Unit 4: Customs law
Direct and Indirect Tax notes · PTU syllabus (MCOP301-18)
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Unit summary
Customs duty is levied on goods crossing India's borders. This unit covers an overview of customs law, levy and collection of duties, types of customs duties, classification and valuation of goods, exemptions, customs administration, import and export procedures, transportation and warehousing, duty drawback, demand and recovery, confiscation and refunds.
After this unit you can
- Explain the scope of customs law and types of customs duties
- Explain classification and valuation of imported goods
- Explain import and export procedures, warehousing and duty drawback
- Explain demand, recovery, confiscation and refunds
PTU syllabus topics
- Overview of customs law
- levy and collection of customs duties
- types of duties
- classification and valuation of goods
- exemptions
- customs administration
- import/export procedures
- transportation and warehousing
- duty drawback
- demand/recovery
- confiscation and refund
Basic customs duty
Main duty on imports
IGST on imports
In place of countervailing duty
Safeguard duty
Against import surges
Anti-dumping duty
Against goods sold below fair value
Export duty
On a few specified exports
Topic 1
Overview of customs law
- Laws: Customs Act, 1962 (levy, procedures, offences), Customs Tariff Act, 1975 (rates — First Schedule imports, Second Schedule exports), Customs Valuation Rules, 2007; administered by CBIC.
- Constitutional basis: Entry 83 of the Union List — duties of customs including export duties.
- Taxable event: for imports — when goods cross the customs frontier (territorial waters, 12 nautical miles); for exports — when goods leave India.
- Levy (Section 12): duties on goods imported into or exported from India at rates in the Tariff Act; also on goods of government (with exemptions).
Topic 2
Types of customs duties
Basic customs duty (BCD)
Section 12 + First Schedule rates
IGST on imports
Section 3(7) of Customs Tariff Act — creditable
GST compensation cess
On specified luxury/sin goods
Social Welfare Surcharge
10% of aggregate customs duties (on many goods)
Agriculture Infrastructure and Development Cess (AIDC)
On specified goods
Safeguard duty
Against sudden import surges
Anti-dumping duty
Imports below normal value causing injury
Countervailing duty
Against subsidised imports
Export duty
On specified exports (Second Schedule)
Example
Assessable value ₹1,00,000; BCD 10% = ₹10,000; SWS 10% of BCD = ₹1,000; IGST 18% on (1,00,000 + 10,000 + 1,000) = ₹19,980. Total duty = ₹30,980.
Topic 3
Classification and valuation
- Classification: by the Harmonized System (HS) of nomenclature — 21 sections, 97+ chapters, 8-digit tariff lines in India; General Rules for Interpretation (GIR 1–6) decide classification; advance rulings available.
- Valuation (Section 14): transaction value — price actually paid or payable for delivery at the place of importation, when buyer and seller are unrelated (or relationship has not influenced price); includes cost of transport, insurance (CIF), commissions, royalties and licence fees related to goods.
- 1
Transaction value of the goods
- 2
Transaction value of identical goods
- 3
Transaction value of similar goods
- 4
Deductive value
Based on resale price in India
- 5
Computed value
Cost of production + profit
- 6
Residual method
Reasonable means consistent with the Rules
- Exchange rate notified by CBIC on the date of filing the bill of entry.
Topic 4
Exemptions and customs administration
- Exemptions (Section 25): general (notifications in public interest — e.g., concessional BCD for inputs) and special (ad hoc, in exceptional cases); conditional exemptions for EOUs, SEZs, project imports.
- Administration: CBIC → Principal Chief Commissioners → Commissioners of Customs at ports, airports, ICDs and land customs stations; Indian Customs EDI System (ICES) and ICEGATE portal; faceless assessment, risk management system (RMS), Authorised Economic Operator (AEO) programme; Turant Customs.
Topic 5
Import and export procedures; transportation and warehousing
- 1
Import General Manifest (IGM) filed by the carrier
- 2
Bill of entry filed electronically
Home consumption or warehousing
- 3
Assessment
Self-assessment, RMS, faceless assessment
- 4
Payment of duty
e-payment
- 5
Examination (if selected)
- 6
Out-of-charge order
- 7
Goods cleared
- 1Shipping bill filed (ICEGATE)
- 2Goods brought to customs station
- 3Examination and let export order (LEO)
- 4Export General Manifest (EGM) by carrier
- 5Export benefits — drawback, RoDTEP, IGST refund
- Transportation (transit and transhipment): goods for a foreign destination passing through India move under bond without duty (Sections 53–56).
- Warehousing (Chapter IX): importers may deposit goods in a customs bonded warehouse without paying duty until clearance for home consumption (or re-export); Manufacture and Other Operations in Warehouse (MOOWR) scheme (Section 65) allows manufacturing in bond.
Topic 6
Duty drawback, demand, recovery, confiscation and refunds
- Duty drawback: refund of customs (and certain other) duties on imported inputs used in exported goods — Section 74 (re-export of imported goods — up to 98% of duty) and Section 75 (inputs used in manufacture of exports — All Industry Rates).
- Demand and recovery (Section 28): short-levied or non-levied duty can be demanded within 2 years (normal) or 5 years (fraud, wilful misstatement, suppression); interest under Section 28AA; recovery by attachment and sale (Section 142).
- Confiscation and penalties: improperly imported or exported goods liable to confiscation (Sections 111, 113); redemption fine in lieu of confiscation (Section 125); penalties (Sections 112, 114); offences and prosecution (Sections 132–135).
- Refunds (Section 27): application within one year from the date of payment; subject to the principle of unjust enrichment — refund goes to the Consumer Welfare Fund if the incidence was passed on.
Exam tip
Remember the "2-5-1" rule: demand within 2 years (5 with fraud), refund within 1 year.
Key terms
- Customs frontier
- Boundary up to which customs jurisdiction extends (territorial waters)
- Transaction value
- Price actually paid or payable for imported goods
- Bill of entry
- Document filed by the importer for clearance
- Bonded warehouse
- Place where imported goods are stored without paying duty
- Duty drawback
- Refund of duties on inputs used in exports
Quick revision
- Customs Act 1962; Tariff Act 1975; CBIC.
- Duties: BCD, IGST, SWS, AIDC, safeguard, anti-dumping, countervailing, export duty.
- HS classification; valuation methods in sequence.
- Imports: IGM → bill of entry → assessment → duty → out of charge; exports: shipping bill → LEO.
- Drawback (Sections 74, 75); demand 2/5 years; refund 1 year; confiscation.
Important exam questions
Practice questions written to the PTU exam pattern for this unit's syllabus: short answers (Section A style) and long answers (Sections B and C style).
Short-answer questions
- Q1.What is the taxable event for imports?
- Q2.What is basic customs duty?
- Q3.What is anti-dumping duty?
- Q4.What is a bill of entry?
- Q5.What is a bonded warehouse?
- Q6.What is duty drawback?
Long-answer questions
- Q1.Explain the types of customs duties with an illustration.
- Q2.Explain classification and valuation of imported goods.
- Q3.Explain import and export procedures and warehousing.
- Q4.Explain duty drawback, demand, recovery, confiscation and refunds under customs law.
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