CA NOTES ON LEVY OF CUSTOMS

Levy of Customs
Vishal Jain Page 1 Praveen Jain
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Levy of Customs
LEVY OF CUSTOMS
BIRD’S EYE VIEW
Normal Charging Section
Section 12 Levy of Duty on Import & Export
Special Charging Section Exception to Charging Section
Section 20 Re-Importation of Goods
Section 21
Importation of Goods by Sea
(Derelict, Wreck, Jetsam & Flotsam)
Section 13 Pilferage
Section 22
Abatement in case of Damage or
Deterioration
Section 23(1)
Remission in case of Total Loss or
Destruction
Section 23(2) Relinquishment of Title
Section 24 Denaturing or Mutilation

Levy of Customs
NORMAL CHARGING SECTION
Levy

Assessment

Collection
Stage where declaration of liability is made.
Person or Properties in respect of which tax
or duty is to be levied is identified and
charged
Procedure of quantifying the amount of
liability.
Liability to tax or duty does not depend
upon Assessment
Final stage where tax or duty is actually
collected.
Collection of tax or duty may be postponed
to later time for administrative convenience.
Import or Export of Goods – Section 12
Goods + Imported into OR Exported from + India
Customs Duty
Assessable Value Rate of Duty
Section 14(1)
Transaction Value
Section 14(2)
Tariff Value [CBIC]
(Valuation Rules & Exchange
Rate is ALWAYS Required)
(Valuation Rules & Exchange
Rate is NOT Required)
Import Duty
Ist Sch. to CTA, 1975
Export Duty
IInd Sch. to CTA, 1975
Standard
Rate
Preferential
Rate
(Export Duty is on very Few
Goods)
Notes:
(a) Preferential Rate is always lesser than or equal to Standard Rate for Import Duty.
 For Imports from Most Favored Nations (MFN) (i.e. Import from Member Nations of WTO + Import from Nations having Separate
Bilateral Agreement), Preferential Rate is applied for Import Duty.
 For Imports from Other Nations , Standard Rate is applied for Import Duty.
(b) Even Government is liable to pay Import Duty if it imports any goods. However, imports of goods by Indian Navy, specific equipment
required by Police, Ministry of Defense, Costal Guard, etc. are fully exempt by virtue of specific Exemption Notification subject to
fulfilment of conditions and procedure.

Levy of Customs
SPECIAL CHARGING SECTION
Re-importation of Goods – Section 20
Goods imported into India even after exportation is also liable to Import Duty
Case A: Goods manufactured in India and exported and re-imported in India
EN 158/95-Customs
Case of Re-Import Conditions for Exemption Exemption Taxable
Situation 1
Reimport in India for Repairs /
Reconditioning of goods other
than Specified Goods
(Sales from India
Return to India for Repairs
Send Back from India after Repairs)
Re-import of goods within 3
years of export (10 years in case
of export to Nepal)
Common Conditions
(a) Re-export of goods
within 6 months (+ 6
months extension by
Principal Commissioner
or Commissioner) from
date of re-import
(b) Assistant Commissioner
/ Deputy Commissioner
is satisfied about
identity of such goods
(though quantity re-
imported is short / low)
(c) Importer at the time of
importation executes a
Bond
BCD, SWS, IGST
and GST Cess is
fully exempt
Nil
Situation 2
Reimport in India for
Reprocessing / Refining /
Remaking / Other Similar
Process
(Sales from India
Return to India for Reprocess
Send Back from India after Reprocess)
Re-import of goods within 1 year
of export
Note: If any loss is noticed during
such operation, such loss shall be
exempted from whole of
Customs Duties subject to
satisfaction of Assistant
Commissioner / Deputy
Commissioner.
BCD, SWS, IGST
and GST Cess is
fully exempt
Nil

Levy of Customs
Case B: Goods re-imported without being subjected to re-manufacturing or re-processing through melting, recycling or recasting abroad
EN 45/2017-Customs
Case of Re-Import Conditions for Exemption Exemption Taxable
Situation 1
Re-import in India where the
earlier Export was under
Export Benefits
(Sales from India
Sales Return to India)
Export Benefits claimed are as
follows:
(a) Export and claiming
Drawback OR Refund of
Customs / Central Excise /
State Excise / IGST
(b) Export under Bond / LUT
without payment of IGST at
the time of Export
(c) Export under Duty
Exemption Scheme (Advance
Authorization / Duty Free Import
Authorization or Export
Promotion Capital Goods Scheme)
Common Conditions
(a) Re-import should be in 3
Years (+ 2 Years
extension) from Export.
(b) Identity of goods shall
remain the same (i.e. Re-
imported goods shall
NOT be subjected to re-
manufacturing, re-
processing through
melting, recycling or
recasting abroad)
However, exemption is
NOT applicable in below
cases:
(a) Re-imported goods had
been exported by EOU
or Free Trade Zone
(b) Re-imported goods had
been exported from
Public Warehouse or
Private Warehouse
(c) Re-imported goods falls
under Fourth Schedule
to Central Excise Act,
1944 (Tobacco &
Petroleum Products)
Import Duty on
Re-Importation
–
Taxable Portion
LOWER of
Import Duty on Re-
Importation
OR
[Amount of Drawback
/ Refund OR
Amount of IGST not
paid at the time of
export OR
Amount of IGST and
GST Com. Cess
leviable at time &
place of Original
Import]
Situation 2
Re-import in India is after
Repairs outside India and
where the earlier Export was
NOT under Export Benefits
(Purchase into India
Return outside India for Repairs
Send Back to India after Repairs)
(a) Export was for repairs. Also,
no Export Benefits was given
on their Export.
(b) Ownership of goods shall
remain the same
Not Applicable Value = Fair Cost of
Repairs including
Cost of Materials used
for repairs (whether
such costs are actually
incurred or not) +
Insurance and Freight
Charges (both ways)
Situation 3
Re-import in India in Residuary
Cases
(Taken out of India for Exhibition
Send Back to India after Exhibition)
- BCD, SWS, IGST
and GST Cess is
fully exempt
Nil

Levy of Customs
Recent Amendment
Clarification regarding applicability of Notification No. 45/2017-Customs on Goods which were exported earlier for exhibition purpose /
consignment basis – CBIC Circular 21/219 – Customs
Clarification  It has clarified vide Circular No. 108/27/2019-GST that the activity of sending / taking the specified goods (i.e. goods sent /
taken out of India for exhibition or on consignment basis for export promotion except the activities satisfying the tests laid
down in Schedule I of the CGST Act, 2017) out of India do not constitute supply within the scope of Section 7 of the CGST
Act as there is no consideration at that point in time. Since such activity is not a supply, the same cannot be considered as
‘zero rated supply’ as per the provisions contained in Section 16 of the IGST Act, 2017. Also, there is no requirement of
filing any LUT/bond as required under Section 16 of IGST Act, 2017 for such activity of taking specified goods out of India.
 Therefore, no integrated tax is required to be paid for specified goods at the time of taking these out of India, the activity
being not a supply, hence the situation of NN 45/2017-Customs (goods exported under bond without payment of integrated
tax) requiring payment of IGST at the time of re-import of specified goods in such cases is not applicable.
 It is clarified that such cases will fall more appropriately under residuary entry of the said Notification and thus the
exemption is available without any conditions.
 Further, this clarification is also applicable to cases where exports have been made to related or distinct persons or to
principals or agents, as the case may be, for participation in exhibition or on consignment basis, but, such goods exported
are returned after participation in exhibition or the goods are returned by such consignees without approval or
acceptance, as the case may be, the basic requirement of ‘supply’ as defined cannot be said to be met as there has been no
acceptance of the goods by the consignees. Hence, re-import of such goods after return from such exhibition or from such
consignees will be covered under residual entry of the NN 45/2017-Customs, provided re-import happens before 6 months
from the date of delivery challan.

Levy of Customs
Importation of Goods by Sea – Section 21
Derelict, Wreck, Jetsam & Flotsam brought or coming into India is also liable to Import Duty unless they are entitled to be admitted free of duty
Derelict Wreck Jetsam Flotsam
Vessel or Cargo, abandoned at sea by
those in charge of it (master & crew)
without hope on their part of recovering
or intention of returning to it.
Vessel or Cargo or any
property which are cast
ashore by tides after ship
wreck
Goods jettisoned from the vessel to save
from sinking (usually done voluntarily in
order to lighten vessel in an emergency)
Jetsam gets sunk.
Jettisoned goods, which
are floating in the sea
Flotsam does not sink
but floats.
Coverage of Vessel and Goods inside Vessel Coverage of ONLY Goods
Example 1: Export of Goods  Export Benefit claimed and thereafter
Import of Goods  How much Payment of Import Duty?
Export Benefit Import Duty Taxable Exempt
100 150 100 50
150 100 100 0
Example 2: Export of Goods  Export Benefit claimed and thereafter
Import of Goods  How much Payment of Import Duty?
Export Benefit Import Duty Taxable Exempt
0 100 0 100
100 0 0 0
Example 2: Goods were imported from USA on 1st April 2018 for CIF – Rs.1 Crore and Import Duty - Rs.10 lakhs was paid. Goods were sent for
repairs to USA in May 2020 and reimported in December 2020. Repairs were carried out free of cost. Compute Import Duty.
(a) Freight and Insurance from India to USA – Rs.70,000
(b) Freight and Insurance from USA to India – Rs.95,000
(c) Fair Value of Repair Charges – Rs.2,00,000
(d) Fair Value of Materials used in Repair – Rs.30,000
(e) Rate of BCD is @ 10% and Rate of IGST is @ 18%
Particulars Amount (Rs.)
Assessable Value at the time of Re-Importation (applying EN 45/2017) = Rs.70,000 + Rs.95,000 + Rs.2,00,000 + Rs.30,000 Rs.3,95,000
BCD @ 10% = Rs.3,95,000 * 10% Rs.39,500
SCS @ 10% = Rs.39,500 * 10% Rs.3,950
IGST @ 18% = Rs.4,38,450 * 18% Rs.78,921
Total Import Duty Rs.1,22,371

Levy of Customs
EXCEPTION TO CHARGING SECTION
Particulars
Pilferage / Petty
Loss
Damage OR Deterioration
Remission on Loss OR
Destruction
Relinquishment of Title
of Goods
Denaturing OR
Mutilation
Provision Section 13 Section 22 Section 23(1) Section 23(2) / Section 68 Section 24
Meaning Steal in Small
Quantities
Physical Damage OR
Deterioration in Quality
Total / Major Loss OR
Destruction
Giving up of Ownership
to Central Government
Change of
Nature of Goods
Existence of
Goods
Yes Yes No Yes Yes
Levy /
Collection of
Import Duty
(ID)
ID is NOT levied on
Importer. However,
ID is levied on
Custodian as per
Section 45
ID is levied but it is collected
on lesser value
(i.e. Abatement of Duty)
ID is levied but it is
remitted
(i.e. Remission of Duty)
ID is levied but it is not
collected
ID is levied but it
is collected @
lesser RoD on
denatured or
mutilated goods
Right or
Permission
Right of Importer
(No onus on
Importer to prove
Pilferage)
Permission from Assistant
Commissioner / Deputy
Commissioner (AC / DC)
Permission from AC /
DC (Proof of Loss or
Destruction is to be
given as onus is on
Importer)
Right of Importer
(Intimation to be given to
Comm. of Customs along
with handing over of
relevant documents)
Permission from
Proper Officer
Place of
Occurrence
After unloading but
before PO’s Order
for Home
Consumption or
Warehousing
(At Customs
Station)
Till Unloading – Damaged /
Deteriorated Goods
(During Transportation)
After Unloading but before
Examination – ONLY
Damaged Goods
(At Customs Station)
After Warehousing but before
Actual Clearance for HC –
ONLY Damaged Goods
(At Customs Warehouse)
Till Actual Clearance
for Home
Consumption (from
Customs Station or
Customs Warehouse)
(At Customs Station
OR At Customs
Warehouse)
Till PO’s Order for HC
(from Customs Station or
Customs Warehouse)
(At Customs Station OR
At Customs Warehouse)
Till PO’s Order
for HC (from
Customs Station
or Customs
Warehouse)
(At Customs
Station OR At
Customs
Warehouse)

Levy of Customs
Notes:
(1) Pilferage – Section 13:
(a) Circumstances in which Pilferage can be claimed
i. There should be evidence of tampering with packages
ii. There should be blank space for missing articles in package and
iii. The missing articles should be unit articles and NOT part articles.
(b) Conditions to claim Pilferage
i. If goods are pilfered after unloading of goods, Section 13 is applicable. However, if goods are pilfered before unloading of goods,
Section 13 is NOT applicable.
ii. If goods are pilfered before Proper Officer’s order unloading of goods, Section 13 is applicable. However, if goods are pilfered after
Proper Officer’s order but before clearance for Home Consumption or Warehousing, Section 13 is NOT applicable.
iii. If goods are restored to importer, then importer shall become liable for payment of Import Duty and Custodian will no more be
liable for Import Duty.
(c) Other Points of Pilferage
i. For “Pilferage” at Customs Station, the liability of Import Duty is on Custodian (Section 45) and NOT on Importer (Section 13). It is
important to note that Section 13 & Section 45 are independent i.e. whether duty is payable by Custodian or not, remission cannot
be denied to Importer by Department.
ii. For “Pilferage” at Customs Warehouse, the liability of Import Duty is on Importer only and NOT on Warehouse-Keeper.
iii. If goods are pilfered at Customs Station but Importer has already paid Import Duty, then remission is allowed in form of Refund.
iv. Section 13 (Pilferage Loss) and Section 23(1) (Total or Major Loss) are mutually exclusive i.e. For Pilferage Loss, only Section 13 can
be used and for Total or Major Loss, only Section 23(1) can be used.
(2) Damage or Deterioration – Section 22:
(a) Meaning of Damage or Deterioration
i. Damage: Physical damage to goods i.e. goods are not fit to be used for purpose for which they were meant.
ii. Deterioration: Reduction in quality of goods due to natural loss
(b) Amount of Duty chargeable after Abatement
i. Import Duty after Damage or Deterioration = (Import Duty before Damage or Deterioration / Value of Goods before Damage or
Deterioration) * Value of Goods after Damage or Deterioration
ii. Value of Goods after Damage or Deterioration
 Value ascertained by Proper Officer (No Sale of Goods) OR

Levy of Customs
 GROSS Sale Proceeds of Damaged or Deteriorated Goods (Sale of Goods by Proper Officer by Public Auction, Tender OR Any
Other Manner with consent of Importer)
(c) Other Points of Damage or Deterioration
i. Damage or Deterioration of goods should NOT be due to willful act, negligence or default of the owner, his employee or agent.
ii. Damage should happened before or during Unloading
iii. Deterioration may happen
 Before or during Unloading
 After Unloading but before Examination for Assessment at Customs Station
 Before Actual Clearance from Customs Warehouse
(3) Remission on Loss or Destruction – Section 23(1):
(a) Circumstances in which Remission can be claimed
i. Remission is permissible ONLY in case of total loss of goods. This implies that loss is forever and beyond recovery. The loss referred
to this section is generally due to natural causes like fire, flood, etc.
(b) Other Points of Remission
i. Remission is allowed in case of Loss or Destruction at Customs Station or at Customs Warehouse.
ii. Loss or Destruction is to be proved to satisfaction of Assistant Commissioner / Deputy Commissioner and he may pass Remission
Order cancelling payment of duty. However, if Import Duty is already, then remission is allowed in form of Refund.
iii. Section 13 (Pilferage Loss) and Section 23(1) (Total or Major Loss) are mutually exclusive i.e. For Pilferage Loss, only Section 13 can
be used and for Total or Major Loss, only Section 23(1) can be used.
(4) Relinquishment of Title – Section 23(2) / Section 68:
(a) Examples when Importer may opt for Relinquishment of Title
i. Goods may not be according to the specifications,
ii. Goods may have been damaged or deteriorated,
iii. Breach of contract and importer is unwilling to take delivery,
iv. Substantial fall in the market price of goods in India, etc.
(b) Other Points of Relinquishment of Title
i. Relinquishment of Title when done at Customs Station, Section 23(2) is applicable. Relinquishment of Title when done at Customs
Warehouse, Section 68 is applicable.
ii. If any offence is committed under any law, then Relinquishment of Title shall NOT be allowed to the importer.

Levy of Customs
iii. Importer has to relinquish his title to goods unconditionally and abandon them. Relinquishment is done by endorsing the document
of title (i.e. Bill of Lading / Airway Bill, etc.) along with Invoice to Commissioner of Customs.
iv. Title once relinquished / surrendered CANNOT be reclaimed.
v. Relinquishment of Title relieves importer ONLY from payment of Import Duty; it does NOT from payment of other charges like
custodian charges, etc.
(5) Denaturing / Mutilation – Section 24:
(a) Denaturing
i. Meaning: Change in nature of goods making them unfit for one or more purposes
ii. Example: “Raw Alcohol” @ say 20% is imported but contended to be used as “Industrial Alcohol” @ say 10%  Raw Alcohol will be
denatured & Import Duty @ 10% will be paid
(b) Mutilation
i. Meaning: Destroying Goods in good condition when imported as Waste / Scrap
ii. Example: “Second Hand Machinery” @ say 20% imported but contended to be used as “Waste/Scrap” @ say 10%  Second Hand
Machinery will be mutilated & Import Duty @ 10% will be paid
PILFERAGE OF GOODS U/S 13 VS. LOSS OR DESTRUCTION OF GOODS U/S 23
Particulars Pilferage of Goods u/s 13 Loss or Destruction of Goods u/s 23
Meaning The word “pilferage” means to steal, especially in small
quantities, petty theft.
The word “lost or destroyed” means total loss of
goods i.e. loss is forever and beyond recovery.
Duty on goods Duty is not at all leviable on such goods. Duty payable on the goods shall be remitted.
Subsequent restoration of
goods
Where pilfered goods are restored to the importer after
pilferage, the importer is liable to duty.
In case of destruction the goods, the restoration of
goods is not possible.
Warehoused goods Section 13 provisions are not applicable to warehoused
goods.
Section 23(1) provisions are also applicable to
warehoused goods.
Onus to prove the pilferage
or loss / destruction of goods
The onus to prove pilferage does not lie on the importer. The importer has to prove loss / destruction to the
satisfaction of the AC / DC of Customs.
Time of occurrence of
pilferage or loss / destruction
of goods
The imported goods must have been pilfered after
unloading thereof and before the proper officer has
made an order for clearance for home consumption or
deposit in warehouse.
The imported goods are lost / destroyed at any
time before their clearance for home consumption.

Levy of Customs
TIME & PLACE OF OCCURRENCE OF VARIOUS EVENTS
Particulars Before or During Unloading At Customs Station At Customs Warehouse
Pilferage / Petty Loss of
Goods
-*
(After Unloading & Before PO Order)
Abatement for Damaged
Goods (Before Examination for Assessment)
Abatement for
Deteriorated Goods
Remission on Major /
Total Loss of Goods
-*
Remission on
Destruction of Goods
-*
Relinquishment of Title
of Goods
NA**
Denaturing or
Mutilation of Goods
NA**
Notes:
(a) * In case of Pilferage Loss / Major Loss / Destruction of Goods before unloading, such goods do not reach Customs Frontier of India i.e.
Import Duty on such goods is not levied at all and, hence there is no question of collection of Import Duty on such goods. That being the
situation, question of benefit non-payment of ID (Section 13) or benefit remission of ID (Section 23) does not arise.
(b) ** There cannot be a question of Relinquishment of Title / Denaturing or Mutilation of Goods before unloading of such goods.

Levy of Customs
Example 1: Import of 1,00,000 Units and 100 Units Pilfered @ CS
Particulars Importer Custodian
Import Duty on 100 Units
Import Duty on 99,900 Units
Example 2: Import of 1,00,000 Units and 100 Units Pilfered @ CWH
Particulars Importer WH Keeper
Import Duty on 100 Units
Example 3: Import of 1,00,000 Units and 30,000 Units Lost @ CS
Particulars Importer Custodian
Example 4: Import of 1,00,000 Units and 30,000 Units Lost @ CWH
Particulars Importer WH Keeper
Example 5: Deterioration of Goods after unloading at Customs Station
Options available to Importer
Option 1: Relinquishment of Title under Section 23(2)  No Import
Duty (but give up the goods to Govt.)
Option 2: Abatement under Section 22 not available as Deterioration
shall be before unloading of goods
Example 6: Damage of Goods after unloading at Customs Station
Options available to Importer
Option 1: Relinquishment of Title under Section 23(2)  No Import
Duty (but give up the goods to Govt.)
Option 2: Abatement under Section 22  Pay lesser Import Duty on
Abated Value (and clear the goods for Home Consumption)
Example 7: Import Duty on Abatement
Particulars Assessable Value Import Duty @ 10%
Before Damage / Deterioration of Goods Rs.10,00,000 Rs.1,00,000
After Damage / Deterioration of Goods Rs.8,00,000 * Rs.80,000
Note: Value of Goods after Damage / Deterioration is either determined by PO OR Gross Sale
Proceeds of such Goods if importer is not satisfied with value determined by PO.
Example 8: Import Duty on Short Delivery of Goods
Particulars Quantity
Import of Metal Scrap from USA 6000 M.T.
Importer filed Bill of Entry for Home Consumption and paid Import Duty 6000 M.T.
Actual Quantity available at Docks when Importer went to take delivery 5500 M.T.

Levy of Customs
from Port Trust Authorities (before clearance for Home Consumption)
Note: There was NO Short Landing of Cargo and thus levy was on 6000 M.T. However, short-
delivery of 500 M.T. was substantiated by Port Trust Authorities through “Weighment Certificate”.
Remission of Import Duty under Section 23
Particulars Levy Collection
Import Duty on 5500 M.T.
Import Duty on 500 M.T.
Note: 500 M.T. was lost when it was in custody of Port Authorities i.e. before clearance for home
consumption was made. Also, the loss of 500 MT of scrap cannot be construed to be pilferage, as loss
of such huge quantity. Thus, importer can apply for remission of import duty on 500 M.T. under
Section 23 in form of refund claim as import duty on 500 M.T. is already paid.
Example 9: Options available for Importer
Particulars Remission
Relinquish
ment
Damaged in Warehouse before
clearance of Home Consumption
Deteriorated in Warehouse before
clearance of Home Consumption
Example 10: Import of 1,00,000 Units and 30,000 Units are lost
Particulars Remission
Destroyed in Warehouse before clearance of Home
Consumption
Destroyed on Wharf before clearance of Home
Consumption
Destroyed after clearance from Warehouse

Levy of Customs
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Levy of Customs
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Levy of Customs
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CA NOTES ON LEVY OF CUSTOMS

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