Custom and central excise

Dr. Nancy singh

P.hD. NET
What is customs
• Customs is an authority and agency in a country responsible for collecting tarrif and for
controlling the flow of goods, including animals, transports, personal, and hazardous items, into
and out of a country.
• Customs are a public service provided by the government of the respective country that collects
the duties levied on imported goods as well as providing security measures through which people
enter and exit the country.
• One cannot avoid customs when exiting or entering a country thus making it non-excludable.
• Customs is part of one of the three basic functions of a government, namely: administration;
maintenance of law, order, and justice; and collection of revenue.
• Privatization of customs is done in many countries where the inspection of cargo is been done by
outsourced agencies.
 Customs Act

• The Customs Act was formulated in 1962 to prevent illegal imports and exports of goods. Besides,
all imports are sought to be subject to a duty with a view to affording protection to indigenous
industries as well as to keep the imports to the minimum in the interests of securing the exchange
rate of Indian currency.
• The levy and the rate of customs duty in India are governed by the Customs Act 1962 and the
Customs Tariff Act 1975. Imported goods in India attract basic customs duty, additional customs
duty and education cess.
• Section 12 of Customs Act, often called charging section, provides that duties of customs shall be
levied at such rates as may be specified under ‘The Customs Tariff Act, 1975, or any other law for
the time being in force, on goods imported into, or exported from, India.
Customs is Governed by

• Customs Act
• Customs tariff Act
• Customs Rules
• Notification & Circulars
• Customs manual
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)
• 200 nautical miles from baseline
• 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
Rates of duty

sThe custom Tariff Act 1975

First schedule Second schedule

enlist the goods liable

Enlist the goods liable for for export duty
for import duty
Types of custom duty
1. Basic custom Duty
• All goods imported into India are chargeable to a duty under Customs Act, 1962 .
• The rates of this duty, popularly known as basic customs duty, are indicated in the First Schedule
of the Customs Tariff Act, 1975 as amended from time to time under Finance Acts.
• The duty may be fixed on ad -valorem basis or specific rate basis.
• The duty may be a percentage of the value of the goods or at a specific rate.
• The Central Government has the power to reduce or exempt any good from these duties.

2. Additional (Countervailing) Duty of Customs

• This countervailing duty is livable as additional duty on goods imported into the country and the
rate structure of this duty is equal to the excise duty on like articles produced in India.
• The base of this additional duty is c.i.f. value of imports plus the duty levied earlier.
• If the rate of this duty is on ad-valorem basis, the value for this purpose will be the total of the
value of the imported article and the customs duty on it (both basic and auxiliary).
3. Export duties
• Under Customs Act, 1962, goods exported from India are chargeable to export duty. • The items
on which export duty is chargeable and the rate at which the duty is levied are given in the
customs tariff act,1975 as amended from time to time under Finance Acts. • However, the
Government has emergency powers to change the duty rates and levy fresh export duty
depending on the circumstances.
4. Auxiliary Duty of Customs
This duty is levied under the Finance Act and is leviable all goods imported into the country at the
rate of 50 per cent of their value. • However this statutory rate has been reduced in the case of
certain types of goods into different slab rates based on the basic duty chargeable on them.
5. Cesses
Cesses are leviable on some specified articles of exports like coffee, coir, lac, mica, tobacco
(unmanufactured), marine products cashew kernels, black pepper, cardamom, iron ore, oil cakes
and meals, animal feed and turmeric. • These cesses are collected as parts of Customs Duties and
are then passed on to the agencies in charge of the administration of the concerned commodities.
Education cess on customs duty • An education cess has been imposed on imported goods w.e.f. 9-
7-2004. • The cess will be 2% and wef 01.03.2007 2%+1% of the aggregate duty of customs
excluding safeguard duty, countervailing duty, Anti Dumping Duty.
6. Protective Duties
Tariff Commission has been established under Tariff Commission Act, 1951.
• If the Tariff Commission recommends and Central Government is satisfied that immediate action is
necessary to protect interests of Indian industry, protective customs duty at the rate recommended
may be imposed under section 6 of Customs Tariff Act.
• The protective duty will be valid till the date prescribed in the notification.
7. Anti Dumping Duty on dumped articles
• Often, large manufacturer from abroad may export goods at very low prices compared to prices
in his domestic market.
• Such dumping may be with intention to cripple domestic industry or to dispose of their excess
stock. This is called 'dumping’.
• In order to avoid such dumping, Central Government can impose, under section 9A of Customs
Tariff Act, anti-dumping duty up to margin of dumping on such articles, if the goods are being sold
at less than its normal value.
• Levy of such anti-dumping duty is permissible as per WTO agreement.
• Anti dumping action can be taken only when there is an Indian industry producing 'like articles'.
Safeguard Duty
• Central Government is empowered to impose 'safeguard duty' on specified imported goods if
Central Government is satisfied that the goods are being imported in large quantities and under
such conditions that they are causing or threatening to cause serious injury to domestic industry.
• Such duty is permissible under WTO agreement.
• Safeguard duty is a step in providing a need-based protection to domestic industry for a limited
period, with ultimate objective of restoring free and fair competition
National Calamity Contingent Duty
• A National Calamity Contingent Duty (NCCD) of customs has been imposed vide section 129 of
Finance Act, 2001.
• This duty is imposed on pan masala , chewing tobacco and cigarettes. It varies from 10% to 45%. -
NCCD of customs of 1% was imposed on motor cars, multi utility vehicles and two wheelers and
NCCD of Rs 50 per ton was imposed on domestic crude oil -section 134 of Finance Act.
• There are different rates of duty for different goods there are different rates of duty for goods
imported from certain countries in terms of bilateral or other agreement with such countries
which are called preferential rate of duties the duty may be percentage of the value of the goods
or at specified rate.
Export Procedures
• Entry Outward
• Loading in conveyance can start after ‘Entry Outward’ is given by customs officer. Export
manifest/Export report
• Person in charge of conveyance is required to submit ‘Export Manifest’ or ‘Export Report’. Registration
with DGFT and EPC
• Exporter has to be obtaining IEC number from DGFT is advance. He should be registered with Export
Promotion Council if he intends to claim export benefits.
• Third party exports
• Export can be by manufacturer himself or third party (i.e. by exporter on behalf of another).
Merchant exporter means a person engaged in trading activity and exporting or intending to export
goods.
• Registration of documents under Export Promotion Scheme
• Advance authorization, DEPB etc. should be registered if exports are under Export Promotion Scheme.
Shipping Mill
• Export is required to submit Shipping Bill with required documents for obtaining permission to export.
Import Procedures

• e-filing of documents • Goods should arrive at customs port/airport only. Most of customs
procedures are computerized. E-filing of documents is required. Import manifest or Import
Report • ‘Person in charge of conveyance’ is required to submit Import Manifest or Import
Report. Entry Inwards • Goods can be unloaded only after grant of ‘Entry Inwards’. Risk
Management System • Self Assessment on basis of ‘Risk Management System’ (RMS) has
been introduced in respect of specified goods and importers.
• Bill of Entry for home consumption on payment of customs duty • Importer has to submit
Bill of Entry giving details of goods being imported, along with required documents.
Electronic submission of documents is done in major ports. • White Bill of Entry is for home
consumption. Imported goods are cleared on payment of customs duty. Bill of Entry for
warehousing • Yellow Bill of Entry is for warehousing. It is also termed as ‘into bond Bill of
Entry’ as bond is executed. Duty is not paid and imported goods are transferred to
warehouse where these are stored. Green Bill of Entry is for clearance from warehouse on
payment of customs duty. It is for ex-bond clearance.
 Excise duty
• Excise duty refers to the taxes levied on the manufacture of goods within the country, as opposed
to custom duty that is levied on goods coming from outside the country
• Excise Duty is a form of indirect tax which is generally collected by a retailer or an intermediary
from its consumers and then paid to the government. 
•  Although this duty is payable on manufacture of goods, it is usually payable when the goods are
‘removed’ from the place of production or from the warehouse for the purpose of sale. There is
no requirement for the actual sale of the goods for imposing the excise duty because it is
imposed on the manufacture of such goods. The Central Board of Excise and Customs (CBEC) is
responsible for collecting excise duty.
Acts and Rules Governing Excise Duty in India

• The legal framework around Excise Duty is majorly governed by the two acts-

• Central Excise Act, 1944

• Central Excise Tariff Act, 1985

• The two acts underline the laws related to the levying of excise duty that extends to the
whole of India.
• The rates of Central Excise Duty are defined by the Central Excise Tariff Act, 1985. The
Central Excise Act majorly provides the definitions related to excise while the Central
Excise Tariff Act includes an elaborate schedule of excisable goods and the tariffs on
them. The CBEC, which functions under the leadership of the Finance Minister,
administers the levy of excise and custom laws in the country.
Types of Excise Duty in India
• Basic Excise Duty- Sometimes referred to as Central Value Added Tax (CENVAT), this type of excise duty is
imposed on goods classified under the first schedule of the Central Excise Tariff Act, 1985. This duty is
imposed under Section 3(1) (a) of the Central Excise Act, 1944 and levied on all excisable goods in the
country except salt.
• Additional Excise Duty- According to the Section 3 of the Additional Duties of Excise (Goods of Special
Importance) Act, 1957, this duty is levied on goods listed in Schedule 1 of the given act. Such duty is
levied on some specific goods and is charged by the central and state government as a substitute of the
sales tax. The Additional Duties of Excise (Textiles and Textile Articles) Act, 1978 also provide for a similar
legislation.
• Special Excise Duty- This kind of duty is levied on special goods specified under the Second Schedule to
the Central Excise Tariff Act, 1985. items that are bound under the Information Technology
Agreement (apart from information technology software), and also on certain raw materials or
inputs for the manufacture of IT or electronic products.
Who should pay and when to pay excise duty
Considering the fact that excise duty is charged on the manufacture/production of goods, the
producer/manufacturer of goods is liable to pay excise duty to the government. The three parties
that must pay excise duty include the following:
• The individual or entity that manufactured or produced the goods
• The individual or entity that was responsible for the manufacture of goods by way of hiring labour
• The individual or entity responsible for the manufacture of goods by other parties
Excise duty must be paid at the time of removal of goods. Assessees must pay the excise duty on
the manufacture or production of goods. Under Rule no. 8 of the Central Excise (Amendment)
Rules, 2002, excise duty should be paid on the fifth day of the following month from the date on
which the goods were removed from the warehouse or factory for the purpose of sale. In case
excise duty is paid online through netbanking, the due date to make the payment is the sixth day
of the following month. However, if the payment is made in March, it must be done before March
31.
Difference between Excise Duty and Custom Duty

• While excise duty is levied on goods produced or manufactured within the country,
custom duty applies to the goods that are sold in India but were produced in a different
country. Excise duty is to be paid by the manufacturer of the goods and not by the
consumer. Custom duty is to be paid by the importer of the goods.
• A number of provisions are common for excise duty and custom duty with the major
difference being the place of production of the goods.
• Non-payment of your excise duty on time can lead to huge financial repercussions.
According to the laws related to excise duty, the amount of penalty can be anywhere
between 25 to 50 percent of the amount of tax evaded. Usually, the excise duty itself is a
big amount and when the penalty is calculated as a percentage of it, it can be of
substantial value.
Procedure for Central Excise Clearance Under Export
• Central Excise Clearance procedures Under Claim of Rebate (Without Examination)-Under this method,
exporter pays excise duty and clears the goods on his own, without examination by the Central Excise Officer.
• Application to Excise Authorities: The exporters are allowed to remove the goods for export, on their own,
without getting the goods examined by the Central Excise officers. The application form – ARE-1 in such cases
would be prepared in sixtuplicate, giving all particulars and declarations, after removal of goods.
• Examination by the Central Excise:The jurisdiction Superintendent of Central Excise shall examine the
information contained in ARE-1 and verify the facts of payment of duty and other certificates/ declarations
made by the exporter
• Examination by Customs Authorities:In this case, the customs authorities would invariably examine the goods,
as excise authorities have not examined goods. The rest of the procedure is the same detailed in the earlier
procedure for Central Excise clearance under Claim of Rebate (WITH EXAMINATION).
2. Procedure for Excise Clearance under Bond / Letter Undertaking-Under this rule, there is no
PLA(personal Ledger Account) as no duty is paid. Instead of payment of duty, the manufacturer exporter
executes bond/letter of undertaking to the amount equivalent to the excise duty. Such a bond is to be
supported by the bank guarantee to protect financial interests of excise department. 

3. Letter of Under taking by Manufacture- Exporter- Manufacturer-Exporter is neither needed to pay

excise duty nor file the excise Bond.

• Manufacturer-Exporter can obtain clearance of export shipment by producing Letter of Undertaking.

This is a great concession to the manufacturer who directly exports the goods.
Export inspection council (EIC)
• The Export Inspection Council (EIC) is the official export –certification body of India which ensures
quality and safety of products exported from India.
• EIC was set up by the Government of India under Section 3 of the Export (Quality Control and
Inspection) Act, 1963 to ensure sound development of export trade of India through quality
control and inspection and matters connected therewith.
• The role of EIC is to ensure that products notified under the Export (Quality Control and
Inspection) Act 1963 are meeting the requirements of the importing countries in respect of their
quality and safety.
 Standard development activities of EIC:
• Notify commodities which will be subject to quality control and/or inspection prior to export,
• Establish standards of quality for such notified commodities, and
• Specify the type of quality control and /or inspection to be applied to.
 Certification activities of EIC:
• Certification of quality of export commodities through installation of quality assurance systems
(In-process Quality Control and Self-Certification) in the exporting units as well as consignment-
wise inspection
• Certification of quality of food items for export through installation of Food Safety Management
Systems (FSMS) in the food processing units as per international standards.
• Issue of different types of Certificates such as Health, Authenticity etc. to exporters under various
product schemes for export.
• Issue of Certificates of Origin to exporters under various preferential tariff schemes for export
products.
• Recognition of Inspection Agencies as per ISO 17020 and Laboratories as per ISO 17025 and
utilizing them for export inspection and testing.