INTRODUCTION TO CUSTOMS DUTY TYPE OF CUSTOM DUTIES

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1 CONTENTS u Chapter-heads I-5 u Section-wise Index I-23 u Glossary (Acronyms) I-27 1 INTRODUCTION TO CUSTOMS DUTY 1.1 Brief Background of Customs Law Nature of Customs Duty Territorial Waters and customs waters Goods under Customs Act Classification for Customs and rate of customs duty 16 2 TYPE OF CUSTOM DUTIES 2.1 Basic Customs Duty IGST on goods at the time of import GST Compensation Cess on goods at the time of import Social Welfare Surcharge as duty of customs Road and Infrastructure Cess Additional Customs Duty under section 3(1) (CVD) Additional Duty under section 3(3) Additional Duty under section 3(5) (Special CVD - SAD) Protective Duties Countervailing duty on subsidised goods Anti Dumping Duty on dumped articles Safeguard duty NCCD of Customs 53A 2.14 Education cess on customs duty 53B 2.15 Secondary and Higher Education Cess 53B I-7

2 CONTENTS I Export duty 53B 2.17 Cess 53C 3 CLASSIFICATION OF GOODS 3.1 Customs Tariff Act (CTA) Overview of Customs Tariff Rules for Interpretation of Tariff Application of GIR in Tariff Classification in case of conflict between various headings Other provisions relating to classification Classification of Parts 78 4 PRINCIPLES OF CLASSIFICATION OF GOODS 4.1 Trade Parlance Theory HSN and Classification Relevance of End Use in classification Other principles of classification Burden of classification on department Ayurvedic, Unani, Homoeopathic medicines VALUATION FOR CUSTOMS DUTY 5.1 Value for purpose of Customs Act Transaction value at the time and place of importation Rate of Exchange for Customs Valuation WTO Valuation Agreement Customs Value - Inclusions Exclusions from Assessable value of customs Valuation of second hand Machinery and old Motor cars Declaration of value by Importer 131

3 I-9 CONTENTS 6 METHODS OF VALUATION FOR CUSTOM 6.1 WTO Valuation Agreement Transaction value of same goods for customs valuation Transaction value of identical goods for customs valuation Transaction value of similar goods for customs valuation Deductive Value for customs valuation Computed Value for Customs valuation Residual Method for customs valuation VALUATION OF EXPORT GOODS 7.1 Transaction value for assessment of export goods Rejection of value as declared by exporter Over Invoicing/mis-declaration for export ASSESSMENT IN CUSTOMS 8.1 Assessment Self Assessment of Customs Duty Refund if customs duty was paid in excess on self assessment by importer Provisional assessment in customs Interest in case of provisional assessment Refund after finalisation of assessment Best judgment assessment No res judicata or estoppel in taxation ADMINISTRATIVE SET UP OF CUSTOMS 9.1 Customs Law Administration Binding nature of departmental circulars 175

4 CONTENTS I CUSTOMS PROCEDURES 10.1 Background of procedures Customs Station Inland Container Depots and Air Freight Stations Miscellaneous Customs Procedures Special Notified Zone for trading of rough diamonds IMPORT PROCEDURES 11.1 Import Procedures by carrier Overview of procedures for import Submission of Bill of Entry Valuation of goods Payment of duty under protest Relevant Date for Rate and Valuation of Import Duty Relevant date for foreign exchange rate Execution of Bond Customs Clearance from view of Import policy Procedure after self assessment Import of software through data communication Demurrage if goods not cleared from customs Storage in public warehouse pending clearance Disposal if goods not cleared within 30 days EXPORT PROCEDURES 12.1 Procedures by person in charge of conveyance Procedures to be followed by Exporter Permission to export by customs Other procedures relating to exports CUSTOMS BROKER 13.1 Clearing goods from customs 255

5 I-11 CONTENTS 13.2 Suspension or revocation of CB licence Limited liability of Customs Broker (CB) BAGGAGE 14.1 Background General Free Allowance Rate of customs duty on baggage Concession for transfer of residence Other provisions of Baggage CUSTOMS PROCEDURES FOR COURIER AND POST 15.1 Import and export through Courier Export and Import by Post EXEMPTION FROM CUSTOMS DUTY 16.1 Tariff rate and Effective rate of duty Exemption from duty by a notification Option to assessee if two exemption notifications available Other provisions in respect of exemption Other issues relating to exemption Exemption when required certificate obtained later STRICT CONSTRUCTION OF EXEMPTION NOTIFICATION 17.1 Interpretation of Exemption Notification Purposive interpretation of exemption notification Relevance of End Use in exemption notification Relevance of Customs Tariff for interpretation of Exemption Notification Other principles of interpretation 316

6 CONTENTS I SPECIFIC EXEMPTIONS IN CUSTOMS 18.1 Exemption from customs Duty Project Imports General Exemptions under customs notifications Control over end use exemptions REMISSION, RE-IMPORTS AND RE-EXPORTS 19.1 Remission on lost/pilfered goods Remission on relinquished goods Abatement of duty on damaged goods Re-import of goods Refund of customs duty if imported goods are rejected Re-exports DEPARTMENTAL ADJUDICATION 20.1 Adjudication in indirect taxes Original Jurisdiction in customs Area Jurisdiction of Officers Some principles in respect of adjudication Review of order by adjudicating authority DEMANDS OF CUSTOMS DUTY AND INTEREST 21.1 Short payment or non-payment of customs duty and interest Time limit for issuing show cause notice Show Cause Notice Who can issue show cause notice Requirements of Show Cause Notice Revised show cause notice/corrigendum Adjudicating authority or Tribunal cannot go beyond show cause notice Serving of Show Cause Notice, order etc. 377

7 I-13 CONTENTS 21.9 Reply, Hearing and Order by adjudicating authority Provisional attachment pending adjudication INTEREST FOR DELAYED PAYMENT OF CUSTOMS DUTY 22.1 Interest if duty paid late Nature of tax, penalty and interest No show cause notice or demand necessary if interest is automatic Out of pocket theory DEMANDS FOR UNDERVALUATION OF CUSTOMS DUTY 23.1 Transaction value to be normally accepted Cases where charge of undervaluation not held valid Cases where charge of undervaluation held valid Burden of proof of undervaluation in customs Debit of Import Authorisation only with invoice value DEMANDS FOR SUPPRESSION, WILFUL MISSTATEMENT OR COLLUSION 24.1 Extended period for demand Suppression of facts Responsibility to supply all material facts Collusion Notice for demand for suppression, wilful misstatement, collusion Burden of proof is on department RECOVERY OF DUES 25.1 Modes of Recovery of dues Modes of recovery 424

8 CONTENTS I Recovery by distrain and sale of property Amount of customs due to Government is first charge on property of assessee Recovery of duty from successor in business Other provisions in respect of recovery Instructions of Board for recovery Government cannot take extra-legal steps to recover dues Write off of arrears REFUND OF CUSTOMS DUTY AND INTEREST 26.1 Claim of refund of customs duty Who can file a refund claim? Time limit for filing refund application Refund when benefit could not be availed due to department s mistake or high handedness Duty collected from buyer must be paid Proof of not passing of burden Interest on late disbursement of refund Consumer Welfare Fund Applicability and validity of doctrine of unjust enrichment Non-application of provisions of unjust enrichment Refund if amount returned to buyer by cheque or credit note or debit note WAREHOUSING IN CUSTOMS 27.1 Need for warehousing in customs Public, Private and special warehouses Warehoused Goods (Removal) Regulations, Warehousing period under customs Manufacture in customs bonded warehouse Clearance from bonded warehouse Other provisions of customs warehousing Goods improperly removed from warehouse Reassessment of customs duty cannot be made at warehouse 483

9 I-15 CONTENTS 28 ENFORCEMENT POWERS OF CUSTOMS OFFICERS 28.1 Introduction Powers of customs officers Power to Summons Power to arrest Powers of Search Special provisions of search under customs Powers of Seizure PENALTIES FOR NON-PAYMENT CUSTOMS DUTY 29.1 Penalty for non-payment of customs duty Mandatory penalty in case of suppression of facts etc. customs OTHER PENALTIES IN CUSTOMS ACT 30.1 Penalties under Customs Act Improper imports Improper exports Penalties that can be imposed in customs Monetary Penalty in Customs Penalty for short landing Confiscation of Goods in customs Principles in imposition of penalty Personal penalty on director, partners and employees Penalty on transporter and driver Publication of name of defaulters General provisions in case of penalties CONFISCATION IN CUSTOMS 31.1 Confiscation of goods Provisions in respect of confiscation 570

10 CONTENTS I Redemption fine Effect of wrong seizure/confiscation MISCELLANEOUS PROVISIONS IN CUSTOMS LAW 32.1 Advance Ruling to being certainty to assessee Stores in customs Prohibitions on Imports and Exports Customs - Other provisions CRIMINAL OFFENCES IN CUSTOMS 33.1 Prosecution for Offences Offences under the Customs Act Who can be punished Other provisions in respect of prosecution Compounding of offences SETTLEMENT COMMISSION 34.1 Purpose of Settlement Commission Who can approach Settlement Commission Disclosure to be made by applicant Which issues can be taken before Settlement Commission Procedure before Settlement Commission Powers to grant immunity from prosecution Powers of Settlement Commission Appeal against order of Settlement Commission PROOFS IN ADJUDICATION AND PROSECUTION 35.1 Proof in indirect taxes Proof in Customs Law Special provisions for Goods covered under section 123 of Customs Act 637

11 I-17 CONTENTS 35.4 Relevancy of Statement before Customs Officer Evidence by documents Testing of samples Expert opinion/testing report Other Principles of Evidence APPEALS - GENERAL PROVISIONS 36.1 Provisions of Appeal and Revision Pre-deposit of duty for entertaining appeal Time limit for filing appeal Bar of jurisdiction of Civil Court Person aggrieved only can file appeal Additional grounds in appeal Additional grounds in departmental appeal Additional evidence in appeal normally disallowed Remand to lower authority Signing of appeal Authorised representative in appeal Adjournment Enhancement of duty and penalty in appeal Other aspects common to all appeals DEPARTMENTAL APPEAL AND REVIEW 37.1 Review of orders of lower authorities General provisions in respect of review Departmental Appeal against order of Commissioner (Appeals) FIRST APPEAL AND REVISION 38.1 Appeal to Commissioner (Appeals) Time limit for filing appeal Other provisions of appeal to Commissioner (Appeals) Revision by Central Government 730

12 CONTENTS I APPEAL TO TRIBUNAL 39.1 General Provisions of Appeal to Tribunal Cross Objections to appeal Constitution of CESTAT Benches of Tribunal Procedure for Appeal to CESTAT Procedure after filing of appeal Orders of Tribunal POWERS AND LIMITATIONS OF TRIBUNAL 40.1 Powers of Tribunal Inherent Powers of Tribunal Tribunal is final fact finding authority Rectification of own mistakes by Tribunal General Provisions in respect of ROM Limitations of Tribunal (CESTAT) APPEAL TO HIGH COURT AND SUPREME COURT 41.1 Appeal before High Court on substantial question of law What is Question of Law Appeal to Supreme Court Norms for entertaining appeal to Supreme Court Constitutional remedies in indirect taxes OVERVIEW OF FOREIGN TRADE POLICY Background FT(D&R) Act Foreign Trade Policy FTP, Excise and Customs Law form an integrated code Amendments to Foreign Trade Policy only by Government, not by DGFT 821

13 I-19 CONTENTS 42.6 Settlement Commission has jurisdiction in case of default in export obligation and settlement of customs duty and interest Administration of Foreign Trade Policy by DGFT Interpretation of DGFT final and binding FT(D&R) ACT AND RULES 43.1 Scheme of FT(D&R) Act Director General of Foreign Trade (DGFT) Penalty and Adjudication under FT(D&R) PROCEDURES UNDER FOREIGN TRADE POLICY 44.1 e-governance of foreign trade Issue of authorisation by DGFT Import/Export Authorisation Authorisation obtained by fraud or misstatement Bond with guarantee for import under authorisation Personal hearing if aggrieved by decision Export Promotion Councils as Registering Authorities POLICY FOR IMPORT AND EXPORT OF GOODS 45.1 Policy for import of goods Broad Policy for import of goods Import/export governed as per policy at the time of import/export Export Policy Pre-shipment Inspection and quality certification SCOMET Items Free sale and Commerce Certificate Preferential and free trade agreements Settlement of trade disputes and complaints 881

14 CONTENTS I EXPORT PROMOTIONAL MEASURES 46.1 Schemes for encouraging Exports Export Promotional measures through Duty Credit Schemes Export from India Schemes Other promotional measures Status Holders ADVANCE AUTHORISATION 47.1 Duty free import of inputs for export Advance Authorisation Advance authorisation can be issued for exports, deemed exports and intermediate supplies Procurement of indigenous inputs Eligibility of inputs in relation to resultant product Procedure for Issue of Advance Authorisation/DFIA Advance authorisation for annual requirements to exporters Export Obligation against advance authorisation Procedures after advance authorisation DUTY FREE IMPORT AUTHORISATION (DFIA) 48.1 Transferable import authorisation General provisions of DFIA Transferability of DFIA Procedural aspects at DGFT GEM AND JEWELLERY UNITS 49.1 Specialised exports of gem and jewellery Gem and jewellery units in EOU 920

15 I-21 CONTENTS 50 DUTY DRAWBACK 50.1 Drawback of customs duty Type of Drawback Rates Drawback Rate Fixation Drawback claim procedure Drawback - Other provisions Duty drawback on Re-export EPCG AUTHORISATION 51.1 Capital goods at concessional rate for export Export Obligation (EO) under EPCG Indigenous Sourcing of Capital Goods and benefits to Domestic Supplier Post Export EPCG Duty Credit Scrip Procedures under EPCG Project Imports EOU/STP/EHTP/BTU 52.1 An overview of EOU scheme Obtaining approval for setting up EOU/STP/EHTP/BTP Procedures to be followed by EOU/STP/EHTP/BTP All purpose bond in form B Tax provisions relating to EOU, STP, EHTP, BTU Procedures by EOU Other provisions relating to EOU Exit of EOU Recovery of duty and penal action on EOU OTHER SCHEMES SIMILAR TO EOU 53.1 Software Technology Park (STP) Electronics Hardware Technology Parks 985

16 CONTENTS I Other schemes DEEMED EXPORTS 54.1 Supplies within India qualifying for export benefits Conditions for availing Benefits by Indian supplier Procedure for claiming benefit of deemed export SPECIAL ECONOMIC ZONES 55.1 SEZ to encourage exports Policy to set up SEZ Setting up unit in SEZ Routine operations of SEZ unit Supply by DTA unit to SEZ Sale to DTA from SEZ Miscellaneous provisions States Policies towards SEZ Labour Laws Exemption from cesses, customs duties and excise duties Exemption from stamp duty payable under Indian Stamp Act GST provisions relating to SEZ (Special Economic Zone) 1035 APPENDIX u CUSTOMS ACT, SUBJECT INDEX 1207