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Notes on CUSTOMS
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CHAPTER 1 - BASIC CONCEPTS.
1) Features of Customs Duty
a) Customs Duty levied as per rates specified in Custom Tarrif CTA 1975
b) Export – Taking goods to a place outside India
c) Import – Bringing goods from place outside India
d) Out of India means beyond 12 Nm
e) Indian customs waters – 12 Nm to 24 Nm.
f) Customs duty is on goods
g) Goods include
- Vessels, Aircrafts & Vehicles
- Negotiable Instruments
- Any other movable property
h) Customs Duty is for Import & Exports
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i) Dutiable goods are those which are chargeable to duty & on which duty
has not been paid
j) Imported goods
- Brought in India
- From place outside India
- Not cleared for home consumption
k) Export goods
- Taken out of India
- To place outside India
l) Customs is payable on Re-import, free replacements and free supplies.
2) Important Definitions
Customs duty is on „goods‟ as per section 12 of Customs Act.
The duty is payable on goods belonging to Government as well as goods
not belonging to Government
(a) Vessels, Aircrafts and Vehicles
(d) Currency and negotiable instruments and
(e) Any other kind of movable property.
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B) Dutiable Goods
„Dutiable goods‟ as any goods which are chargeable to duty and on which
duty has not been paid.
Thus, goods continue to be „dutiable‟ till they are not cleared from the
port. However once goods are assessed even at „Nil‟ rate of duty, they no
more remain „dutiable goods‟
Export goods as well as imported goods can be „dutiable goods‟ if
imported goods or export goods are not chargeable to duty, they will not be
C) Imported Goods
Any goods brought in India from a place outside India, but does not
include goods which have been cleared for home consumption.
Thus, once goods are cleared by customs authorities from customs area,
they are no longer „imported goods‟
D) Export Goods
„Export Goods‟ means any goods which are to be taken out of India to a
place outside India.
Goods brought near customs area for export purpose will be „Export
E) Indian Customs Waters
„Indian Customs Waters‟ means the waters extending into the sea up to the limit
of contiguous zone of India.
Contiguous zone of India comes immediately after territorial waters. The outer
limit of contiguous zone is 24 nautical miles from the nearest point of basic line .
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Thus, area beyond 12 nautical miles and upto 24 nautical miles is „contiguous
zone of India‟. The Central Government has powers to take measures in this area
for security of India and immigration, sanitation, customs and other fiscal matters.
Thus, „Indian Customs Waters‟ extend up to 12 nautical miles beyond territorial
Significance of definition of „Indian Custom Waters‟ is as follows –
Customs officers has powers to arrest a person in India or within Indian
customs waters (section 104)
Customs officer has powers to stop and search any vessel in India or
within the Indian Customs waters, (section 106). If such vessel does not stop,
it can be fired upon .If a vessel does not stop, it can be confiscated (section
115 (1) (c) )
A vessel which is within Indian customs waters or which has been in
Indian Customers Waters can be confiscated which is constructed or fitted in
any manner for purpose of concealing goods. (section115(1) (a) )
Thus powers of customs officers extend up to 12 nautical miles beyond territorial
F) Territorial Waters
Territorial water extend up to 12 nautical miles from the base line on the coast of
India and include any bay, gulf, harbour, creek or tidal river. (1 nautical mile
= 1.1515 miles = 1.853 Kms) Sovereignty of India extends to the territorial
waters and to the seabed and subsoil underlying and the air space over the waters.
G) Exclusive Economic Zones
„Exclusive Economic Zone‟ extends to 200 nautical miles from the base-line. In
this zone, the coastal state has exclusive right to exploit if for economic purposes
like constructing artificial is lands (for oil exploration, power generation etc.)
Fishing, mineral resources and scientific research . However, other countries
have right of navigation and over – flight rights. Other countries can lay
submarine cables and pipelines with consent of Indian Government. Such consent
may be declined for protecting interest of India.
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3) Types of Custom Duties.
i) Basic Customs Duty
Basic customs duty is levied under section 12 of customs Act. Normally, it is
levied as a percentage of value of goods imported. The rates vary for different
items, but general rate on non-agricultural goods at present is 10% [ w .e. f. 1-3-
ii) Additional Customs Duty U/S 3(1) (CVD)
Additional customs duty‟ is often called „Countervailing Duty‟ (CVD).
This duty is equal to excise duty levied on a like product
manufactured or produced in India. If like article is not produced or manufactured
in India, the excise duty that would be livable on that article had it been produced
in Indian is the base. If the product is livable with different rates, then highest rate
among those rates is to be considered. The duty is livable on value of goods plus
customs duty payable.
iii) Education Cess On Customs Duty
An education cess of customs has been imposed on imported goods w.e.f. 9-7-
2004. The cess is 2% of the aggregate duty of customs. However, education cess
will not be payable on Special CVD (SAD). Safeguard duty under countervailing
duty, anti dumping duty, SAH education cess, Education cess itself on imported
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iv) Secondary & Higher Education Cess.[S.A.H.]
In addition to existing education cess, an education cess of 1% of the total duties
of customs has been imposed on imported goods.
SAH education cess will not be payable on
(a) Special CVD or SAD
(b) Safeguard duty
(c) Countervailing duty
(d) Anti dumping duty
(e) Education cess
(f) SAH education cess itself
v) Additional duty under section 3(3)
In addition to CVD further additional duty can be levied by Central
Government to counter balance excise duty livable on raw materials, components
etc. similar to those used in production of such article
This levy has use when goods manufactured indigenously is exempt from
excise duty. In such case, the indigenous manufacture will be loser to the extent of
duty paid on inputs. This duty paid on his inputs is lost as final product is exempt
from duty . This becomes additional cost to indigenous manufacturer. On the
other hand, the imported goods do not have to pay CVD as the product is exempt
from duty. The foreign supplier has not paid any excise duty on his inputs. He
gets cost advantage to that extent. Section 3(3) is intended to offset such cost
advantage to foreign supplier.
vi) Additional Duty Under Section 3(5) (Special CVD – SAD)
This duty is in addition to any other duty imposed under Customs Act or
any other law
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The Additional Duty U/S 3(5) can be imposed by issuing a notification.
Such tax cannot exceed 4% of value of that article.
Purpose of the additional duty is to counter balance sales tax, VAT, local
tax or other charges leviable on articles on its sale, purchase or transaction in
India. The obvious intention is to provide level field to manufacturers in India
who are manufacturing similar goods. Hence, it is termed as „special “CVD” or
„SAD‟(Special Additional Duty)
Value of article for purpose of levy of this additional duty is
(i) Assessable Value determined
(ii) + (ii) Basic customs duty payable. CVD payable u/s
3(1) + (iii) Additional duty payable u/s 3(3)
However, „value‟ will not include following :
(a) Additional Duty payable u/s 3(5)
(b) Safe guard duty payable u/s 8(B) and 8 (C)
(c) Countervailing duty payable u/s 9
(d) Anti dumping duty u/s 9(A)
SAD has been imposed on all imported goods w.e.f. 1-3-2006 @ 4%,
vii) Protective Duties
Tariff Commission has been established under Tariff Commission
Act, 1951. If the Tariff Commission recommends and Central Government is
satisfied that immediate action is necessary to protect interest of Indian Industry.
Protective customs duty at the rate recommended may be imposed under section 6
of Customs Tariff Act.
viii) Countervailing Duty on Subsidized Goods
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If a country or territory pays any subsidy (directly or indirectly) to its
exporters for exporting goods to India, Central Government can impose
Countervailing duty up to the amount of such subsidv.
ix) Anti Dumping Duty on Dumped Articles
Often, large manufacture from abroad may export goods at very low prices
compared to prices in his domestic market. Such dumping may be with intention
to cripple domestic industry or to dispose of their excess stock. This is called
„dumping‟ and is an unfair trade practice. In order toavoid such dumping and to
protect domestic industry, Central Government can impose, under section 9A of
Customs Tariff Act, anti-dumping duty, if the goods are being sold at less than its
normal value. Levy of such anti-dumping duty is permissible as per WTO
agreement. Anti dumping action can be taken only when there is an Indian
Industry producing „Like Articles‟
x) Safeguard Duty
Central Government is empowered to impose
„safeguard duty‟ on specified imported goods if Central Government is satisfied
that the goods are being imported in large quantities and under such condition that
they are causing or threatening to cause serious injury to domestic industry. Such
duty is permissible under WTO agreement. The only condition under WTO is that
it should not discriminate between imports from different countries having Most
Favored Nation (MFN) status.
Safeguard duty is a step in providing a need based
protection to domestic industry for a limited period, with ultimate objective of
restoring free and fair competition. Safeguard duty is targeted at remedying or
preventing serious injury to domestic industry with a view to making it
competitive and to enable it to stand on its own.
Government has to conduct an enquiry and then
issue a notification. (Section 8 B (1) of Customs Tariff Act.)The duty, once
imposed, is valid for four years, unless revoked earlier. This can be extended by
Central Government, but total period of „safeguard duty‟ cannot be more then ten
years. (section 8B (4)). The duty is in addition to any other customs duty being
imposed on the goods. (section 8 B (3)).
In case of imports from any developing country,
safeguard duty can be imposed if import from that country exceeds 3%. If the
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Article originates from more than one developing countries and if imports from
each developing country is less than 3%, safeguard duty can be imposed if
imports from all such developing countries taken together exceeds 9% of total
imports of that Article in India [proviso to section 8 B(1) of Customs Tariff Act as
amended w.e.f. 13-7-2006]
xi) NCCD of Customs Duty
A „National Calamity Contingent Duty‟ (NCCD) of customs has
been imposed vide section 134 of Finance Act, 2003, On pan masala, chewing
tobacco and cigarettes. Further, NCCD of customs of 1% has been imposed on
PFY, motor cars, multi utility vehicles and two wheelers. NCCD of Rs 50 per ton
is imposes on domestic crude oil. For purpose of calculation of NCCD, value will
be same as calculated for purpose of CVD u/s 3(2) of Customs Tariff Act.
xii) Export Duty
Since Government activity encourages export, there is export duty
on very few products. Articles on which export duty is leviable are given in
second schedule to customs Tariff. At present, 25% export duty is imposed on
luggage leather, 15% Export Duty is levied only on hides, skins and leather, and
duty of 10% is levied on snake skins and lamb skins.
Export duty has been imposed on the following w.e.f. 1-3-2007 –
(1) Iron ores (whether in form of lumps or fines ) and concentrates, all sorts @ Rs.
300 per metric tonne. (2) Chromium ores (whether in form of lumps or fines) and
concentrates, of all sorts @ Rs. 2,000 per metric tone
There is no export duty on any other product.
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xiii) Cess on Imports
Cess is levied on indigenous manufactured goods like sugar, Tea,
Jute, Beedis, automobiles, Tobacco, Coffee, Rubber , Paper and paper board, iron
ore, limestone and dolomite, manganese ore, chrome ore and coking and non-
coking coal. This is recoverable as excise duty. If these are imported,
corresponding cess will be payable
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CHAPTER 2 - IMPORTS PROCEDURE
1) To be followed by person –in charge of conveyance
- Arrive at customs port / air port only
- Submit import manifest to customs authorities within 12 hours of arrival
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- Furnish list of stores on ship to be landed
- Keep excess stock under customs seal
- Start unloading only after customs authorities grant “Entry Inwards”
2) To be followed by Importer
- Submit following documents
Bill of entry
GATT declaration form
Importer‟s / Cha‟s Declaration
Certificate of country of origin
L/C & bank draft
Split up of value of spares, components & machinery
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- Documents submitted by importer are checked & assessed by customs
officials & then goods are cleared
- Date of presenting B.E. is relevant & rate of duty as applicable on this
date is considered for calculating duty
- Heavy demurrage is payable of goods are not cleared from port within 3
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CHAPTER 3 - EXPORT PROCEDURE
1) To be followed by person - in charge of conveyance
- Vessel is granted „Entry Outward‟
Loading can start only after this permission
- Shipping bill duly passed by customs
Officer is handed over to him
- Export Manifest / Export report in the prescribed form should be
submitted before departure.
- Report should be declared as true by him.
2) To be followed by Exporter
- Obtain business identification no. (bin)
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From director general of foreign trade (DGFT)
- Open current A/C with designated bank for crediting duty drawback
- If export is under DEPB, advance license etc. same should be registered
at custom station.
- Submit shipping bill / Airway bill /Bill of export
- Assess goods for duty even if no duty payable
- Make appropriate declarations in prescribed Forms for :
(a) Drawback claim (b) DEEC Scheme (c) Adv. License
(d) DEPB Scheme (e) ARE –1 Declaration
- Complete excise formalities for export
- Follow prescribed procedures & submit necessary papers for claiming
- Prepare & submit prescribed forms by RBI to enable RBI to ensure that
export proceeds are received in India through proper banking channel only
- Prepare / Submit following documents
(a) Commercial invoice (b) Packing list
(c) Certificate of Origin (d) Pre-shipment Insp. Report
(e) Insurance Policy (f) L / C
(g) Declaration of value (h) Excise are – 1 form
(i) GR / SDF form for RBI (J) Letter showing Bin No.
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CHAPTER 4 - COURIER , POST & BAGGAGE
1) IMPORT & EXPORT THROUGH COURIER
i) Permitted by air from specified air ports & land custom Station. by land
ii) Maxm. Wt. allowed is 70 Kg. / Package
iii) Goods covered by any other Acts are not permitted
iv) Animals & its parts, Plants, Perishables, Stones, Gold, Silver,
Chemicals, Publications containing incorrect Indian boundaries are not allowed
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v) Life savings drugs are allowed
vi) Courier must be Registered with commissioner of customs
vii) Free gifts & samples up to Rs. 10,000 per consignment allowed
viii) Gem / Jwellery up to Rs. 25 lakhs per consignment allowed.
ix) Courier bags are kept separately & dealt with as per directions of
commissioner of customs
x) He has to submit specified declaration & „Courier Bill of Entry‟ in
xi) Goods must be cleared by courier within 30 days of import otherwise
they are disposed of by customs authorities.
i) Permitted from specified air ports & land customs station
ii) Courier must file a statement before departure of any flight in prescribed
form along with “Courier Shipping Bill”
iii) Free gifts Rs. 25,000 & samples Rs. 50,000 can be exported
iv) Export by EOU / SEZ / EHTP / STP units through authorized courier is
v) Export of Gem / Jwellery Rs. 25 lakhs per consignment is allowed
vi) Goods must be exported within 7 days from customs area otherwise they
are disposed of by customs authorities.
2) IMPORT & EXPORT BY POST
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i) Post parcels are allowed to pass from port / Air Port to foreign parcel
Deptt. Without payment of custom duty.
ii) Post master hands over to principal appraiser customs
a) Memo of parcels from each country of origin
b) Parcel bill or sender‟s declaration
c) Customs declaration & dispatch notes
d) Any other information required
iii) Post bags opened under supervision & control of principal appraiser
iv) Packets containing dutiable goods are presented to customs appraiser
v) Parcels opened by him are distinctly sealed & after assessment handed
over to post master
vi) Post master hands over the parcels to the addressee on receipt of custom
duty from him
vii) Gifts up to Rs. 10,000 can be imported without payment of custom duty
viii) Post parcels with customs duty less than Rs. 100 are exempted from
i) Goods must be covered by a declaration in a prescribed form
ii) Export of Indian / Foreign currency is not allowed unless accompanied by
permit issued by RBI
iii) Goods up to Rs. 25,000 can be exported as a gift
iv) Export of purchases by foreign tourists allowed on submitting proof that
payment was received in foreign exchange.
3) BAGGAGE RULES
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A) Baggage includes –
i) Dutiable goods imported by
- Member of a crew
In his baggage
ii) Unaccompanied baggage if dispatched previously or subsequently within
Baggage does not include
- Motor vehicles, alcoholic drinks & goods imported their courier
- Articles imported under imported license for himself or for others
B) Following are general prohibitions
i) Indian / Foreign currency (above RBI limits )
ii) Narcotic drugs
iii) Domestic pets (If not as per health regulations )
iv) Exoctic Birds, wind orchids, wild life
v) Endangered species
vii) Reptile skins
C) There are 2 Channels
i) Green Channel – Person not having any dutiable goods can pass through
this. However if found carrying dutiable goods. Goods are confiscated & he is
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ii) Red channel – Person having dutiable goods pass their this & submit
declaration. Baggage checked by customs officer & appropriate duty is charged at
35% + 2% E.C. & 1% SAH. Education Cess. There is no SAD & CVD
D) Exemptions allowed for import through Baggage
Person transferring his residence to India is eligible to bring his personal &
household articles to India without duty
Bona fide baggage accompanying passenger is exempted from customs duty
This includes personal effects, wearing apparel & toilet requisites
Laptop computer brought as baggage by person over 18 years of age (other than
member of crew is fully exempt from customs duty
Gold brought as baggage by a passenger of Indian origin or a person holding
Indian passport. The duty is only Rs. 100 per 10 gms. For import of gold bars bearing
manufacturer‟s or refiner‟s engraved serial number and weight expressed in metric
units and gold coins. In case of other gold, including tola bars and ornaments (but
excluding ornaments studded with stones or pearls), the duty is Rs. 250 per 10 10
gms. Up to 10 kg. gold can be brought by each eligible passenger
Silver brought as baggage by a passenger of Indian origin holding Indian
passport up to 100 kg. is chargeable to duty of Rs. 500 per kg. (plus education cess
@ 2% and SAH education cess of 1% of duty), if the person was staying abroad for
over six months. Duty has to be paid only in convertible foreign currency. No CVD is
payable. Silver can be brought in any form, including medallions, coins and
jewellary, except foreign currency coins and jewellery studded with stones or pearls.
Out of the period of 6 months. Short visits up to 30 days are permitted, if the
concession was not availed in such short visit.
Customs duty is not payable if amount of duty is equal to or less than Rs. 100
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A passenger of 10 or more year of age is allowed general free allowance of Rs.
25,000, if the Indian Resident is returning from country other than Nepal, Bhutan,
Myanmar or China . This allowance is also available to foreign citizens residing in
India, after stay of more than three days. This allowance cannot be pooled with
General Free Allowance of other passengers e.g. husband and wife bringing one item
of Rs. 50,000 will not be permitted duty free. This General Free Allowance is not
applicable to un-accompanied baggage.
The limit of Rs. 25,000 is reduced as follows –(a) Rs. 12,000 for passengers after
stay abroad of three days or less(b) If the passenger is up to 10 years of age and is
returning from country other than Nepal, Bhutan, Myanmar or China, the allowance
is Rs. 6,000 if a person is returning after stay of more than 3 days & Rs. 3,000 it has
stay was 3 days or less, (c) If the passenger is returning from Pakistan by land route,
as specified in Annexure IV of baggage Rules, the general free allowances is Rs.
6,000 for passengers above 10 years and Rs. 1,500 for passengers up to 10 years. Of
An Indian Resident or foreigner residing in Indian of Age 10 or more is entitled
to lower rate of General free allowance of Rs. 6,000 if he is returning form Nepal,
Bhutan, Myanmar or China after stay of more than 3 days, by route other than land
route. Passenger up to 10 years returning from these countries after stay of more than
3 days is entitled to General Free Allowance of Rs. 1,500. There is no duty on
There is no general free allowance if a person is returning from these countries
after stay of three days or less. There is no free allowance if passenger returns by land
route from these countries, even if his stay abroad was more than 3 days. If the
passenger is returning from Pakistan by land route the general free allowance is Rs.
6,000 for passengers above 10 years and Rs. 1,500 for passengers up to 10 years of
An Indian passenger who was engaged in his profession abroad for over three
months is allowed to import following duty free goods as additional allowance (a)
Used household articles up to Rs. 12,000 ( e.g. linen, utensils, tableware,
kitchen appliances, an iron etc. )
(b) Professional equipment like portable equipments, apparatus and appliances
required in such profession, up to Rs. 20,000. The limit will be increased
to Rs. 40,000 if he was abroad for over 6 months. [The allowance is in
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addition to General Free Allowance ]
This exemption of professional equipment is only for carpenters, plumbers
welders, masons and the like and not for items of common use like
cameras, type writer, cassette – recorder, computers, word processor etc.
If the passenger was residing abroad for over one year, jewellery can be imported
duty free up to Rs. 10,000 in case of gentleman passenger and Rs. 20,000 in case of
A person who was working abroad and is returning to India on termination or
work and who was staying abroad for at leas 365 days out of previous two years, is
eligible to certain concessions. This is termed as „mini TR‟ i.e. „Mini Transfer of
Residence‟. He is entitled to bring personal effects and household articles up to Rs.
75,000 duty free [ The limit was Rs. 30,000 upto 28-2-2002]. This allowance is in
addition to General Free Allowance. The conditions are (a) These should be in
possession of himself or his family and used for at least
(b) He shall be allowed to avail himself of this exemption only once in three
(c) Items in Annex I, Annex II or Annex III to Baggage Rules are not allowed
under this rule,
(d) Goods should be contained in his bona fide baggage.
Exemption to Baggage of Tourists – Following are the exemptions –
(a) Used personal effects of tourist and travel souvenirs are allowed duty free.
Personal effects should be for personal use of the tourist and these goods, other
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than consumed should be re-exported when tourist leaves India for foreign
(b) Tourists of Indian Origin (even if holding foreign passport ) other than
those coming from Pakistan by land route as specified in Annexure IV of
Baggage Rules, are entitled to General Free Allowance in addition to „ personal
(c) Foreign Tourists are permitted to bring articles up to Rs. 8,000 for making
gifts. This can include up to 200 cigarettes or 50 cigars or 250 gms of tobacco and
up to two liters of alcoholic liquor or wine. Duty will have to be paid for gifts
over the value of Rs. 8,000 (Rs. 6,000 if they are coming from Pakistan)
(d) Tourists of Pakistani origin or foreign tourists coming from
Pakistan or tourists of Indian origin coming from Pakistan, by land route as
specified in Annexure IV of Baggage Rules, are entitled to bring used personal
effects and travel souvenirs are allowed duty free. Personal effect should be for
personal use of the tourist and these goods, other than consumed, should be re-
exported when tourist leaves India for foreign destination. In addition, articles up
to value of Rs. 6,000 for making gifts are permitted duty free.
(e) Tourists of Nepalese origin coming from Nepal or of Bhutanese
origin coming from Bhutan are not entitled to any exemption.
Import by foreign experts – Foreign experts assigned to India under various UN
schemes etc. are permitted to bring various articles, including VCR, video camera and
Air – conditioners. These are exempt from customs duty on obtaining certificate of
undertaking from the expert. Duty will be paid by concerned ministry / department.
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CHAPTER 5 - EXEMPTION & REMISSION OF DUTY
1) EXEMPTION :
Exemption in duty is granted in following ways
a) Government issues notification in the public interest and exemption is
granted on items specified in notification after condition are fulfilled as per
notification & W.E.F. date mentioned thereto
b) Imports for Exports by
FTZ, 100% EOU, Advance license, Job Work etc.
c) Specified imports for projects
d) Preferential rates for imports from specified countries
e) Lower rate in case of agreement by Govt. with some country
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2) REMISSION :
a) Remission means waiver of duty
b) In following cases duty is remitted
i) Goods lost, Destroyed or Pilfered after unloading
but before clearance for home consumption
ii) If importer abandon goods because
- Goods are deteriorated
- Duty is very high.
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CHAPTER 6 - OTHER PROVISIONS IN CUSTOMS
a) Imported goods can be kept without payment of duty
b) Pay customs duty & take goods out of warehouse
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c) Available to – Traders & Direct Importers
d) Opened at warehousing Stn. Approved by customs
e) Public & private warehouses
f) Bond is required from importer for movement of goods from customer‟s
port to warehousing Stn.
g) Period of warehousing–1 year & further 6 months by permission of
commissioner & with permission of chief commissioner & unlimited period
h) Capital goods by E.O.U. – 5 Yrs. Warehousing
Other goods by E.O.U. - 3 Yrs. Warehousing
i) Warehouse is under physical control of customs officer & clearance can
be only with his permission
j) If goods are damaged during warehousing no duty is payable
k) Goods can be cleared from warehouse only after paying custom duty
l) Importer must pay rent & other charges if not paid warehouse keeper can
sell goods after giving notice to importer & with permission of customs officer
m) Owner of warehoused goods can relinquish title of goods any time before
home clearance. He has to pay rent & other charges. He does not have to pay duty
n) With permission of customs officer warehoused goods can be dealt in any
of the following wary :
- Mfg. & other operation for export or for home consumption
- Inspect goods
- Separate damaged / deteriorated goods
- Sort goods
- Change containers
- Show goods for sale
- Take sample of goods.
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2) CUSTOMS HOUSE AGENT (C.H.A.)
a) Appointed by company to complete customs formalities and obtain
clearance from port
b) He must have license
c) C.H.A. is responsible for all Acts. Of his employee
d) To become customs house agent prescribed examination must be passed
e) Employee of customs house agent is given I. card
f) License fee is Rs. 5,000
g) License cannot be transferred
h) Customs house agent must obtain authorization from cos. For which he is
i) Customs house agent has to execute bond in prescribed form
j) If rules & regulations are not followed (Frameed by customs ) his license
is cancelled or suspended.
3) EXPORT ORIENTED UNDERTAKINGS ( E.O.U. )
EOU can import inputs and capital goods without payment of customs duty.
They can procure indigenous inputs and capital goods without payment of excise
Their final product should be normally exported, but they are allowed to sale part
of their production within India, which is termed as „DTA‟ sales i.e. sale in Domestic
EOU units have to follow provisions of
- Customers Act.
- Excise Act
- Income Tax Act.
- Foreign Exchange Management Act.
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EOU can be set up at various places in India declared as „warehousing stations‟.
There are over 300 such places.
Only project having an investment of not less than 100 lakhs and above in
building and plant and machinery shall be considered for establishment under EOU
One crore investment criteria does not apply to units engaged in service sector,
Software Technology Park(S.T.P.), Electronics Hardware Technology Park
(E.H.T.P.), I.T. sector handicrafts etc.
The EOU unit may be engaged in manufacture of goods, including repair, re-
engineering, and rendering of services. However, trading units are not permitted.
Special provisions have been made for EOU units for gold/ silver / platinum
jewellery, agriculture, aquaculture, floriculture, horticulture, poultry, granites etc.
EOU / SEZ / STP / EHTP / BTP unit can be set up with 100% foreign
investment, except in few sectors where compulsory licensing is required. 100%
foreign investment is sectors like arms and ammunition, explosives, atomic
substance, narcotics and hazardous chemicals, distillation and brewing of alcoholic
drinks and cigarettes, cigars and manufactured tobacco substitutes is not permitted. In
some sectors, there is sectoral cap.
The units should have positive Net Foreign Exchange Earning. (NFE). Net
Foreign Exchange Earning shall be calculated cumulatively in block of five years,
starting from commencement of production
NFE = A – B, where A = FOB value of exports, B is the sum total of CIF value
of all imported inputs and capital goods and all payments (like commission, royalty,
fees, dividend, interest of borrowings) made in foreign exchange
In case of EOU units, the whole factory is treated as a bonded warehouses. The
bonding period is three years for raw materials, consumable and spares. However, for
capital goods, the bonding period is 5 years. Bonding period of three years means
inputs / consumable should be consumed for manufacture of export product within
three years. If not, application for extension should be made. This period can be
reduced by commissioner if goods are likely to deteriorate.
The warehousing period can be up to five years in case of capital goods intended
for use in EOU unit.
The warehousing period can be up to five years in case of capital goods intended
for use in EOU unit.
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The EOU units have to execute a bond in form B – 17 which is all purpose bond
covering liability both of Central Excise & Customs. The Superintendent of Central
Excise will give a certificate in prescribed form giving details of bond, name of input
an its chapter number etc. Goods will be permitted to be cleared from customs
without payment of duty on strength of this certificate. Re-warehousing certificate
from assistant / Deputy Commissioner, CE should be submitted to customs authorities
within 90 days. Otherwise, duty demand will be raised.
Goods manufactured in EOU should e normally exported. However, since export
market is often fluctuating and uncertain, these units are allowed to sell part of their
products in DTA (Domestic Tariff Area ) i.e. within Indian, in terms of Foreign
As per proviso to section 3(1) of Central Excise Act. in case of sale by EOU units,
duty payable in case of DTA sale shall be equal to aggregate duties of customs which
would be payable under Customs Act, if the goods are imported in to India.
4) SPECIAL ECONOMIC ZONES (S.E.Z.)
China has made spectacular economic progress in recent years. Exports from
China are growing at phenomenal speed. It was found that one major reason for
growth in exports was due to „Special Economic Zones‟ development by China.
These are huge areas of thousands of hectares, where raw materials and capital goods
can be imported without any duty and final product is exported. Excellent
infrastructure is provided in these SEZs.
India has also decided to introduce concept of SEZ in India. SEZ are like a
separate island within country. These are treated as if they are outside India for
customs purposes. Goods can be brought in SEZ without payment of customs duty or
excise duty. Supplies to SEZ from other parts of India are treated as „ exports‟ and are
entitled to all export benefits. On the other hand, supplies from SEZ unit to any
person outside SEZ is treated as „import‟ by that person ad normal customs duty is
SEZ have full freedom of operations within SEZ and all facilities of import and
export are provided within the zone itself.
SEZ are grown engines that can boost manufacturing, augment exports and
generate employment. private sector has been associated with the development of
More than 100 SEZs have been approved and are in various stages of
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SEZ and SEZ units will be exempt from all taxes like customs duty, excise duty,
Central sales Tax, State Vat, Incomes tax etc. Supplies to SEZ from DTA (Domestic
Tariff Area ) will be „export‟ by DTA. Supplies from SEZ to unit in DTA will be
„export‟ by SEZ and „ Import‟ by DTA unit.
Goods manufactured in SEZ are „ excluded excisable goods‟ and no excise duty
is payable on them
In order to encourage development and growth of SEZ, Special Economic Zones
Act, 2005 was passed by parliament in May 2005. Basic purpose of the Act is smooth
and hassle free operations in SEZ and a „Single Window Clearance‟ for setting up an
SEZ or a unit in SEZ .
Major provisions of the Act have been made effective w.e.f. 10-2-2006. SEZ rules
have also been notified on the same date.
Central Government has liberal policy for setting up such zones. SEZ can be
set up in public, private, joint sector or by Central Government or State
Government, Jointly or severally[section 3(1) of Act] Developer of such SEZ
can allocate fully develop plots to entrepreneurs on purely commercial basis.
Developer of SEZ can provide services like water, electricity, security,
restaurants, recreation etc. He can also develop township adjacent to SEZ.
Thus, integrated township plus manufacturing facilities will be provided in
SEZ. Proposal to establish a SEZ will be approved by Board of Approvals
The SEZ are expected to have world class infrastructure for efficient
manufacturing and service activities.
Multi-product SEZs should have an area of 1,000 hectares or more. Minimum
35% area shall be earmarked for processing. Remaining 65%/ 75% area will be
available for developing residential and commercial areas. Sector specific SEZ can be
as small as 10 hectares, out of which 50% should be for processing and balance can
be for residential and commercial areas. SEZ for Free Trade and Warehousing
(FTW)shall have an area of 40 hectares or more with a built up area of not less than
one lakh square meters.
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An entrepreneur can set up a manufacturing unit is SEZ. Normally, all his
production will be
exported. He should have positive NFE (Net Foreign Exchange Earnings].
5) DUTY DRAWBACK
Manufacturers or processors can avail „ duty drawback‟ Here, the excise duty and
customs duty paid on inputs and service tax paid on input services is given back to the
exporter of finished product by way of „ duty drawback‟
Drawback, in relation to any goods manufactured in India and exported, means
the rebate of duty or tax, as the case may be, chargeable on any imported materials or
excisable materials used or taxable services used as input services in manufacture of
Incidence of un-rebated service tax and Fringe Benefit Tax (FBT) will be
factored in various duty neutralization and remission schemes. No drawback is
available on other taxes like sales tax and octroi.
Drawback – When not eligible
(i) If sale proceeds of export goods are not received within time stipulated by
RBI [This provision does not apply to goods supplied from DTA unit to SEZ
(ii) If no customs / excise duty is paid on the inputs or service tax is not paid
on input services
(iii) If imported inputs were obtained under Advance License (DEEC
scheme) without payment of duty
(iv) If importer avails DEPB or DFRC
(v) Goods manufactured under Customs Bond or Excise Bond where inputs
were obtained without payment of duty
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(vi) Goods manufactured by EOU or a unit in Special Economic Zone (as
they obtain inputs without payment of duty )
(vii) If Cenvat was claimed on indigenous inputs. [In such case, excise portion
of duty drawback will not be available ]
(viii) In case of negative value addition – i.e. selling price of exported goods is
less than value of imported goods i.e. foreign exchange spent on import of raw
material is more than FOB value of exports.
(ix) Jute batching oil used in manufacture of jute yarn, twist, twine etc.
(x) Packing materials used in manufacture of jute yarn, jute fabrics and jute
(xi) Where specific rates are provided, drawback will not be paid if it is less
than 1% of FOB. Value of the product, unless drawback claim per shipment is
over Rs. 500
(xii) If wholesale market price of goods in India is less than the amount of
(xiii) Exports to Nepal / Bhutan. However, exports to Nepal are eligible if
payment is received under hard currency i.e. dollars, euro, Yen British pounds
(xiv) No drawback of sales tax, Octroi or other taxes – drawback is of customs
and Central Excise duties only.
(xv) Export of alcoholic liquor, cigarettes, cigar and pipe tobacco: as stores, to
foreign going vessel of less than 200 tons.
(xvi) If goods exported by vessel of less than 1,000 tons: unless certificate is
submitted that sale proceeds in foreign currency have been received and goods
have landed at destination within three months.
(xvii)If drawback is less than Rs. 50
6) DEEMED EXPORTS
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India gets foreign aid from World Bank, Asia Development bank etc. for various
prestigious projects in India for which global tenders are invited and India gets aid in
foreign currency. Indian manufacturers and suppliers of services from India have to quote
in competition with foreign suppliers. Evaluation of bids is done without considering
customs duty. Since the supply of goods and service are for projects financed with free
foreign exchange, these suppliers are treated as „Deemed Exports‟. Similarly, supplies to
EOU units and supplies against annual advance authorization are also „deemed exports‟
These are so called because the goods and services do not leave the country.
Suppliers of goods and services get payment in Indian rupees and not in foreign currency.
Following are treated as Deemed exports
a) Supply of goods against Advance Authorization or Advance Authorization for
Annual Requirement / DFRC / DFIA.
b) Supply of goods to units located in EOU, STP, BTP or EHTP.
c) Scheme or supply of capital goods to holder of authorization under EPCG
d) Supply of goods to projects or turnkey contracts financed by multilateral or
bilateral agencies against international competitive bidding.
e) Supply of capital goods to fertilizer plants.
f) Supply of goods to any project where import is permitted at zero customs duty
and supply is make against international competitive bidding.
g) Supply of goods to power projects and refineries.
h) Supply of marine freight containers by EOU if the containers are exported within
i) Supply to goods funded by UN Agencies and
j) Supply of goods to nuclear projects through competitive bidding (need not be
international competitive bidding )
Benefits of deemed exports are available to manufacturer exporter only for supply of
goods manufactured in India, and not to merchant exporters.
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Benefits to Indian Supplier
The supplier are in India and supplier gets payment in Indian rupees. However, the
Indian supplier is entitled to get following benefits.
Refund of excise duty paid on final product.
No excise duty is payable while clearing goods from factory against CT – 3
form to EOU. The Indian manufacturer is not required to reverse Cenvat credit
availed on inputs.
No Excise Duty is payable if supply is made against International
If Cenvat has been availed, only customs duty paid on inputs / components
will be allowed as deemed duty drawback
In respect of supplies made against advance authorization / DFRC / DFIA
against „ deemed export‟ the supplier is entitled to Advance Authorization /
DFRC / DFIA for intermediate supplies
The DTA unit can import inputs duty free under this authorization. Advance
Authorization for intermediate supply / deemed export is issued to manufacturer –
exporter for material required for manufacture of goods to be supplied under
deemed export. Materials can be imported for deemed exports under Advance
Authorization for Deemed Exports without payment of customs duty.