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Thumbs up CUSTOMS LAW- BASIC - January 4th, 2008

CUSTOMS LAW- BASIC

STRUCTURE
20.0 Introduction
20.1 Objectives
20.2 An Overview of Customs Law
20.2.1 Meaning of customs duty
20.2.2 Development of customs law
20.2.3 Scope and coverage of customs law
20.2.4 Objects of customs duty
20.3 Nature of Customs Duty
20.3.1 Taxable Event
20.3.2 Territorial water of India
20.3.3 Indian customs water
20.3.4 Type of customs duty
20.3.5 Rate of duty applicable
20.4 Definitions and Concepts
20.5 Classification and valuation
20.5.1 Classification of goods
20.5.2 Valuation of goods
20.6 Summary
20.7 Glossary
20.8 Self Assessment exercise
20.9 Further Readings
20.0 INTRODUCTION
The Constitution of India (Article 265) lays down that no tax shall be levied
or collected except by authority of law. The law for the levy and collection of
Customs duties is the Customs Act, 1962. This legislation has been enacted by
Parliament in exercise of the exclusive power vested in it under Article 246
read with Entry 83 of list-I of the Seventh Schedule of the Constitution. The
Customs Duties are major tax revenue for the Union Govt. and constitute
around 30% of its total tax revenues. Together with Central Excise duties, the
contribution amount to nearly three-fourth of total tax revenue of the Union
Govt.
20.1 OBJECTIVE
After going through this lesson you should be able to understand:
• Meaning and objects of customs duty
260
• Scope and coverage of custom law
• Types of custom duties
• Rate of custom duties applicable
• Definitions and concepts
• Classification and valuation of goods
20.2 An Overview of Customs Law
Customs duties are probably the oldest form of taxation in India. They are as
old as international trade itself. Just as domestic production flows provide the
base for excise taxation so also international trade flows are the basis for
customs duties.
20.2.1 Meaning of customs duty
Customs duty is a duty or tax, which is levied by Central Govt. on import of
goods into, and export of goods from, India. It is collected from the importer
or exporter of goods, but its incidence is actually borne by the consumer of the
goods and not by the importer or the exporter who pay it.
These duties are usually levied with ad valorem rates and their base is
determined by the domestic value ‘the imported goods calculated at the
official exchange rate. Similarly, export duties are imposed on export values
expressed in domestic currency
20.2.2 Development of customs law
There is historical evidence of imposition of import duty during the ancient
and medieval era, the development of organised taxation on imports and
exports to its present form, originated in 1786, when the Britishers formed the
first Board of Revenue in Calcutta. In 1808, a New Board of Trade was
established. The provincial import duties were replaced by uniform Tariff Act
through Customs Duties Act, 1859 which was made applicable all territories in
the country. The general rate of duty was 10%, which was subsequently
revised to 7.5% in 1864. Several revisions in the Customs policy and tariff
took place during subsequent years, though such revisions were mainly related
to the textile products.
Sea Customs Act was passed by Government in 1878. The Indian Tariff Act
was passed in 1894. Air Customs having been covered under the India
Aircrafts Act of 1911, the Land Customs Act was passed in 1924. The Indian
Customs Act, 1934, governed the Customs Tariff.
After Independence, the Sea Customs Act and other allied enactments were
repealed by a consolidating and amending legislation entitled the Customs
Act, 1962 (CA). Similarly the Act of 1934 was repealed by the Customs Tariff
Act, 1975(CTA).
261
20.2.3 Scope and coverage of customs law
There are two Acts, which form part of Customs Law in India, namely, the
Customs Act.1962 and Customs Tariff Act, 1975:
1. The Customs Act, 1962
The Customs Act. 1962 is the basic Act for levy and collection of customs
duty in India. I contain various provisions relating to imports and exports of
goods and merchandize as well as baggage of persons arriving in India. The
main purpose of Customs Act, 1962 is the prevention of illegal imports and
exports of goods. The Act extends to the whole of the India. It was extended to
Sikkim w.e.f. 1st October 1979.
2. The Customs Tariff Act, 1975
The Customs Duty is levied on goods imported or exported from India at the
rates specified under the Customs Tariff Act, 1975.The Act contains two
schedules - Schedule 1 gives classification and rate of duties for imports,
while schedule 2 gives classification and rates of duties for exports. In the
present Act, the Tariff Schedule was replaced in 1986. The new Schedule is
based on Harmonised System of Nomenclature (HSN). the Internationally
accepted Harmonised Commodity Description and Coding System
20.2.4 Objects of customs duty
The customs duty is levied, primarily, for the following purpose:
1. To raise revenue.
2. To regulate imports of foreign goods into India.
3. To conserve foreign exchange, regulate supply of goods into
domestic market.
4. To provide protection to the domestic industry from foreign
competition by restricting import of selected goods and services,
import licensing, import quotas, and outright import ban.
CHECK YOUR PROGRESS
Activity A
What are two acts, which are part of customs law?
Activity B
Arrange the following acts in order of there establishment year?
A) Indian customs act
B) Sea customs act
C) Land customs act
D) Air customs act
E) Customs Tariff act
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20.3 Nature of Customs Duty
Entry 82 of List-I (Union List) to the Schedule-VII reads as under 82 ‘Duties
of Customs including Export duties’.
Thus, the levy of duty on imports and exports is subject matter of Union and
the parliament derives power to make laws related to the duties of customs.
Accordingly, the Customs Act, 1962 was enacted by the Parliament.
Section 12 of the Customs Act 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. Goods become liable to duty if there is import into and export
from India.
20.3.1 Taxable Event
Goods become liable to import duty or export duty when there is ‘import into,
or export from India
‘Import’, as defined in section 2(23), means ‘bringing into India from a place
outside India’.
‘Export’, as defined in section 2(18), means taking out of India to a place
outside India’.
‘India’ is defined in section 2(27) to include the territorial waters of India.
The definition of India is an inclusive definition. Article I of the Constitution
of India defines “India” as Union of States. General Clauses Act defines India
to mean all territories for the time being comprised in India.
20.3.2Territorial water of India
Territorial waters mean that portion of sea, which is adjacent to the shores of a
country. As per section 3 of the Territorial waters, Continental Shelf,
Exclusive Economic Zones and Maritime Zones Act, 1978, territorial waters
of India extend Upto 12 nautical miles from the baseline on the coast of India
and include any gulf, harbour, creek or tidal river.
Earlier, the territorial waters of India extended upto the 6 nautical miles from
the baseline, but it was extended upto 12 nautical miles (1 NM 1.83 kms) in
1967. This definition is well in accordance with the Article 3 of the UN
Convention on the Law of Sea, which defines territorial sea.
The determination of territorial waters is important for determination of the
Chargeabi1ity of the Customs duty, as the entry of goods into the territorial
waters is a taxable event.
20.3.3 Indian customs water
Section 2(28) defines “Indian customs waters” to mean the waters extending
into the sea up to the limit of contiguous zone of India under section 5 of the
263
Territorial Waters, Continental Shelf, Exclusive Economic Zone and other
Maritime Zones Act, 1976 and includes any bay, gulf, harbour, creek or tidal
river.
Contiguous zone of India comes immediately after the territorial waters of
India (i.e. after 12 nautical miles from the baseline) and extends upto 24
nautical miles. Thus, Indian customs water extends upto 12 nautical miles
beyond the territorial waters of India.
The determination of Indian customs waters is necessary in view of certain
provisions of the Customs Act, which empower the Customs Officers:
(a) To arrest a person in India or within the Indian customs water ;( section
1041)
(b) To stop and search any vessel in India or within the Indian customs water;
(section 1061)
(c) To fire and/or confiscate the vessel, if it does not stop; (section 115) etc.
20.3.4 Type of customs duties
While Customs Duties include both import and export duties, but as export
duties contributed only nominal revenue, due to emphasis on raising
competitiveness of exports, import duties alone constituted major part of the
revenue from Customs Duties. The import duties are imposed under The
Customs Act, 1962 and Customs Tariff Act, 1975. The structure of Customs
Duties includes the following:
Basic Customs Duty
All goods imported into India are chargeable to a duty under Customs Act,
1962 .The rates of this duty, popularly known as basic customs duty, are
indicated in the First Schedule of the Customs Tariff Act, 1975as amended
from time to time under Finance Acts. The duty may be fixed on ad -valorem
basis or specific rate basis. The duty may be a percentage of the value of the
goods or at a specific rate. The Central Government has the power to reduce
or exempt any good from these duties.
Auxiliary Duty of Customs
This duty is levied under the Finance Act and is leviable all goods imported
into the country at the rate of 50 per cent of their value. However this statutory
rate has been reduced in the case of certain types of goods into different slab
rates based on the basic duty chargeable on them.
Additional (Countervailing) Duty of Customs
This countervailing duty is leviable as additional duty on goods imported into
the country and the rate structure of this duty is equal to the excise duty on like
articles produced in India. The base of this additional duty is c.i.f. value of
imports plus the duty levied earlier. If the rate of this duty is on ad-valorem
basis, the value for this purpose will be the total of the value of the imported
article and the customs duty on it (both basic and auxiliary).
264
Export Duties
Under Customs Act, 1962, goods exported from India are chargeable to export
duty The items on which export duty is chargeable and the rate at which the
duty is levied are given in the customs tariff act,1975 as amended from time to
time under Finance Acts. However, the Government has emergency powers to
change the duty rates and levy fresh export duty depending on the
circumstances.
Cesses
Cesses are leviable on some specified articles of exports like coffee, coir, lac,
mica, tobacco (unmanufactured), marine products cashew kernels, black
pepper, cardamom, iron ore, oil cakes and meals, animal feed and turmeric.
These cesses are collected as parts of Customs Duties and are then passed
on to the agencies in charge of the administration of the concerned
commodities.
Education cess on customs duty
An education cess has been imposed on imported goods w.e.f. 9-7-2004. The
cess will be 2% of the aggregate duty of customs excluding safeguard duty,
countervailing duty, Anti Dumping Duty.
Protective Duties
Tariff Commission' has been established under Tariff Commission Act, 1951.
If the Tariff Commission recommends and Central Government is satisfied
that immediate action is necessary to protect interests of Indian industry,
protective customs duty at the rate recommended may be imposed under
section 6 of Customs Tariff Act. The protective duty will be valid till the date
prescribed in the notification.
Countervailing duty on subsidised goods
If a country pays any subsidy (directly or indirectly) to its exporters for
exporting goods to India, Central Government can impose Countervailing duty
up to the amount of such subsidy under section 9 of Customs Tariff Act.
Anti Dumping Duty on dumped articles
Often, large manufacturer from abroad may export goods at very low prices
compared to prices in his domestic market. Such dumping may be with
intention to cripple domestic industry or to dispose of their excess stock. This
is called ‘dumping'. In order to avoid such dumping, Central Government can
impose, under section 9A of Customs Tariff Act, anti-dumping duty upto
margin of dumping on such articles, if the goods are being sold at less than its
normal value. Levy of such anti-dumping duty is permissible as per WTO
(world trade organisation) agreement. Anti dumping action can be taken only
when there is an Indian industry producing 'like articles'.
.
Safeguard duty
Central Government is empowered to impose 'safeguard duty' on specified
imported goods if Central Government is satisfied that the goods are being
imported in large quantities and under such conditions that they are causing or
threatening to cause serious injury to domestic industry. Such duty is
265
permissible under WTO agreement. Safeguard duty is a step in providing a
need-based protection to domestic industry for a limited period, with ultimate
objective of restoring free and fair competition
National Calamity Contingent Duty
A National Calamity Contingent Duty (NCCD) of customs has been imposed
vide section 129 of Finance Act, 2001. This duty is imposed on pan masala,
chewing tobacco and cigarettes. It varies from 10% to 45%. - - NCCD of
customs of 1% was imposed on PFY, motor cars, multi utility vehicles and
two wheelers and NCCD of Rs 50 per ton was imposed on domestic crude oil,
vide section 134 of Finance Act, 2003.
20.3.5 Rate of duty applicable
There are different rates of duty for different goods there are different rates of
duty for goods imported from certain countries in terms of bilateral or other
agreement with such countries which are called preferential rate of duties the
duty may be percentage of the value of the goods or at specified rate.
Provisions in respect of rate of duty are as follows:
Basic Customs duty - The rate of customs duty applicable will be as provided
in Customs Act, subject to exemption notifications, if any, applicable. In case
of imports from preferential area, the preferential rate is applicable, if
mentioned in the Tariff. It is needless to mention that if partial or full
exemption has been granted by a notification, the effective rate (as per
notification) will apply and not the tariff rate (as mentioned in Customs
Tariff).
Rate for additional duty - Rate for additional duty (CVD) will be as
mentioned in Central Excise Tariff Act, subject to any general exemption
notification. Any specific exemption notification (e.g. exemption to goods
manufactured by SSI unit or goods manufactured without aid of power) is not
considered while calculating CVD
CHECK YOUR PROGRESS
Activity C
Give the full form of the following words:
a) WTO
b) CVD
c) HNS
d) NCCD
e) CTA
20.4 Definitions and Concepts
266
Definitions concepts under the Customs Act
Bill of Entry
This is a very vital and important document which every importer has to
submit under section 46 Bill of Entry should be submitted in quadruplicate –
original and duplicate for customs, triplicate for the importer and fourth copy
is meant for bank for making remittances.
Baggage
The term has not been defined as such. However, following may be noted: (a)
Baggage means all dutiable articles, imported by passenger or a member of a
crew in his baggage (b) Un-accompanied baggage, if despatched previously or
subsequently within prescribed period is also covered (c) baggage does not
include motor vehicles, alcoholic drinks and goods imported through courier
(d) Baggage does not include articles imported under an import licence for his
own use or on behalf of others.
Customs Station
Imported goods are permitted to be unloaded only at specified places.
Similarly, goods can be exported only from specified area. In view of this, a
definition of ‘Customs Station’ is important. Customs Station means (a)
customs port (b) inland container depot (c) customs airport and (d) land
customs station
Customs area
Customs area means all area of Customs Station and includes any area where
imported goods or export goods are ordinarily kept pending clearance by
Customs authorities. Thus, ‘Customs Area’ could include some area even
outside the ‘Customs Station’.
Drawback
Drawback means the rebate of duty chargeable on any imported materials or
excisable materials used in manufacture or processing of goods which are
manufactured in India and exported.
ENTRY
Entry’ in relation to goods means an entry made in a Bill of Entry, Shipping
Bill or Bill of Export. It includes (a) label or declaration accompanying the
goods which contains description, quantity and value of the goods, in case of
postal articles u/s 82 (b) Entry to be made in case of goods to be exported (c)
Entry in respect of goods imported which are not accompanied by label or
declaration made as per provisions of section 84. [Section 2(16)].

268
(c) in relation to a railway train, the conductor, guard or other person having
the chief direction of the train;
(d) in relation to any other conveyance, the driver or other person-in-charge of
the conveyance. [2(31)]
Prohibited Goods
Prohibited Goods means any goods the import or export of which is subject to
any prohibition under this Act or any other law for the time being in force but
does not include any such goods in respect of which the conditions subject to
which the goods are permitted to be imported or exported have been complied
with. [2(33)]
Stores
Stores means goods for use in a vessel or aircraft and includes fuel and spare
parts and other articles of equipment, whether or not for immediate fitting.
[2(38)].
CHECK YOUR PROGRESS
Activity D
Explain the following key words in your own words
a) India
b) Import
c) Export
d) Goods
20.5 Classification and valuation
20.5.1Classification of goods
Classification of goods under a particular heading of the import Tariff
governed by a set of General Interpretative Rules, which form an integral part
of the CTA. As per these Rules, classification is to determine according to the
terms of the Headings or Sub-headings or Chapter Notes These Rules also
provide that completed unfinished article is to be classified as complete or
finished art. it has an essential character of the latter article. Similarly a con
finished article imported in an unassembled or disassembled condition to be
classified an complete or finished article and not as parts. The Rules also
269
provide for the Classification of mixtures and. composite goods consisting of
different materials or made to of different articles Once the classification is
determined under the Import Tariff, the determination classification under the
Central Excise Tariff for the p1irpos of levy of countervailing duty equal to
the excise duty is a simple affair as both the Tariff are, more or less, aligned
with the HSN.
20.5.2 Valuation of goods
Customs duty is payable as a percentage of ‘Value’ often called ‘Assessable
Value’ or ‘Customs Value'. The Value may be either (a) ‘Value’ as defined in
section 14 (1) of Customs Act or (b) Tariff value prescribed under section 14
(2) of Customs Act.
Tariff Value - Tariff Value can be fixed by CBE&C (Board) for any class of
imported goods or export goods. Government should consider trend of value
of such or like goods while fixing tariff value. Once so fixed, duty is payable
as percentage of this value. (The percentage applicable is as prescribed in
Customs Tariff Act).
Customs value as per section 14 (1) - Customs Value fixed as per section 14
(1) is the ‘Value’ normally used for calculating customs duty payable (often
called ‘customs value’ or ‘Assessable Value'.)
Section 14 (1) provide following criteria for deciding ‘Value’ for purpose of
Customs Duty:
• Price at which such or like goods are ordinarily sold or offered for sale
• Price for delivery at the time and place of importation or exportation
• Price should be in course of International Trade
• Seller and buyer have no interest in the business of each other or one
of them has no interest in the other
• Price should be sole consideration for sale or offer for sale
• Rate of exchange as on date of presentation of Bill of Entry as fixed
by CBE&C (Board) by Notification should be considered
This criterion is fully applicable for valuing export goods. However, in case of
imported goods, valuation is required to be done according to valuation rules
Valuation has to be on the basis of condition at the time of import – (a) CVD
should be levied on goods in the stage in which they are imported - stage
subsequent to processing of goods is not relevant - (b) It is well settled that the
imported goods have to be assessed to duty in the condition in which they are
imported.
270
Valuation Rules for imported goods
Valuation in Customs Act has to be done as per valuation rules. These rules
are based on ‘WTO Valuation Agreement’ (Earlier termed as GATT Valuation
Code). These rules are only for valuation of imported goods and not applicable
to export goods.
The value of imported goods for purposes of assessment of duly is determined
in accordance with the provisions of Section 14 of 1962 and the Customs
Valuation (Determination of Price of Imported Goods) Rules, 1988, which
were brought into force on 16th August, 1988
Rule 3(i) of the Valuation Rules provides that the value of imported goods
shall be the. ‘Transaction value’ under Rule 4 ‘Transaction value’ has been
defined as the price actually paid or payable for the goods when sold for
export to India, adjusted in accordance with the provisions of Rule 9. The
adjustments under Rule 9 provide, inter alia, the addition in all cases, of
freight and cost of insurance to the ‘transaction value’ if not already included
and also for the addition of loading, unloading and handling charges for
purposes of assessment. In other words, the assessable value is the safe. price
of the imported goods plus the landing charges subject to any other adjustment
which may be necessary under the provisions of Rule. If the value cannot be
determined under Rule 3(i), the value is to be determined under Rules 5 to 8,
which are required to be in that order.
The rate of exchange applicable for conversion of foreign currency in Indian
currency is the rate in force on the date of presentation of the Bill Entry under
Section 46. Such exchange rates are notified by the Govt. fro time to time by
notifications issued under clause a (i) of Section 14(3).
Customs Value – Inclusions
Some costs, services and expenses are to be added to the price paid or payable,
if these are not already included in the invoice price. Rule 9 of Customs
Valuation Rules provide that following cost and services are to be added –
• Commission and brokerage
• Cost of container, which are treated as being one with the goods for
customs purposes
• Cost of packing whether labour or materials
• Materials, components, tools, dies etc. supplied by buyer
• Royalties and license fees
• Value of proceeds of subsequent sales
• Other payment as condition of sale of goods being valued
• Cost of transport up to place of importation
• Landing charges
• Cost of insurance.
271
Exclusions from Assessable Value
Note to rule 4 provide that following charges shall be excluded:
• Charges for construction, erection, assembly, maintenance or technical
assistance undertaken after importation of plant, machinery or
equipment
• Cost of transport after importation
• Duties and taxes in India
Methods of Valuation for Customs
The Valuation Rules, 1988, based on WTO Valuation Agreement (earlier
GATT Valuation Code); consist of rules providing six methods of valuation.
The methods are:
(a) Transaction Value of Imported goods
(b) Transaction Value of Identical Goods (c) Transaction Value of Similar
Goods
(d) Deductive Value, which is based on identical or similar imported goods,
sold in India.
(e) Computed value, which is based on cost of manufacture of goods plus
profits
(f) Residual method based on reasonable means and data available.
These are to be applied in sequential order, i.e. if method one cannot be
applied, then method two comes into force and when method two also cannot
be applied, method three should be used and so on. The only exception is that
the ‘computed value’ method may be used before ‘deductive value’ method, if
the importer requests and Assessing Officer permits.
Transaction value of same goods: This is the first and primary method as
per rule 3 of Valuation Rules. As per rule 4(1), ‘transaction value’ of imported
goods shall be the price actually paid or payable for the goods when sold for
exported to India, adjusted in accordance with provisions of rule 9. [Rule 9
gives costs and services to be added to transaction value].
Transaction value of identical goods: Rule 5 of Customs Valuation Rules
provide that if valuation on the basis of ‘transaction value’ is not possible, the
‘Assessable value’ will be decided on basis of transaction value of identical
goods sold for export to India and imported at or about the same time, subject
to making necessary adjustments. Identical goods’ are defined under Rule
2(1)(c) as those goods which fulfil all following conditions i.e. (a) the goods
should be same in all respects, including physical characteristics, quality and
reputation; except for minor differences in appearance that do not affect value
of goods. (b) The goods should have been produced in the same country in
which the goods being valued were produced. (c) they should be produced by
same manufacturer who has manufactured goods under valuation - if price of
such goods are not available, price of goods produced by another manufacturer
in the same country.
272
Transaction value of similar goods: If first method of transaction value of
the goods or second method of transaction value of identical goods cannot be
used, rule 6 provide for valuation on basis of ‘Transaction value of similar
goods imported at or about the same time'.
Rule 2 (1) (e) define ‘similar goods’ as (a) alike in all respects, have like
characteristics and like components and perform same functions. These should
be commercially inter-changeable with goods being valued as regards quality,
reputation and trade mark. (b) the goods should have been produced in the
same country in which the goods being valued were produced. (c) they should
be produced by same manufacturer who has manufactured goods under
valuation - if price of such goods are not available, price of goods produced by
another manufacturer in the same country can be considered.
.
Deductive Value: Rule 7 of Customs Valuation Rules provide for the next i.e.
fourth alternative method, which is called ‘deductive method'. This method
should be applied if transaction value of identical goods or similar goods is not
available; but these products are sold in India. The assumption made in this
method is that identical or similar imported goods are sold in India and its
selling price in India is available. The sale should be in the same condition as
they are imported. Assessable Value is calculated by reducing postimportation
costs and expenses from this selling price. This is called
‘deductive value’ because assessable value has to be arrived at by method of
deduction (deduction means arrive at by inference i.e. by making suitable
additions/subtractions from a known price to arrive at required ‘Customs
Value').
.
Computed Value for Customs: If valuation is not possible by deductive
method, the same can be done by computing the value under rule 7A, which is
the fifth method. [This method has been added w.e.f. 24-4-95]. If the importer
requests and the Customs Officer approves, this method can be used before the
method of ‘deductive value'. In this method, value is the sum of (a) Cost of
value of materials and fabrication or other processing employed in producing
the imported goods (b) an amount for profit and general expenses equal to that
usually reflected in sales of goods of the same class or kind, which are made in
the country of exportation for export to India. (c) The cost or value of all other
expenses under rule 9 (2) i.e. transport, insurance, loading, unloading and
handling charges.
.
Residual Method: The sixth and the last method is called “residual method”.
It is also often termed as ‘fallback method’. This is similar to ‘best judgment
method’ of the Central Excise. This method is used in cases where ‘Assessable
Value’ cannot be determined by any of the preceding methods. While deciding
Assessable Value under this method, reasonable means consistent with general
provisions of these rules should be the basis and valuation should be on basis
of data available in India. This method can be considered if valuation is not
possible by any other method
In other words, selling price for export to India can alone form the basis.
(Thus, fixing ‘tariff value’ is really against this rule).
273
Valuation for Assessment of Export Goods
Customs value of export goods is to be determined under section 14 (1) of
Customs Act. Customs Valuation Rules are applicable only for imported
goods. Thus, Assessable Value of export goods shall be “deemed to be the
price at which such or like goods are ordinarily sold, or offered for sale, for
delivery at the time and place of exportation in the course of international
trade, where the seller and the buyer have no interest in the business of each
other or one of them has no interest in the other, and the price is the sole
consideration for the sale or offer for sale”.
Normally, ‘FOB Value’ of exports will be the basis. If the export sale contract
is a CIF contract, post exportation elements i.e. insurance and outward freight
will have to be deducted. However, now many instances have come to notice
where exported goods have been over-valued to get export benefits.
Valuation for CVD when goods are under MRP provisions –
In respect of some consumer goods, excise duty is payable on basis of MRP
(Maximum Retail Price) printed on the carton. If such goods are imported,
CVD will be payable on basis of MRP printed on the packing. However, it has
been clarified by DGFT vide policy circular No. 38(RE-2000) / 1997-2002
dated 22-1-2001 that labelling requirements for pre-packed commodities are
applicable only when they are intended for retail sale. These are not applicable
to raw materials, components, bulk imports etc. which will undergo further
processing or assembly before they are sold to consume.
CHECK YOUR PROGRESS
Activity E
Discuss whether the following cost and services are to be added to the value as
per rule 9 of Customs Valuation Rule
a) Camera
b) Necklace
c) Tools used in production of imported goods
d) Royalties
e) Insurance cost
f) Cost of design, plan and sketches
g) Cost of durable and re- usable containers
20. 6 LET US SUM UP
Customs duties levied by central government import of goods into, and export
of goods from, India. There are two basic acts under Customs Law namely
274
Customs Act 1962 and Customs Tariff Act 1975 various type of customs
duties are classified .in two groups –import duties and export duties section 12
of the CA, 1962 deals with the scope of these levies the section provides that
other provided in this act or any other law for the time being enforced duties
of custom should be levied at such rate as may be specified in the customs
tariff act 1975 on all goods imported into exported from India. Custom duty is
payable as a percentage of value often called assessable value or custom value.
Evaluation in custom act has to be done as per evaluation rules, which are
based on WTO evaluation agreement. These rules are applicable for imported
good not applicable to exported goods.
20.7 GLOSSARY
The various key words, which arise in this chapter, are
Ad –valorem Duty as a percentage of the value of goods
Assessments include provisional assessment, reassessment and any order of
assessment in which the duty assessed is nil.
Board means the Central Board of Excise and Customs constituted under the
Central Boards of Revenue Act, 1963. [2(6)1]
Duty means a duty of customs leviable under this Act.
Export Price means the price at which goods are exported. If the export
price is unreliable due to association or compensatory arrangement between
exporter and importer or a third party, export price can be constructed
(revised) on the basis of price at which the imported articles are first sold to
independent buyer or according to rules made for determining margin of
dumping.
Margin of dumping means the difference between normal value and export
price (i.e. the price at which these goods are exported).
Normal Value means comparable price in ordinary course in trade, for
consumption in the exporting country or territory. If such price is not available
or not comparable, comparable representative price of like article exported
from exporting country or territory to appropriate third country can be
considered. 9A (1) (c)
WTO World Trade Organization was an International forum for discussion
on custom and other related problems so that barriers to world trade are
removed
20.8 SELF ASSESSMENT EXCERSCISE
1) Write a short note on nature and scope of Customs Duty?
275
2) Explain the difference between “Territorial water “and “Customs
water” under Customs Act 1962?
3) Discuss in detail various type of duties levied on imports under
Customs A ct 1962?
4) Briefly examine the nature and significance of levy of Anti Dumping
Duty under Customs Act 1975?
5) What do you under stand by “ Transaction Value “ and enumerate the
various cost and services that are to be added to the Transaction Value
under rule 9 of Customs Valuation Rule 1988?
6) Explain the difference between identical goods and similar goods with
reference to custom valuation Rule 1988?
7) Write short note on the following:
a) Countervailing duty on subsided goods
b) Customs Tariff Act
c) Objects of customs duty
d) Classification of goods.
20.9 FURTHER READINGS AND SOURCES
Datey, V.S, 2005. Indirect Taxes, Taxmann Publisher, Delhi. Twentieth
Edition.
Sanjeev Kumar. 2005. Indirect Taxes, Bharat Law House, Delhi. Fifth
Edition.
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Re: CUSTOMS LAW- BASIC - February 25th, 2016

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CUSTOMS LAW- BASIC

STRUCTURE
20.0 Introduction
20.1 Objectives
20.2 An Overview of Customs Law
20.2.1 Meaning of customs duty
20.2.2 Development of customs law
20.2.3 Scope and coverage of customs law
20.2.4 Objects of customs duty
20.3 Nature of Customs Duty
20.3.1 Taxable Event
20.3.2 Territorial water of India
20.3.3 Indian customs water
20.3.4 Type of customs duty
20.3.5 Rate of duty applicable
20.4 Definitions and Concepts
20.5 Classification and valuation
20.5.1 Classification of goods
20.5.2 Valuation of goods
20.6 Summary
20.7 Glossary
20.8 Self Assessment exercise
20.9 Further Readings
20.0 INTRODUCTION
The Constitution of India (Article 265) lays down that no tax shall be levied
or collected except by authority of law. The law for the levy and collection of
Customs duties is the Customs Act, 1962. This legislation has been enacted by
Parliament in exercise of the exclusive power vested in it under Article 246
read with Entry 83 of list-I of the Seventh Schedule of the Constitution. The
Customs Duties are major tax revenue for the Union Govt. and constitute
around 30% of its total tax revenues. Together with Central Excise duties, the
contribution amount to nearly three-fourth of total tax revenue of the Union
Govt.
20.1 OBJECTIVE
After going through this lesson you should be able to understand:
• Meaning and objects of customs duty
260
• Scope and coverage of custom law
• Types of custom duties
• Rate of custom duties applicable
• Definitions and concepts
• Classification and valuation of goods
20.2 An Overview of Customs Law
Customs duties are probably the oldest form of taxation in India. They are as
old as international trade itself. Just as domestic production flows provide the
base for excise taxation so also international trade flows are the basis for
customs duties.
20.2.1 Meaning of customs duty
Customs duty is a duty or tax, which is levied by Central Govt. on import of
goods into, and export of goods from, India. It is collected from the importer
or exporter of goods, but its incidence is actually borne by the consumer of the
goods and not by the importer or the exporter who pay it.
These duties are usually levied with ad valorem rates and their base is
determined by the domestic value ‘the imported goods calculated at the
official exchange rate. Similarly, export duties are imposed on export values
expressed in domestic currency
20.2.2 Development of customs law
There is historical evidence of imposition of import duty during the ancient
and medieval era, the development of organised taxation on imports and
exports to its present form, originated in 1786, when the Britishers formed the
first Board of Revenue in Calcutta. In 1808, a New Board of Trade was
established. The provincial import duties were replaced by uniform Tariff Act
through Customs Duties Act, 1859 which was made applicable all territories in
the country. The general rate of duty was 10%, which was subsequently
revised to 7.5% in 1864. Several revisions in the Customs policy and tariff
took place during subsequent years, though such revisions were mainly related
to the textile products.
Sea Customs Act was passed by Government in 1878. The Indian Tariff Act
was passed in 1894. Air Customs having been covered under the India
Aircrafts Act of 1911, the Land Customs Act was passed in 1924. The Indian
Customs Act, 1934, governed the Customs Tariff.
After Independence, the Sea Customs Act and other allied enactments were
repealed by a consolidating and amending legislation entitled the Customs
Act, 1962 (CA). Similarly the Act of 1934 was repealed by the Customs Tariff
Act, 1975(CTA).
261
20.2.3 Scope and coverage of customs law
There are two Acts, which form part of Customs Law in India, namely, the
Customs Act.1962 and Customs Tariff Act, 1975:
1. The Customs Act, 1962
The Customs Act. 1962 is the basic Act for levy and collection of customs
duty in India. I contain various provisions relating to imports and exports of
goods and merchandize as well as baggage of persons arriving in India. The
main purpose of Customs Act, 1962 is the prevention of illegal imports and
exports of goods. The Act extends to the whole of the India. It was extended to
Sikkim w.e.f. 1st October 1979.
2. The Customs Tariff Act, 1975
The Customs Duty is levied on goods imported or exported from India at the
rates specified under the Customs Tariff Act, 1975.The Act contains two
schedules - Schedule 1 gives classification and rate of duties for imports,
while schedule 2 gives classification and rates of duties for exports. In the
present Act, the Tariff Schedule was replaced in 1986. The new Schedule is
based on Harmonised System of Nomenclature (HSN). the Internationally
accepted Harmonised Commodity Description and Coding System
20.2.4 Objects of customs duty
The customs duty is levied, primarily, for the following purpose:
1. To raise revenue.
2. To regulate imports of foreign goods into India.
3. To conserve foreign exchange, regulate supply of goods into
domestic market.
4. To provide protection to the domestic industry from foreign
competition by restricting import of selected goods and services,
import licensing, import quotas, and outright import ban.
CHECK YOUR PROGRESS
Activity A
What are two acts, which are part of customs law?
Activity B
Arrange the following acts in order of there establishment year?
A) Indian customs act
B) Sea customs act
C) Land customs act
D) Air customs act
E) Customs Tariff act
262
20.3 Nature of Customs Duty
Entry 82 of List-I (Union List) to the Schedule-VII reads as under 82 ‘Duties
of Customs including Export duties’.
Thus, the levy of duty on imports and exports is subject matter of Union and
the parliament derives power to make laws related to the duties of customs.
Accordingly, the Customs Act, 1962 was enacted by the Parliament.
Section 12 of the Customs Act 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. Goods become liable to duty if there is import into and export
from India.
20.3.1 Taxable Event
Goods become liable to import duty or export duty when there is ‘import into,
or export from India
‘Import’, as defined in section 2(23), means ‘bringing into India from a place
outside India’.
‘Export’, as defined in section 2(18), means taking out of India to a place
outside India’.
‘India’ is defined in section 2(27) to include the territorial waters of India.
The definition of India is an inclusive definition. Article I of the Constitution
of India defines “India” as Union of States. General Clauses Act defines India
to mean all territories for the time being comprised in India.
20.3.2Territorial water of India
Territorial waters mean that portion of sea, which is adjacent to the shores of a
country. As per section 3 of the Territorial waters, Continental Shelf,
Exclusive Economic Zones and Maritime Zones Act, 1978, territorial waters
of India extend Upto 12 nautical miles from the baseline on the coast of India
and include any gulf, harbour, creek or tidal river.
Earlier, the territorial waters of India extended upto the 6 nautical miles from
the baseline, but it was extended upto 12 nautical miles (1 NM 1.83 kms) in
1967. This definition is well in accordance with the Article 3 of the UN
Convention on the Law of Sea, which defines territorial sea.
The determination of territorial waters is important for determination of the
Chargeabi1ity of the Customs duty, as the entry of goods into the territorial
waters is a taxable event.
20.3.3 Indian customs water
Section 2(28) defines “Indian customs waters” to mean the waters extending
into the sea up to the limit of contiguous zone of India under section 5 of the
263
Territorial Waters, Continental Shelf, Exclusive Economic Zone and other
Maritime Zones Act, 1976 and includes any bay, gulf, harbour, creek or tidal
river.
Contiguous zone of India comes immediately after the territorial waters of
India (i.e. after 12 nautical miles from the baseline) and extends upto 24
nautical miles. Thus, Indian customs water extends upto 12 nautical miles
beyond the territorial waters of India.
The determination of Indian customs waters is necessary in view of certain
provisions of the Customs Act, which empower the Customs Officers:
(a) To arrest a person in India or within the Indian customs water ;( section
1041)
(b) To stop and search any vessel in India or within the Indian customs water;
(section 1061)
(c) To fire and/or confiscate the vessel, if it does not stop; (section 115) etc.
20.3.4 Type of customs duties
While Customs Duties include both import and export duties, but as export
duties contributed only nominal revenue, due to emphasis on raising
competitiveness of exports, import duties alone constituted major part of the
revenue from Customs Duties. The import duties are imposed under The
Customs Act, 1962 and Customs Tariff Act, 1975. The structure of Customs
Duties includes the following:
Basic Customs Duty
All goods imported into India are chargeable to a duty under Customs Act,
1962 .The rates of this duty, popularly known as basic customs duty, are
indicated in the First Schedule of the Customs Tariff Act, 1975as amended
from time to time under Finance Acts. The duty may be fixed on ad -valorem
basis or specific rate basis. The duty may be a percentage of the value of the
goods or at a specific rate. The Central Government has the power to reduce
or exempt any good from these duties.
Auxiliary Duty of Customs
This duty is levied under the Finance Act and is leviable all goods imported
into the country at the rate of 50 per cent of their value. However this statutory
rate has been reduced in the case of certain types of goods into different slab
rates based on the basic duty chargeable on them.
Additional (Countervailing) Duty of Customs
This countervailing duty is leviable as additional duty on goods imported into
the country and the rate structure of this duty is equal to the excise duty on like
articles produced in India. The base of this additional duty is c.i.f. value of
imports plus the duty levied earlier. If the rate of this duty is on ad-valorem
basis, the value for this purpose will be the total of the value of the imported
article and the customs duty on it (both basic and auxiliary).
264
Export Duties
Under Customs Act, 1962, goods exported from India are chargeable to export
duty The items on which export duty is chargeable and the rate at which the
duty is levied are given in the customs tariff act,1975 as amended from time to
time under Finance Acts. However, the Government has emergency powers to
change the duty rates and levy fresh export duty depending on the
circumstances.
Cesses
Cesses are leviable on some specified articles of exports like coffee, coir, lac,
mica, tobacco (unmanufactured), marine products cashew kernels, black
pepper, cardamom, iron ore, oil cakes and meals, animal feed and turmeric.
These cesses are collected as parts of Customs Duties and are then passed
on to the agencies in charge of the administration of the concerned
commodities.
Education cess on customs duty
An education cess has been imposed on imported goods w.e.f. 9-7-2004. The
cess will be 2% of the aggregate duty of customs excluding safeguard duty,
countervailing duty, Anti Dumping Duty.
Protective Duties
Tariff Commission' has been established under Tariff Commission Act, 1951.
If the Tariff Commission recommends and Central Government is satisfied
that immediate action is necessary to protect interests of Indian industry,
protective customs duty at the rate recommended may be imposed under
section 6 of Customs Tariff Act. The protective duty will be valid till the date
prescribed in the notification.
Countervailing duty on subsidised goods
If a country pays any subsidy (directly or indirectly) to its exporters for
exporting goods to India, Central Government can impose Countervailing duty
up to the amount of such subsidy under section 9 of Customs Tariff Act.
Anti Dumping Duty on dumped articles
Often, large manufacturer from abroad may export goods at very low prices
compared to prices in his domestic market. Such dumping may be with
intention to cripple domestic industry or to dispose of their excess stock. This
is called ‘dumping'. In order to avoid such dumping, Central Government can
impose, under section 9A of Customs Tariff Act, anti-dumping duty upto
margin of dumping on such articles, if the goods are being sold at less than its
normal value. Levy of such anti-dumping duty is permissible as per WTO
(world trade organisation) agreement. Anti dumping action can be taken only
when there is an Indian industry producing 'like articles'.
.
Safeguard duty
Central Government is empowered to impose 'safeguard duty' on specified
imported goods if Central Government is satisfied that the goods are being
imported in large quantities and under such conditions that they are causing or
threatening to cause serious injury to domestic industry. Such duty is
265
permissible under WTO agreement. Safeguard duty is a step in providing a
need-based protection to domestic industry for a limited period, with ultimate
objective of restoring free and fair competition
National Calamity Contingent Duty
A National Calamity Contingent Duty (NCCD) of customs has been imposed
vide section 129 of Finance Act, 2001. This duty is imposed on pan masala,
chewing tobacco and cigarettes. It varies from 10% to 45%. - - NCCD of
customs of 1% was imposed on PFY, motor cars, multi utility vehicles and
two wheelers and NCCD of Rs 50 per ton was imposed on domestic crude oil,
vide section 134 of Finance Act, 2003.
20.3.5 Rate of duty applicable
There are different rates of duty for different goods there are different rates of
duty for goods imported from certain countries in terms of bilateral or other
agreement with such countries which are called preferential rate of duties the
duty may be percentage of the value of the goods or at specified rate.
Provisions in respect of rate of duty are as follows:
Basic Customs duty - The rate of customs duty applicable will be as provided
in Customs Act, subject to exemption notifications, if any, applicable. In case
of imports from preferential area, the preferential rate is applicable, if
mentioned in the Tariff. It is needless to mention that if partial or full
exemption has been granted by a notification, the effective rate (as per
notification) will apply and not the tariff rate (as mentioned in Customs
Tariff).
Rate for additional duty - Rate for additional duty (CVD) will be as
mentioned in Central Excise Tariff Act, subject to any general exemption
notification. Any specific exemption notification (e.g. exemption to goods
manufactured by SSI unit or goods manufactured without aid of power) is not
considered while calculating CVD
CHECK YOUR PROGRESS
Activity C
Give the full form of the following words:
a) WTO
b) CVD
c) HNS
d) NCCD
e) CTA
20.4 Definitions and Concepts
266
Definitions concepts under the Customs Act
Bill of Entry
This is a very vital and important document which every importer has to
submit under section 46 Bill of Entry should be submitted in quadruplicate –
original and duplicate for customs, triplicate for the importer and fourth copy
is meant for bank for making remittances.
Baggage
The term has not been defined as such. However, following may be noted: (a)
Baggage means all dutiable articles, imported by passenger or a member of a
crew in his baggage (b) Un-accompanied baggage, if despatched previously or
subsequently within prescribed period is also covered (c) baggage does not
include motor vehicles, alcoholic drinks and goods imported through courier
(d) Baggage does not include articles imported under an import licence for his
own use or on behalf of others.
Customs Station
Imported goods are permitted to be unloaded only at specified places.
Similarly, goods can be exported only from specified area. In view of this, a
definition of ‘Customs Station’ is important. Customs Station means (a)
customs port (b) inland container depot (c) customs airport and (d) land
customs station
Customs area
Customs area means all area of Customs Station and includes any area where
imported goods or export goods are ordinarily kept pending clearance by
Customs authorities. Thus, ‘Customs Area’ could include some area even
outside the ‘Customs Station’.
Drawback
Drawback means the rebate of duty chargeable on any imported materials or
excisable materials used in manufacture or processing of goods which are
manufactured in India and exported.
ENTRY
Entry’ in relation to goods means an entry made in a Bill of Entry, Shipping
Bill or Bill of Export. It includes (a) label or declaration accompanying the
goods which contains description, quantity and value of the goods, in case of
postal articles u/s 82 (b) Entry to be made in case of goods to be exported (c)
Entry in respect of goods imported which are not accompanied by label or
declaration made as per provisions of section 84. [Section 2(16)].

268
(c) in relation to a railway train, the conductor, guard or other person having
the chief direction of the train;
(d) in relation to any other conveyance, the driver or other person-in-charge of
the conveyance. [2(31)]
Prohibited Goods
Prohibited Goods means any goods the import or export of which is subject to
any prohibition under this Act or any other law for the time being in force but
does not include any such goods in respect of which the conditions subject to
which the goods are permitted to be imported or exported have been complied
with. [2(33)]
Stores
Stores means goods for use in a vessel or aircraft and includes fuel and spare
parts and other articles of equipment, whether or not for immediate fitting.
[2(38)].
CHECK YOUR PROGRESS
Activity D
Explain the following key words in your own words
a) India
b) Import
c) Export
d) Goods
20.5 Classification and valuation
20.5.1Classification of goods
Classification of goods under a particular heading of the import Tariff
governed by a set of General Interpretative Rules, which form an integral part
of the CTA. As per these Rules, classification is to determine according to the
terms of the Headings or Sub-headings or Chapter Notes These Rules also
provide that completed unfinished article is to be classified as complete or
finished art. it has an essential character of the latter article. Similarly a con
finished article imported in an unassembled or disassembled condition to be
classified an complete or finished article and not as parts. The Rules also
269
provide for the Classification of mixtures and. composite goods consisting of
different materials or made to of different articles Once the classification is
determined under the Import Tariff, the determination classification under the
Central Excise Tariff for the p1irpos of levy of countervailing duty equal to
the excise duty is a simple affair as both the Tariff are, more or less, aligned
with the HSN.
20.5.2 Valuation of goods
Customs duty is payable as a percentage of ‘Value’ often called ‘Assessable
Value’ or ‘Customs Value'. The Value may be either (a) ‘Value’ as defined in
section 14 (1) of Customs Act or (b) Tariff value prescribed under section 14
(2) of Customs Act.
Tariff Value - Tariff Value can be fixed by CBE&C (Board) for any class of
imported goods or export goods. Government should consider trend of value
of such or like goods while fixing tariff value. Once so fixed, duty is payable
as percentage of this value. (The percentage applicable is as prescribed in
Customs Tariff Act).
Customs value as per section 14 (1) - Customs Value fixed as per section 14
(1) is the ‘Value’ normally used for calculating customs duty payable (often
called ‘customs value’ or ‘Assessable Value'.)
Section 14 (1) provide following criteria for deciding ‘Value’ for purpose of
Customs Duty:
• Price at which such or like goods are ordinarily sold or offered for sale
• Price for delivery at the time and place of importation or exportation
• Price should be in course of International Trade
• Seller and buyer have no interest in the business of each other or one
of them has no interest in the other
• Price should be sole consideration for sale or offer for sale
• Rate of exchange as on date of presentation of Bill of Entry as fixed
by CBE&C (Board) by Notification should be considered
This criterion is fully applicable for valuing export goods. However, in case of
imported goods, valuation is required to be done according to valuation rules
Valuation has to be on the basis of condition at the time of import – (a) CVD
should be levied on goods in the stage in which they are imported - stage
subsequent to processing of goods is not relevant - (b) It is well settled that the
imported goods have to be assessed to duty in the condition in which they are
imported.
270
Valuation Rules for imported goods
Valuation in Customs Act has to be done as per valuation rules. These rules
are based on ‘WTO Valuation Agreement’ (Earlier termed as GATT Valuation
Code). These rules are only for valuation of imported goods and not applicable
to export goods.
The value of imported goods for purposes of assessment of duly is determined
in accordance with the provisions of Section 14 of 1962 and the Customs
Valuation (Determination of Price of Imported Goods) Rules, 1988, which
were brought into force on 16th August, 1988
Rule 3(i) of the Valuation Rules provides that the value of imported goods
shall be the. ‘Transaction value’ under Rule 4 ‘Transaction value’ has been
defined as the price actually paid or payable for the goods when sold for
export to India, adjusted in accordance with the provisions of Rule 9. The
adjustments under Rule 9 provide, inter alia, the addition in all cases, of
freight and cost of insurance to the ‘transaction value’ if not already included
and also for the addition of loading, unloading and handling charges for
purposes of assessment. In other words, the assessable value is the safe. price
of the imported goods plus the landing charges subject to any other adjustment
which may be necessary under the provisions of Rule. If the value cannot be
determined under Rule 3(i), the value is to be determined under Rules 5 to 8,
which are required to be in that order.
The rate of exchange applicable for conversion of foreign currency in Indian
currency is the rate in force on the date of presentation of the Bill Entry under
Section 46. Such exchange rates are notified by the Govt. fro time to time by
notifications issued under clause a (i) of Section 14(3).
Customs Value – Inclusions
Some costs, services and expenses are to be added to the price paid or payable,
if these are not already included in the invoice price. Rule 9 of Customs
Valuation Rules provide that following cost and services are to be added –
• Commission and brokerage
• Cost of container, which are treated as being one with the goods for
customs purposes
• Cost of packing whether labour or materials
• Materials, components, tools, dies etc. supplied by buyer
• Royalties and license fees
• Value of proceeds of subsequent sales
• Other payment as condition of sale of goods being valued
• Cost of transport up to place of importation
• Landing charges
• Cost of insurance.
271
Exclusions from Assessable Value
Note to rule 4 provide that following charges shall be excluded:
• Charges for construction, erection, assembly, maintenance or technical
assistance undertaken after importation of plant, machinery or
equipment
• Cost of transport after importation
• Duties and taxes in India
Methods of Valuation for Customs
The Valuation Rules, 1988, based on WTO Valuation Agreement (earlier
GATT Valuation Code); consist of rules providing six methods of valuation.
The methods are:
(a) Transaction Value of Imported goods
(b) Transaction Value of Identical Goods (c) Transaction Value of Similar
Goods
(d) Deductive Value, which is based on identical or similar imported goods,
sold in India.
(e) Computed value, which is based on cost of manufacture of goods plus
profits
(f) Residual method based on reasonable means and data available.
These are to be applied in sequential order, i.e. if method one cannot be
applied, then method two comes into force and when method two also cannot
be applied, method three should be used and so on. The only exception is that
the ‘computed value’ method may be used before ‘deductive value’ method, if
the importer requests and Assessing Officer permits.
Transaction value of same goods: This is the first and primary method as
per rule 3 of Valuation Rules. As per rule 4(1), ‘transaction value’ of imported
goods shall be the price actually paid or payable for the goods when sold for
exported to India, adjusted in accordance with provisions of rule 9. [Rule 9
gives costs and services to be added to transaction value].
Transaction value of identical goods: Rule 5 of Customs Valuation Rules
provide that if valuation on the basis of ‘transaction value’ is not possible, the
‘Assessable value’ will be decided on basis of transaction value of identical
goods sold for export to India and imported at or about the same time, subject
to making necessary adjustments. Identical goods’ are defined under Rule
2(1)(c) as those goods which fulfil all following conditions i.e. (a) the goods
should be same in all respects, including physical characteristics, quality and
reputation; except for minor differences in appearance that do not affect value
of goods. (b) The goods should have been produced in the same country in
which the goods being valued were produced. (c) they should be produced by
same manufacturer who has manufactured goods under valuation - if price of
such goods are not available, price of goods produced by another manufacturer
in the same country.
272
Transaction value of similar goods: If first method of transaction value of
the goods or second method of transaction value of identical goods cannot be
used, rule 6 provide for valuation on basis of ‘Transaction value of similar
goods imported at or about the same time'.
Rule 2 (1) (e) define ‘similar goods’ as (a) alike in all respects, have like
characteristics and like components and perform same functions. These should
be commercially inter-changeable with goods being valued as regards quality,
reputation and trade mark. (b) the goods should have been produced in the
same country in which the goods being valued were produced. (c) they should
be produced by same manufacturer who has manufactured goods under
valuation - if price of such goods are not available, price of goods produced by
another manufacturer in the same country can be considered.
.
Deductive Value: Rule 7 of Customs Valuation Rules provide for the next i.e.
fourth alternative method, which is called ‘deductive method'. This method
should be applied if transaction value of identical goods or similar goods is not
available; but these products are sold in India. The assumption made in this
method is that identical or similar imported goods are sold in India and its
selling price in India is available. The sale should be in the same condition as
they are imported. Assessable Value is calculated by reducing postimportation
costs and expenses from this selling price. This is called
‘deductive value’ because assessable value has to be arrived at by method of
deduction (deduction means arrive at by inference i.e. by making suitable
additions/subtractions from a known price to arrive at required ‘Customs
Value').
.
Computed Value for Customs: If valuation is not possible by deductive
method, the same can be done by computing the value under rule 7A, which is
the fifth method. [This method has been added w.e.f. 24-4-95]. If the importer
requests and the Customs Officer approves, this method can be used before the
method of ‘deductive value'. In this method, value is the sum of (a) Cost of
value of materials and fabrication or other processing employed in producing
the imported goods (b) an amount for profit and general expenses equal to that
usually reflected in sales of goods of the same class or kind, which are made in
the country of exportation for export to India. (c) The cost or value of all other
expenses under rule 9 (2) i.e. transport, insurance, loading, unloading and
handling charges.
.
Residual Method: The sixth and the last method is called “residual method”.
It is also often termed as ‘fallback method’. This is similar to ‘best judgment
method’ of the Central Excise. This method is used in cases where ‘Assessable
Value’ cannot be determined by any of the preceding methods. While deciding
Assessable Value under this method, reasonable means consistent with general
provisions of these rules should be the basis and valuation should be on basis
of data available in India. This method can be considered if valuation is not
possible by any other method
In other words, selling price for export to India can alone form the basis.
(Thus, fixing ‘tariff value’ is really against this rule).
273
Valuation for Assessment of Export Goods
Customs value of export goods is to be determined under section 14 (1) of
Customs Act. Customs Valuation Rules are applicable only for imported
goods. Thus, Assessable Value of export goods shall be “deemed to be the
price at which such or like goods are ordinarily sold, or offered for sale, for
delivery at the time and place of exportation in the course of international
trade, where the seller and the buyer have no interest in the business of each
other or one of them has no interest in the other, and the price is the sole
consideration for the sale or offer for sale”.
Normally, ‘FOB Value’ of exports will be the basis. If the export sale contract
is a CIF contract, post exportation elements i.e. insurance and outward freight
will have to be deducted. However, now many instances have come to notice
where exported goods have been over-valued to get export benefits.
Valuation for CVD when goods are under MRP provisions –
In respect of some consumer goods, excise duty is payable on basis of MRP
(Maximum Retail Price) printed on the carton. If such goods are imported,
CVD will be payable on basis of MRP printed on the packing. However, it has
been clarified by DGFT vide policy circular No. 38(RE-2000) / 1997-2002
dated 22-1-2001 that labelling requirements for pre-packed commodities are
applicable only when they are intended for retail sale. These are not applicable
to raw materials, components, bulk imports etc. which will undergo further
processing or assembly before they are sold to consume.
CHECK YOUR PROGRESS
Activity E
Discuss whether the following cost and services are to be added to the value as
per rule 9 of Customs Valuation Rule
a) Camera
b) Necklace
c) Tools used in production of imported goods
d) Royalties
e) Insurance cost
f) Cost of design, plan and sketches
g) Cost of durable and re- usable containers
20. 6 LET US SUM UP
Customs duties levied by central government import of goods into, and export
of goods from, India. There are two basic acts under Customs Law namely
274
Customs Act 1962 and Customs Tariff Act 1975 various type of customs
duties are classified .in two groups –import duties and export duties section 12
of the CA, 1962 deals with the scope of these levies the section provides that
other provided in this act or any other law for the time being enforced duties
of custom should be levied at such rate as may be specified in the customs
tariff act 1975 on all goods imported into exported from India. Custom duty is
payable as a percentage of value often called assessable value or custom value.
Evaluation in custom act has to be done as per evaluation rules, which are
based on WTO evaluation agreement. These rules are applicable for imported
good not applicable to exported goods.
20.7 GLOSSARY
The various key words, which arise in this chapter, are
Ad –valorem Duty as a percentage of the value of goods
Assessments include provisional assessment, reassessment and any order of
assessment in which the duty assessed is nil.
Board means the Central Board of Excise and Customs constituted under the
Central Boards of Revenue Act, 1963. [2(6)1]
Duty means a duty of customs leviable under this Act.
Export Price means the price at which goods are exported. If the export
price is unreliable due to association or compensatory arrangement between
exporter and importer or a third party, export price can be constructed
(revised) on the basis of price at which the imported articles are first sold to
independent buyer or according to rules made for determining margin of
dumping.
Margin of dumping means the difference between normal value and export
price (i.e. the price at which these goods are exported).
Normal Value means comparable price in ordinary course in trade, for
consumption in the exporting country or territory. If such price is not available
or not comparable, comparable representative price of like article exported
from exporting country or territory to appropriate third country can be
considered. 9A (1) (c)
WTO World Trade Organization was an International forum for discussion
on custom and other related problems so that barriers to world trade are
removed
20.8 SELF ASSESSMENT EXCERSCISE
1) Write a short note on nature and scope of Customs Duty?
275
2) Explain the difference between “Territorial water “and “Customs
water” under Customs Act 1962?
3) Discuss in detail various type of duties levied on imports under
Customs A ct 1962?
4) Briefly examine the nature and significance of levy of Anti Dumping
Duty under Customs Act 1975?
5) What do you under stand by “ Transaction Value “ and enumerate the
various cost and services that are to be added to the Transaction Value
under rule 9 of Customs Valuation Rule 1988?
6) Explain the difference between identical goods and similar goods with
reference to custom valuation Rule 1988?
7) Write short note on the following:
a) Countervailing duty on subsided goods
b) Customs Tariff Act
c) Objects of customs duty
d) Classification of goods.
20.9 FURTHER READINGS AND SOURCES
Datey, V.S, 2005. Indirect Taxes, Taxmann Publisher, Delhi. Twentieth
Edition.
Sanjeev Kumar. 2005. Indirect Taxes, Bharat Law House, Delhi. Fifth
Edition.
As we know that customs Laws control the import of products into the United states of america and the duties (or import taxes) paid on these kinds of products. Well, i am also uploading a document which will give the more information on basics of custom law.
Attached Files
File Type: pdf CUSTOMS LAW.pdf (223.0 KB, 1 views)
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