Introduction To Customs Duty: Brief Background of Customs Law
Introduction To Customs Duty: Brief Background of Customs Law
Introduction To Customs Duty: Brief Background of Customs Law
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INTRODUCTION TO CUSTOMS DUTY
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Para 1.1 INTRODUCTION TO CUSTOMS DUTY 1.4
countries. (Of course, there are concessions and let-outs). Its scope is much wider than
that of GATT. GATT focused primarily on trade in goods, while WTO covers multilateral
trading system and commercial activities like trade in services, intellectual property
protection also.
The four main WTO guidelines are - (i) Trade without discrimination (ii) Predictable and
growing market access (iii) Promoting fair competition and (iv) Encouraging develop-
ment and economic reforms.
WTO has full time representatives from member countries. It works on the basis of one
member one vote principle, not weighed on basis of country’s position in global trade.
Decisions are arrived on basis of consensus among members, but matters can be
decided by voting also.
TRIPS - TRIPS means Trade Related Intellectual Property Rights. It was agreed as
follows - (i) Product Patents should be introduced in drugs, food products and chemicals
in place of process patents as at present (India introduced product patents w.e.f. 1-1-
2005). (ii) Patent and copyright period should be 20 years (Implemented by India) (iii)
Agricultural hybrid seeds should be allowed to be patented (Not implemented). - -
However, Government can undertake compulsory licensing for non-commercial public
use and to prevent inadequate supply or exorbitant pricing.
GATT - General Agreement on Tariffs and Trade (GATT) was a trade pact and an
organisation formed in Geneva in 1947. It was a forum for international bargaining to
increase world trade and reduce trade barriers. 117 countries were its members,
including India. First round of discussions was held in Havana in 1947. The 8th i.e. last
round called ‘Uruguay Round’ started in 1986 and ended in December 1993. (The draft
for agreement was prepared by Mr. Dunkel and hence it was called ‘Dunkel Draft’). The
agreement was signed in April 1994 at Marrakesh. The agreement was with view to boost
world trade. GATT was replaced by WTO on 1-1-1995.
WCO - World Customs Organisation (WCO) [earlier known as Customs Coordination
Council] is an international body to develop coordination among customs offices in
various countries. WCO has HQ at Brussels. WCO is organisation of 179 Customs
Administrations. It is headed by Secretary General who is appointed for five years at a
time.
WCO was established in 1952. 26th January is observed every year as International
Customs Day as WCO was formed on that day.
WCO has implemented - (a) Harmonised System of Nomenclature of goods (b) Kyoto
Convention on harmonization and simplification of customs procedures. The draft has
been adopted in June, 1999 (c) ATA convention.
Liability of customs duty - Section 12(1) of Customs Act is the charging section, which
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. The rate of duty is as prescribed in Customs
Tariff Act, 1975, read with relevant exemption notifications. Import duty is levied on
almost all items, while export duty is levied only on a few limited products, where Indian
goods are in commanding position.
Imports by Government - Section 12(2) of Customs Act makes it clear that customs duty
is payable by Government also. Thus, there is no general exemption to goods imported
by Government. However, various exemption notifications have been issued and
Imports by Indian Navy, specific equipment required by Police, Ministry of Defence,
Coastal Guard etc. are fully exempt from customs duty. However, if there is no such
exemption notification, duty will be payable even if goods are imported by Central/State
Government.
duty and section 11 to prohibit import or export of goods. Others are : - specifying
notified goods (section 11B), specifying specified goods (section 11-I) etc.
Board Circulars - CBI&C is empowered u/s 151A of Customs Act to issue, for purpose
of uniformity in classification of goods or with respect to the levy of duty thereon, issue
such instructions and directions to officers of customs and they are required to observe
and follow such orders, instructions and directions of Board. CBI&C issues circulars
giving various instructions/prescribing various procedures etc. Normally, these instruc-
tions should be followed.
Customs Manual, 2018 - Customs Manual, 2018 has been released by CBI&C. Subse-
quently, there is no update and does not contain changes since December 2018. The
Manual gives an overview of Customs Law and Procedures. The instructions in
Customs Manual are not legally binding, but should normally be followed.
Extension of time limits prescribed under Customs Act and Customs Tariff Act due to
Corona
1.1-6 In view of the spread of pandemic COVID-19 (Corona) across many countries of
the world including India, lockdown was declared in India first as janata curfew on
22-3-2020 and then general lockdown upto 14-4-2020 [now extended upto 17-5-2020].
Due to lockdown and curfew, normal working of companies and Government was
completely disturbed. Hence, it had become imperative to relax certain provisions,
including extension of time limit, in the taxation and other laws.
The Taxation and Other Laws (Relaxation of Certain Provisions) Ordinance, 2020 has
been issued on 31-3-2020 for this purpose.
As per section 6 of the Ordinance, the time limit specified in, or prescribed or notified
under, the said Acts which falls during the period from the 20-3-2020 to the 29-6-2020
or such other date after the 29-6-2020 as the Central Government may, by notification,
specify, for the completion or compliance of such action as—
(a) completion of any proceeding or issuance of any order, notice, intimation,
notification or sanction or approval, by whatever name called, by any authority,
commission, tribunal, by whatever name called; or
(b) filing of any appeal, reply or application or furnishing of any report, document,
return or statement, by whatever name called,
shall, notwithstanding that completion or compliance of such action has not been
made within such time, stand extended to the 30th day of June, 2020 or such other date
after the 30th day of June, 2020 as the Central Government may, by notification, specify
in this behalf:
Provided that the Central Government may specify different dates for completion or
compliance of different actions under clause (a) or clause (b).
Health cess will be exempt for medical devices which are exempt from basic customs
duty. Inputs/parts used in manufacture of medical devises shall also be exempt -
Notification No. 8/2020-Cus dated 2-2-2020.
The proceeds of health cess shall be used for financing health infrastructure and
services.
Amendments to Anti Dumping and Countervailing Duty Rules - The rules are amended
to make them more comprehensive and wider. Provisions of circumvention of anti-
dumping duty and countervailing duty have been strengthened.
Section 2(27) of Customs Act defines ‘India’ as inclusive of territorial waters. Hence, it
was thought that ‘import’ is complete as soon as goods enter territorial water. Similarly,
export is complete only when goods cross territorial waters. There were conflicting
judgments of High Courts.
Finally, in Kiran Spinning Mills v. CC 1999(113) ELT 753 = AIR 2000 SC 3448 = 2000 AIR
SCW 2090 (SC 3 member bench), it has been held that import is completed only when
goods cross the customs barrier. The taxable event is the day of crossing of customs
barrier and not on the date when goods landed in India or had entered territorial waters.
In the case of goods which are in the warehouse the customs barrier would be crossed
when they are sought to be taken out of the customs and brought to the mass of goods
in the country.
In Garden Silk Mills Ltd. v. UOI 1999 AIR SCW 4150 = 1999(113) ELT 358 = AIR 2000 SC
33 [SC 3 member bench - same bench which passed judgment in Kiran Spinning Mills
(Supra)], it was held that import of goods in India commences when they enter into
territorial waters but continues and is completed when the goods become part of the
mass of goods within the country. The taxable event is reached at the time when the
goods reach customs barrier and bill of entry for home consumption is filed.
Though there is slight contradiction between the SC judgments, it can be said that
‘mixing up with mass of goods in the country’ after crossing customs barrier is the
‘taxable event’ for customs duty on imports.
Taxable event in case of warehoused goods - In case of warehoused goods, the goods
continue to be in customs bond. Hence, ‘import’ takes place only when goods are cleared
from the warehouse - confirmed in UOI v. Apar P Ltd. 1999 AIR SCW 2676 = 112 ELT 3
= 1999(6) SCC 118 = AIR 1999 SC 2515 (SC 3 member bench).- followed in Kiran
Spinning Mills v. CC 1999(113) ELT 753 = AIR 2000 SC 3448 = 2000 AIR SCW 2090 (SC
3 member bench), where it was held that taxable event occurs when goods cross
customs barrier and not when goods land in India or enter territorial waters.
This was followed in LML v. CCE 2002(142) ELT 273 (SC 3 member bench). In this case,
there was no ‘Special Additional Duty’ (SAD) when goods were imported, but SAD was
imposed later. It was held that SAD is payable when goods are cleared from customs
bonded warehouse as removal from customs bonded warehouse is the taxable event
and rate of duty as applicable on that day applies - followed in CC v. SJK Steel Corporation
(2004) 168 ELT 194 (CESTAT). [Note that SAD has been abolished w.e.f. 9-1-2004].
This was also followed in Mangalore Refinery v. CCE 2002(141) ELT 247 (CEGAT), where
it was held that customs duty is payable only on the quantity which is cleared from
warehouse [and not the quantity which had entered the territorial waters].
Sale in duty free shop at international airports before goods crossed customs frontier
is not subject to sales tax as it is sale in course of import - Hotel Ashoka v. ACCT (2012)
3 SCC 204 = 276 ELT 433 = 48 VST 443 (SC). In this case, it was held that transfer of
documents of title to goods is one of the methods. Transfer can be by physical delivery
also. [sales tax issue but principle applies to customs also]
In State Trading Corporation v. State of Tamilnadu 2003 (129) STC 294 (Mad HC DB), it
was held that if documents of title of goods are transferred before clearance of goods
from customs bonded warehouse, it is ‘sale during import’ and hence exempt from sales
tax, as sale takes place before goods cross customs frontier of India.
Taxable event when goods cross customs barrier - In CC v. HPCL 2000(121) ELT 109
(CEGAT), it was held that the ‘bulk liquid cargo’ would be considered to have crossed