EXEMPTION FROM CUSTOMS DUTY

RESEARCH REPORT SUBMITTED IN PARTIAL FULFILLMENT OF THE

COURSE TAXATION LAW-II FOR OBTAINING THE DEGREE B.B.A LL. B
(Hons.) DURING THE ACADEMIC YEAR 2020-21.

SUBMITTED BY: - NIHARIKA BHATI

ROLL NO. – 1839
8th SEMESTER
SUBMITTED TO: - DR. G.P. PANDEY
(ASSISTANT PROFESSOR OF LAW)

APRIL, 2021
CHANAKYA NATIONAL LAW UNIVERSITY
NYAYANAGAR, MITHAPUR, PATNA
800001

1
 DECLARATION

I hereby declare that the work reported in the BB.A.LL.B. Project Report entitled
“Exemption from Customs Duty” submitted at Chanakya National Law University, Patna
is an authentic record of my work carried out under the supervision of Assistant Prof. Dr.
G.P. Pandey Sir. I have not submitted this work elsewhere for any other degree or diploma. I
am fully responsible for the contents of my Project Report.

(Signature of the Candidate)

Niharika Bhati
Chanakya National Law University, Patna

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 ACKNOWLEDGEMENT

I take this opportunity to express my profound gratitude and deep regards to my guide Prof.
Dr. G.P. Pandey Sir for his exemplary guidance, monitoring and constant encouragement
throughout the course of this thesis. The blessing, help and guidance given by him time to
time shall carry me a long way in the journey of life on which I am about to embark.
I am obliged to staff members of Chanakya National Law University, for the valuable
information provided by them in their respective fields. I am grateful for their cooperation
during the period of my assignment.
Lastly, I thank almighty, my parents, brother, sisters and friends for their constant
encouragement without which this assignment would not be possible.

Thank you!

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 RESEARCH METHODOLOGY

Method of Research:
For the purpose of research, the researcher has used the Doctrinal Method of Research. The
Research is entirely a Library-based Research, where the researcher has made use of books,
law journals, magazines, law reports, legislations, internet websites, etc., for the purpose of
research.

Aims and Objectives:

The Aims and Objectives of this project are:
 To study and understand the power of the of the Central Government to grant certain
exemptions from customs duty as mentioned under Section 25 of the Customs Act,
1962.
 To study the procedure that is to be followed to avail such exemption.

Sources of Data:

Primary-
 Customs Act, 1962
 Customs (Import of Goods at Concessional Rate of Duty) Rules, 2017
Secondary-
1. Books 2. Journals 3. Internet

Method of Writing:
The method of writing followed in the course of this research paper is primarily analytical.

Scope and Limitations of the Study:

Though the researcher will try her level best not to leave any stone unturned in doing this
project work to highlight various aspects relating to the topic, but the topic is so dynamic
field of law, the researcher will sight with some of unavoidable limitations. The limitations
encountered by the researcher were the paucity of time.

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 TABLE OF CONTENTS
Declaration.................................................................................................................................2
Acknowledgement......................................................................................................................3
Research Methodology...............................................................................................................4
1. Introduction.........................................................................................................................6
2. Power To Grant Exemption From Duty..............................................................................8
3. Availment Of Exemptions.................................................................................................12
4. Conclusion........................................................................................................................14
Bibliography.............................................................................................................................15

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 1. INTRODUCTION
Custom Duty is an indirect tax, imposed under the Customs Act formulated in 1962. The
power to enact the law is provided under the Constitution of India under the Article 265,
which states that “no tax shall be levied or collected except by authority of law” 1. Customs
Act, 1962 just like any other tax law is primarily for the levy and collection of duties but at
the same time it has the other and equally important purposes such as:
i. regulation of imports and exports;
ii. protection of domestic industry;
iii. prevention of smuggling;
iv. conservation and augmentation of foreign exchange and so on
Section 12 of the Custom Act provides that duties of customs shall be levied at such rates as
may be specified under the Customs Tariff Act, 1975 or other applicable Acts on goods
imported into or exported from India. Customs Act, 1962 and Customs Tariff Act, 1975 are
the two limbs of Customs Law in India which must be read with rules and regulations. The
rule making power is delegated to the Central Government while the regulation making
power delegated to the Central Board of Excise and Customs (CBEC)2.
Section 25 of the Act confers upon the Central Government the power to exempt goods either
wholly or partly or either absolutely or subject to such conditions as it may specify in that
behalf. This section talks about 2 major types of exemptions. One type which is in common
use, is under Sub-section (1), in public interest, where there is a general exemption in respect
of any article or class of articles. Such exemptions may be absolute or subject to certain
conditions specified in the relevant notifications. Other is under Sub-section (2), the
exemptions granted may be applicable to specific cases and these will be by a special order 3.
These have to be done in respect of any goods of strategic or secret nature or for charitable
purpose, which are stated in such order.
The power of exemption is variously described as conditional legislation and also as a species
of delegated legislation4. Whether it is one or the other, it is a power given to the Central
Government to be exercised in public interest. Such a provision has become a standard
feature in several enactments and in particular, taxing enactments.

1
https://www.wipo.int/edocs/lexdocs/laws/en/in/in055en.pdf
2
https://www.icsi.edu/media/webmodules/customs%20laws/2016-ATLP-5.pdf
3
https://www.taxmanagementindia.com/visitor/detail_act.asp?ID=983
4
https://taxguru.in/custom-duty/circular-81of-2001-12th-december-2001-fno4671042001cusv-government-
india-ministry-finance-department-revenue-office-memorandum-subject-exemption-customs-duty-section-252-
customs-act-1962-guidelines-c.html

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Customs (Import of Goods at Concessional Rate of Duty) Rules, 2017 lays down the
procedure to be followed by an importer, who intends to avail the benefit of an exemption
notification issued under sub-section (1) of section 25 of the Customs Act, 1962 5 which has
been discussed in the following chapters.

2. POWER TO GRANT EXEMPTION FROM DUTY

Section 25 of the Customs Act, 1962 confers upon the Central Government the power to

5
https://www.cbic.gov.in/htdocs-cbec/customs/cst1617-300616/csge-116.pdf

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exempt goods either wholly or partly or either absolutely or subject to such conditions as it
may specify in that behalf. It States that6:

1. If the Central Government is satisfied that it is necessary in the public interest so to do

it may, by notification in the Official Gazette, exempt generally either absolutely or
subject to such conditions (to be fulfilled before or after clearance), as may be
specified in the notification goods of any specified description from the whole or any
part of duty of customs leviable thereon.
2. If the Central Government is satisfied that it is necessary in the public interest so to
do, it may, by special order in each case, exempt from the payment of duty, under
circumstances of an exceptional nature to be stated in such order, any goods on which
duty is leviable.

Under the section, two types are exemptions are provided for. One type which is in common
use, is under Sub-section (1), in public interest, where there is a general exemption in respect
of any article or class of articles. Such exemptions may be absolute or subject to certain
conditions specified in the relevant notifications. Other is under Sub-section (2), the
exemptions granted may be applicable to specific cases and these will be by a special order 7.
These have to be done in respect of any goods of strategic or secret nature or for charitable
purpose, which are stated in such order.

INTERPRETATION OF POWER OF EXEMPTION UNDER SECTION 25(1)8:

A proper analysis of sub-section (1) of Section 25 shows that the power of exemption can be
exercised:

a) where the Central Government is satisfied that in the public interest it is necessary to
either waive or reduce the duty chargeable on any goods,
b) it can do so by way of a notification published in the Official Gazette,
c) such exemption, however, must be a general one,
d) the exemption granted may be an absolute one or subject to such conditions, as may
be specified in the notification, and
e) the conditions, if any, specified may be conditions to be fulfilled before the clearance

6
https://taxguru.in/custom-duty/circular-81of-2001-12th-december-2001-fno4671042001cusv-government-
india-ministry-finance-department-revenue-office-memorandum-subject-exemption-customs-duty-section-252-
customs-act-1962-guidelines-c.html
7
https://www.taxmanagementindia.com/visitor/detail_act.asp?ID=983
8
As given by the Supreme Court in the case of Union Of India Vs Jalyan Udyog 1993 (68) E.L.T. 9 (S.C.)

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 of goods or after the clearance of goods, as the case may be.

The above analysis shows that an exemption granted may be an absolute one or subject to
such conditions, as may be specified in the notification and further that the conditions
specified may relate to a stage before the clearance of goods or to a stage subsequent to the
clearance of goods9.

In order to obtain a keen insight and to understand the philosophy or rationale underlying the
grant of exemptions under Section 25 it is pertinent to note the explanation given by the
Ministry of Finance regarding manner and reasons underlying grant of exemptions from
customs duty. The Ministry of Finance had explained that the exemptions from customs duty
were granted for one or more of the following reasons10:

1. in accordance with the General Agreement on Trade and Tariff certain concessions
agreed to by India have to be implemented through exemption notifications;
2. in cases, where indigenously manufactured finished products using imported raw
materials are placed at a disadvantageous position vis-a-vis imported finished
products on account of high incidence of import duties leviable on imported articles,
the industries concerned have to be given tariff assistance by bringing down, through
exemption notifications, the import duties applicable in the case of imported raw
materials to a level necessary for the removal of the disadvantages;
3. in cases where component/raw materials required for the initial setting up, assembly
or manufacture of machinery/finished product are assessable to duty at a higher rate
than what is leviable on the machinery/finished product, the tariff anomaly has to be
set right through exemption notifications, equalizing the two rates;
4. certain raw materials/semi-finished products are imported for producing finished
products which are to be exported later. In such cases, exemptions from import duties
have to be given in the interest of export promotion; and
5. some exemptions have to be given on humanitarian grounds like relief, rehabilitation,
and repatriation of Indians, etc.

POLICY GUIDELINES FOR AD-HOC EXEMPTIONS UNDER SECTION 25(2):

Accordingly, exemptions of the types enumerated above are given under Section 25(1) of the
Customs Act, 1962. Ad hoc exemptions, however, are given under Sub-section (2) of the said
9
Union Of India Vs Jalyan Udyog 1993 (68) E.L.T. 9 (S.C.)
10
https://www.icsi.edu/media/webmodules/customs%20laws/2016-ATLP-5.pdf

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section. The amended policy guidelines issued by the Finance Ministry for grant of such
exemption are reproduced below11:

a) Imports of secret goods by Government.

b) Imports for India’s defense needs relating only to military hardware and software or
for R&D units under the DRDO may be allowed free of duty.
c) Imports by Central Policy Organization for equipping their forces may be allowed
free of duty.
d) State Police Organizations may be allowed to import free of duty equipment required
for anti- subversion, anti-terrorism and intelligence work.
e) Imports by Charitable Institutions which are providing all their services free where the
imports are required for use in hospitals, educational institutions, etc., may be allowed
free of duty.

The imports by these charitable organizations should fulfill the following conditions:

a) The imports should be received as donations or gifts and the donor should be known
institution, but not an individual, say a society or a foundation. No payment for
imports should be involved.
b) The recipient should also be an institution/organization, but not an individual, which
is registered as charitable organization.
c) The said organization/institution should be providing services, such as running
hospitals, educational institutions etc., on either free/or no loss or no profit basis.
d) The charitable nature of the organization and the fact of rendering services on free/or
no loss no profit basis should be certified by the concerned district authorities.
e) The organization/institution should certify that the goods under import are for its use
and provide an undertaking to the effect that they would fulfill the conditions.

This sub-section also states that all ad hoc exemptions from duty to non-governmental
organization will be issued subject to the conditions that the imported goods will not be put to
any commercial use and will not be sold, gifted or parted by the importer in any manner
without the prior permission of the Ministry of Finance and that the imported goods will be
kept available for inspection by Customs Officers.

11
https://www.icsi.edu/media/webmodules/customs%20laws/2016-ATLP-5.pdf

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 3. AVAILMENT OF EXEMPTIONS

CUSTOMS (IMPORT OF GOODS AT CONCESSIONAL RATE OF DUTY) RULES,

2017:

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  Application (Rule 2):

Applies to an importer, who intends to avail12-

1. the benefit of an exemption under Sec 25 (Sec 25 empowers CG to exempt goods in

public interest)
2. And where the benefit of such exemption is dependent upon the use of imported
goods for the purpose of manufacture of any commodity or provision of output
service
 Information about benefit to avail exemption (Rule 4):

An importer who intends to avail the benefit of the above-mentioned exemption shall be
required to provide the following information to the Deputy Commissioner (DC) of Customs
or, Assistant Commissioner (AC) of Customs13-

1. The name and address of the manufacturer

2. The goods produced at his manufacturing facility
3. The nature and description of imported goods used in the manufacture of goods or
providing an output service
 Procedure (Rule 5):

The importer shall provide14:

 In duplicate, to the AC/ DC of Customs (respective jurisdiction) where the imported

goods shall be put to use for manufacture of goods or for rendering output service, the
estimated quantity and value of the goods to be imported, particulars of the exemption
notification applicable on such import and the port of import in respect of a particular
consignment for a period not exceeding 1 year.
 The above is information to be provided in one set, to the AC/ DC of Customs at the
Custom Station of importation.

The importer shall submit a continuity bond with such surety or security as deemed
appropriate by the AC/ DC of Customs (respective jurisdiction). The AC/ DC of Customs
(respective jurisdiction), shall forward one copy of information received from the importer to
the AC/ DC of Customs at the Custom Station of importation. After scrutiny, the AC/DC of
12
Customs (Import of Goods at Concessional Rate of Duty) Rules, 2017
13
https://www.cbic.gov.in/htdocs-cbec/customs/cst1617-300616/csge-116.pdf
14
https://www.cbic.gov.in/htdocs-cbec/customs/cst1617-300616/csge-116.pdf

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Customs at the Custom Station of importation shall allow the benefit of the exemption
notification to the importer15.

 Information Regarding Receipt of Imported Goods and Maintenance of Records

(Rule 6):

The importer shall intimate within 2 days of such receipt to the jurisdictional Customs Officer
maintain an account in such manner so as to clearly indicate the quantity and value of goods
imported, the quantity of imported goods consumed in accordance with provisions of the
exemption notification such as quantity of goods re-exported, the quantity remaining in
stock16.

he importer who has availed the benefit of an exemption notification shall submit a quarterly
return (format prescribed in the rules) by the 10th day of the following quarter.

 Other Conditions17:

Rule 7: The importer who availed exemption may re-export the unutilized or defective
imported goods,

o Within 6 months from the date of import,

o With the permission of the jurisdictional AC/DC of Customs (respective jurisdiction).

Rule 8: In case of failure to utilize the goods imported under exemption in accordance with
conditions in the exemption notification or failure to re-export as per rule 7, the jurisdictional
AC/DC of Customs (respective jurisdiction) shall initiate recovery proceeding for the leviable
amount of customs duty.

4. CONCLUSION
Section 25 confers upon the Central Government the power to exempt goods either wholly or
partly or either absolutely or subject to such conditions as it may specify in that behalf. An
exemption granted may be an absolute one or subject to such conditions, as may be specified
in the notification and further that the conditions specified may relate to a stage before the

15
https://www.cbic.gov.in/htdocs-cbec/customs/cst1617-300616/csge-116.pdf
16
https://www.icsi.edu/media/webmodules/customs%20laws/2016-ATLP-5.pdf
17
https://www.icsi.edu/media/webmodules/customs%20laws/2016-ATLP-5.pdf

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clearance of goods or to a stage subsequent to the clearance of goods.

Section 25(1) is a part of the enactment and must be construed harmoniously with the other
provisions of the Act. The power of exemption is variously described as conditional
legislation and also as a species of delegated legislation. Whether it is one or the other, it is a
power given to the Central Government to be exercised in public interest. Such a provision
has become a standard feature in several enactments and in particular, taxing enactments. It
is equally well settled by now that the power of taxation can be used not merely for raising
revenue but also to regulate the economy, to encourage or discourage as the situation may call
for the import and export of certain goods as also for serving the social objectives of the
State.

Since the Parliament cannot constantly monitor the needs of and the emerging trends in the
economy and is in no position to engage itself in day-to-day regulation and adjustment of
import-export trade accordingly, power is conferred upon the Central Government to provide
for exemption from duty of goods, either wholly or partly, and with or without conditions, as
may be called for in public interest. There is no warrant for reading any limitation into this
power. If the public interest demands that the exemption should be absolute, the Central
Government can do so. Similarly, if the public interest demands that exemption should be
granted only subject to certain conditions it can provide such conditions. Then again if the
public interest demands that conditions specified should relate to a stage subsequent to the
date of clearance it can do so. The guiding factor is the public interest.

BIBLIOGRAPHY

BOOKS:

 Taxmann, Indirect Taxes, Law and Practice (2020), ,44th Ed., EBC Publications.

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WEBSITES:
 https://www.slideshare.net/DVSResearchFoundatio/levy-and-exemptions-from-
customs-duty
 https://www.teachoo.com/548/169/Exemption-from-Custom-duty/category/Cases-
Where-Custom-Duty-Not-Charged/
 https://economictimes.indiatimes.com/small-biz/trade/exports/insights/budget-2021-
400-old-duty-exemptions-to-get-a-rejig-duties-cut-on-many-items-to-help-
msmes/articleshow/80631119.cms
 https://customsmangalore.gov.in/faq/faq-exemptions.htm
 https://www.wipo.int/edocs/lexdocs/laws/en/in/in055en.pdf
 https://www.icsi.edu/media/webmodules/customs%20laws/2016-ATLP-5.pdf

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