UNIT IV
BASIC CONCEPTS OF CUSTOMS LAW
Section2 (28) reiterates that 'Indian Customs Waters' means the water extending into the sea up to the limit of the contiguous zone of India. Territorial waters stretch out up to 12 nautical miles from the standard on the shoreline of India.
The territorial sea is a maritime zone over which the United States exercises sovereignty. Sovereignty extends to the airspace above and to the seabed below the territorial sea. The U.S. territorial sea extends 12 nautical miles from the baseline.
High Sea Sales [HSS] is a common trade practice within four corners of law whereby the original importer of goods sells the subject goods to a third person before the goods are entered for customs clearance.
What is the benefit of high sea sales? The CENVAT credit in respect of CVD paid on import is entitled to High Sea buyer. High Sea Sales goods are entitled to classification, rates of duty and all notification benefits as would be applicable to similar import goods on normal sale.
Basic Customs Duty
Basic custom duty is the duty imposed on the value of the goods at a specific rate. The duty is fixed at a specified rate of ad-valorem basis. This duty has been imposed from 1962 and was amended from time to time and today is regulated by the Customs Tariff Act of 1975. The Central Government has the right to exempt any goods from the tax.
Countervailing Duty (CVD)
This duty is imposed by the Central Government when a country is paying the subsidy to the exporters who are exporting goods to India. This amount of duty is equivalent to the subsidy paid by them. This duty is applicable under Sec 9 of the Customs Tariff Act.
Additional Customs Duty or Special CVD
In order to equalize imports with locals taxes like service tax, VAT and other domestic taxes which are imposed from time to time, a special countervailing duty is imposed on imported goods. Hence, is imposed to bring imports on an equal track with the goods produced or manufactured in India. This is to promote fair trade & competition practices in our country.
Safeguard Duty
In order to make sure that no harm is caused to the domestic industries of India, a safeguard duty is imposed to safeguard the interest of our local domestic industries. It is calculated on the basis of loss suffered by our local industries.
Anti Dumping Duty
Often, large manufacturer from abroad may export goods at very low prices compared to prices in the 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 up to 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 agreement. Anti dumping action can be taken only when there is an Indian industry producing ‘like articles’.
National Calamity Contingent Duty
This duty is imposed by Sec 129 of the Finance Act. The duty is levied on goods like tobacco, pan masala or any items that are harmful for health. The rate of the tax varies from 10% to 45% and different rates are applied for different reasons.
Education Cess on Customs Duty
At the prescribed rate is levied as a percentage of aggregate duties of customs. 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 levied.
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.
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 CBI&C (Board) for any class of imported goods or export goods. CBI&C 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). Fixing tariff value is not permitted under GATT convention. However, the provision of fixing tariff values has been retained.
Once tariff value has been notified, customs duty cannot be paid on basis of transaction value – CC v. Ashirvad Udyog (2014) 43 GST 56 = 40 taxmann.com 449 (Mad HC DB).
Customs Valuation on basis of transaction value – Section 14(1) of Customs Act states that ‘value’ of imported and export goods will be ‘transaction value’ of such 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, or for export from India for delivery at the time and place of exportation, where the buyer and seller of the goods are not related and price is the sole consideration for the sale, subject to such other conditions as may be specified in the rules made in this behalf.
Accordingly, Customs Valuation (Determination of Value of Imported Goods) Rules, 2007 and Customs Valuation (Determination of Value of Export Goods) Rules, 2007 have been notified effective from 10-10-2007.
In Wipro Ltd. v. ACC (2015) 52 GST 47 = 58 taxmann.com 123 = 319 ELT 177 (SC), it has been held objective of section 14 of Customs Act is to accept actual cost paid or payable for customs valuation. Any fictional cost (like landing charges, insurance, freight etc.) can be added only when actual cost is not ascertainable. The intention of section 14 of Customs Act is to pay customs duty on price ‘actually paid or actually payable for the goods’.
Addition to transaction value – First proviso to section 14(1) states that such transaction value in the case of imported goods shall include, in addition to the price as aforesaid [i.e. as specified in section 14(1)], any amount that the buyer is liable to pay for costs and services, including commissions and brokerage, engineering, design work, royalties and licence fees, costs of transportation to the place of importation, insurance, loading, unloading and handling charges to the extent and in the manners specified in the Rules.
Though the proviso does not specifically say so, it is obvious that only those expenses which are relating to imported goods alone can be added.
Rate of foreign exchange – Third proviso to section 14(1) states that such price shall be calculated with reference to the rate of exchange as in force on the date on which a bill of entry is presented under section 46, or a shipping bill or bill of export, as the case may be, is presented under section 50. As per Explanation (a) to section 14(2), the rate of exchange will be determined by CBI&C or ascertained in such manner as CBI&C may direct.
Tariff value – Section 14(2) empowers CBI&C to fix tariff values of imported goods or export goods by issuing a notification.
Valuation Rules if transaction value is not determinable – If there is no sale or buyer or seller are related or price is not the sole consideration, value of the goods will be determined as per Valuation Rules [Clause (ii) of second proviso to section 14(1)].
On importation and exportation of goods there are following requirements regarding customs procedures.
a) Bill of loading/Seaway bill/Airway bill.
b) Commercial invoice, or similar information if invoice is not available.
c) Bills/invoices covering cost of delivery other than stated on the commercial invoice (freight, packing, insurance and forwarding charges and fees) in accordance with the customs value (cif on import, fob on export).
d) Other documentation if necessary to determine the goods.
e) Permits and certificates if necessary according to the legislation covering the respective commodities.
6. Clearance by customs authorities was computerised in 1988 and covers all importation aspects, f. ex. calculation of duties, manifest/inventory control, statistics, accounting and other fact-finding and control mechanics.
7. Electronic data interchange, EDI, in customs clearance has been introduced and covers about 98% of the decalations of import and export firms.
8. Clearance can be made through customs in some minuets if EDI is used but may take longer time if manually processed and then usually few hours.
9. Declarants can appeal against customs decisions to the local customs director if they believe that customs value, tariff heading or duties are wrongly levied by customs officers. They can reappeal to a special customs procedures committee which gives the final verdict.
10. Customs valuation procedures is based on WTO rules of valuation. Tariffs are applied to the c.i.f. value in imports and f.o.b. value in exports. The method of pre-shipment inspection is not practised in Iceland. In cases of fraude, valuation is somtimes optained with the assistance of customs outhorities of the orginating country.
11. Minimum prices or reference prices are not used as bases for customs valuation. Average prices for tariff headings and exporing country are somtimes used as guidance to discover discrepancies.
12. There are no special formalities for importation of goods other than mentioned before such as licences and special permits.
"Baggage" includes unaccompanied baggage but does not include motor vehicles.
Categories of exemptions
Exemptions can be broken down into two broad categories:
Temporary entry—There are various possibilities under which duty- and tax-free temporary entry may be granted for goods that are to be reexported. This would include, for example, goods for display at exhibitions and professional equipment, such as computers, television cameras, sports equipment, and means of transport.
Diplomatic goods—Goods designated by the Vienna Convention for use by diplomatic missions. Similar privileges are granted as well to United Nations agencies.
Individuals—Tourists and returning residents normally receive limited exemptions, which are granted primarily to ease the administrative burden of processing them through the border. Immigrants also receive some concessions to enable them to bring with them their household possessions.
2. Exemptions with specific economic and social objectives
Discretionary exemptions— These are exemptions introduced on an essentially ad hoc basis (an example being the exemption by several African countries of inputs into HIV-controlling drugs).
Foreign financed aid or investment projects—Often as a condition of a loan or an aid agreement, projects financed by international institutions (such as the World Bank) or under bilateral agreements must be granted exemption from duty and tax.
Investment code—In order to attract investment, duty- and tax-free entry of the goods to support the investment may be granted.
Humanitarian aid—Humanitarian aid intended to relieve suffering or consequences of natural disasters may be granted exemption.
Government purchases—In a number of instances, governments exempt their own purchases.
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