INTRODUCTION OF CUSTOMS DUTY IN INDIA
Customs is an authority or tax collection wing appointed by the Government in every country for controlling and for collecting of tax on the flow of goods into and out of a country. ‘Customs Duty’ refers to the tax imposed on the goods when they are transported across the international borders. Custom Duty is an indirect tax, imposed under the Customs Act formulated in 1962. Following are the types of customs duty in India,
- Basic Customs Duty (BCD)
- Countervailing Duty (CVD)
- Additional Customs Duty or Special CVD
- Protective Duty,
- Anti-dumping Duty
The power to enact the law is provided under the Constitution of India under the Article 265, which states that ―no tax shall be levied or collected except by authority of law. Entry No. 83 of List I to Schedule VII of the Constitution empowers the Union Government to legislate and collect duties on import and exports.
The primary objective behind levying customs duty is to safeguard each nation’s economy, jobs, environment, residents, etc., by regulating the movement of goods in and out of any country. It is also to minimize the smuggling of demerit goods such as cigarettes and alcoholic beverages across borders since these items are usually highly taxed and their tax rates may also vary significantly across borders. The Quantum of Customs duty in India depends upon the provisions of Customs Act, 1962 and Customs Tariff Act, 1975 and related Customs Rules, Notifications, Circulars, case Laws and Annual Union Finance Acts. The Customs Act, 1962 is the principal act which governs entry or exit of different categories of vessels, aircrafts, goods, passengers etc., into or outside the country. The Act extends to the whole of India.
Brief Legal History:
Taxes on goods were levied on various goods right from the Veda period. Customs Duty as we understand it today has its origin in British period. British established its first Board of Revenue in 1786 at Calcutta. New Board of Trade was established in 1808. A uniform Tariff Act was introduced in 1859 all over India. General rate of import duty was 10%, which was reduced to 7.5% in 1864. Customs duty in India is linked with the history of the textile industry. British manufacturers wanted to export their products to India and due to their pressure, duty on coarser varieties of cotton goods was abolished in 1877. Meanwhile, the Sea Customs Act was passed in 1878. In 1882, all import duties were abolished, but re-introduced in 1894 at a general rate of 5%. Indian Tariff Act was passed in 1894. Import duty on cotton goods @ 5% was introduced in 1894. At the same time, excise duty on Indian cotton goods was imposed, which was bitterly resented in India and it was finally abolished in 1925. General rate of customs duty was later increased to 7.5%. The Land Customs Act was passed in 1924. Air Customs was covered by making some rules under Indian Aircraft Act, 1911. After independence, the manufacturing industry grew and trade expanded. Customs Act, 1962 was passed to consolidate Sea Customs Act, Land Customs Act and provisions for air customs. On the basis of the world customs organization guidelines and principles, the Customs Act, 1962 and the Customs Tariff, 1975 has been framed to regulate the movement of imported goods into India and exported goods out of India.
Overview of customs law in India:
The Customs Act is used to (a) regulate imports and exports (b) protect Indian industry from dumping (c) collect revenue of customs duty. In addition, provisions of Customs Act are used for other Acts like Foreign Trade (Development and Regulation) Act, Foreign Exchange Management Act (FEMA) etc. Customs Law is covered under various Acts, rules, regulations and notifications, as follows :
Customs Act, 1962:
This is the main Act, which provides for levy and collection of duty, import/export procedures, prohibitions on importation and exportation of goods, penalties, offences etc.
Customs Tariff Act, 1975:
The Act contains two schedules – Schedule 1 gives classification and rate of duties for imports, while Schedule 2 gives classification and rates of duties for exports. In addition, the CTA (Customs Tariff Act) makes provisions for duties like additional duty (CVD), preferential duty, anti-dumping duty, protective duties etc.
Rules under Customs Act –
Under section 156 of Customs Act, 1962, Central Government has been empowered to make rules, consistent with provisions of the Act, to carry out the purposes of the Act. Various rules have been framed under these powers.
Regulations under Customs Act–
Under section 157 of Customs Act, 1962, the Board has been empowered to make regulations, consistent with provisions of the Act, to carry out the purposes of the Act. Various regulations have been framed under these powers. In Sukhdev Singh v. Bhagatram Sardar Singh, it was held that regulations framed under statutory provisions would have the force of law.
Notifications under Customs Act–
Various sections authorize the Central Government to issue notifications. The main are section 25(1) to grant partial or full exemption from duty and section 11 to prohibit import or export of goods.
Board circulars –
The Board is empowered u/s 151A of Customs Act to issue, for purpose of uniformity in classification of goods or with respect to the levy of duty thereon, issue such instructions and directions to officers of customs and they are required to observe and follow such orders, instructions and directions of Board. CBI&C issues circulars giving various instructions/prescribing various procedures etc. Normally, these instructions should be followed.
In 2021, Certain significant changes were made in the Customs Act, 1962 (“the Customs Act”). Mostly, these are for enhanced trade facilitation. A definite period of two year, extendable by one year is being prescribed for completion of investigation. Also, it is being prescribed that conditional exemption shall have validity of two years unless specifically provided otherwise or varied or rescinded earlier. IGCR (Import Goods Concessional Rate) Rules have been amended to allow job work on imported goods and also to allow disposal of goods at payment of duty on depreciated value. A few changes are made for improving compliance.
In 2021, Certain changes have also been made in the Customs Tariff Act, 1975 (“the Customs Tariff Act”) and Rules made thereunder in the provisions relating to trade remedial measures. Besides other changes, these changes introduce the provisions for anti-absorption investigation, bringing in uniformity in the provisions. Certain changes have also been made in the corresponding Rules.
Customs (Import of Goods at Concessional Rate of Duty) Rules, 2017 [“IGCR Rules”] are being amended to provide the following facilities:
- to allow job-work of the materials (except gold and jewellery and other precious metals) imported under concessional rate of duty
- to allow 100% out-sourcing for manufacture of goods on job-work
- to allow imported capital goods that have been used for the specified purpose to be cleared on payment of differential duty, along with interest, on the depreciated value. The depreciation norms would be the same as applied to EOUs, as per Foreign Trade Policy.
In the case of New Video Ltd. v. CC, it has been held that Customs duty is payable on replacement of parts provided free of cost during warranty period even if duty was paid on parts originally supplied. In the case of CC v. Aban Loyd Chiles Offshore Ltd, it has been viewed that import should be for ‘home consumption’, if goods imported for repairs and return, customs duty not payable, as import is not for home consumption.
Goods become liable to import duty or export duty when there is ‘import into, or export from India’. As per section 2(18), ‘export’ with its grammatical variations and cognate expressions, means taking out of India to a place outside India. As per section 2(23) of Customs Act, ‘import’ with its grammatical variations and cognate expressions, means bringing into India from a place outside India. In Gramophone Company of India v. Birendra Bahadur Pandey, it was held that ‘import’ included goods imported for transit across to Nepal.
In Indian Airlines v. CC, Indian Airlines had international flights. After returning from an international flight, the fuel was used for domestic run. It was held that fuel left in the fuel tank after termination of international run is ‘import’ and liable to customs duty.
Section 2(27) of Customs Act defines ‘India’ as inclusive of territorial waters. Hence, it was thought that ‘import’ is complete as soon as goods enter territorial water. Similarly, export is complete only when goods cross territorial waters. There were conflicting judgments of the High Courts. Finally, in Kiran Spinning Mills v. CC , it has been held that import is completed only when goods cross the customs barrier. The taxable event is the day of crossing of customs barriers and not on the date when goods landed in India or had entered territorial waters. 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.
In Garden Silk Mills Ltd. v. UOI, the same 3 member bench passed judgment in Kiran Spinning Mills, it was held that import of goods in India commences when they enter into territorial waters but continues and is completed when the goods become part of the mass of goods within the country. The taxable event is reached at the time when the goods reach the customs barrier and a bill of entry for home consumption is filed. Though there is slight contradiction between the SC judgments, it can be said that ‘mixing up with mass of goods in the country’ after crossing customs barriers is the ‘taxable event’ for customs duty on imports.
In case of warehoused goods, the goods continue to be in customs bond. Hence, ‘import’ takes place only when goods are cleared from the warehouse which has been confirmed in the case of UOI v. Apar P Ltd. and in Kiran Spinning Mills v. CC , where it was held that taxable events occur when goods cross customs barriers and not when goods land in India or enter territorial waters.
The establishment and functioning of multilateral customs organizations have had a restraining and smoothening effect on the stresses and strains that can and do erupt in international trade relations. Therefore, the examination of such a role is important.
- World Customs Organization (WCO): The WCO is an independent intergovernmental body whose mission is to enhance the effectiveness and efficiency of member customs administrations. The WCO was originally established as the Customs Cooperation Council (CCC) in 1952. The CCC adopted the name ‘World Customs Organization’ in 1994 in order to reflect its transition to a truly global intergovernmental institution. It has two wings, valuation and classification. It is headquartered in Brussels. With its worldwide membership, the WCO is recognized as the voice of the global customs community. It is particularly noted for its work in areas covering the development of international conventions, instruments, and tools on topics such as commodity classification, valuation, rules of origin, collection of customs revenue, international trade facilitation, customs enforcement activities, combating counterfeiting in support of Intellectual Property Rights (IPR), and so on.
- World Trade Organization (WTO): The WTO is responsible for a large part of work pertaining to Customs. This organization keeps a check on the activity of Customs in individual countries in case they go beyond international interests. In this capacity, it does not allow countries to impose very high protective customs duty or anti-dumping duty when there is no justification for them. It prevents trade wars arising from customs duty or quantitative restrictions on imports or exports.
- European Customs Union (ECU): The ECU, as a part of the EU, performs the job of consistent customs regulations within the EU. That the EU has a separate organization within its fold exclusively for the purpose of customs activities, underlines the importance that Customs plays in international trade and economic relations within the EU in particular, and with the global economic community in general.
Custom duty has existed since time immemorial in India. And every year the laws related to Customs duty were evolving. There are various laws, rules, regulations, notifications and circulars that govern the custom duties in India as seen above. Also, there are some international organizations in existence with certain objectives especially to monitor the countries with respect to the customs duty.