Customs

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Unit 1 – Constitutional background for Indirect Taxes in India

a) Powers of various Governments to levy and collect taxes.
b) Schedule 7 of Constitution (List I,2,3)
c) Constitutional amendment for bringing GST in force
Powers of various Governments to levy and collect taxes and Seventh Schedule to Constitution
The Constitution of India is the supreme law of India. It lays down the framework defining
fundamental political principles, establishes the structure, procedures, powers and duties of
government institutions and sets out fundamental rights, directive principles and the duties of citizens.
Constitution of India was adopted by the Constituent Assembly on 26th November 1949 and came into
effect on 26th January 1950 replacing Indian Independence Act. With the adoption of the Constitution,
Union of India became the Republic of India replacing the Government of India Act 1935.
Constitution declares India as sovereign, socialist, secular, democratic republic. Parliament cannot
override the Constitution.
In the Preamble to the Constitution, it is said that-

WE, THE PEOPLE OF INDIA, having solemnly resolved to constitute India into a SOVEREIGN,
SOCIALIST, SECULAR, DEMOCRATIC, REPUBLIC and to secure to all its citizens:
JUSTICE, social, economic and political;
LIBERTY of thought, expression, belief, faith and worship;
EQUALITY of status and of opportunity; and to promote among them all
FRATERNITY assuring the dignity of the individual and the unity and integrity of the nation;
IN OUR CONSTITUENT ASSEMBLY this twenty sixth day of November 1949, do HEREBY
ADOPT, ENACT AND GIVE TO OURSELVES THIS CONSTITUTION.
Constitution is divided into 22 parts (I to XXII) and 395 Articles with 12 Schedules. Part XI
(comprising Articles 245 to 263) of the Constitution describes the relations between the Union and the
States.
Article 245 describes extent of laws made by Parliament and by the Legislature of States.
Article 245(1) states that subject to the provisions of this Constitution, Parliament may make laws for
the whole or any part of the territory of India, and the Legislature of a State may make laws for the
whole or any part of the State.
Article 245(2) states that no law made by the Parliament shall be deemed to be invalid on the ground
that it would have extra territorial operation.
Article 246 - Subject matter of laws made by Parliament and by the Legislatures of States
(1) Notwithstanding anything in clauses (2) and (3), Parliament has exclusive power to make
laws with respect to any of the matters enumerated in List I in the Seventh Schedule (in this
Constitution referred to as the Union List).
(2) Notwithstanding anything in clause (3), Parliament, and, subject to clause (1), the Legislature
of any State also, have power to make laws with respect to any of the matters enumerated in
List III in the Seventh Schedule (in this Constitution referred to as the Concurrent List).
(3) Subject to clauses (1) and (2), the Legislature of any State has exclusive powers to make laws
for such State or any part thereof with respect to any of the matters enumerated in List II in
the Seventh Schedule (in the Constitution referred to as the State List).
(4) Parliament has power to make laws with respect to any matter for any part of the territory of
India not included (in a State) notwithstanding that such matter is a matter enumerated in the
State List
T.Y.B.Com. – Indirect Taxes Sem. VI Academic Year 2022-23

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Seventh Schedule attached to Constitution read with Article 246 describes powers given to various
Government of framing laws. This schedule is divided into three lists, namely-
List I – Union List having 1 to 97 entries empowering Union (Central) Government to frame laws.
Some of the important entries relevant for taxation are as follows:
Entry Particulars
No.
82 Taxes on income other than agricultural income
83 Duties of Customs including export duties
84 Duties of excise on tobacco and other goods manufactured or produced in India except
a) Alcoholic liquor for human consumption;
b) Opium, Indian hemp and other narcotic drugs and narcotics
But including medical and toilet preparations containing alcohol or any substance
included in sub-paragraph (b) of this entry
85 Corporation tax (i.e. Income tax on companies)
86 Taxes on capital value of the assets, exclusive of agricultural land of individuals and
companies (Capital Gains Tax)
92C Taxes on Services
List II – State List having 1 to 66 entries empowers respective State Governments (Union
Government in case of Union Territories) to frame laws.
Some of the important entries relevant for taxation are like
Entry Particulars
No.
51 Duties of Excise on the following goods manufactured or produced in the States and
countervailing duties at the same or lower rates on similar goods manufactured or produced
elsewhere in India
a) Alcoholic liquor for human consumption;
b) Opium, Indian hemp and other narcotic drugs and narcotics
But not including medical and toilet preparations containing alcohol or any substance
included in sub-paragraph (b) of this entry
54 Taxes on sale or purchase of goods other than newspapers, subject to the provisions of
entry 92A of List I.
60 Taxes on professions, trades, callings and employments
62 Taxes on luxuries, including taxes on entertainments, amusements, betting and gambling
List III – Concurrent List having 1 to 47 entries empowers both Union as well as State Governments
(Union Government in case of Union Territories) to frame laws. Some of the important entries are like
Entry Particulars
No.
1 Criminal Law, including matters included in the Indian Penal Code..
2 Criminal procedure
4 Removal from one State to another State of prisoners, accused persons etc.
5 Marriage and divorce, infants and minors, adoption, wills etc.
9 Bankruptcy and insolvency
12 Evidence and oaths
13 Civil procedures
38 Electricity
39 Newspapers, books and printing presses
44 Stamp duties

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Constitutional amendment for bringing GST in force

As seen in the earlier paragraphs, constitution did not permit Central Government as well as State
Governments to have one common tax law on manufacture and sale of goods and provision of
services. Accordingly, it was necessary to amend constitution so as to implement GST on nationwide
basis. 101st Constitutional amendment enabled Union and State Governments to collect Goods and
Service Tax replacing Central Excise, Service Tax, State Value Added Tax, Central Sales Tax,
Luxury Tax etc. Constitution by that time was amended 100 times, first amendment taking place
w.e.f. 18/06/1951.
Under the new indirect tax regime Union and State Governments can simultaneously charge Goods
and Service Tax i.e. CGST (Central Goods and Services Tax) and SGST (State Goods and Services
Tax). Integrated Goods and Services Tax (IGST) is charged in case of inter-state trade and commerce.
Input Tax credit is expanded to a large extent as compared to CENVAT and State VAT.
Union Government introduced Goods and Services Tax (GST) in place of various indirect taxes with
effect from 1st July 2017 replacing Central and State Excise, Service Tax VAT etc. 101st
Constitutional Amendment Act made amendments in constitution as detailed below for
accommodating provisions relating to GST.
Article Particulars Remarks
Article 246 Subject matter of laws made by Parliament and by Article 246 read with
the Legislatures of States Seventh Schedule did not
Article 246 refers to subject matters of laws made by allow implementation of
Parliament and the Legislature of States. Article 246 GST.
refers to Seventh Schedule which gives three Lists. List Accordingly Entry 84 of
I – Parliament empowered to make Laws, List II – State List I was restricted to
Legislatures empowered to make laws and List III – petroleum products, Entry
both Parliament and State Legislatures to make laws. 92C relating to Service
List I entry 84 gives powers to Union Government to Tax was deleted.
charge Duty of excise on tobacco and other goods
except Alcoholic liquor, opium and narcotics.
List II entry 51 gives powers to State Governments to
charge duty of excise on Alcohol, opium and narcotics
and Entry 54 gave powers to charge taxes on sale or
purchase of goods other than newspapers.
Due to above division, it was not possible to charge goods
and service tax without constitutional amendment.
Article 246A 1) Notwithstanding anything contained in Article 246 Constitution (101st
(newly and 254, Parliament and subject to clause (2) the Amendment) Act 2016
inserted) Legislature of every State, have power to make laws inserted Articles 246A
with respect to goods and services tax imposed by the after Article 246 along
Union or by such State. with other consequential
2) Parliament has exclusive power to make laws with amendments to allow
respect to goods and service tax where the supply of Union and State
goods or of services or both takes place in the course of Governments to charge
inter-state trade or commerce. GST.
Explanation – The provisions of this article, shall, in Related to petroleum
respect to goods and services tax referred to in clause (5) products.
of Article 279A, take effect from the date recommended
by the Goods and Services Tax Council.

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Article 269A (1) Goods and services tax on supplies in the course of Earlier Central Sales Tax
(newly inter-state trade and commerce shall be levied and was charged when goods
inserted) collected by the Government of India and such tax shall were traded in the course
be apportioned between the Union and the States in the of inter-state trade or
manner as may be provided by Parliament by law on the commerce. Question of
recommendations of the Goods and Services Tax excise duty does not arise
Council. as the same was on goods
Explanation – For the purposes of this clause, supply of manufactured. Now under
goods or of services or both in the course of import into consolidated GST it was
the territory of India shall be deemed to be supply of necessary to give powers
goods, or of services, or both in the course of inter-state
to Union Government to
trade or commerce. frame laws in relation to
inter-state trade or
commerce.
Article 366 Definitions Some definitions were
(12) “Goods” includes all materials, commodities and required to be added to
articles. Article 366 to make GST
(12A) Goods and services tax means any tax on supply effective.
of goods or service or both except taxes on the supply of
alcoholic liquor for human consumption.
(26A) “Services” means anything other than goods.
Schedule VII Entry 84 of List I amended as Duty of excise reduced to
Duties of excise on the following goods manufactured or petroleum and tobacco
produced in India, namely products
(a) petroleum crude;
(b) high speed diesel;
(c) Motor spirit (commonly known as petrol);
(d) natural gas;
(e) aviation turbine fuel; and
(f) tobacco and tobacco products.
Entry 92 deleted Entry related to “Taxes on
the sale or purchase of
newspapers and on
advertisements published
therein” deleted.
Entry 92C deleted Entry related to “service
tax” deleted.
Entry 52 of List II deleted Entry tax deleted
Entry 54 amended to Amendment to remove
Taxes on sale of petroleum crude…. But not including taxes on sale or purchase
sale in the course of international trade or commerce of of goods (VAT) other than
such goods newspapers and to restrict
it to petroleum products
like Entry 84 of List I

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Unit 2 - CUSTOMS DUTY

Syllabus
1. Basic Concepts:
Introduction to Customs Duty
Constitutional powers
Important definitions - Customs area, Custom port, Custom station/airport/water. Prohibited
goods, smuggling, Tariff Value, Shipping Bill of Warehouses, Warehoused Goods, Import,
Imported goods, Export goods, Market price, Duty, Entry, Export, Conveyance, Notified date,
Notified goods, Bill of export, Bill of Entry, Baggage, Coastal goods.
2. Appointment of customs ports and Airports - Prohibition on importation & exportation of goods -
Prevention or Detection of illegal export of goods.
3. Classification of Goods, Application of Harmonised System of Nomenclature.
4. Valuation under Customs Act 1962
a) Concept of value
b) Terms used in common parlance
c) Technical terms relating to value in the course of import and export
d) Computation of assessable value
e) Valuation of goods base on Sec.14
f) Customs valuation (Determination of value of Imported Goods) Rules, 2007
g) Customs valuation (Determination of value of Export Goods) Rules, 2007
h) Date for determination of rate of duty and tariff value
5. Levy of and exemption from custom duty, Dutiable goods, types of Customs Duty
a) Basic Customs Duty
b) Additional Duty of Customs and Special Additional Duty of Customs (replaced by IGST)
c) Protective duties
d) Countervailing duty of subsidised goods u/s.9
e) Anti-dumping Duty
f) Education Cess and Secondary and Higher Education Cess
6. Importation, exportation and transportation of Goods
a) Procedure for clearance of imported goods
b) Procedure for clearance of export goods
c) Procedure for postal articles
7. Warehousing
a) Introduction
b) Provisions for home consumption
c) Removal of goods from Warehouse
d) Manufacture in bonded warehouse
8. Duty Drawback
a) Re-export of duty paid imported goods
b) Drawbacks on imported goods used in manufacture of export goods
9. Numerical sums on valuation of goods, calculation of duty
Introduction to Indirect Taxes
In India, we follow 1st April to 31st March as the financial year since British regime. For last few
years, Union Budget for the next financial year is places before the Houses of Parliament on 1 st
February, which earlier used to be presented on 28th February. After the initial discussion on what was
budgeted last year vis-a-vis the actual revenue and expenditure, the Hon’ble Finance Minister then
discusses about the allocation of expenditure to be incurred on various social, economic, infrastructure
and other developments in the coming financial year. This is followed by provisions relating to how
funds will be raised to meet such expenditure through collection of taxes and various other means and
ways. Accordingly, changes are proposed in the taxation laws to be implemented for the coming

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financial year, except the changes relating to rates of excise duty (now GST) and customs duty which
are made effective from the midnight of 1st February itself. These provisions/changes are
incorporated in the relevant Acts & Rules and those changes become applicable from the coming
financial year.
Indirect taxes are those which are charged on goods and services, payable by a person who deals in
such goods and services. These taxes are chargeable on expenses while direct taxes are chargeable on
income. Due to these main differences between direct and indirect taxes, the mechanism of charging
such taxes, periodicity of payment of taxes, frequency of filing of returns etc. also differ. Since,
indirect taxes are collected by a dealer (manufacturer, wholesaler, retailer etc.) on behalf of the person
responsible for payment (consumer), the compliances of the same are more stringent and complex.
Introduction to Customs Duty and Constitutional Powers

Since ancient times under the monarchy rule it used to be a custom that any foreigner while entering a
new monarchy would first meet and offer some gift to the king to allow him to stay in his kingdom
and trade in his state. Such gift was popularly known as “Nazrana” in common parlance. Such
custom of offering some gift to the king to allow a foreigner to trade in his kingdom was later on got
converted into Act and many countries formulated Customs Act.
Roots of Customs Act lie in British regime where British rulers started imposing customs duties for
exports from India and concessions for imports from Britain to make their goods cheaper in the Indian
market. First such Customs Act was promulgated way back in the year 1878 as Sea Customs Act
1878, followed by India Tariff ACT 1894, In-land Bonded Warehousing Act 1896, India Aircrafts Act
1911 and Land Customs Act 1924. All these Acts were consolidated in Customs Act 1962.
Presently, Customs duties are levied under the Customs Act, 1962 read with the Customs Tariff Act,
1975. Entry 83 to List I (Union List) of Seventh Schedule to Constitution reads ‘Duties of Customs
including export duties’. Thus, import and export duty is a subject matter of Union Government and
power to levy is derived from Constitution. Thus Union Government is responsible for levy and
collection of custom duties. No State Government is empowered to collect Customs Duty.
Custom duties are levied on commodities imported into the country from other countries or exported
out of the country. The former duty is referred to as “import duty” while the latter is known as “export
duty”. Goods become liable to import duty or export duty when there is ‘import into, or export from
India’.
Customs duty deals with physical goods and the movement of goods can be tracked and subjected to
customs duty. However, import and export of services cannot be so monitored. Accordingly, the
import and exports of services is dealt with by GST, which we will study later.
Basic provisions relating to procedural and legal matters are contained in Customs Act 1962 while
Customs Tariff Act, 1975 deals with classification of goods ad specifies the rates of customs duties.
Meaning, objects, scope of the Customs Act, 1962.

Customs duty is on import into India and export out of India. Import implies bringing into India from
a place outside India and export implies taking out of India to a place outside India.
Goods under Customs Act: As per Section 12 of the Customs Act, 1962 customs duty is on goods.
Section 2(22) defines goods as to include –
(a) vessels, aircrafts and vehicles,
(b) stores,
(c) baggage,
(d) currency and negotiable instruments and

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(e) any other kind of moveable property.

However, there are two fundamental aspects of Goods, i.e. they should be moveable and marketable.
In the famous case of Union of India v/s. Delhi Cloth Mills the concept of marketability was
enunciated as any article to be called as goods should be capable of being bought and sold in the
market. The article should be known in the market as it is being produced or manufactured, whether
actually sold or not. Though the judgement was related to Central Excise, it equally applies to all such
laws (including Customs Act) where the definition of goods is involved.
The Customs Act, 1962 is divided into 23 chapters (Chapter I to Chapter XVII) and 161 sections. The
relevant Chapters and Sections for our syllabus are as follows.
Chapter No. Sections Area covered

I 1 to 2 Preliminary
II 3 to 6 Officers of Customs
III 7 to 10 Appointment of Customs Ports, airports, warehouse stations etc.
IV 11 Prohibition on importation and exportation of goods
IVA 11A to 11G Detection of illegally imported goods and prevention of the disposal thereof.
IVB 11H to 11M Prevention or detection of illegal export of goods
IVC 11N Power to exempt the provisions of Chapters IVA & IVB
V 12 to 28B Levy of and exemption from customs duties
VA 28C, 28D Indicating amount of duty in the price of goods etc. for the purpose of refund
VB 28E to 28M Advance Rulings
VI 29 to 43 Provisions relating to conveyances carrying imported and exported goods
VII 44 to 51 Clearance of imported goods and export goods.
VIII 52 to 56 Goods in Transit
IX 57 to 73 Warehousing
X 74 to 76 Drawback
XA 76A to 76N Special provisions relating to Special Economic Zones
XI 77 to 90 Special provisions regarding baggage, goods imported or exported by post, and
stores
XII 91 to 99 Provisions relating to coastal goods and vessels carrying coastal goods
XIII 100 to 110A Search, Seizure and arrest
XIV 111 to 127 Confiscation of goods and conveyances and imposition of penalties
XIVA 127Ato127N Settlement of cases
XV 128 to 131C Appeals and revisions
XVI 132 to 140A Offences and prosecutions
XVII 141 to 161 Miscellaneous
Definitions - Section 2 of the Customs Act, 1962 defines various terms used in Customs Act. Some of
the important definitions are as follows: -
Customs area [Sub-Section (11)]: ‘Customs area’ means the area of a customs station and includes
any area in which imported goods or export goods are ordinarily kept before clearance by Customs
Authorities.
A warehouse where goods are kept without payment of duty was also included in the definition after
the introduction of IGST w.e.f. 01.07.2017.
Custom port [Sub-Section (12)]: ‘Customs port’ means any port appointed under clause (a) of
section 7 to be a Customs Port, and includes a place appointed under clause (aa) of that section to be
an inland container depot.
As per Section 29(1), vessel entering India from a place outside India must land only at Customs Port.
The actual place where loading and unloading is permitted as approved by Commissioner of Customs
Customs Station [Sub Section (13)]: means any custom port, custom airport or land custom station. It
also now includes International Courier Terminal and Foreign Post Office w.e.f. 31.03.2017.

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Customs airport [Sub Section (10)]: means any airport appointed under clause (a) of section 7 to be a
custom airport. It also includes air freight station appointed by CBI&C for unloading of imported
goods and for loading of export goods.
As per Section 29(1), Aircraft entering India from a place outside India, must land only at Customs
Airport.
Indian Customs Water Sec.2(28): The portion of sea 12 nautical miles beyond territorial waters, i.e.
24 nautical miles from the base line.
Territorial waters of India is that portion of sea which is adjacent to the shores of a country up to
12 nautical miles from the base line.
Base line is the low water line along the coast (low tide).
[1 nautical mile is equal to 1.1515 miles or 1.853 kms.]
Accordingly, total area on which customs officers can exercise their powers extends to 24 nautical
miles i.e. 44.472 kms from the base line.
Significance of Indian Customs Water can be summarised as follows.
a) Customs officer has powers to arrest a person in India or within Indian Customs Water.
b) Customs officer has powers to stop and search any vessel in India or within Indian Customs
Water. If such vessel does not stop, it can be fired upon. Such vessel can be confiscated.
c) Customs officer has power to search any person who is on board any vessel within customs
water, if he has reason to believe that goods liable to confiscation are secreted about his
person.
Land Customs Station is a place appointed under Section 7(b). Goods imported by land route are
first received here. Goods entering India must follow the prescribed route to come to land customs
station.
Prohibited goods [Sub-Section (33)]: ‘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.
Smuggling [Sub-Section (39)]: ‘Smuggling’ in relation to any goods, means any act or omission
which will render such goods liable to confiscation under Sec.111 or Sec.113.
Chapter XIV of Customs Act 1962 deals with the provisions relating to powers of confiscation of
goods and conveyances and imposition of penalties under certain circumstances. These provisions
mainly relate to smuggling activities. Customs officers have wide powers in relation to such activities.
Sec.111 covers mainly all such circumstances where the goods are brought or tried to be brought into
India at any place other than customs port, airport or land customs station etc., import or attempt to
import any prohibited goods. Sec.113 covers such improper attempt to export.
Tariff Value [Sub-Section (40)]: ‘Tariff Value’, in relation to any goods, means the tariff value fixed
in respect thereof under Sub-Section (2) of Section 14.
Shipping Bill: Shipping Bill is required to be submitted at the time of exports by the exporter (in case
of export by vessel or aircraft). It should be submitted in quadruplicate. There are different forms of
shipping bills (in different colours) as follows.
a) Green Colour: Shipping bill for export of goods under claim for duty drawback.
b) Yellow Colour: Shipping bill for export of dutiable goods.
c) White Colour: Shipping bill for export of duty free goods.
d) Pink Colour: Shipping bill for export of duty free goods ex-bond, i.e. from bonded storeroom.
e) Blue Colour: Shipping bill for export under DEPB scheme.
The shipping bill form requires details like name of exporter, consignee, Invoice number, details of
packing, description of goods, quantity, FOB value etc.
Exporter has to submit ‘shipping bill’ for export by sea or air and ‘bill of export’ for export by road.

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Warehoused Goods [Sub-Section (44)]: Warehoused goods means goods deposited in a warehouse.
The word Warehouse is defined in Sub-Section (43) to mean a public warehouse appointed under
Section 57 or a private warehouse licensed under section 58.
Import [Sub-Section (23)]: ‘Import’, with its grammatical variations and cognate expressions, means
bringing into India from a place outside India.
Imported goods [Sub-Section (25)]: ‘Imported Goods’ means any goods brought into India from a
place outside India but does not include goods which have been cleared for home consumption.
Export goods [Sub-Section (19)]: ‘Export Goods’ means any goods which are to be taken out of
India to a place outside India.
Market price [Sub-Section (30)]: ‘Market Price’, in relation to any goods, means the wholesale price
of the goods in the ordinary course of trade in India.
Duty [Sub-Section (15)]: ‘Duty’ means a duty of customs leviable under this Act.
There are various types of duties under the customs. They are as follows: -
a) Basic Customs Duty including surcharge on basic duty
b) Special Additional Duty of customs
c) Additional Customs Duty (Countervailing Duty) imposed in case of import of excisable goods in
order to counter balance the excise duty, levied on similar goods if manufactured in India (now
replaced by IGST).
d) Additional duty u/s.3(3).
e) Protective Duty
f) Countervailing duty on subsidised goods
g) Anti-dumping duty on dumped goods.
h) Export duty
Incidentally, dutiable goods are defined u/s.2(14) as follows.
Dutiable Goods [Sub-Section (14)]: Dutiable goods mean any goods-
(a) Which are chargeable to duty and
(b) On which duty has not been paid.
In order to be dutiable, any article must first satisfy both the following conditions, namely-
(a) The article should be goods as defined u/s.2(22), and
(b) The same should find a mention in the Customs Tariff Act 1975.
Entry [Sub-Section (16)]: ‘Entry’ in relation to goods means an entry made in a bill of entry, shipping
bill or bill of export and includes in the case of goods imported or to be exported by post, the entry
referred to in Section 82 or the entry made under the regulations made under Section 84.
Export [Sub-Section (18)]: ‘Export’ with its grammatical variations and cognate expressions, means
taking out of India to a place out of India.
Conveyance [Sub-Section (9)]: ‘Conveyance’ includes a vessel, an aircraft and a vehicle.
Notified date [Sec.11A(c)]: ‘Notified date’ in relation to goods of any description means the date on
which the notification in relation to such goods is issued under section 11B.
Notified goods: [Sec.11A(d)] ‘Notified goods’ means goods specified in the notification issued under
section 11B.
Bill of Export [Sub-Section (5)]: ‘Bill of Export’ means a bill of export referred to in Section 50.
Sec.50 prescribes the exporter of any goods shall make entry thereof by presenting to the proper
officer in the case of goods to be exported in a vessel or aircraft a shipping bill and in case of goods
exported by land, a bill of export.
Bill of Entry [Sub-Section (4)]: Bill of entry means a bill of entry referred to in Section 46.
Sec.46 prescribes the procedure for importation of goods. Every importer has to make entry of the
goods other than goods intended for transit or transhipment by presenting a bill of entry for home
consumption or warehousing. Now, such bill of entry is required to be submitted electronically.
Baggage: ‘Baggage’ includes unaccompanied baggage but does not include motor vehicles.

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The import or export of goods can be done through the baggage a passenger is carrying while coming
from or going abroad. There are separate rules and procedure to be followed in case of such import or
export.
Coastal goods [Sub-Section (7)]: “Coastal goods” means goods other than imported goods,
transported in a vessel from one port in India to another.
No export or import is involved, but control is necessary to ensure that coastal goods are not diverted
illegally for export.
Person-in-charge [Sub-Section (31)]: Person-in-charge means –
a) In relation to a vessel, the master of the vessel;
b) In relation to an aircraft, the commander or pilot-in-charge of the aircraft;
c) In relation to a railway train, the conductor, guard or other person having the chief direction of
the train;
d) In relation to any other conveyance, the driver or other person-in-charge of the conveyance.

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CHAPTER - II
Appointment of customs ports & Airports - Prohibition on importation &
exportation of goods - Prevention or Detection of illegal export of goods.
Appointment of customs ports, airports, etc.

Chapter III of the Customs Act, 1962 lays down the powers regarding the appointment of Customs
ports, airports etc.
According to Section 7, the central Government may, by notification in the Official Gazette, appoint -
(a) the ports and airports which alone shall be customs ports or customs airports for the unloading of
imported goods and the loading of export goods or any class of such goods;
(aa) the places which alone shall be inland container depots for the unloading of imported goods and
loading of export goods or any class of such goods;
(b) the places which alone shall be land customs stations for the clearance of goods imported or to be
exported by land or inland water or any class of such goods.
(c) the routes by which alone goods or any class of goods specified in the notification may pass by
land or inland water into or out of India, or to or from any land customs station from or to any
land frontier;
(d) the ports which alone shall be coastal ports for the carrying on of trade in coastal goods or any
class of such goods with all or any specified ports in India.
Prohibitions on Importation and Exportation of goods.

The Central Government, by virtue of the provisions of section 11 of the Customs Act, 1962, has
powers to prohibit the import or export of such goods as it considers necessary. The provisions of
Section 11 are as follows
1) If the central Government is satisfied that it is necessary so to do for any of the purposes
specified in sub-section (2), it may by notification in the Official Gazette, prohibit either
absolutely or subject to such conditions (to be fulfilled before or after clearance) as may be
specified in the notification, the import or export of goods of any specified description.
2) The purposes referred to in sub-section (1) are the following:
(a) the maintenance of the security of India;
(b) the maintenance of public order and standards of decency or morality;
(c) the prevention of smuggling;
(d) the prevention of shortage of goods of any description;
(e) the conservation of foreign exchange and the safeguarding of balance of payments;
(f) the prevention of injury to the economy of the country by the uncontrolled import or export
of gold or silver;
(g) the prevention of surplus of any agriculture product or the product of fisheries;
(h) the maintenance of standards for the classification, grading or marketing of goods in
international trade;
(i) the establishment of any industry;
(j) the prevention of serious injury to domestic productions of goods of any description;
(k) the protection of human, animal or plant life or health;
(l) the protection of national treasures of artistic, historic or archaeological value;
(m) the conservation of exhaustible natural resources;
(n) the protection of patents, trademarks, copyrights, designs and geographical indications;
(o) the prevention of deceptive practices;
(p) the carrying on of foreign trade in any goods by the state, or by a corporation owned or
controlled by the state to the exclusion, complete or partial, of citizens of India.
(q) the fulfilment of obligations under the chapter of the United Nations for the maintenance of
international peace and security;
(r) the implementation of any treaty, agreement or convention with any country;

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(s) the compliance of imported goods with any laws which are applicable to similar goods
produced or manufactured in India;
(t) the prevention of dissemination of documents containing any matter which is likely to
prejudicially affect friendly relations with any foreign state or is derogatory to national
prestige;
(u) the prevention of the contravention of any law for the time being in force; and
(v) any other purpose conducive to the interests of the general public.
Chapter IVA of Customs Act 1962 deals with the provisions relating to detection of illegally imported
goods and prevention of the disposal thereof. Secs.11A to 11G deal with provisions related to such
detection of goods and prevention of their disposal.
Sec.11A(a) defines illegal import as to mean import of any goods in contravention of the provisions of
Customs Act or any other law for the time being in force.
Sec.11B gives powers to Central Government to notify goods for these purposes. If having regard to
the magnitude of the illegal import of goods of any class or description, the Central Government is
satisfied that it is expedient in the public interest to take special measures for the purpose of checking
the illegal import, circulation and disposal or such goods, or facilitate the detection of such goods,
may by notification in the Official Gazette, specify goods or such class and description.
Accordingly, Sec.11C deals with the provisions relating to the person possessing notified goods to
intimate the place of storage within seven days from the notified date to the proper officer. Sec.11D
deals with the provisions relating to precautions to be taken by person acquiring notified goods.
Sec.11E deals with provisions relating to maintenance of accounts by the person possessing notified
goods. Sec.11F deals with sale or otherwise disposal of such notified goods.
Prevention or detection of illegal export of goods.

Section 11I of Chapter IVB of the Customs Act, 1962 empowers the Central Government to specify
certain goods of a particular class or description in order to prevent their illegal export. The Central
Government can issue the notification under Section 11I only if it is satisfied having regard to the
magnitude of the illegal export of the goods concerned and the compulsions of public interest
requiring so, to take such measures for the purpose of checking their illegal export or facilitating
detection of their likely export. In exercise of the powers conferred under this section Silver Bullions
and Coins have been notified by the Central Government.
Section 11H of Chapter IVB contains definition of the following terms used in the Chapter:
a) Illegal Export - means the export of any goods in contravention of the Provisions of this Act or
any other law for the time being in force;
b) Intimated place - means a place intimated under sub-Section (1), sub-section (2) or sub-section
(3), as the case may be, of section 11J.
c) ‘Specified area’ includes the Indian customs waters, and such inland area, not exceeding one
hundred kilometres in width from any coast or other border of India, as the Central Government
may, having regard to the vulnerability of that area to smuggling, by notification in the Official
Gazette, specify in this behalf:
Provided that where a part of any village, town or city falls within a specified area, the whole of
such village, town or city shall, notwithstanding that the whole of it is not within one hundred
kilometres from any coast or other border of India, be deemed to be included in such specified
area;
d) Specified date - in relation to specified goods, means the date on which any notification is issued
under Section 11I in relation to those goods in any specified area
e) Specified goods - means goods of any description specified in the notification issued under
Section 11I in relation to a specified area.

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Persons possessing specified goods to intimate the place of storage, etc. (Section -11J)
Every person who owns, possesses or controls on the specified date, any specified goods, the market
price of which exceeds fifiteen thousand rupees, shall within seven days from the date, deliver to the
customs officer an intimation containing the particulars of the place where such goods are kept or
stored within the specified area. Under sub-section (2) of Section 11J any person who acquires after
the specified date, any specified goods
(i) the market price of which, or
(ii) the market price of which together with the market price of any specified goods of the
same class or description, if any, owned, possessed or controlled by him on the date of
acquisition,
exceeds fifteen thousand rupees shall, before making such acquisition deliver to the proper officer an
intimation containing the particulars of the place where such goods are proposed to be kept or stored
after such acqusition.
Under Sub-section (3) where any person intends to shift any specified goods to any place other
than the intimated place, he shall, before shifiting the goods, deliver to the customs officer an
intimation containing the particulars of the place to which such goods are proposed to be shifted.
Transport of specified goods to be covered by vouchers (Section 11K)

1) No specified goods shall be transported from, into or within any specified area or loaded on
any animal or conveyance in such area, unless they are accompanied by a transport voucher
(in such form and containing such particulars as may be specified by rules made in this
behalf) prepared by the person owning, possessing, controlling or selling such goods.
Provided that no transport voucher shall be necessary for the transport, within a village, town
or city, of any specified goods the market price of which, on the date of transport, does not
exceed one thousand rupees.
2) Notwithstanding anything contained in sub-section (1), where the Central Government, after
considering the nature of any specified goods, the time, mode, route and the market price of the
goods intended to be transported, the purpose of the transportation and the vulnerability of the
specified area with regard to the illegal export of such goods, is satisfied that it is expedient in
the public interest so to do, it may, -
(i) by notification in the Official Gazette, specify goods of such class or description and of a
market price exceeding such sum as that Government may notify; and different sums in
relation to the specified goods of the same class or descriptions, may be notified for the
same specified area or for different specified areas, and
(ii) direct that no person shall transport any goods so specified unless the transport voucher in
relation to those goods has been countersigned by the proper officer.
Obligation to maintain Accounts of Specified Goods. (Section 11L)

Under Sub-section (1) of Section 11L every person who after the specified date owns, possesses or
controls, within a specified area any specified goods of a market price exceeding fifteen thousand
rupees shall maintain a true and complete account of such goods.
Steps to be taken by person selling or transferring any specified goods (Sec. 11M)
Under this Section wherever a person sells or transfers otherwise, any specified goods, he shall on his
copy of the sale or transfer voucher obtain the signature and full postal address of the person to whom
such sale or transfer is made. This step, however, is not necessary where the payment for goods is
received by cheque. The person selling the goods shall satisfy himself as to the identity of the
purchaser or transferee. This is due to the fact that if the purchaser or transferee is not traceable
readily or is a fictitious person, the customs officer may presume, unless the contrary is proved, that
such goods have been illegally exported.

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Chapter III
Classification of goods, Applicability of Harmonised System of Nomenclature
Classification of Goods
Classification of Goods for the purposes of customs duties as per Customs Tariff Act 1975. Customs
Tariff Act 1975 is based on Harmonised System of Nomenclature (HSN). Schedule contained in
Customs Tariff Act is based on Harmonised Commodity Description and Coding System w.e.f 28 th
February 1986. On the same day Central Excise Tariff Act 1986 also came into force. Same HSN
based classification was applied in case of Central Excise. This is also now followed under Goods and
Service Tax which came into effect on 1st July 2017.
Though Customs Tariff Act is based on HSN, it is not copy of HSN. Many changes have been made
to suit the requirements of Customs as well as Central Excise/GST.
The schedule attached to Customs Tariff Act is divided into four columns, namely Heading number,
Sub-heading number, Description of Goods and Rate of Duty. The Sections, Chapters and sub-
chapters are provided for ease of reference. Classification shall be determined according to the
heading and any relative Section or Chapter Notes.
1) Heading, in respect of goods, means a description in list of tariff provisions accompanied by a
four-digit number and includes all sub-headings of tariff items, the first four digits of which
correspond to that number.
2) Sub-heading, in respect of goods, means a description in the list of tariff provisions
accompanied by a six-digit number and includes all tariff items the first six-digits of which
correspond to that number.
3) Tariff item means a description of goods in the list of tariff provisions accompanying eight-
digit number and the rate of customs duty.
Further, any reference to a heading to an article shall be taken to include a reference to that article
incomplete or unfinished, provided that, as presented, the incomplete or unfinished article has the
essential character or complete or finished article. The same may be unassembled or disassembled.
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 of a given material or substance shall be taken to include a reference to goods consisting wholly
or partly of such material or substance.
When any goods are prima facie, classifiable under two or more headings, classification shall be
effected as follows.
a) The heading which provided the most specific description shall be preferred to heading
providing a more general description. However, when two or more headings each refer to part
only of the materials or substances contained in mixed r composite goods or to part only of
the items in a set up for retail sale, those headings are to be regarded as equally specific in
relation to those goods, even if one of them gives a more complete or precise description of
the goods.
b) Mixtures, composite goods consisting of different materials or made up of different
components and goods put up in sets for retail sale, which cannot be classified by reference to
(a) above, shall be classified as if they consisted of the material or component which gives
them their essential character, in so far as this criterion is applicable.
c) When goods cannot be classified with reference to (a) or (b) above, they shall be classified
under the heading which occurs last in numerical order among those which equally merit
consideration.

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d) When goods cannot be classified in accordance with the above rules shall be classified under
the heading appropriate to the goods to which they are most akin.
e) Camera cases, musical instrument cases, gun cases, drawing instrument cases, neckless cases
and similar containers, specially shaped or fitted to contain a specific article or set of articles,
suitable for long-term use and presented with the article for which they are intended, shall be
classified with such article.
Applicability of Harmonised System of Nomenclature.

The terms Harmonised Commodity description and coding system is used with reference to
categorisation and classification of commodities for the purpose of fixation of rates of tariff for
levying of duties of excise (now GST) and Customs. It is basically a six-digit code suitable for
multipurpose nomenclature for levy of Customs and excise duties (now GST) and constitutes an
international economic language. This system was conceived and devised by the Customs Co-
operation Council (C.C.C.) headquarter in Brussels, Belgium. India is member of World Customs
Organisation (WCO) since 1971. It helps in standardisation of trade documentation and transmission
of data thus facilitating international trade negotiations. The Harmonised system facilitates the
computerisation of Customs classification and assessment data in ensuring uniformity in
classification.
India adopted this system in Custom as well as in Excise (now GST). India added two more digits to
original six-digit number to make the codes more precise, resulting into eight digit codes.

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Chapter IV
Levy of and exemption from custom duty, Dutiable goods,
Types of Customs Duty
Chapter V of the customs Act, 1962 deals with the provisions relating to levy of and exemption from
customs duty.
Dutiable goods: Section 12 of the Act states that the duties of customs shall be levied at such rates as
may be specified under the Customs Tariff Act, 1975 or any other law for the time being in force, on
the goods imported to or exported from, India.
‘Dutiable goods’ are defined u/s.2(14) as any goods which are chargeable to duty and on which duty
has not been paid. Once the duty is paid on the goods, they cease to be dutiable goods and become
duty paid goods. Section 2(15) defines ‘duty’ to mean duty of customs leviable under the Customs
Act.
Section 13 deals with the duty on pilfered goods. If any imported goods are pilfered after unloading
thereof and before the proper officer has made an order for clearance for home consumption or
deposit in a warehouse, the importer shall not be liable to pay duty leviable on such goods except
where such goods are restored to the importer after pilferage.
Types of Customs Duty

a) Basic Customs Duty [Sec.12 of Customs Act and Sec.2 of Customs Tariff Act]
Basic Customs Duty as the name suggests is the primary duty of Customs which is charged at
such rates as may be specified under the Customs Tariff Act 1975. Customs Tariff Act 1975
comprises two schedules, First Schedule enlists the goods liable to import duty and Second
schedule enlists the goods liable to export duty.
b) Additional Duty of Customs and Special Additional Duty of Customs (now subsumed under
GST and replaced by IGST)
Before the introduction of GST, imports were subject to further duties in the nature of additional
duty and special additional duty. Additional duty was charged u/s.3(1) and 3(3) at the rates at
which central excise duty would have been charged on the like goods if were produced or
manufactured in India. The same was known in common parlance as Countervailing duty.
For the purposes of charging such additional duty the value would be value as per provisions of
Sec.14(1) or (2) plus basic customs duty.
Special additional duty was charged u/s.3(5) at the rates at which Sales Tax or Value Added Tax
on the sale, purchase or transportation in India on like goods (now subsumed under GST and
replaced by IGST). The IGST component will be available as input tax credit under GST.
For the purposes of charging such additional duty the value would be value as per provisions of
Sec.14(1) or (2) plus basic customs duty, plus CVD u/s.3(1) and 3(3), plus Education Cess and
Secondary and Higher Education Cess.
After the introduction of GST w.e.f. 01.07.2017 now there are very products subject to
Additional Duty and Special Additional Duty.
c) IGST (Integrated Goods and Service Tax)
Till 30.06.2017 (before the introduction of GST), additional duty at the rate of excise duty and
Special additional duty at the rate of VAT was charged on goods. However, after the introduction
of GST both Excise duty and VAT were removed and subsumed under GST.
Accordingly, any article being imported into India will be liable to IGST (Integrated Goods and
Service Tax) at such rate as is leviable u/s.5 of IGST Act 2017 on alike article on its supply in
India. In other words, like earlier excise duty (being on manufacture in India) and VAT (being on

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sales in India) were charged on imported goods indirectly, now IGST is charged on such imported
goods though GST is on supply in India.
d) Protective Duties
Secs.6 and 7 of Customs Tariff Act 1975 deal with Protective duties. Customs duties can be
bifurcated mainly into two categories, namely a) Revenue duties and b) Protective duties.
Such protective duties are charged with an intension to protect indigenous manufacturers. If cheap
imported articles flood the market will make indigenous manufacturers lose their market and
incur losses. So to safeguard their interests such protective duties are charged on imported goods.
e) Countervailing duty on subsidies goods u/s.9
If a country or territory pays any subsidy (directly or indirectly) to its exporters for exporting
goods to India, Central Government can impose Countervailing duty up to the amount of such
subsidy u/s.9 of Customs Tariff Act. If the amount of subsidy cannot be ascertained, provisional
duty can be collected and after final determination, difference may be refunded. No education
cess and Secondary and Higher Education Cess would be payable on such countervailing duty.
f) Anti-dumping Duty on dumped articles
Often, large manufacturers abroad may export goods at very low prices compared to prices
normally prevalent in export market. Such dumping may be with intention to cripple domestic
industry or to dispose of the excess stock. This activity is called as dumping and is an unfair
trade practice. In order, to avoid such dumping and to protect domestic industry, Central
Government can impose anti- dumping duty u/s.9A of Customs Tariff Act. Such anti-dumping
duty can be levied only if there is an Indian industry producing like articles.
g) Education cess and Secondary and Higher Education Cess
On every tax or duty charged by Central Government there is a further 1% Education Cess plus
2% Secondary and Higher Education Cess charged on the amount of such tax or duty. Such cess
is charged only on Central Government taxes and accordingly applies for Income Tax, Central
Excise and Service Tax. However, now Central Excise and Service Tax have been replaced by
Goods and Service Tax which is not subject to Education Cess.
h) Social Welfare Charge
In Finance Act 2018 Social Welfare Charge has been introduced with effect from 02.02.2018 on
all goods specified in First Schedule to Customs Tariff Act 1975. The rate of such charge is 10%
of the aggregate customs duties charged u/s.12 of Customs Act (Basic Customs Duty) but not on
safeguard duty, countervailing duty, anti-dumping duty etc.
The incidence of various duties charged earlier and charged after GST are summarised hereunder.
Particulars Before GST After GST
Value of goods as per Sec.14(1) or 14(2) [Assumed] 1,000.00 1,000.00
Add: Basic Customs Duty (say @ 10%) 100.00 100.00
Total 1,100.00 1,100.00
Add: IGST (say @ 18%) [18% of 1,100] - 198.00
Add: Social Welfare Charge (say @ 10% on Basic Customs 10.00
Duty)
Add: CVD u/s.3(1) and 3(3) (say at 16%) [16% of 1,100] 176.00 -
Total 1,276.00 1,308.00
Add: Education Cess & Secondary & Higher Secondary 5.28 -
Education Cess (@ 3%) [3% of 176]
Total 1,281.28 1,308.00
Add: Special Additional Duty u/s.3(5) (say @ 4%) 51.25 -
Total 1,332.53 1,308.00

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Chapter V
Valuation under Customs Act 1962
Under erstwhile Central Excise, valuation rules were required to be applied only if valuation as per
Section 4 was not possible, while in Customs, valuation has to be as per valuation rules only.
Customs Valuation (Determination of Price for Imported Goods) Rules, 1988 came into effect from
18.08.1988. These rules were replaced by Customs Valuation (Determination of Value of Imported
Goods) Rules, 2007 which came into effect on 10th October 2007.
These rules are applicable only for imported goods and not for export goods. These rules are based on
GATT Valuation Code. Exports are governed by Customs Valuation (Determination of Value of
Export Goods) Rules, 2007 which also came into effect on 10th October 2007.
Valuation of goods for the purpose of assessment: Customs duty is payable as a percentage of
‘Assessable Value’ also called as ‘Customs Value’. Section 14 deals with the provisions regarding the
valuation of goods for the purpose of assessment. The value is either as determined under sub-section
14(1) [Assessable Value], or under sub-section 14(2) [Tariff Value].
Sub-Section (1) provides that when a duty of customs is chargeable on any goods by reference to their
value, the value of such goods shall be deemed to be the price at which such or like goods are
ordinarily sold, or offered for sale, for delivery at the time and place of importation or exportation, as
the case may be, in the course of international trade, where the seller and the buyer have no interest in
the business of each other and the price is the sole consideration for the sale or offer for sale.
Provided such price shall be calculated with reference to the rate of exchange as in force on the date
on which a bill of entry is presented u/s.46 or a shipping bill or bill of export, as the case may be, is
presented u/s.50.
The price referred to in sub-section (1) above, is determined in accordance with the rules made in this
behalf. The Central Government has made Customs Valuation (Determination of value of Imported
Goods) Rules, 2007.
U/s.14(2), Central Government, if is satisfied that it is necessary or expedient, is empowered to fix

and notify tariff values for any class of imported goods or export goods. This may be done with
reference to the trend in the value of such or like goods. Where such tariff values are fixed duty is
payable with reference to such values. CBI&C is delegated with these powers and accordingly can
notify tariff values. CBI&C should consider trend of value of such or like goods while fixing tariff
value.
Section 14(3) provides that for the purpose of valuation of goods –
a) “rate of exchange” means the rate of exchange –
(i) determined by the Central Government, or
(ii) ascertained in such manner as the Central Government may direct
for the conversion of Indian currency into foreign currency or foreign currency into Indian
currency.
b) “Foreign currency” and “Indian currency” have the meaning respectively assigned to them in the
Foreign Exchange Regulation Act, 1973.
The terms defined under the Foreign Exchange Management Act, 1999 which replaced FERA are as
under.
Currency Sec.2(h): Currency includes all currency notes, postal notes, postal orders, money orders,
cheques, drafts, travellers cheques, letters of credit, bill of exchange and promissory notes, credit
cards or such other similar instruments, as may be notified by Reserve Bank of India.

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Indian Currency Sec.2(q): Indian currency means which is expressed or drawn in Indian rupees, but
does not include special bank notes and special one rupee notes issued under Sec.28A of the Reserve
Bank of India Act 1934.
Foreign Currency Sec.2(n): Foreign currency means currency other than Indian currency.
Assessable Value: The determination of value u/s.14(1), is similar to the valuation for the purposes of
Excise duty. The Section provides for following criteria for deciding the value such as –
(i) Price at which such goods are ordinarily sold or offered for sale: The price at which ‘such’ or
‘like’ goods are sold is relevant. The price at which the goods under consideration are sold is not
relevant. If the buyer has incurred some expenditure in connection with the goods under sale,
selling price of the goods may be lower. Cost of such expenditure will be added to the price
under Rule 9.
Goods should be ordinarily sold at that price. If the buyer is able to get those goods at a
price lower than available to the other buyers, due to some reason, then price payable is not the
price at which goods are ordinarily sold. Accordingly, an adjustment in price would be
necessary.
Price offered for sale (through price list, quotation etc.) also can be considered, even though
there is no sale at that price.
(ii) Price for delivery at the time and place of importation or exportation: The price ruling at the time
of delivery is important. The provision is similar to the provision under the Excise Act. All the
expenses up to destination port, including freight, transit insurance, unloading and handling
charges are also required to be included to calculate the value at the place of importation.
(iii) Price should be in the course of international trade: The price offered for sale in international
market and not the domestic market is relevant.
(iv) Seller and Buyer should have no interest in the business of each other: The provision is similar to
the provision under the Excise Act. The definition of “relative” is much wider as compared to
what we understand as relative in common parlance.
(v) Rate of exchange, as fixed by the Central Government, prevailing as on the date of presentation
of Bill of Entry, or date on which ‘entry inwards’ is granted, as the case may be, should be
considered. The bill of entry can be submitted even before the arrival of the ship. In such case,
date of the ‘entry inwards’ is to be considered. If the bill of entry is submitted after the arrival of
the ship, then the date of bill of entry is to be considered for the purpose of rate of exchange.
Section 15 deals with the provisions in relation to date for determination of rate of duty and tariff
valuation of imported goods. The provisions are as follows –
The rate of duty and tariff valuation shall be the rate and valuation in force –
(a) in the case of goods entered for home consumption u/s.46, on the date on which a bill of
entry in respect of such goods is presented under that section,
(b) in the case of goods cleared from a warehouse u/s.68, on the date on which the goods are
actually removed from the warehouse,
(c) in case on any other goods, on the date of payment of duty.
However, the importers can present the bill of entry even before the date of entry inwards of the
vessel or aircraft by which goods are imported. In such case, the bill of entry shall be deemed to have
been presented on the date of such entry inwards or the arrival, as the case may be.
The provisions of this section do not apply to baggage and goods imported by post. For them a
separate procedure is prescribed.
The provisions of the valuation rules for the purpose of determination of value u/s.14(1) are as
follows. These rules are based on GATT Valuation Code. These rules are applicable only to imported
goods and not to export goods. The valuation of goods under excise is done at transaction value and if
the transaction value cannot be taken as the value then only the valuation rules come into picture.
However, in case of customs duty, valuation is necessarily done as per valuation rules. The rules are
subject to Sec.14(1), therefore provisions of the section have an overriding effect over valuation rules.

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Customs Valuation (Determination of Value of Imported Goods) Rules, 2007
Notification No. 94/2007 - Customs (N.T.)

1. Short title, commencement and application: -
(1) These rules may be called the Customs Valuation (Determination of Value of Imported Goods)
Rules, 2007.
(2) They shall come into force on the 10th day of October, 2007.
(3) They shall apply to imported goods.
2. Definitions: -
(1) In these rules, unless the context otherwise requires, -
(a) "computed value" means the value of imported goods determined in accordance with rule 8.
(b) "deductive value" means the value determined in accordance with rule 7.
(c) "goods of the same class or kind", means imported goods that are within a group or range of
imported goods produced by a particular industry or industrial sector and includes identical goods or
similar goods;
(d) "identical goods" means imported goods -
(i) which are same in all respects, including physical characteristics, quality and reputation as
the goods being valued except for minor differences in appearance that do not affect the value
of the goods;
(ii) produced in the country in which the goods being valued were produced; and
(iii) produced by the same person who produced the goods, or where no such goods are
available, goods produced by a different person,
but shall not include imported goods where engineering, development work, art work, design
work, plan or sketch undertaken in India were completed directly or indirectly by the buyer on
these imported goods free of charge or at a reduced cost for use in connection with the production
and sale for export of these imported goods;
(e) "produced" includes grown, manufactured and mined
(f) "similar goods" means imported goods -
(i) 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;
(ii) produced in the country in which the goods being valued were produced; and
(iii) produced by the same person who produced the goods being valued, or where no such
goods are available, goods produced by a different person,
but shall not include imported goods where engineering, development work, art work, design
work, plan or sketch undertaken in India were completed directly or indirectly by the buyer on
these imported goods free of charge or at a reduced cost for use in connection with the
production and sale for export of these imported goods;
(g) "transaction value" means the value referred to in sub-section (1) of section 14 of the Customs
Act, 1962;
For the purposes of the Customs Tariff Act, 1975 (51 of 1975), or any other law for the time being in
force, the value of the imported goods and export goods shall be the transaction value of such goods,
that is to say, the price actually paid or payable for the goods when sold for export to India for
delivery at the time and place of importation, or as the case may be, for export from India for delivery
at the time and place of exportation, where the buyer and seller of the goods are not related and price
is the sole consideration for the sale subject to such other conditions as may be specified in the rules
made in this behalf:

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Provided that such transaction value in the case of imported goods shall include, in addition
to the price as aforesaid, any amount paid or payable for costs and services, including commissions
and brokerage, engineering, design work, royalties and licence fees, costs of transportation to the
place of importation, insurance, loading, unloading and handling charges to the extent and in the
manner specified in the rules made in this behalf:
Provided further that the rules made in this behalf may provide for-
(i) the circumstances in which the buyer and the seller shall be deemed to be related;
(ii) the manner of determination of value in respect of goods when there is no sale, or the buyer and
the seller are related, or price is not the sole consideration for the sale or in any other case;
(iii) the manner of acceptance or rejection of value declared by the importer or exporter, as the case
may be, where the proper officer has reason to doubt the truth or accuracy of such value, and
determination of value for the purposes of this section:
Provided also that such price shall be calculated with reference to the rate of exchange as in force on
the date on which a bill of entry is presented under section 46, or a shipping bill of export, as the case
may be, is presented under section 50.
(2) For the purpose of these rules, 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.
Explanation II. - 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, if they fall within the criteria of this sub-rule.
3. Determination of the method of valuation-

(1) Subject to rule 12, the value of imported goods shall be the transaction value adjusted in
accordance with provisions of rule 10;
(2) Value of imported goods under sub-rule (1) shall be accepted:
Provided that -
a) there are no restrictions as to the disposition or use of the goods by the buyer other than
restrictions which -
(i) are imposed or required by law or by the public authorities in India; or
(ii) limit the geographical area in which the goods may be resold; or
(iii) do not substantially affect the value of the goods;
b) 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;
c) no part of the proceeds of any subsequent resale, disposal or use of the goods by the buyer
will accrue directly or indirectly to the seller, unless an appropriate adjustment can be made in
accordance with the provisions of rule 10 of these rules; and
d) the buyer and seller are not related, or where the buyer and seller are related, that transaction
value is acceptable for customs purposes under the provisions of sub-rule (3) below.
(3) (a) 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 indicate that the relationship did
not influence the price.

22
(b) In a sale between related persons, the transaction value shall be accepted, whenever 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.
(i) the transaction value of identical goods, or of similar goods, in sales to unrelated buyers
in India;
(ii) the deductive value for identical goods or similar goods;
(iii) the computed value for identical goods or similar goods:
Provided that in applying the values used for comparison, due account shall be taken of
demonstrated difference in commercial levels, quantity levels, adjustments in accordance with
the provisions of rule 10 and cost incurred by the seller in sales in which he and the buyer are
not related;
(c) substitute values shall not be established under the provisions of clause (b) of this sub-rule.
(4) if the value cannot be determined under the provisions of sub-rule (1), the value shall be
determined by proceeding sequentially through rule 4 to 9.
4. Transaction value of identical goods. -

(1)
(a) Subject to the provisions of rule 3, the value of imported goods shall be the transaction value
of identical goods sold for export to India and imported at or about the same time as the goods
being valued;
Provided that such transaction value shall not be the value of the goods provisionally assessed
under section 18 of the Customs Act, 1962.
(b) In applying this rule, the transaction value of identical goods in a sale at the same commercial
level and in substantially the same quantity as the goods being valued shall be used to
determine the value of imported goods.
(c) Where no sale referred to in clause (b) of sub-rule (1), is found, the transaction value of
identical goods sold at a different commercial level or in different quantities or both, adjusted
to take account of the difference attributable to commercial level or to the quantity or both,
shall be used, provided that such adjustments shall be made on the basis of demonstrated
evidence which clearly establishes the reasonableness and accuracy of the adjustments,
whether such adjustment leads to an increase or decrease in the value.
(2) Where the costs and charges referred to in sub-rule (2) of rule 10 of these rules are included in the
transaction value of identical goods, an adjustment shall be made, if there are significant
differences in such costs and charges between the goods being valued and the identical goods in
question arising from differences in distances and means of transport.
(3) In applying this rule, if more than one transaction value of identical goods is found, the lowest
such value shall be used to determine the value of imported goods.
5. Transaction value of similar goods.-

(1) Subject to the provisions of rule 3, the value of imported goods shall be the transaction value of
similar goods sold for export to India and imported at or about the same time as the goods being
valued:
Provided that such transaction value shall not be the value of the goods provisionally assessed
(2) The provisions of clauses (b) and (c) of sub-rule (1), sub-rule (2) and sub-rule (3), of rule 4 shall,
mutatis mutandis, also apply in respect of similar goods.
6. Determination of value where value cannot be determined under rules 3, 4 and 5: -

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.
Provided that at the request of the importer, and with the approval of the proper officer, the order
of application of rules 7 and 8 shall be reversed.

23
7. Deductive value: -
(1) Subject to the provisions of rule 3, if the goods being valued or identical or similar imported
goods are sold in India, in the condition as imported at or about the time at which the declaration
for determination of value is presented, 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 the greatest
aggregate quantity to persons who are not related to the sellers in India, subject to the following
deductions:-
(i) either the commission usually paid or agreed to be paid or the additions usually made for
profits and general expenses in connection with sales in India of imported goods of the
same class or kind;
(ii) the usual costs of transport and insurance and associated costs incurred within India;
(iii) the customs duties and other taxes payable in India by reason of importation or sale of the
goods.
(2) If neither the imported goods nor identical nor similar imported goods are sold at or about the
same time of importation of the goods being valued, the value of imported goods shall, subject
otherwise to the provisions of sub-rule (1), be based on the unit price at which the imported goods
or identical or similar imported goods are sold in India, at the earliest date after importation but
before the expiry of ninety days after such importation.
(3) (a) If neither the imported goods nor identical nor similar imported goods are sold in India in the
condition as imported, then, the value shall be based on the unit price at which the imported
goods, after further processing, are sold in the greatest aggregate quantity to persons who are not
related to the seller in India.
(b) In such determination, due allowance shall be made for the value added by processing and the
deductions provided for in items (i) to (iii) of sub-rule (1).
8. Computed value: -
Subject to the provisions of rule 3, the value of imported goods shall be based on a computed value,
which shall consist of the sum of -
(a) the cost or value of materials and fabrication or other processing employed in producing the
imported goods;
(b) 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;
(c) the cost or value of all other expenses under sub-rule (2) of rule 10.
9. Residual method: -
(1) Subject to the provisions of rule 3, where the value of imported goods cannot be determined under
the provisions of any of the preceding rules, the value shall be determined using reasonable means
consistent with the principles and general provisions of these rules and on the basis of data
available in India;
Provided that the value so determined shall not exceed the price at which such or like goods are
ordinarily sold or offered for sale for delivery at the time and place of importation in the course of
international trade, when the seller or buyer has no interest in the business of other and price is the
sole consideration for the sale or offer for sale.
(2) No value shall be determined under the provisions of this rule on the basis of -
(i) the selling price in India of the goods produced in India;
(ii) a system which provides for the acceptance for customs purposes of the highest of the two
alternative values;
(iii) the price of the goods on the domestic market of the country of exportation;
(iv) 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;
(v) the price of the goods for the export to a country other than India;
(vi) minimum customs values; or
(vii) arbitrary or fictitious values.

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10.Cost and services: -

(1) In determining the transaction value, there shall be added to the price actually paid or payable for
the imported goods, -
(a) the following to the extent they are incurred by the buyer but are not included in the price
actually paid or payable for the imported goods, namely: -
(i) commissions and brokerage, except buying commissions;
(ii) the cost of containers which are treated as being one for customs purposes with the
goods in question;
(iii) the cost of packing whether for labour or materials;
(b) The value, apportioned as appropriate, of the following goods and services where supplied
directly or indirectly by the buyer free of charge or at reduced cost for use in connection with
the production and sale for export of imported goods, to the extent that such value has not
been included in the price actually paid or payable, namely: -
(i) materials, components, parts and similar items incorporated in the imported goods;
(ii) tools, dies, moulds and similar items used in the production of the Imported goods;
(iii) materials consumed in the production of the imported goods;
(iv) engineering, development, art work, design work, and plans and sketches undertaken
elsewhere than in India and necessary for the production of the imported goods;
(c) royalties and licence fees related to the imported goods that the buyer is required to pay,
directly or indirectly, as a condition of the sale of the goods being valued, to the extent that
such royalties and fees are not included in the price actually paid or payable;
(d) The value of any part of the proceeds of any subsequent resale, disposal or use of the
imported goods that accrues, directly or indirectly, to the seller;
(e) all other payments actually made or to be made as a condition of sale of the imported goods,
by the buyer to the seller, or by the buyer to a third party to satisfy an obligation of the seller
to the extent that such payments are not included in the price actually paid or payable.
Explanation: - Where the royalty, licence fee or any other payment for a process, whether
patented or otherwise, is includible referred to in clauses (c) and (e), such charges shall be added
to the price actually paid or payable for the imported goods, notwithstanding the fact that such
goods may be subjected to the said process after importation of such goods.
(2) For the purposes of sub-section (1) of section 14 of the Customs Act, 1962 (52 of 1962) and these
rules, the value of the imported goods shall be the value of such goods, for delivery at the time
and place of importation and shall include -
(a) the cost of transport of the imported goods to the place of importation;
(b) loading, unloading and handling charges associated with the delivery of the imported
goods at the place of importation; and
(c) the cost of insurance.
Provided that -
(i) where the cost of transport referred to in clause (a) is not ascertainable, such cost
shall be twenty per cent of the free on board value of the goods;
(ii) the charges referred to in clause (b) shall be one per cent of the free on board value
of the goods plus the cost of transport referred to in clause (a) plus the cost of
insurance referred to in clause (c); [However, w.e.f. 26/09/2017 such landing
charges are not includible]
(iii) where the cost referred to in clause (c) is not ascertainable, such cost shall be
1.125% of free on board value of the goods;
Provided further that in the case of goods imported by air, where the cost referred to in
clause (a) is ascertainable, such cost shall not exceed twenty per cent of free on board value
of the goods:
Provided also that where the free on board value of the goods is not ascertainable, the costs
referred to in clause (a) shall be twenty per cent of the free on board value of the goods plus
cost of insurance for clause (i) above and the cost referred to in clause (c) shall be 1.125% of
the free on board value of the goods plus cost of transport for clause (iii).
Provided also that in case of goods imported by sea stuffed in a container for clearance at an
Inland Container Depot or Container Freight Station, the cost of freight incurred in the

25
movement of container from the port of entry to the Inland Container Depot or Container
Freight Station shall not be included in the cost of transport referred to in clause (a).
Explanation- The cost of transport of the imported goods referred to in clause (a)
includes the ship demurrage charges on charted vessels, lighterage or barge charges.
(3) Additions to the price actually paid or payable shall be made under this rule on the basis of
objective and quantifiable data.
(4) No addition shall be made to the price actually paid or payable in determining the value of the
imported goods except as provided for in this rule.
11. Declaration by the importer

(1) The importer or his agent shall furnish -
(a) a declaration disclosing full and accurate details relating to the value of imported goods;
and
(b) any other statement, information or document including an invoice of the manufacturer or
producer of the imported goods where the goods are imported from or through a person
other than the manufacturer or producer, as considered necessary by the proper officer for
determination of the value of imported goods under these rules.
(2) Nothing contained in these rules shall be construed as restricting or calling into question the
right of the proper officer of customs to satisfy himself as to the truth or accuracy of any
statement, information, document or declaration presented for valuation purposes.
(3) The provisions of the Customs Act, 1962 (52 of 1962) relating to confiscation, penalty and
prosecution shall apply to cases where wrong declaration, information, statement or
documents are furnished under these rules.
12. Rejection of declared value

(1) When the proper officer has reason to doubt the truth or accuracy of the value declared in
relation to any imported goods, he may ask the importer of such goods to furnish further
information including documents or other evidence and if, after receiving such further
information, or in the absence of a response of such importer, the proper officer still has
reasonable doubt about the truth or accuracy of the value so declared, it shall be deemed that
the transaction value of such imported goods cannot be determined under the provisions of
sub-rule (1) of rule 3.
(2) 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 under sub-rule (1).
Explanation-(1) For the removal of doubts, it is hereby declared that: -
(i) This rule by itself does not provide a method for determination of value, it provides a
mechanism and procedure for rejection of declared value in cases where there is
reasonable doubt that the declared value does not represent the transaction value; where
the declared value is rejected, the value shall be determined by proceeding sequentially
in accordance with rules 4 to 9.
(ii) The declared value shall be accepted where the proper officer is satisfied about the truth
and accuracy of the declared value after the said enquiry in consultation with the
importers.
(iii) The proper officer shall have the powers to raise doubts on the truth or accuracy of the
declared value based on certain reasons which may include -
(a) 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;
(b) the sale involves an abnormal discount or abnormal reduction from the ordinary
competitive price;
(c) the sale involves special discounts limited to exclusive agents;
(d) the mis-declaration of goods in parameters such as description, quality, quantity,
country of origin, year of manufacture or production;

26
(e) the non-declaration of parameters such as brand, grade, specifications that have
relevance to value;
(f) the fraudulent or manipulated documents.
13. Interpretative notes

The interpretative notes specified in the Schedule to these rules shall apply for the interpretation of
these rules.
The Schedule
(See rule 13)
Interpretative Notes
General Note:
Use of generally accepted accounting principles
1. "Generally accepted accounting principles" refers to the recognized consensus or substantial
authoritative support within a country at a particular time as to which economic resources and
obligations shall be recorded as assets and liabilities, which changes in assets and liabilities should be
recorded, how the assets and liabilities and changes in them should be measured, what information
should be disclosed and how it should be disclosed and which financial statements should be
prepared. These standards may be broad guidelines of general application as well as detailed practices
and procedures.
Notes to rules
Note to rule 2
In rule 2(2)(v), for the purposes of these rules, one person shall be deemed to control another when
the former is legally or operationally in a position to exercise restraint or direction over the latter.
Note to rule 3
Price actually paid or payable
The price actually paid or payable is the total payment made or to be made by the buyer to or for the
benefit of the seller for the imported goods. The payment need not necessarily take the form of a
transfer of money. Payment may be made by way of letters of credit or negotiable instruments.
Payment may be made directly or indirectly. An example of an indirect payment would be the
settlement by the buyer, whether in whole or in part, of a debt owed by the seller.
Activities undertaken by the buyer on his own account, other than those for which an adjustment is
provided in rule 10, are not considered to be an indirect payment to the seller, even though they might
be regarded as of benefit to the seller. The costs of such activities shall not, therefore, be added to the
price actually paid or payable in determining the value of imported goods.
The value of imported goods shall not include the following charges or costs, provided that they are
distinguished from the price actually paid or payable for the imported goods:
(a) Charges for construction, erection, assembly, maintenance or technical assistance, undertaken
after importation on imported goods such as industrial plant, machinery or equipment;
(b) The cost of transport after importation;
(c) Duties and taxes in India.
The price actually paid or payable refers to the price for the imported goods. Thus the flow of
dividends or other payments from the buyer to the seller that do not relate to the imported goods are
not part of the customs value.
Rule 3(2)(a) (iii)
Among restrictions which would not render a price actually paid or payable unacceptable are
restrictions which do not substantially affect the value of the goods. An example of such restrictions
would be the case where a seller requires a buyer of automobiles not to sell or exhibit them prior to a
fixed date which represents the beginning of a model year.
Rule 3(2)(b)
If the sale or price is subject to some condition or consideration for which a value cannot be
determined with respect to the goods being valued, the transaction value shall not be acceptable for
customs purposes. Some examples of this include-
(a) The seller establishes the price of the imported goods on condition that the buyer will also
buy other goods in specified quantities;

27
(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;
(c) the price is established on the basis of a form of payment extraneous to the imported goods,
such as where the imported goods are semi-finished goods which have been provided by the
seller on condition that he will receive a specified quantity of the finished goods.
However, conditions or considerations relating to the production or marketing of the imported goods
shall not result in rejection of the transaction value. For example, the fact that the buyer furnishes the
seller with engineering and plans undertaken in India shall not result in rejection of the transaction
value for the purposes of rule 3. Likewise, if the buyer undertakes on his own account, even though by
agreement with the seller, activities relating to the marketing of the imported goods, the value of these
activities is not part of the value of imported goods nor shall such activities result in rejection of the
transaction value.
Rule 3(3)
1. Rule 3(3)(a) and rule 3(3)(b) provide different means of establishing the acceptability of a
transaction value.
2. Rule 3(3)(a) provides that where the buyer and the seller are related, the circumstances
surrounding the sale shall be examined and the transaction value shall be accepted as the
value of imported goods provided that the relationship did not influence the price. It is not
intended that there should be an examination of the circumstances in all cases where the buyer
and the seller are related. Such examination will only be required where there are doubts
about the acceptability of the price. Where the proper officer of customs has no doubts about
the acceptability of the price, it should be accepted without requesting further information
from the importer. For example, the proper officer of customs may have previously examined
the relationship, or he may already have detailed information concerning the buyer and the
seller, and may already be satisfied from such examination or information that the
relationship did not influence the price.
3. Where the proper officer of customs is unable to accept the transaction value without further
inquiry, he should give the importer an opportunity to supply such further detailed
information as may be necessary to enable him to examine the circumstances surrounding the
sale. In this context, the proper officer of customs should be prepared to examine relevant
aspects of the transaction, including the way in which the buyer and seller organize their
commercial relations and the way in which the price in question was arrived at, in order to
determine whether the relationship influenced the price. Where it can be shown that the buyer
and seller, although related under the provisions of rule 2(2), buy from and sell to each other
as if they were not related, this would demonstrate that the price had not been influenced by
the relationship. As an example of this, if the price had been settled in a manner consistent
with the normal pricing practices of the industry in question or with the way the seller settles
prices for sales to buyers who are not related to him, this would demonstrate that the price had
not been influenced by the relationship. As a further example, where it is shown that the price
is adequate to ensure recovery of all costs plus a profit which is representative of the firm’s
overall profit realized over a representative period of time (e.g. on an annual basis) in sales of
goods of the same class or kind, this would demonstrate that the price had not been
influenced.
4. Rule 3(3)(b) provides an opportunity for the importer to demonstrate that the transaction
value closely approximates to a "test" value previously accepted by the proper officer of
customs and is therefore acceptable under the provisions of rule 3. Where a test under rule
3(3)(b) is met, it is not necessary to examine the question of influence under rule 3(3)(a). If
the proper officer of customs has already sufficient information to be satisfied, without further
detailed inquiries, that one of the tests provided in rule 3(3)(b) has been met, there is no
reason for him to require the importer to demonstrate that the test can be met. In rule 3(3)(b)
the term "unrelated buyers" means buyers who are not related to the seller in any particular
case.
Rule 3(3)(b)
A number of factors must be taken into consideration in determining whether one value "closely
approximates" to another value. These factors include the nature of the imported goods, the nature of

28
the industry itself, the season in which the goods are imported, and whether the difference in values is
commercially significant. Since these factors may vary from case to case, it would be impossible to
apply a uniform standard such as a fixed percentage, in each case. For example, a small difference in
value in a case involving one type of goods could be unacceptable while a large difference in a case
involving another type of goods might be acceptable in determining whether the transaction value
closely approximates to the "test" values set forth in rule 3(3)(b).
Notes to rule 4
1. In applying rule 4, the proper officer of customs shall, wherever possible, use a sale of
identical goods at the same commercial level and in substantially the same quantities as the
goods being valued. Where no such sale is found, a sale of identical goods that takes place
under any one of the following three conditions may be used:
(a) a sale at the same commercial level but in different quantities; or
(b) a sale at a different commercial level but in substantially the same quantities; or
(c) a sale at a different commercial level and in different quantities.
2. Having found a sale under any one of these three conditions adjustments will then be made, as
the case may be, for:
(a) quantity factors only;
(b) commercial level factors only; or
(c) both commercial level and quantity factors.
3. For the purposes of rule 4, the transaction value of identical imported goods means a value,
adjusted as provided for in rule 4(l)(b) and (c) and rule 4(2) which has already been accepted
under rule 3.
4. A condition for adjustment because of different commercial levels or different quantities is
that such adjustment, whether it leads to an increase or a decrease in the value, be made only
on the basis of demonstrated evidence that clearly establishes the reasonableness and
accuracy of the adjustment, e.g. valid price lists containing prices referring to different levels
or different quantities. As an example of this, if the imported goods being valued consist of a
shipment of 10 units and the only identical imported goods for which a transaction value
exists involved a sale of 500 units, and it is recognised that the seller grants quantity
discounts, the required adjustment may be accomplished by resorting to the seller’s price list
and using that price applicable to a sale of 10 units. This does not require that a sale had to
have been made in quantities of 10 as long as the price list has been established as being bona
fide through sales at other quantities. In the absence of such an objective measure, however,
the determination of a value under the provisions of rule 4 is not appropriate.
Note to rule 5
1. In applying rule 5, the proper officer of customs shall, wherever possible, use a sale of similar
goods at the same commercial level and in substantially the same quantities as the goods
being valued. For the purpose of rule 5, the transaction value of similar imported goods means
the value of imported goods, adjusted as provided for in rule 5(2) which has already been
accepted under rule 3.
2. All other provisions contained in note to rule 4 shall mutatis mutandis also apply in respect of
similar goods.
Note to rule 7
1. The term "unit/price at which goods are sold in the greatest aggregate quantity" means the
price at which the greatest number of units is sold in sales to persons who are not related to
the persons from whom they buy such goods at the first commercial level after importation at
which such sales take place.
2. As an example of this, goods are sold from a price list which grants favourable unit prices for
purchases made in larger quantities.
Sale quantity Unit price Number of sales Total quantity sold at each price
10 sales of 5 units,
1-10 units 100 65
5 sales of 3 units
11-25 units 95 5 sales of 11 units 55
Over 25 units 90 1 sale of 30 units, 80

29
1 sale of 50 units
The greatest number of units sold at a price is 80, therefore, the unit price in the greatest aggregate
quantity is 90.
3. As another example of this, two sales occur. In the first sale 500 units are sold at a price of 95
currency units each. In the second sale 400 units are sold at a price of 90 currency units each.
in this example, the greatest number of units sold at a particular price is 500, therefore, the
unit price in the greatest aggregate quantity is 95.
4. A third example would be the following situation where various quantities are sold at various
prices.
(a) Sales
Sale quantity Unit price
40 units 100
30 units 90
15 units 100
50 units 95
25 units 105
35 units 90
5 units 100
(b) Totals
Total quantity Unit price
sold
65 90
50 95
60 100
25 105
In this example, the greatest number of units sold at a particular price is 65, therefore, the unit
price in the greatest aggregate quantity is 90.
5. Any sale in India, as described in paragraph 1 above to a person who supplies directly or
indirectly free of charge or at reduced cost for use in connection with the production and sale
for export of the imported goods any of the elements specified in rule10(l)(b), should not be
taken into account in establishing the unit price for the purposes of rule 7.
6. It should be noted that "profit and general expenses" referred to in rule 7(1) should be taken
as a whole. The figure for the purposes of this deduction should be determined on the basis of
information supplied by or on behalf of the importer unless his figures are inconsistent with
those obtaining in sales in India, of imported goods of the same class or kind. Where the
importer’s figures are inconsistent with such figures, the amount for profit and general
expenses may be based upon relevant information other than that supplied by or on behalf of
the importer.
7. The "general expenses" include the direct and indirect costs of marketing the goods in
question.
8. Local taxes payable by reason of the sale of the goods for which a deduction is not made
under the provisions of rule 7(l)(iii) shall be deducted under the provisions of rule 7(l)(i).
9. In determining either the commissions or the usual profits and general expenses under the
provisions of rule 7(1), the question whether certain goods are "of the same class or kind" as
other goods must be determined on a case-by-case basis by reference to the circumstances
involved. Sales in India, of the narrowest group or range of imported goods of the same class
or kind, which includes the goods being valued, for which the necessary information can be
provided, should be examined. For the purposes of rule 7 goods of the same class or kind"
includes goods imported from the same country as the goods being valued as well as goods
imported from other countries.
10. For the purposes of rule 7(2) the "earliest date" shall be the date by which sales of the
imported goods or of identical or similar imported, goods are made in sufficient quantity to
establish the unit price.

30
11. Where the method in rule 7(3) is used, deductions made for the value added by further
processing shall be based on objective and quantifiable data relating to the cost of such work.
Accepted industry formulas, recipes, methods of construction, and other industry practices
would form the basis of the calculations.
12. It is recognized that the method of valuation provided for in rule 7(3) would normally not be
applicable when, as a result of the further processing, the imported goods lose their identity.
However, there can be instances where, although the identity of the imported goods is lost,
the value added by the processing can be determined accurately without unreasonable
difficulty. On the other hand, there can also be instances where the imported goods maintain
their identity but form such a minor element in the goods sold in the country of importation
that the use of this valuation method would be unjustified. In view of the above, each
situation of this type must be considered on a case-by-case basis.
Note to rule 8
1. As a general rule, value of imported goods is determined under these rules on the basis of
information readily available in India. In order to determine a computed value, however, it
may be necessary to examine the costs of producing the goods being valued and other
information which has to be obtained from outside India. Furthermore, in most cases, the
producer of the goods will be outside the jurisdiction of the proper officer. The use of the
computed value method will generally be limited to those cases where the buyer and seller are
related, and the producer is prepared to supply to the proper officer the necessary costings and
to provide facilities for any subsequent verification which may be necessary.
2. The "cost or value" referred to in clause (a) of rule 8 is to be determined on the basis of
information relating to the production of the goods being valued supplied by or on behalf of
the producer. It is to be based upon the commercial accounts of the producer, provided that
such accounts are consistent with the generally accepted accounting principles applied in the
country where the goods are produced.
3. The "cost or value" shall include the cost of elements specified in clauses (1)(a)(ii) and
(1)(a)(iii) of rule 10. It shall also include the value, apportioned as appropriate under the
provisions of the relevant note to rule 10, of any element specified in rule 10(l)(b) which has
been supplied directly or indirectly by the buyer for use in connection with the production of
the imported goods. The value of the elements specified in rule 10(l)(b)(iv) which are
undertaken in India shall be included only to the extent that such elements are charged to the
producer. It is to be understood that no cost or value of the elements referred to in this
paragraph shall be counted twice in determining the computed value.
4. The "amount for profit and general expenses" referred to in clause(b) of rule 8 is to be
determined on the basis of information supplied by or on behalf of the producer unless the
producer’s figures are inconsistent with those 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.
5. It should be noted in this context that the "amount for profit and general expenses" has to be
taken as a whole. It follows that if, in any particular case, producer's profit figure is low and
his general expenses are high, the producer's profit and general expenses taken together may
nevertheless be consistent with that usually reflected in sales of goods of the same class or
kind. Such a situation might occur, for example, if a product were being launched in India and
the producer accepted a nil or low profit to offset high general expenses associated with the
launch. Where the producer can demonstrate a low profit on his sales of the imported goods
because of particular commercial circumstances, his actual profit figures should be taken into
account provided that he has valid commercial reasons to justify them and his pricing policy
reflects usual pricing policies in the branch of industry concerned. Such a situation might
occur for example, where producers have been forced to lower prices temporarily because of
an unforeseeable drop in demand, or where they sell goods to complement a range of goods
being produced in India and accept a low profit to maintain competitivity. Where the
producer’s own figures for profit and general expenses are not consistent with those usually
reflected in sales of goods of the same class or kind as the goods being valued which are

31
made by producers in the country of exportation for export to India, the amount for profit and
general expenses may be based upon relevant information other than that supplied by or on
behalf of the producer of the goods.
6. The "general expenses" referred to in clause (b) of rule 8 covers the direct and indirect costs
of producing and selling the goods for export which are not included under clause (a) of rule
8.
7. Whether certain goods are "of the same class or kind" as other goods must be determined on a
case-by-case basis with reference to the circumstances involved. In determining the usual
profits and general expenses under the provisions of rule 8, sales for export to India of the
narrowest group or range of goods, which includes the goods being valued, for which the
necessary information can be provided, should be examined. For the purposes of rule 8
"goods of the same class or kind" must be from the same country as the goods being valued.
Note to rule 9
1. Value of imported goods determined under the provisions of rule 9 should to the greatest
extent possible, be based on previously determined customs values.
2. The methods of valuation to be employed under rule 9 may be those laid down in rules 3 to 8,
inclusive, but a reasonable flexibility in the application of such methods would be in
conformity with the aims and provisions of rule 9.
3. Some examples of reasonable flexibility are as follows:
(a) Identical goods. - The requirement that the identical goods should be imported at or about
the same time as the goods being valued could be flexibly interpreted; identical imported
goods produced in a country other than the country of exportation of the goods being
valued could be the basis for customs valuation; customs values of identical imported
goods already determined under the provisions of rules 7 and 8 could be used.
(b) Similar goods. - The requirement that the similar goods should be imported at or about
the same time as the goods being valued could be flexibly interpreted; similar imported
goods produced in a country other than the country of exportation of the goods being
valued could be the basis for customs valuation; customs values of similar imported
goods already determined under the provisions of rules 7 and 8 could be used.
(c) Deductive method. - The requirement that the goods shall have been sold in the
"condition as imported" in rule 7(1) could be flexibly interpreted; the ninety days
requirement could be administered flexibly.
Note to rule 10
In rule 10(l)(a)(i), 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.
Rule 10(l)(b)(ii)
1. There are two factors involved in the apportionment of the elements specified in rule
10(l)(b)(ii) to the imported goods - the value of the element itself and the way in which that
value is to be apportioned to the imported goods. The apportionment of these elements should
be made in a reasonable manner appropriate to the circumstances and in accordance with
generally accepted accounting principles.
2. Concerning the value of the element, if the importer acquires the element from a seller not
related to him at a given cost, the value of the element is that cost. If the element was
produced by the importer or by a person related to him, its value would be the cost of
producing it. If the element had been previously used by the importer, regardless of whether it
had been acquired or produced by such importer, the original cost of acquisition or production
would have to be adjusted downward to reflect its use in order to arrive at the value of the
element.
3. Once a value has been determined for the element it is necessary to apportion that value to the
imported goods. Various possibilities exist. For example, the value might be apportioned to
the first shipment if the importer wishes to pay duty on the entire value at one time. As
another example, the importer may request that the value be apportioned over the number of

32
units produced up to the time of the first shipment. As a further example, he may request that
the value be apportioned over the entire anticipated production where contracts or firm
commitments exist for that production. The method of apportionment used will depend upon
the documentation provided by the importer.
4. As an illustration of the above, an importer provides the producer with a mould to be used in
the production of the imported goods and contracts with him to buy 10000 units. By the time
of arrival of the first shipment of 1000 units, the producer has already produced 4,000 units.
The importer may request the proper officer of customs to apportion the value of the mould
over 1,000 units, 4,000 units or 10,000 units.
Rule 10(l)(b)(iv)
1. Additions for the elements specified in rule 10(l)(b)(iv) should be based on objective and
quantifiable data. In order to minimise the burden for both the importer and proper officer of
customs in determining the values to be added, data readily available in the buyer’s
commercial record system should be used in so far as possible.
2. For those elements supplied by the buyer which were purchased or leased by the buyer, the
addition would be the cost of the purchase or the lease. No addition shall be made for those
elements available in the public domain, other than the cost of obtaining copies of them.
3. The case with which it may be possible to calculate the values to be added will depend on a
particular firm’s structure and management practice, as well as its accounting methods.
4. For example, it is possible that a firm which imports a variety of products from several
countries maintains the records of its design centre outside the country of importation in such
a way as to show accurately the costs attributable to a given product. In such cases, a direct
adjustment may appropriately be made under the provisions of rule 10.
5. In another case, a firm may carry the cost of the design centre outside the country of
importation as a general overhead expense without allocation to specific products. In this
instance, an appropriate adjustment could be made under the provisions of rule 10 with
respect to the imported goods by apportioning total design centre costs over total production
benefiting from the design centre and adding such apportioned cost on a unit basis to imports.
6. Variations in the above circumstances will, of course, require different factors to be
considered in determining the proper method of allocation.
7. In cases where the production of the element in question involves a number of countries and
over a period of time, the adjustment should be limited to the value actually added to that
element outside the country of importation.
Rule 10(l)(c)
1. The royalties and licence fees referred to in rule 10(l)(c) may include among other things,
payments in respect to patents, trademarks and copyrights. However, the charges for the right
to reproduce the imported goods in the country of importation shall not be added to the price
actually paid or payable for the imported goods in determining the customs value.
2. Payments made by the buyer for the right to distribute or resell the imported goods shall not
be added to the price actually paid or payable for the imported goods if such payments are not
a condition of the sale for export to the country of importation of the imported goods.
Rule 10(3)
Where objective and quantifiable data do not exist with regard to the additions required to be made
under the provisions of rule 10, the transaction value cannot be determined under the provisions of
rule 3. As an illustration of this, a royalty is paid on the basis of the price in a sale in the importing
country of a litre of a particular product that was imported by the kilogram and made up into a
solution after importation. If the royalty is based partially on the imported goods and partially on other
factors, which have nothing to do with the imported goods (such as when the imported goods are
mixed with domestic ingredients and are no longer separately identifiable, or when the royalty cannot
be distinguished from special financial arrangements between the buyer and the seller), it would be
inappropriate to attempt to make an addition for the royalty. However, if the amount of this royalty is

33
based only on the imported goods and can be readily quantified, an addition to the price actually paid
or payable can be made.
Customs Valuation (Determination of Value of Export Goods) Rules, 2007
Notification No. 95/2007-Customs (N.T.)
1. Short title, commencement and application: -

(1) These rules may be called the Customs Valuation (Determination of Value of Export Goods)
Rules, 2007.
(2) They shall come into force on the 10th day of October, 2007.
(3) They shall apply to the export goods.
2. Definitions. -
(1) In these rules, unless the context otherwise requires, -
(a) "goods of like kind and quality" means export goods which are identical or similar in physical
characteristics, quality and reputation as the goods being valued, and perform the same functions or
are commercially interchangeable with the goods being valued, produced by the same person or a
different person; and
(b) "transaction value" means the value of export goods within the meaning of sub-section (1) of
section 14 of the Customs Act, 1962 (52 of 1962).
(2) For the purposes of these rules, 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.
Explanation II. - 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, if they fall within the criteria of this
sub-rule.
3. Determination of the method of valuation. -
(1) Subject to rule 8, the value of export goods shall be the 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.
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).

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(2) In determining the value of export goods under sub-rule (1), 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.
5. Computed value method: -
If the value cannot be determined under rule 4, it shall be based on a computed value, which shall
include the following-
(a) cost of production, manufacture or processing of export goods;
(b) charges, if any, for the design or brand;
(c) an amount towards profit.
6. Residual method: -
(1) Subject to the provisions of rule 3, where the value of the export goods cannot be determined
under the provisions of rules 4 and 5, the value shall be determined using reasonable means consistent
with the principles and general provisions of these rules provided that local market price of the export
goods may not be the only basis for determining the value of export goods.
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.
8. Rejection of declared value: -
(1) When the proper officer has reason to doubt the truth or accuracy of the value declared in relation
to any export goods, he may ask the exporter of such goods to furnish further information including
documents or other evidence and if, after receiving such further information, or in the absence of a
response of such exporter, the proper officer still has reasonable doubt about the truth or accuracy of
the value so declared, the transaction value shall be deemed to have not been determined in
accordance with sub-rule (1) of rule 3.
2) At the request of an exporter, the proper officer shall intimate the exporter in writing the ground
for doubting the truth or accuracy of the value declared in relation to the export goods by such
exporter and provide a reasonable opportunity of being heard, before taking a final decision under
sub-rule (1).
Explanation. - (1) For the removal of doubts, it is hereby declared that-
(i) This rule by itself does not provide a method for determination of value, it provides a
mechanism and procedure for rejection of declared value in cases where there is reasonable doubt that
the declared value does not represent the transaction value; where the declared value is rejected, the
value shall be determined by proceeding sequentially in accordance with rules 4 to 6.
(ii) The declared value shall be accepted where the proper officer is satisfied about the truth or
accuracy of the declared value after the said enquiry in consultation with the exporter.
(iii) The proper officer shall have the powers to raise doubts on the declared value based on certain
reasons which may include -
(a) the significant variation in value at which goods of like kind and quality exported at or about
the same time in comparable quantities in a comparable commercial transaction were assessed.
(b) the significantly higher value compared to the market value of goods of like kind and quality
at the time of export.
(c) the mis-declaration of goods in parameters such as description, quality, quantity, year of
manufacture or production.

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Chapter VI
Importation, exportation and transportation of goods
Procedure for clearance of imported goods

Procedure for clearance of export goods
Procedure for postal articles
Clearance of imported goods and export goods: When the goods are imported or are to be exported,
certain procedure is required to be followed. Chapter VII of the customs Act, 1962 deals with the
provisions relating to clearance of imported goods and export goods.
Before understanding the clearance of imported goods and export goods, first let us try to understand
the procedure required to be followed for import and export of goods.
IMPORT PROCEDURE
Some procedure is required to be followed at the time of importation of goods. The importers as well
as the carriers who bring the goods in India have to follow certain procedures as given below.
Procedure to be followed by carrier: The carrier carrying goods has to follow certain disciplines
and rules as follows.
1) Arrival at customs port/airport only: Section 29 provides that the person-in-charge of the vessel,
aircraft or vehicle entering India shall call or land at customs port or airport only.
2) Submit import manifest/report: The person-in-charge of the vessel, aircraft or vehicle, on arrival
at customs station, has to submit an Import Manifest/Report. In case of vessel or aircraft it is
called as import manifest and in case of vehicle it is called as import report. Such manifest/report
has to be submitted within 12 hours in case of aircraft or vehicle and within 24 hours in case of
vessel. Import manifest can be submitted even before the arrival of the vessel or aircraft.
The import manifest contains the following details –
- Details of cargo to be unloaded,
- Un-accompanied baggage,
- Goods to be transhipped [transferring goods from one ship to another] and
- Retention cargo.
3) Unloading of cargo: Unloading of cargo can be done only after getting permission from the
customs authorities, known as ‘Entry Inwards’. Such ‘Entry Inwards’ is given by the customs
authorities depending upon the berthing accommodation availability. If there is heavy rush at the
port, the shipping berth may not be available.
4) Goods to remain in custody of customs authorities till removal: The unloaded goods remain in
the custody of customs authorities till they are cleared. After goods are unloaded a tally sheet is
prepared by port trust authorities giving list of items unloaded. This list is a statutory record and
is taken as a proof of goods unloaded.
5) If there is any shortage of goods while unloading, the carrier shall be held responsible for the
same. The carrier is liable to pay penalty for such short landed goods up to twice the amount of
duty payable on the same.
Procedure to be followed by importer:

1) Bill of Entry: Importer of the goods has to submit the ‘Bill of Entry’ to the customs authorities.
The Bill of Entry can be of two types a) bill of entry for home consumption (white colour) and b)
bill of entry for warehousing (yellow colour).
Various details contained in Bill of Entry are as follows.
a) Importer’s name and address

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b) Importers code
c) Custom House Agent name, address and licence no.
d) Code of Custom House Agent
e) Vessel’s name
f) Rotation no. and date
g) Line number
h) Port of shipment
i) Country of origin
j) Country of consignment (if different from country of origin)
k) Bill of lading No. and date
l) No. and description of packages and marks and number of packages
m) Quantity of goods with unit code, weight, volume, number etc.
n) Description of goods
o) Customs tariff heading, exemption notification number, nature of duty etc.
p) Assessable value u/s.14 of Customs Act
q) Customs duty rate and amount
r) Central excise tariff and exemption notification number and date (for the purposes of CVD)
s) Value for purposes of Section 3 of Central Excise Act
t) Rate and amount of additional duty
u) Total duty payable
Noting: Bill of entry submitted by importer is cross-checked with import manifest submitted by
carrier. Bill of entry can be submitted up to 30 days before the expected date of arrival of vessel.
Duty is payable at the rate prevailing on the date on which ‘Entry Inwards’ is granted in case of
earlier submission of ‘Bill of Entry’. However, if the ‘Bill of Entry’ is submitted later, the date of
submission is relevant. Rate of exchange will be as prevalent on the date of submission of bill of
entry.
After the goods are unloaded these have to be cleared within stipulated time (usually three
working days). If these are not removed within the stipulated time, port trust/ airport authorities
charge heavy demurrage.
If the vessel does not arrive within 30 days, a fresh ‘Bill of Entry’ is required to be submitted and
the relevant dates will be calculated with reference to the fresh ‘Bill of Entry’.
There are three types of ‘bill of entry’. The goods can be cleared by the importer for home
consumption, or for warehousing. The warehoused goods may be cleared subsequently, as and
when required. Different forms of ‘bill of entry’ are used for such purposes.
2) Assessment of customs duty [Section 17]: There are various groups for different chapter
headings. Each group is headed by an Assistant Commissioner. Group consists of ‘Examiners’
and ‘Appraisers’.
Examiners carry out physical examination, quantitative checking etc. Selected packages are
opened and sample testing is done.
Appraiser has to
a) correctly classify goods,
b) decide the value for the purpose of customs duty,
c) find out rate of duty applicable as per exemption notification, if any,
d) verify that goods are not imported in violation of any law.
First and Second system of assessment: There are two systems of assessment. Section 17(2)
provides for assessment after examination of goods and Section 17(4) provides for assessment on
basis of documents, followed by inspection and testing goods.

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‘First appraisement system’ or ‘first check procedure’ is followed if the appraiser is not able to
make assessment on the basis of documents submitted and feels that inspection is necessary. In
this case, goods are examined first and then assessed.
‘Second appraisement system’ or ‘second check procedure’ is followed normally. In this case,
assessment is done on the basis of documents and then goods are examined.
Clearance of imported goods:

Imported goods would be cleared by the customs authorities on completion of the customs formalities
as mentioned above. In case of clearance for home consumption the goods would be cleared on
payment of appropriate duty. In case of goods cleared for warehousing the duty is payable at the time
of removing the goods from warehouse for home consumption. However, the importer will have to
execute a bond binding him to twice the amount of duty assessed on such goods u/s.59.
In case of goods cleared for warehousing, the duty is not payable immediately but only on subsequent
clearance for home consumption. However, the duty is payable at the rates prevailing at the time of
such clearance from warehouse.
EXPORT PROCEDURE
At the time of exports also certain procedure is required to be followed by the exporter as well as the
carrier. The procedure is similar to the import procedure but in reverse direction. The procedure is as
follows.
Exports are vital for our economy. Any stoppage in export consignment means loss of export orders to
the exporter and loss of foreign exchange to the country. Hence, it has been provided in the EXIM
policy that movement of export consignment will not be interrupted and no export consignment shall
be withheld for any reason whatsoever. In case of any doubt, customs authorities may ask for an
undertaking that the export is on sole responsibility of the exporter.
Procedure to be followed by the exporter:

1) Shipping bill: Exporter has to submit ‘Shipping bill’ for export by sea or air and ‘bill of export’
for export by road. Other documents to be submitted by the exporter are copies of packing list,
invoices, export contract, letter of credit etc.
Shipping bill submitted by the exporter can be in different forms according to the type of export.
Following are the various forms of shipping bills.
a) Shipping bill for export of goods under claim for duty drawback – Green colour
b) Shipping bill for export of dutiable goods – Yellow colour
c) Shipping bill for export of duty-free goods – White colour
d) Shipping bill for export of duty-free goods ex-bond – Pink colour (export from warehouse)
e) Shipping bill for export under DEPB scheme – blue colour.
Shipping bill contains various details such as name of the exporter, consignee, invoice number,
details of packing, description of goods, quantity, FOB value etc.
2) Declaration by exporter: Exporter has to make appropriate declaration in prescribed form.
3) Excise formalities at the time of exports: Excise duty is applicable to goods manufactured or
produced in India. When such goods are exported, excise duty is exempted. If the goods are
cleared by manufacturer for export, the goods are accompanied by Form AR-4 of excise. This
form is to be submitted to customs authorities. The customs authorities certify that the goods
under the form are indeed been exported.
4) Duty drawback formalities: Importer has to pay import duty on imports. If the goods are re-
exported either after further processing or not, then the exporter can claim refund of duty in the
form of duty drawback. If the importer intends to claim such duty drawback, then he has to
follow prescribed procedure and submit necessary papers. (Chapter X containing sections 74 to
76 deal with drawback provisions).

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5) Examination of goods before export: Export goods are to be examined by customs authorities to
check the following –
a) To ensure that prohibited goods are not exported.
b) Goods tally with description given in invoice and other documents.
c) Duty drawback, if any, is correctly claimed.
Procedure to be followed by the carrier:

1) Entry outward: Loading in vessel can start only when ‘Entry outward’ is granted. Steamer agents
can file application for entry outward 14 days in advance.
2) Loading: Loading on vessel can start after shipping bill or bill or export, duly passed by Customs
officer is handed over by exporter to the person-in-charge of the conveyance.
3) Export manifest: Export manifest is required to be submitted before departure of vessel. Details
contained in export manifest are similar to the import manifest.
4) Conveyance to leave only on written order by customs officer: When all formalities are
completed, customs officer will grant permission to leave. Vessel can leave only on receiving
such permission.
Procedure for postal articles

Clearance by Post
1. The facility for import of goods by Post Parcels has been provided by the Postal Department at its
Foreign Post Offices and sub-Foreign Post Offices. Customs facilities for examination, assessment,
clearance etc. are available at these Post Offices. Export of parcels can also be effected at the facilities
provided at Foreign Post Offices and sub-Foreign Post Offices. Limited facility for export clearances
are also available at Export Extension Counters opened by the Postal Department where parcels for
export are accepted and cleared by the Customs.
2. Letter Mail Articles are generally cleared by the Customs at the time of their arrival and sorting unless
they appear to contain contraband or dutiable articles. In such cases, the Letter Mail is subjected to
further examination at the Foreign Post Offices or sub- Foreign Post Offices, as the case may be.
3. Goods imported or exported by post are governed by sections 82, 83 & 84 of the Customs Act, 1962.
Furthermore, vide Notification No. 53/Cus dated 17.6.1950 (as amended by Notification No. 111/Cus
dated 8.7.1955) Rules Regarding Postal Parcels & Letter Packets From Foreign Ports In/Out Of India
have also been framed.
Importability of items through Post:

Import of dutiable goods by letter, packet or parcel posts is prohibited under Notification No.
78-Cus., dated 2.4.1938 (as amended), read with section 11 of the Customs Act, 1962, except where
such letter or packet bears a declaration stating the nature, weight and value of the contents or if such
a declaration is attached alongside indicating that the letter/packet may be opened for Customs
examination. Dutiable goods may also not be imported by Post in case the Customs is not satisfied
that the details as above are incorrectly stated in the declaration.
Items intended for personal use, which are exempt from the prohibitions under the Exim
Policy, 1997-2002 or the Customs Act, 1962, can be imported by postal channel on the payment of
appropriate duties under Chapter Heading No. 98.04 of the Customs Tariff. This, however, does not
apply to items viz. Motor Vehicles, Alcoholic Drinks and goods imported through Courier Service
which are to be assessed at merit rates of duty. In case the customs duty payable is not more than Rs.
100/-, the same is exempt vide Notification No. 17/2001-Cus. dtd. 1.3.2001, as amended.

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Import of Gifts:
Bona fide gifts upto a value-limit of Rs. 5, 000/-, imported by post, are exempt from basic and
additional customs duties vide Notification No. 171/93-Cus. dtd. 16.9.1993. Items imported as gift
should not be those which are restricted for importation under Foreign Trade (Development and
Regulation) Act, 1992.
The sender of the gift may not necessarily be residing in the country from where the goods
have been dispatched. Any person abroad can send the gifts to relatives, business associates, friends,
companies and acquaintances. The gifts have to be for bona fide personal use. The purpose of this
stipulation is that the person receives the gift genuinely free and the payment is not made for it
through some other means. The quantity and frequency of the gifts should not give rise to the belief
that it is used as a route to transfer money. The gifts can be received by individuals, societies,
institutions, like schools and colleges and even corporate bodies.
For the purposes of calculating the value-limit of Rs.5,000/- in case of imports of gifts, postal
charges or the airfreight is not taken into consideration. The exemption under the above-referred
Notification is subject to revision from time to time. The value of Rs.5,000/- is taken as the value of
the goods in the country from where the goods have been dispatched.
If the value of the gifts received is more than Rs.5,000/-, the receiver has to pay customs duty
on the whole consignment, even if the goods have been received free, unsolicited. In addition, at the
discretion of the Assistant/ Deputy Commissioner, if the goods are restricted or banned for import, the
receiver has a liability for penalty for such import, even if the goods have been sent unsolicited.
Customs duty is chargeable on gifts assessed over Rs.5,000/- by the Customs. In case of post parcel,
the customs department assesses the duty payable and the postal department collects the assessed duty
from the receiver of the gift and subsequently deposits it with the customs. In case of imports of gifts
by the Courier mode, the courier company deposits the amount with customs and collects the same
from the receiver at the time of giving delivery. If the amount is high, the courier company intimates
the receiver to contact Customs or make payment of duty for the said goods before release of the
goods to the receiver.
Import of Samples:
Bona fide commercial samples and prototypes imported by post are also exempted from customs duty,
subject to the value limit of Rs. 5, 000/-, provided that the samples are supplied free of cost by the
supplier. Subject to conditions prescribed under Notification No. 154/94-Cus. dtd. 13.7.1994 (as
amended from time to time), samples and prototypes of higher value are also permitted to be imported
with a view to help exports.
Parcels containing medicines and lifesaving drugs:

Lifesaving drugs and items specified under Sl. No. 371 in the Notification No. 17/2001-Cus. dtd.
1.3.2001 (as amended), subject to the conditions prescribed therein, may be imported by post free
from customs duty for personal use.
In addition to the above, various general exemptions from customs duties on merits would be
available on imports made through postal channel.
Procedure in case of Postal Imports:

The Rules prescribed for landing and clearing at notified Ports/Airports/Land Customs Stations of
parcels and packets forwarded by the foreign mails or passenger vessels or air liners are as follows: -

40
1. The boxes or bags containing the parcels labeled as "Postal Parcel", "Parcel Post", "Parcel
Mail", "Letter Mail" will be allowed to pass at the Foreign Parcel Department of the Foreign
Post Offices and Sub Foreign Post Offices.
2. On receipt of the parcel mail, the Postmaster hands over to the Customs the following
documents:
a) a memo showing the total number of parcels received from each country of origin;
b) parcel bills in sheet form (in triplicate) and the senders’ declarations (if available) and any
other relevant documents that may be required for the examination, assessment etc. by the
Customs Department;
c) the relative Customs Declarations and dispatch notes (if any); and
d) any other information required in connection with the preparation of the parcel bills which
the Post Office is able to furnish.
3. On receipt of the documents, the Customs Appraiser shall scrutinize the particulars given in the
parcel bill and shall identify the parcels required to be detained for examination either for want
of necessary particulars or defective description or suspected misdeclaration or under-valuation
of contents. The remaining parcels are to be assessed by showing the rates of duty on the
declarations or parcel bill, as the case may be. For this purpose, the Appraisers are generally
guided by the particulars given in the parcel bill or Customs declarations and dispatch notes (if
any). When any invoice, document or information is required whereby the real value, quantity
or description of the contents of a parcel can be ascertained, the addressee may be called upon
by way of a notice to produce or furnish such invoice, document and information.
4. Whenever necessary, the values from the declarations are entered into the parcel bill and after
conversion into Indian Currency at the ruling rates of exchange, the amount of duty is
calculated and entered. The relevant copies of parcel bills with the declarations so completed
are then returned to the Postmaster immediately. In case of postal imports, duty is calculated at
the rate and valuation in force on the date that the postal authorities present a list of such goods
to the Customs. In case the list is presented before the arrival of the vessel carrying the goods,
the list is deemed to have been presented on the date of the arrival of the vessel.
5. All parcels marked for detention in the manner indicated above are to be detained by the
Postmaster. Rest of the parcels will go forward for delivery to the addressee on payment of the
duty marked on each parcel.
6. As soon as the detained parcels are ready for examination, they are submitted together with the
parcel bill to the Customs. After examining them and filling in details of contents of value in the
parcel bills, Customs note the rate and amount of duty against each item. The remarks
"Examined" is then to be entered against the entry in the parcel bill relating to each parcel
examined by the Customs Appraiser and the Postmaster’s copies will be returned by the
Customs.
7. In the case of receipt of letter mail bags, the Postmaster gets the bags opened and scrutinized
under the supervision of the Customs with a view to identify all packets containing dutiable
articles. Such packets are to be detained and are presented in due course to the Customs
Appraiser with letter mail bill and assessment memos for assessment.
As soon as packets so detained are ready for examination and assessment, they shall be
submitted together with the relative letter mail bill and assessment memos to the Customs. After
examining them and filling the details of contents of value in the bill, the Customs Appraiser
will note the rate and amount of duty against each item. He will likewise fill in these details on
the assessment memos to be forwarded along with each packet.

41
8. All parcels or packets required to be opened for Customs examination are opened, and after
examination, re-closed by the Post Office officials and are then sealed by them with a
distinctive seal. The parcels or packets remain throughout in the custody of the Post Office
officials.
9. If on examination the contents of any parcel or packet are found to be misdeclared or the value
understated or to consist of prohibited goods, such parcels or packets must be detained and
reported to the Customs and the Postmaster does not allow such parcels or packets to go
forward without the Customs’ orders.
10. The duties as assessed by the Customs Appraiser and noted in the parcel bill or letter mail bill
shall be recovered by the Post Office from the addressees at the time of delivery to them. The
credit for the total amount of duty certified by the Customs Appraiser at the end of each bill are
given by the Post Office to the Customs Department in accordance with the procedure settled
between the two Departments.
The parcel bills or letter mail bills and other documents on which assessment is made remain in
the custody of the Post Office, but the duplicates, where these are prepared, are kept in the
Customs Department for dealing with claims for refunds, etc.
Procedure in case of Postal Exports:

1. The rate of duty and tariff value, if any, applicable to any goods exported by post shall be the
rate and valuation in force on the date on which the exporter delivers such goods to the Postal
Authorities. Goods for exportation may be delivered at Foreign Post Offices (including Export
Extension Counters) and Sub-Foreign Post Offices which have been notified by the Customs
2. The articles exported by post are required to be covered by a declaration in the prescribed form.
3. All exports by post, where the value exceeds Rs. 50/- and payment has to be received, must be
declared on the exchange control form viz. P.P. form. When the postal article is covered by a
certificate issued by the RBI (with or without limit) or by an authorised dealer in foreign
exchange that the export does not involve any transaction in foreign exchange up to Rs.500/-,
the declaration in a P.P. form is not necessary.
4. Export by post of Indian and Foreign currency, bank drafts, cheques, National Saving
Certificates and such other negotiable instruments is not allowed unless accompanied by a valid
permit issued by the R.B.I., except incases where such negotiable instruments are issued by an
authorised dealer in foreign exchange in India.
5. Export of all goods is allowed under OGL to all destinations except those that are covered by
the Negative List of exports. Goods up to the values of Rs.15,000/- are allowed for exports as
gifts in a licensing year. Items covered under Negative List are not allowed as gifts without a
license except in the case of edible items.
6. Prohibition/restrictions under the Exim Policy and the Customs Act, 1962 exist on the export
of various articles by Post. Some of these articles are viz. arms and ammunitions, explosives,
inflammable material, intoxicants, obscene literature, certain crude and dangerous drugs,
antiquities, etc.
7. Export of purchases made by the foreign tourists is allowed subject to proof that the payment
has been made in foreign exchange.
If the addressee takes delivery of parcels on payment of duty and then wish to have them
returned to the senders they can do so only under claim for drawback under the observance of
the prescribed procedure. Permitting an addressee to open a parcel and take the delivery of part
contents on payment of duty and repack the balance of the contents for re-export without
payment of duty thereon is not authorised and is irregular.

42
Chapter VII
Warehousing
Introduction
Chapter IX of the Customs Act 1962 [Sec.57 to 73] deals with the provisions relating to warehousing
of goods and clearance from such warehouses.
Public or private warehouses can be appointed where dutiable goods (where duty is not paid) can be
deposited. Sec.57 gives powers to customs authorities to appoint public warehouses wherein dutiable
goods can be stored, while Sec.58 gives powers for licensing private warehouses wherein dutiable
goods imported by or on behalf of licensee may be deposited.
When goods are kept in such warehouses importer will have to execute a bond binding himself to a
sum equal to twice the amount of duty assessed on such goods [Sec.59]. Such bond is executed -
a) To observe that all the provisions of Customs Act and the rules and regulations in respect of
such goods are complied with,
b) To pay on or before the date specified in a notice of demand –
(i) All duties and interest if any payable u/s.61
(ii) Rent and charges payable on such goods together with interest on the same from the date
specified
c) To discharge all penalties incurred for violation of provisions of Customs Act and rules and
regulations in respect of such goods.
On making such compliance as required u/s.59 Customs officer shall pass an order permitting the
deposit of goods in a warehouse.
When the whole of the goods covered by the bond are cleared for either home consumption or
exported or are otherwise duly accounted for and when all the amount due on account of such goods
have been paid, Customs officer shall cancel the bond as discharged in full and shall, on demand,
deliver cancelled bond to the person who executed it or who is entitled to receive it [Sec.73].
Sec.61 provides for the period for which such goods can remain in the warehouse. The same are as
follows.
a) In case of capital goods intended for use in 100% export oriented unit, till the expiry of 5
years,
b) In case of goods other than capital goods intended for use in 100% export oriented unit, till
the expiry of 3 years,
c) In case of any other goods, till the expiry of one year,
from the date on which the Customs officer made an order u/s.60permitting the deposit of goods
in a warehouse.
Further, such period can be extended provided that the goods are not likely to deteriorate –
In case of goods intended for use in 100% export oriented units, for such period as Customs officer
may deem fit, and in other cases for a period not exceeding 6 months. However, Chief Commissioner
of Customs may extend such period further as he may deem fit.
Further, in case of goods not intended to be used in 100% EOUs the period of one year may be
reduced to such period as may be deemed fit by the Chief Commissioner if the goods are likely to
deteriorate.
In the eventuality that the licence of the private warehouse is cancelled, the owner of the goods
warehoused therein shall within seven days from the date of which notice for cancellation is given,
remove the goods from such warehouse to another warehouse or clear the goods for home
consumption.
Sec.62 provides for the control over such warehouse goods by Customs authorities. The provisions
are as under.
1) All such warehoused goods shall be subject to the control of Customs officer.
2) No person can enter a warehouse or remove goods from there without the permission of
Customs officer.

43
3) Customs officers are empowered to lock such warehouse and no person shall remove or break
such lock.
4) Customs officers have access to every part of a warehouse and power to examine the goods
stored therein.
Provisions for home consumption

As per Sec.68, goods stored in warehouse can be removed on payment of duty. Importer has to submit
Bill of Entry in prescribed form for removal of goods from warehouse for home consumption. This
Bill of Entry is printed in yellow colour and thus known as Yellow Bill of Entry. Such Bill of Entry is
assessed by Customs Officer in charge of warehouse for the amount of duty, penalties (if any), rent,
interest and other charges payable on the goods to be removed.
Rate of duty will be as prevailing on the date of presentation of Bill of Entry for home consumption
for clearance from warehouse and not at the rate prevailing when goods were removed from customs
port for clearance for warehousing [Sec.15(1)(b)].
Removal of goods from Warehouse

Warehoused goods may be removed for a) home consumption or b) for exportation.
Sec.68 deals with the provisions in relation to clearance of warehoused goods for home consumption,
while Sec.69 deals with the provisions in relation to clearance of warehoused goods for exportation.
Manufacture in warehouse
Sec.65 deals with the provisions relating to manufacture and other operations in relation to
warehoused goods. For conducting such operations, the manufacturer will have to obtain a written
permission from the Asst. Commissioner or Deputy Commissioner of Customs subject to such
conditions as may be prescribed and on payment of necessary fees.
During the course of such manufacture there may emerge some waste or refuse. Following conditions
shall apply in relation to such waste or refuse.
a) If the whole or any part of the goods manufactured from such operations are exported, import
duty shall be remitted on such warehoused goods contained in so much of waste or refuse as
has arisen from the operations carried on in relation to the goods exported. Provided that such
waste or refuse is either destroyed or duty is paid on such waste or refuse as if it had been
imported into India in that form.
b) If the whole or any part of goods resulting from such operations are cleared for home
consumption, import duty shall be charged on the quantity of the warehoused goods contained
in as much of the waste or refuse as has arisen from operations carried on in relation to the
goods cleared for home consumption.

44
Chapter VIII
Duty Drawback
Duty drawback is refund of duty that was initially collected at the time of importation of goods.
Chapter X of the Customs Act 1962 deals with the provisions related to Drawbacks. Duty drawbacks
can be on account of:
a) Re-export of duty paid imported goods Sec.74
b) Drawbacks on imported goods used in manufacture of export goods Sec.75
Sec.75A deals with interest on delayed drawbacks while Prohibition and regulation of drawback in
certain cases are provided in Sec.76.
SECTION 74. Drawback allowable on re-export of duty-paid goods. –

(1) When any goods capable of being easily identified which have been imported into India and
upon which any duty has been paid on importation, -
(i) are entered for export and the proper officer makes an order permitting clearance and
loading of the goods for exportation under section 51; or
(ii) are to be exported as baggage and the owner of such baggage, for the purpose of
clearing it, makes a declaration of its contents to the proper officer under section 77
(which declaration shall be deemed to be an entry for export for the purposes of this
section) and such officer makes an order permitting clearance of the goods for
exportation; or
(iii) are entered for export by post under clause (a) of section 84 and the proper officer
makes an order permitting clearance of the goods for exportation, ninety-
eight per cent of such duty shall, except as otherwise hereinafter provided, be re-paid
as drawback, if –
(a) the goods are identified to the satisfaction of the Assistant Commissioner of
Customs or Deputy Commissioner of Customs as the goods which were imported;
and
(b) the goods are entered for export within two years from the date of payment of
duty on the importation thereof :
Provided that in any particular case the aforesaid period of two years may, on
sufficient cause being shown, be extended by the Board by such further period as it
may deem fit.
(2) Notwithstanding anything contained in sub-section (1), the rate of drawback in the case of
goods which have been used after the importation thereof shall be such as the Central
Government, having regard to the duration of use, depreciation in value and other relevant
circumstances, may, by notification in the Official Gazette, fix.
(3) The Central Government may make rules for the purpose of carrying out the provisions of this
section and, in particular, such rules may –
(a) provide for the manner in which the identity of goods imported in different consignments
which are ordinarily stored together in bulk, may be established;
(b) specify the goods which shall be deemed to be not capable of being easily identified; and
(c) provide for the manner and the time within which a claim for payment of drawback is to
be filed.

45
(4) For the purposes of this section –

(a) goods shall be deemed to have been entered for export on the date with reference to which
the rate of duty is calculated under section 16;
(b) in the case of goods assessed to duty provisionally under section 18, the date of payment
of the provisional duty shall be deemed to be the date of payment of duty.
Sec75. Drawback on imported materials used in the manufacture of goods which are exported.
(1) Where it appears to the Central Government that in respect of goods of any class or description
manufactured, processed or on which any operation has been carried out in India, being goods which
have been entered for export and in respect of which an order permitting the clearance and loading
thereof for exportation has been made under section 51 by the proper officer, or being goods entered
for export by post under clause (a) of section 84 and in respect of which an order permitting
clearance for exportation has been made by the proper officer], a drawback should be allowed of
duties of customs chargeable under this Act on any imported materials of a class or description used
in the 9[manufacture or processing of such goods or carrying out any operation on such goods, the
Central Government may, by notification in the Official Gazette, direct that drawback shall be
allowed in respect of such goods in accordance with, and subject to, the rules made under sub-section
(2):
Provided that no drawback shall be allowed under this sub-section in respect of any of the
aforesaid goods which the Central Government may, by rules made under sub-section (2), specify, if
the export value of such goods or class of goods is less than the value of the imported materials used
in the manufacture or processing of such goods or carrying out any operation on such goods or class
of goods, or is not more than such percentage of the value of the imported materials used in the
12[manufacture or processing of such goods or carrying out any operation on such goods or class of
goods] as the Central Government may, by notification in the Official Gazette, specify in this behalf :
Provided further that where any drawback has been allowed on any goods under this sub-
section and the sale proceeds in respect of such goods are not received by or on behalf of the
exporter in India within the time allowed under the Foreign Exchange Management Act, 1999 (42 of
1999), such drawback shall except under such circumstances or such conditions as the Central
Government may, by rule, specify,] be deemed never to have been allowed and the Central
Government may, by rules made under sub-section (2), specify the procedure for the recovery or
adjustment of the amount of such drawback.
(1A) Where it appears to the Central Government that the quantity of a particular material imported
into India is more than the total quantity of like material that has been used in the goods
manufactured, processed or on which any operation has been carried out in India] and exported
outside India, then, the Central Government may, by notification in the Official Gazette, declare that
so much of the material as is contained in the goods exported shall, for the purpose of sub-section
(1), be deemed to be imported material.
(2) The Central Government may make rules for the purpose of carrying out the provisions of sub-
section (1) and, in particular, such rules may provide –
(a) for the payment of drawback equal to the amount of duty actually paid on the imported
materials used in the manufacture or processing of the goods or carrying out any operation on the
goods or as is specified in the rules as the average amount of duty paid on the materials of that
class or description used in the manufacture or processing of export goods or carrying out any
operation on export goods of that class or description either by manufacturers generally or by
persons processing or carrying on any operation generally or by any particular manufacturer or

46
particular person carrying on any process or other operation, and interest if any payable thereon;
(aa) for specifying the goods in respect of which no drawback shall be allowed;
(ab) for specifying the procedure for recovery or adjustment of the amount of any drawback
which had been allowed under sub-section (1) or interest chargeable thereon;
(b) for the production of such certificates, documents and other evidence in support of each
claim of drawback as may be necessary;
(c) for requiring the 19[manufacturer or the person carrying out any process or other operation]
to give access to every part of his manufactory to any officer of customs specially authorised in
this behalf by the Assistant Commissioner of Customs or Deputy Commissioner of Customs to
enable such authorised officer to inspect the processes of 21[manufacture, process or any other
operation carried out] and to verify by actual check or otherwise the statements made in support
of the claim for drawback.
(d) for the manner and the time within which the claim for payment of drawback may be filed;
(3) The power to make rules conferred by sub-section (2) shall include the power to give drawback
with retrospective effect from a date not earlier than the date of changes in the rates of duty on inputs
used in the export goods.
SECTION 75A. Interest on drawback.

(1) Where any drawback payable to a claimant under section 74 or section 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 that claimant in addition to the amount of drawback, interest at the rate fixed under section 27A
from the date after the expiry of the said 25[period of 26[one month]] till the date of payment of such
drawback:
(2) Where any drawback has been paid to the claimant erroneously or it becomes otherwise
recoverable under this Act or the rules made thereunder, the claimant shall, within a period of two
months from the date of demand, pay in addition to the said amount of drawback, interest at the rate
fixed under 29[section 28AA] 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.
SECTION 76. Prohibition and regulation of drawback in certain cases.

(1) Notwithstanding anything hereinbefore contained, no drawback shall be allowed –
(b) in respect of any goods the market-price of which is less than the amount of drawback due
thereon;
(c) where the drawback due in respect of any goods is less than fifty rupees.
(2) Without prejudice to the provisions of sub-section (1), if the Central Government is of opinion
that goods of any specified description in respect of which drawback may be claimed under this
Chapter are likely to be smuggled back into India, it may, by notification in the Official Gazette,
direct that drawback shall not be allowed in respect of such goods or may be allowed subject to such
restrictions and conditions as may be specified in the notification.
Customs duty drawbacks are governed by Customs and Central Excise Duty Drawback Rules 2017.
These rules came into effect from 01.10.2017 vide Notification No.88/2017 Customs dated 21st
September 2017.

47
Important definitions (Rule 2)
(a) “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 (51 of 1975) chargeable on any
imported materials or excisable materials used in the manufacture of such goods.
(b) “excisable material” means any material produced or manufactured in India subject to a duty of
excise under the Central Excise Act, 1944 (1 of 1944);
(c) “export”, with its grammatical variations and cognate expressions, means taking out of India to a
place outside India or taking out from a place in Domestic Tariff Area (DTA) to a special economic
zone and includes loading of provisions or store or equipment for use on board a vessel or aircraft
proceeding to a foreign port;
(d) “imported material” means any material imported into India and on which duty is chargeable
under the Customs Act, 1962 (52 of 1962);
(e) “manufacture” includes processing of or any other operation carried out on goods, and the term
manufacturer shall be construed accordingly;
(f) “tax invoice” means the tax invoice referred to in section 31 of the Central Goods and Services
Tax Act, 2017 (12 of 2017).
Rule 3 deals with the provisions relating to duty drawback. Such drawback may be allowed on the
export of goods at such amount or at such rate as per prescribed by the Central Government. Such
drawback is allowed subject to the provisions or Customs Act 1962 and Central Excise Act 1944.
Rule 3 further provides that where any goods are produced or manufactured from imported materials
or excisable materials on some of which
- only the duty chargeable thereon has been paid and not on the rest, or
- only a part of the duty chargeable has been paid, or
- the duty paid has been rebated or refunded in whole or in part or given as credit, under any of
the provisions of Customs Act 1962 and rules made thereunder or of the Central Excise Act
1944 and the rules made thereunder,
the drawback admissible on the said goods shall be reduced taking into account the lesser duty paid or
the rebate, refund or credit obtained.
Rule 3 further provides for the cases where no drawback shall be allowed such as-
- When the said goods have been taken into use after manufacture,
- If the said goods are produced or manufactured, using imported materials or excisable materials
in respect of which duties have not been paid,
- If the said goods, being packing materials have been used in or in relation to the export of jute
yarn, jute fabrics or other jute manufactures.

48
Numerical sums on valuation of goods, calculation of duty
1) Niketan Industries Ltd. New Delhi imported certain machinery by sea from Japan. From the
following particulars calculate assessable value of the machine and customs duty payable. Rate
of basic customs duty is 10% ad-valorem and IGST @ 18%. Social welfare charge is @ 10% on
basic customs duty.
Rs.
CIF Value of the machine 4,23,380
Freight incurred from the port of entry to Inland Container Depot 25,000
Unloading and handling charges paid at the place of importation 40,000
Design charges paid to Consultancy firm in Mumbai 10,000
2) Tista Ltd. Imported a machine for an invoice value of $8,000. The price includes $500 for
erection and commissioning of the machine in India. Tista Ltd. Had supplied some raw materials
outside India, which were supplied to the foreign exporter. The value of this material was $300.
The machine was imported through vessel and cost of transport was $800. Tista Ltd. Paid
demurrage charges of Rs.15,000 to Port authorities for delay in clearing imprted goods.
Transport charges of rs.20,000 were incurred for transporting goods from port to Inland
Container Depot. The foreign exchange rate was Rs.65 per USD. Calculate assessable value and
customs duty payable if rate if basic customs duty is 10%, IGST @ 18% and Social welfare
charge @ 10% of basic customs duty.
3) Heavy Engineering Ltd. Imported one machine from USA by Air. Following are the details.
FOB price $4,000. Accessories compulsorily supplied with machine $1,000. Airfreight $1,200.
Insurance charges are not available separately. Local agent's commission paid in Indian currency
Rs.12,500. Transport charges paid in India Rs.18,000. Packing charges for re-usable packing
$250. CBEC rate is Rs.62.50 per US$.
Calculate assessable value and customs duty payable if rate if basic customs duty is 10%, IGST
@ 18% and Social welfare charge @ 10% of basic customs duty.
4) BSA Company Limited imported one machine from UK. Following are the particulars of the
same.
Particulars Amount
FOB Price of the machine £ 10,000.00
Air freight £ 2,500.00
Engineering charges paid to firm in UK £ 750.00
Licence fees payable by buyer as a condition of sale 20% of FOB cost
Material components supplied by buyer in UK Rs.20,000.00
Packing charges £ 500.00
Agency commission paid by buyer to his agent in UK £ 250.00
Inter-bank rate as informed by exchange dealer Rs.98 per UK £
CBI&C notified rate Rs.100 per £
Demurrage paid at Indian port by importer Rs.10,000
Calculate assessable value and customs duty payable if rate if basic customs duty is 10%, IGST
@ 18% and Social welfare charge @ 10% of basic customs duty.
5) An importer imported some goods for US$ 10,000 on CIF basis. Following dollar exchange rates
are available on the date of presentation of bill of entry. A) RBI floor rate Rs.43.55, b)Inter-bank
closing rate Rs.73.38, c) Rate notified by CBI&C u/s.14(3)(a)(i) Rs.73.55, d) rate at which bank

49
has realised the payment from the importer Rs.73.58. Find out assessable value for customs
purposes.
6) F Ltd. Imported one machine of which following details are available.

Particulars Amount in £
FOB value 8,000.00
Freight charges( Air) 1,800.00
Design and development charges 500.00
Insurance charges are paid but details are not available
Agents commission (selling) is payable @ 2 % of FOB in Rupees
Date of Inward of machine: 20 October 2018 ( CBEC rate is Rs.100 per £ and rate of basic
customs duty is 15 % )
Date of Bill of entry: 24 October 2018 ( CBEC rate is Rs.98 per £ and rate of basic customs
duty is 12 % )
Additionally, IGST is leviable @ 12 % and Social welfare charges @ 10% of basic customs
duty.
Calculate assessable value and customs duty payable.
7) XYZ ltd. Machine from Hundai . The details are as follows FOB value 200,000 YEN. Ocean
Freight charges from Japan to India 20,000 YEN. Insurance paid for this consignment in India
Rs.22500.00
Designing charges paid 30,000 YEN. Transport charges from Mumbai port to factory rs.27500/-
Agency commission payable in India is 5% of FOB value
CBEC rate is 1 yen= Rs0.63, whereas RBI rate is 1 yen= Rs0.61
Calculate assessable value and customs duty if basic customs is 12%, IGST 18% and Social
welfare charges 10% of basic customs duty.
8) Rajeshwari Ltd. Imported a machine from Germany in an aircraft. The bill of entry was
presented on 12.07.2018 and aircraft arrived in India on 25.07.2018. The rate of import duty on
12.07.2018 was 12% and on 25.07.2018 was 15%. What is the applicable rate of duty?
9) PRQ Industries Ltd. Has imported certain equipment from Japan at an FOB cost of 2,00,000
Japanese Yen. The other expenses incurred in this connection were as follows.
Freight from Japan to Indian port Yen 20,000
Insurance charges paid to Insurer in India Rs.10,000
Designing charges paid to consultancy firm in Japan Yen 30,000
PQR Ltd. expended for certain development activities at factory related to Rs.1,00,000
imported machine
Road transport cost from Mumbai port to factory in Karnataka Rs.30,000
CBI&C notified exchange rate 1 Yen = Rs.0.3948
Interbank exchange rate as announced by authorised dealer 1 Yen =
Rs.0.4150
Commission payable to agent in India was 5% of FOB value
Calculate assessable value of the machine and customs duty payable if basic customs is 12%,
IGST 18% and Social welfare charges 10% of basic customs duty.

50
10) Compute the assessable value and customs duty payable if basic customs duty is 12%, IGST 18%
and social welfare charge 10% of basic customs duty.
a) FOB value of the machine $15,000
b) Air freight paid $4,000
c) Transit insurance – not ascertainable
d) Cost of design work for the machine done in India Rs.45,000
e) Indian local agent commission Rs.15,000
f) Cost of transport from port to factory Rs.5,000
Exchange rate for one US dollar is Rs.70 as notified by CBI&C.

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1

Unit 1 – Constitutional background for Indirect Taxes in India

In the Preamble to the Constitution, it is said that-

T.Y.B.Com. – Indirect Taxes Sem. VI Academic Year 2022-23

T.Y.B.Com. – Indirect Taxes Sem. VI Academic Year 2022-23

Constitutional amendment for bringing GST in force

T.Y.B.Com. – Indirect Taxes Sem. VI Academic Year 2022-23

T.Y.B.Com. – Indirect Taxes Sem. VI Academic Year 2022-23

Unit 2 - CUSTOMS DUTY

Introduction to Indirect Taxes

T.Y.B.Com. – Indirect Taxes Sem. VI Academic Year 2022-23

Introduction to Customs Duty and Constitutional Powers

Meaning, objects, scope of the Customs Act, 1962.

T.Y.B.Com. – Indirect Taxes Sem. VI Academic Year 2022-23

(e) any other kind of moveable property.

Chapter No. Sections Area covered

T.Y.B.Com. – Indirect Taxes Sem. VI Academic Year 2022-23

T.Y.B.Com. – Indirect Taxes Sem. VI Academic Year 2022-23

T.Y.B.Com. – Indirect Taxes Sem. VI Academic Year 2022-23

T.Y.B.Com. – Indirect Taxes Sem. VI Academic Year 2022-23

Appointment of customs ports, airports, etc.

Prohibitions on Importation and Exportation of goods.

T.Y.B.Com. – Indirect Taxes Sem. VI Academic Year 2022-23

Prevention or detection of illegal export of goods.

T.Y.B.Com. – Indirect Taxes Sem. VI Academic Year 2022-23

Transport of specified goods to be covered by vouchers (Section 11K)

Obligation to maintain Accounts of Specified Goods. (Section 11L)

T.Y.B.Com. – Indirect Taxes Sem. VI Academic Year 2022-23

T.Y.B.Com. – Indirect Taxes Sem. VI Academic Year 2022-23

Applicability of Harmonised System of Nomenclature.

T.Y.B.Com. – Indirect Taxes Sem. VI Academic Year 2022-23

Types of Customs Duty

T.Y.B.Com. – Indirect Taxes Sem. VI Academic Year 2022-23

T.Y.B.Com. – Indirect Taxes Sem. VI Academic Year 2022-23

U/s.14(2), Central Government, if is satisfied that it is necessary or expedient, is empowered to fix

T.Y.B.Com. – Indirect Taxes Sem. VI Academic Year 2022-23

T.Y.B.Com. – Indirect Taxes Sem. VI Academic Year 2022-23

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

Notification No. 94/2007 - Customs (N.T.)

T.Y.B.Com. – Indirect Taxes Sem. VI Academic Year 2022-23

3. Determination of the method of valuation-

T.Y.B.Com. – Indirect Taxes Sem. VI Academic Year 2022-23

4. Transaction value of identical goods. -

5. Transaction value of similar goods.-

6. Determination of value where value cannot be determined under rules 3, 4 and 5: -

T.Y.B.Com. – Indirect Taxes Sem. VI Academic Year 2022-23

T.Y.B.Com. – Indirect Taxes Sem. VI Academic Year 2022-23

10.Cost and services: -

T.Y.B.Com. – Indirect Taxes Sem. VI Academic Year 2022-23

11. Declaration by the importer

12. Rejection of declared value

T.Y.B.Com. – Indirect Taxes Sem. VI Academic Year 2022-23

13. Interpretative notes

T.Y.B.Com. – Indirect Taxes Sem. VI Academic Year 2022-23

T.Y.B.Com. – Indirect Taxes Sem. VI Academic Year 2022-23

T.Y.B.Com. – Indirect Taxes Sem. VI Academic Year 2022-23

T.Y.B.Com. – Indirect Taxes Sem. VI Academic Year 2022-23

T.Y.B.Com. – Indirect Taxes Sem. VI Academic Year 2022-23

T.Y.B.Com. – Indirect Taxes Sem. VI Academic Year 2022-23

T.Y.B.Com. – Indirect Taxes Sem. VI Academic Year 2022-23