AN ASSIGNMENT

ON
SECTION 12 - CHARGEABILITY AND SECTION 25 - POWER TO GRANT EXEMPTION FROM DUTY

SUBMITTED
as
Partial fulfilment for the Internal Assessment of the DSC course 6.3
“Goods & Services Tax (GST) and Customs Law” of Part 3, [Link].(H),
DEPARTMENT OF COMMERCE,
INDRAPRASTHA COLLEGE FOR WOMEN
UNIVERSITY OF DELHI

TO
MS. T. JEYA CHRISTY

On
(02/02/2026)

BY
NAME: GRISHMA
COLL. ROLL NO.: 23/COM/043
EXAM. ROLL NO.: 23029504043

SEMESTER: VI
SECTION: A
TABLE OF CONTENTS

CONTENTS PAGE
NO.
SECTION 12
Introduction of section 12 1
Taxable event in case of imports 1

Taxable event in case of export 2

Goods on which duty is levied 2
Conclusion 3

SECTION 25
Introduction of section 25 3
Authority to grant exemption 3

Nature and scope of exemption 4

Exceptions to the two-year validity rule 4
Applicability to EOU and SEZ units 5

Section 25A inward processing of goods 5

Section 25B outward processing of goods 7
Conclusion 8

Bibliography 9
SECTION 12 CHARGEABILITY
INTRODUCTION OF SECTION 12
Section 12 of the Customs Act, 1962 is known as the charging section because it creates the legal authority
for the levy of customs duty in India. According to this section, customs duty is chargeable on all goods
imported into India as well as goods exported out of India. The duty shall be levied at the rates prescribed
under the Customs Tariff Act, 1975, or under any other law in force at the relevant time. This means that
Section 12 lays down the basis of charge, while the actual rate of duty is determined by the tariff law.
However, certain categories of goods are granted exemption from customs duty through specific
notifications issued by the Central Government. Such exemptions are generally provided for goods imported
by the Navy, or for special equipment required by the Police, Ministry of Defence, and Coast Guard. These
exemptions are not automatic and are available only when the conditions and procedural requirements
mentioned in the notification are duly fulfilled.

TAXABLE EVENT IN CASE OF IMPORT / EXPORT

As per section 12 of the Customs Act, 1962, “the taxable event for payment of the duty of customs is the
importation or exportation of goods into/out of India.” Initially, the determination of point at which
importation or exportation occurs was a controversial issue. The basic reason was the definition of India,
which included the territorial waters of India.
The Supreme Court of India has given landmark judgments in cases of Union of India v. Apar Industries
Limited (1999) and further in the case of Garden Silk Mills Limited v. UOI (1999). The import of goods will
commence when they cross the territorial waters but continues and is completed when they become part of
the mass of goods within the country, and the taxable event being reached at the time when goods reach the
customs barriers and Bill of Entry for home consumption is filed.
The confusion in determining the point at which the importation or exportation takes place was cleared by
the numerous legal decisions rendered in this regard. The major principles derived by these judgments are as
follows:

TAXABLE EVENT IN CASE OF IMPORTS

(a) In case of goods cleared for home consumption
Import of goods commences when the goods cross the territorial waters of India. However, import does not
get completed merely on crossing the territorial waters. The process of import continues and is completed
only when the goods become part of the mass of goods within the country. The taxable event for levy of
customs duty is said to occur at the point of time when the goods reach the customs barriers and the Bill of
Entry for home consumption is filed by the importer. At this stage, the goods are intended for use, sale, or
consumption within India and therefore customs duty becomes payable.
(b) In case of goods cleared for warehousing
In the case of warehoused goods, the imported goods are not immediately cleared for home consumption and
continue to remain under customs control. Such goods are kept in a customs warehouse and are treated as
being in customs bond. Hence, import is not considered complete at the time the goods enter India. Import is
treated as having taken place only when the goods are cleared from the warehouse. The customs barrier is
deemed to be crossed at the time when the goods are taken out of the warehouse and brought into the mass
of goods within the country.

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Clearance for home consumption
Clearance for home consumption implies that the customs duty payable on the imported goods has been
fully paid by the importer. Once such clearance is granted by the customs authorities, the goods are released
and can be removed by the importer for utilization, sale, or consumption within the country without any
further customs restriction.
Clearance for warehousing
In cases where the imported goods are not immediately required for home consumption, they may be
deposited in a customs warehouse. Such goods are cleared for warehousing and the payment of customs duty
is postponed. In this situation, the collection of customs duty is deferred and the duty becomes payable only
when the goods are subsequently cleared from the warehouse for home consumption.

TAXABLE EVENT IN CASE OF EXPORTS

In the case of exports, the taxable event refers to the point of time at which export duty, if any, becomes
payable. Export of goods is considered to be complete only when the goods physically cross the territorial
waters of India. Merely bringing the goods to the port or loading them on the ship does not complete the
export. If the ship carrying the goods sinks within the territorial waters of India, the export is not regarded as
complete and, therefore, no export is said to have taken place.
However, as a matter of procedure, export duty has to be assessed and collected before the ship actually
leaves the port. Therefore, the taxable event is treated as having occurred at the time when the proper officer
of customs makes an order permitting clearance of the goods for export. This order is known as entry
outward, and it signifies official permission for the export. The taxable event thus arises when entry outward
is granted and the loading of the goods on the vessel takes place, even though the export is completed only
when the goods cross the territorial waters of India.
Under the Customs Act, 1962, customs duty is levied only on goods. The term “goods” refers to movable
property which is capable of being imported into or exported out of India. Customs duty is a tax on goods
and not on persons, services, or transactions. Therefore, duty is chargeable only when there is import or
export of movable goods.

GOODS ON WHICH DUTY IS LEVIED

Customs duty applies to various types of movable goods, including:
1. Raw materials, such as cotton, crude oil, iron ore, and other basic inputs imported for manufacturing
purposes.
2. Finished goods, such as electronic items, garments, machinery, automobiles, and other market-ready
products.
3. Consumable goods, such as fuel, food products, chemicals, and similar items which are used up
during consumption.
However, certain items are excluded from the levy of customs duty because they are not treated as goods
under the Customs Act. These include:
1. Services, such as consulting services, professional services, and software services, since they are
intangible and cannot be physically imported or exported.
2. Immovable property, such as land and buildings, as they cannot be moved across borders.

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Since services and immovable property cannot be physically imported or exported, customs duty does not
apply to them. Thus, customs duty under the Customs Act, 1962 is levied only on movable goods capable of
import or export, while services and immovable property remain outside its scope.

CONCLUSION
In conclusion, Section 12 of the Customs Act, 1962 forms the foundation of the customs duty structure in
India by clearly establishing the chargeability of customs duty on goods imported into or exported out of
India. It defines the legal authority for levy, while the applicable rates are determined under the Customs
Tariff Act, 1975 or other relevant laws. Judicial interpretations have played a crucial role in clarifying the
taxable event, particularly in resolving disputes regarding the exact point of importation or exportation, by
emphasizing the concepts of territorial waters, customs barriers, and completion of import or export. The
distinction between home consumption and warehousing in imports, as well as the procedural aspects of
exports such as entry outward, ensures clarity in the timing of duty liability. Furthermore, the Act clearly
restricts the levy of customs duty to movable goods only, excluding services and immovable property from
its scope. Overall, these provisions ensure a balanced and well-defined framework for the levy of customs
duty, aligning revenue considerations with legal certainty, trade facilitation, and administrative efficiency.

SECTION 25 POWER TO GRANT EXEMPTION FROM DUTY

Introduction
The Customs Act, 1962 is a comprehensive legislation governing the levy and collection of customs duties
on import and export of goods in India. One of its most significant provisions is Section 25, which
empowers the Central Government to grant exemption from customs duty. This provision plays a crucial role
in promoting trade, protecting domestic industries, fulfilling international obligations, and ensuring
economic stability. The power under Section 25 is discretionary in nature and is exercised strictly in public
interest.

Authority to Grant Exemption

Section 25 of the Customs Act, 1962 authorises the Central Government of India to exempt goods from
customs duty by issuing a notification in the Official Gazette. Such exemption may be granted when the
Government is satisfied that it is necessary in the public interest to do so. The exemption can be granted in
respect of imported or exported goods and may apply to a specific class of goods, persons, or transactions.
This power reflects the policy-making function of the Government and is generally not subject to judicial
interference unless the notification is found to be arbitrary, discriminatory, or beyond the scope of the Act.

Nature and Scope of Exemption

The exemption granted under Section 25 may be:
1. Whole exemption, where the entire customs duty is waived; or
2. Partial exemption, where only a portion of the duty is exempted.
Further, exemptions may be conditional or unconditional. Conditional exemptions require the fulfilment of
prescribed conditions, such as end-use restrictions or compliance with procedural requirements.
Unconditional exemptions, on the other hand, apply automatically and do not require the importer to satisfy

3
any conditions. In the case of unconditional exemptions, customs authorities are bound to apply the
exemption without any discretion.

Effective Date of Exemption (Section 25(4))

As per Section 25(4), an exemption notification becomes effective on the date on which it is issued for
publication in the Official Gazette, or on such date as may be specified in the notification itself. This
provision ensures clarity and legal certainty regarding the applicability of the exemption.

Validity of Exemption Notifications (Section 25(4A))

Section 25(4A) introduces a time-bound framework for conditional exemptions. It provides that any
exemption granted subject to conditions under Section 25(1) shall, unless otherwise specified, be valid up to
the 31st March immediately following two years from the date of grant or variation. This ensures periodic
review of exemption policies and prevents indefinite continuation of concessions without evaluation.
A special provision was inserted through the Finance Bill, 2021, which states that in respect of exemptions in
force on the date of Presidential assent to the Finance Bill, the two-year period shall be reckoned from 1st
February 2021.

Exceptions to the Two-Year Validity Rule

With effect from 1st April 2023, Section 25(4A) was amended to provide that the two-year validity
restriction shall not apply to certain categories of exemptions. These include exemptions relating to:
1. Bilateral or multilateral trade agreements
2. International treaties and obligations, including those involving UN agencies and diplomatic
privileges
3. Privileges of constitutional authorities
4. Schemes under the Foreign Trade Policy
5. Central Government schemes having a validity exceeding two years
6. Re-imports, temporary imports, goods imported as gifts, or personal baggage
7. Duties such as Integrated Goods and Services Tax leviable under the Customs Tariff Act, 1975, other
than basic customs duty under Section 12
These exceptions recognise the long-term and continuing nature of such arrangements.

Non-Levy of Insignificant Amount of Duty (Section 25(6))

Section 25(6) provides administrative relief by stating that no customs duty shall be collected if the amount
of duty payable is ₹100 or less. This provision avoids unnecessary administrative costs and procedural
burden.

Applicability to EOU and SEZ Units

An exemption notification issued under Section 25 does not automatically apply when goods are cleared by
an Export Oriented Unit (EOU) or a Special Economic Zone (SEZ) unit into the Domestic Tariff Area

4
(DTA). Such exemptions are applicable only when specifically provided for in the notification. This ensures
that domestic markets are adequately protected from unintended duty-free inflows.

SECTION 25A Inward Processing of Goods

Section 25A of the Customs Act, 1962 provides a special mechanism known as inward processing of goods,
under which the Central Government is empowered to grant exemption from customs duty on goods
imported temporarily for the purpose of repair, further processing, or manufacture. This provision is intended
to promote domestic manufacturing and value addition without imposing an unnecessary customs duty
burden on goods that are not meant for consumption within India.
Under this section, where the Central Government is satisfied that it is necessary in the public interest, it
may, by way of a notification, exempt such imported goods from the whole or any part of the customs duty
leviable thereon, subject to specified conditions. The exemption is conditional and applies only when the
importer strictly complies with the terms laid down in the notification.
Conditions for Grant of Exemption under Section 25A
The exemption under Section 25A is subject to the following essential conditions:
(a) Re-export of goods after repair, processing, or manufacture
The imported goods must be re-exported after undergoing repair, further processing, or manufacture, as the
case may be. Such re-export must take place within a period of one year from the date on which the order for
clearance of the imported goods is made by the proper officer of customs.
The time limit of one year ensures that the exemption is available only for temporary imports and that goods
do not get diverted into the domestic market. However, the Central Government may provide for extension
of this period in genuine cases through notification or administrative approval, subject to prescribed
conditions.
Failure to re-export the goods within the specified time limit may result in:
1. Withdrawal of exemption
2. Recovery of customs duty
3. Levy of interest and penalties

(b) Identifiability of imported goods in the exported goods

Another critical condition is that the imported goods must be identifiable in the goods that are eventually
exported. This means there should be a clear and verifiable link between the imported goods and the
exported goods.
Identifiability may be established through:
1. Physical identification (serial numbers, marks, labels)
2. Documentary evidence
3. Technical correlation
4. Input-output norms specified in the notification

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This condition prevents misuse of the exemption by ensuring that only the goods originally imported under
inward processing are re-exported after processing, and that no substitution or diversion takes place.
(c) Fulfilment of other specified conditions
In addition to the above, the exemption is subject to such other conditions as may be specified in the
notification issued by the Central Government. These conditions may include:
1. Execution of a bond or undertaking
2. Maintenance of proper records
3. Submission of periodic reports or returns
4. Compliance with prescribed procedures
5. Inspection and verification by customs authorities
These safeguards are necessary to ensure proper monitoring and prevent misuse of the inward processing
facility.

Role of Notification under Section 25A

The exemption under Section 25A is implemented through notification, which specifies:
1. The nature of goods eligible for exemption
2. The extent of duty exemption (full or partial)
3. Conditions to be fulfilled
4. Procedures to be followed
5. Time limits and documentation requirements
Only those imports which strictly fall within the scope of the notification and comply with all its conditions
are entitled to the benefit of exemption.
Consequences of Non-Compliance
If the importer fails to comply with any of the conditions prescribed under Section 25A, such as non-re-
export of goods, inability to establish identifiability, or violation of procedural requirements, the exemption
may be denied. In such cases:
1. Customs duty becomes payable as if no exemption was granted
2. Interest may be levied
3. Penal provisions of the Customs Act may be invoked

SECTION 25B Outward Processing of Goods

Section 25B of the Customs Act, 1962 deals with the concept of outward processing of goods, under which
goods manufactured or available in India are temporarily exported outside India for the purposes of repair,
further processing, or manufacture, and are subsequently re-imported. This provision allows the Central
Government to grant exemption from customs duty on such re-imported goods in public interest.

6
The section begins with a non obstante clause (“notwithstanding anything contained in Section 20”),
indicating that the provisions of Section 25B shall prevail even if they conflict with other provisions relating
to re-importation. Where the Central Government is satisfied that granting such exemption is necessary in
the public interest, it may issue a notification exempting the re-imported goods from the whole or any part of
the customs duty leviable thereon, subject to prescribed conditions.

Conditions for Grant of Exemption under Section 25B

The exemption under this section is subject to the following essential conditions:
(a) Re-import of goods within the prescribed time
The goods exported from India for repair, further processing, or manufacture must be re-imported into India
after such activity is completed. Such re-importation must take place within a period of one year from the
date on which the order permitting clearance for export is made by the proper officer of customs.
The one-year time limit ensures that the outward processing facility is used only for temporary exports and
that goods are not permanently diverted abroad. In genuine cases, the Government may provide for
extension of this period through notification or prescribed procedure.
Failure to re-import the goods within the specified time may result in:
1. Withdrawal of exemption
2. Demand of customs duty
3. Levy of interest and penalties under the Customs Act

(b) Identifiability of exported goods in re-imported goods

Another important condition is that the exported goods must be identifiable in the re-imported goods. This
requirement ensures that the goods sent abroad are the same goods that are brought back into India after
repair or processing.
Identifiability may be established through:
1. Physical identification marks or serial numbers
2. Manufacturing specifications
3. Documentation and records
4. Input-output norms or technical correlation
This condition prevents misuse of the exemption by ensuring that exemption is granted only for genuine
outward processing and not for import of substituted or unrelated goods.

(c) Compliance with other specified conditions

In addition to the above, the exemption is subject to such other conditions as may be specified in the
notification issued under Section 25B. These conditions may include:
1. Execution of bonds or undertakings
2. Maintenance of proper accounts and records
3. Submission of re-import documentation

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 4. Customs verification and examination
5. Adherence to prescribed procedures and safeguards
Such conditions are necessary to ensure effective customs control and to safeguard revenue interests.

Role of Notification under Section 25B

The exemption under Section 25B is implemented through notification, which clearly specifies:
1. Eligible goods
2. Purpose of export and re-import
3. Extent of duty exemption
4. Conditions and procedures
5. Time limits and documentation requirements
Only those cases that strictly satisfy the conditions laid down in the notification qualify for exemption under
this section.

Consequences of Non-Compliance
If any of the conditions prescribed under Section 25B are not fulfilled—such as non-reimport of goods
within the prescribed time, inability to establish identifiability, or violation of procedural requirements—the
exemption shall be denied. In such cases:
1. Customs duty becomes payable as per law
2. Interest may be charged
3. Penal provisions of the Customs Act may be invoked

CONCLUSION
Sections 25, 25A, and 25B of the Customs Act, 1962 collectively establish a well-balanced and structured
legal framework that facilitates international trade while simultaneously safeguarding government revenue
and regulatory interests. Section 25 empowers the Central Government to grant exemptions from customs
duty in the public interest, thereby providing flexibility in customs policy to respond effectively to changing
economic conditions, trade priorities, industrial requirements, and international treaty obligations.
Complementing this power, Sections 25A and 25B introduce mechanisms for inward and outward processing
of goods, allowing the import or export of goods for manufacturing, processing, repair, or value addition
with reduced or deferred duty liability. These provisions aim to minimize the cost burden on manufacturers,
promote operational efficiency, encourage exports, and enhance India’s competitiveness in global markets.
Taken together, these sections reflect the legislative intent to strike a careful balance between trade
facilitation and revenue protection. They promote industrial growth, support export-oriented policies, and
enable India’s integration into global value chains, while ensuring fiscal discipline, regulatory oversight, and
compliance with customs laws.

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BIBLIOGRAPHY
1. The Customs Act, 1962 –
[Link]
2. Institute of Chartered Accountants of India (ICAI). Indirect Tax Laws (Customs) – Study Material.
3. CBIC Tax Information-[Link]
act/1000542/1000002
4. Institute of Cost and Management Accountants of India (ICMAI) – INDIRECT TAXS AND CUSTOM
– Study Material (ICMAI)