`

CMA
S.No Index Applicable for

1 Introduction & Types of Duties Inter & Final

2 Classification Only Final

3 Valuation Inter & Final

4 Baggage Only Final

5 Import & Export Procedures Inter & Final

6 Warehousing Inter & Final

7 Duty Drawback Inter & Final

8 Miscelleanous Inter & Final

9 FTP – Part 1 Only Final

10 FTP – Part 2 Only Final

 Intro & Duties

Introduction:
 Entry 83 of the union list of the seventh schedule to the constitution of India is
empowered to levy the customs duty by the central government of India.
 The Customs Act was enacted by the Parliament in the year 1962.
 Acts that will be discussed under the Customs law
 Customs Act, 1962
- Consists of the provisions related to charge, collection and assessment of
customs.
- Extends to whole of India
 Customs Tariff Act, 1975.
- Consists of tariff rates for various goods on imports and exports.

Sec-156 of customs act:

The Central Government of India has power to make rules and also has the power to
issue Notifications from time to time for the purpose of smooth functioning and
effective administration of the Act.

Sec-157 of the Custom Act, 1962:

The Central Board of Indirect Tax and Customs (CBIC) has been empowered to make
regulations, consistent with provisions of the Act.

Difference between Rules and Regulations:

Rules Regulations

Issued by the Government of India Issued by the CBIC

Rules have to be consistent with Act Regulations have to be consistent with

Act & Rules.
Has statutory force Has statutory force

Definitions:

Adjudicating Authority: Adjudicating authority means any authority competent to pass

any order or decision under this Act, but does not include:

• The Central Board of Excise and Customs (CBIC),

 Intro & Duties

• Commissioner of Customs (Appeals) or

• Customs, Excise and Service Tax Appellate Tribunal (CESTAT)

Assessment: Means determination of the dutiability of any goods and the amount of
duty, tax, cess or any other sum so payable, if any, under this Act or under the
Customs Tariff Act, 1975

 the tariff classification of such goods as determined in accordance with the

provisions of the Customs Tariff Act;

 the value of such goods as determined in accordance with the provisions of

this Act and the Customs Tariff Act;

 exemption or concession of duty, tax, cess or any other sum, consequent upon
any notification issued therefore under this Act or under the Customs Tariff
Act or under any other law for the time being in force;

 the quantity, weight, volume, measurement or other specifics where such

duty, tax, cess or any other sum is leviable on the basis of the quantity,
weight, volume, measurement or other specifics of such goods;

 the origin of such goods determined in accordance with the provisions of the
Customs Tariff Act or the rules made thereunder, if the amount of duty, tax,
cess or any other sum is affected by the origin of such goods;

 any other specific factor which affects the duty, tax, cess or any other sum
payable on such goods,

Bill of Export:
 Exporter of any goods shall make entry thereof by presenting to the proper officer in the
case of goods to be exported, a bill of export in the prescribed form.
 (Form presented to proper officer to let the goods export is called as Bill of export)
Coastal goods:
 Means goods other than imported goods, transported in a vessel from one port in India to
another.
Customs station:
 Customs station means any customs port, customs airport or land customs station.
 Intro & Duties

India [Section 2(27)]:-

 “India” includes the territorial waters of
India.
 Territorial waters of India extend to 12
nautical miles into sea from the appropriate
base line.
 Indian customs waters” means the waters
extending into the sea up to the limit of
Exclusive Economic Zone, Continental Shelf,
Exclusive Economic Zone and other
Maritime Zones Act, 1976 and includes any
bay, gulf, harbour, creek or tidal river.
 The limit of exclusive economic zone is 200
nautical miles from the nearest point of
the baseline.

High Seas:

An area beyond 200 nautical miles from the base line is called High Seas. All countries
have equal rights in this area.

Conveyance:
 Conveyance includes a
- Vessel
- Air craft, and
- Vehicle
Person in Charge:
 Vessel – Master
 Aircraft – Commander or Pilot-In-charge
 Train- Conductor or Guard
 Vehicle – Driver
 Other conveyance – Person in charge

Dutiable Goods:
 Any goods which are chargeable to duty
 and
 On which duty has not been paid.

Export:
The term export means taking out of India to a place outside India.
 Intro & Duties

Import:
The term import means bringing into India from a place outside India.

Goods:

 The term goods includes:

- Vessels, aircrafts, and vehicles
- Stores
- Baggage
- Currency and negotiable
instruments and any other kind Baggage Stores
of movable property.

Stores:
Stores means goods for use in a
vessel or aircraft and includes fuel
and spare parts and other articles of
equipment, whether or not for Vessel Air craft
immediate fitting.

Associated cement companies LTD vs CC 2001

 Facts: RST Ltd imported drawings and designs in paper form through professional courier.
 Assistant commissioner valued these and levied duty whereas RST ltd contends that they are
not goods
 Decision: Apex court observed that though technical advice or information technology are
intangible assets, but the moment they put on media (Paper/cassettes/diskettes) they
become movable and thus they are goods.

Case study:

A Big Ship carrying merchandize and stores enters the territorial waters of India but it
cannot enter the port. In order to unload the merchandize lighter ships are employed.
Stores are consumed on board the ship as well as by the small ships. Examine whether
such consumption of stores attracts customs duty. Quote relevant section and case law
if any. Stores are supplied to the above ships. Will such supplies be treated as exports
and be entitled to draw back?
Answer:
Bringing of ‘stores’ is treated as import. However, there is special provision for stores
under section 87. Imported stores consumed on board an ocean going vessel (i.e.
foreign going vessel) are exempt from import duty under Section 87. Since the ship is
ocean going, stores consumed on board will not attract customs duty.
 Intro & Duties

Regarding the smaller ships which are employed to unload the cargo from the mother ship,
they are termed as “Transhippers”. These are also treated as ocean going vessels as was
decided in UOI v V M Salgaoncar AIR 1998 SC1367: 99 ELT 3 (SC).
Hence stores consumed by small vessels would also be exempt from customs duty.
Stores supplied to the vessel will be treated as export as per Section 89 of Customs
Act and hence will be eligible for duty drawback.

Prohibited goods:

Means any goods the import or export of which is subject to any prohibition under this Act
or any other law for the time being in force but does not include any such goods in
respect of which the conditions subject to which the goods are permitted to be
imported or exported have been complied with.

Examples:
• Pornographic and obscene materials

• Narcotic Drugs and Psychotropic Substances

• Wild life products, Specified Live birds and animals, Wild animals

Domestic Tariff Area:

 Means the whole of India (Including the territorial waters and continental shelf) but does
not include the areas of special economic zones and 100% Export oriented units.

Aban Llyod Chilies Offshore Ltd. v UOI (2008) 227 ELT 24 (SC).

Goods imported by the assessee for consumption on oil rigs which are situated in Continental
Shelf/Exclusive Economic Zones of India.

Decision: EEZ deemed to be a part of Indian Territory. Therefore, the supply of imported
spares or goods or equipments to the rigs by a ship will attract import duty.

CCus. (Prev.), Mumbai v M. Ambalal & Co. 2010 (260) E.L.T. 487 (SC)

Point of dispute: Smuggled goods can be treated par with imported goods for the purpose of
granting the benefit of the exemption notification?

Decision: The Apex court held that the smuggled goods could not be considered as ‘imported
goods’ for the purpose of benefit of the exemption notification.
 Intro & Duties

Charging section – 12:

• As per Section 12 of the Customs Act, import or export of goods into or out of India is
the taxable event for payment of the duty of customs as per such rates as may be
specified in Customs Tariff Act.

What is Import?
• The Supreme Court of India has given the landmark judgments in cases of UOI vs Apar
Industries Ltd (1999) and further in Garden Silk Mills Ltd v UOI (1999)that the import
of goods will commence when they cross the territorial waters but continues and is
completed when they become part of the mass of goods within the country.

Taxable event for imported goods:

• In the case of Kiran Spinning Mills (1999) the Hon’ble Supreme Court of India held that
import is completed only when goods cross the customs barrier. The taxable event is the
day of crossing of customs barrier and not on the date when goods landed in India or had
entered territorial waters of India
• The taxable event in case of imported goods can be summed up in the following lines:
o Unloading of imported goods at the customs port – is not a taxable event
o Date of entry into Indian territorial waters – is not a taxable event
o Date of presentation of bill of entry – is not a taxable event
o Date on which the goods cross the customs barrier - is a taxable event

Clearance of Goods for Home Consumption [Sec. 47 (1) of the Customs Act, 1962]:

• Clearance for home consumption implies that, the customs duty on import of the goods
has been discharged and the goods are therefore cleared for utilization or consumption.
• The goods may instead of being cleared for home consumption be deposited in warehouse
and cleared at a later time
• Where the proper officer is satisfied that any goods entered for home consumption are
not prohibited goods and the importer has paid the import duty, if any, assessed thereon
and any charges payable under this Act in respect of the same, the proper officer may
make an order permitting clearance of the goods for home consumption
• Provided that the Central Government may permit certain class of importers to make
deferred payment of said duty
Warehousing:
 It is a statutory facility for depositing imported goods in a warehouse without payment of
duty.
 The advantage of the scheme is that the imported goods can be cleared on payment of duty
in instalments, as and when required during the warehoused period, up to one year.
Exports

Export of goods is complete when the goods cross the territorial waters of India.
 Intro & Duties

Duties can be classiefied in to two types.

levied for the purpose

Revenue duties of raising customs
revenue.

Duties

Intended to give
Protective duties protection to
Indigenous Industries

The protection through protective duties is given by considering the following:

 Protective duties should not be so stiff to discourage Imports.

 It should be sufficiently attractive to encourage imports to bridge the gap between
demand and supply of those articles in the market.

Protective duties are levied by the central government upon the recommendation made to it by
Tariff commission and on being satisfied that the conditions exist.
 Intro & Duties

Sec 3(1) Adtl Equivalent to Excised duty is

Duty to levied. To be levied on Assessable value
compensate computed + BCD + Protective duty
Currently applicable on Alcohol,
Excise duty
Petroleum & Tobaco
(CVD)

3(5) Special
CVD At a rate not exceeding 4 % To be levied on Assessable value
counterbalancin Currently applicable on Alcohol, computed + BCD + Protective duty
g VAT/sales Petroleum products &Tobaco + CVD
tax

Applicable on Imports (Unless

Basic Customs To be levied on Assessable value
exempted) IF specically
Duty computed
mentioned - - Preferential rate
Levied on customs Duty other than
Social Welfare Rate - 10 % on BCD, 3% on on - IGST, Comp Cess, Safeguard
Surcharge Gold, Silver, Petrol, Alcohol. Duty, Anti dumping duty,
Countervailing Duty
Agriculure
Import Duties Levied on Imports

Levied on Import of certain

Infrastructure To be levied on Assessable value
notified Goods (coal, urea,
& Development computed
Silver, gold, apples)
Cess

- Leviable as per sec 5 of IGST

Act To be levied on Assessable
IGST
- To the Max of 40 % value computed + BCD + SWC
+ AIDC + Protective duty +
GST CVD + Spl CVD + Safe Guard
Leviable as per sec 8 of Comp
Compensation Duty + Anti Dumping Duty
cess Act
Cess

Exemption on Imports from

Levied when goods Imported in
Excess Quantity and Cuasing
Safeguard Duty
Serious injury to Domestic
Indutry
Developing Countries
- When Import from Each Country
< 3 %
- When aggregate of All countries
(share not exceeding 3 %) < 9 %

Condition
Countervailing When the exporting country
offers subsidy 1. Subsidy relates to Export
Duty on
performance
Subsidized - Lies in force for a Max period
Articles of 5 years 2. Use of domesticgoods over
imported in the exported foodss

Where the goods are exported to

Anti Dumping Duty = Dumping Margin or Injury
India at less than their Normal
Duty margin (lower)
value
 Intro & Duties

Basic customs duty:

 Goods imported into India are chargeable to basic custo`ms duty under customs act 1962.
 The rates of BCD are indicated in I schedule of customs tariff act, 1975.
 BCD is levied at standard rate of duty but if certain conditions are satisfied, the importer
can avail the benefit of preferential rate of duty on imported goods.
 Conditions for claiming the benefit of preferential rate of duty:
 At the time of import, Specific claim for preferential rate must be made by the
importer
 Import must be from a preferential area as notified by the central government.
 The goods such be produced/manufactured in such preferential area.
 The origin of the goods shall be determined in accordance with the rules framed.
 The fact that the importer has submitted a certificate of origin issued by an Issuing
Authority shall not absolve the importer of the responsibility to exercise reasonable care.
 Where importer fails to provide the requisite information for any reason
- cause further verification consistent with the trade agreement
- pending verification, temporarily suspend the preferential tariff treatment to such
goods
• Unless otherwise specified in the trade agreement, any request for verification shall be
sent within a period of five years from the date of claim of preferential rate of duty by
an importer.
• Notwithstanding anything contained in this section, the preferential tariff treatment may
be refused without verification in the following circumstances, namely:—
o the tariff item is not eligible for preferential tariff treatment;
o complete description of goods is not contained in the certificate of origin;
o any alteration in the certificate of origin is not authenticated by the Issuing
Authority;
o the certificate of origin is produced after the period of its expiry, and in all
such cases, the certificate of origin shall be marked as ‘‘INAPPLICABLE’’.

BCD is leviable on Assessable value as determined under Sec 14 Customs Act.

 Intro & Duties

Basic Customs Duty (BCD) on Imported & Exported goods

Rate of duty at the time

Basic customs duty
Rate to be considered
under different
circomstances
of submission of bill of
entry Rate of BCD
Prevailed on
Imports - Home
consumption that date
Rate of duty at the time whichever is
of Entry inward /Arrival later
date granted to the
vessel / Aircraft
Rate of duty is the date of presentation
Imports - Removal of
of ex-bond bill of entry (i.e. Sub-bill of
Warehosued goods
Entry) for home consumption

Rate of Duty on the day of let Export

Exports
order

Exchange rate for Imported/Exported goods

Exchange rate of CBIC

Imports (Direct Home
consumption) Exchange of CBIC as on the
More than one
date of submission of Bill of
exchange rate of CBIC
Exchange rate

Entry

Imports (Warehoused Exchange of CBIC as on the date of submission of Bill of

and removing for HC) Entry (In -bond)

Exports Exchange rate on date of filling Shipping Bill

In any other cases mentioned above – Rate of duty is the Rate prevailing on date of payment of
Duty, Exchange rate also rate prevailing on the date of payment of Duty
 Intro & Duties

Illustration – 1

An importer imported some goods for subsequent sale in India at $ 10,000 on Assessable value
basis. Relevant exchange rate and rate of duty are as follows:

Particulars Date Date Date

Date of submission of bill of entry 25th February 25th February 25th

2021 2018 February
2021
Date of entry inwards granted to the 5th March 2021 5th March 2021 5th
vessel March
2021
Assume : Integrated Tax leviable u/s 3(7) of the Customs Tariff Act, 1975 is 18%. Calculate
Assessable value and Customs Duty in Indian rupees?

Solution:

Compute export duty from the following data:

i. FOB price of goods: US $ 1,00,000

ii. Shipping bill presented electronically on 28-02-2018
iii. Proper officer passed order permitting clearance and loading of goods for export
on 01-03-2018.
iv. Rate of exchange and rate of export duty are as under
Rate of Exchange Rate of
Export
Duty
On 28-02-2018 1 US $ = Rs65 10%
On 01-03-2018 1 US $ = Rs66 8%
v. Rate of exchange is notified for export by Central Board of Excise and Customs
(Make suitable assumptions wherever required and show the workings)
 Intro & Duties

Sec 3(1): Additional Duty to compensate Excise Duty (CVD):

- Article Imported to India, in addition shall be liable to a duty
- Equal to the excise duty for the time being leviable on a like article if such article
manufactured or produced in INDIA
- If like article not produced in India, Then the rate applicable on such class or description
of articles to which the imported article belongs. (Multiple rates pick the higher one)
- Currently it is leviable on
 Alcoholic Liquour
 Petroleum products (HIGHly CRUel MAN)
 Tobaco & Tobaco products

Assessable Value: Value determined under Sec 14 + BCD

Sec 3(5): Special CVD counterbalancing VAT/Sales tax:

- If CG satisfies that it is necessary in public interest, such additional duty as would
counterbalance VAT/Sales tax or any other charges
- For the time being leviable on a like article if such article manufactured or produced in
INDIA
- Rate shall not exceed 4 %
- If like article not produced in India, Then the rate applicable on such class or description
of articles to which the imported article belongs. (Multiple rates pick the higher one)
- Currently it is leviable on
 Petroleum products (HIGHly CRUel MAN)

Assessable Value: Value determined under Sec 14 + BCD + CVD (3(1))

 Intro & Duties

Social welfare surcharge:

 10% on the aggregate duties of customs levied at the time of import.
 3% on goods like Gold, silver, platinum, petrol, high speed diesel oil.
 Following are excluded while calculating social welfare surcharge
 Safeguard duty
 Countervailing duty
 Antidumping duty
 IGST (Sec 3(7)) of Customs Tariff Act
 GST Compensation cess.

SWC leviable on BCD and on other customs duties except, on IGST, Comp Cess, Safeguard duty,
Countervailing Duty & Antidumping Duty.

Illustration - 2
Mr. X imported the goods from China worth USD 10,000. The Basic Customs Duty @10%,
Social Welfare Surcharge @ 10%. The exchange rate was 1 US $ = Rs 44 on date of
presentation of Bill of Entry. Find the total Customs Duty.

Agricultural Infrastructure and Development Cess (AIDC):

 AIDC levied on import of specified goods at the notified rate

 Some of the notified goods are Apples, gold, silver, Alcohol, Petrol.
 Duty is leviable on the value on the assessable value on which BCD is levied.
 AIDC on Imports is in addition to the other Customs duties leviable
 Rules and regulations made under customs Act are applicable to AIDC (Assessment /Intrest
/refund/Exemptions/penalty)

IGST

 GST (Integrated Goods and Services Tax) is a component under GST law, which is levied
on goods being imported into India from other country.
 Countervailing duty (Additional Customs duty) and special additional duty, are subsumed in
to GST.
 IGST will be levied on Imports.
 The rate of IGST shall not exceed 40%.

Taxable value for IGST = Assessable value + All the Duties under Customs ( BCD + SWC +
AIDC + Protective duty + CVD + Spl CVD + Safe Guard Duty + Anti Dumping Duty)
 Intro & Duties

Illustration - 3

Compute the duty payable under the Customs Act, 1962 for an imported equipment based on the
following information:

i. Assessable value of the imported equipment US $10,100.

ii. Date of Bill of Entry 25.4.2018 basic customs duty on this date 12% and exchange
rate notified by the Central Board of Excise and Customs Us $ 1 = Rs 65.

iii. Date of Entry inwards 21.4.2018 Basic customs duty on this date 16% and exchange
rate notified by the Central Board of Excise and Customs US $ 1 = Rs 60.

iv. IGST u/s 3(7) of the Customs Tariff Act, 1975: 12%.

v. Social Welfare Surcharge = 10%

Make suitable assumptions where required and show the relevant workings and round off your
answer to the nearest Rupee.
 Intro & Duties

GST compensation cess:

 Compensation Cess will be charged on luxury products like high-end cars and demerit
commodities like pan masala, tobacco and aerated drinks for the period of 5 years in
order to compensate states for loss of revenue.
 GST Compensation cess, wherever applicable, would be levied on cargo that would arrive
on or after 1st July, 2017.

Taxable value for Compensation Cess = Assessable value + All the Duties under Customs
(BCD + SWC + AIDC + Protective duty + CVD + Spl CVD + Safe Guard Duty + Anti Dumping Duty)

Value to be considered for levying IGST & Compensation Cess where the warehoused goods are
sold before Home consumption:

Goods Sold Multiple times before removal for Home consumption,

transaction value of last transaction has to be taken
consumption or Export - Value to be
Warehoused Goods sold before Home

considered for levying IGST

Value specified in Above para or

Whole Goods Sold
Transaction value Higher

Proportionate value specified in Above

Part of the Goods are sold
para or Transaction value Higher

Goods are Unsold Value specified in Above para

Illustration - 4
Suppose Assessable Value (A.V.) including landing charges = Rs 100/ -

(1) BCD - 10%

(2) CVD - 12%

(3) IGST - 28%

(4) SWS @ 10%

(5) Compensation cess - 10%

 Intro & Duties

Safeguard duty:

 If imported goods are cleared in DTA, then safeguard duty will be payable if on
conducting enquiry if it is satisfied that
- Those goods are imported into India in increased quantities and
- Such increased importation is causing or threatening to cause serious injury to
domestic industry.
 Safeguard duty is product specific
 The duty imposed under this section shall be in force for a period of 4 years from the
date of its imposition and can be extended with the total period of levy not exceeding 10
years.
 Safeguard duty shall not apply to articles imported by a 100% EOU undertaking or a unit
in a FTZ or in a SEZ unless specifically made applicable.
 Central government can even levy Provisional safeguard duty on basis of preliminary
determination that increased imports have caused serious injury to domestic industry
 Provided that where, on final determination, the Central Government is of the opinion
that increased imports have not caused serious injury to a domestic industry, it shall
refund the duty so collected
 Provisional safe guard duty will remain in force up to a period of 200 days.
 Safeguard duties are not taken into consideration while fixing All Industry Rates of
drawback, the drawback of the same can be claimed under an application for Brand Rate
under rule 6 or rule 7 of the Customs where the inputs which suffered safeguard duties
were actually used in the goods exported as confirmed by the verification conducted for
fixation of Brand Rate
 Safeguard duty shall not be imposed in the following circumstances

Articles orginating •Share of imports of that article from that

from developing country does not exceed 3% of the total
country imports of that article into India

• Aggregate of imports from developing

Articles orginating countries each with less than 3%
from more than
import share taken together does not
one developing
exceed 9% of the total imports of
country
that article into India

articles Impoeted •Unless the duty is

by a 100% EOU or specifically made
SEZ applicable
 Intro & Duties

Countervailing duty:
 Duty levied if the articles are imported into India by getting the subsidies from other
country
 The amount of countervailing duty shall not exceed the amount of subsidy paid
 CVD cannot be levied unless it is determined that
- Subsidy relates to export performance
- Subsidy relates to use of domestic goods over imported goods
- Subsidy conferred on a limited number of persons who are in manufacturing o or
export of goods.
 It shall be in force for a period of 5 years from the date of its imposition and can be
extended for a further period of 5 years.
 CG may, pending the determination of CVD can levy provisional countervailing duty not
exceeding such subsidy provisionally estimated.
 On final determination if any collected excess has to be refunded
 Can Impose CVD with retrospective effect but not prior than 90 days from date of
notification.
 CVD not applicable on articles imported by a 100 % EOU or Unit in SEZ, unless
- Unless it is specified in notification
- Such goods are cleared to DTA/ or used in manufacturing goods cleared to DTA

Anti-Dumping duty:
 It is imposed on imports of a particular country.
 Where any articles exported by an exporter to India at less than its normal value, then,
upon the importation of such article into India, the Central Govt., may impose an anti-
dumping duty.
 Antidumping duty is
 Margin of dumping or
 Injury Margin, whichever is lower.
 Margin of dumping = Normal value – Export price
 Normal value = Market value in the exporting country. If not available then the
comparable representative export price to a third country.
 Export price = The price at which it is exported. If the export price is unreliable
because of association or compensatory arrangement, the price may be taken as the
price at which the imported goods are resold.
 Injury Margin = Is the margin adequate to remove the injury to domestic industry.
 Where the determination of normal value and margin of dumping is pending then the
central government may impose provisional antidumping duty.
 Duty ceases to have effect on expiry of 5 years.
 Mani deep CA CMA

What is the need for classification?

 To ascertain the customs duty correctly classification of goods is necessary.

Consists of goods liable

First schedule
to import duty

Customs tariff Act

1975

Consists of goods liable

Second schedule
to export duty

The Indian customs tariff is based upon the harmonised system of nomenclature.
Harmonised system of nomenclature:
 HSN is an internationally standardised system of names and numbers for classifying goods.
 Developed and maintained by World customs organisation (WCO), an independent
intergovernmental organisation.
 HSN consists of eight digits.
 First two digits – Indicates chapter name
 Subsequent two digits - Heading
 5th and 6th digits – Sub-heading
 Last two digits – Tariff item.

Additional notes (First schedule of customs tariff act)

Heading: Means a description in list of tariff provisions, denoted by a four digit number.
Subheading: Means a description in list of tariff provisions, denoted by a six digit number.
Tariff Item: Means a description in list of tariff provisions, denoted by eight digit number and
rate of customs duty..

First schedule of customs tariff act 1975:

 Consists of 98 chapters grouped under 21 sections.

C 2.1
 Mani deep CA CMA

Group of chapters representing a particular class of

Sections
goods`

Chapters Contains goods of a particular class

Chapter Mentioned at the begining of each chapter , these are part

notes of the statute and has legal authority.

Each chapter and sub chapter is divided in to various

Heading
headings

Sub-heading Each heading is further divided into various sub-headings.

General Explanatory notes:

One dash[-] Two dash[--] Three dash[---,

-----]

• Preceded by • Denotes that • Denotes that

one dash, it is sub it is sub
denotes that classifcation of classifcation of
article or article or article or
group shall be goods which is goods which is
taken to sub preced by [-] preced by [--]
classification.

 Standard rate of duty applicable, if no preferential rate of duty is specified.

Tariff item Description of goods Units Standa Preferen

rd rate tial duty
of duty
1 2 3 4 5

0904 PEPPER OF THE GENUS PIPER; DRIED OR

CRUSHED OR GROUND FRUITS OF THE
GENUS CAPSICUM OR OF THE GENUS
PIMENTA
- Pepper

C 2.2
 Mani deep CA CMA

0904 11 -- Neither crushed nor ground: Kg 70% 62.5%

0904 11 10 --- Pepper, long Kg 70% 62.5%

0904 11 20 --- Light black pepper Kg 70% 62.5%

0904 11 30 --- Black pepper, garbled Kg 70% 62.5%

0904 11 40 --- Black pepper ungarbled Kg 70% 62.5%

0904 11 50 --- Green pepper, dehydrated Kg 70% 62.5%

0904 11 60 --- Pepper pinheads Kg 70% 62.5%

0904 11 70 --- Green pepper, frozen or dried Kg 70% 62.5%

0904 11 80 --- Pepper other than green, frozen Kg 70% 62.5%

0904 11 90 --- Other Kg 70% 62.5%

0904 12 00 -- Crushed or ground Kg 70% 62.5%

- Fruits of the genus Capsicum or of the Kg

genus pimento
0904 21 -- Dried, neiher crushed nor ground: Kg 70% -

0904 21 10 --- Of genus Capsicum Kg 70% -

0904 21 20 --- Of genus Pimenta Kg 70% -

0904 22 -- Crushed or ground : Kg 70% -

--- Of genus Capsicum :

0904 22 11 ---- Chilly Power Kg 70% -

0904 22 12 ---- Chilly Seeds Kg 70% -

---- Other Kg 70% -

0904 22 19

--- Of genus Pimenta:

0904 22 21 ----- Powder Kg 70% -

0904 22 29 ---- Other Kg 70% -

C 2.3
 Mani deep CA CMA

Columns:
1) Tariff item
2) Description of goods
3) Units
4) Standard rate of duty
5) Preferential rate of duty.

Rules of Interpretation of the first schedule of customs tariff act:

Rule – 1: General rule of classification- No ambiguity in classification.

• The titles of sections, chapters and sub-chapters do not have any legal force they are
for easy reference only.
• Terms of headings read with relative section and chapter notes are legally relevant for
the purpose of classification.
• The rules of interpretation need not be considered, when classification is possible on the
basis of description in heading, sub-heading, chapter notes and section notes.
• Notes of one chapter or section cannot be applied for interpreting entries in other
chapters or sections

Example

Product: Letter closing and sealing machine

Sub-heading 842230 00: Machinery for filling, closing, sealing or labeling bottles, cans, boxes,
bags or other containers; machinery for capsuling bottles, jars, tubes and similar containers;
machinery for aerating beverages.

Sub-heading 847230 00 - covers machines for closing or sealing mails.

Both the headings appear to be relevant for the product in question. However, chapter note 2
to chapter 84 inter alia provides that Heading No. 8422 does not cover office machinery of
Heading No. 8472. Therefore, the product in question will be classified under 847230 00

Rule – 2(a): Classification of incomplete/unfinished articles.

• Even if the goods are incomplete or unfinished; if they have essential character of
finished goods, then classify them under the same heading.
• The unassembled/dis-assembled form of that article shall also be classified under the
same heading provided the unassembled/dis-assembled goods have the essential
characteristics of the finished goods

• Railway coaches removed without seats would still be railway coaches

• Motor Car not fitted with wheels or tyres will be classified under the heading of Motor Vehicle

C 2.4
 Mani deep CA CMA

Note: Only goods requiring minor adjustments would be construed as having the essential
character. Those requiring major processes like turning, grinding, broaching, groove cutting, heat
treatment, surface treatment etc., cannot be construed as having the essential character.

Rule 2(b): Mixture or Combinations of goods falls under different classifications:

• Any reference in a heading to a material or substance shall be taken to include a
reference to mixtures or combinations of that material or substance with other
materials or substances.
• Any reference to goods containing a particular material or substance would include a
reference to goods consisting wholly or partly of such specified material or substance.

The term coffee will include coffee mixed with chicory.

Natural rubber will cover a mixture of natural and synthetic rubber

Rule 3 – Classification in case goods are classifiable under two or more headings:

Specific over general 3(a)

•The heading that provides a more specific description
should be preferred over the heading that provides a
general description.
•It means to say that a specific heading should be
preferred over a general heading

Essential character 3(b)

•If the product consists of different materials or made up
of different components, mixtures or composite goods and
cannot be classified based on Rule 3(a), it should be
classified as if they consisted of material or component
which gives them their essential character

Latter the better 3(c)

•When goods cannot be classified by reference to rule
3(a) or rule 3(b), they shall be classified under the
heading which occurs last in the numerical order among
those which equally merit consideration

C 2.5
 Mani deep CA CMA

Rule 3(a):

Relevant case law: Electric shaving machine was classifiable under following two headings:-

Heading No. 8510: Shavers and hair clippers with self-contained electric motors
Heading No. 8509: Electro-mechanical domestic appliances with self- contained electric
motor
The said product in the above instance would be classifiable under heading No. 8510 as heading No.
8510 is more specific as compared to heading No. 8509.

Rule 3(b)

Product: Lead pencil with an eraser at the back.

Classification: Though the above product is composite goods, the essential character is that it
is a pencil and the attachment of eraser at the stub is only for the purpose of adding
convenience to the user. Therefore, it shall be classified as a pencil and not as an eraser.

Rule 3(c)

Mahindra and Mahindra v. CCE [1999 (109) E.L.T. 739 Tribunal)][maintained by SC]
When the goods cleared by assessee were equally classifiable under the following two
headings:-
Heading No. 8703:-Motor cars and other vehicles principally designed for the transport of
persons.
Heading No. 8704: Motor vehicles meant for transport of goods.
It was held that heading 8704 occurs last and as both the headings equally merit
classification, goods shall be classified under 8704 applying the interpretative Rule 3(c).

Rule 4 – Akin Rule:

• Akin[meaning] = of similar character

• If goods cannot be classified as per earlier rules then they shall be classified under the
heading in which the most akin goods are classified

Product: Plastic films used to filter or remove the glare of the sun light, pasted on car glass
windows, window panes etc.

Classification: These goods do not find a specific entry in the tariff schedule. However,
heading 392530 00 covers Builder’s wares of plastic not elsewhere specified – shutters, blinds
(including Venetian blinds) and similar articles & parts thereof. Even though the product in
question is not a builders ware, they are most akin to plastic blinds and hence it can be
classified under 3925 30 00 heading.

C 2.6
 Mani deep CA CMA

Rule 5-

(a) Classification of cases/containers used for packaging of goods:

• Packing material used as cases for camera, musical instrument cases, gun cases,
drawing instrument cases, necklace cases and similar containers specially shaped or
fitted to contain a specific article or set of articles, suitable for long term use,
will be classified along with that article, if such articles are normally sold along
with such cases.
(b)Classification of packing materials and packing containers:
• Subject to the provisions of (a) above, packing materials and packing containers
presented with the goods therein shall be classified with the goods, if they are of a kind
normally used for packing such goods.

Leather cases, which are normally supplied along with the goods, however costly they may be,
need not be treated separately for the purpose of classification.

Rule 5(a) and 5(b) shall not apply when such packing material or packing containers are clearly
suitable for repetitive use

Rule 6: Goods compared at the same level of sub-headings:

• The classification of goods in the sub-headings of a heading shall be determined

according to the terms of those sub- headings and any related sub-heading notes and,
mutatis mutandis, to the above rules, on the understanding that only sub-headings at the
same level are comparable.
• For the purposes of this rule the relative section and chapter notes also apply, unless
the context otherwise requires.

Project Imports:
• Chapter 98 of tariff act pertains to project imports.
• Project Imports are the imports of machinery, instruments, and apparatus etc., falling
under different classifications, required for initial set up of a unit or for substantial
expansion of an existing unit.
• It is difficult to assess different products imported for a project at different rates,
hence for such project imports one consolidated rate of customs duty has been made
applicable irrespective customs classification.
• Individual exemption notification will apply even for items grouped under the said heading
of the customs tariff liable to duty at the project rate.
• Project imports include all items of machinery, instruments, apparatus and appliances,
components or raw materials etc. for initial setting up of a unit or for substantial
expansion of the same.
• The spare parts, raw material and consumables stores up to 10% of the value of goods
can be imported.

C 2.7
 Mani deep CA CMA

• This scheme has been made applicable to Industrial Plants, Irrigation Projects, Power
Projects, Mining Projects, Projects for Oil or Mineral Exploration and other projects as
may be notified by the Central Government.

Keihin Penalfa Ltd. v. Commissioner of Customs 2012 (278) ELT 578 (SC)
Facts of the Case: Department contended that ‘Electronic Automatic Regulators’ were
classifiable under Chapter sub-heading 8543.89 whereas the assessee was of the view that the
aforesaid goods were classifiable under Chapter sub-heading 9032.89. An exemption
notification dated 1-3- 2002 exempted the disputed goods by classifying them under chapter
sub- heading 9032.89. The period of dispute, however, was prior to 01.03.2002.

Point of Dispute: The dispute was on classification of Electronic Automatic Regulators.

Supreme Court’s Decision: The Apex Court observed that the Central Government had issued
an exemption notification dated 1-3-2002 and in the said notification it had classified the
Electronic Automatic Regulators under Chapter sub-heading 9032.89. Since the Revenue itself
had classified the goods in dispute under Chapter sub-heading 9032.89 from 1-3-2002, the
said classification needs to be accepted for the period prior to it.

M/s CPS Textiles P Ltd. v. Joint Secretary 2010 (255) ELT 228 (Mad.)

High Court’s Decision: The High Court held that the description of the goods as per the
documents submitted along with the Shipping Bill would be a relevant criterion for the purpose of
classification, if not otherwise disputed on the basis of any technical opinion or test. The
petitioner could not plead that the exported goods should be classified under different headings
contrary to the description given in the invoice and the Shipping Bill which had been assessed
and cleared for export.

Further, the Court, while interpreting section 75A(2) of the Customs Act, 1962, noted that
when the claimant is liable to pay the excess amount of drawback, he is liable to pay interest
as well. The section provides for payment of interest automatically along with excess drawback.
No notice for the payment of interest need be issued separately as the payment of interest
becomes automatic, once it is held that excess drawback has to be repaid.

CC v.Hewlett Packard India Sales (p) Ltd. 2007 (215) E.L.T. 484 (S.C.)

In this case the assessee was engaged in the manufacture of, and trading in, computers
including Laptops (otherwise called ‘Notebooks’) falling under Heading 84.71 of the CTA
Schedule. They imported Notebooks (Laptops) with Hard Disc Drivers (Hard Discs, for short)
preloaded with Operating Software like Windows XP, XP Home etc. These computers were also
accompanied by separate Compact Discs (CDs) containing the same software, which were
intended to be used in the event of Hard Disc failure.
The assessee classified the software separately and claimed exemption. The court held that
without operating system like windows, the laptop cannot work. Therefore, the laptop along with
software has to be classified as laptop and valuation to be made as one unit.

C 2.8
 Mani deep CA CMA

Saurashtra Chemicals v. CC 1986 (23) ELT 283 (Tri-LB)[approved by SC]

This case brings out the importance of section notes and chapter notes in the classification of
goods. The Tribunal observed that Section Notes and Chapter Notes in the Customs Tariff are a
part of the statute and thus are relevant in the matter of classification of goods. These notes
sometimes restrict and sometimes expand the scope of headings. The scheme of the Customs
Tariff is to determine the coverage of headings in the light of section notes and chapter notes.
These notes, in this sense have an overriding effect on the headings.

C 2.9
 Valuation

Valuation of imported and exported goods [sec -14] :

Transaction value
Ad volerm duty
Sec14(1)
Valuation of imported and
exported goods
Tariff value
Specific duties
14(2)

TARIFF VALUE:

1. 14(2) provides that the Board may fix tariff values for any class of imported goods or
export goods, having regard to the trend of value of such or like goods, by notification in
the Official Gazette if it is satisfied that it is necessary to do so.
2. Where any such tariff values are fixed, the duty shall be chargeable with reference to
such tariff value. Provisions of sub-section (2) have an overriding effect on the provisions of
sub-section (1) providing for transaction value.

Bill of Lading:
A negotiable document given by the carriers of the cargo giving particulars of
a) Port of shipment
b) No. of packages covered by the consignment
c) Marks and numbers on the page
d) Name of the vessel in which the goods have been dispatched
e) Name of the consignee of the goods
f) whether the freight has been pre-paid or is to be collected at the destination.
It is a negotiable document which has to be surrendered to the carrier for getting delivery of
the goods.

Boat/Lighterage Charge: Sometimes the vessel is unable to get a berth alongside the quay in the
harbour. The goods are then transported from the ship to the shore by boats / lighters. The
charges paid therefore are called Boat / Lighterage charges.
 Valuation

Place of importation: Means the customs station, where the goods are brought for being cleared
for home consumption or for being removed for deposit in a warehouse

Related person: Persons shall be deemed to be “related” only if –

(i) they are officers or directors of one another’s businesses;
(ii) they are legally recognised partners in business;
(iii) they are employer and employee;
(iv) any person directly or indirectly owns, controls or holds five per cent or more of the
outstanding voting stock or shares of both of them;
(v) one of them directly or indirectly controls the other;
(vi) both of them are directly or indirectly controlled by a third person;
(vii) together they directly or indirectly control a third person; or
(viii) they are members of the same family.

Explanation I. The term “person” also includes legal persons

Persons who are associated in the business of one another in that one is the sole agent or sole
distributor or sole concessionaire, howsoever described, of the other shall be deemed to be
related for the purpose of these rules.
 Valuation

Different types of Sale contracts on importation:

Exfactory price Free Alongside

•It is the price of the goods at the factory •It is the cost at which the export goods are
gate. It includes cost of production and delivered alongside the ship, ready for
manufacturer’s margin of profit without cost shipment. It includes ex-factory +local
of freight for outward delivery of goods freight + local taxes

Free on Board Cost Insurance and freight

•FOB means the stage at which the goods are
placed on board the conveyance carrying the
vessel. It can be said to include FAS +
loading charges + export duty/cess.
•It is the cost at which the goods are
delivered at the Indian port (F.O.B.
+Insurance + Freight). It covers cost of
goods. Sometimes there is referred as CFC
also.

Valuation of Imported goods:

Rule 1: Customs Valuation (Determination of Value of Imported Goods) Rules, 2007

Rule 2: Various terms defined like Relative, Transaction Value, Computed Value, Deductive
Value, Similar Goods, and Identical Goods etc.,

Rule 3: Transaction Value of import goods read with Rule 10:

This method is applicable only when importer satisfies the following conditions:

1. Seller should not have any control on the imported goods.

There are no restrictions as to the disposition or use of the goods by the buyer other than
restrictions which –
• are imposed or required by law or by the public authorities in India; or
• limit the geographical area in which the goods may be resold; or
• do not substantially affect the value of the goods;

2. the sale or price is not subject to some condition or consideration for which a value cannot
be determined in respect of the goods being valued.

Some examples for this:

(a) The seller establishes the price of the imported goods on condition that the buyer will
also buy other goods in specified quantities;
(b) the price of the imported goods is dependent upon the price or prices at which the
buyer of the imported goods sells other goods to the seller of the imported goods;

3. Sale proceeds should not be shared with exporter by the importer after sale. (unless an
appropriate adjustment can be made in accordance with the provisions of rule 10 of these
rules).

4. The buyer and seller should not be related.

 Valuation

• Where the buyer and seller are related, the transaction value shall be accepted
provided that the examination of the circumstances of the sale of the imported goods
indicates that the relationship did not influence the price.
• Where the Importer demonstrates that the declared value of the goods being valued
closely approximates to one of the following values ascertained at or about the same
time.
1. The Transaction value of Identical goods/Similar goods in sale to unrelated
buyer
2. The deductive value for identical or similar goods
3. The computed value for identical or similar goods

Statement Showing Computation of Assessable value for Imported Goods:

Rs
Value of Material (at ex-factory price) xxxx
Carriage/freight/insurance up to the port (sea/air) of shipment in the exporter’s xxxx
country
Charges for loading on to the ship at the shipping port in the exporter’s country xxxx
Free on Board (FOB) xxxx
FOB xxxx
Add: If not included in the above [Rule 10(1)] xxxx
Commission and brokerage (except buying commissions) xxxx
Packing cost (except cost of durable and returnable packing) xxxx
Cost of engineering, development and plan or sketches (Undertaken outside India) xxxx
Royalties and license fee xxxx
Value of subsequent re-sale if payable to foreign supplier xxxx
Value of material supplied by the buyer free of cost xxxx
FOB value as per the Customs xxxx
Cost of freight if not specified @ 20% of FOB value as per Customs [Rule 10(2)] xxxx
Ship demurrage charges on chartered vessels [Rule 10(2)] xxxx
Lighterage or barge charges [Rule 10(2)] xxxx
Insurance if not specified @1.125% of FOB value as per Customs [Rule 10(2)] xxxx
Cost, Insurance and Freight (CIF)/Assessable Value xxxx

Note:

(1) Assessable Value of Imported Goods=(Free On Board (FOB) + Insurance + Freight)

(2) Service charges paid to canalizing agent: It is includible in the assessable value of imported
goods [Hyderabad Industries Ltd. v. UOI 2000 (115) ELT 593 (SC)].
(3) Who is a canalizing agent: He is not the agent of the importer nor does he represent the
importer abroad. He use to buy goods from foreign seller and subsequently sells to Indian
importer.
(4) Inspection/Certification Charges: If contract specify for certification by the independent
 Valuation

agency for imported goods then charges incurred on such inspection are includible in
assessable value [Bombay Dyeing & Mfg. v. CC 1997 (90) ELT 276 (SC)].

Notes:

1. Except Buying commission all the other commissions has to be added (Either paid in India or O/S India)
2. Value of Material, Tools, dies, components supplied by buyer has to be added
3. Value of design, Artwork, sketches has to be added only when they are undertaken elsewhere in India
4. Royalies & Licence fee that are paid as a condition to sale needs to be added
5. Where any sale proceeds to be share with the supplier (Exporter)- needs to be added.
6. Ship Demurrage charge/ lighterage or bot charges are Part of cost of Transportation hence need to be
added
7. Other Demmurage charges need not to be included
 Valuation

The value of the imported goods shall include –

The cost of transport, loading, unloading and handling charges associated with the delivery of the
imported goods to the place of importation;
The cost of insurance to the place of importation
• Where the transport cost is not ascertainable, such cost shall be twenty per cent of the
free on board value of the goods:
• Where the insurance cost such cost shall be 1.125% of free on board value of the
goods:
• Where the goods imported by air, and the transportation cost is ascertainable, such cost
shall not exceed twenty per cent of free on board value of goods.

Freight

No Air Yes
Freight
Given

Actual Air @ 20% on

No Sea
FOB
Freight Freight
Given
@ 20% on FOB Whichever

is Less
Yes

Actual Sea Freight

Addable
 Valuation

For the purposes of sub-section (1) of section 14 of the Customs Act, 1962 and these rules,
the value of the imported goods shall be the value of such goods, and shall include –
(a) the cost of transport, loading, unloading and handling charges associated with the delivery
of the imported goods to the place of importation;
(b) the cost of insurance to the place of importation:
However, where the cost referred to in clause (a) is not ascertainable, such cost shall be 20%
of the free on board value of the goods:
Further that where the free on board value of the goods is not ascertainable but the sum of
free on board value of the goods and the cost referred to in clause (b) is ascertainable, the
cost referred to in clause (a) shall be 20% of such sum:
Where the cost referred to in clause (b) is not ascertainable, such cost shall be 1.125% of
free on board value of the goods:
Where the free on board value of the goods is not ascertainable but the sum of free on board
value of the goods and the cost referred to in clause (a) is ascertainable, the cost referred to
in clause (b) shall be 1.125% of such sum:

Where frieght is not

given - 20 % of FOB
(Customs) Is freight

Such Freight (20%) is

Inclusive of

Loading and Handling Transportation

Transportation cost
charges in the charged from
from Factory to Port
exporting country Exporting Country to
In Exporting Country
Port Port of Import

• The term “buying commissions” means fees paid by an importer to his agent for
the service of representing him abroad in the purchase of the goods being valued.

• Revenue contended that demurrage charges paid by the assesse are includible in
the assessable value for the levy of custom duty.
• Decision: Demurrage charges are incurred after the goods reached at Indian Ports,
thus it is a post-importation event; relying on the case of Commissioner of Customs v
Essar Steel Ltd. (2015) 51 GST 181/58 taxmann.com 191, the Apex Court has held that
Demurrage charges are not includible in assessable value of imported goods.
Commissioner of Cus., Vishakhapatnam v Aggarwal Industries Ltd. 2011 ELT 641 (SC):
 Valuation

Statement of Facts: The importer entered into contract for supply of crude sunflower
seed oil U.S. $ 435 C.l.F./Metric ton. Under the contract, the consignment was to be
shipped in the month of July, 2011. The period was extended by mutual agreement and
goods were shipped on 5th August, 2011 at old agreed prices.
In the meanwhile, the international prices had gone up due to volatibility in market, and
other imports during August, 2011 were at higher prices.
Department sought to increase the assessable value on the basis of the higher prices as
contemporaneous imports. Decide whether the contention of the department is correct.
You may refer to decided case law, if any, for your decision.
Decision: No. Department view is not correct. It is true that the commodity involved
had volatile fluctuations in its price in the international market, but having delayed the
shipment; the supplier did not increase the price of the commodity even after the
increase in its price in the international market. There was no allegation of the supplier
and importer being in collusion.
Thus, the appeal was allowed in the favour of the respondent- assessee.

Example -1
From the particulars given below, find out the assessable value of the imported goods
under the Customs Act,
1962.
US $
(i) Cost of the machine at the factory of the exporting country 10,000
(ii) Transport charges incurred by the exporter from his factory to the port for
shipment. 500
(iii) Handling charges paid for loading the machine in the ship 50
(iv) Buying commission paid by the importer 50
(v) Freight charges from exporting country to India 1,000
(vi) Exchange Rate to be considered 1$ = Rs 65
 Valuation

Determine the assessable value of imported goods in the following cases:

Case I:

Particulars US $
FOB value 1,000
Freight, loading, unloading and handling charges associated Not known
with the delivery of the imported goods to the place of
importation
Insurance charges 10
Solution:

Case II:
Particulars US $
FOB Value plus insurance charges 1,010
Freight, loading, unloading and handling charges Not known
associated with the delivery of the imported goods
to the place of importation
Solution:

Case III:

Particulars US $
FOB value 1,000
Sea freight, loading, unloading and handling charges associated 60
with the delivery of the imported goods to the place of
importation
Insurance charges Not known
Solution:
 Valuation

Identical Goods:

 Goods which are same in all respects, including physical

quantity.
 Produced in the same country in which the goods being
valued were produced
 Produced by the same person, where no such goods are
available produced by different person.

But shall not include

 Imported goods where engineering, development work,

art work or sketch undertaken in India were completed
directly or indirectly by the buyer free of charge.

Rule 4: Transaction value of Identical Goods

Value of Imported Goods = Transaction value of identical goods

sold for export to India shall be the value of imported goods
• Imported at or about the same time as the goods being valued
• Identical goods should be sold at the same commercial level and substantially the same
quantity and If sold at different commercial level/quantiy, then adjustment to be made
for the difference
• If at different commercial level, Adjustment to be made on account of difference in
distance and means of transport used for import of identical goods
This method is applicable only when following conditions are satisfied:
• Identical goods can be compared with the other goods of the same country from which
import takes place.
• These goods must be valued at a price which is produced by the same manufacturer.
• If those kind of goods are not produced by same manufacturer - price is not available,
then the price of other manufacturers of the same country is to be taken into account.
• If more than one value of identical goods is available, lowest of such value should be
taken.
Example:
A consignment of 800 metric tonnes of edible oil of Malaysian origin was imported by a charitable
organization in India for free distribution to below poverty line citizens in a backward area under
the scheme designed by the Food and Agricultural Organization. This being a special transaction,
a nominal price of US$ 10 per metric tonne was charged for the consignment to cover the
freight and insurance charges. The Customs House found out that at or about the time of import
of this gift consignment, there were following imports of edible oil of Malaysian origin:

S. No. Quantity imported in metric tonnes Unit price in US $ (CIF)

1. 20 260
2. 100 220
 Valuation

3. 500 200
4. 900 175
5. 400 180
6. 780 160
The rate of exchange on the relevant date was 1 US $ = Rs 63.00 and the rate of basic
customs duty was 15% ad valorem. There is no IGST. Calculate the amount of duty leviable on
import.

Rule 5: Transaction value of Similar Goods

“Similar goods” includes— Which although not alike in all

respects, have like characteristics and like component
materials which enable them to perform the same functions
and to be commercially interchangeable with the goods being
valued having regard to the quality, reputation and the
existence of trade mark;

If Trans Value of Identical goods unacceptable, Then use

Trans value of Similar goods.
Valuation:
• Transaction value of similar goods sold for Export to
India at or about the same time as the goods being
valued
• If at different commercial level, Adjustment to be made on account of difference in
distance and means of transport used for import of identical goods
 Valuation

If more than one value of identical goods is available, lowest of such value should be
•
taken.
Difference between identical and Similar Goods

Identical goods Similar goods

Goods must be same in all respects, except Goods have like characteristics and
for minor differences in appearance components and
perform same functions
Example: Hero Honda two Wheeler Products Example: Hero Honda Splendor and Bajaj
namely scooter.
Splendor and Passion

Rule 6: Determination of value:

If the value of imported goods cannot be determined under the provisions of rules 3, 4 and 5,
the value shall be determined under the provisions of rule 7 or, when the value cannot be
determined under that rule, under rule 8.

Rule 7: Deductive Value:

 The value of imported goods shall be based on the unit price at which the imported goods
or identical or similar imported goods are sold in INDIA
 At the same time
 In the greatest aggregate quantity
 to persons who are not related to the sellers in India

From sale price following shall be deducted:

• Profit Included, Selling expenses, selling commission.

• Cost of transportation and Insurance in India
• Customs and other taxes payable because of importation.

Greatest aggregate quantity” means the price at which the greatest number of units is sold.

Note:
1. Value of Identical/similar goods not available on the same day – value closer to Import date
not more than 90 days.
2. Where Identical/similar goods are sold in India only after further processing – The reduce
Further processing cost

Example:
X Ltd., imported 500 units of minerals from High Seas for sale in India. Selling price exclusive
of duties and taxes. Freight from port to depot in India is Rs 10,150 and Insurance Rs 1,250.

Sale quantity Unit price Rs

400 units 100
300 units 90
 Valuation

150 units 100

500 units 95
250 units 105
350 units 90
50 units 100

Basic Customs Duty 12% and education cess as applicable. Calculate total customs duty as per
Rule 7 of Customs Valuation (Determination of Value of Imported Goods) Rules, 2007. Assume
there is no IGST applicable.

Rule – 8: Computed value method

The value of imported goods shall be based on a computed value, which shall consist of the sum
of:—
• The cost or value of materials and fabrication or other processing employed in
producing the imported goods;

• an amount for profit and general expenses equal to that usually reflected in sales of
goods of the same class or kind as the goods being valued which are made by
producers in the country of exportation for export to India;

• The cost or value of all other expenses under sub-rule (2) of rule 10.
 Valuation

This method is
normally Cost of Materials and General expenses for Rs
possible when the importer in producing the xx
India and foreign exporter imported goods
are closely associated and Add: profit of the exporter Rs
xx
the foreign exporter is willing
Add: all expenditure as per Rule 10 Rs
to give necessary costing. xx
Assessable Value Rs
xx

Rule 9: Residual method

Residual method is also called as Best Judgment Method. This method is applicable when all
aforesaid methods are not applicable. The value determined under this method cannot exceed
normal price at which such or like goods are ordinarily sold or offered for sale for delivery at
the time and place of importation in course of International Trade, when seller or the buyer
are non-relatives and the price is sole consideration for such sale.
While determining Assessable Value, we should not consider the following
• The selling price in India of the goods produced in India;

• A system which provides for the acceptance for customs purposes of the highest of the
two alternative values;

• The price of the goods on the domestic market of the country of exportation;

• The cost of production other than computed values which have been determined for
identical or similar goods in accordance with the provisions of rule 8;

• The price of the goods for the export to a country other than India;

• Minimum customs values; or

• Arbitrary or fictitious values.

Rule 11: Declaration by Importer:

• Importer or his agent shall furnish
 Full and accurate details of the VALUE of goods being imported.
 Invoice, statement or document required by proper officer to determine the value of
goods.
• This cannot prevent proper officer from ascertaining the truth and accuracy of any
information or statement.

Rule 12: Rejection of declared value:

• Where proper officer has reason to doubt the truth or accuracy he may ask for further
information and after receiving such further information or in the absence of a response if
the proper officer still has reasonable doubt, it shall be deemed that transaction value of
such imported goods cannot be determined under the provisions of sub-rule (1) of rule 3
 Valuation

• At the request of an importer, the proper officer, shall intimate the importer in writing the
grounds for doubting the truth or accuracy of the value declared in relation to goods
imported by such importer and provide a reasonable opportunity of being heard, before
taking a final decision
• This rule by itself does not provide a method for determination of value, it provides a
mechanism and procedure for rejection of declared value, where the value is rejected then
the value shall be determined by proceeding sequentially in accordance with rules 4 to 9.
• Declared value can be accepted on enquiry if proper officer is satisfied.
• Powers to raise doubts on the truth or accuracy of the declared value based on certain
reasons which may include:
 the significantly higher value at which identical or similar goods imported at or about
the same time in comparable quantities in a comparable commercial transaction were
assessed;
 the sale involves an abnormal discount or abnormal reduction from the ordinary
competitive price;
 the sale involves special discounts limited to exclusive agents;
 the misdeclaration of goods in parameters such as description, quality, quantity,
country of origin, year of manufacture or production;
 the non declaration of parameters such as brand, grade, specifications that have
relevance to value;
 the fraudulent or manipulated documents
 Valuation

Valuation of exports:

Rule No Valuation Rules for export.

2 Definitions
3 Determination of the method of valuation
4 Determination of export value by comparison
5 Computed value method
6 Residual Method
7 Declaration by the Exporter
8 Rejection of declared value

Rule 3: Determination of the method of valuation.

1. Subject to rule 8, value of exports goods is transaction value.

2. The transaction value shall be accepted even where the buyer and seller are related,
provided that the relationship has not influenced the price
3. If the value cannot be determined under the provisions of sub-rule (1) and sub-rule (2),
the value shall be determined by proceeding sequentially through rules 4 to 6.

Rule 4: Determination of export value by comparison:

1. 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
in accordance with the provisions of sub-rule (2)
2. the proper officer shall make such adjustments as appear to him reasonable, taking into
consideration the relevant factors, including-
i. difference in the dates of exportation,
ii. difference in commercial levels and quantity levels,
iii. difference in composition, quality and design between the goods to be assessed
and the goods with which they are being compared,
iv. difference in domestic freight and insurance charges depending on the place of
exportation.

Rule – 5: Computed value method

The value of imported goods shall be based on a computed value, which shall consist of the sum
of:—
• The cost of production /manufacture /processing of Export goods;
• an amount for profit and charges for design or brand if any.
 Valuation

Rule 6: Residual method

• Residual method is also called as Best Judgment Method. This method is applicable when all
aforesaid methods are not applicable.
• the value shall be determined using reasonable means

Rule 7: Declaration by the exporter:

The exporter shall furnish a declaration relating to the value of export goods in the manner
specified in this behalf

Rule 8: Rejection oif declared value:

• Where proper officer has reason to doubt the truth or accuracy he may ask for further
information and after receiving such further information or in the absence of a response if
the proper officer still has reasonable doubt, it shall be deemed that transaction value of
such Exported goods cannot be determined under the provisions of sub-rule (1) of rule 3
• At the request of an Exporter, the proper officer, shall intimate the Exporter in writing the
grounds for doubting the truth or accuracy of the value declared in relation to goods
Exported by such Exporter and provide a reasonable opportunity of being heard, before
taking a final decision
• This rule by itself does not provide a method for determination of value, it provides a
mechanism and procedure for rejection of declared value, where the value is rejected then
the value shall be determined by proceeding sequentially in accordance with rules 4 to 6.
• Declared value can be accepted on enquiry if proper officer is satisfied.
 Valuation

Gira Enterprises v. CCus. 2014 (307) ELT 209 (SC)

Facts of the Case:

The appellant imported some goods from China. On the basis of certain information obtained
through a computer printout from the Customs House, Department alleged that during the period
in question, large number of such goods were imported at a much higher price than the price
declared by the appellant. Therefore, Department valued such goods on the basis of
transaction value of identical goods as per erstwhile rule 5 [now rule 4 of the Customs
Valuation (Determination of Value of Imported Goods) Rules, 2007] and demanded the
differential duty along with penalty and interest from the appellant. However, Department did
not provide these printouts to the appellant.

The appellant contended that Department’s demand was without any basis in law, without any
legally admissible evidence and opposed to the principles of natural justice as the computer
printout which formed the basis of such demand had not been supplied to them. Resultantly, the
appellant had no means of knowing as to whether any imports of comparable nature were made
at the relevant point of time.
Decision:

The Supreme Court held that mere existence of alleged computer printout was not proof of
existence of comparable imports. Even if assumed that such printout did exist and content thereof
were true, such printout must have been supplied to the appellant and it should have been given
reasonable opportunity to establish that the import transactions were not comparable. Thus, in
the given case, the value of imported goods could not be enhanced on the basis of value of identical
goods as Department was not able to provide evidence of import of identical goods at higher
prices.
 Intro & Duties

Introduction:

 Baggage means luggage of the passenger or member of crew if they travel by Air or
Sea from one country to another country.
 Import duty can be levied on baggage
 Provisions for levy and non-levy of duty on baggage are covered in Chapter XI of
Customs Act, and Baggage Rules, 1988

Sec 2(3) Baggage: - Includes

 Unaccompanied baggage
 But does not include motor vehicles.

If a person does not have any dutiable goods,

Green channel he can go through green channel with out any
check
Channels

If carrying dutiable goods he should pass

Red channel through red channel and should submit the
declaration and his baggage can be inspected

Rate of duty on baggage: Rate of Duty on Baggage is @ 35% plus social welfare surcharge
10% of Basic Customs Duty, effectively 38.5%.
 Intro & Duties

General free allowance and duty free allowance:

Passengers GFA Gold AlcoholCigarettes Laptop

Indian resident or a foreigner Personal Gentleman-20 2 100 One
residing in India or a tourist of effects gms. with a ltrs numbers
Indian origin (but not infant) Rs 50,000 value cap of or Cigars
arriving from countries other than other Rs 50,000 upto 25 or
Nepal, Bhutan or Myanmar than Lady - 40 gms Tobacco
(Rule 3) those in with a value 125 grams
Annex 1 cap of Rs
1,00,000
Passengars of Indian origin and Personal Gentleman-20 2 ltrs 100 One
foreigners residing in India, effects gms. with a numbers
excluding infants AND Tourists Rs 15,000 value cap of or Cigars
of foreign origin, excluding infants other Rs50,000 upto 25 or
from Nepal, Bhutan and Myanmar. than Lady - 40 gms Tobacco
(Rule 4) those in with a value 125 grams
Annex 1 cap of
Rs1,00,000
A tourist of foreign origin (but Rs 15,000 NA 2 ltrs 100 One
not infant), arriving from any numbers
country other than Nepal, or Cigars
Bhutan or Myanmar upto 25 or
(Rule 3) Tobacco
125 grams

 The free allowance of one passenger cannot be merged with others.

 Jewellery(Gold) shall be allowed clearance free of duty in his bona fide baggage
for an Indian passenger residing abroad for more than one year, on return to India.

 Firearms, cartridges of firearms exceeding 50, cigarettes exceeding 100 sticks,

cigars exceeding 25 numbers and tobacco exceeding 125 grams are not chargeable
to rate applicable to baggage .These items are charged @ 100% applicable to
baggage under Heading 9803 of the Customs Tariff.
 For infant, only used personal effects shall be allowed duty free. (Infant = Child
age < 2)

Transfer of residence:
A person, who is engaged in a profession abroad, or is transferring his residence to
India, shall, on return, be allowed clearance of articles free of duty in addition to what
was allowed above as bonafide baggage.
 Intro & Duties

Durati Articles allowed free of Conditions Relaxation

on of duty
stay Other than those
abroad
covered under Annex 1
& 2 but including
articles mentioned in
Annex 3
3-6 Personal and household Indian passenger —
month articles, upto an
s aggregate value of sixty
thousand rupees.
6-12 Personal and household Indian passenger —
month articles, upto an
s aggregate value of One
lakh rupees.
1-2 Personal and household The Indian passenger —
years articles, upto an should not have availed
aggregate value of two this concession in the
lakhs rupees. preceding three years.
Above Personal and household Minimum stay of two Shortfall upto 2 months
2 articles, upto an years abroad, can be condensed by
years aggregate value of five Immediately preceding DC or AC
lakhsrupees. the date of his arrival
on transfer of
residence;
Total stay in India on Principal commissioner
short visit during the or commissioner can
two preceding years condone short visits
should not exceed six in excess of 6
months; and months on recording
reasons in writing
Passenger has not No relaxation
availed this concession
in the preceding three
years.
 Intro & Duties

Annexure -1 Annexure – 2 Annexure - 3

1. Fire arms. 1. Colour Television. 1. Video Cassette Recorder

2. Cartridgesof fire arms 2. Video Home Theatre or Video Cassette Player
exceeding 50. System. or Video Television
3. Cigarettes exceeding 100 3. Dish Washer. Receiver or Video
sticks or cigars Cassette Disk Player.
4. Domestic Refrigerators
exceeding 25 or tobacco
of capacity above 300 2. Digital Video Disc player.
exceeding 125 gms.
litres or its equivalent.
4. Alcoholic
liquor or wines in 3. Music System.
5. Deep Freezer.
excess of two litres. 4. Air-Conditioner.
6. Video camera
5. Goldor silver in any form 5. Microwave Oven.
or the
other than ornaments.
combination of 6. Word Processing
6. FlatPanel (Liquid Crystal any such Machine.
Display/Light-Emitting Video camera 7. Fax Machine.
Diode/ Plasma) television. with one or
8. Portable Photocopying
more of the
Machine.
following
goods, 9. Washing Machine.
namely:- 10. Electrical or Liquefied
(a) television receiver; Petroleum Gas Cooking
sound recording or
(b) Range
reproducing apparatus; 11. Personal Computer
(c) video reproducing (Desktop Computer)
apparatus. 12. Laptop Computer (Note
7. Cinematographic films of book Computer)
35mm and above.
13. Domestic Refrigerators of
8. 8. Gold or Silver, in any
capacity up to 300 litres
form, other than
or its equivalent
ornaments.

Unaccompanied baggage:

 Baggage not carried by passenger at the time of his arrival, but sent before or
after arrival of passenger.
 Unaccompanied baggage may land in India Upto 2 months before the arrival of
the passenger or within 1 month from the arrival
 Deputy Commissioner of Customs or Assistant Commissioner of Customs may allow
even after two months, not exceeding 1 year in situations like
 Illness
 Natural calamities
 Disruption of transport etc.
 Intro & Duties

Baggage rules to crew members:

Crew member of foreign going vessel Crew member of Air craft

Allowed to bring Items like chocolates, Allowed to bring Items like chocolates,
cheese, cosmetics and other petty gift items cheese, cosmetics and other petty gift items
for their personal or family use Which shall for their personal or family use Which shall
not exceed the value of Rs1,500 not exceed the value of Rs 1,500

Postal Articles:
 As per sec 82 & 84 goods can be cleared by post.
 Any label or declaration accompanying the goods showing the description, quantity and value
thereof, shall be treated as “an entry for import”
 The procedure for clearance:
 Post parcels are allowed to pass from port/airport to Foreign Parcel Department of
Government Post Offices without payment of customs duty.
 The Postmaster hands over to Principal Appraiser of Customs the memo showing
- Total number of parcels from each country of origin,
- Parcel bills or senders’ declaration,
- Customs declaration and dispatch notes, and
- Other information that may be required.
 The mail bags are opened and scrutinized by Postmaster under supervision of Principal
Postal Appraiser of Customs.
 Packets suspected of containing dutiable goods are separated and presented to
Customs Appraiser with letter mail bill and assessment memos.
 The Customs Appraiser marks the parcels which are required to be detained if:
- necessary particulars are not available, or
- mis-declaration or undervaluation is suspected, or
- goods are prohibited for import.
 If everything is in order after verification, goods will be handed over to Post
Master, who will hand over the same to the addressee on receipt of customs
duty.

Samples:
 Samples can be imported by the traders, industry, individuals, research institutes
and so on. These samples can also be brought by the persons as part of their personal
baggage or through port or in courier.
 The current limit for duty free import of samples is of Rs 3 lakh per annum.
 Intro & Duties

Files IGM before the arrival of

Vessel/Aircraft electronically.

After Verification of IGM, Proper officer

grants Entry Inwards

Unloading of goods at the port under

Ship Arrives at the Port the supervision of Proper Officer on
working days at working hour

Files Bill of entry electronically and

pays the duty on self-assessment

On satisfaction Proper officer Issues

clearance for goods

Goods Warehoused Goods removed for Home

consumption
 Intro & Duties

Foreign going vessel or aircraft: [Section 2(21)]

Means any vessel or aircraft for the time being engaged in the carriage of goods or
passengers between any port or airport in India and any port or airport outside India,
whether touching any intermediate port or airport in India or not
includes-
- any naval vessel of any foreign Government taking part in any naval exercise;
- any vessel engaged in fishing or any other operations outside the territorial
waters of India;
- any vessel or aircraft proceeding to a place outside India for any purpose
whatsoever.

Sec:29 Arrival of vessel and Aircrafts in India:

Person-in-charge of a vessel or an aircraft entering India from any place outside India shall
not land at other than a customs port or a customs airport unless permitted by board.
Exception under the following circumstances:
Accident, stress of weather or other unavoidable cause
Obligation on person-in-charge;

• Report the arrival to the nearest customs officer or officer in charge of police
station and produce the log book if demanded
• He should not allow any unloading of goods without permission and should not allow
any passengers or crews to leave(Unless necessary for reason of health, safety)

Sec :30 Delivery of Arrival manifest or import report.

Arrival manifest or import manifest or import report is a detailed information to customs about
goods in the vessels/aircrafts which have been brought in for unloading at that particular
port/international airport as also that which would be carried further for other ports/airports
(transhipping goods)
• Declarations of such cargo has to be made in ‘Import General Manifest’
• Import General Manifest’ has to be presented electronically prior to the arrival of the
vessel or the aircraft, as the case may be, and in the case of a vehicle, an import
report within twelve hours after its arrival in the customs station by person-in-charge
or any other person notified.

Particulars Import Document Time limit for Mode of

presentation of IGM Presentation

Where the imported goods Arrival manifest Any time prior to Electronic filing
are brought in a vessel or or import the arrival of the
air craft manifest vessel

Where the imported goods Import Report Within 12 hours Manual filing
are brought in a vehicle after its arrival in
the customs station
 Intro & Duties

• If it is not possible to deliver IGM electronically then Principal Commissioner or

commissioner of customs may allow to deliver in any other manner.
• IF import manifest not filed with in specified period and if the proper officer is
satisfied that there was no sufficient cause for such delay the person-in- charge would
be liable to a penalty up to RS 50,000.
• The people delivering the arrival manifest or import manifest or import report shall
make a declaration as to the truth of its contents as a footnote thereof.
• Belatedly filed IGM may also be accepted
• Amendment of IGM filed can be made only when proper officer is satisfied that import
manifest is in any way incorrect or incomplete and there is no fraudulent intention.

Sec 30A Passenger and crew arrival manifest and passenger name record Information:
• Passenger and crew arrival manifest and passenger name record Information has to
delivered by a person-in-charge of conveyance that enters in to India from outside
India, before arrival in the case of an aircraft or a vessel and upon arrival in the case
of a vehicle in such manner and within such time, as may be prescribed.
• If it is not delivered to the proper officer within the prescribed time and satisfied
that there was no sufficient cause for such delay, then penalty, not exceeding Rs
50,000 can be levied.

Sec 31 Imported goods not to be unloaded unless entry Inward grnated:

• This rule applicable only for vessel
• Application for entry inward has to be submitted along with the import manifest in the
prescribed form and will be allowed by the proper officer of customs upon verification
• The date of entry inward is entered in the customs record maintained for the purpose.
• Entry inwards will not be granted without filing IGM, unless proper officer is satisfied
that a valid reason is given for not delivering.
• Customs Department is ready to supervise the unloading of the cargo, and is prepared to
assess the goods to duty. It is not given if there is no berth for the ship to dock [Bharat
Surfactants Pvt Ltd v Union of India, 1989 (43) ELT 189 (SC)]
• section will not apply to the unloading of baggage accompanying a passenger or a member
of the crew, mail bags, animals, perishable goods and hazardous goods.

Sec 32:
Imported goods cannot be unloaded without proper officer permission, unless they are
mentioned in the Import General Manifest.
Sec 33:
Loading and unloading of goods are to be undertaken only at places approved (proper places in
any customs port, customs airport, or coastal port)
Sec 34:
 Intro & Duties

Goods not to be loaded or unloaded except under the supervision of customs officer:
However board may permit for any goods or class of goods to be unloaded or loaded without
the supervision of the proper officer

Add Sec 35
Add Sec 36
Add Sec 42
Add Sec 45

Sec 46: Filing of Import Bill of entry:

• Bill of Entry is not required for goods intended for transit or transhipment.
• It is the duty of the importer of any goods to make an application electronically on the
customs automated system to the proper officer for clearance of the goods

• Bill of Entry is a document of assessment and when assessed becomes an assessment

order.
• The Principal Commissioner/Commissioner of Customs may, in cases where it is not
feasible to make entry by presenting electronically allow an entry to be presented in the
prescribed manner and form (Manually)
• There are Three types of bill of entries

Form 1 Form II Form III

•For Home •For Warehousing •For clearance from

consumption (Yellow) warehousing
(White) (Green)

• While bill of entry is filed electronically, it is in four copies:

•meant for the customs authorities for assessment and

Orginal
collection of duty

•For custodian of the cargo to release cargo to the importer

Duplicate

•as a copy for record for the importer

Triplicate

•a copy to be presented to the bank for amking remmitance

Quadruplicate

• The importer is required to declare in the Bill of Entry

 particulars of packages
 Intro & Duties

 descriptions of the goods (Enables to make classification as per customs tariff

act)

 The importer who presents a bill of entry shall ensure the following, namely:—
 the accuracy and completeness of the information given therein;
 the authenticity and validity of any document supporting it; and
 Compliance with the restriction or prohibition, if any, relating to the goods under
this Act or under any other law for the time being in force.

 The Bill of Entry shall be supported with invoice and such other documents as may be
prescribed.
 The importer shall presented the bill of entry before the end of the next day following
the day (excluding holidays) on which the aircraft or vessel or vehicle carrying the goods
arrives at a customs station at which such goods are to be cleared for home consumption
or for warehousing.
 Bill of entry can even be presented at any time not exceeding 30 days prior to) the
expected arrival of the aircraft or vessel or vehicle, by which the goods have been
shipped for importation into India.
 Where the bill of entry is not presented within the time so specified and the proper
officer is satisfied that there was no sufficient cause for such delay, the importer shall
pay prescribed penalty.
 Intro & Duties

Imported Goods

White Colour bill of entry submitted for Yellow colour bill of entry submitted for
home consumption warehousing

Green colour bill of entry submitted

Duty paid on the same day from the within 90 days from the date of
date of returning Bill of Entry
warehousing

Yes No Yes No

Interest Interest not Interest Interest not

required to required to required to required to
pay pay pay pay
 Intro & Duties

Procedure for Imports:

•When the vessel/aircraft carrying imported goods arrives in India the person-in-
Landing charge shall allow calling/landing of the vessel/aircraft only at the customs
port/customs airport
calling

•Person-In-Charge shall deliver IGM electronically before the arrival of vessel or

Import aircraft, with in 12 hrs of arrival in case of vehicle.
manifest

•On recepit of IGM proper officer shall grant Entry Inwards The master of the
vessel shall not permit the goods to be unloaded until the order of Entry Inwards
Entry
has been granted
Inwards

•Goods shall be unloaded only if mentioned in IGM, at approved place under the
Unloading supervision of customs officer during the working hours on a working day.
of goods

•Once the imported goods have entered the customs area, they shall remain in the
Custody
custody of the Custodian. for pilferage in port custodian responsible.
of the
custodian

•importer of any goodsshall file a Bill of Entry electronically for clearance of goods
from the custom station. Which is of 3 types.
Bill of
Entry

•Bill of etry can be filed within 30 days prior to arrival of ship, an d with in
Time of 1+1(2) days from arrival of ship
filing of
BOE:
•importer will self-assess the duty considering the applicable rate of exchange and
Assess rate of import duty, on verification proper officer shall return Bill of entry after
determining duty amount.
ment

•For warehousing payment is differed till clearance, for home consumption duty has
to be paid in prescribed time to avoid intrezt. howevered deffered payment of
Payment
duty benefit can be availed fby certain importers.
of duty

•With in 30 days tfrom unloading goods has to cleared either for home
Clearanc consumption, warehousing are for transhipment.
e
 Intro & Duties

Customs Audit Sec 99A:

• Section 99A is introduced authorizing the proper officer to audit the assessment that
has already been conducted at the time of customs clearance.
• Auditee: “a person who is subject to an audit under section 99A of the Act and includes
an importer or exporter or custodian approved under section 45 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

Salient feature of this audit procedure are as follows:

- Auditee is to preserve records for conduct of this audit for a period of five years
- Risk based assessment will identify persons to be audited
- Audit will be conducted at the premises of the auditee by the authorized officers who
will intimate fifteen days in advance of their schedule visit
- Based on the findings, auditee may accept the liabilities and voluntarily discharge the
duty, interest and penalty, as applicable
- Assistance of experts can be availed for conducting this audit such as CA, CWA or IT
professionals with permission of Principal Commissioner/ Commissioner of Customs
- Contravention of these Regulations attracts penalty of Rs 50,000
- Types of Audit:

TBA Audit of transactions PBA Audit of premises

•Here transactions are •In PBA, customs would

audited. TBA may review the import and
subsequently be converted export over a given period
into a Premises based and check all relevant
Audit (PBA) commercial records,
including financial
statements and contracts
to verify the particulars
given in a goods declaration

- The executive Customs Commissionerates shall also assist Audit Commissionerates in the
conduct of Transaction Based Audit and Premises Based Audit.
- Apart from overall supervision Chief Commissioner shall examine on a selective basis,
5% of the Audit reports, selected randomly based on the quarterly reports submitted
by Audit Commissionerates to ensure that audit has been conducted as per prescribed
procedures.
 Intro & Duties

Procedure for Exports:

Filing of shipping bill/ bill of export

The exporter is required to present electronicallyto a proper officer of customs a Shipping

bill or bill of export.

Order permitting clearance and loading

Where the proper officer satisfied that the goods are not prohibited goods and the exporter
paid export duty he passes order permitting clearance and loading called LET EXPORT ORDER

Grant of Entry Outwards

A vessel intending to start loading of export goods must be first granted an ‘Entry Outwards’
by the proper officer

Loading of goods on conveyance

Export goods shall be loaded on the conveyance for exportation with the permission of
person- in-charge, He shall not permit unless a shipping bill/bill of export/bill of
transhipment, as the case may be, duly passed by the proper officer, has been handed over

Delivery of export manifest/report

The person-in-charge of a conveyancs shall, deliver to the proper officer before departure
an export manifest electronically

No conveyance to leave without written order

until a written order has been given by the proper officer the conveyance cannot be
permitted to depart
 Intro & Duties

Sec 39: Export goods not to be loaded on vessel until entry outwards granted:

• Until an order has been given by the proper officer granting entry-outwards to such vessel
loading of any export goods, other than baggage and mail bags can be made.

Add Sec 50
Add Sec 51

Sec 40: Goods not to be loaded unless shipping bill or Bill of export duly passed by proper
officer:
• Export Goods other than baggage and mail bags can be loaded on to the board only when:

Shipping Bill Bill of export Bill of

transhipment

•In case of •At land customs •For transhipment

seaport and station of goods
airport

Sec 41: Delivery of Departure/Export Manifest/Export report:

• Can be filed by Person-in-charge or by any other person notifed by central government

before departure of conveyance from a customs station.
• In case of vessel and air craft a departure manifest or an export manifest has to be
presented electronically.
• In the case of a vehicle, an export report, in such form and manner as may be
prescribed.
• It consists of a general declaration of
- Particulars of the vessel, its crew and passengers
- Date and port of departure
- List of ship’s stores
- List of crew’s personal effects and
- A cargo declaration (it’s a complete list of goods shipped, transhipped and goods
lying in the vessel which are not unloaded & dutiable goods)
• If there is a delay in filing and proper officer satisfied that there is no sufficient
cause for such delay, such person-in-charge or other person shall be liable to pay
penalty not exceeding fifty thousand rupees.
• The person delivering the departure manifest or export manifest or export report shall
make and subscribe a declaration as to the truth of its contents as a footnote
thereof.
• Proper officer may permit to amend Export manifest or export report, if it is
incorrect and there was no fraudulent intention.
 Intro & Duties

Sec 41A Passenger and crew departure manifest and passenger name record Information:
• Passenger and crew arrival manifest and passenger name record Information has to
delivered by a person-in-charge of conveyance that departs from India to a place
outside India.
• If it is not delivered to the proper officer within the prescibed time and satisfied that
there was no sufficient cause for such delay, then penalty, not exceeding Rs 50,000
can be levied.
Sec 42: No conveyance to leave without written order:

Transit of goods vs Transhipment of Goods:

A vessel Bhishma, sailing from U.S.A to Australia via,, India carries various types of products
namely ‘A, B, C & D’. ‘A &B’ are destined to Mumbai Port. On account of submission of bill of
transshipment product ‘A’ transshipped to Chennai port as ultimate destination in India and
product ‘B’ transshipped to Srilanka. Find the imported goods, Transshipment goods and transit
goods?

Product ‘A’ is imported goods because its ultimate destination is in India. Products ‘A & B’ are
called as Transshipment goods, since these goods are transshipped to another vessel, Product
‘A’ transshipped to Chennai attracts import duty whereas product ‘B’ is destined to Srilanka
without payment of duty.

Products C&D will not be unloaded in India, ship from Mumbai sails to Australia, and the goods
C&D will be unloaded there, they are called as transit goods.

Flow diagram to be drawn in class room:

 Intro & Duties

Transit of goods in the same vessel or Air (Sec 53) & Transhipment of goods without payment
of duty (Sec 54):
• The provisions of Sec 53/54/55 shall not apply to baggage, stores, goods imported by
post.

Transit of goods in the same vessel or Air
(Sec 53)
•Where any goods imported in a
conveyance and mentioned in the import
manifest as for transit in the same
conveyance to any place outside India the
proper officer may allow the goods and
the conveyance to transit without
payment of duty
Transhipment of goods without payment of
duty (Sec 54)
•Where any goods imported into a customs
station are intended for transhipment, a
bill of transhipment shall be presented to
the proper officer in the prescribed form
•If the goods are transhipped under an
international treaty then a declaration of
transhipment has to be presented.
•In the IGM if the goods are transhipped
to any major port in India or any other
customs station and the proper officer is
satisfied, then the goods may be allowed
to tranship without payment of duty.

Sec 55: Where any goods are allowed to be transited or transhipped (transhipment within
India) they shall, on their arrival at such station, be liable to duty and shall be entered in like
manner as goods are entered on the first importation thereof.

Difference between transit and transhipment of goods under the provisions of the Customs
Act.

Transit Transhipment

• Section 53 of the Customs Act, 1962 • Section 54 of the Customs Act, 1962
provides for transit of goods. provides for transshipment of goods.

• In case of transit of goods, goods are • In case of transshipment of goods, the

allowed to remain on the same conveyance changes i.e., the goods are
conveyance. unloaded from one conveyance and loaded in
another conveyance.

• In case of transit of goods, there is • In transshipment of goods, continuity in the

continuity of records. records is not maintained as the goods are
transferred to another conveyance.
w
 Intro & Duties

Warehousing:
 It is a statutory facility for depositing imported goods in a warehouse without payment
of duty.
 The advantage of the scheme is that the imported goods can be cleared on payment of
duty in instalments, as and when required during the warehoused period, up to one
year.
 The relevant date for determination of rate of duty is the date of presentation of ex-
bond bill of entry (i.e. Sub-bill of Entry) for home consumption.
 Exchange rate to be considered is the rate of CBIC on the date of submission of bill
of entry by the importer.

Features of Warehousing:

1. Importer can defer payment of import duties by storing the goods in a safe place
2. Importer allowed doing manufacturing in bonded warehouse and then re-exporting from
it.
3. The importer can be allowed to keep the goods up to One year without payment of duty
from the date he deposited the goods into warehouse.
4. This time period is extended to Three years for Export Oriented Units and the time
period still be extended to Five years if the goods are capital goods.
5. The importer minimizes the charges by keeping in a warehouse, otherwise the demurrage
charges at port is heavy.
6. Assistant Commissioner of Customs or Deputy Commissioner of Customs are
competent to appoint a warehouse as public bonded warehouse.

7. The Assistant Commissioner of Customs or Deputy Commissioner of Customs may license

private warehouse. The license to private warehouse can be cancelled by giving ONE
month notice.

8. Only dutiable goods can be deposited in the warehouse.

9. Green Bill of Entry has to be submitted by the importer to clear goods from warehouse
for home consumption.
10. Rate of duty is applicable as on the date of presentation of Bill of Entry (i.e. sub-bill
of entry or ex-bond bill of entry) for home consumption.

11. Reassessment is not allowed after the imported goods originally assessed and
warehoused.

12. The exchange rate is the rate at which the Bill of Entry (i.e. ‘into bond’) is presented
 Intro & Duties

for warehousing.
13. If the goods which are not removed from warehouse within the permissible period, then
subsequent removal called as improper removal. The rate of BCD which is applicable as
on the last date on which the goods should have been removed but not removed is
applicable, [Kesoram Rayon v Commissioner of Customs (1996)].

14. Bond has to be executed for thrice of the duty amount and security also will have to be
given.

Types of Warehousing:

Types of warehousing

Public Warehousing Private Warehousing Special Warehousing

Licensed u/s 57 Licensed u/s 58 Licensed u/s 58A

wherein dutiable goods Dutiable goods may be

may be deposited. deposited and such
Wherein dutiable goods
warehouse shall be caused
imported by or on behalf
to be locked by the
of the licensee may be
proper officer and no
deposited.wherein dutiable
person shall enter the
goods imported by or on
warehouse or remove any
behalf of the licensee may
goods therefrom without
be deposited.
the permission of the
proper officer.

The following class of goods which shall be deposited in a special warehouse:

i. gold, silver, other precious metals and semi-precious metals and articles thereof;
ii. goods warehoused for the purpose of:
● supply to DFS (Duty Free Shops) in a customs area;
 Intro & Duties

● supply as stores to vessels/aircrafts under Chapter XI of the Customs Act,

1962;

● supply to foreign privileged persons in terms of the Foreign Privileged Persons

(Regulation of Customs Privileges) Rules, 1957.

Note:
Privileged person means a person entitled to import/purchase locally from bond goods free of
duty for his personal use/for the use of any member of his family/for official use in his Mission,
Consular Post or Office or in Deputy High Commission/Assistant High Commission.
A Duty-Free Shop (DFS) in the airport need not be a licensed as warehouse under section 58A.
a. DFS located in customs area should not be treated as a warehouse.
b. In fact, it is a point of sale for the goods which are to be ex-bonded and
removed from a warehouse for being brought to a DFS in the customs area for
sale to eligible persons, namely international passengers arriving or departing from
India.
Applicability of Interest on Warehoused Goods:

Warehoused goods

Assessee (other
Assessee –
than
EOU/EHTP/STP
EOU/EHTP/STP
units
units

Warehousing period Warehousing period In case of inputs,

In case of Capital
spares and
≤ 90 days > 90 days Goods
consumables

No interest is Interest @ 15%

Till their clearance Till their clearance
payable p.a. is payable

No intrest payable No Intrest payable

 Intro & Duties

Owner’s Right to deal with Warehoused Goods:

The owner of any warehoused goods may, after warehousing the same:

a) inspect the goods;

b) deal with their containers in such manner as may be necessary to prevent loss or
deterioration or damage to the goods;
c) sort the goods; or
d) show the goods for sale.

Warehousing without Warehousing (Section 49 of the Customs Act, 1962):

 If the assessment is delayed for imported goods, then those goods can be stored in
public warehouse without executing the bond is called as warehousing without warehousing.

 There is a time limit of 30 days to remove the goods from warehouse where the goods
has been stored under S.49 of the Customs Act, 1962 i.e. warehousing without
warehousing.

 However, the Commissioner of Customs may extend the period of storage for a further
period not exceeding 30 days at a time.

Transfer of Goods to Another Warehouse:

Warehouse – Private or Public Special warehouse
(1) Licensee (namely incharge of warehouse) (1) Licensee (namely incharge of
shall transfer warehoused goods to another warehouse) shall transfer warehoused
warehouse only when the owner of the goods goods to another warehouse only with
produce the form for transfer of goods the permission of the Bond Officer on
bearing the orders of the bond officer the form for transfer of goods.
permitting such transfer.
(2) After the goods are removed and loaded on (2) Once bond officer permits removal of
means of transport, licensee would: goods from warehouse, licensee shall, in
a) affix a one-time-lock to the means of the presence of Bond Officer,:
transport, a) cause the goods to be loaded onto
b) endorse the number of one-time lock on the means of transport, and
prescribed form for transfer of goods
b) affix a one-time-lock to the means
and on transportation documents,
of transport.
c) cause one copy of each of these
documents to be delivered to bond
officer and
d) record the removal of goods

Taxable event for exported goods:

 Intro & Duties

 Taxable event arises only when proper officer makes an order permitting clearance (i.e.
entry outwards) granted and loading of the goods for exportation
 In case of exports, rate of exchange of the CBIC as in force on the date on which a
shipping bill or bill of export.
 For the purposes of calculation of export duty, the transaction value, that is to say
the price actually paid or payable for the goods for delivery at the time and place of
exportation, shall be the FOB price of such goods at the time and place of exportation.
 Free on Board (FOB): FOB means all expenditure incurred by exporter upto the point
of loading goods into the vessel or aircraft or vehicle is incurred by the exporter and
hence, from importer point of view it is Free on Board.

Deemed Exports:
The term Deemed Exports means export without actual export, it means goods and services are
sold and provide respectively within India and payment also received in the Indian Rupees. As
per the Foreign Trade Policy the following few transactions can be considered as deemed
exports.

• Sale of goods to units situated in Export Oriented Units, Software Technology Park, and
Electronic Hardware Technology Park etc.

• Sale of capital goods to fertilizer plants

• Sale of goods to United Nations Agencies Sale of goods to projects financed by bilateral
Agencies, etc.
 Intro & Duties

Introduction:
An important principle in the levy of customs duty is that the goods should be consumed within
the country of importation. If the goods are not so consumed, but are exported out of the
country, the cost of export goods gets unduly escalated on account of incidence of customs
duty.
Re-export of the goods imported into the country

Goods not conforming to the specification

of the order
is in the following occasions

Goods not permitted to be imported into

Where the goods are sent back
the country on account of trade-
as such to the foreign country
restriction.

Where the goods are used in

the manufacture of other Objective of the importation was limited
articles and such other articles to temporary retention in India
are exported

Duty Drawback is an export incentive scheme where the duties paid on any exported materials or
excisable materials which are used in the manufacture/processing/carrying out any operations on
the goods that are exported outside India is allowed as refund to the exporter.

Two categories of duty drawback:

1. Duty Drawback on Re-Export of imported goods(Sec. 74)

2. Duty Drawback on when imported materials are used in the manufacture or processing of
goods in India and such goods are then exported (Sec. 75)

Duty Drawback on Re-Export [Section 74]

Drawback:
 Intro & Duties

In relation to any goods exported out of India, means the refund of duty or tax or cess as
referred to in the Customs Tariff Act, 1975 and paid on importation of such goods in terms of
section 74 of the Customs Act.
Analysis:
• Drawback here includes refund of integrated tax and compensation cess along with basic
customs duty, etc.
• In-order to prevent dual benefit a internal circular has been issued by CBIC to its
officers to make it ensured that no ITC on IGST/Compensation cess paid on imports has
been availed or no refund has been claimed, If duty drawback is claimed.
• Safeguard duty, Anti-dumping duty, countervailing duty paid if any can also be claimed as
drawback.

Conditions should be satisfied:

1. Originally the goods should have been imported into India; Customs duty on import should have
been paid.

2. The imported goods should be capable of being easily identifiable as the same goods which
were originally imported.

3. The goods should have been entered for export either on a shipping bill through sea or air; or
on a bill of export through land; or as baggage; or through post and the proper officer after
proper examination of the goods and after ensuring that there is no prohibition or restriction
on their export should have permitted clearance of the goods for export.

4. The goods should have been identified to the satisfaction of the Assistant or Deputy
Commissioner of Customs as the goods, which were imported.

The concerned authority can be satisfied:-

a) Primarily by physical examination of the goods
b) And as alternative through the correspondence exchanged between the overseas
seller of the goods and the Indian importer. In the course of physical examination
emphasis will be laid on
(i) Description of the goods
(ii) Quantity and weight
(iii) Identifying markings/distinguishing features
(iv) Original packing of the goods.

5. The goods should have been entered for export within two years from the date of
payment of duty on the importation thereof. This period can be extended up to two years
by CBIC or by the Commissioner of Customs.

6. The market price of such goods must not be less than the amount of drawback claimed.

Power to make rules under section 74:

 Intro & Duties

Central Government is empowered to make rules for the purpose of carrying out the provision of
section 74 and in particular such rules may provide for the following:
• Establishing the manner of identification of goods imported in different consignments
which are ordinarily stored together in bulk
• Specifying the goods which shall be deemed to be not capable of being easily identified.
• The manner and the time within which a claim for payment of drawback is to be filed.

Duty Drawback on Re-Export not allowed on the following:

Drawback of import duty paid is not allowed if these goods are exported:

• Wearing apparel (after being used), Tea chests,

• Exposed cinematograph film passed by the Board of Film Censors in India,
• Unexposed photographic films, paper and plates and X-Ray films.
 Intro & Duties

Re-export of duty
paid imported goods
[Sec. 74]

Goods are imported for Goods are imported for

business purpose personal purpose

After use After use Without use

Without use
Qtr DDB
Exported ≤ % of
18 DDB = @ 98% (%)
DDB on
months from the import DDB = @
Exported ≤ 2
date of payment of duty Yr-1 I 96 98%
Years from
Re-
duty the date of
II 92 exported
payment of
immediately
duty
III 88
≤ 3M 95%
IV 84
> 3M ≤ 6M 85%
Yr-2 I 81
> 6M ≤ 9M 75%
II 78
> 9M ≤ 12M 70%
III 75
> 12M ≤ 15M 65%

IV 72
> 15M ≤ 18M 60%

> 18M NIL

Qtr DDB
Goods are imported (%)
for personal purpose Yr-3 I 69.5
after use re-exported II 67
after 2 years from III 64.5
the date of payment IV 62
of import duty then Yr-4 I 60
with prior permission II 58
from CBIC; DDB can
III 56
be claimed
IV 54
 Intro & Duties

Procedure for claiming drawback on goods exported by post (Rule 3):

Goods exported by post:

• The outer packing shall carry the words “DRAWBACK EXPORT”.
• The exporter shall deliver to the competent Postal Authority a claim in the prescribed
form.

Date of filing of drawback claim:

• The date on which the aforesaid claim form is received by the proper officer of customs
from the postal authorities.
Deficiencies in the claim:
• In case the aforesaid claim form is not complete in all respects, the exporter shall be
informed of the deficiencies therein within 15 days by a deficiency memo and such claim
shall be deemed not to have been received.
• When the exporter complies with the requirements specified in deficiency memo within
30 days, he shall be issued an acknowledgement.
• The date of such acknowledgement shall be deemed to be date of filing the claim for
the purpose of section 75A.

Statements/Declarations to be made on exports other than by post [Rule 4]:

In the case of exports other than by post, the exporter shall at the time of export of the
goods:-
(i) State on the shipping bill or bill of export, the description, quantity and such other
particulars as are necessary for deciding whether the goods are entitled to drawback
under section 74 and make a declaration on the relevant shipping bill
• that the duties of customs were paid on the goods imported
• that the goods imported were not taken into use after importation; or
• that the goods were taken in use

Time-limit for filing drawback claim:

A claim for drawback under these rules shall be filed:-
• In the prescribed form
• Within three months (extendable by another three months) from the date on which
an order permitting clearance and loading of goods for exportation under section 51
is made by proper officer of customs.

Date of filing of drawback claim:

• The date of affixing the dated receipt stamp on the claims which are complete and for
which an acknowledgement shall be issued.
Deficiencies in the claim:
• The exporter shall be informed of the deficiencies therein within 15 days by a
deficiency memo and such claim shall be deemed not to have been received.
• When the exporter complies with the requirements specified in deficiency memo within
30 days, he shall be issued an acknowledgement.
• The date of such acknowledgement shall be deemed to be date of filing the claim for
 Intro & Duties

the purpose of section 75A.

Extension of due date:

Authority Period of Application fee Grant/refuse of

extension extension

Assistant/Deputy Three months (i) 1% of The concerned

Commissioner of Customs The FOB value of authority may, on
exports or an application and
ii) Rs1000/- after making such
enquiry as he
whichever is less
thinks fit, grant
extension or
Principal Further (i) 2% of the FOB refuse to grant
Commissioner/Commissione extension of six value of exports or extension after
r of Customs months (ii) Rs2000/- recording in
Whichever is less writing the
reasons for such
refusal

Documents to be filed along with drawback claim:

The claim shall be filed along with the following documents, namely:-
a) Triplicate copy of the Shipping Bill bearing examination report recorded by the proper
officer of the customs at the time of export.
b) Copy of Bill of Entry or any other prescribed document against which goods were cleared
on importation.
c) Import invoice.
d) Evidence of payment of duty paid at the time of importation of the goods.
e) Permission from Reserve Bank of India for re-export of goods, wherever necessary.
f) Export invoice and packing list.
g) Copy of Bill of lading or Airway bill.
h) Any other documents as may be specified in the deficiency memo.
 Intro & Duties

Drawback on Imported materials used in the manufacture of Export Goods (Sec 75):

The following important aspects should be remembered in this regard:

(i) The goods exported are entirely different from the inputs.
(ii) The input could be either imported goods on which duty of customs has been paid or
indigenous goods on which central excise duty has been paid.
(iii) The existence of the imported/indigenous excise duty paid goods in the final product is
not capable of easy verification at the point of export.
(iv) The goods, namely the inputs might have undergone changes in physical shape, property
etc.
(v) The quantity of inputs per piece of final product may not be uniform and may not also be
capable of verification at the time of exportation.

Drawback:
In relation to any goods manufactured in India and exported, means the rebate of duty
excluding integrated tax leviable under sub-section (7) and compensation cess leviable under
sub- section (9) respectively of section 3 of the Customs Tariff Act, 1975 chargeable on any
imported materials or excisable materials used in the manufacture of such goods.

Power of Central Government to frame rules [Section 75(2)]:

Goods which are exported [Sec. 75]

Goods which are exported [Sec. 75]

No
Exported goods named in
All Industry DDB list

Brand Rate of DDB

Yes applicable

All Industry Duty Drawback Rate applicable, provided such DDB covers 80% of Duties
suffered already.
Otherwise Special Brand Rate of DDB applicable

All Industry Drawback Rates:

• All Industry Drawback rates are fixed by Directorate of Drawback
 The rates are periodically revised.
 Intro & Duties

 Data from industry is collected for this purpose.

• All Industry Drawback Rate is fixed Rules by considering average quantity and value of
each class of inputs imported. Average amount of customs duties is considered. These
rates are fixed for broad categories of products.
 The rates are fixed on basis of broad parameters like prevailing prices of input, SION
published by DGFT, share of imports in total consumption of inputs, FOB value of export
goods, applicable rates of customs duty etc.

Brand Rate of duty drawback

It is possible to fix All Industry Rate only for some standard products. It cannot be fixed for
special type of products. In such cases, brand rate is fixed under Rule 6 of Customs and
Central Excise Duties Drawback Rules, 2017.
Application shall be made to Principal Commissioner or Commissioner of Customs with all details of
inputs etc. in prescribed forms.

Special Brand Rate of duty drawback

All Industry rate is fixed on average basis. Thus, a particular exporter may find that the
actual customs duty paid on inputs is higher than All Industry Rate fixed for his product. In such
case, he can apply under Rule 7 of Customs and Central Excise Duties Drawback Rules, 2017 for
fixation of Special Brand Rate, within three months from export. He has to apply giving details in
prescribed form.
The conditions of eligibility are that the All Industry Rate fixed for that product should be
less than 80% of the duties actually paid by him on imports.

Factors considered while determining amount/rate of drawback (All Industry Brand rate):
(a) the average quantity or value of each class or description of the materials from which a
particular class of goods is ordinarily produced or manufactured in India.
(b) the average quantity or value of the imported materials or excisable materials used for
production or manufacture in India of a particular class of goods.
(c) the average amount of duties paid on imported materials or excisable materials used in the
manufacture of semis, components and intermediate products which are used in the
manufacture of goods.
(d) the average amount of duties paid on materials wasted in the process of manufacture and
catalytic agents.
• However, if any such waste or catalytic agent is re-used in any process of
manufacture or is sold, the average amount of duties on the waste or catalytic
agent re-used or sold shall also be deducted.
(e) the average amount of duties paid on imported materials or excisable materials used for
containing or, packing the export goods.
(f) any other information which the Central Government may consider relevant or useful for
the purpose.
 Intro & Duties

Rule:4 Revision of rates:

The Central Government may revise amount or rates determined under rule 3

Determination of date from which the amount or rate of drawback is to come into force and
the effective date for application of amount or rate of drawback [Rule 5]:
• The Central Government may specify the period upto which any amount or rate of
drawback determined under rule 3 or revised under rule 4, as the case may be, shall be in
force.
• Where the amount or rate of drawback is allowed with retrospective effect, such amount
or rate shall be allowed from such date as may be specified by the Central Government by
notification in the Official Gazette which shall not be earlier than the date of changes in
the rates of duty on inputs used in the export goods.
• The provisions of section 16, or section 83(2), of the Customs Act, 1962 shall determine
the amount or rate of drawback applicable to any goods exported under these rules

Cases where amount or rate of drawback has not been determined [Rule 6] (Brand rate):
• Where no amount or rate of drawback has been determined in respect of any goods, any
exporter has to make an application, within 3 months from the date relevant for the
applicability of the amount/rate of drawback, to the Principal Commissioner/
Commissioner of Customs for determination of the amount or rate of drawback.
• All the relevant facts including 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 has to be stated.
• On receipt of an application, the Principal Commissioner/ Commissioner of Customs, as the
case may be, shall, after making or causing to be made such inquiry as it deems fit,
determine the amount or rate of drawback in respect of such goods.

Extension of due date:

Authority Period of Application fee Grant/refuse of

extension extension

Assistant/Deputy Three months (i) 1% of The concerned

Commissioner of Customs The FOB value of authority may, on
exports or an application and
ii) Rs1000/- after making such
enquiry as he
whichever is less
thinks fit, grant
extension or
Principal Further (i) 2% of the FOB refuse to grant
Commissioner/Commissione extension of six value of exports or extension after
r of Customs months (ii) Rs2000/- recording in
Whichever is less writing the
reasons for such
refusal
 Intro & Duties

Provisional drawback:

Exporter may apply for a provisional amount of drawback pending determination

of the amount or rate of drawback

Principal Commissioner/ Commissioner of Customs, may, after considering

the application, allow provisionally not exceeding amount claimed

Exporter may require to enter into a general bond for such amount, and
subject to such conditions

Where the drawback is finally determined, the amount provisionally paid

to such exporter shall be adjusted

Exporter has to pay the deficency or entiltled to get refund of excess paid

Negative list of Duty Drawback [Section 76]

1. DDB amount is less than Rs 50
2. In case of negative sales
3. If CENVAT CREDIT availed (except BCD)
4. Where the DDB amount is more than 1/3rd of Market value of exports.(in excess of 1/3rd
not allowed)
5. Export to Nepal and Bhutan and the export proceeds are not received in hard currency (it
means USD, GBP or Pounds).
6. DDB as % on FOB less than 1% unless amount of DDB is more than or equal to Rs 500
7. Duty drawback is not allowed if the exporter has already availed the Duty Entitlement
Pass Book (DEPB) or other export incentives.
8. If the sale proceeds not received within the time period allowed by Reserve Bank of India.
9. Duty drawback amount exceeds the market value of exported goods.

Power to require submission of information and documents [Rule 10]:

(a) Determining the class or description of materials or components used in the production or
 Intro & Duties

manufacture of goods or for determining the amount of duty paid on such materials or
components; or
(b) verifying the correctness or otherwise of any information furnished
(c) verifying the correctness or otherwise of any claim for drawback; or
(d) obtaining any other information considered by the Principal Commissioner of Customs or
Commissioner of Customs, as the case may be, to be relevant or useful

Access to manufactory [Rule 11]:

Assistant Commissioner/ Deputy Commissioner of Customs if it considers it necessary, the

manufacturer shall give access at all reasonable times to the officer so authorised to every part
of the premises in which the goods are manufactured, so as to enable the said officer to verify
by inspection the process of, and the materials or components used for the manufacture of
such goods, or otherwise the entitlement of the goods for drawback or for a particular amount or
rate of drawback under these rules.

Procedure for claiming drawback on goods exported by post (Rule 12):

Goods exported by post:

• The outer packing shall carry the words “DRAWBACK EXPORT”.
• The exporter shall deliver to the competent Postal Authority along with the parcel or
package, a claim in the Form at Annexure I, in quadruplicate, duly filled in.
Date of filing of drawback claim:
• The date on which the aforesaid claim form is received by the proper officer of customs
from the postal authorities.

Statements/Declarations to be made on exports other than by post [Rule 13]:

In the case of exports other than by post, the exporter shall at the time of export of the
goods:-
i. State on the shipping bill or bill of export, the description, quantity and such other
particulars as are necessary for deciding whether the goods are entitled to drawback
and if so, at what rate and make a declaration on the relevant shipping bill or bill of
export.
• A claim for drawback under these rules is being made;
• No separate claim for rebate is made in respect of these goods
Where brand rate or special brand rate is applicable then additional declaration has to be made
with respect to:
(a) there is no change in the manufacturing formula and in the quantum per unit of the
imported materials or components, if any, utilised in the manufacture of export goods;
and
(b) the materials or components, which have been stated in the application under rule 6 or
rule 7 to have been imported, continue to be so imported and are not being obtained
from indigenous sources.
 Intro & Duties

Manner and time for claiming drawback on goods exported other than by post [Rule 14]:
Electronic shipping bill in Electronic Data Interchange (EDI) under the claim of drawback or
triplicate copy of the shipping bill for export of goods under a claim of drawback shall be
deemed to be a claim for drawback filed on the date on which the proper officer of Customs
makes an order permitting clearance and loading of goods for exportation under section 51 and
said claim for drawback shall be retained by the proper officer making such order.
The said claim for drawback should be accompanied by the following documents, namely:
 copy of export contract or letter of credit, as the case may be;
 copy of ARE-1, wherever applicable;
 insurance certificate, wherever necessary; and
 copy of communication regarding rate of drawback where brand rate(Rule 6) or
special brand rate (Rule 7)is determined.
If the claim for drawback is incomplete or is without the documents specified shall be returned
to the claimant within 10 days and shall be deemed not to have been filed
For computing the period of 1 month prescribed under section 75A for payment of drawback to
the claimant, the time taken in testing of the export goods, not more than 1 month, shall be
excluded.

Payment of drawback and interest

The officer of Customs may combine one or more claims for the purpose of payment of drawback
and interest, if any, as well as adjustment of any amount of drawback and interest already paid
and may issue a consolidated order for payment.
The date of payment of drawback and interest, if any, shall be deemed to be, in the case of
payment -
 by cheque, the date of issue of such cheque; or
 by credit in the exporter’s account maintained with the Custom House, the date of such
credit.

Supplementary claim [Rule 16]:

Where any exporter finds that the amount of drawback paid to him 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 in the specified form.
However, the exporter shall prefer such supplementary claim within a period of 3 months:
(i) All industry brand rate, from the date of publication of such rate in the Official Gazette;
(ii) Brand rate or special brand rate, from the date of communicating the said rate to the
person concerned;
(iii) in all other cases, from the date of payment or settlement of the original drawback
claim by the proper officer.

Authority Period of Application fee Grant/refuse of

 Intro & Duties

extension extension

Assistant/Deputy Nine months (i) 1% of The concerned

Commissioner of Customs The FOB value of authority may, on
(3+9)
exports or an application and
ii) Rs1000/- after making such
enquiry as he
whichever is less
thinks fit, grant
extension or
Principal Further (i) 2% of the FOB refuse to grant
Commissioner/Commissione extension of six value of exports or extension after
r of Customs months (ii) Rs2000/- recording in
(3+9+6) Whichever is less writing the
reasons for such
refusal

Repayment of erroneous or excess payment of drawback and interest [Rule 17]

The claimant shall, on demand by a proper officer of Customs repay the amount so paid
erroneously or in excess, as the case may be, and where the claimant fails to repay the amount
it shall be recovered in the manner laid down in sub-section (1) of section 142 of the Customs
Act, 1962
Recovery of amount of drawback where export proceeds not realized [18]:
Where an amount of drawback has been paid to an exporter or a person authorised by him
(hereinafter referred to as the claimant) but the sale proceeds in respect of such export goods
have not been realised by or on behalf of the exporter in India within the period allowed under
the Foreign Exchange Management Act, 1999 (FEMA), including any extension of such period,
such drawback shall, except under circumstances or conditions specified in in this rule, be
recovered in the manner specified below.
However, the time-limit referred to in this sub-rule shall not be applicable to the goods
exported from the DTA to a SEZ.

If the exporter fails to produce evidence in respect of realisation of export proceeds within the
period allowed under the Foreign Exchange Management Act, 1999, or any extension of the said
period by the Reserve Bank of India, the Deputy/Assistant Commissioner of Customs shall issue a
notice to the exporter to produce evidence of realisation of export proceeds within 30 days.
Where the exporter does not produce such evidence within the said period of thirty days, the
Assistant Commissioner of Customs or Deputy Commissioner of Customs shall pass an order to
recover the amount of drawback paid to the claimant and the exporter shall repay the amount so
demanded within thirty days of the receipt of the said order.
However, such recovery shall not be made in case the non-realisation 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 realisation 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.
 Intro & Duties

If export proceeds are not realized, duty drawback allowed can be recovered even if proceedings
under FEMA are dropped.

Section 75A provides for payment of interest on delayed payment of drawback.

(a) Where any drawback payable to a claimant under section 74 or 75 is not paid within a period
of one month from the date of filing a claim for payment of such drawback, there shall be
paid to the claimant, in addition to the amount of drawback, interest at the rate fixed
under section 27A (6%) from the date after the expiry of the said period of one month till
the date of payment of such drawback.
(b) Where any drawback has been paid to the claimant erroneously or it becomes otherwise
recoverable under this Act or the Rules, the claimant shall within a period of 2 months from
the date of demand, pay in addition to the said amount of drawback, interest at the rate
fixed under section 28AA (15%) and the amount of interest shall be calculated for the
period beginning from the date of payment of such drawback to the claimant till the date of
recovery of such drawback.

Case Law:

Union of India v Rajindra Dyeing & Printing Mills Ltd. 2005

(180) ELT 433 (SC):

A Vessel was caught up in the rough weather and sank in the

territorial waters can duty drawback be claimed?
Decision: The vessel sunk within territorial
waters of India and therefore there is no
export. Accordingly, no duty drawback shall be
available in this case. The territorial waters
extend to 12 nautical miles into the sea from
the base line.
 Intro & Duties

Re-importation of goods [Section 20]

Concessional duty payable in case of re-importation of goods exported under duty drawback,
exported for repairs, etc.

S. Description of goods exported Amount of import duty payable if re-

No. imported
1. Goods exported-
(i) under claim for duty drawback; Amount of incentive availed of at the
time of export
(ii) under claim for refund of integrated
tax paid on export goods;

(iii) under bond without payment of

In case of point (iv) amount of IGST
integrated tax
and compensation cess leviable at the
(iv) under duty exemption scheme (DEEC/ time and place of importation of goods
Advance Authorisation/ DFIA) or subject to specified conditions.
Export Promotion Capital Goods
Scheme (EPCG)**

2*. Goods other than those falling under S.
No. 1 exported for repairs abroad
Duty of customs which would be
leviable if the value of re-imported
goods after repairs were made up of
the fair cost of repairs carried out
including cost of materials used in
repairs (whether such costs are
actually incurred or not), insurance
and freight charges, both ways.

3. Goods other than falling under S. No. 1 & NIL

2 above

Conditions to be satisfied for claiming the above two exemptions:

 The time limit for re-importation is 3 years which can be extended further for a
period up to 2 years.
 The exported goods and the re-imported goods must be the same.
 Ownership should not be changed
 Intro & Duties

However, these concessions would not be applicable if-

 Re-imported goods had been exported by 100% Export Oriented Undertaking (EOU) or a
unit in Free Trade Zone (FTZ).

 Re-imported goods had been exported from a public/private warehouse.

 Re-imported goods which fall under Fourth schedule to the Central Excise Act, 1944
(tobacco products and petroleum products)

Clarification regarding applicability of Notification No. 45/2017 Cus dated 30.06.2017 on goods
which were exported earlier for exhibition purpose/consignment basis

 The activity of sending / taking the specified goods (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
Notification No. 45/2017-Customs dated 30.06.2017 (goods exported under bond
without payment of integrated tax) requiring payment of integrated tax 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 entry2 of the
said Notification and thus the exemption is available.
 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 Notification No. 45/2017 dated 30.06.2017,
provided re-import happens before 6 months from the date of delivery challan.

Imported goods have been originally exported to the overseas supplier for repairs:
 Intro & Duties

 No duty at the time of re-import will be levied:

 If re-imported within 3 years from the date of export (extended up to 5 years)
 The exported and imported goods must be in the same form and ownership of the goods
should also not have changed.
Exported goods may come back for repairs and re-export:
No duty at the time of re-import will be levied:
1. The time limit for re-import of goods (manufactured in India and re-imported for repairs
or for reconditioning other than the specified goods) should be within 3 years from
the date of export. In case of export to Nepal, such time limit is 10 years.

2. The time limit for re-export is 6 months from the date of import (extended up to 12
months).
3. The importer at the time of importation executes a Bond.
4. The re-importation is for reprocessing, refining or re-making then the time limit for re-
importation should be within 1 year from the date of exportation.

Customs (Import of Goods at Concessional Rate of Duty) Rules, 2017

Information about intent to avail benefit of exemption notification [Rule 4]:
An importer who intends to avail the benefit of an exemption notification shall provide the
information to the DC/AC having jurisdiction over the premises where the imported goods shall
be put to use for manufacture of goods or for rendering output service, the particulars,
namely: -
(i) the name and address of the manufacturer;
(ii) the goods produced at his manufacturing facility;
(iii) the nature and description of imported goods used in the manufacture of goods or
providing an output service.

Procedure to be followed [Rule 5]

The importer who intends to avail the benefit of an exemption notification shall provide
information -
1. In duplicate, to the DC/AC having jurisdiction of premises where the goods are
manufactured, the estimated quantity and value of the goods to be imported, particulars
of the exemption notification applicable on such import and the port of import in respect
of a particular consignment for a period not exceeding 1 year; and
2. In one set, to the Deputy/ Assistant Commissioner of Customs at the Custom Station of
importation.
3. The importer who intends to avail the benefit of an exemption notification shall submit a
continuity bond with an undertaking to pay the amount equal to the difference between
the duty liveable normally and duty paid by availing exemption, along with interest( under
section 28AA)
4. The Deputy/ Assistant Commissioner of Customs having jurisdiction over the premises
 Intro & Duties

where the imported goods shall be put to use for manufacture of goods or for rendering
output service, shall forward one copy of information received from the importer to the
Deputy/ Assistant Commissioner of Customs at the Custom Station of importation.
5. On receipt of the copy of the information, the Deputy/ Assistant Commissioner of
Customs at the Custom Station of importation shall allow the benefit of the exemption
notification to the importer who intends to avail the benefit of exemption notification.

Importer who intends to avail the benefit of an exemption notification to give information
regarding receipt of imported goods and maintain records [Rule 6]
1. The importer who intends to avail the benefit of an exemption notification shall provide
the information of the receipt of the imported goods in his premises where goods shall be
put to use for manufacture, within 2 days (excluding holidays, if any) of such receipt to the
jurisdictional Customs Officer.
2. The importer who has availed the benefit of an exemption notification shall maintain an
account in such manner so as to clearly indicate
 the quantity and value of goods imported
 the quantity of imported goods consumed n
 the quantity of goods re-exported
 the quantity of goods sent for Job work
 the quantity remaining in stock, bill of entry wise and
shall produce the said account as and when required by the Deputy/ Assistant Commissioner of
Customs having jurisdiction
The importer who has availed the benefit of an exemption notification shall submit a quarterly
return, in the prescribed form, to the Deputy/ Assistant Commissioner of Customs having
jurisdiction by the tenth day of the following quarter.

Re-export or clearance of unutilised or defective goods [Rule 7]

1. The importer who has availed benefit of an exemption notification, prescribing
observance of these rules may re-export the unutilised or defective imported goods,
within 6 months from the date of import, with the permission of the jurisdictional
Deputy/ Assistant Commissioner of Customs However, the value of such goods for re-
export shall not be less than the value of the said goods at the time of import.
2. The importer who has availed benefit of an exemption notification, prescribing
observance of these rules may also clear the unutilised or defective imported goods, with
the permission of the jurisdictional Deputy/ Assistant Commissioner of Customs within a
period of 6 months from the date of import on payment of import duty equal to
difference between the duty liveable normally and duty paid by availing exemption, along
with interest( under section 28AA) for the period starting from the date of importation
of the goods on which the exemption was availed and ending with the date of actual
payment of the entire amount of the difference of duty that he is liable to pay.
Recovery of duty in certain case [Rule 8]:
 The importer who has availed the benefit of an exemption notification shall use the goods
 Intro & Duties

imported in accordance with the conditions mentioned in the concerned exemption

notification
 In the event of any failure, the DC/AC having jurisdiction over the premises where the
imported goods shall be put to use for manufacture of goods or for rendering output
service shall take action by invoking the Bond to initiate the recovery proceedings of the
amount equal to the difference between the duty leviable on such goods but for the
exemption and that already paid, if any, at the time of importation, along with interest, at
the rate fixed by notification issued under section 28AA of the Customs Act, for the
period starting from the date of importation of the goods on which the exemption was
availed and ending with the date of actual payment of the entire amount of the difference
of duty that he is liable to pay.

Pilferage: Section 13 of the Customs Act, 1962

 No duty is payable if the pilferage found before goods cleared from customs:
 Importer does not have to prove pilferage,
 If the duty is paid before finding the pilferage, refund can be claimed
 Pilferage does not apply for the warehoused goods.
 there shall be no duty liability on a sample of goods consumed/destroyed during the
course of testing/examination.

Circumstances in which pilferage can be claimed

In order to claim pilferage the following circumstances should exist:
a) there should be evidence of tampering with the packages;
b) there should be blank space for the missing articles in the package; and
c) the missing articles should be unit articles [and not part articles]

Conditions to be satisfied for exemption from duty:

 The imported goods should have been pilfered.
 The pilferage should have occurred after the goods are unloaded, but before the proper
officer makes the order of clearance for home consumption or for deposit into
warehouse.
 The pilfered goods should not have been restored back to the importer.

Important points:
a) If goods are pilfered after the order of clearance is made but before the goods are
actually cleared, section 13 is not applicable and thus, duty would be leviable.
b) Section 13 deals with only pilferage. It does not deal with loss/destruction of goods.
c) Provisions of section 13 would not apply if it can be shown that pilferage took place prior
to the unloading of goods.
d) In case of pilferage, only section 13 applies and remission of duty under section 23(1) is
 Intro & Duties

not permissible

Abatement of duty on damaged goods or deteriorated goods, [Sec. 22]:

Abatement of duty Sec. 22

Imported goods had Imported goods had been damaged or Any warehoused goods had
been damaged or had deteriorated at any time after been damaged on account of
had deteriorated at the unloading of goods in India but any accident at any time
any time before or before their examination for before clearance for home
during the unloading assessment by customs authorities consumption provided such
of goods in India provided such damage is not due to damage is not due to any
any willful act. willful act.

Valuation of the damaged or deteriorated goods:

The value shall be: -

(a) Value ascertained by the proper officer
Or
(b) The proper officer may sell such goods by public auction/tender or if the importer
agrees, in any other manner and the gross sale proceeds shall be deemed to be the
value of such goods.

Example: If the value of goods is Rs 10,000 and after damage the value is Rs 2,000 then
duty payable on Rs 10,000/- should be appropriately reduced to 20% (proportion of 2000 to
10000).

Section 23:

(a) This section comes into play in case of loss/destruction (Other than pilferage) of imported
goods at any time before their clearance for home consumption.

(b) The remission of duty is permissible only in the case of total loss of goods. This implies that
the loss is forever and beyond recovery. The loss of goods may be at the warehouse also.

(c) It comes into play after the duty has been paid and even after an order for home
consumption has been passed, but before the goods are actually cleared, and then it is found
that they have been lost/destroyed. In that case the provision is not that goods will not be
liable to duty, but duty paid on such goods shall be remitted by the Assistant/Deputy
 Intro & Duties

Commissioner of Customs.

(d) In the above situation, the loss/ destruction have to be proved to the satisfaction of the
Assistant Commissioner or Deputy Commissioner. Thereupon, he may pass remission orders
canceling the payment of duty. In case duty has already been paid, refund can be obtained
after getting the remission orders.

No duty in case of relinquishment of the title to the goods [Section 23(2)]

“Relinquish” means to give over the possession or control of, to leave off.

The owner of any imported goods may, relinquish his title to the goods before an order for
clearance of goods and thereupon, he shall not be liable to pay the duty thereon.

However, the owner of any such imported goods shall not be allowed to relinquish his title to such
goods regarding which an offence appears to have been committed under this Act or any other
law for the time being in force.

Importer may relinquish his title to the goods in the following cases [Section 23(2)]:

(i) The goods may not be according to the specifications;

(ii) The goods may have been damaged or deteriorated during voyage and as such may not be
useful to the importer;

(iii) There might have been breach of contract and, therefore, the importer may be unwilling to
take delivery of the goods.

In all the above cases, the goods having been imported, the liability to customs duty is
imposed and, therefore, the importer may relinquish his title to the goods unconditionally and
abandon them. If the importer does so, he will not be required to pay the duty amount.

However, the owner of any such imported goods shall not be allowed to relinquish his title to
such goods regarding which an offence appears to have been committed under this Act or any
other law for the time being in force.

Note:

It is open to the importer to exercise the option to relinquish the title on the imported goods
at any time before the passing of order for clearance for home consumption or before order
permitting the deposit of goods in a warehouse.

Denaturing or Mutilation of goods [SECTION 24]

Denture Means – Changing essential nature of things or make them permanently unfit for
human consumption.
 Intro & Duties

Mutilation – Instance of destroying, severely damaging.

Section 24 of the Customs Act, 1962 empowers Central Government to make rules for
permitting to denature/mutilate the imported goods, which are ordinarily used for more than
one purpose, so as to render them unfit for one or more of such purpose. If any imported
goods can be used for more than one purpose and duty is leviable on the basis of its purpose of
utilisation, then denaturing or mutilation of such goods is useful. By denaturing, goods are made
unfit for other purposes. After denaturing process, goods can be used only for one purpose and
accordingly duty can be levied

Example:

Ethyl Alcohol which is not denatured attracts a higher rate of customs duty as it can be used
for industrial as well as human consumption purposes. Whereas, denatured ethyl alcohol can only
be used for industrial purposes and hence attracts lower rate of duty. Assuming undenatured
ethyl alcohol is imported, but is to be used by the importer for industrial purposes only, then
importer may make a request for denaturing of Ethyl Alcohol. Certain very bitter chemicals can
be added to denature the spirits as per Rules and once they are denatured, they attract the
lower rate of duty.
 Intro & Duties

EXEMPTION FROM CUSTOMS DUTY [SECTION 25]

Central Government’s power to grant exemption:

The power for grant of exemption vests with the Central Government subject to the overall
control of the Parliament.

CG satisified that on public intrest it is

necessary, by notification in official gazette
General Exemption
exempt Fully without any conditions or subject
to conditions
Exemptions

CG satisified that on public intrest it is

Special Exemption necessary by special order exempt duty under
exceptional circumstances

No customs duty shall be

collected if amount < Rs
100.

Government can issue clarifications to the exemption notifications within one year from the issue
of the notification and such clarifications will have retrospective effect.
Effective date: The date of effect of the notification will be the date of its issue for
publication in the Official Gazette.

Customs duty on IMPORTED goods used for INWARD PROCESSING [SECTION 25A]

Where the Central Government is satisfied that it is necessary in the public interest so to
do, it may, by notification, exempt such of the goods which are imported for the purposes of
repair, further processing or manufacture, as may be specified therein, from the whole or
any part of duty of customs leviable thereon, subject to the following conditions, namely:—

(a) the goods shall be re-exported after such repair, further processing or manufacture,
as the case may be, within a period of one year from the date on which the order for
clearance of the imported goods is made;
(b) the imported goods are identifiable in the export goods; and
(c) such other conditions as may be specified in that notification.
 Intro & Duties

Exemption from customs duty on RE-IMPORTED goods used for OUTWARD PROCESSING
[SECTION 25B]

Where the Central Government is satisfied that it is necessary in the public interest so to
do, it may, by notification, exempt such of the goods which are re-imported after being
exported for the purposes of repair, further processing or manufacture, as may be specified
therein, from the whole or any part of duty of customs leviable thereon, subject to the
following conditions, namely :—

(a) the goods shall be re-imported into India after such repair, further processing or
manufacture, as the case may be, within a period of one year from the date on which
the order permitting clearance for export is made;

(b) the exported goods are identifiable in the re-imported goods; and
(c) such other conditions as may be specified in that notification.”
 Intro & Duties

INTRODUCTION:
1. Foreign trade policy 2015-20 is notified by Central
government w.e.f 05th Dec 2017 as per the powers given
in Sec 5 of Foreign Trade (Development & Regulation Act
1992
2. Duration of the policy is till 31/03/2023,
3. Central Government has the power to amend the rules
from time to time.
 Make provisions for facilitating the trade
 Prohibit, restrict, regulate exports & Imports
 Authorised to appoint Director General of Foreign
Trade (DGFT) for implementation of EXIM policy
4. DGFT will notify Hand book on procedures, Aayat Niryat forms by means of public
notice.
5. Foreign Trade policy was earlier called as EXIM policy.

Objective:
 Generation of employment and increasing value addition in keeping with Make in India
vision.
 Ease of doing and Trade facilitation by cutting down
the transaction time and cost.
 Encouraging e-commerce exports.
 Making Indian exports more competitive.
 Special efforts to resolve quality complaints and trade
disputes.
 Steps to encourage manufacture and export by SEZ,
EOU, STP, EHTP, and BTP.

Measures taken to achieve the objectives:

1. The number of documents required for export and import has been reduced to 3.
2. 24*7 customs clearance at 18 sea ports and 17 air cargo complexes.
3. Single window scheme to lodge their clearance documents at a single point.
4. Prior online facility of filing shipping bills 7 days for air shipments & 14 days for shipments
through sea.
 Intro & Duties

5. DGFT under the EDI initiatives provided the facility of online-filing of applications to obtain
IEC (Importer Exporter code) and various authorizations & scrips.

Salient features of FTP:

1. Exports-Imports are generally free unless specifically regulated.
2. Export and Import goods are classified into:
a) Free
b) Restricted
c) Prohibited
3. Exports are promoted through various promotional schemes such as :

Advance
Authorisation
schemes
Entitlements
Duty Free
to units
Import
under
authorization
SEZ/EOU
scheme.
etc
Export
promotion
schemes
Export
promotion Status
capital goods Holder
scheme.
Remission of
Duty and
taxes on
Export
Products

4. Duty credit scrips schemes are designed to promote specified exports.

Administration of the FTP:
1. FTP is formulated, controlled and supervised by the office of the director of DGFT, an
attached office to Ministry of commerce & Industry.
a) DGFT issues authorization for Import & Export. ( Authorisation means permission)
b) Grants IEC (Importer Exporter code).
c) Decision of DGFT is final w.r.t interpretation of FTP.
2. CBIC (Central Board of Indirect taxes & Customs):
a) CBIC comes under the Ministry of finance which facilitate in implementing the provisions of
FTP.
 Intro & Duties

b) Customs authority is responsible for clearance of export and import goods after their
valuation and examination, Customs authorities should follow the policy formed by DGFT
while clearing the goods.
c) Since there is GST, even GST authorities will also involve.
3. Reserve bank of India:
a) Works under the Ministry of Finance
b) Nodal bank in the country which formulates the policies related to
management, receipts and payments of foreign currency.

Components of Foreign Trade policy:

Components of
FTP

FTP Hand book of Appendicies Standard ITC-HS

procedures and Aayat Input-Output coding for
(2015-2020) (2015-20) Niryat forms Norms goods

Schedule - Schedule -
I - Import II - Export
policies policies

Importer – Exporter Code (IEC):

 Mandatory to Export any goods out of India or to Import any goods into India unless
specifically exempted.
 It is a unique 10 digit code issued by DGFT
 Pan is a pre-requisite
 Only one IEC will be issued with a single PAN
 DGFT has decided to use PAN as IEC number.
 With the introduction of GST, GSTIN will be used for
 Credit flow of IGST on Import of goods
 Refund or rebate of IGST related to export of goods.
 An application for IEC/Modification of IEC to be made only electronically in form “ANF-2A”
through digital signature. Along with the application following should be attached.
 Digital photograph of the signatory applicant
 Copy of PAN
 Cancelled cheque bearing entities pre-printed name.
 Intro & Duties

Export/Import of restricted goods and services:

 Any good/service export/import of which is restricted under ITC(HS) may be exported or
imported only in accordance with an Authorization (or)
 In terms of a public notice/notification issued in this regard.
 Every authorization is valid for prescribed period of validity and shall include
 Quantity, description and value of goods
 Actual User condition
 Export Obligation
 Minimum value addition to be achieved
 Minimum Export/Import price &
 Bank guarantee/ letter of undertaking / Bond with customs authority.
 Authorization is not a right, DGFT has the power to refuse grant or renew the authorization.
 If an authorization holder violates any conditions are fails to fulfil export obligation he shall
be liable for action.

Principles for imposing restriction:

DGFT may, through a notification adopt and enforce any necessary measure for:
 Protection of :
 Public Morals
 Human, animal or plant life or health,
 Patents, trademarks, copyrights and the prevention of deceptive practises
 National treasuries of artistic, historic or archaeological value
 Trade of fissionable material (Which is able to undergo nuclear fissile).
 Prevention of traffic in arms and implements of war & use of prison labour.
 Conservation of exhaustible natural resources.
Mandatory documents for export/import of goods into India:

Export Import

•Bill of lading/Airway bill/lorry bill/ Postal •Bill of lading/Airway bill/lorry bill/ Postal
bill. bill.
•Commercial Invoice cum packing list •Commercial Invoice cum packing list
•Shipping bill/ bill of export •Bill of entrys

Provisions relating to Import of Goods:

 Goods which are importable without any restriction may be imported by any person. However,
if such goods are restricted then actual user alone can import unless exempted by DGFT.
 Intro & Duties

 Import of second hand CAPITAL goods shall be allowed freely, However,

 Second hand personal computers
 Laptops
 Photo copier machines
 Air conditioners
 Diesel generation sets
 Second hand goods other than capital goods will only be allowed against
authorization.
 Scrap/Waste/remnant generated during manufacturing activity of an SEZ shall be allowed to
dispose in DTA freely on payment of applicable customs duty.
 Import of gifts shall be permitted where such goods are freely importable. In other cases a
Customs clearance permit from DGFT is required.
 Import of samples up to RS 3,00,000 can be made by all the exporters without payment of
duty, requires authorization only in case of Veg-seeds, bees & new drugs, Samples of tea up
to Rs 2,000(CIF) for consignment allowed without authorization.
 Passenger baggage:

Passenger baggage

Exporters coming from

Samples that are abroad are aslo allowed
otherwise freely to import drawings,
Household goods and patterens, labels, price
importable also be
personal effects as per tags, belts, trimmer and
imported as part of
limit can be imported embellishments required
passenger baggage
without an authorization. for export without an
authorization as baggage.

 Capital goods, components, parts & accessories can be sent abroad for repairs, improvisation,
testing and can be re-imported without reauthorization unless they are restricted goods.
 Import on lease financing is freely permitted, however may require RBI approval in some
cases.
 Goods already imported/shipped/arrived can also be cleared against an authorization issued
subsequently.
 Where goods imported duty free, imported shall execute Bond, LUT or Bank guarantee with
customs before clearance.
 Private/public and bonded warehouses may be set up in DTA, importer can warehouse the
goods and can be cleared for home consumption against authorisation.
 Intro & Duties

Duty Exemption and Remission Schemes:

Advance Authorization
Duty Exemption & Remission Schemes

Duty Exemption

Duty Free Imports under

Authorization

Duty Remission Duty Drawback

Remission of Duties and

taxes on exported products

Advance Authorization Scheme:

 Advance Authorization scheme is a facility to import Inputs to be used/required in the
manufacture of Export product without payment of Import duty (Excluding IGST and Cess)
subject to 15 % value addition
 Advance Authorization can be issued either to a manufacturer exporter or merchant
exporter tied to supporting manufacturer(s)
 AA can also be issued for making

 Physical exports(including export to SEZ) by Authorisation holder

 Intermediate supply
 Supplies made to specified categories of deemed exports
 Supply of ‘stores’ on board of foreign going vessel/aircraft provided there is
specific SION in respect of items supplied

Validity period of Authorization:

 Validity period for import of Advance Authorisation shall be 12 months from the date of
issue of Authorisation.
 Intro & Duties

 For deemed exports Contract duration of project execution or 12 months from

authorization earlier
Export obligation (EO) and realization:
 EO needs to be fulfilled within 18 months from Date of Authorization or as notified
 EO shall be realized in convertible Foreign currency, export to Export to SEZ
Developers/Co Developers can be realised in Indian rupees as well.

Items that can be imported duty free against advance authorization:

 Inputs, which are physically incorporated in export product (making normal allowance for
wastage)
 Fuel, oil, catalysts which are consumed/utilised to obtain export product
 Mandatory spares which are required to be exported/supplied with resultant product
permitted upto 10% of CIF value of Authorization.
 Specified spices only when used for activities like crushing/ grinding/sterilization/
manufacture of oils or oleoresins and not for simply cleaning, grading, re-packing etc.
 However, items reserved for imports by STEs cannot be imported against advance
authorization.
Calculation of Value addition: (Except for GEM and Jewellery Sector)
VA = [(A-B) x 100]/B
A = FOB value of export realised/FOR value of supply received.
B = CIF value of inputs covered by authorisation plus any other imported materials used on
which benefit of duty drawback (DBK) is claimed or intended to be claimed.

If some items are supplied free of cost by foreign buyer, its notional value will be
added in the CIF value of import and FOB value of export for purpose of calculating
value addition. Exports to SEZ Developers/ Co- developers, irrespective of currency of
realization, would also be covered.

Basis of AA (Quantity & Value):

 As per Standard Input Output Norms (SION) notified (or)
 On the basis of self-declaration where no SION/adhoc norms have been notified /
published (or)
 Applicant specific prior fixation of norm by the Norms Committee (or)
 On the basis of self-ratification Scheme no SION/valid Adhoc Norms for an export
product

What is SION?

 Are standard norms which define the amount of input(s) required to manufacture unit of
output for export purpose.
 Notified by DGFT on basis of recommendation of Norms Committee

Actual user condition:

 Intro & Duties

 Advance Authorization and/ or materials imported thereunder will be with actual user
condition.
 It will not be transferable even after completion of export obligation.
 However, Authorization holder will have an option to dispose of product manufactured out
of duty free inputs in DTA once export obligation is completed.

Domestic Sourcing of Inputs:

 Holder of AA has an option to procure the materials/ inputs from indigenous
manufacturer/STE in lieu of direct import against Advance Release Order
(ARO)/Invalidation letter/ Back to Back Inland Letter of Credit.
 However, AA holder may obtain supplies from EOU/EHTP/BTP/STP/SEZ units, without
obtaining ARO or Invalidation letter.

Maintenance of Proper Accounts for Authorizations:

 Every AA holder shall maintain a true and proper account of consumption and utilization
of duty free imported / domestically procured inputs against each authorisation as per
the prescribed formats
 Such records shall be preserved for a period of at least three years from the date of
redemption
 While doing export/supply, applicant shall indicate authorisation number on the export
documents.

Redemption or closure of Advance Authorization:

 On completion of exports and imports and other conditions as specified under the advance
authorisation, the Authorisation holder shall submit application in the prescribed form
alongwith supporting documents for redemption of the authorization
 Regional Authority after duly verifying grant issue EODC / Redemption Certificate
 If goods are imported against advance authorization but export obligation is not fulfilled,
duty and interest is payable.

Duty free Imports under Authorization:

 Post Export facility to Import units used in manufacture of export products without
payment of BCD
 Export shall be completd within 12 months from the date of online filing of application.and
generation of file number
 Value addition to be made for 20 % (Except for physical exports for which payment not
received in Conv Forex)
 Authorizations are issued only to products covered under SION
 Exempted only from payment of BCD
 Applicant shall file an online application before regional authority before Import
 Export proceeds shall be realized in Convertible For Ex.
 After realization of export proceeds, request for issue of transferable DFIA can be made
within a period of
 12 M from date of export or
 6 M from date of realization of export proceeds (Which ever is later)
 No DFIA shall be issued for an export product where SION prescribes actual user condition
for any input.
 Intro & Duties

 Holder of DFIA can procure inputs from indigenious manufacturer against Advance release
order. DFIA holder may obtain supplies from EOU/EHTP/BTP/STP without obtaining ARO.

Particulars Advance Authorization Duty Free Imports under Authorization

About  Is a facility to import Inputs to be It is a post export facility to import

used/required in the manufacture of inputs used in manufacture of export
Export product without payment of products without payment of BCD
Import duty (Excluding IGST and
Cess) subject to 15 % value addition

Export EO needs to be fulfilled within 18 Export shall be completed within 12 months f

Obligation months from Date of Authorization date of online application
Basis (Qty & SION / Self Declaration / Issued only if SION is notified.
value) Applicant Sp
ecific pror fixation of norm/ On
basis of self ratification scheme
Transferable No Transferable

Value Generally > 15 % (Except Physical > 20 %

Addition exports not realized in FCC) Tea >
50%
Available Jem and Jewellery Sector Not Available
even to
Exemption BCD, Adtnl Customs duty, IGST, Only BCD
comp Cess

Remission of Duties and taxes on Exported Products

RoDTEP scheme is based on the globally accepted principle that taxes and duties should not be
exported, and taxes and levies borne on the exported products should be either exempted or
remitted to exporters

This scheme provides for remission of the amount in the form of duty credit scrip credited
in an exporter’s ledger account with customs.

Objective of the Scheme:

The objective of the scheme is to refund, currently unrefunded:

(i) Duties/ taxes/ levies, at the Central, State & local level, borne on the exported
product, including prior stage cumulative indirect taxes on goods & services used in
production of the exported product, and
(ii) Such indirect duties/taxes/levies in respect of distribution of exported products.
Salient features of the scheme:
 Intro & Duties

 It seeks to refund to exporters the embedded Central, State and local duties/taxes that
were so far not being rebated/refunded.
 Duty credit is issued –
 in lieu of remission of any duty/tax/levy chargeable on any material used in the
manufacture/processing of goods or for carrying out any operation on such goods in
India that are exported, where such duty/tax/levy is not
exempted/remitted/credited under any other Scheme;
 against export of notified goods under FTP.
 Value of the said goods for calculation of duty credit to be allowed under the scheme
shall be the declared export FOB value of the said goods or up to 1.5 times the market
price of the said goods, whichever is less.
 The refund in the form duty credits would be credited in the electronic credit ledger in the
customs automated account of the exporter.
 Such duty credit shall be used only to pay basic customs duty on imported goods.
 The duty credit scrips are freely transferable, i.e. credits can be transferred to other
importers.
 The rebate under the scheme shall not be available in respect of duties and taxes
already exempted or remitted or credited.

Eligibility for the scheme

All exporters of eligible RoDTEP export items are eligible for the scheme. Reward under the
scheme

Reward
Rebate would be granted to eligible exporters at a notified rate as a % of FOB value with a
value cap per unit of the eligible exported product, wherever required, on export of items.
However, for certain export items, a fixed quantum of rebate amount per unit may also be
notified.

Rebate would not be dependent on the realization of export proceeds at the time of issue of
rebate. However, rebate will be deemed never to have been allowed in case of non-receipt of
sale proceeds within time allowed under the Foreign Exchange Management Act, 1999.

Ineligible supplies/ items/ categories under RoDTEP

 Export of imported goods in same or substantially the same form

 Exports through trans-shipment, meaning thereby exports that are originating in
third country but trans-shipped through India
 Export products which are subject to minimum export price or export duty
 Products which are restricted/prohibited under FTP
 Supplies of products manufactured by DTA units to SEZ/FTWZ units.
 Products manufactured in EHTP and BTP
 Goods which have been taken into use after manufacture
 Exports for which the electronic documentation in ICEGATE EDI has not been generated/
exports from non-EDI ports
 Intro & Duties

 Products manufactured or exported availing the benefit of Notification No. 32/1997 Cus.
dated 01.04.19974
Deemed Exports
 Products manufactured partly or wholly in a warehouse under section 65 of the Customs Act
 Goods for which claim of duty credit is not filed in a shipping bill or bill of export in the
customs automated system
 Products manufactured or exported in discharge of EO against an AA/DFIA/Special AA
issued under a duty exemption scheme of relevant FTP
 Products manufactured/exported by a unit licensed as 100% EOU in terms of the provisions
of FTP or by any of the units situated in FTZ/EPZ/SEZ

EPCG SCHEME (Export Promotion Capital Goods Scheme)

 EPCG scheme allows import of capital goods without payment of duty for pre-production,
production, post production.
 Capital goods imported under EPCG authorisation are exempted from IGST and
compensation cess as well but only up to 31/03/2020.
 Authorisation holder can procure capital goods indigenously (with in India) as well.
 Authorisation is valid for 18 months from the date of issue of its authorisation.
 Import of capital goods shall be subject to ‘Actual User’ condition till export obligation is
completed. After export obligation is completed, capital goods can be sold or transferred.
 Export proceeds shall be realized in freely convertible currency except for deemed
exportspplies
 Export to SEZ Units shall be taken into account for discharge of export obligation provided
payment is realised from Foreign Currency Account of the SEZ unit
 Export to SEZ Developers / Co-developers can also be taken into account for discharge of
export obligation even if payment is realised in Indian Rupees

Capital goods for the purpose of EPCG shall includes:

- Capital Goods including capital goods in CKD/SKD condition

- Computer systems and software which are a part of the Capital Goods being imported
- Spares, moulds, dies, jigs, fixtures, tools & refractories
- Catalysts for initial charge plus one subsequent charge
- Capital goods for Project Imports notified by CBIC

Exporters eligible for EPCG Scheme:

- Manufacturer exporters with or without supporting manufacturer(s),

- Merchant exporters tied to supporting manufacturer(s), and
- Service providers including service providers designated as Common Service Provider (CSP)
subject to prescribed conditions
 Intro & Duties

Export Obligation:
- Export obligation means obligation to export product(s) covered by Authorisation in terms
of quantity or value or both, as may be prescribed.

6 times of duty saved on capital goods This is over and

imported under EPCG scheme to be acheived above the average
with in 6 years from authorisation date export Obligation
Specific
Export
obligation
Export Obligation

In case of indigenous sourcing of capital

goods, specific EO shall be 25% less than the
actual EO, I.e 75% of 6 = 4.5 times

Average The average level of exports made by the

Export applicant in the preceding 3 licensing years
Obligatio for the same and similar products has to be
n acheived within the overall EO period.

While maintaining the average Export obligation, the minimum specific export obligation has to be
fulfilled in the following proportions:

Block 1 to 4th
50 %
Year

Block 5th and 6th

Balance EO
Year

Other conditions:
- Shipments under Advance Authorisation, DFIA, Drawback scheme, or reward schemes;
would also be counted for fulfilment of EO under EPCG Scheme.
- EO can also be fulfilled by the supply of Information Technology Agreement (ITA-1) items
to DTA, provided realization is in free foreign exchange.
 Intro & Duties

- Both physical exports as well as specified deemed exports shall also be counted towards
fulfilment of export obligation.
- EPCG Authorisation holder shall submit to RA concerned by 30thApril of every year, report
on fulfilment of export obligation.
- Every EPCG authorisation holder shall maintain, for a period of 2 years from date of
redemption, a true and proper account of exports/ supplies made and services rendered
towards fulfilment of export obligation.
- Applicant shall indicate authorisation number on the export documents while doing exports.
- On completion of exports and imports and other conditions as specified under the EPCG
authorisation, the Authorisation holder shall submit application in the prescribed form along
with supporting documents for redemption of the authorisation under the prescribed format
- On being satisfied, RA concerned shall issue a EODC / Redemption Certificate to the EPCG
authorisation holder and forward a copy to Customs Authorities indicating the same details
of proof of fulfilment of EO

Incentive for Early fulfilment of Export Obligation:

- Importer fulfilled the export obligation as specified below with in half or less than half of
the original export obligation period
• 75 % or more of specific export obligation
• 100 % of Average export obligation
Status Holder:
• Status Holders are business leaders who have excelled in international trade and have
successfully contributed to country’s foreign trade.
• All exporters of goods, services and technology having an import-export code
(IEC) number shall be eligible for recognition as a status holder.
• An applicant shall be categorized as status holder upon achieving export performance
during current and previous three financial years*
• However, for Gems & Jewellery Sector, the performance during the current and
previous two financial years shall be considered

Status Category Export performance

(FOB/FOR value)
 Intro & Duties

One star export house 3 Million $(US)

Two star export house 25 Million $(US)

Three star export house 100 Million $ (US)

Four Star Export House 500 Million $ (US)

FIve Star Export House 2000 Million $ (US )

 Export performance will be counted on the basis of FOB value of export earnings in free
foreign currencies.
 For deemed export, FOR value of exports in Indian Rupees shall be converted in US$
at the exchange rate notified by CBIC, as applicable on 1st April of each Financial Year.
 For granting status, export performance is necessary in at least 2 out of 4 years
 Export performance of one IEC holder shall not be permitted to be transferred to
another IEC holder. Hence, calculation of exports performance based on disclaimer shall
not be allowed.
 Exports made on re-export basis shall not be counted for recognition.
 Export of items under authorization, including SCOMET items, would be included for
calculation of export performance.
 Export of items under authorization, including SCOMET items, would be included for
calculation of export performance.
 For calculating export performance for grant of One Star Export House Status
category, exports by IEC holders under the following categories shall be granted
double weightage:
 Micro, Small & Medium Enterprises (MSME) as defined in Micro, Small &
Medium Enterprises Development (MSMED) Act 2006
 Manufacturing units having ISO/BIS
 Units located in North Eastern States including Sikkim and Jammu &
Kashmir
 Units located in Agri Export Zones

Privileges of Status Holders: Status holders are granted certain benefits like:

(a) Authorisation and custom clearances for both imports and exports on self- declaration
basis.
(b) Fixation of Input Output Norms (SION) on priority i.e. within 60 days by Norms
Committee.
 Intro & Duties

(c) Exemption from compulsory negotiation of documents through banks. The remittance/
receipts, however, would continue to be received through banking channels.
(d) Exemption from furnishing of Bank Guarantee in Schemes under FTP.
(e) Two Star Export Houses and above are permitted to establish export warehouses.
(f) Manufacturers who are also status holders (Three Star/Four Star/Five Star) will be
enabled to self-certify their manufactured goods (as per their IEM/IL/LOI) as
originating from India with a view to qualify for preferential treatment under different
preferential trading agreements (PTA), Free Trade Agreements (FTAs), Comprehensive
Economic Cooperation Agreements (CECA) and Comprehensive Economic Partnership
Agreements (CEPA).
(g) Status holders shall be entitled to export freely exportable items (excluding Gems and
Jewellery, Articles of Gold and precious metals) on free of cost basis for export
promotion subject to a certain annual limit specified for each sector separately.

EOU, EHTP, STP & BTP SCHEMES:

Units under Export Oriented Unit (EOU) Scheme, Electronics Hardware Technology Park
(EHTP) Scheme, Software Technology Park (STP) Scheme or Bio-Technology Park (BTP) Scheme:
- Can export their entire production of goods and services (except permissible sales in
DTA), and
- can import inputs and capital goods without payment of customs duty.
Governance and Admisnistation:
- STP/EHTP/BTP schemes are similar to EOU schemes and provisions are more/ less
identical.
- EOU scheme is administered by Ministry of Commerce and Industry, while
STP/EHTP/BTP schemes are administered by their respective administrative ministries.
- Software Technology Park (STP) is set up for development of software exports. Electronic
Hardware Technology Park (EHTP) are for export of electronics hardware and software.
- STP/EHTP Scheme is administered by Ministry of Information Technology. Bio Technology
Park (BTP) is established on the recommendation of Department of Biotechnology.
Eligibility:
 Such units may be set up for manufacture of goods, including repair, re-making,
reconditioning, re-engineering, rendering of services, development of software, agriculture.
 Trading units are not covered under these schemes.
 Only projects having a minimum investment of Rs 1 crore in plant & machinery shall be
considered for establishment as EOUs. However, this shall not apply to units in EHTP/
STP/ BTP, EOUs in Handicrafts/ Agriculture/ Floriculture/ Aquaculture/ Animal Husbandry/
Information Technology Services, Brass Hardware and Handmade jewellery sectors. Board
of Approvals (BoA) may also allow establishment of EOUs with a lower investment criteria.
Net Foreign Exchange Earnings:
 EOU/ EHTP/ STP/ BTP unit must be a positive net foreign exchange earner. However, a
higher value addition is specified for some sectors.
 How to compute NFE earnings?: NFE Earnings shall be calculated cumulatively in blocks of 5
 Intro & Duties

years, starting from commencement of production.

Relaxation on achieving NFE:
In case unit is not able to achieve NFE due to:
 Prohibition/ restriction imposed on export of any product, 5 years block period may be
extended suitably by BoA.
 Adverse market condition or any grounds of genuine hardship having adverse impact on
functioning of the unit, 5 year block is extendable upto 1 year.

Monitoring of NFE:
Performance of EOU/ EHTP/ STP/ BTP units shall be monitored by Units Approval Committee as
per prescribed guidelines.
Which supplies to DTA can be counted for positive NFE:
Following supplies effected from EOU/ EHTP/ STP/ BTP units to DTA (Domestic Tariff Area)
will be counted for fulfillment of positive NFE:
(a) Supplies in DTA to holders of Advance Authorisation/ Advance Authorisation for annual
requirement/ DFIA / EPCG Authorisation subject to certain exceptions.
(b) Supplies affected in DTA against foreign exchange remittance received from overseas.
(c) Supplies to other EOU/ EHTP/ STP/ BTP/ SEZ units, provided that such goods are permissible
for procurement in terms of relevant provisions of FTP.
(d) Supplies made to bonded warehouses set up under FTP and/ or under section 65 of
Customs Act and free trade and warehousing zones, where payment is received in
foreign exchange.
(e) Supplies of goods and services to such organizations which are entitled for duty free
import of such items in terms of general exemption notification issued by MoF.
(f) Supplies of Information Technology Agreement (ITA-1) items and notified zero duty
telecom/ electronics items.
(g) Supplies of items like tags, labels, printed bags, stickers, belts, buttons or hangers to
DTA unit for export.
(h) Supply of LPG produced in an EOU refinery to Public Sector domestic oil companies for
being supplied to household domestic consumers at subsidized prices under the Public
Distribution System (PDS) Kerosene and Domestic LPG Subsidy Scheme, 2002, subject to
specified conditions.

Entitlements to units under EOU, EHTP, STP & BTP

Entitlements for supplies from DTA
 Supplies from DTA to EOU/ EHTP/ STP/ BTP units will be regarded as “deemed exports”
and DTA supplier shall be eligible for relevant entitlements for deemed exports, besides
discharge of export obligation, if any, on the supplier. The refund of GST paid on
such supply would be available to the supplier subject to specified conditions and
documentations under GST law.
 Intro & Duties

 In addition, EOU / EHTP / STP / BTP units shall be entitled to following:-

 Imported goods are exempt from basic customs duty. Further, IGST and GST
compensation cess is exempt upto 30.09.2021.
 Input Tax Credit of GST paid on inputs and capital goods.
Other Entitlements
 Units will be allowed to retain 100% of its export earnings in the EEFC account.
 Unit will not be required to furnish bank guarantee at the time of import or going for
job work in DTA, subject to fulfillment of required conditions.
 100% FDI investment permitted through automatic route similar to SEZ units.
 Under the GST law, IGST or CGST plus SGST will be payable by the suppliers who make
supplies to the EOU. The EOU will be eligible to take Input Tax Credit of the said GST
paid by its suppliers.
Export and Import of Goods:

Export: Following exports are permitted:

 All kinds of goods and services except items that are prohibited in ITC(HS),
 Special Chemicals, Organisms, Materials, Equipment and Technologies (SCOMET) subject
to fulfillment of the conditions indicated in ITC (HS).
Import: Following imports are permitted:

1. Export promotion material upto a maximum value limit of 1.5% of FOB value of previous
years exports.
2. All types of goods, including capital goods, required for its activities, from (i) DTA, (ii)
bonded warehouses in DTA/ International exhibition held in India, subject to ‘Actual User’
condition, provided such goods are not prohibited items of import in the ITC (HS) subject
following conditions:
(a) The imports and/ or procurement from bonded warehouse in DTA/International exhibition
held in India shall be without payment of basic customs duty. Such imports and/ or
procurements shall be made without payment of integrated tax and GST compensation
cess.
(b) The procurement of goods covered under GST from DTA would be on payment of
applicable GST and compensation cess. The refund of GST paid on such supply from DTA
to EOU would be available to the supplier subject to such conditions and documentations
as specified under GST law.
Goods including capital goods (on a self-certification basis) required for approved activity,
free of cost or on loan/ lease from clients, subject to ‘Actual User’ condition are
permitted to be imported.
3. Certain specified goods from DTA for creating a central facility, with/without payment of
duty/ taxes as provided in point 2(a) and 2(b) above.
4. Procurement and export of spares/ components, upto 5% of FOB value of exports, may be
allowed to same consignee/ buyer of the export article, subject to the condition that it
shall not count for NFE and direct tax benefits.
 Intro & Duties

Leasing of Capital Goods

 An EOU/EHTP/STP/BTP unit may, on the basis of a firm contract between parties, source
capital goods from a domestic/ foreign leasing company with/without payment of duty/
taxes as provided in point 2(a) and 2(b) of heading (IV) above. In such a case,
EOU/EHTP/STP / BTP unit and domestic/ foreign leasing company shall jointly file
documents to enable import/ procurement of capital goods.
 An EOU/ EHTP/ STP/ BTP unit may sell capital goods and lease back the same from a
Non Banking Financial Company (NBFC) subject to fulfillment of specified conditions.

Inter Unit Transfer

 Transfer of manufactured goods from one EOU / EHTP / STP / BTP unit to another EOU
/ EHTP / STP / BTP unit is allowed on payment of applicable GST and compensation cess
with prior intimation to concerned Development Commissioners of the transferor and
transferee units as well as concerned Customs authorities, following the prescribed
procedure.
 Capital goods may be transferred or given on loan to other EOU/ EHTP/ STP/ BTP/ SEZ
units, with prior intimation to concerned DC and Customs authorities on payment of
applicable GST and compensation cess. Such transferred goods may also be returned by
the second unit to the original unit in case of rejection or for any reason on payment of
applicable GST and compensation cess.

Note: Goods supplied by one unit of EOU/ EHTP/ STP/ BTP to another unit shall be on
payment of applicable GST and compensation cess following the prescribed procedure.

Sale of Unutilized Material:

 Unable to utilize goods (including capital goods and spares) and services, imported or
procured from DTA, it may be
- Transferred to another EOU/ EHTP/ STP/ BTP/ SEZ unit; or
- Disposed off in DTA with intimation to Customs authorities on payment of applicable
duties and/ or taxes and compensation cess. Further, exemption of basic customs
duties availed, if any, on the goods, at the time of import will also be payable and
submission of import Authorisation; or
- Exported.
 Such transfer from EOU/ EHTP/ STP/ BTP unit to another such unit would be treated as
import for receiving unit.
 In case of capital goods, benefit of depreciation, as applicable, will be available in case of
disposal in DTA only when the unit has achieved positive NFE taking into consideration the
depreciation allowed.
 No duty shall be payable other than the applicable taxes under GST laws in case capital
goods, raw material, consumables, spares, goods manufactured, processed or packaged, and
scrap/ waste/ remnants/ rejects are destroyed within unit after intimation to Customs
authorities or destroyed outside unit with permission of Customs authorities.
 Disposal of used packing material will be allowed on payment of duty on transaction value.
 Intro & Duties

DTA Sale of finished products/ Rejects/ Waste/Scrap/ Remanants/ and By- Products:
Entire production must be exported. However, the following are allowed as exceptions subject
to the conditions specified:
Sale of goods in DTA:
 Units (other than gem and jewellery units) will be permitted to sell finished goods
manufactured by them which are freely importable under FTP in DTA, subject to
fulfilment of positive NFE, on payment of applicable GST and compensation cess
along with reversal of basic customs duty availed as exemption, if any on the
inputs utilized for the purpose of manufacturing of such finished goods.
 No DTA sale shall be permissible in respect of, pepper & pepper products, marble
and such other notified items as also to units engaged in only packaging. Labelling,
refrigeration, pulverilasiton etc.
 Such DTA sale shall also be subject to refund of deemed export benefits availed by
the EOU/supplier as per FTP, on the goods used for manufacture of the goods
cleared into the DTA.
 An amount equal to Anti-Dumping duty under section 9A of the Customs Tariff Act,
1975 leviable at the time of import, shall be payable on the goods used for the
purpose of manufacture or processing of the goods cleared into DTA from the unit.

Services provided in DTA: For services(including software units), sale in DTA shall also be
permissible up to 50% of FOB value of exports and/ or 50% of foreign exchange earned,
where payment of such services is received in foreign exchange.
Sale of rejects in DTA: Rejects may be sold in DTA on payment of applicable GST and
compensation cess along with reversal of basic customs duty availed as exemption on inputs on
prior intimation to Customs authorities. Sale of rejects upto 5% of FOB value of exports shall
not be subject to achievement of NFE.
Sale of scrap/ waste/ remnants, arising out of production, in DTA: Scrap/ waste/ remnants
arising out of production process or in connection therewith may be sold in DTA, as per SION
notified under Duty Exemption Scheme, on payment of applicable duties and/ or taxes and
compensation cess. Such sales of scrap/ waste/ remnants shall not be subject to achievement
of positive NFE. Scrap/waste/remnants may also be exported.
In case scrap/ waste/ remnants are destroyed with permission of Customs authorities, no
duties/ taxes payable on same. However, the expression “no duties/ taxes” shall not include
applicable taxes and cess under the GST laws.
Sale of by-products in DTA: By-products may also be sold in DTA subject to achievement of
positive NFE, on payment of applicable GST and compensation cess along with reversal of basic
customs duty availed as exemption on inputs.
Procurement of spares / components, up to 2% of the value of manufactured articles, cleared
into DTA, during the preceding year, may be allowed for supply to the same consignee /
buyer for the purpose of after-sale-service. The same can be cleared in DTA on payment of
applicable GST and compensation cess along with reversal of basic customs duty availed as
exemption on inputs.
Export through Other Exporters
An EOU/ EHTP/ STP/ BTP unit may export goods manufactured/ software developed by it
 Intro & Duties

through another exporter or any other EOU/ EHTP/ STP/ SEZ unit subject to specified
conditions.
Exit from EOU Scheme
With approval of DC, an EOU may opt out of scheme. Such exit shall be subject to payment
of applicable IGST/ CGST/ SGST/ UTGST and compensation cess, if any, and industrial policy
in force. If unit has not achieved obligations, it shall also be liable to penalty at the time of
exit.
Conversion
Existing DTA units may also apply for conversion into an EOU/ EHTP/ STP/ BTP unit.
Existing EHTP / STP units, who have applied for conversion / merger to EOU unit and vice-
versa, can avail exemptions in duties and taxes as applicable. Applications for conversion
into an EOU / EHTP / STP / BTP unit from existing DTA units, having an investment of Rs
50 crores and above in plant and machinery or exporting Rs 50 crores and above annually, shall
be placed before BOA for a decision.

Deemed Exports:

The objective of deemed exports is to ensure that the domestic suppliers are not in
disadvantageous position vis-à-vis foreign suppliers in terms of the fiscal concessions.
The underlying theory is that foreign exchange saved must be treated at par with
foreign exchange earned by placing Indian manufacturers at par with foreign suppliers.
Deemed Exports for the purpose of this FTP
It refers to those transactions in which goods supplied do not leave country, and payment
for such supplies is received either in Indian rupees or in free foreign exchange. Supply of
goods as specified in FTP shall be regarded as “Deemed Exports” provided goods are
manufactured in India.
Deemed Exports for the purpose of GST
It would include only the supplies notified under section 147 of the CGST/SGST Act, on the
recommendations of the GST Council. The benefits of GST and conditions applicable for such
benefits would be as specified by the GST Council and as per relevant rules and
notification.
We will restrict our discussion to ‘Deemed exports for the purpose for FTP’ in this
chapter.
Deemed exports broadly cover three areas.
a. Supplies to domestic entities who can import their requirements duty free or
at reduced rates of duty.

b. Supplies to projects/ purposes that involve international competitive bidding

c. Supplies to infrastructure projects of national importance

Supply by manufacturer Supply by main/sub-contractors(s)
Supply of goods against Advance Supply of goods to projects or turnkey
Authorisation/Advance Authorisation for contracts financed by multilateral or bilateral
Annual Requirement/ DFIA agencies/Funds notified by Department of
 Intro & Duties

Economic Affairs (DEA), under International

Competitive Bidding.
Supply of goods to units located in EOU/ Supply of goods to any project where import
STP/BTP/EHTP is permitted at zero customs duty as per
customs Notification No. 50/2017-Customs
dated 30.6.2017, provided supply is made
against International Competitive Bidding.
Supply of capital goods against EPCG Supply of goods to mega power projects
authorisation against International Competitive Bidding (even
if customs duty on imports made by such
project is not zero). The ICB procedures
should be followed. Supplier is eligible for
benefits as specified. International
Competitive Bidding (ICB) is not mandatory for
mega power projects if requisite quantum of
power has been tied up through tariff based
competitive bidding or if project has been
awarded through tariff based competitive
bidding.
Supply to goods to UN or international
organisations for their official use or supplied
to projects financed by them.
Supply of goods to nuclear projects through
competitive bidding (need not be international
competitive bidding).
Benefits for Deemed Exports
Deemed exports shall be eligible for any/ all of following benefits in respect of manufacture
and supply of goods, qualifying as deemed exports, subject to specified terms and
conditions:
a. Advance Authorisation/ Advance Authorisation for Annual requirement/ DFIA
b. Deemed Export Drawback
c. Refund of terminal excise duty for excisable goods mentioned in Schedule 4 of
Central Excise Act 1944 provided the supply is eligible under that category of
deemed exports and there is no exemption
The refund of drawback in the form of basic customs duty of the inputs used in
manufacture and supply under the said category shall be given on brand rate basis upon
submission of documents evidencing actual payment of basic custom duties. Refund of
drawback on the inputs used in manufacture and supply under the deemed exports
category can be claimed on 'All Industry Rate' of Duty Drawback Schedule notified by
Department of Revenue from time to time provided no CENVAT credit has been
availed by supplier of goods on excisable inputs or on ‘Brand rate basis’ upon submission
of documents evidencing actual payment of basic custom duties.
Thus, now the refund of drawback of duty paid on inputs is also allowed on All
Industry Rate basis.
 Intro & Duties

Common Conditions for Deemed Export benefits

(i) Supplies shall be made directly to entities listed in the point (I) above. Third party supply
shall not be eligible for benefits/exemption.
(ii) In all cases, supplies shall be made directly to the designated Projects/Agencies/Units/
Advance Authorisation/ EPCG Authorisation holder. Sub-contractors may, however,
make supplies to main contractor instead of supplying directly to designated Projects/
Agencies. Payments in such cases shall be made to sub-contractor by main-contractor and
not by project Authority.
(iii)Supply of domestically manufactured goods by an Indian Sub-contractor to any Indian or
foreign main contractor, directly at the designated project’s/ Agency’s site, shall also be
eligible for deemed export benefit provided name of sub-contractor is indicated either
originally or subsequently (but before the date of supply of such goods) in the main
contract. In such cases payment shall be made directly to sub-contractor by the Project
Authority.