An Authorized Economic Operator (AEO) is a business entity involved in international movement of goods approved by or on behalf of national administration in compliance with the supply chain security standards of World Customs Organization (WCO) or equivalent. The security standards are detailed in World Customs Organisation Safe framework of standards [WCO SAFE FoS], which is the basis of the Indian AEO programme.

The AEO programme enables Customs administration to identify the safe and compliant business entity in order to provide them a higher degree of assured facilitation. This segmentation approach enables Customs resources to focus on less or non-compliant or risky businesses for control. Thus, the aim of AEO programme is to secure the international supply chain by granting recognition to reliable operators and encouraging best practices at all levels in the international supply chain. Through this programme, the Customs shares its responsibility with the businesses, while at the same time rewarding them with a number of additional benefits.

The Indian Customs AEO programme has the following objectives:

• To provide business entities with an internationally recog - nized certification; • To recognize business entities as “secure and reliable” trading partners

• To incentivize business entities through defined benefits that translate into savings in time and cost;
• Secure supply chain from point of export to import;
• Ability to demonstrate compliance with security standards when contracting to supply overseas importers / exporters;
• Enhanced border clearance privileges in Mutual Recognition Agreement (MRA) partner countries;
• Minimal security related disruption to flow of cargo;
• Reduction in dwell time and related costs

Under the scheme, the exporters and importers are given three tiers (AEO-Tier1, AEO-Tier-2 and AEO-Tier 3) of recognition based on the robustness of their internal control systems. Other economic operators such as logistics service providers, custodians, terminal operators, customs brokers and warehouse operators are given AEO-LO certificates. A business authorized by the Customs as an AEO can enjoy benefits flowing from being a more compliant and secure company as well as favourable consideration in any Customs proceedings coupled with better relations with Customs. AEO status will also ensure that a low risk score is incorporated into Customs Risk Management System‟ (RMS) and used to determine the frequency of Customs physical and documentary checks. The benefits also include simplified Customs procedure, declarations, etc. besides faster Customs clearance of consignments of/for AEO status holders.

To get recognition as AEO, the importer/exporter or any other economic operator entities that satisfy the specified eligibility criteria have to make an application in the prescribed form. Detailed guidelines are laid down for grant of AEO recognitions. AEO- Tier 1 recognition is granted on the basis of the declarations made. AEO- Tier 2 and AEO-LO recognitions are granted after due verification and physical verification by the AEO Programme Team by visiting the concerned places/premises of the applicant and found to be true to the satisfaction of the AEO Programme Manager. AEO-Tier 3 recognition is granted to the economic operator that has continuously enjoyed the status of AEO-Tier 2 for at-least a period of two years preceding the date of application for grant of AEO-Tier 3 status or to AEO-T2 certificate holder whose business partners namely importers or exporters, logistics service providers, custodians, terminal operators, customs brokers and warehouse operators are holders of AEO-LO certificate or any other equivalent AEO certificate granted by a foreign Customs.

AEO entities get recognised as ‘secure entities’ by Customs administrations in some other countries.

The Authorized Economic Operator (AEO) scheme seeks to provide tangible benefits in the form of faster Customs clearances and simplified Customs procedures to those business entities who offer a high degree of security guarantees in respect of their role in the supply chain.

The facilities to AEO Tier 1 entity include Direct Port Delivery (DPD) of their import Containers and/or Direct Port Entry (DPE) of their Export Containers, Identity Cards ID to their authorized personnel for hassle free entry to Custom Houses, CFSs and ICDs., separate space earmarked in custodian’s premises (whenever feasible), , reduced quantum (50%) of bank guarantee than that required to be furnished by an importer/exporter who is not an AEO certificate holder, completion of investigations, if any, in respect of GST, Customs, erstwhile Central Excise and Service Tax cases, dispute resolution at the level of Adjudicating Authorities in respect of GST, post clearance audit once in three years, e-mail intimation regarding arrival/ departure of the vessel carrying their consignments, 24/7 clearances on request at all sea ports and airports, waiver of merchant overtime fees, advance authorisation on self declaration and self ratification basis, exemption from drawing samples for the purpose of grant of drawback etc.

For AEO – Tier 2 entities, all the above facilities would be available besides the facilities of deferred payment of duty, waiver of verification of seals/documents, 25% (instead of 50%) bank guarantee, priorities in clearances and faster processing of documents and drawback claims, quicker completion of Special Branch (‘SVB’) proceedings in case of related party imports, facility to paste MRP stickers in their premises and so on.

AEO – Tier 3 entities will be accorded highest level of facilitation, as compared to AEO-T2, in imports and export of their consignments. They will not be required to bank guarantees.

Logistic Service Providers, getting recognition as AEO-LO get facility of execution of running bond waiver of bank guarantee in case of trans-shipment of goods under Goods imported (Condition of Trans-shipment) Regulations, 1995, exemption from permission on case to case basis in case of transit of goods. The facility of ramp to ramp or tail to tail transfer of cargo without Customs escorts, in case of international transshipped cargo (Foreign to Foreign), for the presorted containers wherein Cargo does not require segregation.

Custodians or Terminal Operators, holding recognitions as AEO-LO get the facility of waiver of bank guarantee under Handling of Cargo in Customs Area Regulations 2009 (HCCAR) and extension of approval for custodians under regulation 10(2) of the HCCAR 2009 for a period of 10 years

Customs Brokers, certified as AEO-LO get the facility of waiver of bank guarantee to be furnished under regulation 8 of the Customs Brokers Licensing Regulations, 2018 (CBLR 2018), extended validity (till validity of AEO status) of licenses granted under regulation 9 of the CBLR 2018 and waiver from fee for renewal of license under sub regulation (2) of regulation 11 of CBLR 2013.

Warehouse Operators, holding recognition as AEO-LO get the facility of faster approval for new warehouses within 7 days of submission of complete documents, waiver of antecedent verification envisaged for grant of license for warehouse, waiver of solvency certificate requirement, waiver of security for obtaining extension in warehousing period and waiver of security required for warehousing of sensitive goods.

With a view to promote an overall voluntary compliance framework, the selection of AEO’s for on-site post clearance audit (OSPCA) in respect of AEO –Tier 1, AEO –Tier 2 and AEO –Tier 3 shall be based on risk assessment. Better and higher compliance level demonstrated by the AEO shall be taken into account for determining the frequency of audit. AEOs undergoing OSPCA shall not be subjected to routine transactional Post Clearance Audit (PCA).

Anti dumping duty is levied under Section 9A of the Customs Tariff Act, 1975 to counteract/remove the trade distortion caused by dumping and consequential injury to the domestic industry, after due investigations by the Designated Authority, the Director General of Trade Remedies.

Dumping occurs when an exporter abroad exports goods to India at a price lower than the normal value. Normal value is the comparable price at which the goods under complaint/investigation are sold, in the ordinary course of trade, in the domestic market of the exporting country. If domestic price in the exporting country is not available, normal value may be determined by ascertaining comparable representative export price to an appropriate third country or constructed normal value based on the cost of production in the country of origin with reasonable addition for administrative, selling and general costs and reasonable profits. The export price means the price at which the goods are exported to India - generally the CIF value minus the adjustments on account of ocean freight, insurance, commission, etc.

The margin of dumping is the difference between the normal value and the export price of the goods under complaint - generally expressed as a percentage of the export price.

The investigations focus on whether there is:

• dumping
• material injury to the domestic industry; and
• a causal link between dumping and material injury i.e. whether dumped imports have caused material injury.

Broadly, the parameters by which injury to the domestic industry is assessed include the magnitude of dumping, and the decline in sales, selling price, profits, market share, production, utilization of capacity etc.

Non-Injurious Price (NIP) is that level of price, which the industry is, expected to have charged under normal circumstances in the Indian market during the period defined - price that would have enabled reasonable recovery of cost of production and profit after nullifying adverse impact of those factors of production which could have adversely affected the company.

Besides the calculation of the margin of dumping, the Designated Authority also calculates the Injury Margin for the Domestic Industry i.e. the difference between the Non-Injurious Price due to the Domestic Industry and the Landed Value of the dumped imports. Landed Value for this purpose is taken as the Customs assessable value plus the applicable Basic Customs Duty.

The causal link is to be established generally in terms of volume and price effects of dumped imports on domestic industry. The volume effect relates shrinkage in the market share of the domestic industry whereas the price effect relates to significant drop in domestic prices. Anti-dumping duty levied shall be lesser of the margin of dumping or the margin of injury.

Any exporter whose margin of dumping is less than 2% of the export price and any developing country that accounts for less than 3% (maximum 7% from all such countries) of imports of like product are excluded.

If the exporter concerned furnished an undertaking to revise his price to remove the dumping or the injurious effect of dumping, no anti-dumping duty may be imposed.

Provisional anti-dumping duty can be levied based on preliminary investigations and final anti-dumping duty may be levied after conclusion of the investigations and recommendations of the Designated Authority. Usually, anti-dumping duty is levied for a period of five years and continued thereafter if dumping persists. Anti-dumping duty is exempted on imports by export oriented units and Special Economic Zone units and imports under advance authorizations. However, this exemption must be surrendered, if the same goods or the finished goods manufactured from such imported inputs are sold in the domestic market.

In exercise of powers granted under Section 7 of the Customs Act, 1962 the Central Board of indirect Taxes and Customs (CBIC) has appointed Customs ports, airports, Land Customs Stations (LCS) and Inland Container Depots (ICD) where alone the imported goods can be unloaded or export goods loaded. Also routes have been specified for carrying out trade with neighbouring countries like Nepal. Foreign Post Offices and International Courier Terminals for clearance of imported goods or export goods have also been similarly notified.

Where Customs ports or airports, ICDs LCSs are notified, every jurisdictional Commissioner of Customs, in exercise of the powers granted under Section 8 of the Customs Act, 1962, has approved specific places where alone the loading and unloading operations can take place and also specified the limits of the Customs area where the imported goods or the export goods must be ordinarily kept before clearance by the Customs authorities.

Under Section 45 of the Customs Act, 1962 Custodians have been appointed by the jurisdictional Commissioners under whose custody the imported goods shall remain in the ports/airports/ICDs/LCSs till these are cleared for home consumption, or are warehoused or transshipped as provided in the law. In addition to custodians appointed by the Commissioner of Customs, the Customs Act, 1962 recognizes other custodians as provided under any other law. For instance, the Mumbai Port Trust is a legal custodian under the Major Ports Trust Act, 1963. The cargo handling and custody at the international airports is generally entrusted to International Airport Authority of India (IAAI), but there is an increasing trend of IAAI leasing such facility to private sector or even direct entry of private sector in this area.

The custodian is essentially required to take charge of the imported goods from the carrier, arrange its proper storage and safety and allow clearance to the importers only after they fulfill all Customs formalities, pay requisite duties and other charges/fees and discharge various other obligations. No goods can be cleared from a Customs area without the express permission of Customs. Moreover, since the Customs Act, 1962 obliges the custodians to ensure safe custody of the imported goods till delivery, in case these goods are pilfered while in custody, the custodian is required to pay duty on such goods.

In exercise of the powers granted under Section 141(2) of the Customs Act, 1962, the Central Government has notified the Handling of Cargo in Customs Areas Regulations, 2009 to prescribe the responsibilities of persons engaged in receipt, storage, delivery, despatch and other handling of cargo in the customs area. Regulation 2(b) defines ‘Customs Cargo Services provider’ (CCSP) as any person responsible for receipt, storage, delivery, dispatch or otherwise handling of imported goods and export goods and includes a custodian as referred to in section 45 of the said Act and persons as referred to in sub-section (2) of section 141 of the said Act.

The said Regulations deal with the conditions to be fulfilled by CCSP, their responsibilities, procedure for approval of CCSP, review, suspension and revocation of approval for appointment of a CCSP etc.. The idea is to ensure that CCSP have adequate infrastructure and cargo handling experience and capabilities, they provide adequate security arrangements to ensure there is no pilferage/theft of the cargo and arrangements of loading and unloading of cargo at different berths in various docks besides their movement to different places including container yards/storage godowns etc., they scrupulously observe all the provisions of law and maintain proper records and facilitate and bear the cost of supervision of their activities by the Customs officers

To regulate and have effective control on imports and exports the Customs Act, 1962 enjoins certain liabilities on the carriers. Thus, they have to bring in the cargo imported into the country for unloading only at notified ports/airports/Land Customs Stations and furnish detailed information to Customs about goods brought in for unloading at that particular port/international airport as also those which would be carried further to other ports/airports.

Declaration of such cargo has to be made in an Import General Manifest (IGM) prior to arrival of the vessel/aircraft at the Customs station. In the case of imports through Land Customs Stations the person in charge of the vehicle has to give similar Import Report (IR) within 12 hours of its arrival. IGM/IR has four parts – cargo for home clearance, cargo for transshipment to other ports, ship stores (that maybe partly consumed within the country before the vessel/aircraft leaves the country) and same bottom cargo (that will remain in the vessel and leave the country when the vessel/aircraft leaves the country).

Since the cargo clearance formalities are linked generally with the availability of information about cargo being brought by a vessel/aircraft/vehicle for unloading at any port/airport/LCS, provisions are also made for prior filing of an IGM/IR if all details of relevant cargo for any port are available even before the vessel/aircraft/LCS arrives. The final IGM/IR can be filed after arrival of the vessel/aircraft/vehicle After the IGM is duly delivered, entry inwards for vessels is granted by the Customs. The date of grant of entry inwards is critical for determination of rate of duty, where the bill of entry is filed by the importer before arrival of the vessel. After the IGM/IR is filed and the arrival of the vessel/aircraft/vessel at the port/airport/LCS, the unloading takes place under the supervision of the Preventive Officers of Customs The law prohibits unloading of any goods at a Customs station, which is not mentioned in the IGM/IR.

Similarly, there are restrictions on loading for export such that no vessel/aircraft/vehicle can begin loading goods for export unless intimation is given to Customs and its permission for loading obtained - what is also called ‘Let Export Order’(LEO) on the shipping bill. Loading of cargo on vessels/aircrafts/vehicles is checked and supervised by Preventive Customs Officers who ensure that cargo loaded has complied with the prescribed Customs formalities such as payment of duties or cess, where leviable, any other formalities enjoined by the law, and authorization for exports is duly given by the proper officer as a part of Customs clearance formalities.

The person in charge of the vessel/aircraft is required to furnish details of all the goods loaded on a vessel/aircraft in a prescribed form, which is termed 'Export General Manifest‟ (EGM). Similarly, the person in charge of a vehicle must furnish a similar report called “Export Report‟. The EGM/Export Report is to be furnished before the vessel/aircraft/vehicle departs and is essentially taken as the proof of shipment/export.

Unless, the IGM/IR is furnished in the prescribed form, no unloading of cargo can be undertaken from any vessels/aircrafts/vehicles in normal circumstances. Naturally, the importers cannot get clearance from the Customs or get delivery of imported cargo unless IGM/IR is filed. Similarly, unless EGM/Export Report is filed, the benefits such as Duty Drawback will not be disbursed to exporters. Thus filing IGM/EGM/IR/ER are essential tasks that are usually done by agents of the shipping lines/airlines/transport operators.

The Customs officers are empowered to enter any vessel/aircraft/vehicle for search, put any questions to the person in charge of the conveyance and seize the conveyance under certain circumstances.

Customs clearance over the years has undergone a paradigm shift from a dedicated focus on duty/revenue to trade facilitation, regulatory compliance and intelligent enforcement. The imported and export goods are released based on the declarations and self-assessment of the importer/exporter while presenting the Bill of Entry or Shipping Bill. These are subjected to verification i.e. audit of the legal compliance and correct assessment. So, Audit Commissionerates have been set up in Chennai, Delhi and Mumbai Zone-I with all India jurisdictions.

Section 99A of Customs Act, 1962 and Customs Audit Regulations, 2018 (CAR) provide the statutory framework for conducting post clearance audit. As per CAR “audit” includes examination or verification of declaration, record, entry, document, import or export licence, authorisation, scrip, certificate, permission etc., books of account, test or analysis reports, and any other document relating to imported goods or export goods or dutiable goods, and may include inspection of sample and goods, if such sample or goods are available and where necessary, drawl of samples. Further, “auditee” means a person who is subject to an audit under Section 99A and includes an importer or exporter or Custodian or licensee of a warehouse and any other person concerned directly or indirectly in clearing, forwarding, stocking, carrying, selling or purchasing of imported goods or export goods or dutiable goods. Further, “premises” includes the registered office, branch office, warehouse, factory, or any other premises at which, imported goods or export goods or dutiable goods or books of account or records of transaction or other related documents, in relation to the said goods are ordinarily kept, for any purpose by an auditee.

‘Risk based selection’ is at the core of Customs Audit. CAR prescribes that the selection of auditee or the selection of import/export declarations or export declarations, for the purposes of audit, shall primarily be based on risk evaluation through appropriate selectivity criteria. It also prescribes the manner of conducting audit at the premises of importer/exporter and stipulates the responsibilities and compliance on the part of auditee.

The auditee must preserve and on request by the proper officer make available in a timely manner, for the purposes of audit, true and correct information, records including electronic records, documents or accounts maintained in compliance of the provisions of the Act/Rules/Regulations, made there under or any other law for the time being in force, maintained for a minimum period of five years in relation to imported/export/dutiable goods. He must render assistance to the proper officer or his team of officers in the discharge of their official duty and shall in no case refuse or obstruct them in discharge of their official duty.

The proper officer may, request the auditee to furnish documents, information or record including electronic record, as may be relevant to audit. He must give at least fifteen days advance notice to the auditee to conduct audit at the premises of the auditee. He may, inspect the imported/export/dutiable goods at the premises of the auditee and request the auditee to produce samples, if available, with him. He must inform the auditee of the objections, if any, before preparing the audit report to provide him an opportunity to offer clarifications with supporting documents. If he is of the opinion that the audit has to be done with the assistance of a professional like Chartered Accountant, Cost Accountant, an expert in the field of computer sciences or information technology etc., he may do so, with the previous approval of higher authorities. He must complete audit in cases where it is conducted at the premises of the auditee within thirty days from the date of starting of the audit. This period can be extended to sixty days by the jurisdictional Commissioner of Customs.

Where the auditee is in agreement with the audit findings, he may make voluntary payments of duty/interest/other sums, due, if any, in part or full and the proper officer must record the same in the audit report.

The Customs Audit Manual 2018 explains in details the principles, methodology and procedures for conducting three types of customs audit i.e Transaction Based Audit (TBA), Theme Based Audit (Thba) And Premises Based Audit (PBA), which should be referred to for more details about Customs Audit.

• Determine the assessable value in accordance with Section 14 of the Custom Act, 1962.
• Classify the goods at Schedule 1 of the Customs Tariff Act, 1975 and ascertain the tariff rate applicable.
• Look for exemption notifications. If any notification is available that prescribes any conditions, examine if the conditions can be fulfilled. If the exemption is unconditional or if the conditions can be fulfilled, apply the effective rate (i.e. tariff rate read with exemption notification).
• If the effective rate is specific, apply the specific rate of duty. If it is ad valorem, apply the rate as a percentage of assessable value to determine the Basic Customs Duty.
• If the item attracts Health Cess, check if any exemption is available. If available, apply the effective rate of Health Cess taking into account the exemption; otherwise, apply the full rate of Health Cess (5% at present).
• Apply the Road and infrastructure Cess at the specific rate prescribed read with any exemption notification.
• Apply the National Calamity Contingency Duty (NCCD) at the specific rate prescribed, after taking into account any exemptions.
• Check exemptions available for Social Welfare Surcharge. If available, apply the effective rate taking into account the exemption. Otherwise apply the full rate (10% at present). The Surcharge is collected as a percentage of the aggregate of Basic Customs Duty, Health Cess, Road and Infrastructure Cess and NCCD
• For items that attract excise duty under Schedule IV of the Central Excise Act, 1944, work out the excise duty rate read with any exemption notification. Apply the effective excise duty rate as Additional Duty of Customs under Section 3(1) of the Customs Tariff Act, 1975 (known as CVD) taking into account any exemption for CVD notified under Section 25 of the Customs Act, 1962. The rate of duty is to be applied on the aggregate of assessable value plus basic customs duty, Health Cess, Road and Infrastructure Cess, NCCD and Social Welfare Surcharge.
• On items covered under Schedule IV of the Central Excise Act, 1944, apply the effective Special Additional Duty of Customs under Section 3(5) of the Customs Tariff Act, 1975 (known as SAD) taking into account any exemption notified under Section 25 of the Customs Act, 1962. The rate of duty (4% at present) must be applied on the aggregate of assessable value, basic customs duty, Health Cess, Road and Infrastructure Cess, NCCD Social Welfare Surcharge and CVD.
• Look for notifications under Section 3 (3) of the Customs Tariff Act, 1975 and apply the notified rate read with any exemption notification.
• On items that attract Anti-dumping Duty notified under Section 9A of the Customs Tariff Act, 1975 apply the duty rate as notified.
• On items that attract Safeguard Duty notified under Section 8B of the Customs Tariff Act, 1975 apply the duty rate notified.
• On items that attract Countervailing Duty notified under Section 9 of the Customs Tariff Act, 1975 apply the duty rate notified.
• For items that attract Integrated Goods and Services Tax (IGST) under the Integrated Goods and Services Tax Act, 2017, work out the IGST rate read with any exemption notification. Apply the effective IGST rate as Additional Duty of Customs under Section 3 (7) of the Customs Tariff Act, 1975 taking into account any exemption for IGST notified under Section 25 of the Customs Act, 1962. The rate of duty is to be applied on the aggregate of assessable value, basic customs duty, Health Cess, Road and Infrastructure Cess, NCCD, Social Welfare Surcharge and any anti-dumping/safeguard/countervailing duty.
• On items that attract Goods and Services Tax Compensation Cess under the Goods and Services Tax (Compensation to States) Act, 2017, work out the Compensation Cess rate read with any exemption notification. Apply the effective Compensation Cess Rate as Additional Duty of Customs under Section 3 (9) of the Customs Tariff Act, 1975 taking into account any exemption for Compensation Cess notified under Section 25 of the Customs Act, 1962. The rate of duty must be applied on the aggregate of assessable value, basic customs duty, Health Cess, Road and Infrastructure Cess, NCCD, Social Welfare Surcharge and any anti-dumping/safeguard/countervailing duty.

Normally, imported goods are classified separately under different tariff headings and assessed to applicable Customs duty, but as a variety of goods are imported for setting up an industrial project their separate classification and valuation for assessment to duty becomes cumbersome. Therefore, to facilitate smooth and quick assessment by a simplified process of classification and valuation, the goods imported under Project Import Scheme are placed under a single Tariff Heading 9801 in the Customs Tariff Act, 1975 and assessed to uniform rate of duty. The Project Import Regulations, 1986 prescribe the procedures for effecting imports under this scheme.

The different projects to which heading 9801 applies include irrigation projects, power projects, mining projects, oil/mineral exploration projects, etc. Such an assessment is also available for an industrial plant used in the process of manufacture of a commodity. The Central Government can also notify projects in public interest keeping in view the economic development of the country to which this facility will apply. Thus, a number of notifications have been issued notifying a large number of projects for assessment under Tariff Heading 9801. However, this benefit is not available to hotels, hospitals, photographic studios, photographic film processing laboratories, photocopying studios, laundries, garages and workshops. This benefit is also not available to a single or composite machine.

Goods that can be imported under Project Import Scheme include machinery, prime movers, instruments, apparatus, appliances, control gear, transmission equipment, auxiliary equipment, equipment required for research and development purposes, equipment for testing and quality control, components, raw materials for the manufacture of these items, etc. and spare parts, consumables up to 10% of the assessable value of goods.

The purposes for which such goods can be imported under the Project Import Scheme are for “initial setting up” or for “substantial expansion” of a unit of the project. The “unit” is any self-contained portion of the project having an independent function in the project. A project would fall under the category of “substantial expansion” if the installed capacity of the unit is increased by not less than 25%.

For assessment under 9801, the importer must apply for registration of his contracts with foreign suppliers at the Customs House through which the goods are expected to be imported by submitting the prescribed documents. After registration, the Customs will allow clearances under 9801 by granting provisional assessment on the bills of entry, where need be by accepting a bond. The importer should use the goods in the specified project and within the time granted after last clearance and submit a reconciliation statement to the Customs showing how the imported goods have been used. The Customs may, if need be after plant site verification and after satisfaction that the goods have been used for the stated purpose finalize the assessment.

All goods imported by a passenger or a member of crew in his baggage are classifiable under Tariff Heading 9803 and levied to a single rate of duty. Such goods need not be classified separately in the Tariff. However, Tariff Heading 9803 does not apply to motor vehicles, alcoholic drinks, goods imported through courier service and goods imported by a passenger or a member of the crew under an import license.

All goods imported by Post or Air for personal uses are classifiable under a single Tariff Heading 9804 and levied to duty accordingly. This heading has two subheadings, one for drugs and medicines and the other, to the balance of items so imported. Motor vehicles, alcoholic drinks, goods imported through courier and goods imported under import license cannot be classified under this heading.

For assessment of duty on imported and export goods, it is necessary to determine the classification of the goods, which basically means the location of the goods in a specific entry in the Schedules to the Customs Tariff Act, 1975, which contains two Schedules. The First Schedule is based on the Harmonized Commodity of Nomenclature (HSN) and Coding System developed by the World Customs Organization (WCO) which is applied uniformly by more than 137 countries the world over. The Second Schedule contains description of goods chargeable to export duty. As the nomenclature also specifies the Customs duty rates (Tariff), it is called the “Indian Customs Tariff” or “Tariff Schedule”.

The First Schedule has 21 Sections and 98 Chapters. Section is a group consisting of a number of Chapters which codify a particular class of goods. The Section notes explain the scope of chapters/headings, etc. The Chapters consist of chapter notes and brief description of commodities arranged at four digit, six digit and eight digit levels. Every four-digit code is called a “heading”, every six digit code a “subheading” and every 8-digit a “Tariff Item”. The Tariff Schedule is arranged in the ascending order of natural products, raw materials, semi finished goods and fully finished goods/article/machinery, etc.

For purposes of uniform interpretation of the HSN, the WCO has published detailed Explanatory Notes to various headings/subheadings. This forms the basis for interpreting the HSN. These Notes provide useful guidelines for classifying goods.

The process of arriving at a particular heading/subheading code, either at four digit, six digit or eight digit level for a commodity in the Tariff Schedule is called “classification”. The titles of Sections, Chapters and Sub-chapters are provided for ease of reference only. For legal purposes the texts of the Section Notes, Chapter Notes, Subheading Notes, Supplementary Notes, Headings, Subheadings, and the General Rules for Interpretation of Import Tariff (GIR) should be relied upon to determine the classification of an item. The GIR is a set of 6 rules for classification of goods in the Tariff Schedule that have to be applied sequentially.

While classifying goods, the foremost considerations are “statutory definition” and any guideline provided by HSN Explanatory Notes. In their absence, the cardinal principle would be the way goods are known in “common parlance”. The “trade meaning” is given due importance unless the Tariff itself requires the terms to be interpreted in a strict technical sense in which case technical dictionaries should be used. Meanings given in common dictionary or technical dictionaries will have limited application. Further, in matters of classification the quality of goods, whether prime or defective is not material. The rate of duty specified in the Tariff Schedule is called “Tariff rate of duty”. The Tariff rate read with any exemption notification gives the effective rate of duty for determining the Basic Customs Duty (BCD).

The rates of Integrated GST, which is to be levied on the imported goods, are also aligned at 4 digit level of Tariff Schedule.

The Central Board of Indirect Taxes and Customs (CBIC) issues Tariff Advices in the form of circulars/instructions to ensure uniformity in classification of goods at an All India level. There are many case laws also on classification. In case of doubt, a binding ruling from Advance Ruling Authority can be sought.

The First Schedule provides specific headings for goods imported under Project Import Scheme, goods imported by post and goods imported as baggage in Chapter 98 under which they will be classified straightaway even if they are covered elsewhere.

The Export Tariff Schedule mentions only the commodities on which export tariff is levied.

The major step in clearance of export goods is filing the shipping bill (in case of exports by sea or air) or bill of export (in case of exports through land) in accordance with Section 50 of the Customs Act, 1962. Wherever Electronic Data Interchange (EDI) system is in operation, the shipping bill must be filed electronically. For this purpose, Shipping Bill (Electronic Integrated Declaration and Paperless Processing) Regulations, 2019 has been notified.

Under the EDI System, Importer Exporter Code (IEC) number as well as advance authorizations and EPCG (Export Promotion Capital Goods) authorizations are received online by the Customs System from the Director General of Foreign Trade (DGFT). The exporter is required to register foreign exchange authorized dealer (AD) code (through which export proceeds are expected to be realized) and the bank account where drawback can be credited to his account. The exporter must get other authorizations and licenses registered in the system.

Under the e-Sanchit programme, the exporter must also upload any other documents to enable the Customs send them to various partner government agencies and get their clearances, wherever required. On shipments where foreign exchange may not be realized, the exporter must obtain GR waiver from banks and upload the same in the EDI system. He must furnish proper declaration of value and drawback claim details.

The exporter has to self-assess the shipping bill himself under Section 18 of the Customs Act, 1962 and pay the duty, where necessary. If the Risk Management System selects a shipping bill or if the proper officer has specific intelligence about a consignment, that shipping bill may be taken up for assessment or examination or both. Upon assessment, if the proper officer has any doubts or queries, he may take up with the exporter and after considering the replies received, may reassess the shipping bill. If based on the available details, the exporter or the proper officer is unable to carryout assessment or where the test results may take time, the shipping bill may be assessed provisionally and the consignment allowed to be exported. Once the goods are allowed for exports, the proper officer will grant ‘let export order’.

The Central Board of Indirect Taxes and Customs (CBIC) has fixed norms for examination of export consignments and such norms depend upon the quantum of incentive, value of export goods, country of destination etc. The instructions under the Risk Management System and examination orders by the Appraising Groups follow the norms framed in this regard. For examination, the Customs may draw samples and send them to approved laboratories for testing.

All the shipping lines/agents need to furnish the Export General Manifests (EGM), shipping bill-wise, to the Customs electronically before departure of the conveyance. The Steamer Agent/Shipping Line may transfer the EGM electronically to the Customs EDI system so that the physical export of the goods is confirmed, to enable the Customs to sanction the Drawback.

After actual export of the goods, the Drawback claim is automatically processed through EDI system. If any query is raised or deficiency noticed, the same is shown on the terminal and the exporter is required to reply to such queries. Upon sanction of drawback claim, a scroll is generated and transferred to the Bank through the system for credit to the exporter’s bank account.

For processing bills of export and for processing shipping bills in non-EDI stations also, the same procedure is followed. Wherever EDI is operational, the entire process is carried out electronically; even the queries are raised and replied through emails. In non-EDI stations, the processes are carried out manually.

The first step for clearance of imported goods for home consumption or warehousing is the presentation of a Bill of Entry containing details such as description of goods, value, quantity, exemption notification, Customs Tariff Heading, rate of duty, amount of duty etc. The Bill of Entry must be self-assessed by the importer but may be subject to verification by the proper officer of Customs and may be reassessed if declarations are found to be incorrect.

Under the EDI system, the importer by himself or through his authorized customs broker may file the declarations in electronic format through the service centre or ICEGATE. Facility of uploading scanned documents along with the declaration for filing a Bill of Entry is also available through ‘e-Sanchit’ programme.

Importer is required to file, in terms of the Section 46, a Bill of Entry for home consumption or warehousing, as the case may be, in the form prescribed under the relevant regulations. In cases where it is not feasible to make entry electronically on the customs automated system, Principal Commissioner of Customs or Commissioner of Customs, may allow an entry in any other manner.

For faster clearance of the goods, Section 46 of the Customs Act, 1962 allows filing of Bill of Entry prior to arrival of goods. This Bill of Entry is valid if vessel/aircraft carrying the goods arrives within 30 days from the date of presentation of Bill of Entry.

Often, goods coming by container ships are transferred at intermediate ports (like Colombo) from mother vessel to smaller vessels called feeder vessels. At the time of filing of advance Bill of Entry, the importer does not know which vessel will finally bring the goods to Indian port. In such cases, the name of mother vessel may be filled in on the basis of the Bill of Lading. On arrival of the feeder vessel, the Bill of Entry may be amended to mention names of both mother vessel and feeder vessel.

The Bill of Entry is required to be filed before the end of 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.

A separate form of Bill of Entry is used for clearance of goods for warehousing. All documents, as are required to be filed with a Bill of Entry for home consumption, are also required with the Bill of Entry for Warehousing which is assessed in the same manner and duty payable is determined. However, since duty is not required to be paid at the time of warehousing, the purpose of assessing the duty at this stage is only to secure the duty by way of execution of Bond. The duty is paid at the time of ex-bond clearance of goods for which an Ex-Bond Bill of Entry is filed. In terms of Section 15 of the Customs Act, 1962, the rate of duty applicable to imported goods cleared from a warehouse is the rate applicable on the date of filing of Ex-Bond Bill of Entry.

Section 17 of the Customs Act, 1962 provides that an importer entering any imported goods under section 46 or an exporter entering any export goods under section 50 shall self-assess the duty. Thus, under self-assessment, it is the importer or exporter who will ensure that he declares the correct classification, applicable rate of duty, value, benefit of exemption notifications claimed, if any, etc. in respect of the imported / export goods while presenting Bill of Entry or Shipping Bill.

The declaration filed by the importer or exporter may be verified by the proper officer when so interdicted by the Risk Management Systems (RMS), which not only provides assured facilitation to those importers having a good track record of compliance but ensures that on the basis of certain parameters, high risk consignments are interdicted for detailed verification before clearance.

On the basis of interdictions under RMS, Bill of Entry (B/E) may either be taken up for verification of assessment or for examination of the imported goods or both. If the self-assessment is found incorrect, the duty may be reassessed. In cases where there is no interdiction by RMS or non existence of any other factor, the declaration filed by the importer need not be taken up for verification, and such B/Es will straightaway be facilitated for clearance without assessment and examination, on payment of applicable duty, if any.

The verification of a self-assessed B/E interdicted by the RMS, shall be with regard to correctness of classification, value, rate of duty, exemption notification or any other relevant particulars having bearing on correct assessment of imported or goods. For the purpose of verification, the proper officer may order for examination or testing of the imported goods. He may also require production of any relevant document or ask the importer to furnish any other relevant information. Thereafter, if the self-assessment is not found to have been done correctly, the proper officer may re-assess the duty. This is without prejudice to any other action that may be warranted under the Customs Act, 1962. On re-assessment, contrary to the self-assessment done by the importer or exporter, the proper officer must pass a speaking order, if so desired by the importer or exporter, within 15 days from the date of re-assessment of B/E.

When verification of self-assessment in terms of Section 17 requires testing/further documents/information, and the goods cannot be re-assessed quickly, the importer or the exporter may require the goods to be released on urgent basis. In such cases, provisional assessment may be done in terms of Section 18 of the Customs Act, 1962, once the importer furnishes such security as deemed fit by the proper officer of Customs for payment of deficiency, if any, between the duty as may be finally assessed or re-assessed as the case may be, and the duty provisionally assessed. Provisional assessment may be resorted to even in cases, where the importer is not able to determine the duty liability or make self-assessment for any reason.

For availing partial or complete exemption from duties under different schemes and notifications, execution of end use/provisional duty bonds with Bank Guarantee or other surety may be required, in the prescribed forms. The amount of bond and bank guarantee is determined in terms of the instructions issued by the Board or conditions of the relevant notification or provisions of the Customs Act, 1962 or rules/regulations made there under.

The duty can be paid in the designated banks through TR-6 Challan. Facility of electronic payment of duty through multiple banks is available at all major Customs locations. Electronic payment of Customs duty is mandatory for importers registered under Authorised Economic Operator (AEO) scheme and importers paying duty of Rs. 10,000/- or more per B/E.

Importers certified as AEO (Tier-Two) and AEO (Tier-Three) can make deferred payment of duty of Customs. Bonafide mistakes noticed after submission of documents may be rectified by way of amendment to the B/E with the approval of Deputy/Assistant Commissioner. AEOs can get direct port delivery of containers instead of routing them through the Container Freight Stations.

The Customs Act, 1962 contains stringent provisions to deal with violations of the Customs and Allied laws. These include confiscation of the goods, penalties, fines, prosecution and imprisonment. The processes include investigations, summons, searches, seizure and arrest. The Central Board of Indirect Taxes and Customs (CBIC) has issued detailed instructions on each of these aspects.

The word “confiscation” implies appropriation consequential to seizure. Sections 111 and 113 of the Customs Act, 1962 specify various situations where the goods become liable for mis-declaration. These vary from serious violations like landing the imported goods at unauthorized locations to mis-declaration of the quantity, value or specifications of the goods or claiming incentives in excess of what is due. The essence and the concept of confiscation is that after confiscation, the property of the confiscated goods vests with the Central government.

The proper office of Customs can seize any goods, if he has reason to believe that the goods are liable to confiscation. If it is not practicable to seize any such goods, he may serve on the owner of the goods an order that he shall not remove, part with, or otherwise deal with the goods except with the previous permission of such officer. He may also seize any documents or things which, in his opinion, will be useful for, or relevant to, any proceedings under the said Act. In case the seized goods are perishable or hazardous in nature or prone to depreciate in value over time or for reasons of constraints in space, or for any other relevant consideration, notified goods may after seizure be disposed by Customs before the conclusion of the proceedings in such manner as determined by the Central Government after following the procedure specified.

The term “smuggling” has vast connotations and means “any act or omission which will render such goods liable for confiscation”. Smuggled goods may be confiscated even if its form has been changed. In case the smuggled goods are mixed with other goods in such manner that the smuggled goods cannot be separated from such other goods, then the whole of goods are liable to be confiscated. The goods used for concealing smuggled goods are liable to confiscation. Where any smuggled goods are sold by a person having knowledge or reason to believe that the goods are smuggled goods, the sale proceeds thereof shall be liable to confiscation.

In addition to confiscation of goods, the conveyances, i.e., any vessel or any aircraft which is or has been within Indian customs waters/in India or any vehicle, which is or has been in a customs area, while constructed, adapted, altered or fitted in any manner for the purpose of concealing goods shall be liable to confiscation; also any conveyance or animal used, as a means of transport/or in the carriage, in the smuggling of any goods shall be liable to confiscation; also any conveyance from which any warehouse goods cleared for exportation, or any other goods cleared for exportation under a claim for drawback, are unloaded, without the permission of the proper officer are liable to confiscation.

In cases where any goods imported in a package are liable to confiscation, the package and any other goods imported in that package shall also be liable to confiscation. Also, in cases where any goods are brought in a package within the limits of customs area for the purpose of exportation and are liable to confiscation, the package and any other goods contained therein shall also be liable to confiscation.

The Customs have the right to search any premises with authorization of specified authorities.

With the development of a number of Inland Container Depots (ICDs) and Container Freight Stations (CFSs) in the hinterland, importers and exporters have the option to either get their import/export consignments cleared at the gateway ports or at the ICD/CFS. The export goods cleared by Customs at an ICD/CFS are sent in sealed containers to gateway port where these containers are normally allowed to be exported without further examination of the goods. Similarly, imported cargo meant for any ICD/CFS is allowed to be transshipped in sealed containers from the gateway ports to such ICDs/CFSs and all Customs formalities in relation to clearance of cargo are completed by the importers at ICD/CFS.

However, there could be less than container load (LCL) export cargo arriving at the gateway port in different containers from different ICDs/CFs and these may be meant for different destinations. In that case, the shipping lines can get the containers stuffed with LCL export cargo, irrespective of destination, from ICD/CFS at a gateway port, open the containers and re-work the LCL packages received from different ICDs/CFSs and get them stuffed in containers, destination-wise for onward transportation to foreign destinations. With this kind of facility, the exporters get benefited by saving in freight charges, reduction in transit time, better handling and safer delivery of cargo as the activity takes place under the supervision of Indian agencies.

Similarly, there could be LCL imported cargo arriving at the gateway ports in different containers from different ports or through different vessels and these may be meant for transshipment to different ICDs/CFSs. In that case also, the shipping lines getting the containers stuffed with LCL import cargo, irrespective of destination, from different ports or through different vessels at a gateway port, open the containers and re-work the LCL packages received from different ports or vessels and get them stuffed in containers, destination-wise for onward transportation to the ICDs/CFSs. The facility reduces the inland freight charges for imported LCL cargo as it helps in optimum utilization of container capacity.

There could also be situations, where the LCL cargo arrives from different ports or through different vessels at a gateway port and these have to be transshipped to ports in other countries. In such cases also, the shipping lines getting the containers stuffed with LCL import cargo, irrespective of destination, from different ports or through different vessels at a gateway port, open the containers and re-work the LCL packages received from different ports or vessels and get them stuffed in containers, destination-wise for onward transportation to the foreign ports. This facility also reduces the ocean freight charges for imported LCL cargo that has to be transshipped on to different ocean going vessels for destinations abroad as it helps in optimum utilization of container capacity.

The Central Board of Indirect Taxes and Customs (CBIC) has issued necessary instructions or consolidation of such cargo. For imported cargo, these include de-stuffing and consolidation of the LCL cargo to be done at the earmarked space under Customs supervision and surveyors of the custodians, preparation of tally sheet by the custodian, filing sub-IGMs (Import General Manifest) for all LCL (Import) cargo IGM-wise, sealing of re-stuffed containers by the custodian after approval of the Customs, following the procedure laid down in the Goods Imported (Conditions of Transshipment) Regulations, 1995 and closure of the IGM by the Customs.

Similar procedure is to be followed for consolidation LCL export cargo that arrive from ICDs/CFSs at the gateway port under cover of transference copies of shipping bills for onward transportation to ports abroad.

Similar procedures apply for transshipment of LCL cargo also.

Central Government may impose, Countervailing Duty through a notification issued in exercise of the powers conferred under Section 9 of the Customs Tariff Act, 1975, if it is satisfied that imports of any subsidized article cause or threaten to cause injury to domestic industry.

The countervailing duty must be levied on the basis of recommendations, after due investigations, by the Designated Authority, the Director General of Trade Remedies, as prescribed under the Customs Tariff (Identification, Assessment and Collection of Countervailing Duty on Subsidized Articles and for Determination of Injury) Rules, 1995.

The Designated Authority may initiate an investigation on the basis of representation by domestic producer of an article which is identical or alike in all respects to the article under investigation (or in the absence of such an article, another article which although not alike in all respects, has characteristics closely resembling those of the article under investigation) or any information received from any Commissioner of Customs.

The Designated Authority must investigate whether there is:

• Subsidy granted by the authorities in the country of origin of the goods
• Injury or threat of injury to established domestic industry or material retardation to the establishment of an industry in India.
• Causal link between subsidized imports and the injury or threat of injury

The subsidy bestowed in the country of origin of the goods may be any subsidy paid, bestowed, directly or indirectly, upon the manufacture or production therein or the exportation from there of any article including any subsidy on transportation of such article. It may be by way of financial contribution by a Government, or any public body in the exporting or producing country or territory. It may take the form of direct or potential transfer of funds (including grants, loans and equity infusion), or liabilities, dues foregone, provision of goods or services or payments to a funding mechanism or grant or maintenance of any income/price support to directly promote exports.

The countervailing duty should not be levied unless it is determined that the subsidy relates to export performance or to the use of domestic goods over imported goods in the export article or has been conferred on a limited number of persons engaged in manufacturing, producing or exporting the article other than subsidy for research activities conducted by or on behalf of persons engaged in the manufacture, production or export, assistance to disadvantaged regions within the territory of the exporting country or assistance to promote adaptation of existing facilities to new environmental requirements.

Provisional countervailing duty can be imposed based on preliminary investigations and final countervailing duty may be applied after conclusion of the investigations and recommendations of the Designated Authority. Countervailing duty can be imposed even retrospectively (commencing 90 days prior to the notification) if the Central Government is of the opinion that the injury to the domestic industry which is difficult to repair, is caused by massive imports, in a relatively short period, of the article benefiting from subsidies paid or bestowed and where in order to preclude the recurrence of such injury, it is necessary to levy countervailing duty retrospectively. Countervailing duty may be imposed for five years but a review can be initiated before expiry of the period and based on such a review, the countervailing duty may be varied or withdrawn.

Countervailing duty is exempted on imports by export oriented units and Special Economic Zone units and imports under advance authorizations. However, this exemption must be surrendered, if the same goods or the finished goods manufactured from such imported inputs are sold in the domestic market.

Customs Brokers is the new name given to Customs House Agents, who represent the importers and exporters before the Customs and get the goods cleared from the Customs for imports or exports. They file the bill of entry for import of goods on behalf of the importers and file shipping bill or bill of export on behalf of the exporters for export of goods. They also provide allied services like obtaining delivery orders for imported goods from the carriers (shipping companies, airlines etc.), taking delivery of goods from the custodians and arranging transport of the goods to the premises of the importers. Similarly, they take delivery of export goods sent by exporters from transporters, arrange carting to the docks and obtain bills of lading from the carriers and send them to the shippers. Most importers and exporters outsource clearance of imports and exports of cargo through the Customs to the Customs Brokers.

The job of Customs Brokers involves good technical knowledge and intricacies of the laws relating to imports and exports. So, those who want to practice or conduct business as Customs Broker or even their employees who interface with the Customs, have to pass examinations conducted by the Customs, furnish necessary security and get a license from the Customs. The Customs Brokers Licensing Regulations, 2018 (CBLR) prescribes eligibility criteria, the procedures for examinations and grant of license, security to be furnished, obligations of the Customs Broker and disciplines for employment of persons by the Customs Broker etc.

Some of the important obligations of the Customs Broker are to:

• Verify antecedents, correctness of IEC code number, identity of his client and functioning of the client at the declared address by using reliable, independent, authentic documents, data and information and obtain an authorisation from his client to act on his behalf.
• Advise his client to comply with the laws and in case of noncompliance, bring the matter to the notice of the Customs; ascertain the correctness of any information which he imparts to a client; not withhold information contained in any order, instruction or public notice relating to clearance of cargo or baggage issued by the Commissioner of Customs, from a client who is entitled to such information
• Promptly pay over to the Government, sums received for payment of any duty, tax or other debt or obligations owing to the Government; account to his client for funds received for him
• Not procure or attempt to procure directly or indirectly, information from the Government records or other Government sources of any kind to which access is not granted by the proper officer; not attempt to influence the conduct of any official of the Customs Station in any matter pending before such official or his subordinates by the use of threat, false accusation, duress or the offer of any special inducement or promise of advantage or by the bestowing of any gift or favour or other thing of value
• Maintain up to date records of all documents and accounts.

Thus the Customs Brokers play a vital role in the supply-chain of imports and exports. Few importers or exporters can even imagine conducting their import export business without the help of efficient and reliable Customs Brokers.

In case any Customs Broker fails to comply with any of the conditions of the bond executed by him or fails to comply with any of the provisions of CBLR or commits any misconduct, his license can be suspended, or cancelled after due process and he can be penalized.

India allows Most Favoured Nation (MFN) i.e. same tariff treatment to goods originating from all countries. However, India has trade agreements with some countries from whom imports are allowed at concessional or nil duty rates, subject to the condition that the goods originate in those countries. Each agreement is given effect through specific Customs exemption notification and specific Rules of Origin (ROO) of the goods.

ROO specify the criteria used to define where a product was made or obtained. They are essential because a number of policies discriminate between exporting countries: quotas, preferential tariffs, anti-dumping actions, countervailing duty (to counter export subsidies) etc. ROO are also used to compile trade statistics, and for “made in ...” labels that are attached to products.

Non-Preferential ROO are used for MFN treatment, anti-dumping and countervailing duties, safeguard measures, origin marking requirements and any discriminatory quantitative restrictions or tariff quotas, as well as those used for trade statistics and government procurement.

Preferential ROO are granted on the basis of certain broadly defined criteria. A good is originating if it is wholly obtained in the partnering country or deemed to be originating if it undergoes substantial transformation. The origin criteria of “Wholly Obtained Goods” covers goods entirely obtained, extracted, or manufactured in a single country without using inputs imported from other countries. Each trade agreement sets its own rules to define substantial transformation. There are however broadly three criteria used to define the originating criteria, which are used in various permutations and combinations.

Depending upon the Agreement, either a single set of rule applies to all/most of goods offered under an Agreement and thus termed as “General Rule” or specific rules for the goods, identified based upon harmonized system and termed as “Product Specific Rule”. There are Agreements which provide an option to an exporter to choose general or product specific rule to claim origin. In a few cases however, general rule cannot be applied when a product specific rule is provided for.

The originating criteria under trade agreements are additionally influenced by other elements, which either restrict or broaden the application of same. Some such elements which should be considered while inspecting a preferential claim are:

• Cumulation: that allows treating inputs imported from or processes carried out in the partnering country as originating in or done within the exporting country. In effect, imported inputs would be considered to be domestic for origin purposes. Level of such cumulation is defined under each Agreement.
• De-Minimis: that excludes a certain minimal part of non-originating goods from the change in tariff classification requirement, or otherwise said, there is a certain tolerance to be applied with regard of the requirements to fulfil the origin criteria.
• Indirect Materials/Neutral Elements: that are goods used in the production, testing or inspection of goods but not physically incorporated in the goods, or goods used in the maintenance of buildings or the operation of equipment associated with the production of goods. Depending upon the provisions under ROO under an agreement, these materials are either treated as originating or not taken into account while establishing criteria based upon value addition.
• Direct Consignment: that under normal conditions allow preferential tariff treatment to only those goods which are transported directly between Parties. However, in case good is not transported directly, it should meet the conditions and be supported by documents as laid out under ROO of the said Agreement.
• Minimal Operations Rule: that lists processes or operations considered as insufficient to confer originating status, even if it meets prescribed value addition or/and tariff classification change criterion.

Traditionally, all trade agreements rely upon a Certificate of Origin (COO), issued by a competent body, as proof of origin that must be presented to the Customs while claiming tariff preference. Elements like, the format and data, validity, security features, if any, are prescribed under specific agreement.

Following provisions are specific to each Agreement and therefore need to be considered specifically and not based on general practice.

• Need to claim tariff preference at time of filing customs declaration.
• Need for original proof of origin at time of filing customs declaration.
• Validity of such document.
• Provision for rectifying minor errors in such document.
• Time line of issuance of proof of origin vis-a vis date of shipment. Retroactive documents can only be accepted if specifically provided for in the Rules for Determination of Origin (ROO). Each agreement defines the conditions and time period within which a proof origin can be issued retroactively.
• Options available in case of loss of original document.

ROO for each of the Agreement provides mechanism for seeking details from exporting country, should a need be felt to supplement investigations done domestically to ascertain validity of origin of the goods. The procedure and timelines for same are prescribed and vary from Agreement to Agreement.

Till recently, the only requirement to be fulfilled by an importer for claim of exemption under a notification giving effect to a trade agreement was presentation of COO issued by the designating authority in the exporting country.

However, enabling provisions for administering the preferential tariff treatment under trade agreements have been now introduced by inserting Section 28DA in the Customs Act, 1962 through the Finance Act, 2020. The new section clearly says that the importer must possess sufficient information regarding the manner in which country of origin criteria, including the regional value content and product specific criteria, specified in the ROO in the trade agreement, are satisfied, furnish such information in such manner as prescribed and exercise reasonable care as to the accuracy and truthfulness of the information furnished. It also says that the fact that the importer has submitted a COO issued by the competent Authority shall not absolve the importer of the responsibility to exercise reasonable care. It also provides for certain obligations on the importers, prescribes time bound verification from exporting country in case of doubt, suspension of preferential treatment, clearance of goods under provisional assessment during verification and denial of preferential treatment in certain situations.

A new Customs (Administration of Rules of Origin under Trade Agreements) Rules, 2020 (CAROTAR) has also been notified clearly spelling out the procedures to be followed and obligations of the importers claiming the preferential tariff treatment. The said Section 28DA and CAROTAR supplement the ROO.

The new provisions require an importer claiming preferential rate of duty to furnish certain declarations in the bill of entry that include the origin criteria, whether cumulating is applied and so on. The proper officer of Customs can call for the prescribed information available with the importer to demonstrate the manner in which the origin criteria, including the regional value content and product specific criteria, specified in the ROO are satisfied. The importer must keep all the supporting documents related to the prescribed information for at least five years from date of filing of bill of entry and submit the same to the proper officer on request. He must exercise reasonable care to ensure the accuracy and truthfulness of the prescribed information and documents.

The new CAROTAR streamlines the procedures for seeking verification of COO. The Customs must first ask the importer to furnish necessary information regarding the manner in which the origin criteria was arrived at and examine the same before routing the verification request through a nodal officer to the COO issuing authority. It specifies the timelines for the COO issuing authority to respond and the situations where the preferential treatment can be denied for the shipment in question, subsequent imports of the importer from same source or even identical products. It allows release of goods against provisional assessment against security for the full amount of the difference between normal duty and duty at the preferential rate.

Importers or exporters can claim refund of duty or interest paid in excess of what is required to be paid, due to re-import, return back of goods to the exporter, relinquishment of title by the importer, shortage or short landing, pilferage of goods or even incorrect assessment by the Customs.

Section 26 of the Customs Act, 1962 allows refund of export duty paid when the goods are returned to exporter or re-imported within one year and refund application is made within one year. Section 26A allows refund of duty paid on imported goods found defective provided they are re-exported without claiming drawback, abandoned or destroyed within thirty days (or extended period) of importation or have not been worked upon and the refund claim is filed within six months.

Section 27 of the Customs Act, 1962 requires a refund application to be filed within one year from the date of payment of duty and interest or ad-hoc exemption order (under Section 25(2)) or date of Court/Tribunal/appellate authority judgment/decree/order/direction or final assessment or re-assessment, in cases other than payment of duty/interest under protest.

The application must be filed in duplicate in the form prescribed under Customs Refund Application Form Regulation, 1995 to the jurisdictional Assistant/Deputy Commissioner of Customs along with documentary or other evidence including documents relating to assessment, sales invoice and other like documents to support the claim that the duty and interest was paid in excess, incidence of duty or interest has not been passed on by him to any other person, and the refund has not been obtained already.

The application of refund found to be complete in all respects by Customs, is processed and where the whole or any part of the duty and interest is found to be refundable, an order for refund is passed. However, in view of the provisions of unjust enrichment in the Customs Act, the amount found refundable has to be transferred to the Consumer Welfare Fund except when the importer or the local buyer who has purchased the goods and borne the duty and interest has not passed on the incidence of such duty and interest to any other person or in case of personal imports or the amount relates to export duty refundable under Section 26 of the Act or the amount relates to Drawback of duty payable under Sections 74 and 75 of the Customs Act, 1962 or the duty or interest was borne by a class of applicants which has been notified for such purpose in the Official Gazette by the Central Government or the excess payment is evident from the bill of entry. In case of such exceptions, refund should be granted to the applicant without applying the unjust enrichment clause.

The Assistant/Deputy Commissioner of Customs should is required to go through the details of audited balance sheet and other related financial records, certificate of the Chartered Accountant etc., submitted by the applicant in order to decide whether the applicant had not passed on the incidence of the duty and interest to any other person.

If the Customs do not grant refund within the time limits prescribed, interest at the prescribed rate (6%) on delayed refund is payable. Detailed procedural instruction have been issued by the Central Board of Indirect Taxes and Customs regading the receipt of refund application, scrutiny, return of application for rectification of deficiencies, re-submission of complete application, processing of refund applications, manner of determining unjust enrichment, passing a speaking order if the refund claim is rejected, passing order for refund, audits (including pre-audit) and issue of cheque towards refund and so on.

The rates of Customs duties leviable on imported goods and export goods are either specific or on ad valorem basis or at times on specific cum ad valorem basis. When Customs duties are levied at ad valorem rates, i.e., based on the value of the goods, it is necessary to have the guidelines for such valuation to avoid arbitrariness and to ensure uniformity in approach. Accordingly, Section 14 of the Customs Act, 1962 lays down the basis for valuation of imported and export goods.

In accordance with Section 14(2) of the Customs Act, 1962, the Central Board of Indirect Taxes and Customs (CBIC), having regard to the trend of value of such or like goods, has notified ‘Tariff Values’ for Crude Palm Oil, RBD Palm Oil, Other Palm Oils, Crude Palmolein, RBD Palmolein, Other Palmoleins, Crude Soyabean Oil, Brass Scrap (all grades), Poppy Seeds, Areca Nuts, Gold and Silver. For these items, ad valorem duties must be calculated with reference to such notified tariff values.

Section 14(1) of the Act states that the value of the imported goods and export goods shall be “the transaction value of such goods, that is to say, 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 as the case may be, 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. This is subject to such other conditions as may be specified in the rules made in this behalf. It also says that in the case of imported goods such transaction value shall include, ‘in addition...any amount paid or payable 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 manner specified in the rules made in this behalf.’

Proviso to Section 14(1) says that the rules specified for the purpose of valuation may provide for:

• The circumstances in which the buyer and the seller shall be deemed to be related;
• the manner of determination of value in respect of goods when there is no sale, or the buyer and the seller are related, or price is not the sole consideration for the sale or in any other case; and
• The manner of acceptance or rejection of value declared by the importer or exporter, as the case may be, where the proper officer has reason to doubt the truth or accuracy of such value, and determination of value for the purposes of this section.

Accordingly, the Custom Valuation (Determination of Value of Imported Goods) Rules, 2007 and the Custom Valuation (Determination of Value of Export Goods) Rules, 2007 have been framed for valuation of imported goods and export goods, respectively. The provisions of Section 14(1) and the Custom Valuation (Determination of Value of Imported Goods) Rules, 2007 are based on the provisions of Article VII of GATT and the Agreement on implementation of Article VII of GATT.

The price paid or payable 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 of the Customs Act, 1962. The rates of exchange for 20 currencies are notified by the CBIC.

The six methods of valuation of imported goods prescribed in the Custom Valuation (Determination of Value of Imported Goods) Rules, 2007, to be applied in a hierarchical (sequential) order, are as follows:

• Rule 3 - Transaction value i.e. price paid or payable for the imported goods, adjusted with ‘Valuation Factors’ in accordance with Rule 10
• Rule 4 - Transaction value of identical goods– based on comparison
• Rule 5 - Transaction value of similar goods – based on comparison
• Rule 7 - Deductive Value Method - Based on sale price in importing country
• Rule 8 - Computed Value Method - Based on cost of materials, fabrication and profit in country of production
• Rule 9 - Fallback Method - Based on earlier methods with greater flexibility

The interpretative notes are specified in the schedule of the said valuation rules and are to be applied for interpretation of the rules.

The first step in valuation for an importer is to file, as required under Rule 11, a truthful and accurate declaration of value in the prescribed form to facilitate correct and expeditious determination of value for assessment purposes,. This will be examined by the proper officer of Customs in accordance with Rule 12. If he is satisfied about the truth and accuracy of the declaration, he can accept the declaration and proceed to assess the value.

If the proper officer has doubts about the truth and accuracy of the declaration furnished, he may ask the importer to furnish further documents or information or other evidence and give an opportunity to importer to explain. If he is satisfied with the submissions of the importer, he may accept the declaration. Otherwise, he may reject the declaration and proceed to determine the value going sequentially in accordance with Rule 4 to 9 of the Valuation Rules. Rule 12 does not provide a method for determination of value. It merely provides a mechanism and procedure for rejection of declared value in certain cases. The explanation to Rule 12 also gives certain illustrative reasons that could form the basis for doubting the truth of accuracy of the declared value.

Rule 3 (1) states that subject to Rule 12, the value of imported goods shall be the transaction value adjusted in accordance with the provisions of Rule 10.

Rule 3 (2) says that the transaction value may not be accepted in the following situations:

• If there are restrictions on use or disposition of the goods by the buyer. However, the transaction value not to be rejected on this ground if restrictions:
  1. Are imposed by law or public authorities in India;
  2. Limit geographical area of resale; and
  3. Do not affect the value of the goods substantially.
• If the sale or price is subject to a condition or consideration for which a value cannot be determined. However, conditions or considerations relating to production or marketing of the goods shall not result in rejection.
• If part of the proceeds of the subsequent resale, disposal or use of the goods accrues to the seller, unless an adjustment can be made as per valuation factors.
• Buyer and seller are related; unless it is established by the importer that:
  1. The relationship has not influenced the price; and
  2. The importer demonstrates that the price closely approximates one of the test values.

Rule 10 specifies various elements of charges or expenses that must be added to the price paid or payable to the extent they are not already included in the price actually paid or payable for value assessment purposes.

Rule 10 of the Customs Valuation (Determination of Value of Export Goods) Rules, 2007 specifies various elements which must be taken into account by addition to the extent these are not already included in the price actually paid or payable for assessment purposes. These are:

• Commissions and brokerage, except buying commissions; the cost of containers, which are treated as being one with the goods in question for Customs purposes and the cost of packing whether for labour or materials;
• The value, apportioned as appropriate, of the following goods and services where supplied directly or indirectly by the buyer free of charge or at reduced cost for use in connection with the production and sale for export of the imported goods, to the extent that such value has not been included in the price actually paid or payable, namely:
  1. Material, components, parts and similar items incorporated in the imported goods;
  2. Tools, dies, moulds and similar items used in the production of the imported goods;
  3. Materials consumed in the imported goods; and
  4. Engineering, developing, artwork, design work, and plans and sketches undertaken elsewhere than in the importing country and necessary for the production of the imported goods;
• Royalties and license fees related to imported goods being valued that the buyer must pay either directly or indirectly, as a condition of sale of the goods being valued, to the extent that such royalties and fees are not included in the price actually paid or payable;
• The value of any part of the proceeds of any subsequent resale, disposal or use of the imported goods that accrues directly or indirectly to the seller;
• The cost of transport, loading, unloading and handling charges associated with the delivery of the imported goods to the place of importation wherein the cost of transportation includes ship demurrage charges on chartered vessels, lighterage and barge charges; and
• The cost of insurance to the place of importation.
• all other payments actually made or to be made as a condition of sale of the imported goods, by the buyer to the seller, or by the buyer to a third party to satisfy an obligation of the seller to the extent that such payments are not included in the price actually paid or payable.

The Interpretive Note to Rule 3 makes it clear that interest charges for deferred payment, post-importation charges (e.g. inland transportation charges, installation or erection charges, etc.) and duties and taxes payable in the importing country should not form part of the assessable value.

Rule 2(2) enumerates the persons who shall be deemed to be “related”. Its Explanation says that sole agent, sole distributor or sole concessionaire shall be deemed to be related only if they fall within the criteria of this sub-rule.

Rule 3(3) says that where buyer and seller are related, the transaction value can be accepted if the examination of circumstances of the sale of the imported goods indicate that the relationship did not influence the price or if the importer demonstrates that the declared value of the goods being valued, closely approximates to one of the test values namely transaction value of identical/similar goods, in sales to unrelated buyers in India, deductive value for identical/similar goods or computed value for identical/similar goods ascertained at or about the same time can be used.

In related party transactions, the importer is required to fill a questionnaire and furnish a list of documents so that it can be ascertained whether the said case requires investigation by Special Valuation Branch (SVB) or not. The Commissioner must, after due consideration of the preliminary findings by the proper officer, decide whether the matter be referred to the SVB for further investigations or not. Where he decides to do so, the matter will be investigated by SVB based at Bengaluru, Mumbai, Kolkata, Chennai or Delhi. During the period of investigations, the importer can clear the goods from his related parties under provisional assessment. He need furnish security/surety only if he fails to furnish documents requisitioned by the SVB. The assessment can be finalised by jurisdictional officer after the SVB completes its investigations and gives its final findings.

The provisions of Section 14(1) of the Customs Act, 1962 specifically cover the valuation of export goods. Also, the Customs Valuation (Determination of Value of Export Goods) Rules, 2007 have been framed to provide a sound legal basis for the valuation of export goods and check deliberate overvaluation of export goods and mis-utilization of value based export incentive schemes.

The four methods of valuation of export goods prescribed in the Custom Rules, to be applied in a hierarchical (sequential) order, are as follows:

• Rule 3 - Transaction value i.e. price paid or payable for the export goods, The transaction value shall be accepted even where the buyer and seller are related, provided that the relationship has not influenced the price.
• Rule 4 – Determination of export value by comparison
• Rule 5 - Computed Value Method - Based on cost of materials, fabrication and profit in country of production
• Rule 6 - Fallback Method - Based on earlier methods with greater flexibility

The first step in valuation for an exporter is to file, as required under Rule 7, a declaration of value in the prescribed form to facilitate correct and expeditious determination of value for assessment purposes,. This will be examined by the proper officer of Customs in accordance with Rule 8. If he is satisfied about the truth and accuracy of the declaration, he can accept the declaration and proceed to assess the value.

If the proper officer has doubts about the truth and accuracy of the declaration furnished, he may ask the exporter to furnish further documents/information or other evidence and give an opportunity to exporter to explain. If he is satisfied with the submissions of the exporter, he may accept the declaration. Otherwise, he may reject the declaration and proceed to determine the value proceeding sequentially in accordance with Rule 4 to 6 of the Valuation Rules. Rule 8 does not provide a method for determination of value; it merely provides a mechanism and procedure for rejection of declared value in certain cases. The explanation to Rule 8 also gives certain illustrative reasons that could form the basis for doubting the truth of accuracy of the declared value. These include:

• significant variation in value at which goods of like kind and quality exported at or about the same time in comparable quantities in a comparable commercial transaction were assessed.
• significantly higher value compared to the market value of goods of like kind and quality at the time of export.
• mis-declaration of goods in parameters such as description, quality, quantity, year of manufacture or production.

Under Rule 4, the value of the export goods shall be based on the transaction value of goods of like kind and quality exported at or about the same time to other buyers in the same destination country of importation or in its absence another destination country of importation adjusted as appear reasonable, taking into consideration the relevant factors, including -

• difference in the dates of exportation,
• difference in commercial levels and quantity levels,
• difference in composition, quality and design between the goods to be assessed and the goods with which they are being compared,
• difference in domestic freight and insurance charges depending on the place of exportation.

The Central Board of indirect Taxes and Customs (CBEC) has instructed that wherever there are doubts about the declared value of export goods and an investigation/enquiry is being undertaken to determine whether or not the declared value should be accepted, the export consignments should allowed to be exported and not be ordinarily detained.

Many times, the imported/export goods become liable for confiscation due to any contravention of the Customs or allied laws. In such situations, the goods may be seized by the Customs. Also, where investigations have to be carried out, the goods may be detained by the Customs. Once order for detention of goods is served on the owner of the goods, he cannot remove, part with, or otherwise deal with the goods except with the prior permission of the Customs. During investigation and subsequent adjudication proceedings, if the contravention of provisions of the Customs Act, 1962 and other allied laws is established, action is taken against the importers/offending goods as provided in the law. Otherwise, the charges are dropped at initial or at the appeal stage.

Seized or detained goods should not be left or stored at the premises of the Custodians at the port, airport, Inland Container Depot (ICD), Containr Freight Stations (CFS), Land Customs Stations (LCS) etc., as the Custodians will charge demurrage for use of their premises. Similarly, for containerized cargo, container detention charges become payable. To avoid the charges, the seized/detained cargo must be de-stuffed from the containers and stored at the public bonded warehouses under Section 49 of the Customs Act, 1962.

Normally, where such goods are detained or seized, the assessment or investigations must be completed expeditiously. Also, unless the goods are prohibited or involved in serious fraud, provisional release option should be given to the importers. Goods should not be detained on simple valuation or classification disputes.

Seized/detained goods can be released provisionally, upon request of the owner, subject to execution of a bond for the full/estimated value of the goods. This should be backed by a bank guarantee or security deposit to cover the entire amount of duty or differential duty leviable on the seized goods, the amount of redemption fine that can be levied in lieu of confiscation and the amount of penalties that may be levied. The bond must contain an undertaking that the importer shall pay the duty, fine and or penalty as the case may be adjudged. Te bank guarantee must contain a clause binding the issuing Bank to keep it renewed valid till final adjudication of the case. The Customs, specifying the reasons, may deny provisional release of any prohibited goods.

The provisional clearance should be allowed as a rule and not as an exception., except goods prohibited for import/export, imports not complying with the specifications/conditions/requirements of various Orders/Acts (e.g. Livestock Importation Act, 1898, Prevention of Food Adulteration Act, 1954, etc.); and where gross fraudulent practices are noticed and release of the goods may seriously jeopardize further investigations as also interests of the revenue.

In case export goods are found to be mis-declared in terms of quantity, value and description and are seized for being liable to confiscation under the Customs Act, 1962, the same may be ordered to be released provisionally on execution of a bond for an amount equivalent to the value of goods along with furnishing an appropriate security in order to cover the redemption fine and penalty. In case the export goods are suspected of mis-declaration or where declaration is to be confirmed and further enquiry/confirmatory test or expert opinion is required (as in case of chemicals or textiles materials), the goods should be allowed exportation provisionally. The exporters in these cases must execute a Bond of an amount equal to the value of goods and furnish appropriate security in order to cover the redemption fine and penalty in case goods are found to be liable to confiscation.

Sometimes, the importer does not file a bill of entry or files a bill of entry but does not clear the goods due to various reasons such as financial problems, lack of demand for the goods, etc. Customs duty is leviable on imported goods, regardless of whether they are cleared by the importers or not. Similarly, dues of other agencies, such as, carriers and custodians for carriage and storage of goods respectively, may also arise. Where the importers do not come forward to make payment of such dues, the Customs duty and other dues can be recovered by selling such unclaimed/uncleared goods.

Any goods brought into India from a place outside India that are not cleared for home consumption or warehoused or transshipped within 30 days can be disposed of by the Custodian. However, the goods can be sold only after a notice to the importer and specific permission from Customs.

The prescribed procedure requires the Custodian to prepare a list of cargo lying unclaimed/un-cleared and sent to the Customs seeking permission to dispose them through public auction. From the said list, Customs will segregate shipments which are disputed/stayed shipments required to be retained for investigation/adjudication/court procedure etc. Customs shall also segregate shipments containing motor vehicles or other goods requiring licence/permission/certification from Director General of Foreign Trade or any other Department. Customs will furnish to the Custodian within 10 days of the receipt of the said list, the details of shipments not to be included in the auction process. Based on the intimation received from Customs, the concerned Custodian must issue a notice to the importer advising him to clear the goods within 10 days failing which the goods will be placed in public auction. A copy of the notice issued to the importer under section 48 of the Customs Act, 1962 shall also be affixed on the notice board of the Customs Station. If the importer does not clear the goods, the Custodians must get the goods valued, arrive at a reserve price, obtain a ‘no objection certificate’ from the Customs and proceed to auction the goods.

Based on the highest bid, the Custodian should prepare a consolidated bill of entry as per Section 46 of the Customs Act 1962 read with Un-Cleared Goods (Bill of Entry) Regulations, 1972. After due assessment by the Customs, the Custodians must pay the duties, recover the dues of the Custodian or other parties like the shipping lines and get an out of charge order from the Customs and then release the goods to the bidder against balance payment.

Goods that require regulatory clearance like import license, permission from Drug Controller or Bureau of Indian Standards etc. can be allowed clearance only after approvals or ‘no objection certificate’ from such authorities. Sometimes, samples have to be drawn and tested before approval ad release of such goods. In case the result of chemical analysis, or report from Drug Controller, Plant Quarantine authorities etc. indicate that the sample is not fit for consumption/usage, Customs must inform the concerned Custodian and the Custodian must arrange to destroy the same after obtaining the requisite environmental and other clearances as per law.

If the unclaimed or uncleared goods remain unsold and pass into the category of ‘landed more than one-year prior’, the Custodian can sell the same following a different prescribed procedure without any reference to Customs.

A special procedure is prescribed for disposal of hazardous waste. The waste in the banned category should be either re-exported, if permissible, or destroyed. The waste in the regulated category may be permitted for recycling and reprocessing.

Duty Drawback can be granted under two different provisions of the Customs Act, 1962:

• Section 74 – Drawback of the Customs duty paid on imported goods that are re-exported.
• Section 75 – Drawback of the Customs and excise duty paid on the inputs used in the manufacture of exported goods.

Duty Drawback on export of duty paid imported goods is allowed in terms of Section 74 of Customs Act, 1962 read with Re-export of Imported Goods (Drawback of Customs Duties) Rules, 1995. The goods are to be entered for export within two years [which may be extended by one more year under certain circumstances by the Principal Chief Commissioner/Chief Commissioner of Customs and beyond that by the Central Board of Indirect Taxes and Customs (CBIC)] from date of payment of duty on importation thereof.

Application by exporter is required to be made within 3 months (which may be extended up to 12 months subject to conditions and payment of prescribed fees) from the date of order permitting clearance and loading of goods for exportation. Where the imported goods are re-exported without putting them to any use, 98% of the duties are given back as drawback. Where the goods are put to use before re-export, reduced amount of duties paid is given as drawback. Used goods do not get drawback if exported 18 months after import. An important condition is identification of the re-exported goods as the same as the goods imported.

Duty Drawback under Section 75 of the Customs Act, 1962 read with Customs and Central Excise Duties Drawback Rules, 2017 (Drawback Rules, 2017) are of two types:

• Drawback at All industry Rates as notified by the Central Government from time to time.
• Drawback at Brand Rates, as determined by the field formations based on evidence of actual duty incidence.

These are not available, in certain situations as follows:

• The duty drawback amount due in respect of any goods is less than Rs.50/-
• In respect of any goods, where the market price is less than the amount of drawback due there on
• Where value of export goods is less than the value of imported material used in their manufacture. In this regard, if necessary, certain minimum value addition over the value of imported materials can also be prescribed by the Government
• The drawback amount or rate determined under Rule 3 of the said Drawback Rules 2017 does not exceed one-third of the market price of the export product

In case the Central Government forms an opinion that there is likelihood of export goods being smuggled back into India, the Government may not allow drawback or allow it subject to specified conditions or limitations. Notifications have been issued under Section 76 of the Customs Act, 1962 for this purpose.

Repatriation of export proceeds is not a pre-requisite for grant of duty drawback. However, if sale proceeds are not received within the period stipulated by the RBI, the duty drawback will be recovered as per procedure laid down in the said Drawback Rules, 2017. An exception is made where non-realization of sale proceeds is compensated by the Export Credit Guarantee Corporation of India Ltd. under an insurance cover and the Reserve Bank of India writes off the requirement of realization of sale proceeds on merits and the exporter produces a certificate from the concerned Foreign Mission of India about the fact of non-recovery of sale proceeds from the buyer.

Goods and Services Tax (GST) paid on the inputs used in the manufacture or processing of export goods is not rebated through duty drawback.

Under Section 75 of the Customs Act, 1962, duty drawback rebates Customs and Central Excise duties chargeable on any imported materials or excisable materials used in the manufacture or processing of goods exported. Goods and Services Tax (GST) paid on the inputs used in the manufacture or processing of export goods is not rebated through duty drawback.

The legal framework for drawback is provided by Sections 75, 75A and 76 of the Customs Act, 1962. Customs and Central Excise Duties Drawback Rules, 2017 have been issued under the Customs Act, 1962 and the Central Excise Act, 1944.

Duty Drawback is of two types:

• All Industry Rate and
• Brand Rate.

The All Industry Rates (AIR) are notified, generally every year, by the Government in the form of a Drawback Schedule based on the average quantity and value of inputs and duties (both Customs & Central Excise) borne by export products.

The AIRs are essentially average rates based on assessment of average incidence. These AIRs are recommended by a Drawback Committee which is set up by the Government.

AIRs are fixed after extensive discussions with stakeholders like Export Promotion Councils, trade associations and individual exporters so as to obtain relevant data, including procurement prices of inputs (indigenous as well as imported), applicable duty rates, consumption ratios and FOB values of export products. Data is also sought from Customs and Central Excise field formations, which is taken into account.

The AIR may be fixed as a percentage of FOB price of export product or as specific rates. Drawback Caps are imposed in cases to obviate the possibility of misuse .All claims of duty drawback are filed with reference to the tariff items and description of goods given in the Schedule.

The rates of drawback specified in the Schedule are not applicable to export of commodity or product manufactured or exported, among others, in discharge of export obligation under Advance Authorisation or Duty free Import Authorisation issued under Duty Exemption Scheme of relevant Foreign Trade Policy; by a licensed hundred per cent Export Oriented Unit; by units situated in Free Trade Zone, Export Processing Zone or Special Economic Zone, etc. However in case of exports in discharge of export obligation under Special Advance Authorization scheme of DGFT, rates of drawback specified in the Schedule shall apply subject to certain restrictions and modifications.

The tariff items and description of goods in the Schedule are aligned with the tariff items and description of goods in the First Schedule of Customs Tariff Act, 1975 at four digit levels only. The description of goods given at six or eight digits in the Schedule are in several case may not be aligned with the description of goods given in the First Schedule to Customs tariff Act, 1975. The general rules for interpretation of First Schedule to Customs Tariff Act, 1975 apply, mutatis mutandis, for classifying the export goods listed in the Schedule.

The scrutiny, sanction and payment of Duty Drawback claims at EDI locations is carried out through the EDI system which also facilitates payment directly to the exporter’s bank account, if other conditions are fulfilled.

Where any exporter finds that the amount of Duty Drawback paid to him under Section 75 is less than what he is entitled to on the basis of the amount or rate of Drawback determined, he may prefer a supplementary claim. This claim has to be filed within 3 months of the relevant date, which may be extended up to 18 months subject to conditions and payment of requisite fee as provided in the said Drawback Rules, 2017.

The Brand Rate of Duty Drawback may be fixed in terms of Rules 6 and 7 of the Customs and Central Excise Duties Drawback Rules, 2017 in cases where:

• the export product does not have the All Industry Rate (AIR) of Duty Drawback i.e. no AIR is notified for the product
• the notified AIR neutralizes less than eighty per cent of the duties paid on the materials or components used in the production or manufacture of the export goods.

Brand rate is fixed by the Principal Commissioner of Customs or Commissioner of Customs, as the case may be, having jurisdiction over the place of export.

An exporter intending to claim Brand rate of Drawback, has to file an application for fixation of the brand rate within 3 months from the date of Let Export Order (LEO). This time limit can be extended up to 12 months from LEO subject to specified conditions and payment of fee as provided in the said Drawback Rules, 2017. This application has to be made before the Principal Commissioner of Customs or Commissioner of Customs, as the case may be, having jurisdiction over the place of export. The application for fixation of Brand rate must include, inter alia, the proportion in which the materials or components are used in the production or manufacture of goods and the duties paid on such materials or components.

Under Brand rate of drawback, the exporter is compensated for the actual incidence of Customs and Central Excise duties actually incurred in the production, manufacture or processing of export product based on verification of documents and proof of usage of actual quantity of materials or components utilized in the manufacture of export product and duties and taxes paid thereon.

Exporters who file application for fixation of Brand Rate under Rule 6 of the said Drawback Rules, 2017 may also apply to the Principal Commissioner of Customs or Commissioner of Customs for provisional drawback to be granted to him pending determination of amount or rate of drawback. Similarly, exporters claiming Brand rate of duty drawback under rule 7 of the said Drawback Rules, 2017 shall be paid a provisional drawback amount, as may be specified by the Central Government, by the proper officer of Customs. He may also apply to the Principal Commissioner of Customs or Commissioner of Customs for further provisional drawback.

A time limit of 15 days is prescribed for Customs Commissionerates to issue such provisional Brand rate letters in case of revised simplified procedure and 25 days for final Brand rate letters in the case of normal procedure. The Brand rate fixation letter issued by Customs Commissionerates must indicate full and comprehensive description and other details of the exported goods

AIR or the Brand Rate may be claimed on the shipping bill at the time of export by filling up the requisite particulars in the prescribed format of Shipping Bill or Bill of Export. In case of exports under electronic Shipping Bill, the Shipping Bill itself is treated as the claim for Drawback. In case of manual export, triplicate copy of the Shipping Bill is treated as the claim for Drawback. The claim is complete only when accompanied by prescribed documents mentioned in the said Drawback Rules 2017. If the requisite documents are not furnished or there is any deficiency, the claim may be returned for furnishing requisite information/documents. The export shipment, however, will not be stopped for this reason.

Duty Drawback on goods exported by post is also allowed on following the procedures prescribed under Rule 12 of the said Drawback Rules, 2017.

Examination of goods i.e. physical verification of goods by the Customs to check whether the declarations of description of goods, quality, grade or specifications of the goods, quantity etc. in the bill of entry or shipping bill are correct, is an essential part of assessment. However, such examination is not done on a routine basis. Only the bills of entry or shipping bills picked up by the Risk Management System are taken up for examination. Of course, based on any specific information or intelligence reports also, the Customs may decide to examine the imported or export goods.

Sometimes, an importer may not have complete information about the imported goods and may request for examination even before filing the bill of entry.

For examination purpose, the Customs may draw samples for analysis. After physical examination and where the samples are drawn and test reports are received, if the goods are found in order, the proper officer of Customs may give an order for clearance of the goods, after due assessment and payment of duty.

The Central Board of Indirect Taxes and Customs (CBIC) has been fixing norms for examination of export consignments and such norms depend upon the quantum of incentive, value of export goods, country of destination etc. The instructions under the Risk Management System and examination order by the Appraising Groups follow the norms framed in this regard. Notwithstanding the examination norms, any export consignment can be examined by the Customs (even up to 100%), if there is any specific intelligence in respect of such consignment. Further, to test the compliance by trade, once in three months a higher percentage of consignments (say for example, all the first 50 consignments or a batch of consecutive 100 consignments presented for examination in a particular day) may be taken up for examination. Out of the consignments selected for examination a minimum of two packages with a maximum of 5% of packages (subject to a maximum of 20 packages) may be taken up for checking/examination.

In case export goods are stuffed and sealed in the presence of Customs/Central Excise officers at the factory of manufacture or Inland Container Depot or Container Freight Station or warehouse or any other place where the Commissioner has, by a special order, permitted, it should be ensured that the containers should be bottle sealed. Also, such consignments must be accompanied by examination report in the prescribed form.

In case of export through bonded trucks, the truck should be similarly bottle sealed. In case of export by ordinary truck or other means, all the packages may be lead sealed

Perishable cargo taken up for examination should be given Customs clearance on the same day itself, unless there is contravention of Customs laws.

The representative sample from the consignment must be drawn in accordance with the orders of the proper officer. If considered necessary, the Assistant/Deputy Commissioner may order sample to be drawn for purposes other than testing such as for visual inspection and verification of description, market value inquiry, etc.

In case of less than container cargo the stuffing of container at Dock must be done under Preventive supervision. Further, the loading of both containerized and bulk cargo on to the vessel must be done under the supervision of the Customs Preventive Officer, who must give “Shipped on Board” endorsement on the exporters’ copy of the Shipping Bill.

Palletization of cargo is done after grant of Let Export Order (LEO). Thus, there is no need for a separate permission for palletization from Customs. However, the permission for loading in the aircraft/vessel is to be obtained.

Section 25 of the Customs Act, 1962 gives the Central Government powers to exempt, in public interest, imported or export goods from levy of Customs Duty by issuing notifications or in exceptional circumstances, by special order. The powers to exempt include powers to modify or withdraw the exemptions. Even a time bound exemption can be withdrawn if the public interest so warrants. An exemption notification can be declared invalid by Courts, if the government is unable to show the public interest involved. The government must publish the notifications in the official gazette and unless the notification itself gives a different effective date, it will be effective from the date of publication in the official gazette.

A notification may fully or partially exempt the duty that may be subject to fulfilment of some conditions or be unconditional. So, the importers and exporters must look up the exemption notifications to work out the effective duty. They must also read the notifications carefully to ascertain any conditions and assess whether they fulfil the conditions. No duty will be collected on goods that attract duty of Rs.100/- or less.

Exemption notifications must be construed strictly. No words can be read into the notification and no words used therein can be taken away from the notification. But such strict construction should not be at the expense of the object and purpose of the notification. Also, in case of any ambiguity or doubt, it is to be resolved in favour of the revenue. But, if there is no doubt or ambiguity, the exemption need not interpreted so strictly as to defeat the object and purpose of the notification. Minor procedural infractions need not result in denial of benefit of exemption, if conditions of the notification are substantially complied with.

It is the option of the importer or exporter to avail of the exemption. Also, when there are two exemptions, one general and the other specific, which cover the goods in question, the importer or exporter, may choose the notification that gives him greater benefit, regardless of whether it is general or specific. If more than one exemption is applicable to a given situation, benefit of both can be extended to the importer or exporter.

The burden to prove eligibility for exemption is on the importer or exporter. The eligibility must be determined on the basis of words used therein and not on the basis that the benefit was extended to some other importer or exporter. Wrong benefits extended to others cannot be perpetuated on the grounds of equality in the eyes of law.

Some exemptions are based on end-use. To administer such exemptions and monitor the end-use, bonds are required to be furnished. Some notifications prescribe that the procedures laid down in Customs (Import of Goods at Concessional Rate of Duty) Rules, 2017 be followed. In case the imported goods are not used for the purpose stated in the notification, the benefit of exemption can be denied, even after importation. For example, under some export promotion schemes, exemption is extended subject to the condition that stipulated export obligation must be fulfilled. If the stipulated export obligation is not discharged, the exemption benefit can be denied.

Two new Sections 25A and 25B have been inserted in the Customs Act, 1962 empowering the Central Government to grant exemption on processing of goods. Section 25A empowers to grant exemption for inward processing of goods i.e. goods imported for repairs, further processing or manufacture and re-exported thereafter. Section 25B empowers to grant exemption to outward processing of goods i.e. goods imported after export for repairs, further processing or manufacture.

Units undertaking to export their entire production of goods and services (except permissible sales in Domestic Tariff Area (DTA)), may be set up under the Export Oriented Unit (EOU) Scheme. The scheme also includes Electronics Hardware Technology Park (EHTP) Scheme, Software Technology Park (STP) Scheme or Bio-Technology Park (BTP) Scheme. EOUs can be set up for manufacture of goods, including repair, re-making, reconditioning, reengineering, rendering services, development of software, agriculture including agro-processing, aquaculture, animal husbandry, bio-technology, floriculture, horticulture, pisciculture, viticulture, poultry and sericulture. Trading units are not covered under these schemes.

Chapter 6 of the Foreign Trade Policy (FTP) and Handbook of Procedures deals with the provisions for EOU/EHTP/STP/BTP. Exemption for imports by EOU/EHTP/DTP/BTP is granted by the Customs under notification 52/2003-Cus dated 31.3.2003.

EOU/EHTP/STP/BTP Unit must be positive net foreign exchange (NFE) earner, except in specified sectors. Certain categories of deemed exports and other supplies made by EOU in DTA are counted for NFE calculation. NFE Earnings shall be calculated cumulatively in blocks of five years, starting from commencement of production.

Only projects having a minimum investment of Rs. 1 Crore in plant and machinery shall be considered for establishment as EOUs, except for specified sectors. Board of Approvals (BOA) may allow establishment of EOUs with lower investment and for certain sectors. Applications for setting up BTP will be considered by the Department of Bio-Technology, for setting up STP/EHTP by the Department of Electronics & Information Technology and for other units by the jurisdictional Unit Approval Committee (UAC), chaired by the Development Commissioner (DC). Existing DTA units may also apply for conversion into an EOU/EHTP/STP/BTP unit. Performances of EOU/EHTP/STP/BTP Units are monitored by UAC. EOU/EHTP/STP/BTP Units must maintain proper account, and file digitally signed quarterly and annual report with the DC.

After obtaining LOA, the Unit should furnish a legal agreement to the jurisdictional DC and a bond as prescribed (B-17 Bond) backed by bank guarantee for 5% of the bond amount to jurisdictional Assistant/Deputy Commissioner of Customs. The bond should be for an amount equivalent to 25% of the duty forgone on the sanctioned requirement of capital goods plus the duty forgone on raw materials required for three months.

EOU/EHTP/STP/BTP units may export all kinds of goods and services except items prohibited in FTP. Permission to export a prohibited item may be considered by BOA on merits. EOU/EHTP/STP/BTP units may import and/or procure from Customs bonded warehouses or international exhibition held in India, without payment of duty, all types of goods required for their activities. Supplies of manufactured goods from domestic tariff area (DTA) to EOU/EHTP/STP/BTP units are treated as deemed exports.

EOU/EHTP/STP/BTP units may procure certain specified goods for creating a central facility. Software units may use such facility for export of software. Gems and jewellery (G&J) EOUs may source gold/silver/platinum through nominated agencies on loan/outright purchase basis. EOU/EHTP/STP/BTP units, other than service units, may export to Russian Federation in Indian Rupees against repayment of State Credit/Escrow Rupee Account of buyer subject to RBI clearance, if any. Import of secondhand capital goods by EOU/EHTP/STP/BTP units is allowed.

For imports, the EOU/EHTP/STP/BTP units should follow the procedures prescribed in the Customs (Import of Goods at Concessional Rate of Duty) Rules, 2017. That involves furnishing intimation to the jurisdictional Customs authorities, obtaining an acknowledgement and filing the copy of acknowledged intimation along with the bill of entry for claiming exemption under notification no. 52/2003-Cus dated 31.3.2003. After the goods are cleared by Customs and received at the factory, the EOU/EHTP/STP/BTP unit should intimate the receipt to the jurisdictional Customs authorities, and submit the prescribed returns.

For indigenous procurement of excisable goods prescribed form CT-3 must be sent to the domestic manufacturer, who can clear the goods without excise duty payment to EOU. For goods that attract Goods and Services Tax (GST), prescribed form A should be sent to the DTA supplier. As soon as the goods are received at the EOU, the prescribed document should be suitably endorsed by the jurisdictional authorities and sent to the DTA supplier. Under GST laws, the refund of GST paid by the supplier can be claimed.

EOU/EHTP/STP/BTP units can sell, without any limit, manufactured goods (including rejects, scrap, waste, remnants and by-products) in DTA on payment of GST and surrender of the basic customs duty (BCD) exemption and any anti-dumping/safeguard duty exemption they availed on the inputs used for making the goods. However, there are restrictive dispensations for Gem and Jewellery (G&J) units, motor car, alcoholic liquor, and certain other items.

The valuation of goods manufactured in the EOU and cleared into DTA must be in accordance with the Customs laws. However, when the invoice price of the goods under assessment is in the nature of transaction value, such invoice value can be accepted.

Scrap/waste/remnants arising out of production process or in connection therewith can be sold in DTA, as per Standard Input Output Norms (SION) notified by Directorate General of Foreign Trade (DGFT) or on the basis of ad-hoc norms fixed by the DC or DGFT Norms committee.

EOU/EHTP/STP/BTP units may, on the basis of annual permission from jurisdictional Customs authorities, sub-contract their production process, through job-work, which may involve change of form or nature of goods, by units in Domestic Tariff Area (DTA). Scrap/waste/remnants generated during job-work may be cleared from job-worker’s premises on payment of applicable duty or destroyed in presence of Customs/Excise/GST authorities or returned to the unit. Sub-contracting by EOU G&J units through other EOUs, or SEZ units, or units in DTA shall be subject to specified conditions.

These units may also sub-contract 100% of the overall production of previous year in value terms for job work in DTA with permission from jurisdictional Custom authorities, on case to case basis. Sub-contracting of both production and production process may also be undertaken without any limit through another EOU/EHTP/STP/BTP or Special Economic Zone (SEZ) unit on the basis of records maintained by the unit.

EOU/EHTP/STP/BTP units may also sub-contract part of the production process abroad and send intermediate products abroad as mentioned in Letter of Approval. No permission would be required when goods are sought to be exported from the premises of the sub-contractor abroad. When goods are sought to be brought back, prior intimation to the DC concerned and jurisdictional Customs authorities must be given. The intermediate goods so removed to sub-contractor abroad shall be allowed to be cleared under export documents. The value of such goods shall be assessed in terms of Section 14 of Customs Act, 1962 and the value shall be accepted on the basis of declaration of charges of job work abroad in the declaration forms, invoices and full repatriation of foreign exchange.

EOU/EHTP/STP/BTP units can undertake job work for export, on behalf of DTA exporter, provided the goods are exported directly from EOU's premises and export documents are prepared jointly in the name of DTA and EOU. For such exports, the DTA unit is entitled for refund of duty paid on inputs by way of brand rate of duty drawback.

EOU/EHTP/STP/BTP units may sell surplus/unutilized goods imported or procured into DTA on surrender of the benefits availed or transfer to another EOU/EHTP/STP/BTP unit or export abroad or to Special Economic Zone.

Units can exit from the EOU/EHTP/STP/BTP scheme with permission of the jurisdictional DC upon payment of applicable duties and taxes. The Unit may clear capital goods under the prevailing EPCG Scheme and raw materials, intermediates etc. under the advance authorization scheme. Upon application for exit from the scheme, the DC will grant ‘in principle’ approval based on which the EOU must pay the necessary duties and taxes and seek ‘No Dues Certificate’ from the jurisdictional Customs authorities. The DC will grant final approval for exit from the scheme based on the said ‘No Dues Certificate’.

The Export Promotion Schemes are formulated by the Commerce Ministry and notified by through Foreign Trade Policy (FTP) and implemented by the Director General of Foreign Trade (DGFT). Wherever, the schemes envisage duty exemption on imported goods, these are given effect through exemption notifications issued by the Finance Ministry and at the entry point i.e. the ports, airports, land customs stations etc., the Customs allow the exemptions subject to stipulated conditions.

Some of the export promotion schemes give incentive or rewards to exports based on export performance. Under these schemes, the exporters are granted duty credit through a scrip which is permitted to be utilized for exemption by way of debiting certain duties/taxes, subject to stipulated conditions.

Under the FTP 2015-20 (now extended till 31st March 2021), Merchandise Exports from India (MEIS) Scheme rewards exports of notified goods at certain percentage of the FOB value of exports. It includes reward on export via foreign post offices or international courier terminals of specified items that are transacted using e-commerce platforms, subject to value limit of Rs. 5 lakhs per consignment. In order to claim reward under MEIS, it is mandatory that exporter declares intent to claim reward at the time of export on shipping bills/bills of export that are filed on or after 1.6.2015.

Under the Service Exports from India (SEIS) Scheme notified under the FTP 2015-20, exports of notified services earn a duty credits at notified percentages of net foreign exchange earned, by service provider located in India who have specified minimum net free foreign exchange earnings in the preceding financial year.

Under these two schemes, based on FOB value of exports/net foreign exchange earnings, DGFT issues duty credit scrips viz. MEIS & SEIS scrips. Both, MEIS and SEIS scrips are freely transferable. GST is exempted on such transfer. The transfer must be recorded in the DGFT portal. These scrips can be used for payment of Basic Customs Duty (BCD) on import of any item except those specifically not allowed. These can also be allowed for payment of excise duty on domestic procurement of items that continue to be subject to central excise duties in the Goods and Services Tax (GST) regime. Clearance of goods from Customs Bonded warehouses using MEIS and SEIS duty credit scrips for duty payment is also allowed. These scrips cannot be used for payment of Social Welfare Surcharge, Integrated GST and other types of duties.

BCD paid through debit under these scrips is allowed to be adjusted as duty drawback. additional customs duty. Post GST remnant excise duty paid through debit in these scrips is also allowed to be adjusted as Cenvat Credit or duty drawback.

Duty Credit Scrips issued under FTP 2015-20 can also be utilized or debited for payment of BCD in case of export obligation defaults for authorizations issued under duty exemption scheme (advance authorization) and EPCG (export promotion capital goods) scheme. However, any penalty or interest must be paid in cash and not through duty credit scrips.

At the time of exports, the exporter must declare his intention MEIS benefit. The Customs verify the MEIS scrips for their genuineness by scrutinizing the shipping bills (not filed electronically) against which the scrips are issued. Where shipping bills were filed electronically such verification is restricted to not more than 5% randomly selected scrips. The Custom Houses need not verify genuineness of shipping bills when the reward scrip has been simultaneously received online through electronic transmission from the DGFT. Customs can also carry out complete verification of scrip, where specific intelligence suggests misuse or requirement of an investigation.

The EPCG (Export Promotion Capital Goods) scheme allows import of capital goods (CG), except those specified in a negative list, at zero duty subject to export obligation (EO) equivalent to 6 times of the duties/taxes/cess/surcharge saved on the CG imported within a period of 6 years (extendable by 2 years) from the date of issue of EPCG Authorization. Spares can also be imported under the EPCG scheme.

The EO to be achieved is over and above the average level of exports achieved in the preceding three licensing years for the same and similar products. For certain sectors, the requirement of maintaining annual average exports is waived.

For specified green technology products, the EO is 75% of normal EO. For goods produced in the units located in North East and Jammu and Kashmir, the EO is 25% of normal EO. If 75% EO is fulfilled within 3 years, remaining EO need not be fulfilled for redeeming the authorization. The EO is lower by 25% when CG is sourced indigenously.

The import of CG must be made within 18 months from the date of issue of EPCG authorization. The EO must be fulfilled in two blocks of 4 years and 2 years, wherein at least 50% EO must be fulfilled in the first 4 years block. The block-wise EO period can be extended, subject to specified conditions.

Under the EPCG scheme, the Regional Offices of the DGFT issue EPCG authorizations to manufacturer exporters and merchant exporters with or without supporting manufacturer, service providers and Common Service Provider (CSP). The authorizations specify the value/quantity of the export product to be exported against it. In the case of manufacturer/merchant/service exporters, the EO is required to be fulfilled by exporting goods manufactured or capable of being manufactured or services rendered by the use of CG imported under the scheme. Exports through third party are permitted, subject to fulfillment of specified conditions.

The Customs register the EPCG authorizations at the port of registration mentioned in the authorization and allow imports at zero duty in accordance with the exemption notification issued by the Finance Ministry. The authorization holder is required to furnish bond with 100% Bank Guarantee with the Customs prior to commencement of import of capital goods. Certain categories of exporters get benefit of exemptions from furnishing Bank Guarantee.

The CGs imported under EPCG authorizations are subject to actual user condition and they cannot be transferred or sold, etc. till the fulfillment of EO. The authorization holder should obtain installation certificate from jurisdictional Customs Authority or independent Chartered Engineer. Capital goods may be installed at the premises of supporting manufacturer, whose name is endorsed on the authorization.

The EPCG Authorization number and date must be mentioned on the shipping bill/invoice (in case of deemed exports). After fulfillment of specified EO, relevant documents must be submitted to RA for obtaining EODC.

After introduction of Goods and Services Tax (GST), imports were liable to levy of Integrated GST (IGST) and Compensation Cess (CC). Since, 13th October 2017, imports under EPCG by all sectors are exempted from IGST and CC. This exemption is optional for the EPCG holder. Where IGST and CC exemptions are availed, the EO must be fulfilled through physical exports.

Instead of importing, the EPCG authorization holder can source the capital goods from domestic manufacturers. Such supplies are treated as deemed exports and the supplier or recipient of such supplies is eligible for refund of GST paid on such supplies.

Post Export EPCG Duty Credit Scrip is available to exporters who opt to import capital goods on full payment of applicable duties in cash. Basic Customs duty (BCD) paid on Capital Goods shall be remitted in the form of freely transferable duty credit scrip(s). Upon initial application by an exporter, the exporter will be issued a post export EPCG authorization specifying “Not for imports” on the body of the authorization. Specific EO will be 85% of the normal EO. Upon completion of the specific and average EO mentioned in the authorization, the exporter will be issued a freely transferable duty credit scrip equivalent to the proportionate EO fulfilled based on BCD paid. Such scrips can be used for payment of BCD.

Under the Duty Exemption Scheme (DES) formulated by the Commerce Ministry and notified through the Foreign Trade Policy (FTP), the Director General of Foreign Trade (DGFT) issues Advance Authorizations (AA) to allow duty free import of inputs that are physically incorporated in the export product (after making normal allowance for wastage) as well as certain items like fuel, oil, catalysts which are consumed in the manufacture of the export product. The raw materials/inputs are allowed as per Standard Input-Output Norms (SION) or self-declared norms of exporter.

AAs are issued for physical exports as well as deemed exports. The holder is required to fulfill export obligation (EO) by exporting specified quantity/value of resultant product. The AA and the materials imported are not transferable even after completion of EO.

AAs usually prescribe a minimum of 15% value addition (except for Gems and Jewellery Sector and for certain specified goods). Higher value addition is prescribed for export for which payment are not received in freely convertible currency.

Normally, All Industry Rate (AIR) of Duty Drawback is not admissible with AA except in case of Special Advance Authorization for export of articles of apparels and clothing accessories. Brand Rate of Duty Drawback may be claimed in respect of duty-paid inputs (not specified in the norms) which are used in the export product provided such duty paid inputs have been endorsed in the authorization.

AAs are also issued on the basis of annual requirements of exporter, which enables planning for manufacturing/exports on a longer term basis. However, self-declared norms are not permitted under annual requirement and in respect of certain specified items.

Certain items otherwise prohibited for export may be exported under AA scheme, with conditions stricter than otherwise imposed, such as export only through specified EDI enabled ports, pre-import condition, under notified SION/prior fixation of norms, EO period of 90 days from import clearance without extensions, non-transferability, and inapplicability of provisions for regularization of default, and so on.

AAs are issued either to a manufacturer exporter or merchant exporter tied to supporting manufacturer(s) or to sub-contractors in respect of supplies of goods to specified projects provided the name of such sub-contractor appears in the main contract.

The AA holders are required to furnish a bond with 100% Bank Guarantee for the duty difference with the Customs at the time of importing duty free inputs. Certain categories of exporters are conditionally exempt from filing Bank Guarantee in terms of CBIC Circulars and also where the AA holder exports first by using imported inputs/indigenously procured inputs.

Validity of AA for making imports is 12 months but there is provision to grant one revalidation for six months from expiry date. For fulfillment of EO, normally a period of 18 months from the date of issue is granted, with certain exceptions of shorter or longer periods as prescribed.

Exporters of gems and jewellery can import/procure duty free inputs for manufacture of export product under various schemes viz. Advance Procurement/Replenishment of Precious Metals from Nominated Agencies, Replenishment Authorization for Gems, Replenishment Authorization for Consumables and Advance Authorization for precious Metals. Import of gold for jewellery sector under Advance Authorization is on pre-import basis with actual user condition.

Keeping in view nuances of individual variants of Advance Authorization, different exemption notifications have been issued by the Finance Ministry.

After introduction of GST, imports were liable to levy of IGST and Compensation Cess. However since 13.10.2017, imports under AA were exempted from IGST and Compensation Cess but only for physical exports and subject to pre-import condition. But, since 09.01.209 pre-import condition is withdrawn and certain categories of deemed exports are eligible.

Domestic supplies to holder of AA are treated as deemed export under GST laws. Supplier or recipient of such supplies is eligible for refund of GST paid on such supplies.

Duty Free Import Authorization is similar to AA in many aspects but issued only for SION items, minimum value addition requirement is 20%, transferability of the authorization and/or material imported against is permitted and only BCD is exempt. DFIA is not available for Gems and Jewellery sector or where SION prescribes actual user condition (e.g. fuel). The brand rate of duty drawback is admissible.

The clearance of cargo at ports, air cargo complexes, Inland Container Depots (ICDs) and Container Freight Stations (CFSs) involves interaction of the trade with the Customs officials, which often results in complaints of harassment, corruption, and delays. Thus, to redress these grievances the focus has been to simplify procedures, enhance transparency, sensitize the Departmental officers to their responsibilities, and expand use of EDI in Customs clearance procedures.

Each Commissionerate has a designated Public Grievance Officers (PGO) and Public Notices have been issued giving the names and telephone numbers of these officers. These PGO may be approached by the trade and public if their grievance is not being redressed by the dealing officer or his supervisor.

Chief Commissioner/Commissioners of Customs earmark time on all working days during which any person having any grievances can meet the officer without prior appointment.

A Public Grievance Committee (PGC) is constituted in each Commissionerate, consisting of representatives of trade and industry, Custom Brokers, Custodians such as Airport Authority of India (AAI), Container Corporation of India (CONCOR), Banks, Export Promotion Agencies such as the Garments Exporters Association, Handicraft Export Association, and Chambers of Commerce etc. The PGC meets once in a month to address grievances relating to Customs functioning. In case grievances relate to other agencies such as the Wildlife, NIC or CMC, their representatives are also invited for these meetings.

A Watchdog Committee has been constituted under the chairmanship of the Chief Commissioner of Customs, which meets once in two months. Leading association of trade and industry and other agencies that interact with Customs are included in this Committee along with the senior officers of Customs to ensure meaningful dialogue. This Committee takes note of various procedural delays or problems in general being faced in Customs clearance of export/import cargo or grant of various incentives. Feedback from trade and industry is used for necessary review of procedures and taking measures to remove the difficulties of importers/exporters.

Permanent Trade Facilitation Committees (PTFCs) having membership of all stakeholders function in each Customs station to resolve local issues. Central Beard of Indirect Taxes and Customs (CBIC) has instructed that PTFCs must be held regularly with minimum of one meeting per month on a pre-decided date, minutes of the PTFC meetings must be sent to CBIC through Directorate General of Export Promotion on issues having all India implication, if any, apex trade bodies must be allowed to attend the PTFC meetings along with their local constituents, who are members of the PTFC, efforts must be made to regularly review the membership of the PTFC with the aim of including all stakeholders in the Customs functioning, Chief Commissioners/Commissioners must be receptive to meeting local and apex trade bodies even outside the framework of the PTFC.

Customs Clearance Facilitation Committees (CCFCs ) are set up at each port and airport to ensure expeditious Customs clearance of imported and export goods, consisting of major Departments/agencies that are involved in Customs clearance process such as Food Safety and Standards Authority of India (FSSAI)/Port Health Officer (PHO), Plant Quarantine Authorities, Animal Quarantine Authorities, Drug Controller of India (CDSO), Textile Commissioner, Wild Life Authorities, Port Trusts/Airport Authority/Custodians, Pollution Control Board , Railways and other local agencies concerned with logistics, manpower etc. which operate in the seaports and airports. Their focus includes ensuring and monitoring expeditious clearance of imported and export goods in accordance with the timeline specified by the parent Ministry/Department concerned, identifying and resolving bottlenecks, if any, in the clearance procedure of imported and export goods, initiating time release studies for improvement in the clearance time of imported and export goods, having internal consultations to speed up the clearance process of imported and export goods and recommending best practices thereto for consideration of CBIC/Departments/Agencies concerned; and resolving grievances of members of the trade and industry in regard to clearance process of imported/export goods.

Notices displayed prominently at the airports invite the public to lodge any complaint with the Commissioner of Customs or the Chief Vigilance Officer. Airport Facilitation Committees have been constituted to look into the complaints of the passengers at the international airports. These Committees include representatives of various agencies working at the airport like AAI, Customs, Immigration, and Police etc.

Indian Customs man the all the entry and exit points i.e. ports, airports, land customs stations and foreign post offices, through which goods (including ships, aircrafts, vehicles etc,) or passengers enter the country.

The main functions of Indian Customs are collection of Customs duties on imports and exports as per the Customs Act, 1962 and the Customs Tariff Act, 1975 and enforcement of various provisions of the Customs Act, 1962 governing imports and exports of cargo, baggage, postal articles and arrival and departure of vessels, aircrafts etc. The Customs also enforce prohibitions and restrictions on imports and exports under various legal enactments. Their functions include prevention of smuggling besides interdiction of narcotics drug trafficking and international passenger clearance.

Thus, the Customs functions cover substantial areas of activities involving international passengers, general public, importers, exporters, traders, custodians, manufacturers, carriers, port and airport authorities, postal authorities and various other government and semi-government agencies, banks etc.

The Central Board of Indirect Taxes and Customs (CBIC or the Board), Department of Revenue, Ministry of Finance, Government of India deals with the formulation of policy concerning levy and collection of Custom duties, Goods and Service Tax (GST) and Central Excise duties, prevention of smuggling and administration of matters relating to Customs, Goods and Service Tax (GST), Central Excise, and Narcotics to the extent under CBIC’s purview. The Board is the administrative authority for its subordinate organizations, including Custom Houses, Customs Preventive Commissionerates, Central Goods and Service Tax (CGST) Commissionerates and the Central Revenues Control Laboratory.

The Board consists of six members, one of whom is the Chairman. At the apex level it is assisted by officers designated as Director General, Joint Secretary, Commissioner and Director and so on. The Member (Customs) mainly deals with the matters relating to the Customs. There are allied organizations such as the Central Board of Revenue Intelligence, Directorate of Enforcement etc. that work in close collaboration with the CBIC.

The field formations of the Customs include Customs Houses in various parts of the country, usually headed by Principal Chief Commissioners of Customs and assisted by functionaries such as Chief Commissioner, Principal Commissioner, Commissioner, Additional Commissioner, Joint Commissioner, Deputy Commissioner, Assistant Commissioner, Appraiser/Examiner/Superintendent and other clerical and subordinate staff. Quasi-judicial functions of adjudication are performed by these officers. The Appeals against their orders are heard and decided by the Commissioner (Appeals) or Customs, Central Excise and Service Tax Appellate Tribunal. At the operating levels, the executive powers under the Customs Act, 1962 are mostly vested with the Commissioners and Deputy/Assistant Commissioners.

Essentially all goods brought into the country or meant for export must pass through authorized points, be reported to Customs, and the importers/exporters must fulfill the prescribed legal and procedural requirements laid down under Customs Act, 1962 and allied laws including payment of the duties leviable, if any. The legal provisions allow Customs to regulate the outflow of the goods (and persons) out of the country and subject them to proper checks before allowing final exit out of the country by sea/air/land/rail routes.

CBIC is continuously rationalizing and modernizing its procedures through adoption of Electronic Data Interchange (EDI) and global best practices. Also, as a member of the World Customs Organization, Indian Customs has adopted various International Customs Conventions and procedures including the Revised Kyoto Convention, Harmonized Classification System, GATT based valuation etc.

In its Citizen Charter, Customs has committed to provide to trade and industry time bound and speedy cargo clearance facility, quick redressal of grievances, and inculcating in its officers’ a sense of service with courtesy, understanding, integrity, objectivity and transparency.

India is a signatory to the World Trade Organization (WTO) Treaty on Trade Related Aspects of Intellectual Property Rights (TRIPS) that relates to measures required to be taken for providing protection against infringement of IPRs at the borders. In India, Copyright Act, 1957, the Trade Marks Act, 1999, the Designs Act, 2000 and the Geographical Indications of Goods (Registration and Protection) Act, 1999 have provisions prohibiting import of goods infringing IPR under the respective Acts.

In exercise of the powers conferred Section 11 of the Customs Act, 1962 the Central Government has issued notifications for prohibiting the import of goods intended for sale or use in India that infringe specified provisions of Trademarks Act, Copyrights Act, Designs Act, and Geographical Indications Act subject to following the procedures prescribed under the Intellectual Property Rights (Imported Goods) Enforcement Rules, 2007 (known as IPR Rules).

The prohibitions relate to permitting import of original/genuine products (not counterfeit or pirated) which are sold or acquired legally abroad and imported into the country, by persons other than the IPR holder without permission/authorization of the IPR holder, known in the trade as ‘parallel imports’.

Besides the legal measures to check import of counterfeit and pirated goods, an automated system facilitates genuine trade and targeting of infringing goods more effectively. Such a mechanism also integrates the Custom clearance procedures with the IPR regime.

The IPR Rules provide a procedure to be followed by the IPR holders and Customs officers to prohibit importation of goods infringing IPR and the action to be taken, by the IPR holders and Customs officers, after suspending the of release of the infringing goods. These Rules provide for notice to be given by IPR holder in writing to the Customs requesting for suspension of release of imported goods suspected to be infringing IPR along with fees of Rs.2,000/-, time limit for IPR holders to join proceedings, single point for registration of IPR holder, adequate protection to the rightful importer, indemnifying the Customs, suo-moto action by Customs disposal of the confiscated goods and so on.

The IPR holder must execute a bond with the Customs for such amount with such surety and security as deemed appropriate by the Customs, undertaking to protect the importer, consignee and the owner of the goods and the competent authorities against all liabilities and to bear the costs towards destruction, demurrage and detention charges incurred till the time of destruction or disposal, as the case may be. He must also indemnify the Customs all liabilities and expenses on account of suspension of the release of allegedly infringing goods.

An on-line, system driven, centralized bond management module has been implemented as part of the existing Automated Recordation and Targeting System (ARTS) with a view to provide for a single centralized bond and surety/security account that can be used at all ports in India, so that the IPR holders do not have to rush to different customs formations to execute consignment specific bonds and sureties/securities upon receipt of information about an interdiction of allegedly infringing consignment.

The Commissioner shall notify the applicant within 30 days of receipt of notice or from the date of expiry of extended period whether the notice has been registered or rejected. If registration is granted, its validity period would be indicated and the same shall minimum for one year (unless the right holder requests for shorter period).

After the grant of the registration of the notice by the Commissioner, the import of allegedly infringing goods into India shall be deemed as prohibited within the meaning of Section 11 of the Customs Act, 1962.

International passengers bring in goods or take out goods with them as baggage. The Customs manning the entry and exit points in the country ensure that they take out or bring in goods only in accordance with the legal provisions.

All goods imported by a passenger or a member of crew in his baggage are classifiable under Tariff Heading 9803 and levied to a single rate of duty. Such goods need not be classified separately in the Tariff. However, Tariff Heading 9803 does not apply to motor vehicles, alcoholic drinks, and goods imported through courier service or under an import license or a customs clearance permit.

Baggage Rules 2016 specifies the duty free allowance for various categories of passengers such as Indian residents or foreigners residing in India, a tourist arriving from Nepal, Bhutan or Myanmar, such persons arriving from other countries and persons engaged in professions abroad, or transferring their residence to India. It also deals with jewellery, unaccompanied baggage, application of the Rules to members of crew, etc. The goods (barring specified exceptions) in excess of the duty free allowance will attract the duty rate specified at 9803 (38.500 % at present). No free allowance is admissible in respect of unaccompanied baggage.

These rules apply to the crew engaged in a foreign going conveyance also for importation of their baggage at the time of final pay off on termination of their engagement.

The procedures require the incoming passenger to furnish the prescribed declaration regarding the goods he brings in. After the immigration clearance, the passenger can deliver the declaration and walk through the green channel if all his goods are within the duty free allowance. Otherwise, he should get to the red channel, deliver the declaration, pay the appropriate duty and then seek customs clearance.

Any passenger found walking through the green channel with dutiable/prohibited goods or found mis-declaring the quantity, description or value of dutiable goods at the red channel (the baggage is examined where mis-declaration is suspected), is liable to strict penal action including arrest/prosecution apart from seizure/confiscation of the offending goods depending upon gravity of violation detected. Goods for commerce and not personal use become liable to confiscation and the passenger liable to penal action.

Any person can bring into India foreign exchange without any limit. However, declaration of foreign exchange/currency is required to be made in the prescribed Currency Declaration Form where the value of foreign currency notes exceeds US$ 5000/- or equivalent and where the aggregate value of foreign exchange (in the form of currency notes, bank notes, traveler cheques etc.) exceeds US$10,000/- or its equivalent. Any person resident in India returning from a visit abroad (other than from Nepal and Bhutan) may bring Indian currency not exceeding Rs.25000/-

Specific instructions cover imports of baggage of deceased persons, fire arms, pet animals, detained baggage etc. Import of jewellery is allowed subject to specified weight and value limits.

On the departure side, the Customs mainly conduct checks to prevent narcotic drug trafficking, smuggling of other sensitive items such as Indian and foreign currency, wild life products, antiques etc. Indian residents going abroad are allowed to carry Indian currency not exceeding Rs.25,000/- and are permitted to take with them foreign currency without any limit so long as they have been purchased from an authorized foreign exchange dealer.

Customs prominently display the relevant provisions/baggage allowances and list of prohibited/restricted items (endangered species or articles made from flora and fauna such as ivory, musk, reptile skins, furs, antiques, satellite phones, etc.) at all international airports, with the “dos and don’ts”, for information of passengers.

Section 65 of the Customs Act, 1962 enables conduct of manufacture and other operations in a Customs bonded warehouse. The regulations providing for application seeking permission under section 65, conditions of the bond to be executed by the licensee, maintenance of accounts, conduct of special audit and cancellation/suspension of permission etc. are notified through the Manufacture and Other Operations in Warehouse (no.2) Regulations, 2019. The Central Board of Indirect Taxes and Customs (CBIC) has clarified various issues through Circular-34/2019- Customs dated 1st October, 2019.

There is no geographical limitation on where such units can be set up. There is no investment threshold or export obligation. Any existing unit in Domestic Tariff Area (DTA) is also eligible for making an application for manufacture and other operations in a bonded warehouse. The site or building should be suitable for secure storage of goods and discharge of compliances, such as proper boundary walls, gate(s) with access control and personnel to safeguard the premises.

A person can make a combined application for licence for a warehouse under Section 58, along with permission for undertaking manufacturing or other operations in the warehouse under Section 65 of the Act. No renewal of the license is required.

There is no physical control of a unit licensed under Section 65 and Section 58 of the Customs Act, 1962, on a day to day basis. A warehouse keeper has to be appointed, for a premise to be licensed as a private warehouse. He must discharge duties and responsibilities, maintain accounts and also sign the documents, on behalf of the licensee. He should supervise and satisfy himself about the veracity of the declaration/accounts that he is signing. The inspection of goods by customs at the stage of ex-bonding would be done, only if there is indication of risks and not as a matter of routine. Approval of the bond officer is not required for clearance of the goods from the warehouse. The audit of such licensed units would be based on risk criteria. There is no prescribed frequency for such audit.

In the case of capital goods and other goods such as raw materials, components, consumables etc., the import duties (both BCD and IGST) stand deferred till they are cleared from the warehouse for home consumption or are exported. The warehoused goods can be cleared for home consumption as per Section 68 on payment of applicable duty. They can be exported after use, without payment of duty as per Section 69 of the Customs Act. Depreciation is not available if imported capital goods (on which duty has been deferred) are cleared for home consumption after use.

In case the finished goods are exported, the duty on the imported inputs (both BCD and IGST) will not be payable. The duty deferment is without any time limitation. Inputs/raw materials can be imported and deposited in the licensed warehouse without payment of BCD and IGST. No interest liability arises when the duties are paid at the time of ex-bonding the resultant goods. The duties are to be paid only when the resultant goods are cleared for home consumption.

The unit licensed under Section 65 can procure goods from the domestic market for use in manufacture and other operations in the bonded warehouse. The licensee must maintain proper account of receipt/issue/consumption of goods.

The eligibility to export benefits under Foreign Trade Policy would depend upon the respective scheme. If the scheme allows, unit operating under Section 65 can take the benefit. In other words, a unit operating under Section 65 can avail any other benefit, if that benefit scheme allows.

Any person, who, in relation to any goods, does or omits to do any act which act or omission would renders such goods liable to confiscation, abets the doing or omission of such an act or acquires possession of or is in any way concerned in carrying, removing, depositing, harbouring, keeping, concealing, selling or purchasing, or in any other manner dealing with any goods which he knows or has reason to believe are liable to confiscation shall be liable to penalties. The extent of penalty varies depending on the gravity of the offence.

Any person who knowingly or intentionally makes, signs or uses, or causes to be made, signed or used, any declaration, statement or document which is false or incorrect in any material particular, in the transaction of any business for the purposes of the Customs Act, 1962, shall be liable to a penalty not exceeding five times the value of goods. If any goods loaded in a conveyance for importation into India, or any goods transshipped under the provisions of the said Act or coastal goods carried in a conveyance, are not unloaded at their place of destination in India, or if the quantity unloaded is short of the quantity to be unloaded at that destination, and, if the failure to unload or the deficiency is not accounted for to the satisfaction of the Assistant/Deputy Commissioner of Customs, the person-in-charge of the conveyance shall be liable to penalty. Any person who contravenes any provision of the Customs Act, 1962 or abets any such contravention or who fails to comply with any provision of this Act, with which it was his duty to comply, where no express penalty is elsewhere provided for such contravention or failure, shall be liable to a penalty not exceeding Rs.1 lakh.

Whenever the confiscation of goods is authorized the adjudicating authority may, in the case of any goods where the importation or exportation is prohibited under this Act or under any other law for the time being in force, and shall, in the case any other goods, give to the owner of the goods (or from whose possession or custody such goods have been seized), an option to pay in lieu of confiscation such fine as he thinks fit. Such fine shall not exceed the market price of the goods confiscated, less in the case of imported goods the duty chargeable thereon.

If an officer of customs has reason to believe that any person in India or within the Indian customs waters has committed an offence punishable he may arrest such person and shall, as soon as may be, inform him of the grounds for such arrest. Also, every arrested person has to be taken without unnecessary delay to the nearest Magistrate. Further, the arrested person is to be dealt with by the Magistrate, as per the provisions of the Code of Criminal Procedure, 1898. The power to remand an arrested person to judicial custody vests in the Magistrate by virtue of Section 165 of the Cr.PC.

The CBIC has prescribed stringent guidelines for the officers to give authority to search the premises or conveyances where the offending goods are suspected to be stored or of the persons suspected to be indulging in the offence. The extent of punishment, by way of imprisonment, prescribed under the Customs Act, 1962 varies depending on the gravity of the offence. The laws also specify cognizable and non-cognizable offences and suitable provisions for grant of bail. Stringent guidelines have been prescribed by the CBIC for arrest of a person and sanction of prosecution of any person. Usually, these powers are vested at sufficiently senior levels to ensure that unwarranted harassment of any person does not take place. The investigating officers of the Customs can summon persons to give statements. The CBIC has prescribed guidelines for issue of summons and recording of statements.

The Customs Act, 1962 does protect the Customs officers who function in good faith but also contains stringent provisions where the offence is alleged to have been committed by an officer of customs. The powers to sanction for prosecution of the Customs officers are vested with very senior officials of the department.

Section 28 of the Customs Act, 1962 provides for recovery of any duty which has not been levied or has been short levied or erroneously refunded or any interest payable has not been paid, part paid or erroneously refunded provided a notice demanding such duties/interests is issued within the time limit specified in that Section. Where the short levy is by reason of collusion or any willful mis-statements or suppression of facts by the importer the period for issuing the demand notice is five years from the relevant date specified in Section 28.

Generally, the issues involved are mis-declaration of the description of the goods resulting in wrong classification and levy of lesser duty, mis-declaration of value, quantity and weight having a bearing on duty, calculation error resulting in short levy of duty, non-inclusion of certain components of value in the assessable value etc.

Section 28(5) of the Customs Act, 1962 provides that if the importer or the exporter to whom a notice is served under the Section 28(4) of the said Act pays the duty in full or in part as may be accepted by him, and the interest payable thereon under Section 28AA of the said Act and penalty equal to 25% of the duty specified in the notice within 30 days of the receipt of the notice, the proceedings against him shall be deemed to be concluded as to the matters stated therein.

Notice for demand of duty under Section 28 of the Customs Act, 1962 can be issued by respective adjudicating officers depending upon the powers of adjudication.

Upon receipt of the noticee’s reply to a demand notice the matter must be examined in detail and the noticee must be offered an opportunity of ‘personal hearing’ to explain his case before the adjudicating authority. After the personal hearing the adjudicating authority must examine the material placed before him and the relevant legal provisions and come to a conclusion.

The adjudicating authority must take an independent decision as a quasi-judicial authority and pass appropriate orders either determining the amount of short levy in terms of Section 28(8) of the Customs Act, 1962 or dropping the proceedings where it is found that there is no short levy. In either case the adjudicating authority must issue an appealable order. The duties, fines and penalties imposed, if any, are required to be paid immediately, unless the party files an appeal and obtains a stay from the competent authority.

As regards breach of condition of a notification after availing of the exemption there-under, the Supreme Court has held that that the obligation under a notification is a continuing one and the Customs authorities are well within their power to recover the duty whenever it comes to their notice that the importer has failed to fulfill the conditions. In such cases the demand can be issued irrespective of the time limit and the amount can be recovered as per the provisions of the Customs Act.

The confirmed demands are enforced and recoveries effected in accordance with the provisions of Section 142 of Customs Act, 1962. Where it is not possible to recover the amount by adjusting against any money which the Department owes to such persons, or by detaining and selling any goods belonging to such persons which are under the control of the Department, action is initiated to recover Government dues through the District Collector as if it were an arrears of land revenue. Powers are also vested with Customs for attaching/detaining and selling movable or immovable property belonging to or under control of such person.

Importers and exporters are mandatorily required to self-assess the bills of entry or shipping bills or bills of export and pay the duty in terms of Section 17 of the Customs Act, 1962. This self-assessment is subject to verification by the proper officer of the Customs and may lead to reassessment by the proper officer of Customs, if it is found to be incorrect.

However, in terms of Section 17(1) of the Customs Act, 1962 in case an importer or exporter is not able to make self-assessment, he may, request in writing to the proper officer for provisional assessment. Also, in terms of Section 18 of the Customs Act, 1962, in case, the proper officer is not able to verify the self-assessment or make re-assessment of duty or he deems it necessary to subject any imported or export goods to any chemical or other tests or where necessary documents have not been produced or information has not been furnished and it is necessary to make further enquiry, he may direct that the duty leviable on such goods be assessed provisionally.

For making provisional assessment the proper officer is required to estimate the duty to be levied i.e. the provisional duty. Wherever, duty is to be assessed provisionally, in terms of section 18, the importer or exporter shall:

• for the purposes of undertaking to pay on demand the deficiency, if any, between the duty as may be finally assessed or re-assessed and the duty provisionally assessed, execute a bond, in the prescribed format and;
• furnish such security for the payment of duty deficiency as prescribed.

The security to be obtained must be in the form of bank guarantee or a cash deposit, as convenient to the importer. The Central Board of Indirect Taxes and Customs (CBIC) has issued the following guidelines to be followed while obtaining security, where provisional assessment under section 18 of the Customs Act is ordered:

• Imports by Authorised Economic Operator – Tier 1 – Nil
• Imports by Authorised Economic Operator – Tier 2 – Nil in specified cases and 25% of the applicable bank guarantee or cash deposit in other cases
• Imports by Authorised Economic Operator – Tier 1 – Nil in specified cases and 50% of the applicable bank guarantee or cash deposit in other cases
• Imports by Public Sector Undertakings/ Government (Central/ State/UT and their undertakings) – Nil
• Cases referred to Special Valuation Branch (in case of related party transactions and other specified matters) - In cases, where Extra Duty Deposit has been enhanced to 5%, due to the importer not having provided information or documents necessary for SVB inquiries
• Cases related to verification of origin under Free Trade Agreements based on the reasonable belief that the matter involves mis-declaration of origin/ value addition – 100%
• Cases selected on random basis for verification of origin – Nil
• Cases related to verification of signatures and seals under Free Trade Agreements – 100%
• Cases, where the importer is not able to make self-assessment and has sought provisional assessment – As deemed fit by the proper officer
• Cases, where the proper officer deems it necessary to order a provisional assessment, whether for the purposes of chemical test or requirement of information or causing inquiries
  1. Where the differential duty has been estimated – 100%
  2. Where despite best efforts by the proper officer, differential duty cannot be computed – Nil

Cases relating to execution of a bond or undertaking specified as a condition to a notification or those requiring compliance of conditions under allied acts are not to be provisionally assessed under section 18 of the Customs Act.

There are occasions where imported goods may have to be re-exported such as when import goods are found defective or are not found as per specifications or requirements after Customs clearance.

Various capital goods imported for use in execution of certain projects are also often to be re-exported after their use. Sometimes, goods are imported temporarily for say display in exhibitions and re-export thereafter.

Re-exports of such imported goods can be made by sea, air, baggage or post.

Section 74 of the Customs Act, 1962 provides for grant of drawback at 98% of the Customs duties paid at the time of importation, if the goods are re-exported by the importer, subject to certain conditions. The re-export must be made within a maximum period of two years from the date of payment of duty on importation (which period can be extended on sufficient grounds being shown) and at the time of re-exports, the goods have to be identified as the same that were imported.

If such goods are used after importation, reduced amount of drawback is granted on a proportionate basis based on the period of use but if such goods are re-exported after more than 18 months of import no drawback is admissible.

Further, no drawback of the import duty paid is permissible for specific categories of goods such as wearing apparel, tea chests, exposed cinematographic films passed by Film Censor Board, unexposed photographic films, paper and plates and x-ray films. Also, in respect of motor vehicles imported for personal and private use the Drawback is calculated by reducing the import duty paid according to the laid down percentage for use for each quarter or part thereof, but up to maximum of four years.

Goods imported without duty payment under schemes such as duty exemption or EPCG can be re-exported in accordance with conditions stipulated in the relevant exemption notifications.

Section 26A of the Customs Act, 1962 allows refund of import duty if the imported goods are found defective or otherwise not in conformity with the specifications agreed upon between the importer and the supplier of goods. One of the conditions for claiming refund is that the goods should not have been worked, repaired or used after the importation except where such use was indispensable to discover the defects or non- conformity with the specifications. Another condition is that the goods are either re-exported without claiming drawback or abandoned to Customs or destroyed or rendered commercially valueless in the presence of the Proper Officer within a period of 30 days from the date of clearance of imported goods for home consumption. This period of 30 days can be extended by the jurisdictional Commissioner of Customs on sufficient cause being shown. However, no refund shall be available in respect of perishable goods and goods which have exceeded their shelf life or their recommended storage-before-use period.

Sometimes, goods are imported on lease for execution of projects e.g. for oil exploration, for construction of roads, bridges, dams, dredging etc. These are highly expensive equipments that are returned after use in the projects. Such equipments can be imported under exemption notification without duty payment against a bond that these will be re-exported within 18 months and on payment of proportionate duty depending on the period of use at the time of export.

Goods imported for display in exhibitions for a temporary period can be cleared without duty against Carnet issued by the approved agency in the exporting country and a bond that the goods will be re-exported within six months, failing which the duty will be paid on the goods.

Under Section 12 of the Custom Act, 1962 import duties of Customs are leviable on all imported goods, and no distinction is made based on whether the goods are being re-imported after exportation for particular purposes.

Thus, even the goods indigenously manufactured, which had been exported earlier under various export incentive schemes or duty drawback claim or even without any export incentive claim, when re-imported, attract the Customs duty leviable on like import goods (as the duty is on the act of importation. However, there are some exemptions.

To avoid the incidence of double duty on re-imported goods such as when sent abroad for repairs, certain relief from duty has been provided. Similarly, where the goods are indigenously manufactured, they should bear the Central Excise duties or Goods and Services Tax (GST), as applicable, which may not have been paid at the time of exportation. Further, the exporters should not retain any benefits obtained as an export incentive if the goods are re-imported.

So, there are exemption notifications. The essential sum and substance of these are as follows:

• On re-import of indigenously manufactured goods, exported under claim of duty drawback or claim of refund of integrated tax paid or exported under bond or under other claim of export incentives, essentially the duties equivalent to the export incentives etc. availed have to be paid, on re- importation. Conversely, if locally manufactured goods were exported on payment of GST, without claiming any rebate, and without claiming any export incentives such as drawback or benefits of the duty exemption schemes or EPCG (Export Promotion Capital Goods) schemes, and where the same goods are being returned, then no Customs duties are leviable.
  >Further, when any goods are exported without claiming any benefits and re-imported after repairs abroad, duty is to be paid only on a value comprising fair cost of repairs including cost of materials used in repairs plus insurance and freight charges both ways.
  >Similarly, in case of re-import of cut and polished precious and semi-precious stones exported for treatment abroad as referred to in Paragraph 4A.20.1 of the Foreign Trade Policy, duty is to be paid on a value comprising of the fair cost of treatment carried out including cost of materials used in such treatment plus insurance and freight charges, both ways.
  An important point is that exemption benefit is available if the Assistant/Deputy Commissioner of Customs is satisfied that the goods are the same which were exported earlier and certain other conditions as laid down in the relevant notification are fulfilled.
• Similar duty exemption provisions exist in case of re-import of the goods falling within the Fourth Schedule to the Central Excise Act, 1944.
• Goods manufactured in India or parts thereof that are re-imported for repairs or reconditioning or reprocessing or refining or remaking etc. are exempt from duty subject to the conditions that the re-importation takes place within a specified period, the goods are re-exported within six months of re-importation, the Assistant/Deputy Commissioner of Customs is satisfied as regards the identity of the goods and certain other conditions to ensure re-export of the goods. The importer must furnish a bond that in case of failure to re-export, full import duties will be paid on the goods.
• Re-imported private personal property, which was imported earlier but exported out for any alteration, renovation, repair free of charge etc. is exempt from duty subject to the condition that the goods are repaired on free of charge basis in accordance with the terms of warranty given by the manufacturers and in accordance with the established trade practice provided drawback or other incentives have not been availed. However, certain Custom duties equivalent to the cost of alterations or renovations/additions/repairs, if any, are payable.

Exemptions are also available through specific notifications for :

• Specified goods exported and re-imported after being subjected to specified processes such as coating, electroplating etc.
• Re-import of challenge cups or trophies by Defence units
• Re-import by Armed Forces returning from abroad
• Re-import of engines and parts of aircrafts
• Re-import of catering, cabin equipments etc. by Indian Airlines
• Re-import of goods sent abroad for execution of approved projects

Importers and exporters must be conversant with any prohibitions or restrictions and requirements applicable for imports/exports under the Customs law, the Foreign Trade Policy and other relevant allied laws. Violations of any restrictions/prohibitions under any of these laws can render the goods liable for confiscation and lead to penalties.

Under Section 11 of the Customs Act, 1962, the Central Government has issued notifications prohibiting or restricting imports and exports of goods for maintenance of the security of India, prevention of smuggling, conservation of foreign exchange, safeguarding balance of payments, preventing shortages in the country etc.

In exercise of the powers conferred under the Foreign Trade (Development and Regulation) Act, 1992, the Central Government has notified the Foreign Trade Policy and the Indian Trade Classification (Harmonised System) of Import/Export items prohibiting import of certain goods, restricting import or export of certain goods subject to obtaining licenses, allowing import or export of certain goods only through State Trading Enterprises and allowing import or export of certain other goods without license but subject to fulfilment of specified conditions. The details can be accessed at the link: http://dgft.gov.in/basiccontent/itchs-schedule-1-import-policy-2017 and http://dgft.gov.in/itc-hs-schedule-2-export-policy. The details of the Foreign Trade Policy can be accessed at the link: http://dgft.gov.in/foreigns-trade-policy-2015-20- and the procedures for obtaining the import or export licenses at the link : http://dgft.gov.in/hand-book-of-procedures-2015-20-primary-tabs.

The General Notes to the Schedule 1 of Indian Trade Classification (Harmonised System) of import Export Items specifies several compliance requirements for import of:

• Items under mandatory Bureau of Indian Standards certification
• Generator sets
• Electronics and Information Technology Products
• Primary Agricultural Products
• Edible/Food Products, including Tea
• Meat and Meat Products including Poultry Products
• Genetically Modified Food/Feed, Genetically Modified Organism (GMOs) and Living Modified Organisms (LMOs)
• Beef and Products containing Beef
• Ozone Depleting Substances
• Hazardous Waste
• Hazardous Chemicals
• Waste Oil/Sludge
• Whale Shark (Rhincodon typus) & Parts and Products of this species
• Textile and Textile Articles Containing Hazardous Dyes
• Woolen Textiles and Woolen Blended textiles
• Alcoholic Beverages
• Cigarettes or any other Tobacco product
• Second Hand Goods
• Metallic Waste and Scrap
• Multichannel GSM/CDMA receivers, transmitters and trans-receivers
• Human biological samples

Separate Public Notices are also issued by the Director General of Foreign Trade (DGFT) regarding registration of orders prior to import of items such as iron and steel.

Similarly, the General Notes to the Schedule 2 of Indian Trade Classification (Harmonised System) of import Export Items specifies several compliance requirements for export of :

• Wild Life
• Flora and Endangered Species
• Special Chemicals, Organisms ad Materials (SCOMET items)
• Finished Leather

From time to time, the DGFT issues Public Notices prescribing conditions such as minimum export prices for export of various items.

Besides, there are restrictions on imports under various laws such as:

• the Food Safety and Standards Authority Act, 2006,
• Destructive Insects & Pests Act, 1914, PFS Order, 1989 and Plant Quarantine (Regulation of Import into India) Order, 2003:
• Drugs and Cosmetics Act, 1940 and Drugs and Cosmetics Rules, 1945:
• Cigarettes and other Tobacco Products (Prohibition of Advertisement and Regulation of Trade and Commerce, Production, Supply and Distribution) Act, 2003 and the Cigarettes and other Tobacco Products (Packaging and Labeling) Rules, 2008,
• Environment (Protection) Act, 1986 and Hazardous and Other Wastes (Management and Trans-boundary Movement) Rules, 2016 and Manufacture, Storage and Import of Hazardous Chemicals Rules 1989 and Ozone Depleting Substances Rules, 2000
• Live Stock Importation Act, 1898

The restrictions prescribe specified documents to be submitted for clearance of imported goods.

Safeguard measures are imposed by the Central Government through a notification issued in exercise of the powers conferred under Section 8 of the Customs Tariff Act, 1975, if it is satisfied that any article is imported into India in such increased quantity and under such conditions so as to cause or threaten to cause serious injury to domestic industry.

The safeguard measures can be by way of application of tariff-rate quota or such other measure (usually a safeguard duty), as the Government may consider appropriate. The levy should be based on recommendations, after due investigations, by the Designated Authority, the Director General of Trade Remedies, as prescribed under the Customs Tariff (Identification and Assessment of Safeguard Duty) Rules, 1997.

The Designated Authority may initiate an investigation on the basis of representation by domestic producer of an article which is identical or alike in all respects to the article under investigation or any information received from any Commissioner of Customs or any other source.

The Designated Authority must investigate whether there is:

• Increased imports of the article under investigation, whether in absolute terms or relative to domestic production.
• Serious injury or imminent danger of serious injury to the domestic industry;
• Causal link between imports and the alleged serious injury or threat of serious injury

Serious injury means an injury causing significant overall impairment in the position of a domestic industry.

The domestic industry asking for protection through safeguard measures must submit a statement of efforts being taken to cope with the competition from imports. This adjustment may include plans for technological up-gradation, enhancement of capacity, installation of balancing equipments and so on. The adjustment programme must be credible. The Designated Authority must consider the efforts being taken, or planned to be taken, or both, to make a positive adjustment to import competition. The duration of safeguard measures should be just enough to protect the domestic industry from import competition till the credible adjustment programme is implemented.

In critical circumstances, provisional safeguard measures can be applied based on preliminary investigations and final safeguard measures may be applied after conclusion of the investigations and recommendations of the Designated Authority. ‘Critical circumstances’ means circumstances in which there is clear evidence that imports have taken place in such increased quantities and under such circumstances as to cause or threaten to cause serious injury to the domestic industry and delay in imposition of provisional safeguard duty would cause irreparable damage to the domestic industry.

Usually, safeguard measures are applied for a period not exceeding two hundred days and continued thereafter if dumping persists, if the surge in imports continues to cause serious injury to domestic industry. But duration of such safeguard measures cannot exceed four years.

Any safeguard duty imposed must be on a non-discriminatory basis and made applicable to all imports of such article, irrespective of its source. However, imports from any developing country that accounts for less than 3% (maximum 7% from all such countries) of imports of like product or any country specifically mentioned in the notification can be excluded from safeguard measures.

Safeguard duty is exempted on imports by export oriented units and Special Economic Zone units and imports under advance authorizations. However, this exemption must be surrendered, if the same goods or the finished goods manufactured from such imported inputs are sold in the domestic market.

Separate Rules for safeguard measures are prescribed for implementation of bilateral trade agreements between India and Japan, India and Korea, India and Malaysia and India and Singapore and the trade agreement between India and Association of South East Asian Nations.

Entry No. 83 of List 1 to Schedule VII of the Constitution empowers the Union Government to legislate and collect duties on imports and exports. Accordingly, the Customs Act, 1962, effective from 1-2-1963 provides vide its Section 12 for the levy of duties on goods imported into or exported from India.

The items and the rates of duties leviable thereon are specified in two Schedules to the Customs Tariff Act, 1975. The First Schedule specifies import items in systematic and well considered categories, in accordance with an international scheme of classification of internationally traded goods known as “Harmonized System of Commodity Classification” and specifies the rates of import duties thereon, as prescribed by the legislature. The duties on imported items are usually levied either on specific or ad valorem basis, but in a few cases specific-cum-ad-valorem duties are also levied. The Second Schedule incorporates items that are subject to exports duties and the rates of duties thereof.

Various provisions under the relevant Customs Acts empower the Central Government to notify Rules and Regulations. Accordingly, the government has notified about 50 Regulations and over 40 Rules. These Rules and Regulations have statutory force.

Similarly, under the relevant Customs Acts, the Central Government has powers to issue notifications. There are two types of notifications. The notifications that have effect on the duty rates (for example, the notifications granting exemptions) are known as tariff notifications. Usually they bear a number, date and year of issue and expressed, for example as 54/2018-Customs dated 20th July 2018. Then, there are notifications that have no bearing on the duty rates, known as non-tariff rates. They also bear a number, date and year of issue but are expressed, for example, as 54/2018-Customs (NT) dated 19th June 2018. The letters NT denote a non-tariff notification.

The Central Board of Indirect Taxes and Customs (CBIC) issues circulars and instructions. The CBIC circulars are usually clarificatory in nature where as the instructions are issued for the purpose of uniformity in the classification of goods or with respect to the levy of duty thereon, or for the implementation of any other provision of this Act or of any other law for the time being in force. The Customs field formations are bound to follow the circulars and instructions. The clarificatory circulars, however, are not binding on the trade or the quasi judicial authorities or the Tribunal or the Courts. They are bound only by statutory provisions.

The Customs Houses issue Public Notices or Trade Notices or Facility Notices mostly to inform the trade about various procedural issues. They also issue Standing instructions to the operating staff mostly on procedural and administrative matters.

The powers of the Central Government to notify Rules, Regulations, tariff notifications and non-tariff notifications are known as delegated legislations. Once notified, these are placed before the Parliament for ratification.

An officer of customs may exercise the powers and discharge the duties conferred or imposed under this Act on any other officer of customs who is subordinate to him. In relation to any functions to be performed under the Customs laws, the officer of customs who is assigned those functions is known as the ‘proper officer’.

The officers of the Central Excise Department, Navy, Police, Central or State Governments employed at any port or airport and such other officers of the Central or State Governments or a local authority as are specified by the Central Government in this behalf by any notification in the Official Gazette are empowered and required to assist the Customs officers in the enforcement of the Customs laws.

ICDs and CFSs function like a dry port and offer Customs clearance facilities at the doorstep of importers and exporters. They are equipped with fixed installations for temporary storage and handling of import/export laden and empty containers carried by any mode of transport under Customs control. All the activities related to clearance of goods for home consumption, warehousing, temporary admissions, re-export, temporary storage for onward transit and outright export, transshipment, take place from such stations.

An ICD is a “self contained Customs station‟ like a port or air cargo unit where activities like filing Customs manifests, bills of entry, shipping bills and other declarations take place. ICD has its own automated system and station code with in-built capacity to enter examination reports and enable assessment of documents, processing of manifest, amendments etc.

A CFS is only an extension of a Customs station set up with the main objective of decongesting the ports. In a CFS only some of the Customs processes, mainly the examination of goods, are normally carried out by Customs besides stuffing/destuffing of containers and aggregation/segregation of cargo. Thus, Custom’s functions relating to processing of manifest, import/export declarations and assessment of bill of entry/shipping bill are performed in the Custom House/Custom Office that exercises jurisdiction over the parent port/airport/ICD/LCS to which a CFS is attached.

Where the Customs Stations have facility of automated processing of documents, terminals are provided at CFSs for recording the result of examination, etc. In some CFSs, extension Service Centers are available for filing documents, amendments etc. However, the assessment of the documents etc. is carried out centrally. An ICD may also have a number of CFSs attached to it.

An ICD/CFS must have safe, secure and spacious premises for loading, unloading, handling and storing of the cargo for the projected capacity and for the examination and other operations, boundary wall, internal service roads, gate complex with separate entry and exit, storage facility, separately for imported, export and transshipment goods, electronic weigh-bridge and other weighing and measuring devices, adequate parking space for vehicles, equipment and adequate manpower for loading, unloading, stacking, handling, stuffing and de-stuffing of containers, storage, dispatch and delivery of containers and cargo etc., including standard pavement for heavy duty equipment for use in the operational and stacking area, fully furnished office accommodation for Customs, Customs Electronic Data Interchange (EDI) Service Centre, premises for user agencies with basic amenities and facilities, computerized system for location and accounting of goods, and processing of documents, adequate air-conditioned space for power back up, hardware, networking and other equipment for secure connectivity with the Customs Automated system and for exchange of information between Customs Community partners, facilities for auction, including e-auction, for disposal of uncleared, unclaimed or abandoned cargo, facilities for installation of scanning equipment and security and access control to prohibit unauthorized access into the premises.

The procedures for approval of appointment, renewal, suspension or revocation of “Customs Cargo Services Provider” (CCSP) i.e. any person responsible for receipt, storage, delivery, dispatch or otherwise handling of imported goods and export goods including a custodian as referred to in section 45 of the Customs Act, 1962 are spelt out in Handling of Cargo in Customs Areas Regulations, 2009. These Regulations also spell out the responsibilities of the CCSP.

To safeguard the revenue interests against loss, damage, deterioration, destruction of cargo during their receipt, storage, delivery, dispatch or other handling, the CCSP is required to furnish suitable bond backed by suitable security to the Customs and take out adequate insurance policy. CCSP can get recognition as Authorised Economic Operator.

Customs law provides an alternative channel for resolution of disputes without prolonged litigation in adjudication/appeals/revisions etc. by constituting Settlement Commission. Any importer, exporter or any other person, in respect of a case relating to him, may file an application before the Settlement Commission to have the case settled. Customs (Settlement of Cases) Rules, 2007 and Customs and Central Excise Settlement Commission Procedure, 2007 prescribe the disciplines to be followed. The applicant should accept a minimum of Rs. 3 lakhs additional amount of duty.

The Settlement Commission shall not accept any application unless the applicant has filed a bill of entry, or a shipping bill, or a bill of export, or made a baggage declaration, or a label or declaration accompanying the goods imported or exported through post or courier, as the case may be, and in relation to such document or documents, a show cause notice has been issued to him by the proper officer, the additional amount of duty accepted by the applicant in his application exceeds three lakh rupees and the applicant has paid the additional amount of customs duty accepted by him along with interest due. The Settlement Commission will not entertain cases that are pending in CESTAT or in any Court or matters relating to interpretation of classification of the goods or in relation to which any offence under the Narcotics Drugs and Psychotropic Substances Act, 1985 has been committed.

The procedure prescribed for Settlement Commission essentially requires examination of the application for its acceptability, payment of additional duty admitted by the applicant, calling and examination of records from jurisdictional Customs authorities, getting further enquiries/investigations caused from Commissioner of Customs or Commissioner (Investigation) attached to Settlement Commission, giving opportunity for detailed submission to the applicant and passing order by the Commission.

The Settlement Commission may, if it is satisfied that the applicant has co-operated in the proceedings before it and has made a full and true disclosure of his duty liability, grant the applicant, subject to such conditions as it may think fit to impose, immunity from prosecution for any offence under this Act and also either wholly or in part from the imposition of any penalty and fine with respect to the case covered by the settlement.

During the proceedings, the Commission may also order provisional attachment of any property belonging to the applicant for the purpose of protecting the interests of the revenue.

Every order of settlement shall be conclusive and no matter covered by such order shall be reopened in any proceedings. Proceedings before the Commission are deemed to be judicial proceedings. In certain situations, the applicant is barred from applying for settlement again.

Any person holding a valid Importer-exporter Code Number or exporting any goods to India or with a justifiable cause to the satisfaction of the Advance Ruling Authority can seek a binding ruling in advance, on customs matters from the Advance Ruling Authority in respect classification of goods, applicability of an exemption notification, principles of valuation or determination of origin. The Authority may call for relevant records, examine the application and the records called for, and after hearing the applicant pronounce its advance ruling on the question specified in the application. The advance ruling shall be binding only on the applicant who had sought it, in respect of the matter referred and on the jurisdictional Customs officers. The applicant or the department can appeal against the order to the Appellate Authority for Advance Ruling. The Authority for Advance Rulings constituted under section 245-O of the Income-tax Act, 1961 shall be the Appellate Authority for deciding appeal.

Special Economic Zones (SEZs) are geographically delineated areas that are treated as foreign territory for certain specified purposes. The activities of SEZs and its units are governed by the provisions of the SEZ Act, 2005 and SEZ Rules, 2006. SEZ Scheme is administered by the Ministry of Commerce & Industry.

The Central Government can notify any area as a SEZ to serve the objectives of generation of additional economic activity, promotion of exports of goods and services, promotion of investment from domestic and foreign sources, creation of employment opportunities and development of infrastructure.

SEZs may be set up for manufacturing of goods or rendering services or both and may be multi-product, sector specific, or Free Trade and Warehousing Zone (FTWZ). The Board of Approvals (BOA) approves proposals for establishing SEZs and providing infrastructure facilities. Its functions include approving authorized operations of SEZ developer/co-developer.

Unit Approval Committees (UAC) notified for each SEZ, with Development Commissioner (DC) who has administrative control over the SEZ as chairperson, accords approval for setting up units in SEZ. UACs monitor and supervise compliance of conditions subject to which the letters of Approval (LOA) are granted to SEZ units.

The SEZs can be set up either jointly or severally - by the Central Government, State Government, or any person. Such person or body is termed as developer/co-developer of the SEZ. A co-developer is a person who is allowed to provide any infrastructure facility in the SEZ in accordance with an agreement with the developer and as approved by the BOA. The State Government is required to forward the proposals for setting up of a SEZ to the BOA along with its recommendations, and where the BOA approves a proposal received directly, the applicant should obtain concurrence of State Government within 6 months from the date of approval. The BOA may approve as such or modify and approve a proposal for establishment of a Special Economic Zone, subject to the requirements of minimum area of land and other terms and conditions prescribed

Any person, who intends to set up a Unit for manufacture of goods or rendering services in a Special Economic Zone, may submit a proposal to the DC concerned, who is required to submit the same to the UAC for its approval, which may approve or approve with modification or reject a proposal placed before it.

The LOA granted to a Unit shall be valid for one year (extendable subject to conditions) within which period the Unit must commence production or service or trading or FTWZ activity. The LOA shall be valid for five years from the date of commencement of production or service activity and it shall be construed as a license for all purposes related to authorized operations. After the completion of five years from the date of commencement of production, the DC may, at the request of the Unit, extend validity of the LOA for a further period of five years.

The performance of the Unit is monitored by the UAC. The SEZ units must achieve positive NFE, which is calculated cumulatively for a period of 5 years from the commencement of production, subject to prescribed conditions.

A SEZ unit or developer/co-developer may import or procure from the domestic tariff area (DTA) without payment of duty, taxes or cess or procure from DTA after availing export entitlements or procure from other Units in the same or any other SEZ or from Export Oriented Unit (EOU) all types of goods, such as capital goods (new or second hand), raw materials, semi-finished goods, (including semi-finished Jewellery) component, consumables, spares goods and materials for making capital goods etc. required for authorized operations except items prohibited items under the Foreign Trade Policy.

The DTA supplier supplying goods or services to a unit or developer may clear the goods or services, either (as in case of zero-rated supply as per Goods and Service Tax (GST) laws) without duty/tax payment under bond or undertaking or on payment of duty/tax under refund/rebate claim under the relevant GST or excise laws. The supplier can claim refund of the unutilized Cenvat credit or input tax credit (ITC) on account of supplies to SEZ developer/unit without payment of duty/tax.

The Customs guard the entry and exit points of an SEZ.

Goods(or services) procured by unit or developer, on which (GST) exemption has been availed but without any availment of export entitlement, shall be allowed admission into SEZ on the basis of documents prescribed. The goods procured by a unit or developer under claim of export entitlement shall be allowed admission into SEZ on the basis of documents prescribed and a bill of export filed by the supplier. A copy of the documents prescribed or copy of bill of export with an endorsement by authorized officer that goods have been admitted in full into SEZ shall be treated as proof of export.

A unit may export goods or services as per the terms and conditions of LOA including agro-products, partly processed goods, subassemblies and components except items prohibited under the Foreign TradePolicy. The Unit may also export by-products, rejects, waste scrap arising out of the manufacturing process.

A unit may sub-contract a part of its production or any production process, to a unit in the DTA or in a SEZ or EOU with prior permission of the Specified Officer to be given on an annual basis. A developer/co-developer may also temporarily remove the goods, procured or imported duty free by them for their authorized operations, to a place in the DTA or a Unit in the same or another SEZ or EOU for sub-contracting a process, with prior permission and subject to specified conditions.

A Unit may on the basis of annual permission from the Specified Officer undertake subcontracting for export on behalf of a DTA exporter subject to conditions prescribed.

A Unit may sell goods and services including rejects, wastes, scraps, remnants, broken diamonds, by-products arising during the manufacturing process in the DTA on payment of applicable Customs Duties subject to fulfillment of prewcribed conditions. Valuation of the goods cleared into DTA shall be determined in accordance with Customs laws as applicable to goods when imported into India. Goods procured from DTA by a Unit and supplied back to DTA, without substantial processing, shall be subject to procedures and conditions prescribed for re-import of goods from outside India.

SEZ Units can remove the goods into DTA temporarily without duty payment for the purpose of display, export promotion, exhibition job work, test, repair, refining, and calibrationsubject to prescribed conditions.

After advance intimation to the Specified Officer, a Unit may destroy, without duty payment, goods procured from DTA or goods imported or goods manufactured/produced by the Unit including rejects, waste, scrap subject to prior environmental clearance if any required for such destruction. Where it is not possible to destroy goods within the SEZ, destruction of goods may be carried out outside the SEZ with the permission of Specified Officer and in the presence of the Authorized Officer. However, destruction of precious metals, diamond, precious stones and semi-precious stones is not allowed.

A Unit may opt out of SEZ with the approval of DCand subject to payment of applicable duties/taxes on the imported or indigenous capital goods, raw materials, components, consumables, spares and finished goods in stock. If the unit has not achieved positive NFE, the exit may be subject to penalty. Where a gems and jewellery unit ceases its operation, gold and other precious metals, alloys, gem and other materials available for manufacture of jewellery must be handed over to an agency nominated by the Central Government at a price to be determined by that agency.

DC can permit a Unit, as one time option to exit from Special Economic Zone on payment of duty on capital goods under the prevailing EPCG (Export Promotion Capital Goods) Scheme

Every Developer and entrepreneur is entitled to Drawback of duties on goods brought from the DTA into an SEZ. Drawback can also be claimed by the DTA supplier on the basis of the disclaimer issued by the SEZ Unit/Developer from the Commissioner of Central Excise/ Central GST having jurisdiction over the DTA unit.

Any supply of dutiable goods by a SEZ developer/Unit to DTA must be under a bill of entry and chargeable to duties of customs leviable on such goods when imported into the country.

There are three types of Customs audit i.e Transaction Based Audit (TBA), Theme Based Audit (Thba) And Premises Based Audit (PBA).

TBA does not normally require the auditor to visit the premises of the exporter/importer and the audit can be conducted at the Customs office. Although the goods have already been released from Customs control, yet Customs has the legal authority to collect duty that is short levied or non-levied or carry out a check for purposes of verifying compliance to other laws and impose penalties if irregularities are found. The scope of audit in this method encompasses examination of bills of entry/bill of import/import declaration, invoice cum packing lists, import licenses/authorizations and other records of transaction relating to imported goods as submitted by the importer during the process of clearance by Customs and check the accuracy and correctness of assessment of duty and compliance of all legal requirements under Customs Act or any other laws. Similarly, for exports it involves examination of shipping bills/bills of export/export declarations, invoice cum packing lists, licenses/authorizations and other records of transaction relating to export goods as submitted by the exporter during the process of clearance and check the accuracy and correctness of value, duty (if applicable) and compliance of all legal requirements under Customs Act or any other law.

Purpose of ThBA reporting is to conduct “focused audit” instead of a “comprehensive audit”, so that limited resources are directed to check/verify compliance of important issues or sectors. The results obtained from ThBA assists the policy makers to check compliance level of a particular industrial or trade sectors or areas so that compliant sectors may be extended greater facilitations. It is a value-adding approach that helps the Auditors to determine, consolidate and report high-level insights in the business transactions and practices prevalent in a particular industry/ sector. ThBA may have both compliance and performance audit objectives. The objectives of such audits are to focus on a particular audit objective across sectors or entities. To illustrate, if there is surge in import of gold and the reasons and its impact on the economy is to be studied, then thematic audit would be the best method of audit for such evaluation. Similarly, if a particular duty exemption benefit extended across various importers of a particular industry has to be studied, then such an approach may be adopted.

PBA is aimed at verifying the compliance level of the auditee as a whole, by examining, if the internal control systems of the auditee are robust enough to prevent systemic risk to revenue or other compliances. During PBA, the procedure for verification covers inspection of goods, all transactions as a whole and extends to examination of bills of entry, bills of import, import declaration, import licence or authorization, shipping bills, bills of export, export declaration, export licence or authorization, bills of lading, country of origin certificates, invoice, packing lists, sales contracts, other financial or non-financial documents or records and the accounting system of the auditee, whether kept in the written or printed or electronic form. This gives the auditors a holistic picture of the auditee’s business by checking internal consistencies between records, business transactions and internal procedures, so as to assess the level of compliance. Issues that may not be identified at the transaction level due to complexities of business can be better discovered or ascertained once the business structure and records are verified in totality.

Different audit circles are constituted, different selection criteria for audit are adopted and different audit plans and schedules are drawn up for the three types of Customs Audits.

A critical component of The World Bank’s Ease of Doing Business (EODB) Index rankings 2019 is its ‘Trading Across Borders’ category in which India now ranks at 80, a huge jump of 66 ranks from 146 in 2018. This was made possible largely due to several reform measures initiated and implemented by the Central Board of Indirect Taxes and Customs (CBIC) which inter alia include SWIFT (Single Window Interface for Facilitating Trade), e-Sanchit, DPD (Direct Port Delivery), revised AEO (Authorised Economic Operators) programme, RFID (Radio Frequency Identification) e-seal programme, Turant Customs etc. which combine to reduce the time and cost of clearance of goods in the various Customs ports.

Importers, exporters, customs brokers, shipping lines, airlines or their agents have the facility to use Digital Signature Certificate for filing Customs process documents viz. Bills of Entry, Shipping Bills, IGM (Import General Manifest - General Declaration and Cargo Declaration), EGM (Export General Manifest -General Declaration), CGM (Cargo General Manifest) through Remote electronic Data Interchange (EDI) System (RES). Besides AEO, all importers, exporters using services of Customs Brokers, shipping lines and air lines are required to file customs documents under digital signature certificates mandatorily. The Risk management System (RMS) processes the data through a series of steps and produces an electronic output for the ICES. This output determines whether a particular Bill of Entry or shipping bill will be taken-up for appraisement or examination or both or be cleared after payment of duty without assessment and examination. The duty payment, out of charge order, let export order, e-gate pass are all carried out on-line.

The facility of 24x7 Customs clearance is now made available at 20 sea ports besides 17 Air Cargo Complexes. The CBIC has amended the Customs (Fees for Rendering Services by the Customs Officers) Regulations, 1998 to provide that at 24×7 customs ports and airports, no fee i.e. merchant overtime fee (MOT) shall be collected in lieu of the services rendered by the customs officers. The CBIC has instructed that export consignments of perishable agricultural goods should be examined only in cases of specific intelligence and should be given Customs clearance on the same day itself.

Customs SWIFT (Single Window Interface for Facilitating Trade) enables importers/exporters to file a common electronic ‘Integrated Declaration’ on the ICEGATE portal. The Integrated Declaration compiles the information requirements of Customs, FSSAI (Food Safety and Standards Authority of India), Plant Quarantine, Animal Quarantine, Drug Controller, Wild Life Control Bureau and Textile Committee and it replaces nine separate forms required by these 6 different agencies and Customs. With the roll-out of the Single Window, CBIC has also introduced an Integrated Risk Management facility for Partner Govt. Agencies (PGAs), which ensure that consignments are not selected by agencies routinely for examination and testing, but based on the principle of risk management. With this development, Indian Customs is amongst few select countries that have functional Single Window clearances, inclusive of multiple PGAs and integrated risk based selection. Implementation of Single Window is by far one of the most complex systems integration efforts that have been taken-up by the Directorate General of Systems. To introduce the Single Window and the ‘Integrated Declaration’, IT Systems government departments and private sector agencies also had to be changed.

Under eSANCHIT, the system allows a trader to submit all supporting documents for clearance of consignments electronically with digital signatures and upload digitally signed Licenses/Permits/Certificates/Other Authorizations (LPCOs). The Partner Government Agencies (PGAs) are also required to upload the LPCOs issued by them. The system transmits the documents to the PGAs and the PGAs verify the documents and give on-line clearances.

Importers who have already been accorded either Authorised Economic Operator (AEO) Tier I, II or III status and importers with a clear track record of compliance and an import volume of 25 Full Container Load (FCL) through a particular port or otherwise in the preceding financial year have been allowed to take Direct Port Delivery (DPD) of their imported goods. This obviates the need of routing their clearance through Container Freight Stations (CFSs).

The CBIC has laid down a simplified procedure for stuffing and sealing of export goods by introducing self-sealing subject to certain conditions. Exporter must inform the details of the premises whether a factory or a warehouse or any other place where container stuffing is to be carried out to the jurisdictional officer at least 15 days before first planned movement of a consignment from his factory premises for consideration of grant of permission by the jurisdictional Commissioner. Customs formation granting the self sealing permission shall circulate the permission along with GSTIN of the exporter to all Customs Houses/Station concerned. Principal Commissioners/Commissioners would also communicate to Risk Management Division (RMD) the Importer Exporter Code of the exporters newly granted permission for self-sealing, exporters already operating under self-sealing procedure, exporters permitted factory stuffing facility and AEOs.

Exporter shall seal container with tamper-proof electronic seal of standard specification before the goods leave the premises. The physical serial number of the electronic seal must be declared by the exporter at the time of filing integrated online Shipping Bill. Prior to sealing the container, exporter must feed data such as name of exporter, IEC, GSTIN (Goods and Service Tax Identification number), description of goods, tax invoice number, name of authorized signatory (for affixing the e-seal) and Shipping Bill number in the electronic seal. Exporter must procure the RFID seals from vendors conforming to the standards specified by the CBIC. All consignments in self-seal containers shall be subject to risk based criteria and intelligence, if any, for inspection/ examination at the port/airport of export. At the port/ICD (Inland Container Depot), Customs officers verify the integrity of the seals to check for any sign of tampering en-route.

With the introduction of self-sealing using RFID e-seals, the Board CBIC has enhanced export facilitation by dispensing the need for exporters seeking the presence of jurisdictional officer for the purposes of supervising stuffing of the cargo at approved premises. This measure reduces transaction costs of exporters since they do not have to incur Merchant Overtime (MoT) charges in respect of such supervision as well as improve their timeliness of their exports. Such facilitation is backed by application of technology in the form of exporters using RFID e-seals since it improves visibility and enhances cargo security during transportation.

The CBIC has introduced ‘Faceless Assessment’ in all ports of India for all imported goods, where the assessment of a bill of entry filed at any port will be carried out by groups (located elsewhere) selected by the EDI system. The key elements of the programme are faceless, contactless and paperless Customs clearance processes. This includes self-registration of goods by importers, automated clearances of bills of entry, digitisation of Customs documents, etc. The objectives sought to be achieved are faster clearance of goods, reduced interface between trade and Customs officers and enhanced ease of doing business. Faceless Assessment, duly supported by paperless and contactless Customs clearance processes, is a critical reform. Turant Suvidha Kendras have been established to accept Bond or Bank Guarantee, carry out any other verifications that may be referred by Faceless Assessment Groups, defacing of documents/permits/licences, wherever required and debit documents/permits/ licences, wherever required.

Many times, the goods that arrive at the gateway customs stations have to be transited to another customs station in the same conveyance. For example, the goods may arrive from Bangladesh for transit in the same conveyance to the land customs station at Nepal (for export to Nepal) or for transit to any Inland Container Deport (ICD) at say Delhi (for home consumption) or to Indore Special Economic Zone (SEZ).

Similarly, the goods may arrive by a vessel at a port (say at Nhava Sheva) and may be required to be loaded on (transhipped) to another vessel for shipment to another country or to another vessel on a coastal run to another port (say Kochi) in India. The goods may be required to be transhipped to a train for transport to an Inland Container Depot at Pune or transhipped to a road vehicle for transport to SEZ at Surat or to a Container Freight Station (CFS) attached to any of the Customs stations.

Similarly, the customs cleared export goods from an ICD (say Bengaluru) may arrive at a Customs Station (say Chennai port) for transhipment to an ocean going vessel or at the LCS at Bangladesh for transit in the same conveyance. There may also be aircrafts on a domestic run taking cargo in the same conveyance to a destination abroad.

As per the Customs Act, 1962 duty becomes payable immediately after imported goods are landed at a port or airport. To avoid payment of duty at the port of landing in cases where goods are to be carried to another port/airport or ICD/CFS or to a port/ airport abroad, the Customs Act, 1962 provides a facility of transshipment of cargo without payment of duty. The goods can be transshipped from one port/airport to another port/airport/ICD/CFS either by vessel, air, rail or road or by combination of more than one such mode of transport.

The disciplines for such transit and transhipment are covered under Sections 53 to 56 of the Customs Act, 1962 read with Goods Imported (Conditions of Transhipment) Regulations, 1995, Sea Cargo Manifest and Transhipment Regulations, 2018, Transhipment of Cargo to Nepal under Electronic Cargo Tracking System Regulations, 2019 and Baggage (Transit to Customs Stations) Regulations, 1967. Certain instructions have also been issued by the Central Board of Indirect Taxes and Customs (CBIC).

For imports, essentially the regulations require filing a bill of transhipment (or its variant) at the time of arrival. This can be done by the carriers or their agents while filing the import report or import manifest. The arrival manifest also can be filed by an ‘authorised carrier’ which means an authorised sea carrier, authorised train operator or a custodian, registered with the Customs and postal authority. Thereafter, a transhipment permit is granted for movement of the cargo to other destinations. In the automated Transhipment Module, the SMTP (Sub Manifest Transshipment Permit) portion of the IGM itself is treated as a request for transshipment. The system allows transhipment of the containers. For SEZ Cargo, transhipment permit is granted on copy of bill of entry filed at the SEZ Customs station.

For exports, the cargo customs cleared at the ICD/CFS move to the gateway Customs Stations under cover of transference copies of shipping bills and the export goods are manifested for the final destination through the gateway port. For movement from SEZ to gateway ports, similar procedure is prescribed,

Detailed procedures are also prescribed for furnishing bonds backed by necessary bank guarantee (where necessary) for securing the interests of revenue, export of cargo in containers and closed bodied trucks from ICSs/CFSs through LCS, movement of goods under TIR carnets, transhipment of cargo by air, bonded trucking facility, carriage of cargo on domestic flights, movement of courier bags on domestic segments of international flights, movement of imported goods from a port direct to CFS of another customs station and so on.

The Sea Cargo Manifest and Transhipment Regulations, 2018 prescribes the disciplines for registration of authorised carrier, deliver of arrival manifest, delivery of departure manifest, responsibilities of the authorised carrier under these regulations, suspension of operations or revocation of registration of an authorised carrier, procedure for revocation of registration and so on.

Section 12 of the Customs Act, 1962 mandates levy of customs duty on goods imported into or exported out of India at the rates specified in the Customs Tariff Act, 1975 that has two schedules – the first schedule for duty rates on imported goods and the second schedule for duty rates on export goods. The first schedule specifies standard rate or in the case of imports from some countries, the preferential rates. This is known as Basic Customs Duty (BCD).

Additional Customs Duty, (commonly known, rather erroneously as Countervailing Duty - CVD) is levied on imported goods through Section 3(1) of the Customs Tariff Act, 1975. This is equivalent to the excise duty leviable on a like article if produced or manufactured in India. Since the introduction of Goods and Services Tax (GST) from 1st July 2017, only the items falling under Schedule IV to the Central Excise Act, 1944 (petroleum products, tobacco) attract Central Excise Duty. In case of alcoholic liquors, tax at uniform rate as notified by the Central Government is levied irrespective of different State excise duty rates in various States.

In addition, Additional Duty of Customs, under Section 3(3) of the Customs Tariff Act, 1975 is leviable on imported goods to counter-balance the excise duty leviable on any raw materials, components and ingredients of the same nature as, or similar to those, used in the production or manufacture of such article at notified rates on notified items.

Besides, Additional Duty of Customs (commonly referred as Special Additional Duty or SAD) is leviable on imported goods under Section 3(5) of the Customs Tariff Act, 1975 at the rate of 4% to counter-balance the sales tax, value added tax, local tax or any other charges for the time being leviable on a like article on its sale, purchase or transportation in India.

Integrated GST (IGST) is levied on imported goods through Section 3(7) of the Customs Tariff Act, 1975 at such rate as is leviable under Section 5 of the IGST Act, 2017 on a like article on its inter-state supply in India.

Similarly, a Cess known as GST Compensation Cess is levied through Section 3(9) of the Customs Tariff Act, 1975 on imported goods at such rate as is leviable under Section 8 of the Goods and Services Tax (Compensation Cess) Act, 2017 on a like article on its inter-state supply in India.

With a view to protect the domestic industries from dumping, surge in imports and subsidized articles, anti-dumping duty, safeguard duty and countervailing duty are levied on articles notified under Sections 9A, 9 and 8B of the Customs Tariff Act, 1975. The details are discussed separately.

Section 6 of the Customs Tariff Act, 1975 gives the Central Government powers to levy protective duties on imported goods as recommended by Tariff Commission where it is considered necessary to take immediate action to provide for the protection of the interests of any industry established in India. Sections 8 and 8A of the Customs Tariff Act, 1975 give the Central Government emergency powers to raise the duty on imported and export goods respectively. These are usually reflected in the first and second schedules of the Customs Tariff Act, 1975.

In terms of Section 134 of the Finance Act, 2003, National Calamity Contingency Cess is imposed on specified items. At present, it is imposed at Rs.50/- per MT on imported crude oil and at the rate of 1% on ad valorem on import of mobile phones, two-wheelers, motor cars and multi-utility vehicles.

Through Section 111 of the Finance Act, 2018, a Road and Infrastructure Cess at the rate of Rs. 8/- per litre on import of is leviable on motor spirit commonly known as petrol and high speed diesel oil for the purpose of financing infrastructure projects.

In terms of Section 110 of the Finance Act, 2018, Social Welfare Surcharge of 10% is levied on imported goods to fulfil the commitment to provide and finance education, health and social security.

Through Section 141 of the Finance Act, 2020, a Health Cess of 5% is imposed on specified medical devices for the purpose of financing the health infrastructure and services.

Section 12 of the Customs Act, 1962 mandates levy of customs duty on goods imported into or exported out of India at the rates specified in the Customs Tariff Act, 1975 that has two schedules – the first schedule for duty rates on imported goods and the second schedule for duty rates on export goods. The first schedule specifies standard rate or in the case of imports from some countries, the preferential rates. This is known as Basic Customs Duty (BCD).

Additional Customs Duty, (commonly known, rather erroneously as Countervailing Duty - CVD) is levied on imported goods through Section 3(1) of the Customs Tariff Act, 1975. This is equivalent to the excise duty leviable on a like article if produced or manufactured in India. Since the introduction of Goods and Services Tax (GST) from 1st July 2017, only the items falling under Schedule IV to the Central Excise Act, 1944 (petroleum products, tobacco) attract Central Excise Duty. In case of alcoholic liquors, tax at uniform rate as notified by the Central Government is levied irrespective of different State excise duty rates in various States.

In addition, Additional Duty of Customs, under Section 3(3) of the Customs Tariff Act, 1975 is leviable on imported goods to counter-balance the excise duty leviable on any raw materials, components and ingredients of the same nature as, or similar to those, used in the production or manufacture of such article at notified rates on notified items.

Besides, Additional Duty of Customs (commonly referred as Special Additional Duty or SAD) is leviable on imported goods under Section 3(5) of the Customs Tariff Act, 1975 at the rate of 4% to counter-balance the sales tax, value added tax, local tax or any other charges for the time being leviable on a like article on its sale, purchase or transportation in India.

Integrated GST (IGST) is levied on imported goods through Section 3(7) of the Customs Tariff Act, 1975 at such rate as is leviable under Section 5 of the IGST Act, 2017 on a like article on its inter-state supply in India.

Similarly, a Cess known as GST Compensation Cess is levied through Section 3(9) of the Customs Tariff Act, 1975 on imported goods at such rate as is leviable under Section 8 of the Goods and Services Tax (Compensation Cess) Act, 2017 on a like article on its inter-state supply in India.

With a view to protect the domestic industries from dumping, surge in imports and subsidized articles, anti-dumping duty, safeguard duty and countervailing duty are levied on articles notified under Sections 9A, 9 and 8B of the Customs Tariff Act, 1975. The details are discussed separately.

Section 6 of the Customs Tariff Act, 1975 gives the Central Government powers to levy protective duties on imported goods as recommended by Tariff Commission where it is considered necessary to take immediate action to provide for the protection of the interests of any industry established in India. Sections 8 and 8A of the Customs Tariff Act, 1975 give the Central Government emergency powers to raise the duty on imported and export goods respectively. These are usually reflected in the first and second schedules of the Customs Tariff Act, 1975.

In terms of Section 134 of the Finance Act, 2003, National Calamity Contingency Cess is imposed on specified items. At present, it is imposed at Rs.50/- per MT on imported crude oil and at the rate of 1% on ad valorem on import of mobile phones, two-wheelers, motor cars and multi-utility vehicles.

Through Section 111 of the Finance Act, 2018, a Road and Infrastructure Cess at the rate of Rs. 8/- per litre on import of is leviable on motor spirit commonly known as petrol and high speed diesel oil for the purpose of financing infrastructure projects.

In terms of Section 110 of the Finance Act, 2018, Social Welfare Surcharge of 10% is levied on imported goods to fulfil the commitment to provide and finance education, health and social security.

Through Section 141 of the Finance Act, 2020, a Health Cess of 5% is imposed on specified medical devices for the purpose of financing the health infrastructure and services.

Imported goods can be stored in a bonded warehouse for clearance for home consumption later. That way, the duty payment can be differed. Sections 57 to 73 of the Customs Act, 1962 deal with warehousing.

Bonded Warehouses can be of three types:

• Section 57 - Public Bonded Warehouses – where goods of any party can be brought in
• Section 58 - Private Bonded Warehouse – where only the goods of the licensee can be brought in
• Section 58A – Special Warehouses – where only notified goods can be brought in – these will be subject to physical control by the Customs

The bonded warehouses are licensed, subject to fulfilment of specified conditions. The license can be cancelled if the stipulated conditions are violated at any time.

For deposit of goods in the warehouse, the importer has to file a Bill of Entry for Warehousing at the gateway Customs. The goods will be valued at the gateway Customs and will be allowed warehousing against bond for thrice the duty amount involved.

The capital goods intended for use in any warehouse wherein manufacture or other operations have been permitted under section 65 can remain in the warehouse till their clearance from the warehouse. Goods other than capital goods intended for use in any warehouse wherein manufacture or other operations have been permitted under section 65 may remain in the warehouse till their consumption or clearance from the warehouse. In case of goods likely to reduce, the Customs can specify how long the goods can remain in the warehouse. Any other goods may remain in the warehouse till the expiry of one year from the date on which the proper officer has made an order for deposit in the warehouse. This period may be extended by one more year in some cases. If such goods remain in a warehouse beyond a period of ninety days, interest at such rates as notified shall be payable on the amount of duty payable at the time of clearance of the goods, for the period from the expiry of the said ninety days till the date of payment of duty on the warehoused goods. In specific circumstances, the Central Board of Indirect Taxes and Customs (CBIC) may waive the interest.

The owner of any warehoused goods may inspect the goods, deal with their containers in such manner as may be necessary to prevent loss or deterioration or damage to the goods, sort the goods or show the goods for sale or even relinquish the title to the goods. Warehoused goods can be transferred to another bonded warehouse subject to specified safeguards. Warehoused goods can be sold or transferred to another person. The transferee can substitute his bond for the person who originally warehoused the goods.

The warehoused goods can be cleared in the domestic market by filing a Bill of Entry for Home Consumption. The Customs duty shall be payable at the rate prevailing on the date of clearance of the goods. The benefit of any exemption notification can be claimed. Goods that remain in the warehouse on the date of expiry of the warehousing period will attract duty at the rate prevailing on the date of such expiry.

The warehoused goods can be exported by filing ex-bond shipping bill. No import duty will be levied on such goods but export duty, if any, shall be payable.

Warehouse rent, penalties or any other charges must be paid before clearance of the goods from the warehouse. The Customs can recover duty if any conditions are violated. The bond can be cancelled, when the goods are cleared from the warehouse.