Customs Duty

Introduction:
The word Custom means a habitual practice or course of action that repeats in like
circumstances. The duties on import or export of goods have been levied from the
traditional times by all the countries. It has been described as “shulka”in Kautilya’s
Arthshastra which consists of import duty and export duty to be collected at the city
gates on both goods coming into and going out of the country.
In ancient times the trader bringing goods to a particular kingdom had to take
permission from the king to sell his goods in that kingdom. In order to take that
permission, the trader had to pay some fee to the king. This may be termed as customs
duty in those days.
Customs Duty as we understand today has its origin during British period. Customs
Act, 1962 was enacted to replace the then existing Sea Customs Act, 1878 and to
consolidate provisions for levy of Sea Customs, Land Customs, and Air Customs.
Charging Section:
Section 12 (1) of Customs Act, 1962 is the charging section which provides that ‘duties
of customs shall be levied at such rate as may be specified under The Customs Tariff
Act, 1975; or any other law for the time being in force, on goods imported into, or
exported from India.’
Customs Tariff Act, 1975 contains provisions relating to various types of Customs
Duties and the classification of imported and exempted goods. The Act contains two
schedules:
Schedule I: The First Schedule gives the classification and rates of duties for imports of goods into
India. It is also called as “Import Tariff”.
Schedule II: The second Schedule gives the classification and rates of duties for exports of goods
from India. It is also called as “Export Tariff”.
Import Duty is levied on almost all items unless exempted, while Export Duty was being levied
only on a few limited products, where Indian goods were in commanding position. [For example,
Coffee, Tea, Black Pepper, Turmeric, Basmati Rice etc. There were 50 items in Schedule II.]
Before introduction of Goods and Services Tax in India (w.e.f.01.07.2017), duties were imposed
even on the export of goods and services. However, as per the new tax system, the export of goods
and services from India to any other place outside the country are to be treated as 'zero-rated
supplies'. This means that no Export Duty is applicable for the exporters.
Imports by Central Government:
Section 12 (2) of Customs Act makes it clear that Customs Duty is payable by Government also.
[S.12 [(2) The provisions of sub-section (1) shall apply in respect of all goods belonging to
Government as they apply in respect of goods not belonging to Government.]
Thus there is no general exemption to goods imported by Government. However, various
exemption notifications have been issued and Imports by Indian Navy, Specific equipments
required by Police, Ministry of Defence, Costal Guards etc. are fully exempt from Customs Duty.
However, in absence of such specific exemption, duty will be payable even if goods are imported
by Central or State Governments.
Taxable Event:
(i) Taxable Event for Import Duty:
‘Import has been defined in S. 2 (23) of Customs Act as to mean ‘bringing into India from
a place outside India’.
Section 2 (27) of Customs Act defines ‘India’ as ‘India includes the territorial waters of
India’. [Territorial Waters of India extends up to 12 nautical miles inside sea from baseline
on coast of India. (1 Nautical Mile = 1.1515 miles = 1,853 Kms.)]
Hence it was thought that ‘import’ is complete as soon as goods enter into Territorial
Waters of India. Similarly export is complete only when goods cross the Territorial Waters
of India. There were conflicts of views among the High Courts.
However, Supreme Court in Kiran Spinning Mills vs. Collector of Customs AIR 2000SC
3448 (3-member bench) has held that import is completed only when goods cross customs
barrier and not on the date when goods landed in India or had entered into Territorial
Waters. In this case question was charging of Additional Duty under ordinance
promulgated after the goods entered Territorial Waters but before clearance from Customs
barrier. It was held Duty was payable.
In the case of goods which are in the warehouse, the customs barrier would be crossed
when they are sought to be taken out of the Customs and brought to the mass of goods in
the country.
Thus it can be said that ‘mixing up with mass of goods in the country’ after crossing customs barrier is the ‘taxable event’ for Customs Duty on imports.
In case of warehouse goods, the goods continue to be in customs bond. Hence import takes place only when goods are cleared from the warehouse.
[Warehouse means Public Warehouse or licensed Private Warehouse at Warehousing Stations wherein dutiable goods may be deposited.]
Taxable Event in case of Exports:
In U.O.I. vs. Rajendra Dyeing and Printing Mills (2005) 180 ELT 433 (SC), it has been held that export is complete when goods cross Territorial
Waters of India. If ship sinks within Territorial Waters, export is not complete, hence duty is not payable.
It should be noted that even if export duty is collected before ship leaves the port, that does not mean that taxable event has occurred. Duty can be
collected in advance also.