Customs duty basics

Useful for CA CS CMA ICWA November/ December 2015 exams

1. Customs Duty Ajay Babu Bandi Practising Chartered Accountant M.Com , FCMA,ACA,IFRS(Certified)

2. Customs duty is a duty or tax, which is levied by the Central Government on import of goods into, and export of goods from India Also referred to in Kautilya’s Arthasastra as “ Shulka ”

3. Sources of Customs law Customs Act ,1962 Customs Tariff Act, 1975 Rules and Regulations (Customs valuation Rules 2007) (Baggage Rules 1998) (Export Manifest Regulations 1976)

4. Levy of Customs duty

5. 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) EEZI  200 nautical miles from baseline

6. Other important terms 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

7. 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

8. Significance of Customs Waters Arrest of the suspected persons u/s 104 Stop and search of vessels u/s 106 ..AND Confiscation of vessels u/s 115

9. Rates of Duty

10. Determination of duty where goods consist of articles liable to different rates of duty (Sec.19)

11. Taxable Event The taxable event in customs is Importation of goods into India, or Exportation of goods from India

12. Taxable Event in case of Imports In case of goods cleared for home consumption --- the taxable event being reached at the time when the goods reach the customs barriers and bill of entry for home consumption is filed

13. Taxable Event in case of Exports Export of goods when the goods cross the territorial waters of India. If ship sinks within the territorial waters, export is NOT complete

14. Goods..

15. Drawings, Designs & Manuals Goods includes “ any other kind of Movable Property” So..all tangible and Movable articles brought to India as Baggage /Postal Price /Cargo are Goods Accordingly.. Drawings ,Designs ,Manuals & Technical Matter are “Goods” Case : Associated Cement Companies Ltd

16. Conveyance Sec. 2(9) includes… A vessel An aircraft and A vehicle

17. Vehicle Sec. 2(42) means… Conveyance of any kind used on land and includes a Railway Vehicle

18. Duty to be paid on goods derelict, Jetsam, Flotsam, wreck etc All goods derelict, jetsam, flotsam and wreck brought to India , shall be dealt with as if they were imported in India Thus , even though such goods had not been actually imported, they would be liable to import duty However, if such goods are entitled to be admitted duty-free under this act, duty would not be levied

19. Derelict – This refers to any cargo ,vessel etc abandoned in the sea with no hope of recovery Jetsam – This refers to goods jettisoned from the vessel to save her from sinking Flotsam - Jettisoned goods which continue floating in the sea are called flotsam Wreck -This refers to cargo or vessel or any property which are Cast ashore by tides after ship wreck

20. Illustration A fishing trawler operating in high seas, beyond the territorial waters of India, finds a ship wrecked in mid sea and brings Jetsam and Flotsam into India, along with fish caught by it. Fish which are intentionally brought into India would be liable to Customs Duty Jetsam and Flotsam brought into India would also be liable to Customs Duty in the same manner as Fish

21. Reduction in customs liability in certain cases Pilferage of Goods u/s 13 Damage and deterioration of goods u/s 22 Remission of duty of goods lost, destroyed or abandoned u/s 23 Denaturing or Mutilation of Goods u/s 24 Exemption granted by notification or by special order u/s 25

22. Pilferage of Goods u/s 13 Pilferage refers to “ Petty theft ” i.e., to steal the goods ,especially in small quantities Importer not liable if..pilferage takes place.. After the imported goods were unloaded and.. Before the proper officer has made an order for clearance for :- Home consumption or deposit in a warehouse Importer is liable , if such goods are restored to the importer after pilferage

23. Approved Custodian : Liability u/s 45(3) If any imported goods are Pilfered, after unloading thereof in a customs area, while in the custody of a person approved by the commissioner u/s 45(1), such Custodian shall be liable to pay Duty on such goods

24. Damaged and Deteriorated Goods u/s 22 Effect .. The duty will be reduced proportionately to the reduction in value Valuation .. Owner has the option (a) value may be ascertained by the proper officer ..or… (b) Damaged goods may be sold by ( i ) Public auction or (ii) tender or (iii) any manner with the consent of the owner

25. Lost, Destroyed or Abandoned Goods u/s 23 Lost means.. Lost otherwise than as a result of pilferage or destroyed Time – any time before clearance for Home consumption Effect .. If goods are proven lost or destroyed to the satisfaction of AC or DC , he shall remit the duty on such goods

26. Lost, Destroyed or Abandoned Goods u/s 23 Abandoned Goods meaning.. Owner may relinquish his title to the Goods Time – any time Before making of order for clearance for :- Home consumption or deposit in a warehouse Effect .. Owner shall be liable to pay the duty on such goods Exception . . Owner cannot abandon duty goods if an offence appears to have been committed

27. Denaturing or Mutilation of Goods u/s 24 Meaning .. Rendering of such goods unfit for its use or purpose Effect .. Such goods carry less duty because of the reduction in their end use purpose Chargeable to duty ..if .. Such goods had been imported in denatured or mutilated form

28. C omparison of Provisions of – (1) Pilfered Goods, (2) Damaged or Deteriorated goods and (3) Lost, Destroyed or Abandoned Goods

29. Point of Distinction Pilfered Goods (Sec.13) Damaged or Deteriorated Goods (Sec.22) Lost, Destroyed or Abandoned Goods (Sec.23) 1.Physical Availability Goods lost by theft, not physically available Physically available but in a damaged form Lost/destroyed- Not available Abandoned - available 2. Qty Lost Small Quantities Any quantity Any quantity 3. Duty liability NOT leviable leviable but amount reduced proportionately i.e. abatement Lost/destroyed- leviable but AC/DC may grant remission Abandoned - Owner not liable

30. Point of Distinction Pilfered Goods (Sec.13) Damaged or Deteriorated Goods (Sec.22) Lost, Destroyed or Abandoned Goods (Sec.23) 4. Nature of benefit Statutory benefit . Cannot be denied by Proper Officer Statutory benefit . But damage is estimated by Proper Officer Benefit is given by statute, but discretion is available to AC/DC 5. Burden of Proof Importer need not prove Importer should prove that it is not due to his wilful act/negligence/default Due to natural causes, should be proved by improter 6.Restoration If pilfered Goods are restored , duty is payable No question of restoration, as they are not missing not possible since goods are physically lost/destroyed

31. Point of Distinction Pilfered Goods (Sec.13) Damaged or Deteriorated Goods (Sec.22) Lost, Destroyed or Abandoned Goods (Sec.23) 7. Abandonment No question of abandonment, as they are not available at all where goods are sold by public auction, they are deemed abandoned Sec. 23 covers situations of abandonment/ surrender also 8. Time point After unloading and before clearance All imported and warehoused goods Any time before clearance 9. Warehoused goods Not applicable Applicable Applicable