Basic Concepts Of Customs Law – Advanced Tax Laws and Practice Important Questions
Question 1.
Write a short note on the Basic Customs Duty.
Answer:
Basic customs duty is levied under section 12 of the Customs Act, 1962 read with section 2 of the Customs Tariff Act, 1975. The 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. The rates of Customs duty are specified in the First and Second Schedule of Section 2 of Customs Tariff Act, 1975 (First Schedule enlist the goods liable to import duty and Second Schedule enlist the goods liable to export duty).
There are different rates for different goods but the merit rate is generally 7.5%. Basic duty may be exempted, wholly or partially, with or without any conditions, by a notification under section 25 of the Customs Act, 1962. Basic Customs Duty is also exempted upfront or through drawback mechanism where the imported goods are meant for re-export or for use in the manufacture of export goods. The basic customs duty may have two rates: (A) Standard rates (B) Preferential rates:
(A) Standard Rates: Standard rate is charged where there is no provision for preferential treatment.
(B) Preferential Rates: If the goods are imported from the area notified by the Government as preferential area duty to be charged at preferential rates. Preferential rate is applied only where the owner of the article (importer) claims at the time of importation, with supporting evidence, that the goods are chargeable with the preferential rate of duty, and if the importer fails to claim with supporting evidence then duty to be charged as standard rates. Basic Customs Duty is not creditable against any tax or duty, whatsoever.
Question 2.
Explain the concept of “Import” and “importer”, with reference to the provisions of the Customs Act, 1962.
Answer:
As per section 2(23) of the Customs Act, 1962, the term import refers to bringing into India from a place outside India. Import of goods into India commences when the goods enter the territorial waters of India but get completed only when the goods become part of the mass of goods within the country. As per section 2(26) of the Customs Act, 1962, importer, in relation to any goods at any time between their importation and the time when they are cleared for home consumption, includes any owner, beneficial owner, or any person holding himself out to be the importer.
Question 3.
Write a short note on the taxable event for levy of import duty under Customs Act, 1962 giving reference of decided case law if any.
Answer:
In Garden Silk Mills Ltd. v. UOI 1999 SC ELT 358, the Supreme Court held the import of goods in India commences when the goods enter into ter¬ritorial waters of India but continue and are completed when goods become part of the mass of goods within the country. The taxable event is at the time when the goods reach the customs barrier and the bill of entry for home consumption is filed. In the case of warehoused goods, the goods continue to be in customs hands. Hence, the import takes place only when goods are cleared from the warehouse for home consumption by filing an ex-bond bill of entry.
Question 4.
Distinguish between “First Appraisement and Second Appraisement.”
Answer:
First Appraisement or goods-based assessment means assessment of goods after the goods are examined. This system is resorted to only in exceptional cases where it is not possible for the Appraiser to determine the value or classification of the goods or for any other reason on the basis of the documents as produced by the importers. Second Appraisement or document-based means making the assessment on the basis of the declaration made by the importers on the strength of documents such as invoice, catalog, literature showing the composition and use, price lists, etc., as produced by the importers. Under this system, the goods are examined after assessment and collection of duty.
Question 5.
What is the meaning of the terms Derelict, Jetsam, Flotsam, and Wreck used under Customs law?
Answer:
Derelict – This refers to any cargo, vessel, etc. abandoned in the sea with no hope of recovery.
Jetsam – This refers to goods jettisoned from the vessel to save from sinking. ;4 “Jettisoned” connotes the action of throwing goods overboard to lighten £ the load of the ship if it is in danger of being sunk.
Flotsam – Jettisoned goods that continue floating in the sea are called “p flotsam.
Wreck – This refers to cargo or vessel or any property which are cast ashore by tides after the shipwreck.
Question 6.
What is the difference between clearance for home consumption and clearance for warehousing under Customs law?
Answer:
Clearance for home consumption implies that the customs duty on import of the goods has been discharged and the goods are cleared for utilization/home consumption. The goods may instead of being cleared for home consumption be deposited in a warehouse and cleared at a later time. When the goods are deposited in the warehouse the collection of customs duties will be deferred till such goods are cleared for home consumption. The importer of the goods requires to execute a bond for a sum thrice the amount of duty assessed on the goods at the time of import of goods. The importer is also liable to pay interest, rent, and charges for the storage of goods in a warehouse.
Question 7.
Briefly Explain
- Bill of entry;
- Kinds of bills of entry;
- Basic documents to be filed along with the bill of entry.
Answer:
(1) A Bill of Entry is a statement of the nature and value of goods to be imported or exported, prepared by the shipper, and presented to a custom house. The Bill of Entry inter alia has columns for indicating the description of goods, value, quantity, marks and numbers, country of origin, etc.
(2) There are three kinds of Bills of Entry viz,
- Bill of Entry for Home-consumption (White Colour)
- Warehousing (into-Bond) Bill of Entry (Yellow Colour)
- Bill of Entry for Clearance ‘Ex-Bond’ (Green Colour).
The home-consumption Bill of Entry which is printed on white paper is referred to as “white Bill of Entry”, the “into Bond” or “Warehousing Bill of Entry” is printed on yellow paper and “ex-bond” is printed on green paper. Each Bill of Entry has to be filed in quadruplicate. The columns in the original are printed in black, in blue in duplicate, and in violet in triplicate, and in green in quadruplicate.
(3) The following basic documents are to be filed along with the Bill of Entry:
- Invoice.
- Indent and acceptance correspondence pertaining to the Imported goods.
- Bill of Lading in respect of sea-consignments/Airway Bill in respect of Air Consignments.
- Letter of credit or Bill of exchange.
- Insurance policy or Insurance certificate.
- Import license (Customs purpose copy).
- Small Scale Industries Certificate in respect of Imports sought to be covered under free goods and Imports subjected to Actual Users (AU) conditions.
- Catalog, drawing, write-up, analysis certificate as the case may be, in respect of the goods sought to be cleared.
- Any other connected/relevant document.
Question 8.
State with brief reasons, whether the following statements are true or false in the light of provisions contained in Customs Act, 1962:
- Customs area includes a warehouse (3 Marks)
- A beneficial owner of imported goods is a person on whose behalf the goods are being imported.
Answer:
(1) True.
The definition of the customs area as provided under section 2(11) of the Customs Act, 1962 has been amended vide the Taxation Laws (Amendment) Act, 2017 to include within its ambit a warehouse also. Consequent to the above, the customs area is now defined to mean the area of a customs station or a warehouse and includes any area in which imported goods or export goods are ordinarily kept before clearance by customs authorities.
(2) True.
Subsequent to the insertion of new section 2(3A) in the Customs Act, 1962 vide the Finance Act, 2017, the beneficial owner has been defined to mean any person on whose behalf the goods are being imported or exported or who exercises effective control over the goods being imported or exported.
Question 9.
In the context of the ‘Clear first, pay later’ concept evolved under the customs law, state the objectives of the concept and the persons who are eligible to avail this facility.
Answer:
“Clear first, Pay later” concept under customs laws
(A) Objectives
- “Clear first, pay later” is a mechanism facilitating deferred payment of customs duty.
- It is a mechanism that delinks duty payment and customs clearance.
- The aim is to have a seamless wharf to warehouse transit in order to facilitate just-in-time manufacturing. This scheme is in force w.e.f. 16th November 2016.
- It is a trade facilitation move wherein benefits are extended to the entities who have demonstrated strong internal control sys¬tems and willingness to comply with the laws administered by the CBEC.
Eligible Persons
- Central Government has permitted importers certified under the Authorized Economic Operator program as AEO (Tier-Two) and AEO (Tier-Three) being eligible importers to make deferred payment of import duty under the clear first, pay later mechanism.
- The CBEC has rolled out the AEO (Authorized Economic Operator) program, as a part of the ease of doing business focus of the Government of India.
Question 10.
With reference to recent amendments made (Vide Finance Act, 2017) in the Customs Act, 1962, examine the validity of the following statements:
- A beneficial owner of imported goods is a person on whose behalf the goods are being imported but cannot be exported.
- The Customs area does not include a warehouse.
- Customs station includes international courier terminal but does not include the foreign post office.
Answer:
(1) The statement is invalid: A new section 2(3A) has been inserted in the Customs Act, 1962 vide the Finance Act, 2017 to define beneficial owner 7 means any person on whose behalf the goods are imported or exported or “ who exercise effective control over the goods being imported or exported.
(2) The statement is invalid: Section 2(11) of Customs Act, 1962 has been amended to include a warehouse within the customs area.
(3) The statement is invalid: The Finance Act, 2017 has included international courier terminals and foreign post offices within the scope of customs I station as defined under section 2(13) of Customs Act, 1962.
Question 11.
Raj Bihari Ltd., an importer of goods, had filed a bill of entry after 60 days of the filing of the Import General Manifest. The Deputy Commissioner of Customs imposed a penalty of ₹ 10,000 for the delayed filing of the bill of entry. Since Raj Bihari Ltd., the importer, wanted to clear the goods being urgently required, they have paid the amount of penalty of ₹ 10,000. In this backdrop, you are required to examine the issue (i) regarding the period available for filing the bill of entry (if) whether a penalty is imposed for delayed filing of the bill of entry, and (iii) whether a bill of entry can be filed in advance, in the context of the provisions contained under the Customs Act, 1962.
Answer:
Bill of Entry under customs law
(i) As per Section 46(3) of the Customs Act, 1962, the time limit for filing a bill of entry is before the end of the next day following the day (excluding holidays) on which the aircraft/vessel/vehicle carrying the goods arrives at a customs station at which such goods are to be cleared for home consumption or warehousing.
(ii) As per Regulation 3 of Bill of Entry (Electronic Integrated Declaration and Paperless Processing) Regulations, 2018, where the bill of entry is not filed within the time specified in Section 46(3) of the Customs Act, 1962 and regulations made thereunder and the proper officer of Customs is satisfied that there was no sufficient cause for such delay, the importer shall be liable to pay charges for late presentation of the bill of entry at the rate of rupees five thousand per day for the initial three days of default and at the rate of rupees ten thousand per day for each day of default thereafter. Provided that where the proper officer is satisfied with the reasons for the delay, he may waive off the charges.
In the present case, Raj Bihari Ltd. has filed the bill of entry late and therefore, shall be subject to charges @ ₹ 5,000 per day for 3 days and thereafter @ ₹ 10,000 per day. As such, there is no provision under the Customs Act where under penalty can be levied for delay in the filing of the Bill of Entry. Thus, the penalty imposed by the Deputy Commissioner of Customs cannot sustain.
Question 12.
Shandaar Scraps Ltd., imported during October 2018 by the sea a consignment of metal scrap weighing 7,000 M.T. (metric tonnes) from the U.S.A. They filed a bill of entry for home consumption. The Assistant Commissioner passed an order for clearance of goods and applicable duty was paid by them.
Shandaar Scraps Ltd. thereafter found, on taking delivery from the Port Trust Authorities (i.e., before the clearance for home consumption), that only 6,400 M.T. of scrap were available at the docks although they had paid duty for the entire 7,000 M.T. since there was no short-landing of cargo. The short-delivery of 600 M.T. was also substantiated by the Port-Trust Authorities, who gave a “weighment certificate” to Shandaar Scraps Ltd. On filing a representation to the Customs Department, Shandaar Scraps Ltd. has been directed in writing to justify as to which provision of the Customs Act, 1962 governs their claim for remission of duty on the 600 M.T. not delivered by the Port-Trust.
You are approached by Shandaar Scraps Ltd. as “Counsel” for an opinion/ advice. Examine the issues and tender your opinion as per Customs Act, 1962, giving reasons in brief and the provisions of the Customs Act, 1962.
Answer:
Remission of Customs duty As per the provisions of section 23 of the Customs Act, 1962 where it is shown to the satisfaction of the Assistant Commissioner of Customs or Deputy Commissioner of Customs that any imported goods have been lost (otherwise than as a result of pilferage) or destroyed, at any time before clearance for home consumption, the Assistant Commissioner of Customs or Deputy Commissioner of Customs shall remit the duty on such goods. Therefore, the duty shall be remitted only, if the loss has occurred before clearance for home consumption.
In the given case, it is apparent from the facts that the quantity of scrap received in India was 7000 metric tonnes and 600 metric tonnes thereof was lost when it was in the custody of Port Authorities i.e. before clearance for home consumption was made. The loss of 600 MT of scrap cannot be construed to be pilferage, as loss of such a huge quantity cannot be treated as “Petty Theft”.
Hence, the company is being advised to take shelter under section 23 justifying his claim for remission of duty on the goods short supplied by the Port Trust Authorities as per the certificate issued.
Question 13.
GP Scraps, imported during August 2018, by sea, a consignment of metal scrap weighing 8,000 M.T. from China and filed a bill of entry for home consumption. The Assistant Commissioner passed an order for clearance of goods and applicable duty was paid on the goods. GP Scraps thereafter found, on taking delivery from the Port Trust Authorities (i.e. before the clearance for home consumption), that only 7,500 M.T. of scrap was available at the docks, although they had paid duty for the entire 8,000 M.T., as there was no short-landing of cargo had been indicated. The short-delivery of 500 M.T. was also substantiated by the Port-Trust Authorities, who gave a “weighment certificate” to GP Scraps.
On filing a representation to the Customs Department, GP Scraps has been directed by the Department in writing to justify as to which provision of the Customs Act, 1962 governs their claim for remission of duty on the 500 M.T. not delivered by the Port-Trust to them. You are approached by GP Scraps as ‘Counsel’ for an opinion/advice. Examine the issues and tender your opinion as per law, giving reasons.
Answer:
Remission of Customs duty
As per the provisions of section 23 of the Customs Act, 1962 where it is shown to the satisfaction of the Assistant Commissioner of Customs or Deputy Commissioner of Customs that any imported goods have been lost (otherwise than as a result of pilferage) or destroyed, at any time before clearance for home consumption, the Assistant Commissioner of Customs or Deputy Commissioner of Customs shall remit the duty on such goods. Therefore, the duty shall be remitted only, if the loss has occurred before j clearance for home consumption.
In the given case, it is apparent from the facts that the quantity of scrap received in India was 8000 metric tons and 500 metric tons thereof was lost when it was in the custody of Port Authorities i.e., before clearance for home consumption. The loss of 500 M.T of scrap cannot be construed to be pilferage, as loss of such huge quantity cannot be treated as “Petty Theft”.
Hence, GP Scraps is being advised to take shelter under section 23 of Customs Act, 1962 justifying its claim for remission of duty on the goods short; supplied by the Port Trust Authorities as per the certificate issued.
Question 14.
What is the difference between Section 13 and Section 23 of the Customs Act, 1962?
Answer:
Section 13 of Customs Act, 1962 covers the situation of “pilferage of the goods” and Section 23 of Customs Act, 1962 covers “loss of goods” and these are quite different as explained by the table below:
| Basis | Section 13 | Section 23 |
| Meaning | Pilfer means to steal, especially in small quantities | Words lost or destroyed refers to “total loss” of goods |
| Duty | Duty | Duty if already paid, it will be remitted |
| Restoration | If goods are restored after pilfer-age, importer is liable to pay Duty | Restoration is not possible |
| Warehousing provisions | Do not apply to this section | Apply to this section |
| Onus to prove | Does not lie on importer as it comes during examination of officer | Has to prove |
| Time of occurrence | After unloading but before order for clearance | Before clearance for home consumption |
Question 15.
What do you mean by the following specific terms used within the meaning of the Customs Act, 1962?
- Adjudicating Authority
- Baggage
- Coastal goods
- Beneficial Owner
- Customs Area
Answer:
(1) “Adjudicating Authority” means any authority competent to pass any order on decision under this Act, but does not include the Board, Commissioner (Appeals), or Appellate Tribunal.
(2) “Baggage” includes unaccompanied baggage but does not include motor Vehicles [Section 2(3)]
(3) “Coastal Goods” means goods, other than imported goods, transported in a vessel from one port in India to another [Section 2(7)]
(4) “Beneficial Owner” means any person on whose behalf the goods are being imported or exported or who exercised effective control over the goods being imported or exported [Section 2 (3A)]
(5) “Customs Area” means the area of a customs station and includes any 2 areas in which imported goods or export goods are ordinarily kept before T clearance by customs Authorities, Customs area includes workhouse [Section 2(11)]
Question 16.
What do you understand with the term “Container” used under Customs Act, 1962?
Answer:
Word ‘container’ is not defined in the Customs Act. In a normal sense,
1. A container is simply a box. It is no more complex than a truck body, a railway freight van, or a ship’s hold. Containers are made of aluminum, steel, fiberglass, or plywood for lightness with steel frames to give strength. Standard sizes for containers are 40, 20, or 10 feet long, 8 ft, wide, and 8 ft, in height. Some have open tops or sides for loading special cargo.
2. Liquids are carried in boiler-shaped tanks surrounded by a rectangular framework.
3. Other containers are insulated or refrigerated and are constructed according to International standards and inspected by Insurance companies.
Question 17.
What do you mean by the following specific terms used within the meaning of the Customs Act, 1962:
- Appellate Tribunal
- Bill of entry
- Bill of export
- Smuggling
- Proper officer.
Answer:
- “Appellate Tribunal” means the Customs, Excise and Service Tax Appellate Tribunal constituted under section 129 of the Customs Act, 1962;
- “Bill of entry” means a bill of entry referred to in section 46 [Section 2(4)] used for clearance of imported goods;
- “Bill of export” means a bill of export referred to in section 50 [Section 2(5)] submitted by the exporter for export of goods by land route;
- “Smuggling”, in relation to any goods, means any act or omission which will render such goods liable to confiscation under section 111 or section 113 [Section 2(39)];
- “Proper Officer”, in relation to any functions to be performed under this Act, means the officer of customs who is assigned those functions by the Board or the Commissioner of Customs [Section 2(34)];
Question 18.
What do you understand by the expressions “India” and “Indian Customs Waters” under the Customs Law? Are there any differences between “Indian territorial waters” and “Indian customs waters”? Explain the significance of Indian customs waters under Customs Law.
Answer:
As per section 2(27) of the Customs Act, 1962, “India” includes the territorial waters of India. Further, “Indian customs waters” means the waters extending into the sea up to the limit of contiguous zone of India under section 5 of the Territorial Waters, Continental Shelf, Exclusive Economic Zone, and other Maritime Zones Act, 1976 (80 of 1976) and includes any bay, gulf, harbor, creek or tidal river [Section 2(25)].
The concept of territorial waters and Indian customs waters are different for the purpose of Customs law. Territorial waters extend up to twelve nautical miles from the baseline on the coast of India.
Indian customs waters extend up to the contiguous zone of India which is twenty-four nautical miles from the nearest point of baseline. Thus, Indian customs waters extend up to twelve nautical miles beyond territorial waters. The significance of Indian customs waters is that the Customs Officer has powers to arrest a person; to stop and search any vessel; to confiscate a vessel concealing goods; to search any person onboard any vessel and; to confiscate goods in these waters. Marine police can go only up to 12 nautical miles whereas customs officers j have extended mileage up to 24 nautical miles.
Question 19.
State the relevant dates for determination of the rale of duty and tariff value for imports.
Answer:
The relevant date for determination of the rate of duty and tariff value (Section 15):
- In case of goods entered for home consumption under section 46 – the date on which bill of entry is presented or the date of entry inwards whichever is later.
- In case of goods cleared from a warehouse under section 68 – the date on which a bill of entry for home consumption is presented.
- In case of any other goods – the date of payment of duty.
Question 20.
Distinguish between Transit and Transshipment of goods under Customs Act, 1962.
Answer:
The basic difference between transit and transshipment is that in ‘transit’ goods continue to be on the same vessel, while in transshipment, goods are transferred to another vessel/vehicle. Section 53 of Customs Act, 1962 dealing with transit provide that any goods imported in any conveyance will be allowed to remain on the conveyance and to be transited without payment of customs duty, to any place out of India or any customs station. However, all these goods must be mentioned in the import manifest or import report submitted by the person in charge of the conveyance
Under section 54 of Customs Act, 1962 Transshipment means transfer from one conveyance to another (the conveyance may be vehicle, ship, or aircraft). Such transshipment may be to any major port or airport in India. The following points detail the distinction between transit and transshipment:
| Transit of goods | Transshipment of goods |
| Goods are lying in the ship at an intermediate port. | Goods are transferred to the intermediate port. |
| Only import manifest has to be submitted for entry. | Bill of transshipment/declaration is also required for transshipment. |
| Transit is allowed in every port normally. | Transshipment is allowed in specified ports only. |
| No supervision is required for transit goods. | Transshipment takes place under the supervision of a proper officer. |
| No additional conditions or formalities are required. | Specific conditions are imposed if goods are deliverable at an Indian port |
| Only one conveyance is involved in transit goods and the same carry the goods to the port of clearance. | At least two conveyances are involved in transshipment and the transferee ship reaches the destination port |
Basic Concepts Of Customs Law Notes
- Levy of Customs duty: It 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.
- Relevant date for determination of the rate of duty and tariff valuation
- Provisions regarding duty on “Pilfered goods”
- Provisions relating to duty on “Derelict”, “Jetsam”, “Flotsam” or “Wreck” goods brought or coming to India.
- Provisions relating to abatement of duty on damaged or deteriorated goods.
- Remission of duty on goods lost, destroyed or abandoned
- Right to relinquish the title to the goods – abandonment of goods
- Exemption from customs duty