(i) Introduction to Customs Law including Constitutional Aspects

Customs law in India governs the import and export of goods across the country’s borders and is
primarily codified under the Customs Act, 1962, and the Customs Tariff Act, 1975. These laws
regulate the levy, assessment, and collection of customs duties and provide for procedures
relating to imports and exports, prohibitions on trade, warehousing, adjudication, appeals, and
penalties. The legal authority for the Indian Parliament to enact customs law is derived from the
Constitution of India. According to Entry 83 of the Union List (List I) of the Seventh Schedule,
Parliament has the exclusive power to make laws regarding duties of customs, including export
duties. Additionally, Article 265 of the Constitution lays down that no tax shall be levied or
collected except by the authority of law, reinforcing the requirement of proper legislative
sanction for customs duties. The customs law operates under the broader framework of the
Foreign Trade Policy and international trade agreements, thereby playing a crucial role in revenue
generation and trade regulation.

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(ii) Levy of and Exemptions from Customs Duties

Application of Customs Law

The Customs Act, 1962 applies to the whole of India, including the territorial waters, exclusive
economic zone (EEZ), and continental shelf. It governs all goods brought into or taken out of
India, whether by land, sea, or air. Customs law becomes applicable from the moment the goods
cross the customs frontier of India. It also regulates import/export by post and baggage and
provides for penalties and confiscation in case of violations.

Taxable Event in Customs Law

The taxable event for customs duty is the import or export of goods. More specifically:

In the case of imports, the duty is levied when the goods enter the territorial waters of India and
are brought into the country.

In the case of exports, the taxable event is the movement of goods beyond the territorial waters
of India. This taxable event is the point at which the government gains the authority to levy
customs duties.
Charge of Customs Duty

Section 12 of the Customs Act, 1962 provides for the chargeability of customs duties on goods
imported into or exported from India. The rate of duty is determined as per the Customs Tariff
Act, 1975, which is aligned with the Harmonized System of Nomenclature (HSN) and classifies
goods for the purpose of levying duties. There are primarily two types of duties:

1. Basic Customs Duty (BCD) – levied under the Customs Tariff Act, 1975.

2. Additional Duties – such as Integrated Goods and Services Tax (IGST) under Section 3(7) of
the Customs Tariff Act, and compensation cess as applicable.

The value of imported goods is determined according to Section 14 of the Customs Act, which
refers to the transaction value or assessable value, based on the price actually paid or payable,
including costs like freight, insurance, and loading/unloading charges.

Exceptions to Levy of Customs Duty

Certain goods are either not subject to customs duty or are specifically exempted. For example:

Transit goods (goods passing through India en route to another country).

Goods in transshipment from one port to another.

Duty-free goods under diplomatic privileges.

Goods imported under international agreements, such as those by UN bodies or embassies.

These exceptions ensure that goods not intended for domestic consumption or goods imported
under special conditions are not unnecessarily burdened with customs duties.

Exemptions from Customs Duty

The Customs Act, 1962 and the Customs Tariff Act, 1975 provide for various types of exemptions
from customs duty, which may be either:

1. General Exemptions (Section 25(1)): These are issued by the Central Government through
notifications in the Official Gazette, where it considers it necessary in the public interest to
exempt certain goods or classes of goods from the whole or any part of the customs duty. These
may be conditional or unconditional.

2. Specific Exemptions (Section 25(2)): These are granted for specific cases, such as import by
government authorities or for defence purposes.

Other common exemptions include:

Project imports (e.g., machinery for power plants, etc.).

Goods imported for research and development by recognized institutions.

Baggage rules for duty-free import by passengers.

Import by charitable institutions or NGOs for specified purposes.

Additionally, exemptions may also arise from international treaties and trade agreements, such as
Free Trade Agreements (FTAs), where certain goods are eligible for concessional or zero-duty
rates. However, in such cases, the importer must comply with Rules of Origin (RoO) criteria to
claim exemption.

(iii) Types of Customs Duties

Customs duties in India are levied under the Customs Tariff Act, 1975 and are classified into
several types based on the nature and purpose of imposition. The main types include:

1. Basic Customs Duty (BCD): This is the standard duty levied on the import of goods under
Section 12 of the Customs Act, 1962 and specified in the First Schedule of the Customs Tariff
Act, 1975. The rate varies depending on the classification of goods.

2. Additional Customs Duty (Countervailing Duty or CVD): Levied under Section 3(1) of the
Customs Tariff Act, this duty is equivalent to the Central Excise Duty on similar goods
manufactured in India, to ensure a level playing field.
3. Special Additional Duty (SAD): Levied under Section 3(5) of the Customs Tariff Act, this duty
compensates for local taxes like VAT and sales tax, typically at 4%, though it has been largely
abolished after the introduction of GST.

4. Safeguard Duty: Imposed to protect the domestic industry from a sudden surge in imports of
any goods that cause or threaten to cause serious injury to the local producers.

5. Anti-Dumping Duty: Levied when goods are imported at a price lower than their normal value,
i.e., dumping occurs. This is to prevent unfair trade practices and protect Indian industry.

6. Countervailing Duty on Subsidized Goods: Imposed when foreign governments provide

subsidies to their exporters which harm Indian manufacturers. It neutralizes such benefits.

7. Integrated Goods and Services Tax (IGST): After GST implementation, IGST is levied on
imported goods in place of CVD and SAD, under Section 3(7) of the Customs Tariff Act.

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(iv) Classification and Valuation of Imported and Export Goods

Classification of Goods

Classification refers to categorizing imported and exported goods under specific tariff headings
or codes in the Customs Tariff Act, 1975, based on the Harmonized System of Nomenclature
(HSN). Proper classification determines the correct rate of duty and applicability of exemptions
or restrictions. Classification is essential for legal compliance and accurate duty calculation.

Valuation of Goods

The valuation of goods is governed by Section 14 of the Customs Act, 1962 and the Customs
Valuation (Determination of Value of Imported Goods) Rules, 2007. The transaction value (i.e.,
the price actually paid or payable for the goods) is the primary basis of valuation. It includes the
cost of:
Freight

Insurance

Packing and handling

Royalty or license fees

Buying commissions, if applicable

If the transaction value cannot be determined, alternate methods such as computed value
method, deductive value method, and residual method are used in a hierarchical order.

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(v) Officers of Customs; Appointment of Customs Ports, Airports, etc.

Officers of Customs

Under Section 3 of the Customs Act, 1962, various officers are appointed for the administration
and enforcement of customs law. These include:

Chief Commissioner of Customs

Commissioner of Customs

Joint Commissioner / Additional Commissioner

Deputy / Assistant Commissioner

Superintendent / Appraiser

Inspector / Preventive Officer

These officers are empowered with different levels of authority regarding assessment,
examination, adjudication, search, seizure, and confiscation.
Appointment of Customs Ports, Airports, etc.

Under Section 7 of the Customs Act, 1962, the Central Government is empowered to appoint:

Customs ports for loading/unloading of goods

Inland container depots (ICDs)

Airports for international cargo movement

Land customs stations (LCS) for trade across land borders

No goods can be legally imported or exported except through such notified customs ports,
airports, or LCSs, ensuring strict control and monitoring of international trade.

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(vi) Import and Export Procedures (including baggage, post, stores)

Import Procedures

The import procedure involves several steps:

1. Arrival of goods at the customs station.

2. Filing of Bill of Entry (BoE) electronically with necessary documents such as invoice, packing
list, bill of lading, etc.

3. Assessment of duty and valuation of goods.

4. Payment of applicable duties including BCD, IGST, etc.

5. Customs examination and clearance.

6. Release of goods for home consumption or warehousing.

Export Procedures

Export involves:

1. Filing of Shipping Bill through the customs portal.

2. Verification of documents like invoice, purchase order, and packing list.

3. Assessment and customs clearance.

4. Let Export Order (LEO) and physical shipment.

Special Procedures

Baggage: Personal belongings brought by passengers are governed by the Baggage Rules, 2016.
Certain goods are allowed duty-free within prescribed limits. Customs officers can inspect
baggage at ports or airports.

Postal Imports/Exports: Goods imported/exported by post are processed under Chapter IX of the
Customs Act, using customs declarations, and are examined by postal appraising officers.

Stores: These include goods meant for consumption on board vessels or aircraft, such as food
and fuel. The provisions for stores are covered under Section 89–93 of the Customs Act, and are
allowed under specific conditions without full customs duties.

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(vii) Provisions Relating to Coastal Goods and Vessels Carrying Coastal Goods

Coastal goods are those which move between one Indian port and another, without crossing the
customs frontier, i.e., they do not involve international trade. These goods are regulated under
Chapter XII (Sections 91–100) of the Customs Act, 1962.

Key points include:

No customs duty is levied on coastal goods.

However, such goods must be declared and documented to customs authorities.

Vessels carrying coastal goods must obtain permission and comply with specific reporting and
clearance requirements.

If a coastal vessel is also carrying imported or export cargo, it must be segregated to avoid
misuse or duty evasion.

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(viii) Warehousing

Warehousing under customs law refers to the facility where imported goods are stored without
payment of duty until they are cleared for home consumption or re-exported. It is governed by
Chapter IX (Sections 57 to 73) of the Customs Act, 1962.

Key provisions:

Types of Warehouses: Public warehouses (govt-licensed), private warehouses (for specific

users), and special warehouses (for sensitive goods like arms, drugs).

Warehousing Bond: The importer must furnish a bond with an undertaking to pay duties if the
goods are not cleared within the allowed time.

Warehousing Period: Normally goods can be stored for one year from the date of warehousing.
For capital goods for 100% EOUs, the period is 5 years.

Interest: If goods remain beyond 90 days, interest is charged on the duty amount.

Clearance: Goods may be cleared from a warehouse for home consumption upon payment of
duties, or re-exported without duty (in certain cases).
Warehousing helps in cash flow management, especially for importers who need time to arrange
funds or wait for market demand.

(ix) Drawbacks

The term “Drawback” refers to the refund of duties and taxes paid on imported materials used in
the manufacture of exported goods. It is governed by Section 74 and Section 75 of the Customs
Act, 1962 and the Customs and Central Excise Duties Drawback Rules, 2017.

Under Section 74, if imported goods are re-exported as such (without being used), up to 98% of
the customs duty paid at the time of import is refunded, subject to conditions and time limits.

Under Section 75, duty drawback is allowed when imported goods are used in the manufacture
of export goods. The refund is granted at specified rates, either all-industry rates (AIR) or brand
rate, based on the input-output norms and duty incidence.

Drawbacks incentivize exports by making Indian products more competitive in the global market,
reducing the burden of import duties on exporters. However, strict documentation and
procedural compliance are essential to claim drawbacks.

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(x) Demand and Recovery; Refund

Demand and Recovery

Demand and recovery provisions come into play when customs duties are short-paid, not paid,
erroneously refunded, or unpaid due to suppression or fraud.

Section 28 of the Customs Act, 1962 empowers the proper officer to issue a demand notice for
recovery within 2 years (for non-fraud cases) or 5 years (in case of fraud, collusion, or
suppression).

The person liable is given an opportunity of being heard before the final order.

The demand includes interest and penalties as per provisions.

Refund

Refund of customs duty is allowed under Section 27 of the Customs Act, 1962. The application
must be made within one year from the date of payment.
Refund is granted in cases such as:

Excess duty paid due to wrong classification or valuation.

Duty paid under protest.

Exemption was available but not availed during clearance.

Refund is allowed only if the applicant can prove that the duty burden has not been passed on,
as per the doctrine of unjust enrichment.

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(xi) Provisions Relating to Prohibited Goods, Notified Goods, Specified Goods, Illegal
Importation/Exportation of Goods

Prohibited Goods

Under Section 11 of the Customs Act, 1962, the Central Government has the power to prohibit
the import or export of goods for reasons such as:

Protection of public health, environment, national security

Prevention of smuggling or counterfeiting

Conservation of heritage or wildlife

Examples include narcotics, hazardous wastes, counterfeit currency, wildlife products, etc.

Notified Goods

Notified goods are specific goods notified under Section 123 of the Customs Act, which are
prone to smuggling. These include gold, silver, electronic items, watches, etc. In cases involving
notified goods, the burden of proof that the goods are not smuggled lies with the person in
possession of such goods.

Specified Goods

These are goods specified by the Central Government for special monitoring under different
rules or provisions, such as for the purpose of anti-dumping, valuation, or warehousing. They
may require additional documentation or restrictions during import/export.

Illegal Importation/Exportation

Illegal import/export refers to bringing goods into or out of India without complying with customs
procedures, such as non-declaration, misdeclaration, undervaluation, or smuggling. These are
subject to confiscation, penalties, and prosecution, as per customs law.

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(xii) Searches, Seizure and Arrest; Offences; Penalties; Confiscation and Prosecution

Search and Seizure

Customs officers are empowered under Sections 100 to 110 to conduct searches of premises,
vehicles, baggage, and persons if they believe that goods liable to confiscation are hidden.

Seizure under Section 110 refers to the legal taking of goods, documents, or conveyances
suspected to be in violation of customs law.

Arrest

Under Section 104, customs officers can arrest persons involved in serious offences like
smuggling or fraudulent evasion of duty. Arrest can be made without a warrant for cognizable
offences.

Offences and Penalties

Offences under the Customs Act include:

Misdeclaration of goods
Non-payment of duties
Smuggling
Obstructing officers
Penalties are provided under Section 112 to 117, which may include:
Monetary fines
Imprisonment (for grave offences)
Cancellation of licenses or permits

Confiscation
Under Section 111 and 113, goods and conveyances (like trucks, ships, or aircraft) used in illegal
import/export may be confiscated. Confiscation may be absolute or optionally on payment of fine
(redemption fine).

Prosecution

Criminal prosecution is initiated under Section 135, and punishment includes imprisonment up to
7 years and fine, especially in cases involving duty evasion exceeding ₹50 lakh or repeat
offences.

(xiii) Appeals and Revision; Advance Rulings; Settlement Commission and Other Provisions

Appeals and Revision

The appellate mechanism under customs law provides for redressal of grievances:

1. Commissioner (Appeals) – First appeal against an adjudicating officer’s order.

2. CESTAT (Customs, Excise and Service Tax Appellate Tribunal) – Second-level appeal against
Commissioner (Appeals).

3. High Court – On substantial questions of law.

4. Supreme Court – Final level of appeal.

Revision applications can be made to the Central Government under Section 129DD in specified
matters.

Advance Rulings

An Advance Ruling is a written decision given by the Authority for Advance Rulings (AAR) under
Chapter V-B of the Customs Act to an applicant regarding classification, valuation, duty liability,
applicability of exemption, etc.
It is binding on the applicant and customs authorities and provides clarity and certainty for
proposed imports or exports.
Settlement Commission

Under Chapter XIV-A, the Settlement Commission allows for voluntary disclosure by importers/
exporters of cases involving duty evasion. It helps resolve disputes amicably, provided the
person cooperates and pays the dues with interest and penalty. This is useful for reducing
litigation.

Other Provisions

Other important administrative and procedural provisions include:

E-filing of documents

Self-assessment of duty by importers/exporters

Risk Management System (RMS) to minimize physical checks

Post-clearance audit to verify compliance after clearance

Authorized Economic Operator (AEO) status for trusted traders