1.

Meaning of custom duties

Customs Duty is a tax on goods moving across international borders
Levied on:
Imports (bringing goods into India)
Exports (taking goods out of India)
Acts as:
Revenue source for government
Trade regulation tool
Protection mechanism for domestic industries
Administered by:
Central Board of Indirect Taxes and Customs4. Taxable Event (Sec 12)
• Customs duty is levied when:
o Goods are imported into India

o Goods are exported from India

Important concept:
• Taxable event = Import/Export
• Collection happens later (at clearance stage)

3. Definitions (Important for Answer Writing)

A. “Goods” [Section 2(22), Customs Act]

• Includes:

o Vessels, aircrafts

o Stores, baggage

o Currency & negotiable instruments

• Covers:

o Movable property of all kinds

B. “Import” [Section 2(23)]

• Bringing goods into India from a place outside India

C. “Export” [Section 2(18)]

• Taking goods out of India to a place outside India

D. “India” [Section 2(27)]

 • Includes:

o Territorial waters of India

E. “Customs Duty”

• Duty levied under:

o Customs Act, 1962

o Customs Tariff Act, 1975

F. “Assessable Value”

• Value on which duty is calculated

• Determined under:

o Section 14 of Customs Act

5. Types of Customs Duties

(1) Basic Customs Duty (BCD)

• Primary duty on imports
• Can be – Ad Valorem (percentage of value) & Specific (fixed amount)
• Levied under Sec 12 of Customs Act
• Rates specified in First Schedule of Customs Tariff Act

Example:
• Import of electronics → 10% BCD

(2) Integrated GST (IGST)

• Levied under:
o Integrated Goods and Services Tax Act, 2017

• Applicable on imports (treated as inter-state supply)

Example:
• Imported laptop → IGST @18%
 (3) Social Welfare Surcharge (SWS)
• Levied @10% on BCD
• Replaced education cess

(4) Anti-Dumping Duty

• Imposed when goods are imported at lower than normal value

Purpose:
• Protect domestic industry from unfair trade

Example:
• Cheap Chinese steel harming Indian manufacturers

(5) Countervailing Duty (CVD)

• To counter subsidy given by exporting country

(6) Safeguard Duty

• Imposed when sudden surge in imports harms domestic industry

(7) Protective Duty

• To protect domestic industries (recommended by Tariff Commission)

(8) Export Duty

• Levied on export of certain goods

Example:
• Export duty on iron ore

(9) Additional Duties

• Under various laws for specific purposes

6. Classification of Duties (Exam Concept)

Based on Nature:

• Ad Valorem Duty → % of value

 • Specific Duty → fixed amount per unit
• Mixed Duty → combination

Example:
• ₹10/kg OR 10% whichever higher

7. Valuation of Goods (Sec 14)

• Value = Transaction Value (price actually paid/payable)
Includes:

• Freight
• Insurance
• Loading/unloading charges

Based on:
• Customs Valuation (Determination of Value of Imported Goods) Rules, 2007

8. Date for Determination of Duty (Sec 15)

• Relevant date:
o Date of filing Bill of Entry o

Date of entry inward of

vessel

Important for exam:

• Rate of duty = rate on date of filing Bill of Entry

9. Import Procedure (Short Flow)

1. Arrival of goods
2. Filing of Import Manifest

3. Filing of Bill of Entry

4. Assessment of duty
5. Payment of duty
6. Clearance of goods

10. Export Procedure

 1. Filing of Shipping Bill
2. Assessment

3. Payment of export duty (if applicable)

4. Let Export Order (LEO)
5. Shipment

LEVY, COLLECTION & EXEMPTION OF CUSTOMS DUTIES

1. Levy of Customs Duty

Meaning of Levy
• “Levy” means:
o Imposition of tax by law

• It answers:
Whether tax is chargeable or not

Charging Section (Sec 12)

• Customs duty is levied under:
o Customs Act, 1962
• Section 12(1):
o Duty shall be levied on:
▪ Goods imported into India

▪ Goods exported from India

Essential Conditions for Levy

• Goods must be: o Movable o Marketable

• Must cross:
o Customs frontier of India
Taxable Event
• Taxable event = Import or Export of goods

Important understanding:
• Levy occurs at import/export
• Collection happens later (at clearance stage)

When Import is Complete? (Important Concept)

• Import is complete when:
o Goods enter India (territorial waters)

Case Law:
• Garden Silk Mills Ltd. v. Union of India o Held:

▪ Import begins when goods enter territorial waters

Territorial Waters
• Extend up to 12 nautical miles from coast
• Part of “India” for customs purposes

Dutiable Goods
• Defined under Sec 2(14):
o Goods on which duty is payable

Exceptions to Levy
• Goods in transit
• Goods in bonded warehouse (till clearance)
• Exempted goods

2. Collection of Customs Duty

Meaning of Collection
• “Collection” means:
o Actual recovery/payment of duty
 Levy ≠ Collection
• Levy = Imposition
• Collection = Payment

Relevant Sections
• Sec 15 → Rate of duty & tariff valuation
• Sec 46 → Filing of Bill of Entry
• Sec 47 → Clearance for home consumption
• Sec 68 → Clearance from warehouse
(All under Customs Act, 1962)

Date for Determining Duty (Sec 15)

• Relevant date:
o Date of Bill of Entry filing o OR date of entry inward of

vessel

Important:
• Rate applicable = rate on this date

Types of Bills
• Bill of Entry (Imports)
• Shipping Bill (Exports)

Time of Collection

✔ For Imports:
• At the time of:
o Clearance for home consumption (Sec 47)

✔ For Warehoused Goods:

• At time of:
o Removal from warehouse (Sec 68)

Example
 • Goods arrive on 1st Jan
• Bill of Entry filed on 5th Jan
• Rate changes on 3rd Jan

Applicable rate = 5th Jan rate

Important Case Law

• Kiran Spinning Mills v. Collector of Customs o Held:

▪ Duty is payable at time of clearance, not arrival

Recovery of Duty
• If duty not paid:
o Government can recover:
▪ Duty + Interest + Penalty

Interest on Delayed Payment

• Applicable when duty is not paid on time

3. Exemption from Customs Duty

Meaning
• Exemption means:
o Relief from payment of duty

Legal Provision (Sec 25)

• Under:
o Customs Act, 1962
• Central Government may:
o Exempt goods from duty:

▪ Absolutely

▪ Conditionally

Types of Exemptions
✔ (1) Absolute Exemption
• Mandatory
• No option to pay duty

Example:
• Life-saving drugs fully exempt

✔ (2) Conditional Exemption

• Subject to conditions

Example:
• Import for export production → exemption if conditions met

Conditions for Exemption

• Fulfillment of:
o Purpose-based conditions o Usage-based conditions

o Documentation requirements

Exemption via Notification

• Issued by: o Central Government

Important:
• Must be published in Official Gazette

Withdrawal of Exemption
• Government can:
o Modify or withdraw exemption anytime

Important Case Law

• Dilip Kumar & Company v. Commissioner of Customs

Held:
• Exemption notifications must be:
o Strictly interpreted

• Benefit goes to:

 o Government if ambiguity exists

General vs Specific Exemption

• General → applies to all goods of a class
• Specific → applies to specific goods/persons

Examples

Example 1:
• Import of medical equipment
• Exempt under government notification

Example 2:
• Import of machinery under export promotion scheme
• Exempt if used for export production
 PART 1: WAREHOUSING

1. Meaning of Warehousing
• Warehousing means:
o Storing imported goods in a bonded warehouse
without payment of duty

• Duty is:
o Deferred (postponed), not exempted

2. Legal Provisions
• Governed under:
o Customs Act, 1962
Key Sections:
• Sec 57 → Public warehouses
• Sec 58 → Private warehouses
• Sec 59 → Warehousing bond
• Sec 60 → Permission for deposit
• Sec 61 → Period of storage
• Sec 68 → Clearance for home consumption

3. Types of Warehouses

(1) Public Warehouse

• Owned by government
• Available to all importers

(2) Private Warehouse

 • Owned by private entities
• Used by warehouse owner

(3) Special Warehouses

• For specific goods (e.g., hazardous goods)

4. Objectives of Warehousing
• Delay payment of customs duty
• Facilitate trade
• Improve cash flow for importers
• Store goods safely

5. Warehousing Procedure Step-by-Step:

1. Arrival of goods in India

2. Filing of Bill of Entry for Warehousing
3. Execution of Bond (Sec 59)
4. Permission by customs officer (Sec 60)
5. Goods deposited in warehouse

6. Warehousing Bond (Sec 59)

• Importer executes a bond:
o To pay duty + interest if conditions not fulfilled

7. Period of Warehousing (Sec 61)

• Normally:
o 1 year (general goods)
• Can be extended by authorities

8. Interest Liability
• Interest payable if:
o Goods remain beyond permitted period
 9. Clearance from Warehouse

(a) For Home Consumption (Sec 68)

• Duty payable at:
o Time of removal from warehouse

(b) For Export (Sec 69)

• No duty payable if goods exported

10. Important Case Law

Kiran Spinning Mills v. Collector of Customs

• Held:
o Duty payable at time of clearance from warehouse

11. Advantages of Warehousing

• Duty deferment
• Better liquidity
• Protection against price fluctuations
• Useful for seasonal goods

12. Example

Importer imports machinery worth ₹10 lakh

• Stores in warehouse • Pays duty after 6 months

✔ Benefit:
• No immediate cash outflow

PART 2: DUTY DRAWBACK

1. Meaning of Duty Drawback

• Duty Drawback means:
o Refund of customs duty paid on imported goods when
such goods are exported
 2. Legal Provisions
• Governed under:
o Customs Act, 1962 o Customs and Central Excise

Duties Drawback Rules, 2017

Key Sections:
• Sec 74 → Drawback on re-export of imported goods
• Sec 75 → Drawback on imported materials used in export goods

3. Types of Duty Drawback

(1) Sec 74 Drawback (Re-export)

• Applicable when:
o Imported goods are re-exported

Refund:
• Up to 98% of duty paid

Condition:
• Goods must be identifiable

(2) Sec 75 Drawback (Manufacturing)

• Applicable when:
o Imported goods used in manufacturing exported goods

Refund:
• Based on:
o Standard rates or actual duty paid

4. Conditions for Drawback

• Goods must be:
o Exported
• Proper documentation required
• No double benefit allowed
5. Time Limits
• Export must occur:
o Within prescribed time

6. Procedure for Claim

1. Export goods
2. File Shipping Bill
3. Claim drawback
4. Verification by customs
5. Refund granted

7. Calculation of Drawback
• Based on:
o Duty paid o Rate notified by government

8. Restrictions
• No drawback if:
o Goods used in India o Duty not paid o

Prohibited goods

9. Example

Import raw material:

• Duty paid = ₹50,000
• Used to manufacture goods exported

Drawback received:
• ₹50,000 (or as per rate)

10. Important Case Law

Collector of Customs v. Indian Organic Chemicals Ltd.

• Held:
 o Drawback allowed only if conditions strictly fulfilled

11. Advantages of Drawback

• Promotes exports
• Reduces cost of production