An Introduction to

Indian Customs
(Laws and Procedures)
07 January 2009
Essar House, Mahalaxmi
By K. R. Choudhary

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An Introduction to Custo
ms

An Introduction to Customs
The purpose, objective and design of the presentation
Background and History
Direct and Indirect Taxation in independent India
Growth path of Customs Duty in Independent India

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An Introduction to Customs

The Beginning

As per ancient customs, a merchant entering a kingdom

with his goods ,had to make a suitable gift to king. In the
course of time, this custom was formalized into Customs
Duty. This is collected on goods on imports (occasionally
on export goods too)

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An Introduction to Customs

Index

Customs Act
Territorial Waters of India
Indian Customs Water
High Sea
Import
Customs House Agent
Import Procedure
Documents for Imports
Advance Bill of Entry
Classification
Valuation of Imported goods for the purpose of Customs Act
Date of determination of Rate of Duty
Exchange Rate

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An Introduction to Customs

Index (continued)

Types of Customs Duty leviable

Anti Dumping Duty
Demurrage
Calculation of Customs Duty
Provisional Assessment
Interest on delayed payment
Exemptions
Remission
Relinquishing Title
Transshipment of Goods (TP)
Warehousing
Procedure for warehousing
Details of Licenses
High Sea Sales
Procedure at Custom House (Flow of Documents)
Re-import of goods
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An Introduction to Customs

Customs Act
1. Customs Act 1962 Is the main Act, which provides for levy and
collection of Duty, Import / Export procedure, Prohibition, Penalties,
Offences etc.
2. Customs Tariff Act 1975 Is for the classification and rates of Duty
for Import and Export
3. Rules under Customs Act Under section 156 of Customs Act,
1962, Central Government has been empowered to make rules,
consistent with Provisions of the Act
4. Notification under Customs Act Various sections authorize Central
Government to issue notifications
5. Board Circulars Are instructions and directions to Customs
officials
6. Public Notice Issued by Commissioner of Customs. Can be
issued for local requirement too.
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An Introduction to Customs

Territorial Waters of India

Territorial waters pertain to that portion of sea which is

adjacent to the shores of a country
The territorial waters extend up to 12 nautical miles from
the base line on the coast of India. (Any bay, gulf, harbor,
creek, tidal water constitute Territorial Waters)
1 Nautical Mile = 1.1515 miles = 1.853 kms

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An Introduction to Customs

Indian Customs Waters

1. Indian Customs Water extends up to 12 nautical miles

beyond territorial waters i.e. 24 nautical miles from the
nearest point of base line
2. Significance of Indian Customs Water
A Customs Officer has the powers to arrest a person
in India or within Indian Customs Water
A Customs Officer can stop or search any vessel
within Indian Customs Water

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An Introduction to Customs

High Sea
The open sea of the
world outside the Territorial
Waters of any nation
Beyond 200 nautical miles
from the base line
of any country

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An Introduction to Customs

Imports
Import with its grammatical variation and cognate
expression, means bringing into India from a place
outside India
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
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Customs House Agent (CHA)

In order to assist importer and exporter, the services of

CHA or Clearing Agents are available at international
ports and airports
They are a body of professional experts duly licensed by
Commissioner of Customs

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Import Procedure
Import General Manifest (IGM): A person in-charge of
Vessel (i.e. Shipping Agent / Freight Forwarders etc.)
should submit IGM i.e. details of cargo to be unloaded,
goods to be transshipped etc.
Bill of Entry: Importer should file Bill of Entry giving
details of goods to be cleared from customs. Date of
filing of Bill of entry is relevant for deciding Duty liability
OR
Warehousing Keeping in warehouse without payment
of Duty and later clearing on payment of Duty when
required
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Documents for Imports

1. Bill of Entry Its types are: (for Manual Clearance)
White Bill of Entry for Home Consumption
Yellow Bill of Entry for Warehousing
Green Bill of Entry for Ex Bond
2. Invoice & Packing list
3. Import License (wherever necessary)
4. Certificate of country of origin, where preferential rate is
claimed
5. Insurance Memo / Policy
6. Bill of Lading / Airway bill OR Delivery Order
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Advance Bill Of Entry

It is permissible to file the Import Bill of Entry 30 days in
advance of the expected date of arrival of the concerned
ship or aircraft. The intention is that this period may be
utilized for sorting out tariff classification, valuation and
ITC formalities
If the ship / aircraft does not arrive within 30 days , the
advance cleared Bill of Entry would cease to be a legal
document and a fresh Bill of Entry would have to be filed
Here Rate of Exchange and Rate of Duty etc. would have
to be regulated by the date of presentation of the new Bill
of Entry
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Classification
1. Import and export goods are to be classified according to the tariff
item number mentioned against them in the customs tariff. This is an
unique 8 digit code for all items based largely on the international
system viz., Harmonized System of Nomenclature (HSN) adopted by
almost all countries
2. Onus to establish tariff classification of goods is on the Department
3. Parameters for determination of classifications of goods are:
HSN along with Explanatory Notes provide a safe guide for
interpretation of an entry
Equal importance to be given to Rules of Interpretation of Tariff
Functional utility, design, shape and predominant usage have
also got to be taken into account
Aforesaid aids are more important than names used in trade or
common parlance
Classification determined on bond bill of entry at the time of
warehousing shall remain undisturbed except in case of a
misdeclaration
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Valuation of Imported goods

(For the purpose of Customs Act)

1. For assessment of Duty or for purpose of any other law,

it should be the transaction value of the Imported goods,
i.e.:
The price actually paid or payable for the goods
when sold for export to India
For delivery at the time and place of importation
Where the buyer and seller of the goods are not
related
Price is the sole consideration for the sale
There are not abnormal restrictions as to the
disposition or use of the goods by the buyer
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Valuation of Imported goods

(For the purpose of Customs Act) - continued
The transaction value includes the amount paid or payable for costs
and service including:
Commission and brokerage, except buying commissions
Engineering
Design work
Royalties and license fees related to the imported goods
Cost of transportation to the place of importation including shift
Demurrage charges
Insurance
Loading
Unloading
Handling charges
Cost of containers and
Cost packing (labor / materials)
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Date for Determination of Rate Of Duty

The rate which is in force on the date of presentation of Bill
of Entry for home consumption will be the rate applicable.
However there are two exemptions to it:
In case the Bill of Entry has been filed in advance of
entry inwards of the vessel or the arrival of the aircraft,
the crucial date will be date of entry inwards of the
vessel or the date of arrival of the aircraft
Secondly, in the case of clearance of goods from a
bonded warehouse, the date of presentation of the ex
bond bill of entry for home consumption is the crucial
date.
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Exchange Rate

Exchange Rate is notified by the Central Board of Excise

and Customs (CBEC) and is the one in force on the
date of presentation of the Bill of Entry (for home
consumption or for warehousing)
CBEC is the apex Administrative Body for Indirect
Taxation in India

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Types of Customs Duty Leviable

1. Basic Duty: It may be at the standard rate or in the case of Import from
some countries, at the preferential rate
2. Additional Customs Duty:
Additional Customs Duty, equal to central excise Duty, is leviable
on like goods produced or manufactured in India. The MRP based
valuation prevailing under Central excise is extended to Customs
too
Is also referred to as Countervailing Duty (CVD). It is payable only if
the imported article is such , if produced in India, its process of
production would amount to manufacture as per the definition in
Central Excise Act 1944
Additional customs Duty is calculated on a value base of aggregate
of value of the goods including landing charges and basic Customs
Duty. In order to counter balance the burden of input Excise Duty

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Types of Customs Duty Leviable

(continued)
3. Special Additional Duty of Customs : In order to counter balance
various internal taxes like Sales Tax and VAT and to provide a level
playing field to indigenous goods which have to bear these taxes.
4. Cess: A Duty levied for specified purpose. Presently HE Cess and
SHE Cess
5. If goods are fully exempted from Duty or are chargeable to nil Duty
or are cleared without payment of Duty under prescribed procedure
such as clearance under bond, no Cess would be leviable

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Anti Dumping Duty

Large manufacturer from abroad may export goods at
very low price compared to domestic market
Such dumping may be with intention to cripple domestic
market OR to dispose of their excess stock
To avoid such dumping, Central Government can impose
anti dumping Duty , under section 9A of Customs Tariff
Act
Anti Dumping Duty is not applicable for imports by SEZ,
EOU unless it is specifically mentioned in notification
No CVD or SAD on Anti Dumping Duty
No Anti Dumping Duty on goods Warehoused prior to
levy of Anti Dumping Duty
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Demurrage
Demurrage is a penal amount ,payable to the Port Trust
Authorities, if the goods are not cleared from port within
3 working days after assessment
Option available to the importer for avoiding heavy
demurrage on the goods pending resolution on the point
of doubt or dispute, is to put the goods in bond under
Section 49 or clear the goods on provisional assessment
basis
If assessment is delayed due to Customs formalities,
such demurrages may be remitted by Port Trust
Authorities on the basis of a detention certificate issued
by Customs
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Calculation of Customs Duty

Duty Rate%
a) Assessable Value Rs.10000

Amount

Total Duty

10000

b) Basic Custom Duty

7.5%

c) Sub Total for Calculating CVD (a+b)

750

750

10750

d) CVD @ 10% c

10%

1075

1075

e) Higher Education Cess of Excise 2% of d

2%

21.50

21.50

f) SHE Cess of excise 1% of d

1%

10.75

10.75

g) Sub total for Education Cess on Customs

B+D+E+F

1857.25

h) Education Cess of Customs 2% of g

2%

37.15

37.15

i) SHE Cess of Customs 1% of G

1%

18.57

18.57

j) Sub total for SAD a+c+d+e+f+h+i

k) Special CVD 4% of j

11912.97
4%

l) Total Duty

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476.52

476.52
2389.49

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Provisional Assessment
If the goods are required to be tested or there is a
dispute regarding valuation, classification or there is a
requirement of import license, there is provision to make
a provisional assessment / clearance
It is subject to execution of bond with security (usually
with Bank Guarantee) by the importer for the Duty
difference after taking Assistant Commissioners Order
Penalty is not imposed when an Assessment is
Provisional
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Interest on Delayed Payment

Under Section 47 of Customs Act, 1962 interest is

payable when import Duty is not deposited within five
days (excluding holidays) after assessment of the goods
Interest is payable at the rate of 15% per annum

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Exemptions
The Central Government has the power under Section 25 of Customs
Act, 1962 to exempt, in public interest, specified goods from levy of
Customs Duty by issue of notifications:
Where there are two exemption notifications, one general and the other specific,
which cover the goods in question, the Assessee is entitled to the benefit of that
one which gives him greater relief
Strict construction of the exemption notification cannot be at expense of object and
purpose of the notification and ignoring words used therein to unjustifiably deny the
exemption
Exemption from Customs Duty means exemption only from basic Customs Duty.
Exemption from Excise Duty has the effect of exempting additional Duty of
customs. Onus to establish eligibility to the exemption notification is on the
Assessee
Accessory when imported with the machines is not eligible to exemption unless
that accessory has expressly been included in the exemption notification

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Remission

Remission of Duty is available if imported goods are lost,

pilfered or destroyed at any time before clearance for
home consumption
The same principle applies also to goods deposited in a
bonded warehouse

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Relinquishing Of The Title

The owner has also the right to relinquish his title to the
goods (if they are not involved in an offence) at any time
before an order for clearance of goods for home
consumption has been made
Thereupon his liability to Duty or redemption fine ends

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Transshipment of Goods (TP)

Goods imported at any Customs station, can be
transshipped without payment of Duty
Goods to be transshipped must be specified in IGM
(Import General Manifest)
A Mother Bond (like a Running Bond) with security of
15%of bond value, is taken from the carriers. Security is
taken separately for each trip and released on safe
landing of the container in that trip at destination ICDs /
CFSs

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Warehousing
1. Importer has to plan his purchases in advance. There may be a
situation where importer is not ready to take delivery of cargo. The
warehousing facility can be availed in following cases:
May be there is a delay in production schedule
Duty payment are to be deferred so that funds are not blocked
There is a need to clear in specific schemes
Documents / Authorizations are not ready
2. Time limit for Warehousing is one year OR as extended by the
Customs Department. However, after completion of 3 months,
interest will be charged on the Duty deferred amount
3. Types of warehouse
Public Warehouse
Private Warehouse
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Procedure for Warehousing

1. All goods imported through Seaport / Airport can be
warehoused, on submission of Bill of Entry for
warehousing
2. Documents required for filing the Bill of Entry with
Customs for Normal clearance or for warehousing:
Signed Commercial Invoice
Packing list
Bill of lading or Airway Bill
Purchase Order copy or Letter Of Credit copy
Catalogue, Technical write-up in case of machineries
Separate split up value of spares and components
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Details of Licenses
Export Promotion Capital Goods scheme (EPCG)
Under this scheme a license holder can import capital
goods (i.e. plant, machinery, equipment, components,
spare parts)
Customs Duty of 3% without CVD and SAD
EPCG Authorization is valid for 36 months
Obligation: Importer has to fulfill export obligation equal
to 8 times of Duty saved over the period of 8 years
Non-fulfillment of Obligation: If goods are not exported
then differential customs Duty plus 15% interest is
payable

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Details of Licenses
1. Duty Entitlement Pass Book (DEPB)
This scheme is on post exportation basis
DEPB holder is entitled to import all raw material,
components etc (Duty free)
Capital Goods cannot be imported under DEPB
2. Advance Authorization: Inputs required to manufacture
export products can be imported without payment of Duty
Validity of license is 24 months
The material imported under Advance Authorization is
not transferable even after completion of export
obligation
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High Sea Sales (HSS)

High Sea sales (HSS) is a sale carried out by the original consignee
to another buyer while the goods are yet on high seas
HSS Contract / Agreement should be signed after dispatch of goods
from origin & prior to their arrival at destination. The agreement should
be on stamp paper. On concluding the HSS agreement, the B/L
should be endorsed in favor of the new buyer
The IGM should be filed by the carrier in the name of the HSS buyer
Sometimes, HSS buyers buy goods after their arrival. Such sale are
not HSSs.
HSS goods are entitled to classification, rates of Duty and all
notification benefits as would be applicable to similar import goods on
normal sale
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Procedure at Customs House

(Flow of documents)

Noting of Bill of Entry

Filing of Bill of Entry
Assessment
Pre Audit
Duty Payment / Bond (warehousing)
Examination of Cargo
Out of charge permission
Delivery

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Re-import of Goods
If the same goods which were exported are re-imported within 3 years by the
same person, Customs Duty is payable which will be equal to the Duty
drawback claimed plus excise duties which were not paid. Basic principle
being export incentives obtained at the time of export will be recovered
No Customs Duty will be payable if goods are re-imported for
repairs/reconditioning (within 3 years from export)
If imported goods are sent abroad for repairs, then, Duty will be payable on
fair charges of repairs including cost of materials
In case of goods exported under the EPCG scheme, re-importation should
take place within one year (extendable by another year by the
Commissioner) provided the period of full export performance under the
EPCG Scheme should not have expired

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