Contents

ACKNOWLEDGEMENT.................................................................................................................................3
RESEARCH METHODOLOGY.........................................................................................................................5
INTRODUCTION...........................................................................................................................................6
LEVY OF CUSTOM DUTIES............................................................................................................................7
PROVISIONS REGARDING EXEMPTION FROM CUSTOM DUTIES..................................................................9
Ad hoc exemptions..................................................................................................................................9
Exemption for past general practice......................................................................................................10
Project Imports......................................................................................................................................10
Free Trade Agreements (FTA)................................................................................................................11
REFUND OF CUSTOM DUTIES....................................................................................................................13
CONCLUSION.............................................................................................................................................15
BIBLIOGRAPHY:..........................................................................................................................................16

RESEARCH METHODOLOGY
Aims and Objective of the Study:
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The objective of this project is to throw light on the concept of exemptions from custom duties.
Research Question:
1. Why Custom Duty is levied?
2. Why there are exemptions from custom duties?
Research Methodology:

The researcher has used descriptive methodology of research for analyzing the various
provisions relating to incomes not included in the total income in India. The researcher will
going through Act, Article, Journals and web search for the purpose of analyzing various
provisions.

Sources of data:

In this research the researcher will rely upon the primary sources which includes the bare act of
income tax. The researcher will also rely upon the secondary sources which includes book
available in the library and article from various journals and also internet sources.

INTRODUCTION

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The Custom duty derived its value from the word “custom” under which whenever a merchant
entered a Kingdom with his merchandise, he had to give some gift to the king. Subsequently, this
custom formalized into the levy of custom duty or tax on goods imported into and exported from
the country was organized through various laws during the British period.

Custom Duty is an indirect tax, imposed under the Customs Act formulated in 1962. The power
to enact the law is provided under the Constitution of India under the Article 265, which states
that no tax shall be levied or collected except by authority of law‖. Entry No. 83 of List I to
Schedule VII of the Constitution empowers the Union Government to legislate and collect duties
on import and exports. The Customs Act, 1962 is the basic statute which governs entry or exit of
different categories of vessels, aircrafts, goods, passengers etc., into or outside the country.

The Act extends to the whole of the India. It is a type of indirect tax levied on goods imported
into India as well as on goods exported from India. Taxable event is import into or export from
India. India includes the territorial waters of India which extend upto 12 nautical miles into the
sea to the coast of India.

In India, the basic law for levy and collection of customs duty is Customs Act, 1962. It provides
for levy and collection of duty on imports and exports, import/export procedures, prohibitions on
imports and exports of goods, penalties, offences, etc. The Central Board of Excise & Customs
(CBEC) is the apex body for customs matters.

It besides raising revenue for the Central Government also helps the government to prevent the
illegal imports and illegal exports of goods from India. The Central government has emergency
powers to increase import or export duties whenever necessary after a notification in the session
of Parliament.

Section 12 of the Custom Act provides that duties of customs shall be levied at such rates as may
be specified under the Customs Tariff Act, 1975 or other applicable Acts on goods imported into
or exported from India.

LEVY OF CUSTOM DUTIES

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The basis of levy of tax is specified in Section 12, charging section of the Customs Act. It
identifies the person or properties in respect of which tax or duty is to be levied or charged.
Under assessment, the liability for payment of duty is quantified and the last stage is the
collection of duty which is may be postponed for administrative convenience. As per Section 12,
customs duty is imposed on goods imported into or exported out of India as per the rates
specified under the Customs Tariff Act, 1975 or any other law. On analysis of Section 12, we
derive the following points:

(i) Customs duty is imposed on goods when such goods are imported into or exported out of
India;

(ii)The levy is subject to other provisions of this Act or any other law;

(iii) The rates of Basic Custom Duty are as specified under the Tariff Act, 1975 or any
other law;

(iv) Even goods belonging to Government are subject to levy, though they may be
exempted by notification(s) under Section 25.

TAXABLE EVENT

The basic condition for levy of customs duty is import/export of goods i.e. goods become liable
to duty when there is import into or export from India.

— Import means bringing into India from a place outside India1.

— Export means taking out of India to a place outside India2.

"India" includes the territorial waters of India [Section 2(27)]. The limit of the territorial waters
is the line every point of which is at a distance of twelve nautical miles from the nearest point of
the appropriate baseline.

Though the taxable event is import/export yet it is difficult to determine the exact time of levy.
As per section 12, Customs duties are levied on the goods imported into, or exported from, India

1
Section 2(23) in the Customs Act, 1962
2
Section 2(18) in the Customs Act, 1962
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at the rates specified in the schedules to the Customs Tariff Act, 1975. The first schedule
prescribed the rates of duty on imports and Second schedule prescribe the rates of duty on
exports.

Provisions under IGST Act, 2017 Applicable for imported goods: Through ordinance, The
President of India extended the Act to the state of Jammu & Kashmir also with effect from 8th

July, 2017. Accordingly, goods imported into India are now subjected to IGST, not CVD
(Counter Vailing Duty) and Special CVD. However, petroleum products and tobacco products
are outside the scope of GST and hence CVD and special CVD are applicable to them as usual.
Relevant Provisions under IGST Act: As per section 5 of the IGST Act that Subject to the
provisions of subsection (2), there shall be levied a tax called the integrated goods and services
tax on all inter-State supplies of goods or services or both, except on the supply of alcoholic
liquor for human consumption, on the value determined under section 15 of the Central Goods
and Services Tax Act and at such rates, not exceeding forty per cent., as may be notified by the
Government on the recommendations of the Council and collected in such manner as may be
prescribed and shall be paid by the taxable person. 3

Provided that the integrated tax on goods imported into India shall be levied and collected in
accordance with the provisions of section 3 of the Customs Tariff Act, 1975 on the value as
determined under the said Act at the point when duties of customs are levied on the said goods
under section 12 of the Customs Act, 1962. The integrated tax on the supply of petroleum crude,
high speed diesel, motor spirit (commonly known as petrol), natural gas and aviation turbine fuel
shall be levied with effect from such date as may be notified by the Government on the
recommendations of the Council.

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 PROVISIONS REGARDING EXEMPTION FROM CUSTOM
DUTIES
Some exemptions from duties are provided in Customs Act, while some are provided in
Customs Tariff Act. Besides, Central Government can grant partial or full exemption from
duty under section 25 of Customs Act.

Exemptions by Notification - Section 25(1) of Customs Act 1962 authorize Central

Government to issue notifications granting exemptions from duty. Such exemption may be
unconditional or subject to conditions. Such conditions may be required to be fulfilled before
or after clearance. Government can also grant exemption by a special order in exceptional
circumstances. The exemption notification should be published in gazette. The notification
can be issued only in 'public interest'.

Some provisions are similar to Central Excise provisions - Following provisions discussed
under Central Excise are applicable under Customs Act too (a) Method of granting exemption
is similar (b) Different Form and method is permitted under section 25(3) of Customs Act. (c)
Notification should be in 'public interest' (d) Different exemptions to different categories or
classes permissible (e) No exemption with retrospective effect (f) Notification to be placed
before Parliament (g) Interpretation of notification (h) Effective date of exemption (i)
Exemptions have full statutory force (j) Estoppel in exemption notification, (k) Exemption by
special order can be under section 25(2) of Customs Act - similar to section 5 A(2) of Excise
Act. All these are discussed in detail under Central Excise and hence are not reproduced here
for sake of brevity.

Exemption to minor amounts of customs duty - Customs duty is not payable if amount of
duty is Equal to or less than Rs 1004.

Ad hoc exemptions
Section 25(2) of Customs Act permits Government to issue ad hoc exemption from customs
duty by issue of a special order in exceptional circumstances. The order should specify the
exceptional circumstances for granting ad hoc exemption. [Similar provision in section 5A(2)

4
Section 25(6) in the Customs Act, 1962

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of Central Excise Act]. - - It has been clarified that such exemption can be granted even after
duty is paid. In such case, duty has to be refunded.5

Exemption for past general practice

If there was past general practice of exempting certain goods from customs duty, but later it
is discovered that, in fact, customs duty was payable, Government can grant exemption with
retrospective effect. - Section 28A of Customs Act.6

Project Imports
Heavy Customs duty on imported machinery for projects make the initial project cost very
high and project may become unviable. Hence, concept of 'project Import' has been
introduced to bring machinery etc. required for initial setup or substantial exemption at
concessional customs duty.

The goods are classified under heading 9801, though the machinery and its parts may actually
fall under different tariff heading. This simple method is adopted, as otherwise, classifying
each machinery and its parts in different heads and valuing them would have been
cumbersome and would have delayed clearances, which would cause demurrages.7

Duty payable on project Imports - Duty on project imports is basic 5% plus CVD plus
education cess of customs and excise. Duty for mega power projects, nuclear power projects
and water supply projects for agricultural & industrial use is Nil.

General customs duty rate is 10%. Hence, project imports are attractive for large projects.

Items eligible for Project Imports - The items eligible are specified in heading 9801 of
Customs Tariff Act The projects eligible are: (1) Industrial Plant (2) Irrigation Project (3)
Power Project (4) Mining Project (5) Project for oil or mineral exploration (6) Other projects
as may be specified by Central Government.

Registration of Contract - Contract for import has to be registered with Customs.

Application for registration of Contract must be made before importation and contract must
be registered before order for clearance of goods is made from Customs. The contract can be
amended if required.

5
MF(DR) circular No 12/97-Cus dated 12.5.1997.
6
https://www.cbic.gov.in/htdocs-cbec/customs/cst1920-010919/csgen-expemtns-idx-0109
7
Chapter 5 Para 1 of CBE&C's Customs Manual, 2001.

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Free Trade Agreements (FTA)
India has free trade agreements (FTA) with various countries. FTA is an arrangement
between two or more countries to reduce tariffs and non-tariff barriers on mutual agreement
basis. -

Biggest FTA is EU (European Union) which consists of 27 European countries. Others are
(a) Gulf Cooperation Council (GCC) of seven Gulf nations (b) Association of South-east
Asian Countries (ASEAS) (c) MERCOSUR - Southern Common Market (Argentina, Brazil,
Paraguay and Uruguay).

Important regional groupings as far as India is concerned are as follows —

APTA - Asia Pacific Trade Agreement (APTA) consisting of Bangladesh, China, India,
Republic of Korea and Sri Lanka

BIMSTEC - Bangladesh, India, Myanmar, Sri Lanka, Thailand Economic Cooptation (also
includes Bhutan and Nepal)

IBSA - India, Brazil and South Africa

SAFTA - South Asia Free Trade Agreement (India, Pakistan, Nepal, Sri Lanka, Bangladesh,
Bhutan and Maldives).

Such FTAs are actually against basic principle of WTO but are being allowed under WTO
Article XXIV with some conditions.

In addition, India has FTA with Singapore, Sri Lanka, MERCOSUR, Afghanistan, Chile and
South Korea. India has Treaty of Trade with Nepal and Bhutan.

Preferential Rates of Customs Duty

Some countries have been declared as 'preferential areas'. These are - Mauritius Seychelles
and Tonga. Goods manufactured and produced in these countries are eligible for preferential
rate of duty under section 4 of Customs Tariff Act. Customs Tariff Act provides two columns
- one for 'Standard rate' and other for 'Preferential Area'.

Control over end use exemptions

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Sometimes, concession or exemption from customs duty is subject to condition in respect of
end use. Sometimes, the exemption or concession is subject to condition that the imported
goods should be used for manufacture in India of an excisable commodity. In such cases, the
control over the end use will be exercised by Assistant Commissioner of Cent Excise having
jurisdiction over the factory of manufacturer. [These provisions are applicable only in respect
of certain specified exemption notifications].

The manufacturer intending to avail the benefit has to register with jurisdictional Assistant
Commissioner of Central Excise, by applying in prescribed form. He has to execute a bond a
give an undertaking that the imported goods shall be used for the intended purpose.

He has to submit a monthly return in prescribed form within 10 days of the following month
to AC/DC.

The manufacturer-importer has to maintain accounts of the imported goods received. If the
goods are not used for intended purposes, he will take steps for recovery of the differential
duty leviable. The differential duty is required to be paid along with interest at the rate fixed
u/s 28AB of Customs Act.8

8
Customs (Import of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods) Rules, 1996.

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 REFUND OF CUSTOM DUTIES

REFUND OF EXPORT DUTY IN CERTAIN CASES9

Where on the exportation of any goods any duty has been paid, such duty shall be refunded to
the person by whom or on whose behalf it was paid, if -

(a) the goods are returned to such person otherwise than by way of re-sale;

(b) the goods are re-imported within one year from the date of exportation; and

(c) an application for refund of such duty is made before the expiry of six months from
the date on which the proper officer makes an order for the clearance of the goods.

REFUND OF IMPORT DUTY IN CERTAIN CASES10

Section 26A provides for refund of import duty in certain cases.

As per sub section (1) of section 26A, where on the importation of any goods capable of
being easily identified as such imported goods, any duty has been paid on clearance of such
goods for home consumption, such duty shall be refunded to the person by whom or on
whose behalf it was paid, if;

(a) the goods are found to be defective or otherwise not in conformity with the
specifications agreed upon between the importer and the supplier of goods:

However, no duty shall be refunded where the goods have been worked, repaired or used
after importation except where such use was indispensable to discover the defects or non-
conformity with the specifications.

(b) the goods are identified to the satisfaction of the Assistant Commissioner of Customs
or Deputy Commissioner of Customs as the goods which were imported;

(c) the importer does not claim drawback under any other provisions of this Act; and

(d) (i) the goods are exported; or

(ii) the importer relinquishes his title to the goods and abandons them to customs; or

9
Section 26 in the Customs Act, 1962
10
Section 26A in the Customs Act, 1962

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 (iii)such goods are destroyed or rendered commercially valueless in the presence of the
proper officer, in such manner as may be prescribed and within a period not exceeding
thirty days from the date on which the proper officer makes an order for the clearance of
imported goods for home consumption under section 47:

The period of thirty days may be extended by the Commissioner of Customs for a period not
exceeding three months where sufficient cause being shown (first proviso to section 26A).

However, these provisions shall not apply to the goods regarding which an offence appears to
have been committed under this Act or any other law for the time being in force (Second
proviso to section 26A).

An application for refund of duty shall be made before the expiry of six months from the
relevant date in such form and in such manner as may be prescribed [section 26(2)].

As per section 26(3), no refund shall be allowed in respect of perishable goods and goods
which have exceeded their shelf life or their recommended storage-before-use period.11

Section 26(4) provides that the Board may, by notification in the Official Gazette, specify any
other condition subject to which the refund under sub-section (1) may be allowed.

11
The Customs Refund Application (Form) Regulations, 1995 issued vide notification no. 34/95(NT)-Customs,
dated 26/5/1995

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 CONCLUSION

Hence by seeing above we can conclude that Custom duty is a variant of Indirect Tax and is
applicable on all goods imported and a few goods exported out of the country. Duties levied
on import of goods are termed as import duty while duties levied on exported goods are
termed as export duty. Countries around the world levy custom duties on import/export of
goods as a means to raise revenue and/or shield domestic institutions from predatory or
efficient competitors from other countries.

Custom duty in India is defined under the Customs Act, 1962 and enables the government to
levy duty on exports and imports, prohibit export and import of goods, procedures for
importing/exporting and offences, penalties etc. All matters related to custom duty fall under
the Central Board of Excise & Customs (CBEC). The CBEC, in turn, is a division of the
Department of Revenue of the Ministry of Finance. CBEC formulates policies that concern
collection or levying of custom duties, custom duty evasion, smuggling prevention and
administrative decisions related to customs formations.

Hence we can say that it is a type of indirect tax, which is levied on products imported into a
country across the borders of its territory. For example, goods being imported into India from
other countries are charged with Basic Customs Duty, Integrated Goods and Services Tax and
other applicable duties.

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 BIBLIOGRAPHY:
PRIMARY SOURCES-

Statue-

1) Customs Act, 1962

2) Custom Tariffs Act, 1975
3) The Central Excise Act, 1944

SECONDRY SOURCES-

Books-

 Datey V.S (2010) Indirect Taxes, Taxman Publications, New Delhi.

 GST And Customs Law: 2018-19, CA Anoop Modi, CA Mahesh Gupta – 2018
 Customs Law Practice & Procedures, V. S. Datey, Taxmann, 2016

WEBSITES-

 https://www.cbic.gov.in/
 http://albinet.com/

 http://biztaxlaw.about.com/

 http://epaper.timesofindia.com/
 https://www.hostbooks.com

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