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Procedure of Customs Under Customs Act, 1962
Introduction
The Customs Act, 1962 represents the foundational legislation governing the import and export of goods in India. Enacted on December 13, 1962, and enforced from February 1, 1963, this statute consolidates and amends the law relating to customs administration across Indian territory [1]. The Act derives its constitutional authority from Entry No. 83 of List I to Schedule VII of the Constitution of India, which empowers the Union Government to legislate and collect duties on imports and exports [2]. This legislative framework establishes not merely a taxation mechanism but a comprehensive system balancing revenue generation, trade facilitation, economic protection, and national security. Understanding the procedural aspects of customs administration becomes essential for businesses, importers, exporters, and individuals engaged in cross-border trade.
Constitutional and Statutory Framework
The Customs Act, 1962 operates under the constitutional mandate provided by Article 265 of the Constitution of India, which stipulates that no tax shall be levied or collected except by authority of law. The Act extends to the entire territory of India, including the Exclusive Economic Zone and Continental Shelf for specified purposes. The Central Board of Indirect Taxes and Customs, functioning under the Ministry of Finance, administers the Act through various customs officers appointed under its provisions. The statutory framework comprises the primary Act along with the Customs Tariff Act, 1975, which prescribes the rates of duties applicable under the Customs Act. These two statutes must be read together with numerous rules and regulations issued by the Central Government and the Board from time to time.
Appointment and Powers of Customs Officers
The Customs Act, 1962 establishes a hierarchical structure of customs officers entrusted with administering customs laws. Section 4 empowers the Central Government to appoint such persons as it deems fit to be officers of customs. The classification includes Commissioners of Customs, Additional Commissioners, Joint Commissioners, Assistant Commissioners, Deputy Commissioners, and various other officers necessary for effective customs administration. These officers derive their authority directly from the statute and exercise powers relating to assessment, examination, clearance, and enforcement activities. The proper officer, a term frequently used throughout the Act, refers to the customs officer assigned specific functions under relevant sections. The concept of the proper officer gained significant judicial attention in Commissioner of Customs v. Canon India Pvt. Ltd., where the Supreme Court examined whether officers of the Directorate of Revenue Intelligence could be considered proper officers for issuing show cause notices under Section 28 of the Act [3]. This judgment, subsequently reviewed following retrospective amendments introduced by the Finance Act 2022, illustrates the evolving interpretation of statutory provisions governing customs administration.
Entry and Clearance of Imported Goods
The procedure for importing goods into India involves multiple stages designed to ensure compliance with customs laws while facilitating legitimate trade. When a vessel or aircraft carrying imported goods arrives at a customs station, the person in charge must deliver an import manifest or import report to the proper officer within twenty-four hours. Section 30 mandates this declaration, which contains details of the cargo, its origin, destination, and other particulars specified by regulations. Before any goods can be unloaded, the master of the vessel must obtain entry inwards from the proper officer as stipulated under Section 31. This procedural requirement ensures that customs authorities maintain oversight over all cargo entering Indian territory.
Once goods are unloaded at approved landing places specified under Section 32, importers must file a bill of entry for clearance. The bill of entry constitutes a formal declaration submitted to customs authorities containing comprehensive details about the imported goods, including their description, quantity, value, classification under the customs tariff, and the importer’s particulars. The assessment of customs duty follows the filing of the bill of entry. Section 17 provides for assessment procedures whereby customs officers examine the goods, verify the declared value and classification, and determine the applicable duty. The transaction value principle governs valuation, as established under Section 14 read with the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007, notified on October 10, 2007 [4]. These rules implement the principles enshrined in the World Trade Organization’s Agreement on Implementation of Article VII of the General Agreement on Tariffs and Trade. The transaction value represents the price actually paid or payable for goods when sold for export to India, subject to certain additions and conditions specified in the valuation rules.
The assessment can occur through various modes. Self-assessment under Section 17 allows importers to assess duty payable on their goods, which is then verified by customs officers. Provisional assessment under Section 18 applies when the importer or customs officer cannot ascertain the value or classification of goods with certainty. In such cases, the importer must execute a bond and provide security for payment of differential duty that may be determined subsequently. Re-assessment becomes necessary when the assessment was based on incomplete or inaccurate information. The Supreme Court has consistently held that subsequent purchasers of imported vehicles cannot be deemed importers liable for customs duty evasion committed during original importation. In a recent judgment involving the purchase of a Porsche Carrera, the Court clarified that liability for duty rests with the original importer, not subsequent buyers [5].
Examination and Release Procedures
Examination of imported goods serves as a critical control mechanism ensuring compliance with customs laws. Customs officers select consignments for examination based on risk management principles implemented through the Risk Management System. This system categorizes consignments as high-risk, medium-risk, or low-risk based on various parameters, thereby optimizing resource deployment while maintaining effective enforcement. High-value consignments, shipments from sensitive origins, goods prone to misdeclaration, and randomly selected consignments undergo physical examination. During examination, officers verify whether the goods correspond to the description in the shipping documents, check for prohibited or restricted items, ensure proper marking and labeling, and assess the condition of goods.
Following satisfactory examination and payment of assessed duty, customs officers grant an out of charge order, permitting the importer to take delivery of goods. The entire clearance process has been substantially digitized through the Indian Customs Electronic Data Interchange Gateway, commonly known as ICEGATE, which enables electronic filing of documents, assessment, and clearance tracking. This modernization initiative has significantly reduced clearance time and enhanced transparency in customs administration.
Export Procedures
The export of goods from India follows a structured procedure designed to ensure compliance with export controls while facilitating legitimate trade. Exporters must file a shipping bill, which serves as the export equivalent of the bill of entry. The shipping bill contains details of the exported goods, their value, destination, and exporter particulars. Section 50 requires that goods intended for export should not be loaded onto any vessel or aircraft until proper customs clearance is obtained. Customs officers assess the goods to verify compliance with export restrictions, determine applicable export duties if any, and ensure that exporters fulfill conditions attached to export benefits or incentives.
The valuation of export goods follows principles established under the Customs Valuation (Determination of Value of Export Goods) Rules, 2007, which came into force on October 10, 2007 [6]. These rules prescribe that the value of export goods shall be the transaction value, representing the price actually paid or payable when goods are sold for export from India. Similar to import valuation, these rules provide alternative valuation methods when transaction value cannot be determined, including comparison with identical or similar goods, computed value, and residual methods.
After satisfactory examination and assessment, customs officers issue a Let Export Order, permitting the shipment to proceed. The exporter then arranges for loading the goods onto the vessel or aircraft. Export procedures have also been digitized, with electronic shipping bills filed through the customs automated system replacing traditional paper-based processes in most ports and airports.
Warehousing and Special Procedures
The Customs Act, 1962 provides for warehousing facilities allowing importers to store goods in customs-bonded warehouses without immediately paying customs duty. Section 58 permits importers to deposit goods in a warehouse pending their clearance for home consumption or re-export. This facility benefits importers by deferring duty liability until goods are actually cleared for domestic consumption, thereby easing working capital requirements. The warehousing period generally extends to one year, though Chief Commissioners may grant extensions under specified conditions. Goods stored in warehouses remain under customs control, and any manipulation, including repackaging, sorting, or minor processing, requires prior approval from customs authorities. When goods are eventually cleared from the warehouse for home consumption, duty becomes payable at the rate prevailing on the date of clearance.
Special procedures apply to certain categories of goods and importers. The Authorized Economic Operator program recognizes reliable entities engaged in international trade, granting them simplified customs procedures and expedited clearance. Duty drawback schemes allow exporters to claim refunds of customs duty paid on imported inputs used in manufacturing export goods. Export promotion schemes, including Advance Authorization and Export Promotion Capital Goods, permit duty-free importation of inputs and capital goods intended for export production.
Valuation Principles and Challenges
Valuation constitutes one of the most contentious aspects of customs administration, as the value determination directly impacts duty liability. Section 14 establishes transaction value as the primary basis for determining the value of imported and exported goods. The transaction value represents the price actually paid or payable, adjusted for certain costs and services. However, determining transaction value becomes complex when buyers and sellers are related parties, when payments involve non-monetary consideration, or when the declared value appears unrealistic compared to prevailing market prices.
The Customs Valuation Rules prescribe sequential methods for determining value when transaction value cannot be accepted. These include the transaction value of identical goods, the transaction value of similar goods, the deductive method based on resale price in India, the computed method based on production costs, and finally, the residual method using reasonable means consistent with valuation principles. Rule 12 of the Customs Valuation (Determination of Value of Imported Goods) Rules empowers customs officers to reject declared values when they have reasonable doubt about their truth or accuracy. Before rejection, officers must inform importers of their grounds for doubt and provide opportunities for clarification. This procedural safeguard ensures that value rejection does not occur arbitrarily.
Penalties and Offenses
The Customs Act, 1962 prescribes stringent penalties for violations of customs laws, reflecting the serious economic and security implications of customs offenses. Chapter XIV addresses penalties and prosecutions for various contraventions. Section 111 provides for confiscation of improperly imported goods, including goods imported contrary to prohibitions, goods concealed or misdeclared, and goods in respect of which documents have been falsified. Section 112 empowers authorities to impose penalties on persons concerned with such goods.
Smuggling, defined as the import or export of goods contrary to prohibitions or with intent to evade duty, constitutes a serious offense under Section 135. The Act distinguishes between civil liabilities involving penalties and criminal offenses attracting prosecution and imprisonment. Criminal prosecution proceeds for aggravated violations, including those involving commercial quantities of contraband, organized smuggling networks, and repeated offenses.
The judicial interpretation of penalty provisions emphasizes that penalties should be proportionate to the gravity of violation and should consider whether violations were deliberate or resulted from inadvertent errors. Settlement of cases through the Settlement Commission, previously available under Chapter XIVA, provided an alternative dispute resolution mechanism allowing importers and exporters to settle disputes by paying duty and interest without facing prolonged litigation. However, recent amendments have restricted settlement commission jurisdiction in cases involving goods seized under Section 123, which deals with illicit goods where the burden of proof shifts to the accused. The Supreme Court’s split verdict in Yamal Manojbhai v. Union of India regarding settlement commission jurisdiction in Section 123 cases highlights ongoing debates about balancing efficient dispute resolution with effective enforcement [7].
Adjudication and Appeals
The Customs Act, 1962 establishes a multi-tiered adjudication and appellate system ensuring fair determination of disputes. When customs officers propose to take adverse action against importers or exporters, they must issue show cause notices explaining the grounds for proposed action and providing opportunities for the affected parties to present their case. Adjudicating authorities, typically Assistant Commissioners or Deputy Commissioners, conduct hearings and pass orders after considering evidence and submissions.
Aggrieved parties can appeal against adjudication orders before the Commissioner (Appeals) under Section 128. Further appeals lie to the Customs, Excise and Service Tax Appellate Tribunal, established as an independent quasi-judicial body hearing appeals against orders of lower authorities. Section 129A prescribes the composition and powers of the Tribunal, which functions through benches across major cities. Appeals from the Tribunal lie to the High Court under Section 130 only on substantial questions of law. Final appeals can be filed before the Supreme Court of India.
The appellate process includes safeguards ensuring natural justice. Appellants must be given adequate opportunities to present their case, adjudicating authorities must provide reasoned orders, and decisions must be based on evidence rather than presumptions. The requirement to deposit duty and penalty pending appeal, prescribed under Section 129E, aims to balance revenue protection with appellants’ rights to challenge adverse orders. Courts have held that this requirement should not be enforced in a manner that makes appeals illusory, particularly in cases involving disputed duty demands that could cause undue financial hardship to appellants.
Modernization and Faceless Assessment
Recent reforms have transformed customs administration through technology adoption and process reengineering. The Customs (Import of Goods at Concessional Rate of Duty) Rules mandate electronic filing of all declarations, certificates, and documents through the customs automated system. The Single Window Interface Project enables importers to electronically lodge clearance documents with multiple regulatory agencies through a single portal, eliminating the need for physical interface with various government departments.
Faceless assessment, introduced to enhance transparency and reduce discretionary powers, allows customs officers to assess bills of entry and shipping bills without physical interaction with importers or exporters. Assessment orders are communicated electronically, and any queries or additional information requirements are handled through the system. This reform addresses longstanding concerns about corruption and arbitrary decision-making in customs administration while maintaining adequate controls against misdeclaration and fraud.
The integration of data analytics and artificial intelligence in risk assessment enables customs authorities to identify high-risk consignments more effectively while expediting clearance of compliant trade. Automated targeting systems analyze cargo data against multiple parameters, flagging suspicious shipments for detailed examination while allowing legitimate cargo to clear swiftly.
Challenges and Future Directions
Despite significant reforms, customs administration faces persistent challenges. Valuation disputes continue to generate substantial litigation, reflecting difficulties in applying transaction value principles to complex commercial arrangements. Classification disputes arise from the increasingly diverse nature of traded goods and technological advances creating products that do not fit traditional tariff categories. The tension between trade facilitation and enforcement remains constant, as measures to expedite clearance must not compromise customs’ role in preventing smuggling and protecting domestic industry.
International cooperation in customs administration has assumed growing importance given the globalization of supply chains. The Customs Act enables reciprocal arrangements for exchange of information with foreign customs administrations, supporting coordinated action against transnational smuggling networks. Participation in international conventions and agreements requires periodic amendments to domestic customs laws, ensuring alignment with evolving global trade practices.
The future trajectory of customs administration will likely witness further automation, increased data-driven decision-making, and enhanced coordination with other regulatory agencies. Blockchain technology holds promise for creating transparent and tamper-proof records of international transactions, potentially reducing fraud and enhancing trust among trading partners. However, technological advancement must be accompanied by capacity building of customs officers, ensuring they possess skills needed to operate sophisticated systems while maintaining professional judgment in complex cases.
Conclusion
The Customs Act, 1962 establishes a comprehensive procedural framework governing the import and export of goods in India. From the entry of vessels and aircraft at customs stations through assessment, examination, and clearance procedures to enforcement actions and appellate remedies, the Act prescribes detailed processes balancing multiple objectives. Revenue collection, trade facilitation, economic protection, and security enforcement must all be achieved through customs administration. The procedural provisions ensure that these objectives are pursued through transparent, predictable, and fair processes while providing adequate safeguards against arbitrary action. Understanding these procedures becomes essential for all stakeholders in international trade, enabling them to ensure compliance while effectively utilizing available remedies when disputes arise. As India continues integrating into global trade networks, the customs procedures established under this Act will continue evolving, adapting to new challenges while maintaining their fundamental purpose of regulating cross-border movement of goods.
References
[1] The Customs Act, 1962 (Act No. 52 of 1962). Available at: https://www.indiacode.nic.in/handle/123456789/2475
[2] Constitution of India, Schedule VII, List I, Entry 83. Available at: https://www.indiacode.nic.in/
[3] Grant Thornton Bharat. (2025). The Supreme Court’s Landmark Verdict in Canon India: Redefining the Role of DRI under Customs Law. Available at: https://www.grantthornton.in/insights/articles/the-supreme-courts-landmark-verdict-in-canon-india-redefining-the-role-of-dri-under-customs-law/
[5] Drishti Judiciary. (2025). Payment of Custom Duty – Supreme Court Ruling on Subsequent Purchaser Liability. Available at: https://www.drishtijudiciary.com/current-affairs/payment-of-custom-duty
[7] SCC Online. (2023). Yamal Manojbhai v. Union of India, 2023 SCC OnLine SC 565 (Supreme Court Split Verdict on Settlement Commission Jurisdiction). Available at: https://www.scconline.com/blog/post/2023/05/09/supreme-court-split-verdict-on-section-123-of-the-customs-act-1962-settlement-commission-jurisdiction/
Authroized by – Prapti Bhatt
