of sea which is
adjacent to the shores of a country
 The territorial waters extend up to 12 nautical miles from
the base line on the coast of India. (Any bay, gulf, harbor,
creek, tidal water constitute Territorial Waters)
 1 Nautical Mile = 1.1515 miles = 1.853 kms
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Indian Customs Waters
1. Indian Customs Water extends up to 12 nautical miles
beyond territorial waters i.e. 24 nautical miles from the
nearest point of base line
2. Significance of Indian Customs Water
 A Customs Officer has the powers to arrest a person
in India or within Indian Customs Water
 A Customs Officer can stop or search any vessel
within Indian Customs Water
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8
High Sea
 The open sea of the
world outside the Territorial
Waters of any nation
 Beyond 200 nautical miles
from the base line
of any country
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9
Imports
 Import with its grammatical variation and cognate
expression, means bringing into India from a place
outside India
 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
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Customs House Agent (CHA)
 In order to assist importer and exporter, the services of
CHA or Clearing Agents are available at international
ports and airports
 They are a body of professional experts duly licensed by
Commissioner of Customs
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Import Procedure
 Import General Manifest (IGM): A person in-charge of
Vessel (i.e. Shipping Agent / Freight Forwarders etc.)
should submit IGM – i.e. details of cargo to be unloaded,
goods to be transshipped etc.
 Bill of Entry: Importer should file Bill of Entry giving
details of goods to be cleared from customs. Date of
filing of Bill of entry is relevant for deciding Duty liability
OR
Warehousing – Keeping in warehouse without payment
of Duty and later clearing on payment of Duty when
required
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Documents for Imports
1. Bill of Entry – Its types are: (for Manual Clearance)
 White Bill of Entry for Home Consumption
 Yellow Bill of Entry for Warehousing
 Green Bill of Entry for Ex Bond
2. Invoice & Packing list
3. Import License (wherever necessary)
4. Certificate of country of origin, where preferential rate is
claimed
5. Insurance Memo / Policy
6. Bill of Lading / Airway bill OR Delivery Order
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Advance Bill Of Entry
 It is permissible to file the Import Bill of Entry 30 days in
advance of the expected date of arrival of the concerned
ship or aircraft. The intention is that this period may be
utilized for sorting out tariff classification, valuation and
ITC formalities
 If the ship / aircraft does not arrive within 30 days , the
advance cleared Bill of Entry would cease to be a legal
document and a fresh Bill of Entry would have to be filed
 Here Rate of Exchange and Rate of Duty etc. would
have to be regulated by the date of presentation of the
new Bill of Entry
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Classification
1. Import and export goods are to be classified according to the tariff
item number mentioned against them in the customs tariff. This is
an unique 8 digit code for all items based largely on the international
system viz., Harmonized System of Nomenclature (HSN) adopted
by almost all countries
2. Onus to establish tariff classification of goods is on the Department
3. Parameters for determination of classifications of goods are:
 HSN along with Explanatory Notes provide a safe guide for
interpretation of an entry
 Equal importance to be given to Rules of Interpretation of Tariff
 Functional utility, design, shape and predominant usage have
also got to be taken into account
 Aforesaid aids are more important than names used in trade or
common parlance
 Classification determined on bond bill of entry at the time of
warehousing shall remain undisturbed except in case of a
misdeclaration
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Valuation of Imported goods
(For the purpose of Customs Act)
1. For assessment of Duty or for purpose of any other law,
it should be the transaction value of the Imported goods,
i.e.:
 The price actually paid or payable for the goods
when sold for export to India
 For delivery at the time and place of importation
 Where the buyer and seller of the goods are not
related
 Price is the sole consideration for the sale
 There are not abnormal restrictions as to the
disposition or use of the goods by the buyer
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Valuation of Imported goods
(For the purpose of Customs Act) - continued
The transaction value includes the amount paid or payable for costs
and service including:
 Commission and brokerage, except buying commissions
 Engineering
 Design work
 Royalties and license fees related to the imported goods
 Cost of transportation to the place of importation including shift
Demurrage charges
 Insurance
 Loading
 Unloading
 Handling charges
 Cost of containers and
 Cost packing (labor / materials)
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Date for Determination of Rate Of Duty
The rate which is in force on the date of presentation of Bill
of Entry for home consumption will be the rate applicable.
However there are two exemptions to it:
 In case the Bill of Entry has been filed in advance of
entry inwards of the vessel or the arrival of the aircraft,
the crucial date will be date of entry inwards of the
vessel or the date of arrival of the aircraft
 Secondly, in the case of clearance of goods from a
bonded warehouse, the date of presentation of the ex
bond bill of entry for home consumption is the crucial
date.
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Exchange Rate
 Exchange Rate is notified by the Central Board of Excise
and Customs (CBEC) and is the one in force on the
date of presentation of the Bill of Entry (for home
consumption or for warehousing)
 CBEC is the apex Administrative Body for Indirect
Taxation in India
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Types of Customs Duty Leviable
1. Basic Duty: It may be at the standard rate or in the case of Import from
some countries, at the preferential rate
2. Additional Customs Duty:
 Additional Customs Duty, equal to central excise Duty, is leviable on
like goods produced or manufactured in India. The MRP based
valuation prevailing under Central excise is extended to Customs
too
 Is also referred to as Countervailing Duty (CVD). It is payable only if
the imported article is such , if produced in India, its process of
production would amount to ‘manufacture’ as per the definition in
Central Excise Act 1944
 Additional customs Duty is calculated on a value base of aggregate
of value of the goods including landing charges and basic Customs
Duty. In order to counter balance the burden of input Excise Duty
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Types of Customs Duty Leviable
(continued)
3. Special Additional Duty of Customs : In order to counter balance
various internal taxes like Sales Tax and VAT and to provide a level
playing field to indigenous goods which have to bear these taxes.
4. Cess: A Duty levied for specified purpose. Presently HE Cess and
SHE Cess
5. If goods are fully exempted from Duty or are chargeable to nil Duty
or are cleared without payment of Duty under prescribed procedure
such as clearance under bond, no Cess would be leviable
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Anti Dumping Duty
 Large manufacturer from abroad may export goods at
very low price compared to domestic market
 Such dumping may be with intention to cripple domestic
market OR to dispose of their excess stock
 To avoid such dumping, Central Government can impose
anti dumping Duty , under section 9A of Customs Tariff
Act
 Anti Dumping Duty is not applicable for imports by SEZ,
EOU unless it is specifically mentioned in notification
 No CVD or SAD on Anti Dumping Duty
 No Anti Dumping Duty on goods Warehoused prior to
levy of Anti Dumping Duty
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Demurrage
 Demurrage is a penal amount ,payable to the Port Trust
Authorities, if the goods are not cleared from port within
3 working days after assessment
 Option available to the importer for avoiding heavy
demurrage on the goods pending resolution on the point
of doubt or dispute, is to put the goods in bond under
Section 49 or clear the goods on provisional assessment
basis
 If assessment is delayed due to Customs formalities,
such demurrages may be remitted by Port Trust
Authorities on the basis of a detention certificate issued
by Customs
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Calculation of Customs Duty
Duty Rate%
a) Assessable Value Rs.10000
Amount
Total Duty
10000
b) Basic Custom Duty
7.5%
c) Sub Total for Calculating CVD (a+b)
750
750
10750
d) CVD @ 10% ‘ c ‘
10%
1075
1075
e) Higher Education Cess of Excise – 2% of ‘d’
2%
21.50
21.50
f) SHE Cess of excise – 1% of ‘d’
1%
10.75
10.75
g) Sub total for Education Cess on Customs
‘B+D+E+F’
1857.25
h) Education Cess of Customs 2% of ‘g’
2%
37.15
37.15
i) SHE Cess of Customs – 1% of ‘G’
1%
18.57
18.57
j) Sub total for SAD a+c+d+e+f+h+i
k) Special CVD – 4% of ‘j’
11912.97
4%
l) Total Duty
07 January 2009
476.52
476.52
2389.49
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Provisional Assessment
 If the goods are required to be tested or there is a
dispute regarding valuation, classification or there is a
requirement of import license, there is provision to make
a provisional assessment / clearance
 It is subject to execution of bond with security (usually
with Bank Guarantee) by the importer for the Duty
difference after taking Assistant Commissioner’s Order
 Penalty is not imposed when an Assessment is
Provisional
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Interest on Delayed Payment
 Under Section 47 of Customs Act, 1962 interest is
payable when import Duty is not deposited within five
days (excluding holidays) after assessment of the goods
 Interest is payable at the rate of 15% per annum
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Exemptions
The Central Government has the power under Section 25 of Customs
Act, 1962 to exempt, in public interest, specified goods from levy of
Customs Duty by issue of notifications:
 Where there are two exemption notifications, one general and the other specific,
which cover the goods in question, the Assessee is entitled to the benefit of that
one which gives him greater relief
 Strict construction of the exemption notification cannot be at expense of object and
purpose of the notification and ignoring words used therein to unjustifiably deny
the exemption
 Exemption from Customs Duty means exemption only from basic Customs Duty.
Exemption from Excise Duty has the effect of exempting additional Duty of
customs. Onus to establish eligibility to the exemption notification is on the
Assessee
 Accessory when imported with the machines is not eligible to exemption unless
that accessory has expressly been included in the exemption notification
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Remission
 Remission of Duty is available if imported goods are lost,
pilfered or destroyed at any time before clearance for
home consumption
 The same principle applies also to goods deposited in a
bonded warehouse
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Relinquishing Of The Title
 The owner has also the right to relinquish his title to the
goods (if they are not involved in an offence) at any time
before an order for clearance of goods for home
consumption has been made
 Thereupon his liability to Duty or redemption fine ends
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Transshipment of Goods (TP)
 Goods imported at any Customs station, can be
transshipped without payment of Duty
 Goods to be transshipped must be specified in IGM
(Import General Manifest)
 A Mother Bond (like a Running Bond) with security of
15%of bond value, is taken from the carriers. Security is
taken separately for each trip and released on safe
landing of the container in that trip at destination ICDs /
CFSs
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Warehousing
1. Importer has to plan his purchases in advance. There may be a
situation where importer is not ready to take delivery of cargo. The
warehousing facility can be availed in following cases:
 May be there is a delay in production schedule
 Duty payment are to be deferred so that funds are not blocked
 There is a need to clear in specific schemes
 Documents / Authorizations are not ready
2. Time limit for Warehousing is one year OR as extended by the
Customs Department. However, after completion of 3 months,
interest will be charged on the Duty deferred amount
3. Types of warehouse
 Public Warehouse
 Private Warehouse
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Procedure for Warehousing
1. All goods imported through Seaport / Airport can be
warehoused, on submission of Bill of Entry for
warehousing
2. Documents required for filing the Bill of Entry with
Customs for Normal clearance or for warehousing:
 Signed Commercial Invoice
 Packing list
 Bill of lading or Airway Bill
 Purchase Order copy or Letter Of Credit copy
 Catalogue, Technical write-up in case of machineries
 Separate split up value of spares and components
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Details of Licenses
Export Promotion Capital Goods scheme (EPCG)
 Under this scheme a license holder can import capital
goods (i.e. plant, machinery, equipment, components,
spare parts)
 Customs Duty of 3% without CVD and SAD
 EPCG Authorization is valid for 36 months
 Obligation: Importer has to fulfill export obligation equal
to 8 times of Duty saved over the period of 8 years
 Non-fulfillment of Obligation: If goods are not exported
then differential customs Duty plus 15% interest is
payable
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Details of Licenses
1. Duty Entitlement Pass Book (DEPB)
 This scheme is on post exportation basis
 DEPB holder is entitled to import all raw material,
components etc (Duty free)
 Capital Goods cannot be imported under DEPB
2. Advance Authorization: Inputs required to manufacture
export products can be imported without payment of Duty
 Validity of license is 24 months
 The material imported under Advance Authorization is
not transferable even after completion of export
obligation
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High Sea Sales (HSS)
 High Sea sales (HSS) is a sale carried out by the original
consignee to another buyer while the goods are yet on high seas
 HSS Contract / Agreement should be signed after dispatch of goods
from origin & prior to their arrival at destination. The agreement
should be on stamp paper. On concluding the HSS agreement, the
B/L should be endorsed in favor of the new buyer
 The IGM should be filed by the carrier in the name of the HSS buyer
 Sometimes, HSS buyers buy goods after their arrival. Such sale are
not HSSs.
 HSS goods are entitled to classification, rates of Duty and all
notification benefits as would be applicable to similar import goods
on normal sale
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Procedure at Customs House
(Flow of documents)
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Noting of Bill of Entry
Filing of Bill of Entry
Assessment
Pre Audit
Duty Payment / Bond (warehousing)
Examination of Cargo
Out of charge permission
Delivery
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Re-import of Goods
 If the same goods which were exported are re-imported within 3 years by
the same person, Customs Duty is payable which will be equal to the Duty
drawback claimed plus excise duties which were not paid. Basic principle
being export incentives obtained at the time of export will be recovered
 No Customs Duty will be payable if goods are re-imported for
repairs/reconditioning (within 3 years from export)
 If imported goods are sent abroad for repairs, then, Duty will be payable on
fair charges of repairs including cost of materials
 In case of goods exported under the EPCG scheme, re-importation should
take place within one year (extendable by another year by the
Commissioner) provided the period of full export performance under the
EPCG Scheme should not have expired
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