Customs Duty

• Ajay Babu Bandi

 Practising Chartered Accountant

 M.Com, FCMA,ACA,IFRS(Certified)
Customs duty
 is a duty or tax, which is levied by the
Central Government on import of goods
into, and export of goods from India
 Also referred to in Kautilya’s Arthasastra as
“Shulka”
Sources of Customs law
 Customs Act ,1962
 Customs Tariff Act, 1975
 Rules and Regulations
 (Customs valuation Rules 2007)
 (Baggage Rules 1998)
 (Export Manifest Regulations 1976)
Application of the Act (scope)
 The customs Act 1962 applies to whole of India
 India includes territorial waters (12 nautical miles or
22 km) of India
 Notified designated areas in Continental Shelf of India
(CSI) and Exclusive Economic Zone of India (EEZI)
 EEZI  200 nautical miles from baseline
Other important terms
 Indian Customs Waters Sec 2(28)  waters
extending into the sea up to the limit of contiguous
zone of India
 Contiguous zone of India -> 12 nautical
miles beyond the Indian territorial waters
 24 nautical miles from baseline
Chargeability of Customs Duty
(Sec.12)
 Import and Export : Duties of customs should
be levied on all Imported and Exported Goods
 Persons Liable : Importer and Exporter,
including Government
Significance of Customs Waters
 Arrest of the suspected persons u/s 104
 Stop and search of vessels u/s 106 ..AND
 Confiscation of vessels u/s 115
Rates of Duty
 Taxable Event
 The taxable event in customs is
Importation of goods into India, or
 Exportation of goods from India
Taxable Event in case of Imports
 In case of goods cleared for home
consumption --- the taxable event
being reached at the time when the
goods reach the customs barriers
and bill of entry for home
consumption is filed
Taxable Event in case of Exports
 Export of goods when the goods
cross the territorial waters of India.
 If ship sinks within the territorial
waters, export is NOT complete
Goods..
Drawings, Designs & Manuals
 Goods includes “any other kind of Movable
Property”
 So..all tangible and Movable articles brought to
India as Baggage /Postal Price /Cargo are Goods
 Accordingly.. Drawings ,Designs ,Manuals &
Technical Matter are “Goods”
 Case : Associated Cement Companies Ltd
Conveyance Sec. 2(9)

 includes…
 A vessel
 An aircraft and
 A vehicle
Vehicle Sec. 2(42)

 means…
 Conveyance of any kind used on
land and includes a Railway Vehicle
Duty to be paid on goods derelict,
Jetsam, Flotsam, wreck etc
 All goods derelict, jetsam, flotsam and wreck
brought to India , shall be dealt with as if they
were imported in India
 Thus , even though such goods had not been
actually imported, they would be liable to import
duty
 However, if such goods are entitled to be admitted
duty-free under this act, duty would not be
levied
 Derelict – This refers to any cargo ,vessel etc
abandoned in the sea with no hope of recovery
 Jetsam – This refers to goods jettisoned from the
vessel to save her from sinking
 Flotsam- Jettisoned goods which continue floating
in the sea are called flotsam
 Wreck -This refers to cargo or vessel or any property
which are Cast ashore by tides after ship wreck
Illustration
A fishing trawler operating in high seas,
beyond the territorial waters of India, finds a
ship wrecked in mid sea and brings Jetsam
and Flotsam into India, along with fish caught
by it.
Fish which are intentionally brought into
India would be liable to Customs Duty
Jetsam and Flotsam brought into India would
also be liable to Customs Duty in the same
manner as Fish
Reduction in customs liability in
certain cases
Pilferage of Goods u/s 13
Damage and deterioration of goods u/s 22
Remission of duty of goods lost, destroyed
or abandoned u/s 23
Denaturing or Mutilation of Goods u/s 24
Exemption granted by notification or by
special order u/s 25
Pilferage of Goods u/s 13
Pilferage refers to “Petty theft” i.e., to steal the
goods ,especially in small quantities
Importer not liable if..pilferage takes place..
After the imported goods were unloaded and..
Before the proper officer has made an order
for clearance for :-
Home consumption or deposit in a warehouse
Importer is liable , if such goods are restored
to the importer after pilferage
Approved Custodian : Liability
u/s 45(3)
If any imported goods are Pilfered, after
unloading thereof in a customs area, while in
the custody of a person approved by the
commissioner u/s 45(1), such Custodian shall
be liable to pay Duty on such goods
Damaged and Deteriorated
Goods u/s 22
Effect.. The duty will be reduced
proportionately to the reduction in value
Valuation.. Owner has the option
(a) value may be ascertained by the proper
officer ..or…
(b) Damaged goods may be sold by
 (i) Public auction or
 (ii) tender or
 (iii) any manner with the consent of the owner
Lost, Destroyed or Abandoned
Goods u/s 23
Lost means.. Lost otherwise than as a
result of pilferage or destroyed
Time – any time before clearance for
Home consumption
Effect.. If goods are proven lost or
destroyed to the satisfaction of AC or DC
, he shall remit the duty on such goods
Lost, Destroyed or Abandoned
Goods u/s 23
Abandoned Goods meaning.. Owner may
relinquish his title to the Goods
Time – any time Before making of order for
clearance for :-
Home consumption or deposit in a warehouse
Effect.. Owner shall be liable to pay the duty
on such goods
Exception .. Owner cannot abandon duty
goods if an offence appears to have been
committed
Denaturing or Mutilation of
Goods u/s 24
Meaning.. Rendering of such goods unfit for
its use or purpose
Effect.. Such goods carry less duty because of
the reduction in their end use purpose
Chargeable to duty ..if ..
Such goods had been imported in denatured
or mutilated form
 Damaged or Lost, Destroyed
Point of Pilfered Goods Deteriorated or Abandoned
Distinction (Sec.13) Goods (Sec.22) Goods (Sec.23)
Goods lost by Lost/destroyed-
theft, not Physically Not available
1.Physical physically available but in a Abandoned -
Availability available damaged form available
2. Qty Lost Small Quantities Any quantity Any quantity

Lost/destroyed-
leviable but
leviable but AC/DC may grant
amount reduced remission
proportionately Abandoned -
3. Duty liability NOT leviable i.e. abatement Owner not liable
 Damaged or Lost, Destroyed or
Point of Pilfered Goods Deteriorated Abandoned Goods
Distinction (Sec.13) Goods (Sec.22) (Sec.23)

Statutory benefit . Benefit is given by

Statutory benefit . But damage is statute, but
4. Nature of Cannot be denied by estimated by discretion is
benefit Proper Officer Proper Officer available to AC/DC

Importer should
prove that it is not Due to natural
due to his wilful causes, should be
5. Burden of Importer need not act/negligence/def proved by
Proof prove ault improter
No question of not possible since
If pilfered Goods are restoration, as goods are
restored , duty is they are not physically
6.Restoration payable missing lost/destroyed
 Damaged or Lost, Destroyed or
Pilfered Goods Deteriorated Goods Abandoned Goods
Point of Distinction (Sec.13) (Sec.22) (Sec.23)

No question of where goods are Sec. 23 covers

abandonment, as sold by public situations of
they are not auction, they are abandonment/
7. Abandonment available at all deemed abandoned surrender also

After unloading and All imported and Any time before

8. Time point before clearance warehoused goods clearance

9. Warehoused
goods Not applicable Applicable Applicable