Role of Customs

In
Regulating International
Trade

History of Customs Duty

Always a way of raising revenue for
Governments from ancient time
Even mentioned in Chankayas Artha
Sastra
Formalised and integrated by British Rulers
of India
Transformed from Sea Customs Act 1888 to
the modern Customs Act 1962 which gets
amended if need be every year with
finance Bill

Customs Organization
Under Ministry of Finance /Dept Of Revenue
Under Central Board of Excise & Customs
Chairman CBEC/Member Customs at Board
level
Chief Commissioners in the Regions
Commissionerates- Commissioners
Additional Commissioners /Joint, Deputy and
Assistant Commissioners
Appraisers, Superintendents Inspectors and
Sepoys

Duties of Customs
Collection of Government revenue
Enforcement of various provisions of the Customs
Act, 1962, governing imports and exports of
cargo, baggage, postal articles, and arrival and
departure of vessels, aircrafts etc.
Discharge of agency functions and enforcing
prohibitions and restrictions on imports and
exports under various legal enactments
Prevention of smuggling including interdiction of
narcotics drug trafficking
International passenger clearance

Customs Act 1962

Customs Act 1962 and Customs Manual derived
from the Act from the core of the customs
process.
Customs Act defines the role , rights and
responsibilities of the following players
The Government of India through its officers of
Customs Department
Conveyance (Carriers Ships/Aircrafts/International Rail
and Road Transport etc.)
Merchants exporters and importers
Custodians like airport and seaports, ICDs /CFS etc
Custom House Agents (CHA)

Manifests
These are the documents which starts (in the case of imports)
and ends in the case of exports
IGM- Import General Manifests to be filed by the carrier
with customs seven days before the arrival of ship or on
arrival of aircraft.
Export General Manifest- to be filed by ships within seven
days of sailing and aircrafts within 24 hours of lift off with
Customs
On uploading manifest with customs (Any Particular Port)
customs allot an Import Rotation Number ( e.g. 265/2014)
and this number is the linking number for import entry and
similar rotation number for Exports (This is done on the basis
of ships declaration at least a week before arrival of ship)
Sub manifests for ICDs are part of the main manifests for
Gateway Ports

Main Details of a Manifest

Load port
Running serial number of the bill of lading; this also
is called the line number in the IGM
Bill of lading
Shipper
Consignee
Commodity descriptions
Unit
Quantity
Weight
Volume

Import General Manifest

Advance Manifest Filing

After 9/11 US Customs tightened security by
documentary process
They require cargo manifest to be filed in advance by
forwarders/lines before the ship leaves the last port
of call before first US Port of call.
The Shipping line now insist that such manifest be
filed before loading containers on ships at any load
port
The AM can be uploaded by forwarders or through
third party service centres
However charges are recovered from shippers for
this service

Custodians or Baileys
Ports/ ICDs/CFSs/Airports/Bonded Warehouses are
custodians of cargoes
a) on behalf of the carriers
b) on behalf of customs
Carriers will give delivery orders only after checking
title and receiving their dues
Customs will give permission for loading or delivery
only after documentary clearance and collection of
import/export duty if any
Custodians will release the goods after permission
from carriers and customs and after collection their
dues on cargo

Custom House Agents/Custom

Brokers
Customer House Agents (CHAs) are institutions which
play an important intermediary role between the customs
and merchants
They are supposed to be having good knowledge of
customs rules and procedures, classification, tariff and
export import policy and though paid by merchants are
supposed to play a correct role for both.
They are licensed by Customs after thorough professional
qualifying examination
Many big logistics companies have customs broking
divisions and they keep this division at arms length and
provide service to many other customers not related to
their principals e.g. UPS and UPS Customs Brokers

ICEGATE and EDI for Customs

Process
Customs Entries in most developed countries are through
EDI and the process is fully automated
In India the process of entries through EDI called Indian
Customs and Excise Gateway (ICEGATE) commenced
sometime during 2003 and now 98 per cent on entries are
through EDI
While individual CHAs and merchants could be directly
connected with ICEGATE there is also a provision for using a
service centres at the customs house
The procedure is not fully automated or paperless as still
considerable human involvement is required for some
clearances and at some stages for all clearance. The process
of clearance is governed by Risk Management System (RMS).
The ICEGATE transfers files by protocols through EDI to other
regulating agencies like RBI/DGFT/DGCIS etc.

Harmonized System of Classification

A uniform system of classification of commodities
Predecessors to HS codes were known as Brussels
Trade Nomenclature and Standard International
Trade Classification
Comprises of 5000 commodity groups
The entire classification is divided into 21 sections
and 98 chapters
Used for Customs Tariff and for trade statistics
Used for Internal taxes e.g. excise duties, trade
policies, rules of origin, quota controls,
compilation of national accounts, economic
research and analysis
It is universal economic language and code for

Adoption of HS Codes in
India
India has been following the HS ever
since the convention signed 1983
The Customs & Excise tariff published
as per the above of HS
The Foreign Trade Policy is also aligned
to HS codes
The export incentives bases on
Standard Input Output Norms like
DEPB, Drawback all are designated by
item code numbers of HS

Classification of Items
Though HS Code provides for 10 digit codes we in
India for our convenience use 8 digit code
Example: 84.02.90.20
84 Chapter no machinery
02 Group heading-boilers
90 Sub Group heading-fire tube boilers
20 Item no parts
Some countries follow 10 digit code and hence
there could be a minor alignment problems

Customs Clearance of Export Cargo

Types of Shipping Bills

Free Shipping Bills the type of
exports which do not attract
drawback
Drawback Shipping bills the
shipping bills for goods which attract
duty drawback
Ex Bond shipping bill for goods
exported from SEZ/FTWZ/Hardware
Parks and bonded warehouse

Authorized Removal for ExportsAR4

Goods can be moved for manufacturing
factories for export without paying
excise duty by furnishing a bond to
jurisdictional customs under AR4 Forms
The AR4 Forms get endorsed by Port
Customs on submission of the EGM
By submitting the endorsed AR4 form to
Excise, the manufacturer gets the bond
re-credited

Import Customs Clearance through EDI

Bill of Entry
This is the document which is the link
between importers and customs
authorities to verify legality of
imports and assess duty
This document gets generated by
customs computer on acceptance of
the declaration by the importers
This is also called Customs Entry in
western nations

Bill of entry distribution

Manual system

Original-Customs copy -the section

Duplicate- Customs Copy-the shed
Triplicate-importers copy
Quadruplicate-Exchange control copy

EDI system
The customs copy The first Print printed after
appraisement also examination copy
Duplicate print Importers copy-printed after
examination and at the time of out of charge
Triplicate Exchange Control copy
Quadruplicate-Customs additional copy

Accredited Client Procedure

Importers who pay a large amount of
duty and who have clean record are
given the benefit of ACP
This includes self assessment
Green Channel Clearance
Pick up of containers from Terminal

Warehousing under section

48
This section permits movement of
goods from ports and port sheds to
bonded warehouse to save detention
charges when because of an Import
Trade Control issue the customs
clearance is likely to be delayed

Customs Valuation
Customs valuation of imported goods is
done under the Customs valuation
(Determination of Price of Imported Goods)
Rules,1988
This is based on universally accepted
principles laid down by GATT
Broadly there are two categories of import
between two unrelated parties
between two related parties

The category has to be declared at the

time of filing of the B/E

Customs Tariff
Under chapter V and section 12 customs
duties will be levied as per any law
prevalent as of today customs tariff act
1975 is prevalent as amended from time
to time
This act consolidates & amends the laws
relating to customs duties
Import duty-first schedule
Export duty- second schedule

Types of Import Duties

Basic Customs duty

Additional customs duty (CVD)
Protective duty
Safeguard duty
Countervailing duty on subsidized article
Anti dumping duty
Cess
National calamity contingent duty
Special additional Duty

Duties-Definition
Basic duty- as per first schedule of customs tariff
Additional duty(CVD) this is equivalent to excise
duty. This is in nature of equalizing domestic
production to imported goods in a general way
Special additional duty -this is once again to
neutralize the effect of ST on the domestic goods
Protective duty-duty to protect specific industrial
establishment threatened by imports
Safeguard duty-sudden increases in imported
quantities of a product which can cause injury to
domestic industry is sought to be safeguarded by
this duty

Duties-Definition
CVD on subsidized articles-equivalent to subsidy
given by any foreign government to its
manufactured products
Anti dumping duty-this can be imposed on
articles exported from any country to India if the
value is found at less than the normal rate
Cess-this is levied under various enactments of
GOI customs act as collecting agency for the
concerned organization
National calamity contingency fund-to mobilize
duties for meeting expenses on unexpected
calamities

Currently prevalent duties

Basic duty subject to first schedule and
exemptions
Additional duty (CVD)
Safeguard duty on certain commodities
Anti dumping duty on certain items from
certain countries and specified importers
Education Cess
Special Additional duty
Road development cess on diesel

Duty Exemptions
General Exemptions- Duty exemption to all
goods imported by UN offices/diplomats etc
Duty Exemption to goods imported as inputs for
export production under Duty exemption
licenses
Duty Reduction/exemption under Free Trade
/Preferential Agreements
Specific Exemptions-Duty exemptions for
specific goods for encouraging technology
transfer, critical materials, modernization, price
control of domestic goods etc

Duty Computation-Principles
Basic duty is charged an assessable value
Assessable value for sea/airfreight is equivalent
to CIF value plus landing charges which is
notionally assessed at 1 per cent of CIF value
In case the goods are shipped on CPT basis the
insurance value at actual is taken. If insurance is
not done nor value is unavailable, a notional
value of 1.125 percent of CPT value is taken as
insurance charges
If the sale has taken place on FOB basis the
freight is added on actual basis and a freight
certificate may be needed in this case the
assessable value will be FOB plus freight at
actual plus insurance at actual or notional as the

Duty computation-Principles
In the case of airfreight/ sea freight, the freight
will be assessed on actual or 20 per cent of the
value of the goods whichever is lower
The landing charges on airfreight consignments is
also 1 per cent of CIF value
Exchange rate-the exchange rate applicable will
be the custom notified exchange rate applicable
for the day on which the B/E is filed.
Exchange rate is notified by the customs for the
next month by the end of every month.
Sometimes Importers are able to take advantages
of exchange changes by deferring the date of
filing of B/E

Duty Computation Principles

A = basic duty assessable value X duty
percentage as per first schedule
B = additional duty (assessable value
plus basic duty) x excise duty percentage
C = Cess on Customs duty = .03 X ( A+B)
D= Special Additional Duty = 0.04 X
( Assessable Value + A+B+C)
Total Duty = E= A+B+C+D
Landed value of goods =CIF value plus E
Landed value of goods should take in
actual cash costs and not notional costs

CENVAT Credit Scheme

As Central Excise is multi point tax set off to the extent of
duty already paid on raw materials/intermediate
goods/input services given to avoid cascading effect
scheme implemented through book credit and debit
system assessee takes credit of duty paid on capital
goods, for inputs (excluding petrol, LDO & HSD Oils) and
service tax paid on input services in proforma account
Such credit account is debited to the extent of duty
payable on final product remaining duty liability
discharged by debit to personal ledger account (PLA) in
which assessee deposits his own money.
The Additional Duty/SAD paid by importers of components
and supplies when used for manufacture of excisable
goods are also eligible for CENVAT Credit

Other Acts Impacting Customs

Clearance
Prevention of Food Adulteration Act 1954
and Food Safety and Standards Act of India
- 2006
Labelling of goods being imported into India
Standards of Weights and Measures
(Packaged Commodity) Act 1976- replaced
by Legal Metrology Act 2009
Livestock Importation Act 1898 and up-todate amendments
Destructive Insects and Pests Act 1914

Appeal Against Customs Duty

Assessment
First Level Commissioner Appeal
Second Level CESAT Central Excise
and Service Tax appeal Tribunal
Third Level -High Court