1 Basic Concepts of Customs

CHAPTER OUTLINES
• Relevant Definitions.
• Important Concepts relating to Customs Duty.
• Types of Goods.

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BACKGROUND OF CUSTOMS LAW

In ancient times a merchant entering a kingdom with goods had to make a gift to the kind and in today’s time this
custom was formalized in to Customs Duty.

CUSTOMS DUTY
Customs Duty is imposed under the Customs Act, formulated in 1962.

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

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INDIA INCLUDES THE TERRITORIAL WATERS OF INDIA [SECTION 2(27)]

INDIAN CUSTOMS WATER

Indian customs waters cover both the Indian territorial waters, exclusive economic zone, Continental Shelf
and includes any bay, gulf, harbor, creek or tidal river. Indian territorial waters extend up to 12 nautical miles
(nm) from the base line Whereas, exclusive economic zone of India is an area beyond the Indian territorial
waters. The limit of exclusive economic zone is 200 nautical miles from the nearest point of the baseline.
Therefore, Indian customs waters extend to a total of 200 nm from base line.

OTHER IMPORTANT TERMS

1. Baseline: It is the lower water mark along the coast.
2. Continental Shelf of India: Continental shelf is the part of the sea floor adjoining a land mass where the depth
gradually increases before it plunges into the ocean deeps. The maximum depth of sea water in the continental
shelf is 200 meters. Continental shelf of India extends beyond the limit of its territorial waters
throughout the natural prolongation of its land territory to the outer edge of the continental margin or to a
distance of 200 nautical miles from the baseline.

GOODS [SECTION 2(22)]

1. Aircraft, Vessels and Vehicles

2. Baggage

3. Stores

4. Currency and Negotiable instruments – (FEMA Act will be applicable).

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5. Any other kind of movable property.

ANALYSIS OF GOODS

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BILL OF ENTRY [SECTION 2(4)]

“Bill of entry” means a bill of entry referred in section 46.
It is filed for import of goods with details etc. of goods

BILL OF EXPORT/SHIPPING BILL [SECTION 2(5)/2(37)]

“Shipping bill” means a shipping bill referred to in section 50;
“Bill of export” means a bill of export referred to in section 50.
Shipping bill applies in case of export by aircraft/vessel. Bill of export applies in case of export by land.

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IMPORTANT CONCEPTS RELATING TO CUSTOMS DUTY

Section Term/Used Definition Explanation

“Duty” means a duty of customs Duty includes import duties as

2(15) Duty
leviable under this Act. well as export duties.

“Import”: with its grammatical

Thus, words “imported” or
variations and cognate expressions,
2(23) Import “importations”
• means bringing into India from a
etc. are to be construed accordingly.
place outside India.

“Imported goods” means-

i) any goods
As soon as duty is paid and goods
ii) brought into India
Imported are cleared for home consumption,
2(25) iii) from a place outside India
goods the goods ceased to be imported
iv) but does not include goods, which
goods.
have been cleared for home
consumption

“Export”: with its grammatical

Thus, the words “exported” or
variations and cognate expressions,
2(18) Export “exportation”, etc. are to be construed
• means taking out of India to a
accordingly
place outside India

“ Export goods” means-

The words “to be taken” suggest
• any goods
that as soon as goods are actually
2(19) Export goods • which are TO BE TAKEN out of
exported viz. “already taken” outside
India
India, they cease to be export goods
• to a place outside India;

TYPES OF GOODS

IMPORTED GOODS [SECTION 2(25)]

The goods brought to India form a place outside India are referred to as imported goods only as long as import duty
has not been paid thereon.

PROHIBITED GOODS [SECTION 11]

The CG has empowered to prohibit import or export of certain goods and they are referred as prohibited goods.
By issuing a notification, the CG may Prohibit import/export of customs goods. The prohibition may be absolute
or conditional.
Such Prohibition may be based on any of the following:
• Protection to Domestic industry
• Any international agreement

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• Protection of patent, copyrights and Trade marks

• Establishment of any industry
• Preventing of smuggling
• Prevention of deceptive practices
• Protection of national treasures of artistic, historic or archaeological value
• Prevention of the contravention of any law
• Implementation of any treaty, agreement or convention with any country
• Conservation of foreign exchange and safeguarding of balance of payment
• Prevention of surplus of any agricultural product or the product of fisheries.
• Prevention of injury to the economy of the country by the uncontrolled import or export of gold or silver etc.

RELEVANT CASE LAW

NAME OF CASE HC / SC DISPUTE JUDGEMENT

Hence, it held that it would be

CCus. (Prev.), Mumbai v. M. Whether the benefit of exemption contrary to the purpose of
Ambalal & Co. 2010 (260) ELT SC meant for imported goods can also exemption notifications to give
487 (SC) be given to the smuggled goods? the benefit meant for imported
goods to smuggled goods.

NOTIFIED GOODS [SECTION 11A TO 11G]

Detection of illegally imported goods and prevention of their disposal:

1. Provision regarding notified goods are applicable throughout the country.
2. These are the goods declared by the Central Govt. as likely goods to be smuggled to India.
3. From the date of issue of notification any person having possession of such notified goods for commercial
purpose is required to intimate the description of quantity, address where the goods are stored to the customs
officer within next 7 days.
4. If any person acquired such goods he shall have a record of the source person and the quantity of the goods
acquired.
5. Such goods can be issued only under a cover of invoice: Containing name, and address of the seller as well as
buyer. The seller should also comply with maintenance of record of customers.
6. If those goods are shifted from one place to another then during the course of transit, the goods shall be
complied with either a invoice or challan.

Note: These provisions are not applicable if the goods are held by a person in the residential premises for personal
use but he should have documentary evidence that the goods have not been smuggled in India.

SPECIFIED GOODS [SECTION 11H TO 11M]

Prevention or detection of illegal export of goods:

1. “Illegal export” means the export of any goods in contravention of the provisions of this Act or any other law in
force for the time being. The CG may specify certain goods by issuing a notification which are likely to be
smuggled out of India.
2. The Central Govt. may declare certain goods as specified goods if those are likely to be smuggled out of India.
3. Provision regarding specified goods are applicable only within 100 km belt across the coastline of India.
4. Provisions are not applicable unless the value of such goods exceeds Rs. 15,000.

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5. During the course of transportation, the good shall be accompanied with an Invoice of the seller or challan of the
owner.
6. The aforesaid restrictions shall not apply to a petty sale of goods whose market price in a day does not exceed Rs.
2,500.

TRANSIT GOODS [SECTION 52 TO 54]

Transit goods are those goods which are brought to India through any vessels or aircraft but those are not
unloaded in India. These are also referred to as same bottom goods.

COASTAL GOODS [SECTION 91 TO 99]

Coastal goods are domestic goods which are transported within India through sea route.
If duty has been paid on Imported goods and those goods are transported through sea route within India,
those are also treated as coastal goods.

TRANSSHIPMENT GOODS [SECTION 52 TO 54]

Transshipment goods are unloaded in India but those are to be sent to some other place whether in India or
abroad.

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APPOINTMENT OF CUSTOMS OFFICERS [SECTION 4]

All the Officers are appointed by the CBIC.
↓
CBIC may authorize Chief Commissioner or Commissioner or Assistant Commissioner.
↓
To appoint officers of customs below the rank of Assistant Commissioner.

POWERS OF CUSTOMS OFFICERS [SECTION 5]

Every officer is entitled to exercise the powers given to him and also the power of his subordinate officers but the
Commissioner (Appeal) cannot exercise the Power of Adjudicating Authority.

Entrustment of Functions of Board and Customs Officers on Certain Other

OFFICERS [SECTION 6]
The CG may authorize any officer of CG or SG or Local Authority to discharge any of the func- tions of Customs
officer for every purpose.

It means the Central Govt. may delegate functions of customs officers to any Central Govt. or State Govt. officer and
such person shall also be a customs officer for all the purpose is of the Act.

THE CENTRAL BOARD IS EMPOWERED TO APPOINT [SECTION 7]

(a) Customs Port and Air Port u/s Section 7 - For all import and export through sea route or through air.
(b) Inland container depot or air freight stations for completion of Customs formalities at the place other than
customs port or air port.
(c) Land customs station for import and export through land route.
(d) Coastal port for transportation of goods within India through sea route.

COMMISSIONER OF CUSTOMS IS EMPOWERED TO APPOINT [SECTION 8/10]

(a) Appointment of Customs Area u/s 8 - Commissioner of customs empowered to appoint the customs Area
within the customs port or Airport.
(b) Appointment of Boarding Station u/s 10- Commissioner of customs empowered to appoint the Boarding
Station
(c) Appointment of Warehousing Station u/s 9 – Commissioner of Customs empowered to appoint Warehousing
Station.

CHARGING SECTION [SECTION 12]

1. This section is the charging section of the Act. Except as provided in this Act, or any other law for the time
being in force, duties of customs shall be levied at such rates as may be specified under the Customs Tariff
Act, 1975 (51 of 1975), or any other law for the time being in force, on goods imported into and exported
from India [Sub-section (1)].
2. The provisions of sub-section (1) shall apply in respect of all goods belonging to Government as they apply in
respect of goods not belonging to Government.

Hence, there is no general exemption to goods imported by Government. But imports by Indian Navy,
specific equipment required by police, Ministry of Defence, Costal Guard etc. are fully exempt from customs duty
by virtue of specific notifications subject to fulfillment of conditions and/or procedure set out in the notification.

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 392 INDIRECT TAX LAWS, VOLUME I : PART II – CUSTOMS ACT, 1962

The following propositions arise from the above provisions:-

1. Duties of customs shall be levied on goods. However, it may be noted that this levy is subject to other
sections in the Act. For instance:
Section 13 – no duty on pilfered goods
Section 22 – reduced duty on damaged good
Section 23 – remission of duty on destroyed goods.
2. The goods shall be such as are imported or exported to or from India;
3. The duty shall be charged at such rates as may be specified under the Customs Tariff Act, 1975.
4. Government goods shall be treated at par with non-Governmental goods for the purposes of levy of customs
duty.

PERSON IN CHARGE [SECTION 2(31)]

In relation to:
a vessel - the master of the vessel;
an aircraft - the commander or pilot-in-charge of the aircraft;
a railway train - the conductor, guard, or other person having the chief direction of train;
any other conveyance - the driver or other person-in-charge of the conveyance;

PROPER OFFICER [SECTION 2(34)]

In relation to any functions to be performed under this Act, means the Officer of Customs who is assigned those
functions by the Board or the Commissioner of Customs.

RELEVANT CASE LAW

NAME OF CASE HC / SC DISPUTE JUDGEMENT

The High Court, on the basis of the following

Tirupati Udyog Ltd. v. UOI
HC
2011 (272) ELT 209 (AP)
observations, inferred that the clearance of
goods from DTA to Special Economic Zone is
not liable to export duty under the SEZ Act,
2005 or under Customs Act, 1962.
• A charging section has to be construed
Are the clearance of
strictly. If a person has not been
goods from DTA to
brought within the ambit of the
Special Economic Zone
charging sections by clear words, he
chargeable to export
cannot be taxed at all.
duty under the SEZ Act,
• SEZ Act does not contain any provision
2005 or the Customs
for levy and collection of export duty
Act, 1962?
for goods, supplied by a DTA unit to a
Unit in Special Economic Zone for its
authorised operations. In the absence
of a charging provision in the SEZ Act
providing for the levy of customs duty
on such goods, export duty

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