Customs Law Overview & Objectives

Prof Vijayan Ramakrishnan

Topics to be covered Background of Customs Law 2. Important Acts in Customs 3. Meaning and scope of Imports 4. Definitions 5. Landmark judgement defining import 6. High sea sales 7. Bonded Warehouse 8. Valuation of Imported Goods 9. SVB and related Party transactions 10. Import of Services 11. Imports and GST 12. Advance Rulings 13. Important Case studies 1.

Territorial waters The territorial jurisdiction extends to territorial water up to 12 nautical miles from the nearest point of the baseline; beyond territorial waters is the Contiguous Zone extending up to 24 nautical miles; and beyond that up to 200 nautical miles is the Exclusive Economic Zone of India. Exclusive Economic Zone is an area of coastal water and seabed within a certain distance of a country's coastline, to which the country claims exclusive rights for fishing, drilling, and other economic activities. Indian Customs Waters' means the water extending into the sea up to the limit of the contiguous zone of India. In this manner, Indian Customs waters reach out up to 12 nautical miles past territorial waters.

Introduction to Customs Law Background of Customs Law CustomsdutyisonimportintoIndia and exportoutofIndia. As per ancient custom, a merchant entering a kingdom with his goods had to makea suitablegifttotheKing. Alsoit wasa customfora kingtobring somegiftswhenhe visitsotherking . Britishers found this a novel way to collect money and they introduced CustomsDuty

The main objectives of levying a customs duty are to: Ensure that nothing goes out of a country against the laws of the land and rules and regulations are followed as enforced by customs authorities. Check the authenticity of the value of goods as per customs valuation rules to prevent over and under invoicing. Assess export duty as per the Customs Tariff Act. Check that all the set provisions are being followed by export and import authorities. Maintain all import and export data. Prevent the import of drugs (like opium) for illegal use in the country.

CBIC Central Board of Indirect Taxes and Customs (erstwhile Central Board of Excise & Customs) is a part of the Department of Revenue under the Ministry of Finance, Government of India. It deals with the tasks of formulation of policy concerning levy and collection of Customs, Central Excise duties, Central Goods & Services Tax and IGST, prevention of smuggling and administration of matters relating to Customs, Central Excise, Central Goods & Services Tax, IGST and Narcotics to the extent under CBIC's purview

Evolution of Customs Year Progress 1788 Customs duty collection was abolished by Lord Cornwallis 1801 Reintroduced 1878 Sea Customs Act enacted 1924 Land Customs Act enacted 1934 Air customs was controlled by Indian Aircraft Act 1934 , earlier it was 1911 1962 Customs Act, 1962, repealed all the earlier enactments and consolidated Air , Sea and Land customs

Customs in India India is a part of various international customs agreements set by global institutions. Some of these institutions are as follows: World World Trade consists of 153 members and represents more than 97% of the world trade. Trade Organisation Organisation (WTO) (WTO): WTO, headquartered at Geneva, Switzerland, World World governmental body established in 1952. Customs Customs Organisation Organisation (WCO) (WCO): WCO is an independent inter-

World Trade Organisation The World Trade Organization is an intergovernmental organization that regulates international trade. Headquarters Geneva, Switzerland Purpose: Regulate international trade Founded: 1 January 1995 Membership: 164 member states Formation: 1 January 1995; 23 years ago

Administering WTO trade agreements Forum for trade negotiations Handling trade disputes Monitoring national trade policies Technical assistance and training for developing countries Cooperation with other international organizations

World Customs Organisation The World Customs Organization is an intergovernmental organization headquartered in Brussels, Belgium. Headquarters: Brussels, Belgium Founded: 26 January 1952 Secretary General: Kunio Mikuriya (January 2009 - present) Membership: 180 customs administrations Formerly called: Customs Co-operation Council (CCC) Type of business: Intergovernmental organization

The WCO is noted for its work in areas covering the development of international conventions, instruments, and tools on topics such as commodity classification, & Valuation rules of origin, & collection of customs revenue, supply chain security, & international trade facilitation, customs enforcement activities, combating counterfeiting in support of Intellectual Property Rights (IPR), drugs enforcement, illegal weapons trading, integrity promotion, and delivering sustainable capacity building to assist with customs reforms and modernization. The WCO maintains the international Harmonized System (HS) goods nomenclature, and administers the technical aspects of the World Trade Organization (WTO) Agreements on Customs Valuation and Rules of Origin.

Categories of imports Most of the goods are free for exports and imports without obtaining any license, while a few are banned and some others are canalized requiring license, for import and export. So, exporter /importer has to check up whether any license is required before accepting and executing export order or plan to import any goods. Imports have been classified in 3 categories i.e Restricted goods 1. Canalised goods 2. Prohibited goods 3.

Prohibited Items: These items cannot be exported or imported. These items include wild life exotic birds, wood and wood products in the form of logs, timber, pulp and charcoal. Restricted Items: These are the goods that can be exported/imported only with a license, in accordance with regulations governing in this behalf. Canalized Items: Goods, which are canalized, can be imported or exported through the canalizing agency, specified in the Negative List. The Director General of Foreign Trade, may, issue license to any other person to import or export items Goods in this category can be imported only through canalizing agencies. The main canalized items are currently petroleum products, bulk agricultural products, such as grains and vegetable oils, and some pharmaceutical products.. Visit DGFT website www.dgft.gov.in to get all further details

Various Customs related Acts There are various acts enacted in India related to customs. These acts regulate international trade in a transparent manner by controlling illegal trade like drugs and narcotics. These acts prevent the dumping of goods from other countries. The most important customs related acts are Customs Act, 1962 Customs Tariff Act, 1975 Foreign Trade (Development and Regulation) Act, 1992. Foreign Trade Policy Apart from the above, following Acts are also very important Central Excise Tariff Act 1985 Most of them have come under GST Foreign Exchange Management Act 1999 Legal Metrology Act 2009

The Customs Act 1962 XVII Chapters (17) Total sections : 161 Customs Tariff: Total 21 Sections Chapter 98 Chapter 77 is Blank Foreign Trade (Development & Regulation) Act 1992 6 Chapter 20 Sections Foreign Trade Policy 11 Chapters

Important Definitions as per The Customs Act 1962 Chapter 1 Section 2 of The Customs Act 1962 gives all definitions of Customs As per section 2(23) of Customs Act, 'import' with its grammatical variations and cognate expressions, means bringing into India from a place outside India. Section 2(27) of Customs Act defines 'India' as inclusive of territorial waters. What are the territorial waters in customs law? Section 3 of the 'Territorial Waters, Continental Shelf, Exclusive Economic Zone and other Maritime Zone Act, 1976' specifies that territorial water extend upto 12 nautical miles from the base line on the coast of India and include any bay, gulf, harbour, creek or tidal river. Indian customs waters extend upto contiguous( adjoining, adjacent) zone of India which twenty four nautical miles from the nearest point of base line. Thus Indian customs waters extend upto twelve nautical miles beyond territorial waters. One nautical mile is equal to 1.852 km

[(2) "assessment" means determination of the dutiability of any goods and the amount of duty, tax, cess or any other sum so payable, if any, under this Act or under the Customs Tariff Act, 1975 (51 of 1975) (hereinafter referred to as the Customs Tariff Act) or under any other law for the time being in force, with reference to- (a) the tariff classification of such goods as determined in accordance with the provisions of the Customs Tariff Act; (b) the value of such goods as determined in accordance with the provisions of this Act and the Customs Tariff Act; (c) exemption or concession of duty, tax, cess or any other sum, consequent upon any notification issued therefor under this Act or under the Customs Tariff Act or under any other law for the time being in force;

(d) the quantity, weight, volume, measurement or other specifics where such duty, tax, cess or any other sum is leviable on the basis of the quantity, weight, volume, measurement or other specifics of such goods; (e) the origin of such goods determined in accordance with the provisions of the Customs Tariff Act or the rules made thereunder, if the amount of duty, tax, cess or any other sum is affected by the origin of such goods; (f) any other specific factor which affects the duty, tax, cess or any other sum payable on such goods, and includes provisional assessment, self-assessment, re-assessment and any assessment in which the duty assessed is nil ;]

(3) "baggage" includes unaccompanied baggage but does not include motor vehicles; 5[(3A) "beneficial owner" means any person on whose behalf the goods are being imported or exported or who exercises effective control over the goods being imported or exported;] (4) "bill of entry" means a bill of entry referred to in section 46; (5) "bill of export" means a bill of export referred to in section 50; (9) "conveyance" includes a vessel, an aircraft and a vehicle;

(11) "customs area" means the area of a customs station13[or a warehouse] and includes any area in which imported goods or export goods are ordinarily kept before clearance by Customs Authorities; (12) "customs port" means any port appointed under clause (a) of section 7 to be a customs port container depot]; 14[and includes a place appointed under clause (aa) of that section to be an inland (13) "customs station" means any customs port, customs airport terminal, foreign post office] or land customs station; 15[, international courier (14) "dutiable goods" means any goods which are chargeable to duty and on which duty has not been paid;

(15) "duty" means a duty of customs leviable under this Act; (16) "entry" in relation to goods means an entry made in a bill of entry, shipping bill or bill of export and includes16[* * *] the entry made under the regulations made under section 84; (17) "examination", in relation to any goods, includes measurement and weighment thereof; (18) "export", with its grammatical variations and cognate expressions, means taking out of India to a place outside India; (19) "export goods" means any goods which are to be taken out of India to a place outside India; (20) "exporter", in relation to any goods at any time between their entry for export and the time when they are exported, includes17[any owner, beneficial owner] or any person holding himself out to be the exporter;

(22) "goods" includes - (a) vessels, aircrafts and vehicles; (b) stores; (c) baggage; (d) currency and negotiable instruments; and (e) any other kind of movable property;

(23) "import", with its grammatical variations and cognate expressions, means bringing into India from a place outside India; (24)21["arrival manifest or import manifest"] or"import report" means the manifest or report required to be delivered under section 30; (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; (26) "importer", in relation to any goods at any time between their importation and the time when they are cleared for home consumption, includes22[any owner, beneficial owner] or any person holding himself out to be the importer;

(30) "market price", in relation to any goods, means the wholesale price of the goods in the ordinary course of trade in India; (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; (37) "shipping bill" means a shipping bill referred to in section 50; (41) "value", in relation to any goods, means the value thereof determined in accordance with the provisions of31[sub-section (1) or sub-section (2) of Section 14]; 32[(43) "warehouse" means a public warehouse licensed under section 57 or a private warehouse licensed under section 58 or a special warehouse licensed under section 58A;] (44) "warehoused goods" means goods deposited in a warehouse;

Meaning and Scope of Imports What Is an Import? An import is a good or service bought in one country that was produced in another. Imports and exports are the components of international trade. If the value of a country's imports exceeds the value of its exports, the country has a negative balance of trade, also known as a trade deficit. To avoid negative balance of trade more exports and less imports should be effected. Make in India should be one of the best option. Replacing imports by domestic products.

Scope of Imports Economic Significance: Imports and exports are vital components of a nation s economy. They contribute to the Gross Domestic Product (GDP) and can influence a country s balance of trade and balance of payments .Diversification: Imports allow a country to access a wider variety of products and resources, often at competitive prices. Exports enable a nation to capitalize on its strengths, whether in manufacturing, agriculture, or services, by selling to international markets .Global Trade: Imports and exports are the foundation of international trade, facilitating the exchange of goods and services between countries. International trade promotes economic growth and fosters cooperation between nations .

Job Creation: Both imports and exports can generate employment opportunities. Exports create jobs in industries that produce goods or services for foreign markets, while imports can create jobs in distribution, retail, and related sectors. Technology Transfer: Exports can lead to the transfer of technology and know-how to foreign markets, fostering innovation and economic development globally. Imports can provide access to advanced technologies and expertise.

Trade Balances: A countrys trade balance is the difference between its exports and imports. A trade surplus occurs when exports exceed imports, while a trade deficit occurs when imports surpass exports. These balances can have economic and political implication Government Policies: Governments often regulate imports and exports through trade policies, tariffs, and quotas to protect domestic industries, ensure national security, or promote certain sectors of the economy

Global Supply Chains: Imports and exports are integral to global supply chains. Products often pass through multiple countries before reaching consumers, emphasizing the interconnectedness of the global economy. The scope of imports and exports is vast, encompassing economic, political, social, and environmental aspects. They play a pivotal role in shaping a country s economic development and its interactions with the rest of the world

Reason for international trade Cheap Resources Advantage of New technology Non availability in domestic market Government regulations Comparative advantage Faster expansion in the market

Trade Barriers on imports 1. To protect home industries from foreign competition: In most of the developing countries, a majorpartof basic and heavy industries are still in the initial stage. They have high cost of production and low quality of output. Therefore, such industries need protection from outsidecompetitors. 2. To promote new industries and R&D: Developed countries are enriched with technologies that developing countries are still researching and innovating. Thus, it becomes really important to protect these potential developments from any kind of foreign competition.

3. To conserve foreign exchange reserves: When a country indulges in surplus import then it impacts the foreign currency of the nation, hence government uses certain measures, such as quotas and tariffs for ensuring the proper balanceof foreign exchange reserve. 4. To maintain favourable balance of payments: As the name suggests the Balance of Payment (BOP) denotes the gap between inflow and outflow of foreign currency in the economy. When a country has favourable amount of BOP, then it attracts goodwill and more foreign investment for its economic development. Trade barriers imposed by the government plays an important role in import reduction and improving BOP of the nation.

5. To protect national economy from dumping: When an MNC sells its products at price, which is lower than its production cost then it is known as dumping. As an outcome, the domestic manufacturers fail to beat the competition and they withdraw their products and presence from the market. Forcontrolling such situations government may increase tariffs on the dumped goods. 6. To make economy self-reliant: During the beginning stage, budding industries need protection from government. Slowly these protected industries gain strength and stands against the foreign competitors by continuously improving theirquality.

Trade Barriers There are Trade barriers and non trade barriers Trade Barriers Tariff Anti dumping duty Safeguard duty IGST Non Trade barriers Embargo Quota Licensing

Customs Duty Rate of duty Duty Amount Total Amount Assessable value 100000.00 Basic Duty on value 10% 10000 110000 Customs AIDC 10% on basic duty 1000 111000 Agriculture infrastructure and development cess Social welfare surcharge SWC 10% on total duty amount 1100 112100 IGST levy 12% on value + total duty 13452 125552 Total Duty 25.552% 25552.00

Tariff Classification Total 8 Digits under ITC (HS) classification i.e. Indian Trade classification (Harmonised system) Another term is HSN - Hormonised system of Nomenclature First 2 digits Second 2 digits 3rd2 digits 4th2 digits - Chapter no - Heading - Sub heading - Tariff classification

High Sea Sales (HSS) The provisions covering High Sea Sales are contained under Para 2.38 of the Foreign Trade Policy stating Sale of goods on high sea s for import into India may be made subject to FTP or any other law for the time being in force The law is silent on the mode of transportation i.e. Sea or Air. Thus the provision is equally applicable to imports on High Sea Sales by Sea as well as by Air mode.

Meaning of High Sea Sales High Sea Sales (HSS) is a sale carried out by the carrier document consignee to another buyer while the goods are yet on high seas or after their dispatch from the port/ airport of origin and before their arrival at the port / airport of destination. In Simpler Words, It means sale of goods after crossing the Custom barriers of the Foreign Nation but before crossing (entering) the Custom frontiers of India by way of transfer of documents of title of goods, that is, While it is in transit.

Example An importer from Mumbai imports Laptops from Korea While in transit and before crossing the customs frontiers of India, the goods are sold to another buyer in Mumbai This transaction would be considered a high sea sale. The high sea sale agreement needs to be signed after the goods have been dispatched from the origin and before they reach their destination in India. Once the high sea sales agreement is concluded, the ownership is to be transferred in favour of the new buyer. After the high sea sale of the goods, the Customs declarations i.e. Bill of Entry etc is filed by the person who buys the goods from the original importer during the said sale

On concluding the high sea sales agreement, the bill of lading should be endorsed in favour of the buyer. The title of the goods transfers to the buyer and bill of entry is also filed in the name of buyer. Section 7(2) of the IGST Act, 2017, supply of goods imported into the territory of India, till they cross the customs frontiers of India, shall be treated to be a supply of goods in the course of inter-state trade or commerce. However, the time of levy of GST would be different for high sea sales is different.

For high sea sales, the GST Council has decided that IGST on high sea sale transactions of imported goods, whether one or multiple, will be levied and collected only at the time of importation i.e. when the import declarations are filed before the Customs authorities for the customs clearance purposes for the first time. Further, any value addition accruing in each such high sea sale will form part of the value on which IGST is collected at the time of clearance. Thus the final buyer would be responsible for payment of GST on the full value of goods plus any value addition, at time of import.

The last buyer in the chain and importer would be required to furnish the entire chain of documents, such as original invoice, high-seas-sales-contract, details of service charges/commission paid etc, to establish a link between the first contracted price of the goods and the last transaction. Hence, under GST as well, the final buyer in a high sea sales transaction is responsible for payment of GST and providing the necessary documents as required under Customs for clearance of the goods.

Documentation required for High Seal Sales List of documents required to get HSS clearance: Commercial Invoice: Sale invoice for a high sea sales transaction in Indian currency, specifying quantities and rates of the items. Import Invoice: It reflects the original agreement between the consignee and the initial seller. Certificate of Origin: A document indicating the original destination of goods required for customs duties, sanctions, and quality certification, among others. Insurance Certificate: This is the original buyer's insurance for the imported goods, but can also be assigned to the next buyer of the high seas sales transaction. High Sea Sale Agreement (HSS agreement): It is an agreement between the original and subsequent buyers for the delivery of goods after customs clearance. Bill of Lading: Document showing ownership and title of goods during the high sea sale.

Who will claim the input tax credit of GST The final buyer in an HSS agreement can claim Input Tax Credit (ITC) for the GST paid on the transaction. In this type of arrangement, when the original buyer endorses the relevant documents to the subsequent buyer, the original buyer is relieved of the responsibility to pay Customs duty and IGST. Instead, the final buyer has to pay these taxes when they receive the goods. Hence, only the final buyer can then claim the ITC of the IGST they paid.

Public Notice No 145/2002 dt 3.12.2002 It has been clarified that in case where the actual high sea sale contract price is known/ascertainable and the same is more than the CIF value plus 2% of CIF value, as high sea sales charges then the actual sale contract price paid /payable by the high sea sales buyer has to be taken as thevalue for the purposeof dutyassessment.

Bonded Warehouse If any importer does not want to clear the imported goods immediately can deposit thegoods in a Bonded Warehouse without payment of customs duty. Bonded warehouse can be used if an importer .. Does not want to pay duty immediately Does not have space in his warehouse/factory His ordergotcancelled and awaiting new orders Wants to re exportgoods to someothercustomer

File Bond Bill of Entry to store the goods in bonded warehouse Execute Bond and BG File Ex Bond bill of entry to remove the goods on payment of duty for home consumption One can clear entire quantity of goods or even part quantity of goods can also be removed. Goods can be exported from bonded warehouse without payment of duty and on bond shipping bill. General goods can be kept for one year in the bonded stores. Permission from Commissioner of customs needs to be taken to stores goods beyond one year

Chapter IX of The Customs Act 1962 Section 59. Warehousing bond. (1) The importer of any goods in respect of which a bill of entry for warehousing has been presented under section 46 and assessed to duty under section 17 or section 18 shall execute a bond in a sum equal to thrice the amount of the duty assessed on such goods, binding himself- (a) to comply with all the provisions of the Act and the rules and regulations made thereunder in respect of such goods; (b) to pay, on or before the date specified in the notice of demand, all duties and interest payable under sub-section (2) of section 61; and (c) to pay all penalties and fines incurred for the contravention of the provisions of this Act or the rules or regulations, in respect of such goods.