Provisions of General SSI exemption
Various concessions are given to small scale industries to encourage their growth and also on account of administrative convenience. Since Excise is a duty on manufacture, it is payable even by a small unit manufacturing the goods. However, it is Government’s policy to encourage growth of small units. Moreover, it is administratively inconvenient and costly to collect revenue from numerous small units. Applying ABC principle, the revenue collected from small units would be negligible compared to the efforts and administrative costs involved. The Govt. has therefore, given various concessions to small scale industries (SSI). The most important notification giving these concessions is notification No. 8/2003 dated 1-3-2003. SSI units whose turnover is less than Rs. 4 crores are eligible for the concessions. If SSI unit does not avail Cenvat on inputs, turnover upto Rs 150 lakhs is fully exempt (The limit was Rs 150 lakhs upto 31-3-2007). If SSI unit avails Cenvat on inputs, it has to pay full normal duty on all its clearances.
Goods not Eligible for SSI concession - Many of goods manufactured by SSI are eligible for the concession. However, some items are not eligible (some of the items not eligible for SSI exemption are eligible for exemption under different notifications. Some are not exempt at all). Thus, SSI exemption is available only if the item is covered in this notification.
Broadly, items generally manufactured by SSI (except in tobacco, matches and textile sector) are eligible for SSI exemption. Some items like pan masala, matches, watches, some textile products, tobacco products, etc. are specifically excluded, even when these can be manufactured by SSI. Some items like automobiles, primary iron and steel etc. are not eligible, but anyway, these are beyond capacity of SSI unit to manufacture.
Goods with other’s brand name not eligible - Goods manufactured by an SSI unit with brand name of others are not eligible for SSI concession, unless goods are manufactured in a rural area. These provisions are discussed later in this Chapter.
Duty payable on goods manufactured for captive consumption, if not eligible for SSI concession - If goods which are not eligible for SSI concession are manufactured by SSI unit for captive consumption, duty will be payable, even if final product is eligible for SSI concession, as correctly held in Super Polyfabriks Ltd. v. CCE 1999(114) ELT 1019 (CEGAT).
SSI units eligible for SSI concession - All industries irrespective of their investment or number of employees are eligible for concession. In fact, even a large industry will be eligible for the concession if its annual turnover is less than Rs. 4 crores. The SSI unit need not be registered with any authority.
Exemption available only if turnover in previous year was less than Rs 4 crores - A unit is entitled for exemption only if its turnover in previous year was less than Rs. 4 crores. Units whose turnover was over Rs. 4 crores in 2004-05 are not eligible to any SSI concession in 2005-06. They have to pay full normal duty from 1st April, 2005.
Goods with other’s brand name not eligible - Goods manufactured with other's brand name are not eligible.
Clubbing of turnover - (a) If the manufacturer has more than one factories (even at different places), the turnover of all factories (belonging to same manufacturer) have to be clubbed together for calculating the SSI exemption limits of Rs 150 or 400 lakhs. (b) It is also possible that more than one manufacturers may clear the goods from the same factory e.g. part of factory may be used by one manufacturer and another part of same factory may be used by another manufacturer. In such cases, all clearances from the factory has to be considered even if the clearance is of different manufacturers for calculating the SSI exemption limits of 150 or 400 lakhs. (c) Some times, a manufacturer may use the factory for part of the year and then another manufacturer may use the same factory for remaining part of the year. In such cases, the turnover of different manufacturers has to be clubbed for calculating the SSI exemption limits of 150 or 400 lakhs, if it is from the same factory. (d) Clubbing is also possible if two units are sham or bogus or if there is unity of interest and practically they are one.
Exemption to be availed for all factories - If a manufacturer has more than one factories, he has to avail the option in respect of all factories. He cannot opt to avail Cenvat in respect of one factory and avail SSI exemption in respect of other factory, as the slab-wise exemption is for all factories of manufacturer together. - CBE&C Circular No. 172/6/96-CX dated 6-2-1996.
Choice of various types of exemption - SSI units have been given two types of exemptions -
(a) Unit can avail full exemption upto Rs 150 lakhs and pay normal duty thereafter. Such units can avail Cenvat credit on inputs only after reaching turnover of Rs 150 lakhs in the financial year. [The full exemption limit of Rs 150 lakhs was increased to Rs 150 lakhs w.e.f. 1-3-2007].
(b) Unit intending to avail Cenvat credit on inputs on all its turnover have to pay normal duty without any concession.
When second option suitable - Option of payment of duty may be suitable in following cases - (a) When buyer intends to claim Cenvat credit. In such cases, the effective cost will be lower as SSI unit can claim Cenvat on inputs (b) When SSI unit intends to export the products and has huge balance in Cenvat credit account. In such cases, he can pay duty and claim rebate after export of goods. Otherwise, the balance may remain unutilised. There is provision to get refund of balance lying in credit in Cenvat Credit account. However, such refund can be only of Cenvat on inputs and not of capital goods.
Option must be indicated, if SSI unit intends to avail Cenvat credit - The first option, i.e. Nil duty upto Rs 150 lakhs and normal duty for subsequent clearances is automatic. However, if assessee wants to avail second option, he must inform option to department. He should inform in writing to Assistant Commissioner with a copy to Superintendent of Central Excise, the following - (a) Name and address of manufacturer (b) Location / locations of factory / factories (c) Description of specified goods produced (d) date from which option under the SSI exemption notification has been exercised. (e) Aggregate value of clearances of specified goods (excluding the value of clearances not covered under SSI exemption notification e.g. goods exempted under any other notification, goods with brand name of other, intermediate products and strips of plastics used for manufacture of sacks or bags). The second option (of paying 150% duty) is available any time during the year, but the option once availed cannot be withdrawn during the financial year.
Cenvat to be reversed if unit decides to opt for exemption - If the unit was availing Cenvat credit prior to 31st March, it will have to pay an amount equivalent to Cenvat credit allowed to him on the inputs lying in stock or used in finished excisable goods lying in stock as on 1st April. If any Cenvat credit on inputs is balance on 31st March, it will lapse on 1st April [Rule 9(2) of Cenvat Credit Rules]. The ‘amount’ is not ‘duty’ and hence, strictly, Cenvat credit of such ‘amount’ paid will not be available.
Cenvat on stock when unit decides to start availing Cenvat credit - The SSI unit can decide to start availing and utilising Cenvat on inputs during middle of the year. When it decides to start availing Cenvat on inputs, it should do following - (a) Submit a letter that it intends to avail Cenvat on inputs lying in stock or contained in finished products on date of declaration. (c) Submit a statement giving stock of inputs lying in stock on date of declaration and duty paid on such stock. [These are not legally prescribed conditions, but it is highly advisable to follow them].
Board has confirmed that Cenvat credit will be available in respect of duty on inputs contained in on stock of raw material, WIP and finished goods when SSI unit crosses the turnover limit and starts paying duty. SSI unit should keep proper records.
The SSI unit cannot avail Cenvat credit in respect of inputs which are already used in manufacture and final product from such inputs is already cleared.
Slabs in SSI excise exemption - Following are slabs in SSI excise exemption.
First slab of 150 lakhs - There is full exemption from excise upto the first clearances of Rs. 150 lakhs, starting from 1st April every year, if the SSI unit does not avail Cenvat credit on inputs. If an SSI unit manufactures goods of different varieties, falling under different Chapter heads and/or in different factories, total exemption considering clearances of all Chapters together and all factories of same manufacturer together, will be Rs. 150 lakhs. An SSI unit can opt for paying full normal duty also.
Second slab after initial 150 lakhs - After the turnover crosses Rs. 150 lakhs, full normal duty is payable. The SSI unit can avail Cenvat credit on inputs in respect of inputs used after turnover crosses Rs 150 lakhs. - . - . - Even if an assessee crosses turnover of Rs. 4 crores, he has to only pay duty at normal rate. The SSI manufacturer does not have to pay duty on earlier turnover for which he had availed concession. [confirmed in Searsole Chemicals v. CCE 1999(113) ELT 435 (CEGAT)]. However, in next year, he will not be able to avail any concession and he has to pay normal rate of duty from 1st April itself.
Excluded turnover for calculating exemption limit of Rs 150 lakhs - While calculating exemption limit of Rs. 150 lakhs, some of turnover of SSI is not to be considered, as explained below. [Note the differences in provisions in calculating limits of Rs 150 lakhs and Rs 400 lakhs].
Clearances of goods exempted under any other notification to be excluded – Some goods may be exempt under some other notification, i.e. other than SSI exemption notification. In some cases, duty may not be payable on such goods for some other reason. Turnover of such goods is not to be considered for calculating exemption limit of Rs 150 lakhs. However, if some intermediate product gets produced, its turnover may be held as includible. [However, this turnover (except clearances to EOU, SEZ, STP, EHTP, UN etc.) will have to be considered for calculating exemption limit of Rs 400 lakhs].
Export turnover to be excluded - The limit of Rs 150 lakhs is of clearance for home consumption, i.e. within India. Export turnover should not be considered for the purpose of calculating the turnover of 150 lakhs.
Exports to Nepal and Bhutan cannot be excluded, i.e. export turnover to Nepal and Bhutan will have to be considered while calculating limit of Rs 150 lakhs. It will be treated as 'clearance for home consumption', even if actually it is 'export'. Exports to Nepal and Bhutan will have to be included whether payment is received in Indian Rupees or in free foreign currency. [Same provision for calculating limit of Rs 400 lakhs].
Export under bond through merchant exporter to be excluded - If the exports are under bond without payment of duty through an export house, these will not be considered for SSI exemption limit i.e. it will be excluded for calculating exempted turnover. This is because, in such case, the clearance is not for 'home consumption'. [Same provision for calculating limit of Rs 400 lakhs].
Turnover of non-excisable goods should be excluded – Some goods are non-excisable, i.e. these are not included in Tariff at all. In such case, its turnover cannot be considered for purpose of exemption limit. [Same provision for calculating limit of Rs 400 lakhs].
Goods manufactured with other’s brand name not to be included - A SSI unit can manufacture goods with brand name belonging to others. Such goods are not exempt from duty and full duty is payable on such goods. This turnover has to be ignored for calculating SSI exemption limits of Rs 150 lakhs. [However, if these goods are manufactured in rural area with other’s brand name, these are exempt upto Rs 150 lakhs. In such case, that turnover will have to be considered for calculating exemption limit of Rs 150 lakhs]. [Same provision for calculating limit of Rs 400 lakhs].
Intermediate products - Value of intermediate products manufactured while producing final products which are eligible for SSI exemption cannot be considered for calculating limits of Rs 150 lakhs, if both intermediate product and final product are eligible for SSI concession. Such intermediate product is fully exempt from duty. - - However, if final product is exempt under any other notification, the value of intermediate product will have to be considered, i.e. included for considering SSI exemption [Same provision for calculating limit of Rs 400 lakhs].
Strips of plastics used within factory - Clearance of strips of plastics used within factory of production for weaving of fabrics or manufacture of sacks or bags made of polymers of ethylene or propylene are exempt. [Same provision for calculating limit of Rs 400 lakhs].
Job work which does not amount to manufacture to be excluded - Job work of test, repairs, reconditioning etc. as this does not amount to ‘manufacture’ i.e. where new and identifiable product does not emerge. [Same provision for calculating limit of Rs 400 lakhs].
Partial exemption if Cenvat on input availed - The full exemption upto Rs 150 lakhs is available only if the unit does not avail Cenvat credit on inputs. However, once the SSI unit starts to avail Cenvat credit and pay duty, he cannot then avail SSI concessional rate of duty for the whole year. However, option to avail Cenvat and pay duty can be availed any time during the year. - CBE&C circular No B-41/2/97-TRU dated 14.7.1997.
Cenvat on capital goods permissible - The SSI unit can avail Cenvat credit on capital goods even if it is availing SSI exemption and not availing Cenvat on inputs. However, the Cenvat credit on capital goods can be utilised only after the turnover reaches 150 lakhs. Even if the capital goods are received during the period when his turnover was less than Rs 150 lakhs, he can take credit only after his turnover crosses Rs 150 lakhs (He should make suitable entries in Cenvat credit on capital goods account, but actually start debiting the account only after turnover crosses Rs 150 lakhs). If the unit pays duty, it can avail and utilise Cenvat both on inputs and capital goods without any restrictions.
How to calculate the SSI exemption limit of Rs 400 lakhs - While calculating turnover of Rs. 400 lakhs, some of turnover of SSI is not to be considered, while some has to be considered, as discussed below. [Note the differences in provisions in calculating limits of Rs 150 lakhs and Rs 400 lakhs].
Turnover to be excluded – While calculating limit of Rs 400 lakhs, following is to be excluded –
Export turnover to be excluded - The limit of Rs 400 lakhs is of clearance for home consumption, i.e. within India. Export turnover should not be considered for the purpose of calculating the turnover of Rs 400 lakhs.
Export under bond through merchant exporter to be excluded - If the exports are under bond without payment of duty through an export house, these will not be considered for SSI exemption limit i.e. it will be excluded for calculating exempted turnover. This is because, in such case, the clearance is not for 'home consumption'.
Deemed exports to be excluded – Goods can be cleared to EOU, SEZ, EHTP or STP unit or to UN or an international organisation without payment of duty. Such clearances are not to be considered for calculating the exemption limit of Rs 400 lakhs. [Same provision for calculating limit of Rs 150 lakhs].
Turnover of non-excisable goods should be excluded – Some goods are non-excisable, i.e. these are not included in Tariff at all. In such case, its turnover cannot be considered for purpose of exemption limit.
Goods manufactured with other’s brand name not to be included - A SSI unit can manufacture goods with brand name belonging to others. Such goods are not exempt from duty and full duty is payable on such goods. This turnover has to be ignored for calculating SSI exemption limits.
However, goods manufactured in rural area under other’s brand name will have to be included.
Intermediate products - Value of intermediate products manufactured while producing final products which are eligible for SSI exemption cannot be considered for calculating limits of Rs 400 lakhs, if both intermediate product and final product are eligible for SSI concession. However, if final product is exempt under any other notification, the value of intermediate products will have to be considered. [Same provision for calculating limit of Rs150 lakhs].
Job work or any proces which does not amount to manufacture to be excluded - Job work of test, repairs, reconditioning etc. is not to be included, as this does not amount to ‘manufacture’ i.e. where new and identifiable product does not emerge. Similarly, if any processing or operation is done which does not amount to manufacture, its value will not be included. - - Goods returned and cleared after processing are not includible as value of goods for clearances can be considered only once and not twice over. – Kusum Chemicals v. CCE 2002(144) ELT 346 (CEGAT).
Strips of plastics used within factory - Clearance of strips of plastics used within factory of production for weaving of fabrics or manufacture of sacks or bags made of polymers of ethylene or propylene are exempt. [Same provision for calculating limit of Rs150 lakhs].
Inputs brought by assessee and cleared as such not to be considered - A unit can clear inputs as such on payment of duty under rule 3(4) of Cenvat Credit Rules [That time rule 57AB(1)(b) - earlier 57F(1)(ii)]. This turnover is not to be considered for calculating clearances of Rs. 150/400 lakhs - Board circular No. 263/30/88-CX.8 dated 27-10-88.
Turnover to be included – While calculating limit of Rs 400 lakhs, following is to be included -
Turnover of goods exempted under other notification to be included – If SSI unit clears goods under some other exemption notification, its turnover will have to be considered i.e. included for calculating exemption limit of Rs 400 lakhs. - - Thus, job work done by SSI unit is exempt under notification No. 214/86-CE or 83/94-CE. This turnover will have to be considered i.e. included for considering exemption limit of Rs 400 lakhs. The valuation will have to be done on basis of material cost plus job charges. - - Similarly, goods exempted under any other notification i.e. other than SSI exemption notification will have to be included. - - However, clearances to EOU, SEZ, EHTP, STP, UN or other international agency without payment of excise duty will not be considered for calculating exemption limit of Rs 400 lakhs. [If goods are excluded under any notification other than SSI exemption notification, that turnover has to be excluded for calculating limit of Rs 150 lakhs].
Goods manufactured in rural area with other’s brand name to be included - If goods are manufactured in rural area with other’s brand name, these are exempt upto Rs 150 lakhs. In such case, that turnover will have to be included for calculating exemption limit of Rs 400 lakhs [Same provision for calculating limit of Rs150 lakhs].
Option to pay full duty to SSI without availing concession - An SSI unit is allowed to pay full duty even if it is entitled to pay concessional duty. He can avail and utilise Cenvat on inputs as well as capital goods. Option once exercised cannot be changed during the year. It is not permissible to pay full duty on part clearance and concessional duty on part of the clearance. The option must be informed in writing to Assistant Commissioner with copy to Superintendent.
This option is useful to SSI units which supply goods to other units which can avail Cenvat of duty paid by SSI. If such option is not available to SSI, the duty paid on inputs used by SSI units is not available for Cenvat credit.
No concession if previous year’s turnover was over four crores - SSI exemption is available only to those units whose turnover was less than Rs. 4 crores in previous financial year (i.e. April to March). If turnover had exceeded Rs. 4 crores in previous year, there is no excise exemption at all and full excise is payable right from the beginning. If turnover exceeds four crores in current year, concession availed during current year need not be refunded, but next year, there will be no SSI concession - confirmed in Searsole Chemicals v. CCE 1999(113) ELT 435 (CEGAT). [Note : the ceiling was Rs. 2 crores in 94-95, which has been increased to Rs. 4 crores in 95-96. Thus, SSI units whose turnover was less than Rs. 4 crores in 2000-01 can avail SSI exemption in 2001-02.]
Only previous year's turnover relevant - In Karnataka Gears v. CCE 1999(110) ELT 529 = 29 RLT 543 (CEGAT), it was held that only previous year's turnover is relevant for purposes of SSI exemption. Turnover in respect of any other past year is not to be considered.
SSI exemption available in respect of goods exported to Nepal & Bhutan - The SSI exemption is available for home consumption, i.e. for consumption within India. However, explanation to SSI exemption notifications make it clear that clearances for home consumption shall also include clearances for export to Bhutan & Nepal. Thus, exports to Nepal & Bhutan will qualify for SSI exemption. In Unitherm Inductoweld v. CCE 2000(123) ELT 1162 (CEGAT), it was held that exports to Nepal will be includible even if the export is under bond without payment of excise duty.
Other Exemptions to small sector - Besides the aforesaid general exemption, there are specific exemptions.
Goods manufactured without aid of power - Some goods are exempt if no process in or in relation to manufacture of these goods is ordinarily carried on with aid of power. Some of these are mentioned in CETA itself and some in a Notification No. 167/86 dated 1-3-86. Apex Court in CCE v. Rajasthan State Chemical Works - 1991 (55) ELT 444 (SC) = (1991) 4 SCC 473 = 1991(2) SCALE 602 have held that process in manufacture or in relation to manufacture implies various stages through which the raw material is subjected to change by different operations. Thus, handling of raw materials or filling of pans are so interrelated that without these manufacturing process is impossible to be completed. Hence, if power is used in any of these operations, it is a case where, in or in relation to the manufacture, the process is carried on ‘with aid of power’.
Goods in rural area by cooperatives - Some goods manufactured by registered cooperatives or institutions recognized by Khadi and Village Commission or Board are exempt. These are : preparations of vegetable or fruits, sauces, laundry soap, foot-wears, calculators, cassettes, radios, black and white TV sets, electric iron and toaster, electronic clocks and watches, synthetic detergents, jute yarn and fabrics. This exemption is available to un-branded goods. If the goods are branded, the exemption is available only if the brand or trade name belongs to (a) the manufacturer producing the goods himself or (b) if it belongs to Khadi & Village Industries Commission or Board, (c) National Small Industries Corporation or State Industries Development Corporation or (d) a State Small Industries Development Corporation. In other words, the exemption is not available if the brand name belongs to a private trader who is not manufacturing those goods (Notification No. 88/88 dated 1-3-88 as amended).
Genuine specified products of village industry - Certain items produced by village industry and marketed by or with assistance of Khadi & Village Industries Commission are exempt from duty. The products include - lac, gum, vegetable products, fireworks, resin acids, articles of vulcanised rubber, articles of leather, articles of wood, ceramic products, furniture etc. [Notification No 198/87-CE dated 28.8.1987].
Procedural concessions to SSI - Following are some procedural concessions to SSI.
quarterly return - The SSI unit availing SSI concession need not submit monthly ER-1 return. They have to submit a quarterly ER-1 return, by 20th of following month.
Payment by 15th of following Month - SSI units have to pay duty by 15th of following month, while large units have to pay duty by 5th of following month. Both have to pay duty in March by end of the month.
Export procedures for SSI - The SSI units not covered under excise provisions have to follow simplified export procedures. They do not have to prepare ARE-1 form etc. The procedure has been discussed in a previous chapter.
Sending material for job work by exempt SSI unit - SSI unit can send his raw materials or semi-finished material to another unit for job work. Such another unit can carry out job work and return to SSI unit without payment of duty. The SSI unit can do further processing on these inputs and clear his final product without duty if his total turnover is below Rs. 150 lakhs.
The SSI unit has to file two declarations with Assistant / Deputy Commissioner for this purpose. The job worker may be a small unit or large unit. The job worker does not have to pay duty if the SSI unit sending goods for job work follows prescribed procedure. - refer notification Nos 83/94 and 84/94 dated 11.4.1994.
Exempted small units Exempt from registration - Exempted small units, having turnover below Rs. 150 lakhs, which are exempt from duty, are also exempt from provisions of registering their unit with excise authorities.
These small units, which are exempt from registration, do not have to follow any other excise formality. However, they have to maintain their own records of manufacture and clearance, to prove that their turnover is less than Rs. 150 lakhs per year.
While calculating the turnover, the export turnover is not to be considered. Thus, even if the export turnover exceeds Rs 150 lakhs, no registration is necessary if domestic turnover ('home consumption' in excise terminology) is less than Rs 150 lakhs - [MF(DR) circular No 284/118/96-CX dated 31.12.1996].
Visit of officers only with prior approval - Excise inspectors, preventive parties and audit parties can visit SSI unit only with specific permission of Assistant Commissioner and for a specific purpose. They have to enter relevant particulars in Visitors book maintained by registered person - CBE&C Circular No. 19/92-Cx.6 dated 18-12-1992. - similar earlier telex F No 233/17/86-CX dated 10.3.1986.
Audit of SSI unit once in two to five years - Audit of SSI units should be done only as per following frequency - (a) Units paying duty of Rs one crore or above (PLA) in financial year should be audited every year. (b) Audit of units paying duty of Rs 10 lakhs (PLA) and above but less than Rs one crore (PLA) in financial year, should be normally audited once in two years. (c) Not more than 20% of units paying duty less than Rs 10 lakhs in a financial year shall be audited every year. Selection will be based on risk pattern as above. [Thus, such small units may be audited only once in five years]. – CBE&C circular No. 580/17/2001-CX dated 29-6-2001.
Branded Goods and SSI
Some large units get their goods manufactured from small unit under their brand name or trade name. For example, Bata gets many of their Chappals made from small units. Similarly, Bajaj Electricals/Philips India etc. get many electrical goods made from small units with Bajaj/Philips brand name. In such cases, the small unit will not be eligible for excise exemption. However, if the small unit manufactures goods under his own brand name, SSI exemption is available. If he manufactures goods bearing brand name of any other person, SSI exemption is not available.
In CCE v. Fine Industries 2002(146) ELT 53 (CEGAT 3 member bench), it was observed that the exemption to SSI is designed to enable the small manufacturer to survive in the market in competition with the ineligible manufacturer (i.e. who sales under a brand name). But if he (i.e. small scale manufacturer) joins or identifies himself with the ineligible manufacturer, his goods become one with the goods of such ineligible manufacturer. In the market they will be understood as one and the same goods. They no longer need the benefit under (SSI exemption) notification. [In this case, it was held that SSI exemption can be denied only if he uses brand name of another manufacturer on the same goods, but he will be eligible to SSI exemption if he manufactures different goods under the same brand name].
SSI exemption is not available if brand name or trade name belongs to a foreign person or a non-manufacturing trader - Namtech Systems Ltd. v. CCE 2000(115) ELT 238 = 36 RLT 35 (CEGAT 5 member bench - 3 v. 2 order). – followed in Ashwin Enterprises v. CCE 2002(147) ELT 1143 (CEGAT) – assessee’s appeal admitted by SC but no stay – 151 ELT A183.
SSI exemption is not available if brand name belongs to a company belonging brother of appellant company’s director. – Alaska Tyres v. CCE 2002(145) ELT 329 (CEGAT).
SSI units manufacturing goods bearing a brand name of another are exempt from duty, if these goods are manufactured in rural area.
SSI exemption is not available only if the brand name or trade is of another person. Thus, if the brand name or trade name does not belong to any another person, SSI exemption will be available to the manufacturer. It is not requirement that the brand name must belong to the SSI manufacturer. The only requirement is that it should not be of another person.
Distinction between house-mark and trade mark - A ‘house mark’ indicates the name of person manufacturing the goods while a trade mark indicates the product by which it is identified or sold. For example, ‘Hindustan Lever’ has a logo identifying it with the company, while it has various brands like ‘Lux’ to identify various products manufactured by it. Of course, some times, both can be same e.g. ‘Godrej’ is house mark, which is also used as brand name on the steel furniture of the company.
A ‘house mark’ is an emblem of manufacturer projecting the image of manufacturer generally. Such ‘house mark’ may be in the form of emblem, word or both. It is used on all the products of manufacturer. On the other hand, a ‘product mark’ or ‘brand name’ is used which is invariably a word or combination of word and letter or numerical by which the product is identified and asked for.
Provisions in respect of brand name - Brand name or trade name means any name or mark such as symbol, monogram, label, signature, or invented word or writing which is used in relation to the goods for the purpose of indicating, or so as to indicate a connection in the course of trade between such goods and some person using such name or mark. The name or mark may or may not indicate identity of that person. The brand name or mark or trade name may or may not be registered. [Definition as per SSI exemption notifications].
Thus, the definition is very wide. Even name of person who markets the goods, if used on the product, may attract the provision, as such name or mark indicates the connection between the goods and person using that name or mark.
Provision applicable in respect of Brand name of final product only - Some SSI units manufacture a component or part which bears the brand name or trade name. These parts are for use by the large manufacturer as a part (Original Equipment part) e.g. (a) a glass bottle may be manufactured by an SSI unit where the name ‘Pepsi’ or ‘Coca-Cola’ is engrossed (b) a SSI unit may manufacture a small component bearing ‘Telco’ mark, where the part will be used by Telco while manufacturing their truck (c) a SSI bag manufacturer may make bags with ‘ACC’ or ‘L&T’ mark and supply it to ACC/ L&T. (d) A small manufacturer may manufacture lock with ‘VIP’ mark, which will be used by manufacturer of VIP Bags as a part of the bag. In such cases, the manufacturer of such parts/components will be eligible for SSI concession.
Brand name is of the goods, not its part - Goods which are only part of an article sold as OE (Original Equipment) to the manufacturer of final product are not covered under the provision of ‘branded goods’, as the brand name is in relation to the goods and not to its component or part e.g. ‘Coca-Cola’ is trade name of the cold drink and not of the bottle.
Brand name should be ‘in course of trade’ - There are two conditions to bring goods in the mischief of SSI exemption notification (a) such brand name must indicate connection with the branded goods and (b) Such connection should be in course of trade. If there is no ‘trade’ of such goods, the brand name provisions will not apply.
Goods bearing foreign brand name not eligible - Use of foreign brand name would dis-entitle the manufacturer of the SSI concession - India Reprographic Systems (P.) Ltd. v. CCE 1995 (75) ELT 112 (CEGAT) - quoted and followed in Sonoma Aromatics (P.) Ltd. v. CCE 1995 (78) ELT 285 (CEGAT) - finally confirmed in Namtech Systems Ltd. v. CCE 2000(115) ELT 238 = 36 RLT 35 (CEGAT 5 member bench - 3 v. 2 order).
Mere marking 'in technical collaboration with - - -' or 'under licence from - - ' is not branding - In Weigand India (P) Ltd. v. CCE 1997(94) ELT 124 (CEGAT), the assessee was manufacturing goods showing his name as manufacturer. The name plate declared that the goods were manufactured in technical collaboration with 'GEA Wiegand GMBH Ltd., West Germany'. This was as per terms of technical collaboration agreement. It was held that this does not amount to use of brand name of another person and SSI exemption is available. – followed in Sonnenflex Abrasives v. CCE 2002(145) ELT 165 (CEGAT), where in fact, ‘Sonnenflex’ was the name of Indian manufacturer as well as foreign collaborator. However, logo of foreign collaborator was not adopted.
Putting name and address of Marketer / distributor - In DCI Pharmaceuticals P Ltd. v. Superintendent 2000(115) ELT 45 (Bom HC DB), it has been held that if SSI unit manufactures goods under his brand name, he will be entitled to SSI concession even if distributor's name and logo are printed on cartons, unless it is established that the distributor also manufactures goods under same brand.
Putting name of service agency - In Demech Erectors v. CCE 1999(110) ELT 831 (CEGAT), it was held that putting name of service agent is not branding. In this case, the manufacturer was putting his own brand 'Pride' on the washing machine. In addition a plate marked ‘Serviced by Racold’ was put.
Brand name for a particular product can be used by another for other product only if registered - If a brand name is registered for a particular product, other manufacturer can use it for another product and in such cases, he will be eligible for normal SSI concession only if the brand name is registered. Similarly, it may happen that a person may be using a brand name or trade name, (belonging to other), for a different product with same brand name. In such cases, the provisions regarding ‘brand name’ will not apply e.g. ‘Maruti’ is brand name of car, but same brand name may be used by some independent person for oil or soap. In such case, manufacture of oil or soap by an SSI unit under ‘Maruti’ brand name will be eligible for SSI concession only if his brand name is registered.
Assignee of brand name is eligible for SSI concession – In P&B Pharmaceuticals v. CCE 2003(153) ELT 14 (SC), it was held that once a logo is assigned, the assignee is entitled to SSI exemption, even if third party or assignor is also using the logo. There is no obligation on owner of a logo to make a roving enquiry to ascertain whether any other person is using his logo and then disclose it to department to avert a possible allegation of suppression of facts.
Concession if goods under brand of Khadi Board - The provision regarding brand name is not applicable if the brand belongs to Khadi and Village Industries Commission or State Khadi and Village Industries Board. Thus, SSI unit making goods under brand name of Khadi and Village Board or Commission will be entitled to the SSI concession.
Brand name not belonging to any one eligible for SSI concession - In lock industry, there is a practice to use a mark or name even though it is not owned by any particular person. Provision of brand name apply if the trade name indicates a connection between specified goods and some person using such name or mark. If there is no person to claim ownership of that mark or name, it does not belong to any person and any body is free to use the name or mark. In such case, units using trade name or brand name, not belonging to any person, are eligible for SSI exemption. - MF(DR) Circular No. 52/52/94-CX dated 1-9-1994]. The principle should be applicable to all goods which are eligible for SSI concession.
Valuation in respect of branded goods manufactured by SSI - The valuation aspect has been discussed in an earlier chapter. However, the summary is highlighted here - (a) If the brand name does not belong to the manufacturing unit, it is not entitled to any SSI concession. It has to pay full normal duty. (b) The duty is payable on the basis of price charged by SSI unit to the brand name owner, if the relationship between the SSI manufacturer and the brand name owner is on 'principal to principal' basis. (c) If the goods are covered under section 4A, i.e. valuation on basis of Maximum Retail Price printed on the carton, the manufacturing unit has to pay duty on basis of MRP printed on the product package, irrespective of the price at which he is selling the product. (d) Brand name owner will not be treated as manufacturer if relations between actual manufacturer and brand name owner are on 'principal to principal' basis.
Exemption if branded goods manufactured in rural area - Excise duty on goods manufactured under other’s brand name will be exempt if these are manufactured in rural area. 'Rural area' means the area comprised in a village as defined in the land revenue records, excluding (i) Area under any municipal committee, municipal corporation, town area committee, cantonment board or notified area committee or (ii) Any area that may be notified as an urban area by State Government or Central Government.
It is highly advisable to obtain certificate from State Government Revenue Authorities that the factory is within the ‘rural area’ as per land revenue records.
It must be noted that this exemption is only in respect of first turnover of Rs 150 lakhs. Full duty is payable for subsequent clearances. Further, if turnover of the SSI manufacturer during previous year was over Rs four crores, he is not entitled to SSI exemption at all and full duty is payable on all clearances during the following financial year without availing exemption.
Clubbing of Clearances of SSI
If the same manufacturer (i.e. firm with same partners or same limited company or same proprietor) has more than one factories, turnover of all the factories will be clubbed together for calculating the limit of Rs. 150 lakhs or 4 crores. Thus, if a manufacturer has one unit at Mumbai with 1.2 crores turnover and another unit at Delhi with 2.1 crores turnover, he will not be entitled to Excise exemption in any of the factories.
Some times, as a tax planning, a manufacturer may start another unit, instead of increasing production in his own factory, so that both units can avail SSI concession. If the other unit belongs to same proprietor or same company or same partnership firm, the turnover of both these units will be added together for purpose of SSI concession. To avoid this, the other unit may be started under different partnership or under different companies. If such other unit is genuinely separate and independent, their turnover will not be clubbed. However, if the other unit is a ‘sham’ or a ‘facade i.e. deceptive front’ or a ‘bogus unit’, the turnover of these two units will be clubbed i.e. considered in total for calculating SSI exemption limit. This is called ‘clubbing of turnover’.
No clubbing of units belonging to Government, Khadi and Village Commission etc. - Central Government, State Government, State Industries Corporation, State Khadi and Village Industries Board, National Small Industries Corporation, State Small Industries Development Corporation or Khadi and Village Industries Commission may hold more than one factories. However, their turnover will not be clubbed and turnover of each factory will be considered separately for calculating the limit of 150/400 lakhs.
Clubbing if more than one manufacturer in same factory - In some cases, more than one manufacturer manufactures the goods in one factory. This usually happens in following cases -
One manufacturer manufactures for part of year and then other - One manufacturer manufactures goods for some part of the year and then sells/transfers the unit. The other manufacturer manufactures in remaining part of the year in the same factory.
More than one manufacturers in one shed - One large shed is hired by numerous small units for manufacturing purposes and each small manufacturer uses a small portion of it. In such case, clubbing provisions will apply. [However, in case of small textile units, such clubbing provision will not apply – see discussions later].
Facilities of one factory used on sharing basis - Facilities of one factory are shared by different manufacturers on time sharing or other basis. In such cases, turnover of all those manufacturers will be clubbed together for calculating the excise exemption limits. - Indica Laboratories v. UOI - 1990 (50) ELT 210 (Guj).
Clubbing if change of ownership during the year - If ownership of factory changes during the year, clearances of previous owner as well as new owner during the year will be clubbed for calculating the value of clearances for purpose of SSI exemption - Gaurav Equipments (P.) Ltd. v. CCE - 1993 (66) ELT 438 (CEGAT).
No Clubbing provisions if two factories belong to different owners - There are various forms of ownership of an industrial unit i.e. (a) proprietorship (b) partnership firm (c) limited or private limited Company (d) Hindu Undivided Family (HUF) (e) Family Trust. All these forms of ownership have separate and distinct existence. Clubbing provisions are applicable if two or more SSI units belong to same proprietor or to same partnership firm or to same private limited company. However, if one unit ‘A’ belongs to a proprietor ‘P’ and other unit ‘B’ belongs to a partnership firm where ‘P’ is one of the partners, turnover of ‘A’ and ‘B’ cannot be clubbed as the partnership has independent legal status different from its partners. Similarly, if ‘A’ belongs to one partnership firm and ‘B’ belongs to another partnership firm where some partners are common in both firms, both the units i.e. ‘A’ and ‘B’ will be entitled to separate excise exemption. Same thing holds true if one unit is a firm and other is a limited Company where some partners of the firm are directors.
No Clubbing if two units are independent and no financial flow back - Clubbing provisions do not apply if both units namely ‘A’ and ‘B’ are genuinely independent units. Often more than one factories are established to avail of excise concession and real owner is same. As explained above, if there are more than one factories and various combinations of ownership are : (a) one belonging to a Proprietor and other to a partnership firm, where proprietor is one of the partners (b) One belongs to a partnership firm and other also to another partnership firm, where some partners are common and some are close relatives (c) One to partnership firm and other to limited Company, where relatives of some partners of the firm are directors in the limited Company. (d) one belongs to HUF and other to firm where Karta of HUF is a partner - Shakti Engg Works v. CCE - 1989 (40) ELT 95 (CEGAT). (e) two belong to limited companies with some common directors - Cosmos (India) Rubber Works (P.) Ltd. v. UOI - 1988 (36) ELT 102 (Bom HC) * ITEC (P.) Ltd. v. CCE - 1992 (57) ELT 639 (CEGAT) (f) Two companies with related directors and common product Padma Packages P Ltd. v. CCE 1997(90) ELT 175 (CEGAT).
Other similar combinations are possible. In all these and similar cases, if these two units are truly independent their turnover cannot be clubbed. However, if the two units are formed with sole or main purpose of saving on excise, these would be sham i.e. bogus units.
Totality of circumstances should be seen - Tribunal has held that the most important test is that if there is no financial control by one over the other and if there is no flow back of profits, the two units will be treated as independent units. Other tests to establish that the two factories are independent are : separate power connection, separate financial arrangements, separate material procurement, separate registration with Government authorities like sales tax, income-tax etc., separate employees etc. In short, if the two units are really independent, their turnover will not be clubbed solely because some partners/directors/their relatives are common.
Common funding and financial flow back are important. Mere circumstance of functioning in adjacent premises and partners being related to one another is not sufficient to warrant clubbing. The factors which would be necessary to consider clubbing are common control of production and sales, management control and special financial inter-linking other than normal commercial transactions. If the combination of circumstances create a pattern indicative of clearances from plurality of units being made by a manufacturer, clubbing would be warranted.- Vir Industries v. CCE 1999(109) ELT 322 (CEGAT). [The decision summarizes major case law in this regard].
Identity of interest should be considered - In H T Bhavnani Chemicals P Ltd. v. CCE 1997(92) ELT 502 (CEGAT), it was held that it is not that financial flow back should be established to justify clubbing of clearance, but the identity of interest among the firms and the intention of partners. In this case, another firm was started when the turnover limit of existing unit was reaching the limit. There was no other reason for establishing another unit.
In Naresh Shroff v. CCE 1997(92) ELT 180 (CEGAT), it was held that two units can be regarded as one only when there is mutuality of interest and both units are functioning as one and also financial flow back and integrity of operations between the two units. Unless these factors are established by evidence on record, it cannot be held that both the units are one and the same entity. In CCE v. Kesharbai Electronic P Ltd. 2000(122) ELT 851 (CEGAT), it was held that two private companies having some common directors cannot be treated as ‘related persons’ unless there is mutuality of interest.
Monday, March 22, 2010
Sunday, March 14, 2010
ICWA Inter Exam Paper Indirect Taxation December 2009 and June 2009
One paper of 100 marks on Applied Indirect Taxation
ICWAI Intermediate - Applied Indirect Taxation December 2009Answer
question No. 1 which is compulsory and any five from the rest.
Q1 (a) State with reasons whether the following is true or false. (i) Parts used for repair or replacement during warranty period are excisable (ii) the conveyances are not allowed to leave India without written permission from the customs authorities. (iii) Central excise authorities cannot raise demands contrary to the approved classification/price list retrospectively (iv) There are common provisions in Customs/Central Excise/ST (v) Delay in filing appeal can be condoned but condonation is not a matter of right (3 x 5 = 15 marks)
Q1(b) Fill up the blanks: (i) Appeals under Central Excise and Customs must be filed within _____ days from the date of communication of order (ii) Exclusive economic zone extends to _____ nautical miles from the base line under the Customs Act. (iii) Compressing and bottling gas ______ (is/is not) manufacture. (iv) Erection of civil structure _______ (is/is not) taxable services. (v) At present deduction _______ (is/is not) available on the basis of equalized freight and Central Excise (vi) Laptop Computer (Note Book Computer) brought as baggage by person above 18 years of age ______ (is/is not) fully exempt from customs duty. (vii) Captive consumption is _______ to duty, value is determined on the basis of cost + _______ %. (viii) Job work is not ________. (ix) Show cause notice issued by an officer beyond his power will be ________. (10 marks)
Q2 (a) Briefly examine the significance of the levy of “anti Dumping” duty under the Customs Tariff Act. (b) Sakti has imported certain goods by AIR. FOB value of goods is $ 2,000, freight $ 500 and insurance $ 50. Rate of Exchange is $ 1 = Rs. 50. Landing charges is 1% of CIF value. Calculate the assessable value for Customs Duty (7+8 = 15 marks)
Q3 Write short notes on any three of the following. (a) Related person under the Central Excise Act. (b) Determination of value when goods are manufactured on job work basis. (c) Transaction value under the Central Excise Act. (d) Special Audit or Cenvat Credit Audit under section 14AA of the Central Excise Act (3 x 5 = 15 marks)
Q4 (a) Explain the provisions of interest on delayed payment under Central Excise and Customs (b) Explain the provisions of the Central Excise Act, 1944 which empower the Central Government not to recover the duties of excise not levied or short levied as a result of general practice. If the duty has been paid despite such practice, is it refundable? (7+8 = 15 marks)
Q5. (a) State briefly whether sales tax will be levied on the following: (i) Shares and Debentures (ii) Sale of newspapers (b) Write notes on – e-payment of excise duty and state whether it is compulsory or not (6+9 = 15 marks)
Q6. (a) State how the VAT system operates (b) What will be the consequences in case the ‘subject goods’ are not used by manufacturer for the purpose specified in the notification? When will the subject goods be deemed as not been used for intended purpose? (c) Discuss the validity or otherwise of the following statements with reasons – (i) Input cleared as such to a job worker on 1.10.2008 was not returned in 180 days, assessable value being Rs. 20,000, Excise duty @ 16.48%, 50% of the inputs were received on 1.04.2009. In this situation no Cenvat will be allowed in the year ending on 31.03.2009 (ii) Purchased a plant for Rs. 1,16,480 cum-duty (excise duty rate 16.48%) on 12.12.2008 and received the plant into factory on 5.4.2009. Cenvat allowed will be only Rs. 8,240 for the year ended on 31.03.2009 (5+5+5 = 15 marks)
Q7. (a) A dealer effected following interstate sales during the quarter January-March 2009. (i) Invoice No. 1 dt. 01.01.09 Rs. 1,02,000 inclusive of tax (ii) Invoice No. 2 dt. 31.01.09 Rs. 50,000 exclusive of tax CST Rs. 1,000 Total Rs. 51,000 (iii) Invoice No. 3 dt. 01.02.09 Rs. 40,800 inclusive of CST (iv) Invoice No. 4 dt. 15.02.09 Rs. 25,500 inclusive of CST (v) Invoice No. 5 dt. 01.03.09 Rs. 2,00,000 exclusive of tax. - - Following further information is given - All registered dealers gave form ‘C’ except purchase of goods of invoice No. 5. 50% of goods pertaining to invoice No. 1 are returned on 21.3.09. 10% of goods pertaining to invoice No. 2 is rejected. CST is 2%, State Sales Tax is 8%. Compute the taxable turnover and tax payable (8 marks) Q7(b) CST is single point tax. Elucidate. A Sells goods worth Rs. 1,00,000 in Delhi to ‘B’ a registered dealer in Madras. B gives ‘C’ form and pays CST of Rs. 2,000/- B sells it to ‘D’ for Rs. 1,10,000 a registered dealer by delivery of R/R and endorsing it on the back of R/R. Is there any CST liability to ‘D’? Q7(c) What is deemed sale in CST? Q7(d) Why certificate in form ‘H’ is necessary to a penultimate exporter? (8+4+2+1 = 15 marks)
Q8. Describe, in brief, the procedure for export of goods under bond as per Rule 13 of C.E. Rules, 1944 (15 marks).
Applied Indirect Taxation – June 2009
Answer question No. 1 which is compulsory and any five from the rest.
Q 1 (a) Fill in the blanks : (i) Goods under Central Excise must be _________ (movable/immovable) and _______ (marketable/packaged). (ii) CETA specifies some ____ (process/operations) as amounting to manufacture. This will be said to be manufactured ______(even if/unless) as per court decisions they do not amount to manufacture. (iii) Processing can amount to manufacture if a _______ (new/existing) and ____ (identifiable/similar) product known in the market emerges (iv) Exclusive economic zone extends to _____ (200/300) nautical miles from the base line of the coast. Beyond ________(100/200) nautical miles is High Seas. (v) General Free Allowance (GFA) under Customs Act is _________(allowed/not allowed) on unaccompanied baggage; GFA is _____ (allowed/not allowed) on alcoholic liquor or wines up two litres (10 marks)
Q 1 (b) State with reasons, whether true or false; (i) Brand owner is considered as manufacturer under Central Excise. (ii) Under Central Sales Tax Act, for an activity to be classified as business, profit motive is immaterial. (iii) The concession under Customs Act for person who is transferring his residence to India whereby he is eligible to bring used personal and household articles to India without duty is applicable to Indian residents returning from overseas after 2 years but not available to foreigners (15 marks)
Q2 (a) What do you understand by transit and transshipment of goods? Under what conditions do they enjoy exemptions from duty under the Customs Act, 1962? (b) The assessable value of an imported item is Rs. 1,00,000. Basic customs duty is 20%, additional duty of customs is 2% and secondary and higher education cess is 1% on duty. No additional duty of customs is chargeable on such goods u/s 3(5) of the Act. Compute the amount of customs duty payable. Also state the amount of credit available to the importer (10+5 = 15 marks)
Q 3 Write short notes on any three of the following: (a) Appeals to appellate authority under CST Act (b) Meaning of “accessory” for excise duty purpose (c) Duty Entitlement Pass Book (DEPB) scheme (d) Special Audit as per S. 14A of Central Excise Act, 1944 (5 x 3 = 15 marks)
Q 4 (a) Who is a job worker? State how is value determined when the goods are manufactured on job work basis. (b) A Ltd. supplies raw material to a job worker J Ltd. After completing the job-work, the finished product of 5, 000 packets are returned to A Ltd. putting the retail sale price as Rs. 20 on each packet. The product in the packet is covered under MRP provisions and 40% abatement is available on it. Determine the assessable value under Central Excise Law from the following details.: Cost of raw material supplies – Rs 28,000, Job worker’s charges including profit – Rs. 9,000/- Transportation charges for sending raw material to the job worker – Rs. 4,000/- Transportation charges for returning the finished packets to A Ltd. – Rs. 4,000/- (9+6 = 15 marks)
Q 5 (a) Outline the provisions relating to registration under service tax. (b) Explain ‘Export of Services’ under service tax. What is the exemption available to exporter of service from service tax? (7+8 = 15 marks)
Q 6 (a) A dealer effected following inter-state sales during the quarter July, 2008-September,2008. (a) Invoice No. 25 dated 5th July, 2008: Rs. 1,12,400 (tax not shown separately), (b) Invoice No. 26, dated 13th August, 2008: Rs. 50,000 plus tax @ 4% i.e. Rs. 2,000, Total Rs. 52,000, (c) Invoice No. 27 dated 18th September, 2008: Rs. 20,000 plus tax @ 4% Rs. 800 i.e. Total Rs. 20,800, (d) Invoice No. 28 dated 27th September, 2008: Rs. 31,200. Tax not shown separately. Goods returned within 6 months were Rs. 8,400 (inclusive of taxes). Sales Tax rate is 4% if goods are sold within the State. What is the turnover and what is tax payable, if the buyers did not issue C Form? (b) What is the impact of VAT on CST? (8+7 = 15 marks)
Q 7 (a) Explain the provisions relating to Cenvat credit on goods, services and capital goods under Central Excise (b) An assessee cleared various manufactured final products during June, 2008. The duty payable for June, 2008 on his final products was as follows: Basic Rs. 2,00,000, Education Cesses-as applicable. During the month, he received various inputs on which total duty paid by suppliers of inputs was as follows: Basic duty Rs. 50,000, Education Cess Rs. 1,000, SAH education Cess Rs. 500. Excise duty paid on capital goods received during the month was as follows: Basic duty Rs. 12,000, Education Cess Rs. 240, SAH Education Cess Rs. 120. Service Tax paid on input services was as follows: Service Tax Rs. 10,000, Education Cess Rs. 200, SAH Education Cess Rs. 100. How much duty the assessee will be required to pay by GAR-7 challan for the month of June 2008, if assessee had no opening balance in PLA account? What is last date for payment? (8+7 = 15 marks)
Q 8 (a) Mention briefly any five illustrative cases under the Customs, Central Excise Duties and Service Tax Drawback Rules, 1995, where all industry Drawback rate will not apply. (b) Write notes on Special Brand Rate. (c) ABC Co. Ltd. provided services valuing Rs. 8 lakhs during the financial year 2007-08. During 2008-09, it has provided taxable services valuing Rs. 10 lakhs and has received payments towards payable services Rs. 8.5 lakhs. It has also received services in the nature of transport of goods by road valuing Rs. 50,000, in respect of which it is the person liable to pay service tax. Compute the service tax, if any, payable by ABC Co. Ltd. for the financial year 2008-09. It is given that goods transport service is exempt to the extent of 75% of value thereof (6+4+5 = 15 marks).
Applied Indirect Taxation – December 2008
Answer question No. 1 which is compulsory and any five from the rest.
Q 1(a) Fill in the blanks: (i) Goods covered by Central Excise Tariff but fully exempt from duty are ______ (excisable/not excisable) (ii) SSI units whose turnover exceeds Rs. ______ per annum have to furnish declaration in prescribed form for Central Excise purposes. (iii) Basic Customs duty is levied under section _______ of the Customs Act. (iv) Compressing and bottling gas ________ (is/is not) manufacture. (v) A secondary and higher education cess of ______ (1%/2%) has been imposed on services liable to service tax under the Finance Act, 2007. (vi) Affixing brand name, labelling or re-labelling and repacking from bulk pack to small pack of readymade garment ________ (is/is not) manufacture. (vii) Cenvat credit ______ (can/can not) be utilised for payment of service tax on output service. (viii) In case of Central Excise and Customs, appeals must be filed within ______ days from the date of communication of order. (ix) Job work done under Cenvat provisions _____ (is/is not) exempt from service tax. (x) Finance Act, 1994 which contains provisions relating to service tax ______ (does/does not) provide for criminal liability in service tax matter [1 x 10 = 10 marks]
Q1 (b) State with reasons, whether True or False: (i) Cenvat credit on capital goods can be availed in full in the year of purchase. (ii) Security demanded from dealer under the Central Sales Tax Act, 1956 can be satisfied in the form of Security Bond. (iii) Wastes and scrap are always treated as excisable goods. (iv) In case of delayed payment of service tax the assessee has to pay simple interest @ 13% for the period for which the payment is delayed. (v) Excise duty is payable on all sample, even if given free [3 x 5 = 15 marks]
Q 2(a) Briefly explain the procedure for assessment and clearance of imported goods through a customs sea port under the Customs Act, 1962. (b) Customs value (Assessable value of imported goods) is Rs. 4,00,000. Basic customs duty payable is 10%. If the goods were produced in India, excise duty would have been 16%. Education cess is as applicable. Special CVD is at appropriate rates. Find the customs duty payable. How much Cenvat can be availed of by importer if he is manufacturer? [8+7 = 15 marks]
Q 3(a) Distinguish ‘Zero rated sale’ and ‘exempt sale’ with reference to VAT. (b) Write notes on - (i) Doctrine of unjust enrichment in case of refunds under Central Excise and Customs. (ii) Appeals under service tax [5 + 5x2 = 15 marks]
Q 4(a) State the provisions relating to general exemption available to small service providers. (b) State briefly the provisions for valuation of taxable services for charging Service Tax [7+8 = 15 marks]
Q 5(a) State with reasons whether sales tax will be levied on the following (any two): (i) Sale of newspapers (ii) Development of software for marketing (iii) Shares and debentures (b) Write short note on taxable turnover [5x2 + 5 = 15 marks]
Q 6(a) What is special Audit under section 14AA of CEA? (Cenvat credit Audit) (b) Who can conduct such audit? (c) Who can order such audit? (d) What is the time limit for submission of report? [4+3+4+4 = 15 marks]
Q 7(a) Determine the value of a product and excise duty payable on the basis of following data (i) Goods sold at Depot Price 20,000, Fright from factory to Depot 500, Insurance 500, Octroi 1200, State VAT 800, CE 16%, Education Cess 2% SAH Cess 1% (ii) Complete AV2CE if the goods are used for captive consumption. Assume cost of production is 80% of the invoice price in above question. (b) Write short note on Exemption to Small Scale Industry units [6+4+5 = 15 marks]
Q8(a) A Dealer effected following inter state sales during 2nd quarter of 2008. Invoice No. 1 Dt.1st August,08 – Rs. 20,000 + C.S.T. 3%, Invoice No. 2 Dt. 15th August, 08 – Rs. 70,000 + T. 3%, Invoice No. 3 Dt. 31st August, 08 – Rs. 51, 500 tax not shown, Invoice No. 4 Dt. 15th October, 08 – Rs. 15,000 + 3% S.T., Invoice No. 5 dt. 31st October, 08 – Rs. 20,000 + 3% S.T. Goods worth 5,000 exclusive of Tax were returned from Invoice No. 4 within 6 months. Compute turn over and C.S.T. making necessary assumption. (b) Offences under C.S.T. are cognizable mention a few. (c) Ability to pay is one of the most important cannons of Taxation [8+3+4 = 15 marks]
ICWAI Intermediate - Applied Indirect Taxation December 2009Answer
question No. 1 which is compulsory and any five from the rest.
Q1 (a) State with reasons whether the following is true or false. (i) Parts used for repair or replacement during warranty period are excisable (ii) the conveyances are not allowed to leave India without written permission from the customs authorities. (iii) Central excise authorities cannot raise demands contrary to the approved classification/price list retrospectively (iv) There are common provisions in Customs/Central Excise/ST (v) Delay in filing appeal can be condoned but condonation is not a matter of right (3 x 5 = 15 marks)
Q1(b) Fill up the blanks: (i) Appeals under Central Excise and Customs must be filed within _____ days from the date of communication of order (ii) Exclusive economic zone extends to _____ nautical miles from the base line under the Customs Act. (iii) Compressing and bottling gas ______ (is/is not) manufacture. (iv) Erection of civil structure _______ (is/is not) taxable services. (v) At present deduction _______ (is/is not) available on the basis of equalized freight and Central Excise (vi) Laptop Computer (Note Book Computer) brought as baggage by person above 18 years of age ______ (is/is not) fully exempt from customs duty. (vii) Captive consumption is _______ to duty, value is determined on the basis of cost + _______ %. (viii) Job work is not ________. (ix) Show cause notice issued by an officer beyond his power will be ________. (10 marks)
Q2 (a) Briefly examine the significance of the levy of “anti Dumping” duty under the Customs Tariff Act. (b) Sakti has imported certain goods by AIR. FOB value of goods is $ 2,000, freight $ 500 and insurance $ 50. Rate of Exchange is $ 1 = Rs. 50. Landing charges is 1% of CIF value. Calculate the assessable value for Customs Duty (7+8 = 15 marks)
Q3 Write short notes on any three of the following. (a) Related person under the Central Excise Act. (b) Determination of value when goods are manufactured on job work basis. (c) Transaction value under the Central Excise Act. (d) Special Audit or Cenvat Credit Audit under section 14AA of the Central Excise Act (3 x 5 = 15 marks)
Q4 (a) Explain the provisions of interest on delayed payment under Central Excise and Customs (b) Explain the provisions of the Central Excise Act, 1944 which empower the Central Government not to recover the duties of excise not levied or short levied as a result of general practice. If the duty has been paid despite such practice, is it refundable? (7+8 = 15 marks)
Q5. (a) State briefly whether sales tax will be levied on the following: (i) Shares and Debentures (ii) Sale of newspapers (b) Write notes on – e-payment of excise duty and state whether it is compulsory or not (6+9 = 15 marks)
Q6. (a) State how the VAT system operates (b) What will be the consequences in case the ‘subject goods’ are not used by manufacturer for the purpose specified in the notification? When will the subject goods be deemed as not been used for intended purpose? (c) Discuss the validity or otherwise of the following statements with reasons – (i) Input cleared as such to a job worker on 1.10.2008 was not returned in 180 days, assessable value being Rs. 20,000, Excise duty @ 16.48%, 50% of the inputs were received on 1.04.2009. In this situation no Cenvat will be allowed in the year ending on 31.03.2009 (ii) Purchased a plant for Rs. 1,16,480 cum-duty (excise duty rate 16.48%) on 12.12.2008 and received the plant into factory on 5.4.2009. Cenvat allowed will be only Rs. 8,240 for the year ended on 31.03.2009 (5+5+5 = 15 marks)
Q7. (a) A dealer effected following interstate sales during the quarter January-March 2009. (i) Invoice No. 1 dt. 01.01.09 Rs. 1,02,000 inclusive of tax (ii) Invoice No. 2 dt. 31.01.09 Rs. 50,000 exclusive of tax CST Rs. 1,000 Total Rs. 51,000 (iii) Invoice No. 3 dt. 01.02.09 Rs. 40,800 inclusive of CST (iv) Invoice No. 4 dt. 15.02.09 Rs. 25,500 inclusive of CST (v) Invoice No. 5 dt. 01.03.09 Rs. 2,00,000 exclusive of tax. - - Following further information is given - All registered dealers gave form ‘C’ except purchase of goods of invoice No. 5. 50% of goods pertaining to invoice No. 1 are returned on 21.3.09. 10% of goods pertaining to invoice No. 2 is rejected. CST is 2%, State Sales Tax is 8%. Compute the taxable turnover and tax payable (8 marks) Q7(b) CST is single point tax. Elucidate. A Sells goods worth Rs. 1,00,000 in Delhi to ‘B’ a registered dealer in Madras. B gives ‘C’ form and pays CST of Rs. 2,000/- B sells it to ‘D’ for Rs. 1,10,000 a registered dealer by delivery of R/R and endorsing it on the back of R/R. Is there any CST liability to ‘D’? Q7(c) What is deemed sale in CST? Q7(d) Why certificate in form ‘H’ is necessary to a penultimate exporter? (8+4+2+1 = 15 marks)
Q8. Describe, in brief, the procedure for export of goods under bond as per Rule 13 of C.E. Rules, 1944 (15 marks).
Applied Indirect Taxation – June 2009
Answer question No. 1 which is compulsory and any five from the rest.
Q 1 (a) Fill in the blanks : (i) Goods under Central Excise must be _________ (movable/immovable) and _______ (marketable/packaged). (ii) CETA specifies some ____ (process/operations) as amounting to manufacture. This will be said to be manufactured ______(even if/unless) as per court decisions they do not amount to manufacture. (iii) Processing can amount to manufacture if a _______ (new/existing) and ____ (identifiable/similar) product known in the market emerges (iv) Exclusive economic zone extends to _____ (200/300) nautical miles from the base line of the coast. Beyond ________(100/200) nautical miles is High Seas. (v) General Free Allowance (GFA) under Customs Act is _________(allowed/not allowed) on unaccompanied baggage; GFA is _____ (allowed/not allowed) on alcoholic liquor or wines up two litres (10 marks)
Q 1 (b) State with reasons, whether true or false; (i) Brand owner is considered as manufacturer under Central Excise. (ii) Under Central Sales Tax Act, for an activity to be classified as business, profit motive is immaterial. (iii) The concession under Customs Act for person who is transferring his residence to India whereby he is eligible to bring used personal and household articles to India without duty is applicable to Indian residents returning from overseas after 2 years but not available to foreigners (15 marks)
Q2 (a) What do you understand by transit and transshipment of goods? Under what conditions do they enjoy exemptions from duty under the Customs Act, 1962? (b) The assessable value of an imported item is Rs. 1,00,000. Basic customs duty is 20%, additional duty of customs is 2% and secondary and higher education cess is 1% on duty. No additional duty of customs is chargeable on such goods u/s 3(5) of the Act. Compute the amount of customs duty payable. Also state the amount of credit available to the importer (10+5 = 15 marks)
Q 3 Write short notes on any three of the following: (a) Appeals to appellate authority under CST Act (b) Meaning of “accessory” for excise duty purpose (c) Duty Entitlement Pass Book (DEPB) scheme (d) Special Audit as per S. 14A of Central Excise Act, 1944 (5 x 3 = 15 marks)
Q 4 (a) Who is a job worker? State how is value determined when the goods are manufactured on job work basis. (b) A Ltd. supplies raw material to a job worker J Ltd. After completing the job-work, the finished product of 5, 000 packets are returned to A Ltd. putting the retail sale price as Rs. 20 on each packet. The product in the packet is covered under MRP provisions and 40% abatement is available on it. Determine the assessable value under Central Excise Law from the following details.: Cost of raw material supplies – Rs 28,000, Job worker’s charges including profit – Rs. 9,000/- Transportation charges for sending raw material to the job worker – Rs. 4,000/- Transportation charges for returning the finished packets to A Ltd. – Rs. 4,000/- (9+6 = 15 marks)
Q 5 (a) Outline the provisions relating to registration under service tax. (b) Explain ‘Export of Services’ under service tax. What is the exemption available to exporter of service from service tax? (7+8 = 15 marks)
Q 6 (a) A dealer effected following inter-state sales during the quarter July, 2008-September,2008. (a) Invoice No. 25 dated 5th July, 2008: Rs. 1,12,400 (tax not shown separately), (b) Invoice No. 26, dated 13th August, 2008: Rs. 50,000 plus tax @ 4% i.e. Rs. 2,000, Total Rs. 52,000, (c) Invoice No. 27 dated 18th September, 2008: Rs. 20,000 plus tax @ 4% Rs. 800 i.e. Total Rs. 20,800, (d) Invoice No. 28 dated 27th September, 2008: Rs. 31,200. Tax not shown separately. Goods returned within 6 months were Rs. 8,400 (inclusive of taxes). Sales Tax rate is 4% if goods are sold within the State. What is the turnover and what is tax payable, if the buyers did not issue C Form? (b) What is the impact of VAT on CST? (8+7 = 15 marks)
Q 7 (a) Explain the provisions relating to Cenvat credit on goods, services and capital goods under Central Excise (b) An assessee cleared various manufactured final products during June, 2008. The duty payable for June, 2008 on his final products was as follows: Basic Rs. 2,00,000, Education Cesses-as applicable. During the month, he received various inputs on which total duty paid by suppliers of inputs was as follows: Basic duty Rs. 50,000, Education Cess Rs. 1,000, SAH education Cess Rs. 500. Excise duty paid on capital goods received during the month was as follows: Basic duty Rs. 12,000, Education Cess Rs. 240, SAH Education Cess Rs. 120. Service Tax paid on input services was as follows: Service Tax Rs. 10,000, Education Cess Rs. 200, SAH Education Cess Rs. 100. How much duty the assessee will be required to pay by GAR-7 challan for the month of June 2008, if assessee had no opening balance in PLA account? What is last date for payment? (8+7 = 15 marks)
Q 8 (a) Mention briefly any five illustrative cases under the Customs, Central Excise Duties and Service Tax Drawback Rules, 1995, where all industry Drawback rate will not apply. (b) Write notes on Special Brand Rate. (c) ABC Co. Ltd. provided services valuing Rs. 8 lakhs during the financial year 2007-08. During 2008-09, it has provided taxable services valuing Rs. 10 lakhs and has received payments towards payable services Rs. 8.5 lakhs. It has also received services in the nature of transport of goods by road valuing Rs. 50,000, in respect of which it is the person liable to pay service tax. Compute the service tax, if any, payable by ABC Co. Ltd. for the financial year 2008-09. It is given that goods transport service is exempt to the extent of 75% of value thereof (6+4+5 = 15 marks).
Applied Indirect Taxation – December 2008
Answer question No. 1 which is compulsory and any five from the rest.
Q 1(a) Fill in the blanks: (i) Goods covered by Central Excise Tariff but fully exempt from duty are ______ (excisable/not excisable) (ii) SSI units whose turnover exceeds Rs. ______ per annum have to furnish declaration in prescribed form for Central Excise purposes. (iii) Basic Customs duty is levied under section _______ of the Customs Act. (iv) Compressing and bottling gas ________ (is/is not) manufacture. (v) A secondary and higher education cess of ______ (1%/2%) has been imposed on services liable to service tax under the Finance Act, 2007. (vi) Affixing brand name, labelling or re-labelling and repacking from bulk pack to small pack of readymade garment ________ (is/is not) manufacture. (vii) Cenvat credit ______ (can/can not) be utilised for payment of service tax on output service. (viii) In case of Central Excise and Customs, appeals must be filed within ______ days from the date of communication of order. (ix) Job work done under Cenvat provisions _____ (is/is not) exempt from service tax. (x) Finance Act, 1994 which contains provisions relating to service tax ______ (does/does not) provide for criminal liability in service tax matter [1 x 10 = 10 marks]
Q1 (b) State with reasons, whether True or False: (i) Cenvat credit on capital goods can be availed in full in the year of purchase. (ii) Security demanded from dealer under the Central Sales Tax Act, 1956 can be satisfied in the form of Security Bond. (iii) Wastes and scrap are always treated as excisable goods. (iv) In case of delayed payment of service tax the assessee has to pay simple interest @ 13% for the period for which the payment is delayed. (v) Excise duty is payable on all sample, even if given free [3 x 5 = 15 marks]
Q 2(a) Briefly explain the procedure for assessment and clearance of imported goods through a customs sea port under the Customs Act, 1962. (b) Customs value (Assessable value of imported goods) is Rs. 4,00,000. Basic customs duty payable is 10%. If the goods were produced in India, excise duty would have been 16%. Education cess is as applicable. Special CVD is at appropriate rates. Find the customs duty payable. How much Cenvat can be availed of by importer if he is manufacturer? [8+7 = 15 marks]
Q 3(a) Distinguish ‘Zero rated sale’ and ‘exempt sale’ with reference to VAT. (b) Write notes on - (i) Doctrine of unjust enrichment in case of refunds under Central Excise and Customs. (ii) Appeals under service tax [5 + 5x2 = 15 marks]
Q 4(a) State the provisions relating to general exemption available to small service providers. (b) State briefly the provisions for valuation of taxable services for charging Service Tax [7+8 = 15 marks]
Q 5(a) State with reasons whether sales tax will be levied on the following (any two): (i) Sale of newspapers (ii) Development of software for marketing (iii) Shares and debentures (b) Write short note on taxable turnover [5x2 + 5 = 15 marks]
Q 6(a) What is special Audit under section 14AA of CEA? (Cenvat credit Audit) (b) Who can conduct such audit? (c) Who can order such audit? (d) What is the time limit for submission of report? [4+3+4+4 = 15 marks]
Q 7(a) Determine the value of a product and excise duty payable on the basis of following data (i) Goods sold at Depot Price 20,000, Fright from factory to Depot 500, Insurance 500, Octroi 1200, State VAT 800, CE 16%, Education Cess 2% SAH Cess 1% (ii) Complete AV2CE if the goods are used for captive consumption. Assume cost of production is 80% of the invoice price in above question. (b) Write short note on Exemption to Small Scale Industry units [6+4+5 = 15 marks]
Q8(a) A Dealer effected following inter state sales during 2nd quarter of 2008. Invoice No. 1 Dt.1st August,08 – Rs. 20,000 + C.S.T. 3%, Invoice No. 2 Dt. 15th August, 08 – Rs. 70,000 + T. 3%, Invoice No. 3 Dt. 31st August, 08 – Rs. 51, 500 tax not shown, Invoice No. 4 Dt. 15th October, 08 – Rs. 15,000 + 3% S.T., Invoice No. 5 dt. 31st October, 08 – Rs. 20,000 + 3% S.T. Goods worth 5,000 exclusive of Tax were returned from Invoice No. 4 within 6 months. Compute turn over and C.S.T. making necessary assumption. (b) Offences under C.S.T. are cognizable mention a few. (c) Ability to pay is one of the most important cannons of Taxation [8+3+4 = 15 marks]
Friday, March 5, 2010
Valuation Excise Duty
Value for purpose of Customs Act
· Customs duty is payable as a percentage of ‘Value’ often called ‘Assessable Value’ or ‘Customs Value'. The Value may be either (a) ‘Value’ as defined in section 14(1) of Customs Act or (b) Tariff value prescribed under section 14(2) of Customs Act (section amended w.e.f. 10-10-2007)
· Transaction value at the time and place of importation or exportation, when price is sole consideration and buyer and sellers are unrelated is the basic criteria for ‘value’ u/s 14(1) of Customs Act. Thus, CIF value in case of imports and FOB value in case of exports is relevant.
· In case of high sea sale, price charged by importer to assessee would form the assessable value and not the invoice issued to the importer by foreign supplier. – National Wire v. CC 2000(122) ELT 810 (CEGAT) * Godavari Fertilizers v. CC (1996) 81 ELT 535 (CEGAT).
· Rate of exchange will be as determined by CBE&C or ascertained in manner determined by CBE&C.
· Valuation for customs is required to be done as per provisions of Customs Valuation (Determination of Value of Imported Goods) Rules, 2007
· CIF value of goods plus 1% landing charges is the basis for deciding ‘Assessable Value’.
· Commission to local agents, packing cost, value of goods and toolings supplied by buyer, royalty relating to imported goods are addible.
· Interest on deferred payment, demurrage and value of computer software loaded is not to be added.
· Old machinery and old cars are often valued on basis of depreciated value, though such method has no sanction of law.
20.3-1 Additions to ‘Customs Value’
Rule 10 of Customs Valuation (Determination of Value of Imported Goods) Rules, 2007 [Rule 9 upto 10-10-2007] provide that following cost and services are to be added, if these are not already included in the invoice price. –
· Commission and brokerage, except buying Commission, if not already included in the invoice price [rule 10(1)(a)(i)].
· Cost of container which are treated as being one with the goods for customs purposes, if not already included in the invoice price [rule 10(1)(a)(ii)].
· Cost of packing whether labour or materials, if not already included in the invoice price [rule 10(1)(a)(iii)].
· Materials, components, tools, dies, moulds, and consumables used in production of imported goods, supplied by buyer directly or indirectly, free of charge or at reduced cost, to the extent not already included in price [rule 10(1)(b)(i), (ii) and (iii)]
· Engineering, development, art work, design work, plans and sketches undertaken elsewhere than in India and necessary for production of imported goods, to the extent not already included in price [rule 10(1)(b)(iv)].
· Royalties and license fees relating to imported goods that buyer is required to pay, directly or indirectly, as a condition of sale of goods being valued [rule 10(1)(c)]
· Value of proceeds of subsequent resale, disposal or use of goods that accrues directly or indirectly to seller (i.e. to foreign exporter) [rule 10(1)(d)]
· All other payments made as condition of sale of goods being valued made directly or to third party to satisfy obligation of seller, to the extent not included in the price [rule 10(1)(e)]
· Cost of transport upto place of importation [rule 10(2)(a)]
· Loading, unloading and handling charges associated with delivery of imported goods at place of importation [These are termed as landing charges and are to be taken as 1%] [rule 10(2)(b)]
· Cost of insurance [rule 10(2)(c)]
The additions should be on the basis of objective and quantifiable data [rule 10(3) of Customs Valuation (Determination of Value of Imported Goods) Rules, 2007 (earlier rule 9(3)].
No other additions - No other addition shall be made to price paid or payable, except as provided for in rule 10.
Royalty payment un-connected with imported goods not to be added - UOI v. Mahindra and Mahindra Ltd. 76 ELT 481 = 1995 AIR SCW 1519 (SC) * S D Technical Service v. CC 2003 (155) ELT 274 = 56 RLT 970 (CEGAT 3 member bench).
Barging/lighterage charges includible – explanation to rule 10(2) (w.e.f. 10-10-2007)
Landing charges of 1% of CIF value to be added - Rule 10(2)(b).
Ship demurrage includible w.e.f. 10-10-2007 - explanation to rule 10(2)
20.3-2 Exclusions from Assessable Value
Interpretative Note to rule 3 of Customs Valuation (Determination of Value of Imported Goods) Rules, 2007provide that following charges shall be excluded :
(a) Charges for construction, erection, assembly, maintenance or technical assistance undertaken after importation of plant, machinery or equipment
(b) Cost of transport after importation
(c) Duties and taxes in India
Other payments from buyer to seller that do not relate to imported goods are not part of the customs value.
Demurrage charges payable to port trust authorities for delay in clearing goods are not to be added . - Deepak Fertilisers v. CC 1989(41) ELT 550 (CEGAT) * Hindustan Lever v. UOI 2002(142) ELT 33 (Cal HC). [However, ship demurrage is includible w.e.f. 10-10-2007].
Ship demurrage includible w.e.f. 10-10-2007 - explanation to rule 10(2)
20.3-3 Methods of Valuation
The methods of valuation for customs methods are as follows -
· Transaction Value of Imported goods [Section 14(1) and Rule 3(1)]
· Transaction Value of Identical Goods [Rule 4]
· Transaction Value of Similar Goods [Rule 5]
· Deductive Value which is based on identical or similar imported goods sold in India [Rule 7]
· Computed value which is based on cost of manufacture of goods plus profits [Rule 8]
· Residual method based on reasonable means and data available [Rule 9]
Methods to be applied sequentially - These methods are to be applied in sequential order, i.e. if method one cannot be applied, then method two comes into force and when method two also cannot be applied, method three should be used and so on. The only exception is that the ‘computed value’ method may be used before ‘deductive value’ method, if the importer requests and Assessing Officer permits.
20.3-4 Rejection of' Value' - Importer has to declare 'value' of goods. If the assessing officer has reason to doubt about truth or accuracy of the value declared by the importer, he can ask the importer to submit further information and evidence. If the customs officer still has reasonable doubt, he can reject the 'value' as declared by the importer. [rule 12(1) w.e.f. 10-10-2007 – earlier rule 10A(1) of Customs Valuation Rules added w.e.f. 19-2-1998]. If the importer requests, the assessing officer has to give reasons for doubting the truth or accuracy of value declared by importer. [rule 12(2) of Customs Valuation (Determination of Value of Imported Goods) Rules, 2007 – earlier rule 10A(2) of Customs Valuation Rules upto 10-10-2007].
Rule 12 is only mechanism to reject the declared value – As per explanation (1)(i) to rule 12, the Rule 12 does not provide any method for determination of value. It only provides mechanism to reject declared value, where there is reasonable doubt. If transaction value is rejected, valuation has to be done as per rule 4 to 9 [Explanation (1)(i) to rule 12 of Customs Valuation (Determination of Value of Imported Goods) Rules, 2007].
20.3-5 Export Goods - Valuation for Assessment
Customs value of export goods is to be determined under section 14 of Customs Act, read with Customs Valuation (Determination of Value of Export Goods), Rules, 2007. Transaction value at the time and place of exportation, when price is sole consideration and buyer and sellers are unrelated is the basic criteria If there is no sale or buyer or seller are related or price is not the sole consideration, value of the goods will be determined as per Valuation Rules [Clause (ii) of second proviso to section 14(1)].
Valuation when buyer and seller are related – Definition of related person as per rule 2(2) of Customs Valuation (Determination of Value of Export Goods) Rules, 2007 is same as per definition of rule 2(2) of Customs Valuation (Determination of Value of Imported Goods) Rules, 2007.
As per rule 3(2) of Customs Valuation (Determination of Value of Export Goods) Rules, 2007, the transaction value, the transaction value will be accepted as ‘value’ even if buyer and seller are ‘related’, if the relationship has not influenced price.
Valuation if value cannot be determined on basis of transaction value – If valuation is not possible on basis of transaction value, valuation will be done by proceeding sequentially through rules 4 to 6 [Rule 3(3) of Customs Valuation (Determination of Value of Export Goods) Rules, 2007].
The methods are - Export value by comparison on the basis of transaction value of ‘goods of like kind and quality’ exported at or about the same time to other buyers in same destination country [Rule 4}, Computed value on basis of cost of production plus profit [Rule 5] and Residual method using reasonable means consistent with principles and general provisions of rules [Rule 6].
Rejection of value as declared by exporter - As per rule 7 of Customs Valuation (Determination of Value of Export Goods) Rules, 2007, the exporter has to file declaration about full 'value' of goods. If the assessing officer has doubts about the truth and accuracy of 'value' as declared, he can ask exporter to submit further information, details and documents. If the doubt persists, the assessing officer can reject the value declared by importer. [rule 8(1) of Customs Valuation (Determination of Value of Export Goods) Rules, 2007]. If the exporter requests, the assessing officer has to give reasons for doubting the value declared by exporter. [rule 8(2)].
Rule 8 is only mechanism to reject the declared value – As per explanation (1)(i) to rule 8, the Rule 8 does not provide any method for determination of value. It only provides mechanism to reject declared value, where there is reasonable doubt.
Declared value shall be accepted if assessing officer is satisfied about truth and accuracy of the declared value [Explanation (1)(ii) to rule 8 of Customs Valuation (Determination of Value of Export Goods) Rules, 2007 ].
Introduction Custom Duty
Brief Background of Customs Law
Customs duty is on import into India and export out of India. We will see some basic concepts of the Act in this Chapter.
Problems due to high customs duty - Heavy customs duty had started becoming counter-productive. Indigenous industries, protected from foreign competition, became self complacent. They neglected aspects of quality and productivity. The result is that ‘Made in India' label has become a sign of poor quality product in international market. Productivity of Indian Industry in many cases is as low as 20 to 30% of comparable industries abroad. Indian exports are restricted in some countries due to our protectionist policies. Smuggling, mafia and havala trades increased to unprecedented levels due to heavy customs duties and restrictions on imports. Government has realised these aspects. Restrictions on imports have been considerably reduced. Rupee has been made freely convertible on current account. Customs duties were lowered to 150% (basic plus auxiliary) in 1991. It was brought to 110% in March 1992, 85% in March 93, 65% in March 94, 50% in March 95 and 42% in March, 1997. [40% basic plus 2% special]. The peak rate on non-agricultural goods was brought down to 38.5% in March, 2000 (35% basic plus 10% surcharge). It was brought down to 35% on 1.3.2001, 30% on 1-3-2002, 25% w.e.f. 1-3-2003 and 15% w.e.f. 1-3-2005. It is reduced to 12.5% w.e.f. 1-3-2006 and to 10% .
CVD / SAD in addition to basic customs duty - In addition to basic customs duty, Special Additional Duty of 4% (SAD) and Countervailing duty (CVD) equal to excise duty (which is usually 16%) is also payable.
Education Cess - In addition, education cess of 2% and secondary and higher educaion cess of 1% is payable.
Calculations of customs duty -
Calculation of duty payable is as follows -
Duty %
Amount
Total Duty
(A)
Assessable Value Rs
10,000
(B)
Basic Customs Duty
10
1,000.00
1,000.00
(C)
Sub-Total for calculating CVD '(A+B)'
11,000.00
(D)
CVD 'C' x excise duty rate
8
880.00
880.00
(E)
Education cess of excise - 2% of 'D'
2
17.60
17.60
(F)
SAH Education cess of excise - 1% of 'D'
1
8.80
8.80
(G)
Sub-total for edu cess on customs 'B+D+E+F'
1,906.40
(H)
Edu Cess of Customs - 2% of 'G'
2
38.13
38.13
(I)
SAH Education Cess of Customs - 1% of 'G'
1
19.06
19.06
(J)
Sub-total for Spl CVD 'C+D+E+F+H+I'
11,963.59
(K)
Special CVD u/s 3(5) - 4% of 'J'
4
478.54
478.54
(L)
Total Duty
2,442.13
(M)
Total duty rounded to
Rs
2,442
Notes – Buyer who is manufacturer, is eligible to avail Cenvat Credit of D, E, F and K above.
A buyer, who is service provider, is eligible to avail Cenvat Credit of D, E and F above. .
A trader who sells imported goods in India after charging
Vat/sales tax can get refund of Special CVD of 4% i.e. ‘K’ above
Scope and coverage of Customs Law
Section 12 of Customs Act provides levy of duty on Imports as well as exports. The rate of duty is as prescribed in Customs Tariff Act, 1975, read with relevant exemption notifications. Import duty is levied on almost all items, while export duty is levied only on a few limited products, where Indian goods are in commanding position. Raising revenue for Central Government is the main but not the only purpose of Customs Act. Customs Act is used to (a) regulate imports and exports (b) protect Indian industry from dumping (c) collect revenue of customs duty. In addition, provisions of Customs Act are used for other Acts like Foreign Trade (Development and Regulation) Act, Foreign Exchange Management Act (FEMA) etc. Customs Law is covered under various Acts, rules, regulations and notifications, as follows :
Customs Act, 1962 - This is the main Act, which provides for levy and collection of duty, import/export procedures, prohibitions on importation and exportation of goods, penalties, offences etc.
Customs Tariff Act, 1975 - The Act contains two schedules - Schedule 1 gives classification and rate of duties for imports, while schedule 2 gives classification and rates of duties for exports. In addition, the CTA (Customs Tariff Act) makes provisions for duties like additional duty (CVD), preferential duty, anti-dumping duty, protective duties etc.
Rules under Customs Act - Under section 156 of Customs Act, 1962, Central Government has been empowered to make rules, consistent with provisions of the Act, to carry out the purposes of the Act. Various rules have been framed under these powers. Major among these are : Customs Valuation Rules, 1988 : for valuation of imported goods for calculating duty payable; Customs and Central Excise Duties Drawback Rules, 1995 : mode of calculating rates of duty drawback on exports; Baggage Rules, 1998 : rules and allowances for bringing in baggage from abroad by Indians and tourists; Customs (Import of goods at concessional rate of duty for manufacture of excisable goods) Rules, 1996 : provides procedure to be followed when goods are imported for export purposes; Other rules are : Rules regarding notified goods, specified goods, determination of additional duty for dumping, determination of origin of goods etc.
Regulations under Customs Act - Under section 157 of Customs Act, 1962, Board (CBE&C) has been empowered to make regulations, consistent with provisions of the Act, to carry out the purposes of the Act. Various regulations have been framed under these powers. Major among these are : Project Import Regulations, 1986 : procedures for project imports; Customs House Agents Licensing Regulations, 1984 : Regulation of CHA. Other regulations regarding transshipment of goods, Import and Export report, Import and Export manifest, manufacture in warehouse, shipping bill and bill of export (form) etc. have been made. In Sukhdev Singh v. Bhagatram Sardar Singh (1975) 1 SCC 421 = AIR 1975 SC 1331 (SC Constitution Bench), it was held that regulations framed under statutory provisions would have the force of law.
Notifications under Customs Act - Various sections authorise Central Government to issue notifications. The main are : section 25(1) to grant partial or full exemption from duty and section 11 to prohibit import or export of goods. Others are : - specifying notified goods (section 11B), specifying specified goods (section 11-I) etc.
Board Circulars– CBE&C is empowered u/s 151A of customs Act to issue, for purpose of uniformity in classification of goods or with respect to the levy of duty thereon, issue such instructions and directions to officers of customs and they are required to observe and follow such orders, instructions and directions of Board. CBE&C issues circulars giving various instructions / prescribing various procedures etc. Normally, these instructions should be followed.
Customs Manual, 2001 - Customs Manual, 2001 was released by CBE&C in September, 2001. The Manual gives an overview of Customs Law and Procedures. It is not stated that the Customs Manual is issued under any provision of Customs Act or Rules. However, normally, instructions in Customs Manual, 2001 should be followed.
Public Notices – Often, Commissioners of Customs issue Public Notices. Often they just forward the Board circulars, but sometimes, public notices for local requirements are also issued.
Customs and Central Excise - There are many common links between Customs and Central Excise.
Both are Central Acts and derive power of levy from list I - Union List - of the Seventh Schedule to Constitution.
Both are under administrative control of one Board (Central Board of Excise and Customs) under Ministry of Finance.
Organizational hierarchy is same from top upto Assistant Commissioner level. Transfers from customs to excise and vice versa are not uncommon.
Chief Commissioner in charge of each Zone is same for excise and customs at many places.
In the interior areas, Excise officers also work as customs officers.
Classification Tariffs of both acts are based on HSN and principles of classification are identical.
Principles of deciding 'Assessable Value' have some similarities i.e. both are principally based on 'transaction value'. Concept of 'related person' appears in Customs as well as Excise valuation.
Provisions of refund, including principle of ‘unjust enrichment' are similar. Provisions for interest for delayed payment are also identical.
Provisions of raising demand for short levy, non-levy or erroneous refund are similar. Provisions in respect of recovery, mandatory penalty etc. are also similar.
Provisions for granting exemptions from duty - partial or full - conditional or unconditional are identical.
Powers of search, confiscation etc. are quite similar in many respects. In fact, some of provisions of Customs Act have been made applicable to Central Excise with suitable modifications.
Provisions in respect of Settlement Commission and Authority for Advance Ruling are identical.
Appeal provisions are identical.
Appellate Tribunal (CESTAT) is same. Hence, procedures of appeal to Tribunal are identical.
Nature of Customs Duty
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 Union subject and power to levy is derived from Constitution. Section 12 of Customs Act, often called charging section, provides that 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 goods imported into, or exported from, India.
Section 3 of Customs Tariff Act has also been held as 'charging section' (for levy of CVD - additional customs duty) - Jain Brothers v. UOI 1999(4) SCALE 207 = AIR 1999 SC 2550 = JT 1999(5) SC 100 = 112 ELT 5 = 1999 AIR SCW 2718 (SC 3 member bench).
Taxable Event for Import duty - Goods become liable to import duty or export duty when there is ‘import into, or export from India'.
As per section 2(28), ‘export’ with its grammatical variations and cognate expressions, means taking out of India to a place outside India.
As per section 2(23), ‘import’ with its grammatical variations and cognate expressions, means bringing into India from a place outside India. In Gramophone Company of India v. Birendra Bahadur Pandey - AIR 1984 SC 667, it was held that ‘import’ included goods imported for transit across to Nepal.
Section 2(27) of Customs Act defines 'India' as inclusive of territorial waters. Hence, it was thought that 'import' is complete as soon as goods enter territorial water. Similarly, export is complete only when goods cross territorial waters. There were conflicting judgments of High Courts.
Finally, in Kiran Spinning Mills v. CC 1999(113) ELT 753 = 2000 AIR SCW 2090 (SC 3 member bench), it has been held that import is completed only when goods cross the customs barrier. The taxable event is the day of crossing of customs barrier and not on the date when goods landed in India or had entered territorial waters. In the case of goods which are in the warehouse the customs barrier would be crossed when they are sought to be taken out of the customs and brought to the mass of goods in the country.
In Garden Silk Mills Ltd. v. UOI 1999(6) SCALE 285 = 1999 AIR SCW 4150 = 1999(113) ELT 358 = JT 1999(7) SC 522 = AIR 2000 SC 33 [SC 3 member bench - same bench which passed judgement in Kiran Spinning Mills (Supra)], it was held that import of goods in India commences when they enter into territorial waters but continues and is completed when the goods become part of the mass of goods within the country. The taxable event is reached at the time when the goods reach customs barrier and bill of entry for home consumption is filed.
In case of warehoused goods, the goods continue to be in customs bond. Hence, 'import' takes place only when goods are cleared from the warehouse - confirmed in UOI v. Apar P Ltd. 1999 AIR SCW 2676 = 112 ELT 3 = 1999(4) SCALE 313 = AIR 1999 SC 2515 (SC 3 member bench).- followed in Kiran Spinning Mills v. CC 1999(113) ELT 753 = 2000 AIR SCW 2090 (SC 3 member bench), where it was held that taxable event occurs when goods cross customs barrier and not when goods land in India or enter territorial waters.
In CC v. HPCL 2000(121) ELT 109 (CEGAT), it was held that the ‘bulk liquid cargo’ would be considered to have crossed customs barrier only when they are pumped into shore tanks. That being the taxable event, duty is leviable only on that quantity. - - The view has been accepted by department. It has been confirmed that duty will be payable on the basis of ‘shore tank receipt’ i.e. dip measurement in tanks on shore into which oil is pumped from tanker; and not on the basis of ulage survey report i.e. ulage quantity at the port of discharge on board the vessel, as determined by independent surveyors in presence of customs officers. – MFCA(DR) circular No. 96/2002-Cus dated 27-12-2002.
Though there is slight contradiction between the SC judgments, it can be said that 'mixing up with mass of goods in the country' after crossing customs barrier is the ‘taxable event' for customs duty. This judgement is in harmony with other judgments and law as explained below -
Date of filing bill of entry is relevant for deciding duty liability - As we will see later, rate of duty and tariff valuation as on date of presentation of bill of entry or date of entry inward of the vessel, whichever is later, is relevant for determining the customs duty payable. Thus, rate of duty when ship enters the port is relevant and not the date when ship enters territorial waters.
Taxable event in case of exports - Though Supreme Court judgement does not prescribe what is taxable event in case of export, it could be argued that in case of exports, export commences when goods cross customs barrier, but export is completed when it crosses territorial waters. Thus, 'taxable event' occurs only when goods cross territorial waters.
In CC v. Sun Exports - 1988(35) ELT 241 (SC) = 1988(1) SCALE 758 = 1988(17) ECR 6 (SC) = (1989) 1 CLA 138 (SC), it was held that export is complete once the goods leave Indian waters and property passes to purchasers. Even if goods return due to Engine trouble, duty drawback is payable. In B K Wadeyar v. Daulatram Rameshwarlal AIR 1961 SC 311 = 11 STC 757 (SC), it was held that export is complete when ship leaves territorial waters of India.
Overwhelming view is that export is complete only when goods cross territorial waters of India.
Territorial Waters of India - Territorial waters means that portion of sea which is adjacent to the shores of a country. On 22nd March, 1956, President of India had issued a proclamation that territorial waters of India shall extend upto 6 nautical miles from the base line. This was extended to 12 nautical miles w.e.f. 30th Sept., 1967. Later, ‘Territorial Waters, Continental Shelf, Exclusive Economic Zone and other Maritime Zone Act, 1976' was passed. Section 3 of the said Act specify 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. (1 nautical mile = 1.1515 miles = 1.853 Kms). Sovereignty of India extends to the territorial waters and to the seabed and subsoil underlying and the air space over the waters.
International Convention - United Nations Convention of the Law of the Sea dated 7th October, 1982 has been signed by most of the countries. This convention uses the words ‘territorial sea', which is analogous to the term ‘territorial waters' used in Customs Law. As per article 2(1) of this convention, Sovereignty of a coastal state extends beyond its land territory upto `territorial sea'. The sovereignty extends to airspace over the territorial sea as well as to sea bed. Vide article 3 of the Convention, territorial sea extends upto 12 nautical miles from normal base-line. Base line is the low-water line along the coast. As per article 17 of the Convention, ships of all countries have right of innocent passage in the territorial sea. Article 21(1) specifically provides that coastal State may adopt laws and regulations in conformity with this convention.
‘Exclusive economic zone' extends to 200 nautical miles from the base-line. In this zone, the coastal State has exclusive rights to exploit it for economic purposes like constructing artificial islands (for oil exploration, power generation etc.), fishing, mineral resources and scientific research. However, other countries have right of navigation and over-flight rights. Other countries can lay submarine cables and pipelines with consent of Indian Government. Such consent may be declined for protecting interest of India. Section 7 of Territorial Waters - . - . - . - Act, 1976 has made similar provisions and thus, these provisions have been adopted in India too.
Beyond 200 nautical miles, the area is ‘High Seas', where all countries have equal rights. These high seas are reserved for peaceful purposes. Any Country can use it for navigation, over-flight, laying submarine cables and pipes, fishing, construction of artificial islands permitted under international law and for scientific research.
Extension of Customs Act, Service Tax and Excise Act to designated areas in EEZ – Customs Act has been extended to designated areas in Continental Shelf and Exclusive Economic Zone of India vide notification No. 11/87-Cus dated 14-1-1987 and 64/97-Cus dated 1-12-1997. Similarly, Central Excise Law and Service Tax (Chapter V of Finance Act, 1994) have been extended to designated areas in Continental Shelf and Exclusive Economic Zone of India vide notification No 166/87-CE dated 11-6-1987 and 1/2002-ST dated 1-3-2002 respectively.
Vide notification No. SO 189(E) dated 7-2-2002 issued by Ministry of External Affairs, Customs Act and Customs Tariff Act has been extended to whole of Exclusive Economic Zone (EEZ) and continental shelf of India for the purpose of (i) processing for extraction or production of mineral oils and (ii) Supply of any goods in connection with activities mentioned in clause (i). - - - This has following implications – (a) Supplies from India in connection with production of mineral oils within EEZ and/or continental shelf of India shall not be treated as export and will not be entitled to export incentives. (b) Supplies of goods (for extraction or production of mineral oils) from other countries to units in this zone will be treated as import and duty will be levied accordingly. [Earlier, vide MF(DR) circular No. 17/2002-Cus dated 13-3-2002, it was stated that mineral oil produced within territorial waters are leviable to central excise duty. This circular has been rescinded, probably because though Customs Act has been extended but Central Excise Act has not been extended].
In a further circular No. 638/29/2002-CX dated 22-5-2002, it has been clarified that Excise duty is not payable on LSD or HSD supplied to research vessels operating in territorial waters. However, if the vessels are engaged in exploration or extraction of mineral oil within EEZ or continental shelf, then no export has taken place and duty free supply of fuel is not permitted.
Indian Customs Waters - Section 2(28) define that 'Indian Customs Waters' means the waters extending into the sea up to the limit of contiguous zone of India under section 5 of the Territorial Waters, Continental Shelf, Exclusive Economic Zone and other Maritime Zones Act, 1976, and includes any bay, gulf, harbour, creek or tidal river. As per provisions of that Act, contiguous zone of India comes immediately after territorial waters. The outer limit of contiguous zone is 24 nautical miles from the nearest point of base line. Thus, area beyond 12 nautical miles and upto 24 nautical miles is 'contagious zone of India'. The Central Government has powers to take measures in this area for security of India and immigration, sanitation, customs and other fiscal matters. [section 5(4) of Territorial Waters - . - . - . - Act, 1976].
Thus, 'Indian Customs Waters' extend upto 12 nautical miles beyond territorial waters. Significance of definition of 'Indian Customs Waters' is as follows -
Customs Officer has powers to arrest a person in India or within Indian customs waters. [section 104].
Customs officer has powers to stop and search any vessel in India or within the Indian Customs waters. [section 106]. If such vessel does not stop, it can be fired upon. If a vessel does not stop, it can be confiscated [section 115(1)(c)].
A vessel which is within Indian customs waters or which has been in Indian Customs Waters can be confiscated which is constructed or fitted in any manner for purpose of concealing goods. [section 115(1)(a)].
Thus, powers of customs officers extend upto 12 nautical miles beyond territorial waters.
'Goods' under Customs Act - Customs duty is on ‘goods' as per section 12 of Customs Act. The duty is payable on goods belonging to Government as well as goods not belonging to Government. Section 2(22), gives inclusive definition of ‘goods' as - 'Goods' includes (a) vessels, aircrafts and vehicles (b) stores (c) baggage (d) currency and negotiable instruments and (e) any other kind of movable property.
Thus, ships or aircrafts brought for use in India or for carrying cargo for ports out of India, would be dutiable. Definition of goods has been kept quite wide as Customs Act is used not only to collect duty on ‘goods' but also to restrict/prohibit import or export of ‘goods' of any description. Main two tests for ‘goods' are (a) they must be movable and (b) they must be marketable. The very fact that goods are transported by sea/air/road means that they are ‘movable'. Since most of imports are on payment basis, test of ‘marketability' is obviously satisfied.
Dutiable Goods - Section 2(14) define 'dutiable goods' as any goods which are chargeable to duty and on which duty has not been paid. Thus, goods continue to be 'dutiable' till they are not cleared from the port. However, once goods are assessed at 'Nil' rate of duty, they no more remain 'dutiable goods'.
Imported Goods - Section 2(25) define ‘imported goods' as any goods brought in India from a place outside India, but does not include goods which have been cleared for home consumption. Thus, once goods are cleared by customs authorities from customs area, they are no longer ‘imported goods'. (Though in common discussions, goods cleared from customs are also called 'imported goods').
Export Goods – As per section 2(19) of Customs Act, ‘export goods’ means any goods which are to be taken out of India to a place outside India. Goods brought near customs area for export purpose will be ‘export goods'. Note that once goods leave Indian territory, Indian laws have no control over them and hence the term ‘exported goods' has not been used or defined.
Types of Customs Duties
Tariff Rates for customs duty are prescribed in Customs Tariff Act, 1975. The types of duties are : Basic, Additional (CVD), Additional (to compensate duty on inputs used by Indian manufacturers), Anti-dumping duty, protective duty, the duty on Bounty Fed articles and safeguard duty. These are explained below.
Basic Customs Duty - This is the duty levied under section 12 of Customs Act. Normally, it is levied as a percentage of Value as determined under section 14(1). The rates vary for different items, but general rate at present is 10%.
To protect Indian agriculture and Indian automobile sector, duties on some articles is higher
Education cess on customs duty - An education cess has been imposed on imported goods w.e.f. 9-7-2004. The cess will be 2% of the aggregate duty of customs. However, education cess will not be payable on safeguard duty under sections 8B and 8C, countervailing duty under section 9, Anti Dumping Duty under section 9A of the Customs Tariff Act and education cess on imported goods (i.e. these duties ). Section 94 of Finance (No. 2) Act, 2004 states that education cess on customs duty a ‘duty of customs’. As per section 94(3) of Finance (No. 2) Act, 2004, all provisions of Customs Act, and rules and regulations made under that Act will apply to education cess on imported goods, including those relating to refund, exemption from duty and imposition of penalty.
Secondary and Higher Education Cess - A secondary and higher education cess of 1% of customs duty has been imposed w.e.f. 1-3-2007.
Additional Customs Duty (CVD) - This is often called ‘Countervailing Duty' (CVD). In S K Pattnaik v. State of Orissa 2000 AIR SCW 41 = AIR 2000 SC 612 = 115 ELT 9 = 2000(1) SCC 413 = 1999(7) SCALE 557 (SC 3 member bench), it was observed that 'countervailing duty' is imposed when excisable articles are imported, in order to counter balance the excise duty, which is leviable on similar goods if manufactured within the State.
Additional duty is levied under section 3(1) of Customs Tariff Act. Thus, it is not a ‘duty under the Customs Act'. - CC v. Indian Organic Chemicals 2000 AIR SCW 1633 = 2000(4) SCALE 321 = 2000(118) ELT 3 (SC). However, it is ‘duty of customs’. – CC v. Presto Industries 2001 AIR SCW 828 = 2001(2) SCALE 68 = 128 ELT 321 (SC). In this case, it was also held that ‘additional customs duty’ is not called as ‘Countervailing duty’ though it may result in serving such purpose for manufacturer of such articles in India.
This duty is equal to excise duty levied on a like product manufactured or produced in India. If like article is not produced or manufactured in India, the excise duty that would be leviable on that article had it been produced in India is the base. If the product is leviable with different rates, then highest rate among those rates is to be considered. The duty is leviable on Value of goods plus customs duty payable. Thus, assume that Customs Value of goods is Rs. 10,000, customs duty is 30%and excise duty on similar goods manufactured in India is 16%. Then, basic customs duty is Rs 3,000. Additional customs duty (CVD) is payable on value plus basic customs duty, i.e. on Rs 13,000 [Rs 10,000+3,000]. Thus, CVD payable is Rs 2,080 (16% of Rs 13,000).
In addition, SAD (Special Additional Duty) @ 4% is also payable, as explained in an earlier paragraph. SAD @ 4% on Rs 15,080 [10,000+ 3,000 + 2,080] is Rs 603.20.
Calculation of CVD – CVD is payable on Assessable Value [as determined u/s 14(1) of Customs Act or tariff value fixed u/s 14(2) of Customs Act] plus basic customs duty chargeable u/s 12 of Customs Act plus basic customs duty chargeable u/s 12 of Customs Act plus any other sum chargeable on that article under any law in addition to, and in the same manner as duty of customs (e.g. NCCD of customs). However, while calculating CVD, following duties are not to be considered - * Special Additional Duty payable u/s 3A of Customs Tariff Act * Safeguard duty u/ss 8B and 8C of Customs Tariff Act * Countervailing duty, if any, u/s 9 of Customs Tariff Act * Anti-dumping duty payable u/s 9A of Customs Tariff Act * CVD itself which is payable u/s 3(1). [section 3(2) of Customs Tariff Act]. - - In other words, CVD is payable on assessable value plus basic customs duty plus NCCD of customs. While calculating CVD, Anti Dumping Duty, SAD and safeguard duty is not required to be considered. [This amendment is with retrospective effect from 1-3-2002. It was also clarified in Explanatory Note - Customs released with Budget Papers on 28-2-2002].
CVD is not Customs Duty - CVD is leviable under section 3(1) Customs Tariff Act, while customs duty is levied u/s 12 of Customs Act. Thus, these are two separate independent duties. under different statutes. However, u/s 3(6) of Customs Tariff Act, the provisions of Customs Act regarding recovery, payment, drawbacks, exemption, refunds, appeals etc. are applicable to Additional Customs Duty.
CVD is not excise duty – Though excise duty rate is considered for measurement or quantifying CVD payable, it is not excise duty. – Mohd. Zackria v. State of Tamilnadu (1999) 115 STC 697 (TNTST).
CVD Payable at effective rate of Excise duty - Additional duty (CVD) is payable at effective rate of duty i.e. any concession granted by a notification should be considered e.g. if Excise Tariff Rate is 25%, but by an unconditional exemption notification, excise duty is reduced to 15%. In such case, additional duty is payable @ 15% and not @ 25%.
CVD payable if cess or AED is payable on goods manufactured in India – If cess or Additional Excise Duty (AED) is payable on goods manufactured in India, CVD equal to cess or AED leviable on goods manufactured in India is payable. – CC v. Birla Jute Industries 1992(61) ELT 554 (CEGAT) * Vareli Textile Industries v. UOI 1997(91) ELT 279 (Guj) * Vikrant Tyres v. CC 2002(144) ELT 554 (CEGAT).
CVD payable even if similar goods not produced in India - Additional duty is leviable even if like goods are not produced in India.
Additional duty if conditional excise exemption notification - As per case law discussed below, the legal position that emerges is that if conditional exemption is such that it is impossible to be fulfilled, the exemption notification cannot be considered, i.e. duty is payable at tariff rate. However, if the requirement is only procedural requirement, exemption notification can be held as applicable, i.e. duty will be payable at effective rate after considering exemption notification.
Valuation for CVD when goods are under MRP provisions – In respect of some consumer goods, excise duty is payable on basis of MRP (Maximum Retail Price) printed on the carton as per section 4A of Central Excise Act. If such goods are imported, duty will be payable on basis of MRP printed on the packing, i.e. at MRP specified on the packing carton less abatement as permissible u/s 4A of Central Excise Act. [proviso to section 3(2)(ii) of Customs Tariff Act].
However, it has been clarified by DGFT vide policy circular No. 38(RE-2000) / 1997-2002 dated 22.1.2001 that labelling requirements for pre-packed commodities are applicable only when they are intended for retail sale. These are not applicable to raw materials, components, bulk imports etc. which will undergo further processing or assembly before they are sold to consumers.
Additional Duty under section 3(3) - In addition to Additional Duty under section 3(1) of Customs Tariff Act; which is chargeable on all goods, further additional duty can be levied by Central Government to counter-balance excise duty leviable on raw materials, components etc. similar to those used in production of such article. [Section 3(3) of Customs Tariff Act].
Central Government has issued notifications under this section levying additional duty on stainless steel manufactures for household use and transformer oil. After extension of Cenvat to most of commodities, there is no need to counter-balance the duty paid on inputs.
Protective Duties - ‘Tariff Commission' has been established under Tariff Commission Act, 1951. If the Tariff Commission recommends and Central Government is satisfied that immediate action is necessary to protect interests of Indian industry, protective customs duty at the rate recommended may be imposed under section 6 of Customs Tariff Act. This notification should be introduced in Parliament in next session by way of a Bill. (or in the same session if Parliament is in session). If the Bill is not passed within six months of introduction in Parliament, the notification ceases to have force, but action already taken remains valid. The protective duty will be valid till the date prescribed in the notification. The protective duty can be rescinded, reduced or increased by a notification. Such notification should also be placed before Parliament for approval in next session. [This duty does not seem to be compatible with WTO regulations]
Countervailing duty on subsidised goods - If a country pays any subsidy (directly or indirectly) to its exporters for exporting goods to India, Central Government can impose Countervailing duty upto the amount of such subsidy under section 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. Such imposition should be by way of a notification.
Customs Tariff (Identification, Assessment and Collection of Countervailing Duty on Subsidised Articles and for determination of Injury) Rules, 1995 [Customs Notification No. 1/95 (N.T.) dated 1-1-95 provide detailed procedure for determining the injury in case of subsidised articles.]
Anti Dumping Duty on dumped articles - Often, large manufacturer from abroad may export goods at very low prices compared to prices in his domestic market. Such dumping may be with intention to cripple domestic industry or to dispose of their excess stock. This is called ‘dumping'. In order to avoid such dumping, Central Government can impose, under section 9A of Customs Tariff Act, anti-dumping duty upto margin of dumping on such articles, if the goods are being sold at less than its normal value. Levy of such anti-dumping duty is permissible as per WTO agreement. Anti dumping action can be taken only when there is an Indian industry producing 'like articles'.
Pending determination of margin of dumping, duty can be imposed on provisional basis. After dumping duty is finally determined, Central Government can reduce such duty and refund duty extra collected than that finally calculated. Such duty can be imposed upto 90 days prior to date of notification, if there is history of dumping which importer was aware or where serious injury is caused due to dumping.
‘Margin of dumping' means the difference between normal value and export price (i.e. the price at which these goods are exported). [section 9A(1)(a)]. ‘Normal Value' means comparable price in ordinary course in trade, for consumption in the exporting country or territory. If such price is not available or not comparable, comparable representative price of like article exported from exporting country or territory to appropriate third country can be considered. [section 9A(1)(c)]. 'Export Price' means the price at which goods are exported. If the export price is unreliable due to association or compensatory arrangement between exporter and importer or a third party, export price can be constructed (revised) on the basis of price at which the imported articles are first sold to independent buyer or according to rules made for determining margin of dumping. [section 9A(1)(b)].
Margin of dumping is determined on basis of weighted average of 'normal value' and the 'export price' of product under consideration.
In Volznsky Pipe Plant v. Designated Authority 2001(129) ELT 408 (CEGAT), it was held that domestic price of foreign exporter in his country should be considered, provided it is not below per unit cost of production plus administrative selling and general cost. (i.e. overheads)
In case of non-market economy countries (mostly communist countries), 'normal value' can be determined on basis of price in a market economy third country, price paid in India for a like product or any other reasonable basis.
As per para 8 of Annexure I to Anti-Dumping Duty Rules, ‘non-market economy’ means any country which the designated authority determines as not operating on market principles of cost or pricing structure, so that the sales in such country do not reflect the fair value of merchandise. Designated Authority will consider various aspects to determine whether the country is a market economy.
Dumping duty for WTO countries - Section 9B provide restrictions on imposing dumping duties in case of imports from WTO countries or countries given `Most Favoured Nation' by an agreement. Dumping duty can be levied on import from such countries, only if Central Government declares that import of such articles in India causes material injury to industry established in India or materially retards establishment of industry in India. [WTO agreement permits levy of anti-dumping duty when it causes injury to domestic industry as a result of specific unfair trade practice by foreign producer, by selling below normal value].
'Injury to domestic industry' will be considered on basis of volume effect and price effect on Indian industry. There must be a 'casual link' between material injury being suffered by dumped articles and the dumped imports. .
Imposition of minimum anti-dumping duty is not permissible in law. - Oswal Woollen Mills v. Designated Authority 2000(118) ELT 275 (CEGAT).
Gains to other sections not considered - In India, only injury to concerned local industry is considered, but gains to other industry and economy in general due to availability of imports at lower prices are not considered, i.e. welfare of society at large is not taken into account. This principle is adopted in Europe and in certain cases, dumping duties were not imposed, even when dumping was established, considering that public at large is being benefited.
Quantum of dumping duty - The anti-dumping duty will be dumping margin or injury margin, whichever is lower. 'Injury margin' means difference between fair selling price of domestic industry and landed cost of imported product. The landed cost will include landing charges of 1% and basic customs duty. Thus, only anti-dumping duty enough to remove injury to domestic industry can be levied.
No anti dumping duty in certain cases - Anti-dumping duty is not applicable for imports by EOU or SEZ units, unless it is specifically made applicable in the notification imposing anti-dumping duty. [section 9A(2A) of Customs Tariff Act]
No CVD or SAD on anti dumping duty - Anti Dumping Duty and Safeguard Duty is not required to be considered while calculating CVD or SAD.
No Anti dumping duty on goods warehoused prior to levy of anti dumping duty – Anti dumping duty is leviable on date of importation. Hence, if goods are already warehoused prior to imposition of anti-dumping duty, anti-dumping duty will not be leviable on warehoused goods, even if cleared subsequent to imposition of anti-dumping duty. Section 15(1)(b) of Customs Act does not apply to anti-dumping duty u/s 9A of Customs Tariff Act. – CC v. Suja Rubber Industries 2002(142) ELT 586 (CEGAT).
Rules for deciding subsidy or dumping margin - Central Government has been empowered to make rules for determining (a) subsidy or bounty in case of bounty fed goods (b) the normal value and export price to determine margin of dumping in case of dumping. Accordingly, Customs Tariff (Identification, Assessment and Collection of Anti-dumping duty on Dumped Articles and for determination of Injury) Rules, 1995 [Customs Notification No. 2/95 (N.T.) dated 1-1-95] provide detailed procedure for determining the injury in case of dumped articles. [for detailed guide and forms - see Chartered Secretary, Nov. 1998 page 1168 to 1179]
Under the rules, Central Government will appoint a person as ‘Designated Authority'. Complaint with all details and evidence should be made to Designated Authority, Directorate General of Anti-Dumping and Allied Duties, Ministry of Commerce, Govt. of India, Udyog Bhavan, New Delhi - 110 011. The information, as required in trade notice No. 1/98 dated 15.5.1998, issued by Directorate General of Anti-Dumping and Allied Duties should be furnished.
He will normally initiate enquiry on receiving request from affected domestic industry. Domestic producers supporting the application must account for at least 25% of production in India. However, even suo motu enquiry can be initiated.
Appeal against order determining dumping duty - Appeal against the order determining the duty can be made to CESTAT. The appeal will be heard by at least three member bench consisting of President, one judicial member and one technical member [section 9C of Customs Tariff Act].
Safeguard duty - Central Government is empowered to impose 'safeguard duty' on specified imported goods if Central Government is satisfied that the goods are being imported in large quantities and under such conditions that they are causing or threatening to cause serious injury to domestic industry. Such duty is permissible under WTO agreement. The only condition under WTO is that it should not discriminate between imports from different countries having Most Favoured Nation (MFN) status.
Safeguard duty is a step in providing a need based protection to domestic industry for a limited period, with ultimate objective of restoring free and fair competition. Safeguard duty is targeted at remedying or preventing serious injury to domestic industry with a view to making it competitive and to enable it to stand on its own. - Mr. R K Gupta – (Earlier) Director General (Safeguards).
Government has to conduct an enquiry and then issue a notification. [section 8B(1) of Customs Tariff Act]. The duty, once imposed, is valid for four years, unless revoked earlier. This can be extended by Central Government, but total period of 'safeguard duty' cannot be more than ten years. [section 8B(4)]. The duty is in addition to any other customs duty being imposed on the goods. [section 8B(3)]. In case of imports from developing countries, such safeguard duty can be imposed only if import of that article from that country is more than 3% of total imports of that article in India. [proviso to section 8B(1)].
Central Government can impose provisional safeguard duty, pending final determination upto 200 days. [section 8B(2) of Customs Tariff Act]. [This provision has been added w.e.f. 14th May, 1997]. 'Customs Tariff (Identification and Assessment of Safeguard Duty) Rule, 1997 have been notified on 29.7.1997, providing for procedure for investigation and fixing safeguard duty. Mr. R K Gupta in office of Director General of Inspection, Customs & CE has been appointed as Director General (Safeguards), vide notification No 45/97-Cus dated 16.9.1997. He has issued a trade notice dated 26.9.97, indicating details required to be submitted and procedure to be followed. Some orders issued under these provisions have been summarised in an Article in Chartered Secretary - July 1999. - page 736.
Concession on TRQ basis – Central government can exempt specified quantity of article imported into India, from whole or part of safeguard duty leviable thereon. [section 8B(2) of Customs Tariff Act]. The provision has been made to enable Central Government to grant exemption from safeguard duty on Tariff Rate Quota (TRQ) basis.
No safeguard Duty in certain cases - Safeguard duty is not applicable for imports by EOU or SEZ units, unless it is specifically made applicable in the notification imposing anti-dumping duty. [section 8B(2A) of Customs Tariff Act]
No CVD on Safeguard Duty - CVD is to be calculated on Assessable Value plus basic customs duty. However, Anti Dumping Duty and Safeguard Duty is not required to be considered while calculating CVD.
Product specific safeguard duty on imports from China – Besides general provisions in respect of Safeguard duty (u/s 8B as above), special provisions of safeguard duty is made in respect of goods imported from Peoples Republic of China by inserting section 8C to Customs Tariff Act w.e.f. 11-5-2002. Central Government is empowered to impose ‘product specific safeguard duty’ on any article imported from China, if the quantities are increased and such import is causing or threatening to cause market disruption to domestic industry. [section 8C(1)].
Provisional duty can be imposed on basis of preliminary finding. However, if on final determination, it is found that the imports have not caused market disruption to a domestic industry, the safeguard duty provisionally collected is refundable.
Such product specific safeguard duty is not payable in respect of imports by EOU / SEZ units unless specifically made applicable to them . [section 8C(3)].
Government will make rule prescribing mode of identifying the threat and then how to assess and collect the safeguard duty.
The duty can be imposed for maximum four years. It can be extended to safeguard interests of domestic industry, but maximum period cannot exceed 10 years.
‘Domestic Industry’ means either producer of whole of India or producers having major share of total production of that article in India. ‘Market disruption’ shall be caused whenever the imports of a like article or a directly competitive article produced by the domestic industry, increases rapidly, either absolutely or relatively, so as to be a significant cause of material injury, or threat of material injury to domestic industry. The threat of market disruption should be clear and imminent danger of market disruption. [section 8C(7)].
Customs Tariff (Transitional Product Specific Safeguard Duty) Rules, 2002 make provisions for determining the safeguard duty. Director General (Specific Safeguard) will be appointed. He will investigate and submit his report on market disruption or threat to market disruption to domestic industry on any article due to imports from China. Central Government can fix provisional duty on basis of preliminary finding for upto 200 days. Final duty will be on basis of final finding.
Director General (Safeguard) has been appointed as Director General (Specific Safeguard). – Notification No. 4/2003-Cus(NT) dated 16-1-2003.
NCCD of customs - A ‘National Calamity Contingent Duty’ (NCCD) of customs has been imposed vide section 129 of Finance Act, 2001. This duty is imposed on pan masala, chewing tobacco and cigarettes. It varies from 10% to 45%. - - NCCD of customs of 1% was imposed on PFY, motor cars, multi utility vehicles and two wheelers and NCCD of Rs 50 per ton was imposed on domestic crude oil, vide section 134 of Finance Act, 2003.
Export duty - At present, 15% Export Duty is levied only on hides, skins and leather, and duty of 10% is levied on snake skins, hides, skins and leathers, and fur lamb skins. (No export duty is levied on hides, skins and leather of finished leather of goat, sheep and bovine animals and their young ones). There is no export duty on any other product.
Classification for Customs and Rate of Duty
Classification is as per Central Excise Tariff Act for Central Excise and as per Customs Tariff Act for Customs. Both are based on HSN. Customs Tariff Act, 1975 earlier contained schedule based on CCCN - Customs Cooperation Council Nomenclature. This was replaced by schedule based on Harmonised Commodity Description and Coding system w.e.f. 28th Feb., 1986. Central Excise Tariff Act, based on HSN was also brought into force on same day.
Though both tariffs are based on HSN, they are not copies of HSN. Many changes have been made to suit requirements of customs and excise. Customs tariff and excise tariffs are also not identical and both vary from each other. However, broad sections and chapter headings are same.
Sections and Chapters in Customs Tariff - Division of sections and chapters is similar under Customs Tariff Act and Central Excise Tariff Act, but there are quite a few changes.
Some Chapters blank in CETA - Central Excise Tariff is only upto Chapter 96 and has 5 blank Chapter heads. Out of these, Chapter number 77 is blank in Customs Tariff too, which is kept for future use. Other Chapters are : Chapter 1 : Live Animals; Chapter 6 : Live trees and other plants, cut flowers; Chapter 10 : Cereals and Chapter 12 : Oil seeds, seed and fruit. The obvious reason is that these items are not excisable and hence not required in Central Excise Tariff, but these can be imported and hence are required in Customs Tariff.
Additional Section and Chapters - Excise Tariff contains 20 sections upto Chapter 96. Customs Tariff contains one additional section XXI, covering Chapters 97 to 99. Chapter 97 of Customs Tariff is devoted to ‘work of art, collectors' pieces and antiques'. Chapter 98 is used for ‘project imports, passenger's baggage, personal importations by air or post and ship stores.' Chapter 99 of Customs Tariff Act is for ‘Miscellaneous Goods' like blood, postage stamps, paper money, work of art and antiques imported for national museum etc.
Thus, Customs has 98 used Chapters (1 to 99 with Chapter No. 77 blank), while excise tariff has 91 Chapters (1 to 96 with Chapters 1, 6, 10, 12 and 77 blank).
Principles of Classification - Method of classification in heading and sub-heading and Rule for interpretation of tariff are same as per Central Excise. Principles of classification like trade parlance etc. are also same.
Classification of parts - Principles for classification of parts is also same as per Central Excise. However, often some accessories and spare parts and maintenance implements are compulsorily supplied with the machine and its cost is included in the cost of machine itself. In such cases, the duty chargeable is the same as duty on the main article, as per Accessories (Condition) Rules, 1963 and section 19 of Customs Act, if the importer is unable to give breakup.
Classification of containers/packing cases - Central Excise Tariff does not make any separate provision for classification of containers/packing cases. However, rule 5 for interpretation of schedule to Customs Act specifically provides that cases for camera, musical instruments, drawing instruments, necklaces etc. specially shaped for that article, suitable for long term use will be classified along with that article, if such articles are normally sold along with such cases. Further, packing materials and containers are also to be classified with the goods except when the packing is for repetitive use. This provision is obviously made to ensure that the packing and the goods are charged at same rate of duty.
Cost of packing is not to be included when the packing is for repetitive use. [This provision is similar to provision of 'durable and returnable packing' in Central Excise']
Preferential Area Rates - Central Excise Tariff has only four columns in each Chapter i.e. Heading No, Sub-Heading No, Description and Rate of Duty. Customs Tariff have five columns i.e. Heading No. Sub-Heading No. Description, Standard rate of duty and Rate of duty for Preferential area. If no rate is mentioned in the column ‘Rate for Preferential Area', then Standard rate is applicable.
Export Tariff under Customs Act - Customs Tariff Act has two schedules - first schedule is in respect of Import Tariff, which we have discussed above. Second Schedule is ‘Export Tariff', showing export duties leviable. Since most of exports are exempt from export duty, the schedule contains only 26 items, out of which 24 items are exempt by way of a notification !
Rate of duty applicable - Provisions in respect of rate of duty are as follows:
Basic Customs duty - The rate of customs duty applicable will be as provided in Customs Act, subject to exemption notifications, if any, applicable. In case of imports from preferential area, the preferential rate is applicable, if mentioned in the Tariff. It is needless to mention that if partial or full exemption has been granted by a notification, the effective rate (as per notification) will apply and not the tariff rate (as mentioned in Customs Tariff).
Rate for additional duty - Rate for additional duty (CVD) will be as mentioned in Central Excise Tariff Act, subject to any general exemption notification. Any specific exemption notification (e.g. exemption to goods manufactured by SSI unit or goods manufactured without aid of power) is not considered while calculating CVD.
Customs duty is on import into India and export out of India. We will see some basic concepts of the Act in this Chapter.
Problems due to high customs duty - Heavy customs duty had started becoming counter-productive. Indigenous industries, protected from foreign competition, became self complacent. They neglected aspects of quality and productivity. The result is that ‘Made in India' label has become a sign of poor quality product in international market. Productivity of Indian Industry in many cases is as low as 20 to 30% of comparable industries abroad. Indian exports are restricted in some countries due to our protectionist policies. Smuggling, mafia and havala trades increased to unprecedented levels due to heavy customs duties and restrictions on imports. Government has realised these aspects. Restrictions on imports have been considerably reduced. Rupee has been made freely convertible on current account. Customs duties were lowered to 150% (basic plus auxiliary) in 1991. It was brought to 110% in March 1992, 85% in March 93, 65% in March 94, 50% in March 95 and 42% in March, 1997. [40% basic plus 2% special]. The peak rate on non-agricultural goods was brought down to 38.5% in March, 2000 (35% basic plus 10% surcharge). It was brought down to 35% on 1.3.2001, 30% on 1-3-2002, 25% w.e.f. 1-3-2003 and 15% w.e.f. 1-3-2005. It is reduced to 12.5% w.e.f. 1-3-2006 and to 10% .
CVD / SAD in addition to basic customs duty - In addition to basic customs duty, Special Additional Duty of 4% (SAD) and Countervailing duty (CVD) equal to excise duty (which is usually 16%) is also payable.
Education Cess - In addition, education cess of 2% and secondary and higher educaion cess of 1% is payable.
Calculations of customs duty -
Calculation of duty payable is as follows -
Duty %
Amount
Total Duty
(A)
Assessable Value Rs
10,000
(B)
Basic Customs Duty
10
1,000.00
1,000.00
(C)
Sub-Total for calculating CVD '(A+B)'
11,000.00
(D)
CVD 'C' x excise duty rate
8
880.00
880.00
(E)
Education cess of excise - 2% of 'D'
2
17.60
17.60
(F)
SAH Education cess of excise - 1% of 'D'
1
8.80
8.80
(G)
Sub-total for edu cess on customs 'B+D+E+F'
1,906.40
(H)
Edu Cess of Customs - 2% of 'G'
2
38.13
38.13
(I)
SAH Education Cess of Customs - 1% of 'G'
1
19.06
19.06
(J)
Sub-total for Spl CVD 'C+D+E+F+H+I'
11,963.59
(K)
Special CVD u/s 3(5) - 4% of 'J'
4
478.54
478.54
(L)
Total Duty
2,442.13
(M)
Total duty rounded to
Rs
2,442
Notes – Buyer who is manufacturer, is eligible to avail Cenvat Credit of D, E, F and K above.
A buyer, who is service provider, is eligible to avail Cenvat Credit of D, E and F above. .
A trader who sells imported goods in India after charging
Vat/sales tax can get refund of Special CVD of 4% i.e. ‘K’ above
Scope and coverage of Customs Law
Section 12 of Customs Act provides levy of duty on Imports as well as exports. The rate of duty is as prescribed in Customs Tariff Act, 1975, read with relevant exemption notifications. Import duty is levied on almost all items, while export duty is levied only on a few limited products, where Indian goods are in commanding position. Raising revenue for Central Government is the main but not the only purpose of Customs Act. Customs Act is used to (a) regulate imports and exports (b) protect Indian industry from dumping (c) collect revenue of customs duty. In addition, provisions of Customs Act are used for other Acts like Foreign Trade (Development and Regulation) Act, Foreign Exchange Management Act (FEMA) etc. Customs Law is covered under various Acts, rules, regulations and notifications, as follows :
Customs Act, 1962 - This is the main Act, which provides for levy and collection of duty, import/export procedures, prohibitions on importation and exportation of goods, penalties, offences etc.
Customs Tariff Act, 1975 - The Act contains two schedules - Schedule 1 gives classification and rate of duties for imports, while schedule 2 gives classification and rates of duties for exports. In addition, the CTA (Customs Tariff Act) makes provisions for duties like additional duty (CVD), preferential duty, anti-dumping duty, protective duties etc.
Rules under Customs Act - Under section 156 of Customs Act, 1962, Central Government has been empowered to make rules, consistent with provisions of the Act, to carry out the purposes of the Act. Various rules have been framed under these powers. Major among these are : Customs Valuation Rules, 1988 : for valuation of imported goods for calculating duty payable; Customs and Central Excise Duties Drawback Rules, 1995 : mode of calculating rates of duty drawback on exports; Baggage Rules, 1998 : rules and allowances for bringing in baggage from abroad by Indians and tourists; Customs (Import of goods at concessional rate of duty for manufacture of excisable goods) Rules, 1996 : provides procedure to be followed when goods are imported for export purposes; Other rules are : Rules regarding notified goods, specified goods, determination of additional duty for dumping, determination of origin of goods etc.
Regulations under Customs Act - Under section 157 of Customs Act, 1962, Board (CBE&C) has been empowered to make regulations, consistent with provisions of the Act, to carry out the purposes of the Act. Various regulations have been framed under these powers. Major among these are : Project Import Regulations, 1986 : procedures for project imports; Customs House Agents Licensing Regulations, 1984 : Regulation of CHA. Other regulations regarding transshipment of goods, Import and Export report, Import and Export manifest, manufacture in warehouse, shipping bill and bill of export (form) etc. have been made. In Sukhdev Singh v. Bhagatram Sardar Singh (1975) 1 SCC 421 = AIR 1975 SC 1331 (SC Constitution Bench), it was held that regulations framed under statutory provisions would have the force of law.
Notifications under Customs Act - Various sections authorise Central Government to issue notifications. The main are : section 25(1) to grant partial or full exemption from duty and section 11 to prohibit import or export of goods. Others are : - specifying notified goods (section 11B), specifying specified goods (section 11-I) etc.
Board Circulars– CBE&C is empowered u/s 151A of customs Act to issue, for purpose of uniformity in classification of goods or with respect to the levy of duty thereon, issue such instructions and directions to officers of customs and they are required to observe and follow such orders, instructions and directions of Board. CBE&C issues circulars giving various instructions / prescribing various procedures etc. Normally, these instructions should be followed.
Customs Manual, 2001 - Customs Manual, 2001 was released by CBE&C in September, 2001. The Manual gives an overview of Customs Law and Procedures. It is not stated that the Customs Manual is issued under any provision of Customs Act or Rules. However, normally, instructions in Customs Manual, 2001 should be followed.
Public Notices – Often, Commissioners of Customs issue Public Notices. Often they just forward the Board circulars, but sometimes, public notices for local requirements are also issued.
Customs and Central Excise - There are many common links between Customs and Central Excise.
Both are Central Acts and derive power of levy from list I - Union List - of the Seventh Schedule to Constitution.
Both are under administrative control of one Board (Central Board of Excise and Customs) under Ministry of Finance.
Organizational hierarchy is same from top upto Assistant Commissioner level. Transfers from customs to excise and vice versa are not uncommon.
Chief Commissioner in charge of each Zone is same for excise and customs at many places.
In the interior areas, Excise officers also work as customs officers.
Classification Tariffs of both acts are based on HSN and principles of classification are identical.
Principles of deciding 'Assessable Value' have some similarities i.e. both are principally based on 'transaction value'. Concept of 'related person' appears in Customs as well as Excise valuation.
Provisions of refund, including principle of ‘unjust enrichment' are similar. Provisions for interest for delayed payment are also identical.
Provisions of raising demand for short levy, non-levy or erroneous refund are similar. Provisions in respect of recovery, mandatory penalty etc. are also similar.
Provisions for granting exemptions from duty - partial or full - conditional or unconditional are identical.
Powers of search, confiscation etc. are quite similar in many respects. In fact, some of provisions of Customs Act have been made applicable to Central Excise with suitable modifications.
Provisions in respect of Settlement Commission and Authority for Advance Ruling are identical.
Appeal provisions are identical.
Appellate Tribunal (CESTAT) is same. Hence, procedures of appeal to Tribunal are identical.
Nature of Customs Duty
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 Union subject and power to levy is derived from Constitution. Section 12 of Customs Act, often called charging section, provides that 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 goods imported into, or exported from, India.
Section 3 of Customs Tariff Act has also been held as 'charging section' (for levy of CVD - additional customs duty) - Jain Brothers v. UOI 1999(4) SCALE 207 = AIR 1999 SC 2550 = JT 1999(5) SC 100 = 112 ELT 5 = 1999 AIR SCW 2718 (SC 3 member bench).
Taxable Event for Import duty - Goods become liable to import duty or export duty when there is ‘import into, or export from India'.
As per section 2(28), ‘export’ with its grammatical variations and cognate expressions, means taking out of India to a place outside India.
As per section 2(23), ‘import’ with its grammatical variations and cognate expressions, means bringing into India from a place outside India. In Gramophone Company of India v. Birendra Bahadur Pandey - AIR 1984 SC 667, it was held that ‘import’ included goods imported for transit across to Nepal.
Section 2(27) of Customs Act defines 'India' as inclusive of territorial waters. Hence, it was thought that 'import' is complete as soon as goods enter territorial water. Similarly, export is complete only when goods cross territorial waters. There were conflicting judgments of High Courts.
Finally, in Kiran Spinning Mills v. CC 1999(113) ELT 753 = 2000 AIR SCW 2090 (SC 3 member bench), it has been held that import is completed only when goods cross the customs barrier. The taxable event is the day of crossing of customs barrier and not on the date when goods landed in India or had entered territorial waters. In the case of goods which are in the warehouse the customs barrier would be crossed when they are sought to be taken out of the customs and brought to the mass of goods in the country.
In Garden Silk Mills Ltd. v. UOI 1999(6) SCALE 285 = 1999 AIR SCW 4150 = 1999(113) ELT 358 = JT 1999(7) SC 522 = AIR 2000 SC 33 [SC 3 member bench - same bench which passed judgement in Kiran Spinning Mills (Supra)], it was held that import of goods in India commences when they enter into territorial waters but continues and is completed when the goods become part of the mass of goods within the country. The taxable event is reached at the time when the goods reach customs barrier and bill of entry for home consumption is filed.
In case of warehoused goods, the goods continue to be in customs bond. Hence, 'import' takes place only when goods are cleared from the warehouse - confirmed in UOI v. Apar P Ltd. 1999 AIR SCW 2676 = 112 ELT 3 = 1999(4) SCALE 313 = AIR 1999 SC 2515 (SC 3 member bench).- followed in Kiran Spinning Mills v. CC 1999(113) ELT 753 = 2000 AIR SCW 2090 (SC 3 member bench), where it was held that taxable event occurs when goods cross customs barrier and not when goods land in India or enter territorial waters.
In CC v. HPCL 2000(121) ELT 109 (CEGAT), it was held that the ‘bulk liquid cargo’ would be considered to have crossed customs barrier only when they are pumped into shore tanks. That being the taxable event, duty is leviable only on that quantity. - - The view has been accepted by department. It has been confirmed that duty will be payable on the basis of ‘shore tank receipt’ i.e. dip measurement in tanks on shore into which oil is pumped from tanker; and not on the basis of ulage survey report i.e. ulage quantity at the port of discharge on board the vessel, as determined by independent surveyors in presence of customs officers. – MFCA(DR) circular No. 96/2002-Cus dated 27-12-2002.
Though there is slight contradiction between the SC judgments, it can be said that 'mixing up with mass of goods in the country' after crossing customs barrier is the ‘taxable event' for customs duty. This judgement is in harmony with other judgments and law as explained below -
Date of filing bill of entry is relevant for deciding duty liability - As we will see later, rate of duty and tariff valuation as on date of presentation of bill of entry or date of entry inward of the vessel, whichever is later, is relevant for determining the customs duty payable. Thus, rate of duty when ship enters the port is relevant and not the date when ship enters territorial waters.
Taxable event in case of exports - Though Supreme Court judgement does not prescribe what is taxable event in case of export, it could be argued that in case of exports, export commences when goods cross customs barrier, but export is completed when it crosses territorial waters. Thus, 'taxable event' occurs only when goods cross territorial waters.
In CC v. Sun Exports - 1988(35) ELT 241 (SC) = 1988(1) SCALE 758 = 1988(17) ECR 6 (SC) = (1989) 1 CLA 138 (SC), it was held that export is complete once the goods leave Indian waters and property passes to purchasers. Even if goods return due to Engine trouble, duty drawback is payable. In B K Wadeyar v. Daulatram Rameshwarlal AIR 1961 SC 311 = 11 STC 757 (SC), it was held that export is complete when ship leaves territorial waters of India.
Overwhelming view is that export is complete only when goods cross territorial waters of India.
Territorial Waters of India - Territorial waters means that portion of sea which is adjacent to the shores of a country. On 22nd March, 1956, President of India had issued a proclamation that territorial waters of India shall extend upto 6 nautical miles from the base line. This was extended to 12 nautical miles w.e.f. 30th Sept., 1967. Later, ‘Territorial Waters, Continental Shelf, Exclusive Economic Zone and other Maritime Zone Act, 1976' was passed. Section 3 of the said Act specify 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. (1 nautical mile = 1.1515 miles = 1.853 Kms). Sovereignty of India extends to the territorial waters and to the seabed and subsoil underlying and the air space over the waters.
International Convention - United Nations Convention of the Law of the Sea dated 7th October, 1982 has been signed by most of the countries. This convention uses the words ‘territorial sea', which is analogous to the term ‘territorial waters' used in Customs Law. As per article 2(1) of this convention, Sovereignty of a coastal state extends beyond its land territory upto `territorial sea'. The sovereignty extends to airspace over the territorial sea as well as to sea bed. Vide article 3 of the Convention, territorial sea extends upto 12 nautical miles from normal base-line. Base line is the low-water line along the coast. As per article 17 of the Convention, ships of all countries have right of innocent passage in the territorial sea. Article 21(1) specifically provides that coastal State may adopt laws and regulations in conformity with this convention.
‘Exclusive economic zone' extends to 200 nautical miles from the base-line. In this zone, the coastal State has exclusive rights to exploit it for economic purposes like constructing artificial islands (for oil exploration, power generation etc.), fishing, mineral resources and scientific research. However, other countries have right of navigation and over-flight rights. Other countries can lay submarine cables and pipelines with consent of Indian Government. Such consent may be declined for protecting interest of India. Section 7 of Territorial Waters - . - . - . - Act, 1976 has made similar provisions and thus, these provisions have been adopted in India too.
Beyond 200 nautical miles, the area is ‘High Seas', where all countries have equal rights. These high seas are reserved for peaceful purposes. Any Country can use it for navigation, over-flight, laying submarine cables and pipes, fishing, construction of artificial islands permitted under international law and for scientific research.
Extension of Customs Act, Service Tax and Excise Act to designated areas in EEZ – Customs Act has been extended to designated areas in Continental Shelf and Exclusive Economic Zone of India vide notification No. 11/87-Cus dated 14-1-1987 and 64/97-Cus dated 1-12-1997. Similarly, Central Excise Law and Service Tax (Chapter V of Finance Act, 1994) have been extended to designated areas in Continental Shelf and Exclusive Economic Zone of India vide notification No 166/87-CE dated 11-6-1987 and 1/2002-ST dated 1-3-2002 respectively.
Vide notification No. SO 189(E) dated 7-2-2002 issued by Ministry of External Affairs, Customs Act and Customs Tariff Act has been extended to whole of Exclusive Economic Zone (EEZ) and continental shelf of India for the purpose of (i) processing for extraction or production of mineral oils and (ii) Supply of any goods in connection with activities mentioned in clause (i). - - - This has following implications – (a) Supplies from India in connection with production of mineral oils within EEZ and/or continental shelf of India shall not be treated as export and will not be entitled to export incentives. (b) Supplies of goods (for extraction or production of mineral oils) from other countries to units in this zone will be treated as import and duty will be levied accordingly. [Earlier, vide MF(DR) circular No. 17/2002-Cus dated 13-3-2002, it was stated that mineral oil produced within territorial waters are leviable to central excise duty. This circular has been rescinded, probably because though Customs Act has been extended but Central Excise Act has not been extended].
In a further circular No. 638/29/2002-CX dated 22-5-2002, it has been clarified that Excise duty is not payable on LSD or HSD supplied to research vessels operating in territorial waters. However, if the vessels are engaged in exploration or extraction of mineral oil within EEZ or continental shelf, then no export has taken place and duty free supply of fuel is not permitted.
Indian Customs Waters - Section 2(28) define that 'Indian Customs Waters' means the waters extending into the sea up to the limit of contiguous zone of India under section 5 of the Territorial Waters, Continental Shelf, Exclusive Economic Zone and other Maritime Zones Act, 1976, and includes any bay, gulf, harbour, creek or tidal river. As per provisions of that Act, contiguous zone of India comes immediately after territorial waters. The outer limit of contiguous zone is 24 nautical miles from the nearest point of base line. Thus, area beyond 12 nautical miles and upto 24 nautical miles is 'contagious zone of India'. The Central Government has powers to take measures in this area for security of India and immigration, sanitation, customs and other fiscal matters. [section 5(4) of Territorial Waters - . - . - . - Act, 1976].
Thus, 'Indian Customs Waters' extend upto 12 nautical miles beyond territorial waters. Significance of definition of 'Indian Customs Waters' is as follows -
Customs Officer has powers to arrest a person in India or within Indian customs waters. [section 104].
Customs officer has powers to stop and search any vessel in India or within the Indian Customs waters. [section 106]. If such vessel does not stop, it can be fired upon. If a vessel does not stop, it can be confiscated [section 115(1)(c)].
A vessel which is within Indian customs waters or which has been in Indian Customs Waters can be confiscated which is constructed or fitted in any manner for purpose of concealing goods. [section 115(1)(a)].
Thus, powers of customs officers extend upto 12 nautical miles beyond territorial waters.
'Goods' under Customs Act - Customs duty is on ‘goods' as per section 12 of Customs Act. The duty is payable on goods belonging to Government as well as goods not belonging to Government. Section 2(22), gives inclusive definition of ‘goods' as - 'Goods' includes (a) vessels, aircrafts and vehicles (b) stores (c) baggage (d) currency and negotiable instruments and (e) any other kind of movable property.
Thus, ships or aircrafts brought for use in India or for carrying cargo for ports out of India, would be dutiable. Definition of goods has been kept quite wide as Customs Act is used not only to collect duty on ‘goods' but also to restrict/prohibit import or export of ‘goods' of any description. Main two tests for ‘goods' are (a) they must be movable and (b) they must be marketable. The very fact that goods are transported by sea/air/road means that they are ‘movable'. Since most of imports are on payment basis, test of ‘marketability' is obviously satisfied.
Dutiable Goods - Section 2(14) define 'dutiable goods' as any goods which are chargeable to duty and on which duty has not been paid. Thus, goods continue to be 'dutiable' till they are not cleared from the port. However, once goods are assessed at 'Nil' rate of duty, they no more remain 'dutiable goods'.
Imported Goods - Section 2(25) define ‘imported goods' as any goods brought in India from a place outside India, but does not include goods which have been cleared for home consumption. Thus, once goods are cleared by customs authorities from customs area, they are no longer ‘imported goods'. (Though in common discussions, goods cleared from customs are also called 'imported goods').
Export Goods – As per section 2(19) of Customs Act, ‘export goods’ means any goods which are to be taken out of India to a place outside India. Goods brought near customs area for export purpose will be ‘export goods'. Note that once goods leave Indian territory, Indian laws have no control over them and hence the term ‘exported goods' has not been used or defined.
Types of Customs Duties
Tariff Rates for customs duty are prescribed in Customs Tariff Act, 1975. The types of duties are : Basic, Additional (CVD), Additional (to compensate duty on inputs used by Indian manufacturers), Anti-dumping duty, protective duty, the duty on Bounty Fed articles and safeguard duty. These are explained below.
Basic Customs Duty - This is the duty levied under section 12 of Customs Act. Normally, it is levied as a percentage of Value as determined under section 14(1). The rates vary for different items, but general rate at present is 10%.
To protect Indian agriculture and Indian automobile sector, duties on some articles is higher
Education cess on customs duty - An education cess has been imposed on imported goods w.e.f. 9-7-2004. The cess will be 2% of the aggregate duty of customs. However, education cess will not be payable on safeguard duty under sections 8B and 8C, countervailing duty under section 9, Anti Dumping Duty under section 9A of the Customs Tariff Act and education cess on imported goods (i.e. these duties ). Section 94 of Finance (No. 2) Act, 2004 states that education cess on customs duty a ‘duty of customs’. As per section 94(3) of Finance (No. 2) Act, 2004, all provisions of Customs Act, and rules and regulations made under that Act will apply to education cess on imported goods, including those relating to refund, exemption from duty and imposition of penalty.
Secondary and Higher Education Cess - A secondary and higher education cess of 1% of customs duty has been imposed w.e.f. 1-3-2007.
Additional Customs Duty (CVD) - This is often called ‘Countervailing Duty' (CVD). In S K Pattnaik v. State of Orissa 2000 AIR SCW 41 = AIR 2000 SC 612 = 115 ELT 9 = 2000(1) SCC 413 = 1999(7) SCALE 557 (SC 3 member bench), it was observed that 'countervailing duty' is imposed when excisable articles are imported, in order to counter balance the excise duty, which is leviable on similar goods if manufactured within the State.
Additional duty is levied under section 3(1) of Customs Tariff Act. Thus, it is not a ‘duty under the Customs Act'. - CC v. Indian Organic Chemicals 2000 AIR SCW 1633 = 2000(4) SCALE 321 = 2000(118) ELT 3 (SC). However, it is ‘duty of customs’. – CC v. Presto Industries 2001 AIR SCW 828 = 2001(2) SCALE 68 = 128 ELT 321 (SC). In this case, it was also held that ‘additional customs duty’ is not called as ‘Countervailing duty’ though it may result in serving such purpose for manufacturer of such articles in India.
This duty is equal to excise duty levied on a like product manufactured or produced in India. If like article is not produced or manufactured in India, the excise duty that would be leviable on that article had it been produced in India is the base. If the product is leviable with different rates, then highest rate among those rates is to be considered. The duty is leviable on Value of goods plus customs duty payable. Thus, assume that Customs Value of goods is Rs. 10,000, customs duty is 30%and excise duty on similar goods manufactured in India is 16%. Then, basic customs duty is Rs 3,000. Additional customs duty (CVD) is payable on value plus basic customs duty, i.e. on Rs 13,000 [Rs 10,000+3,000]. Thus, CVD payable is Rs 2,080 (16% of Rs 13,000).
In addition, SAD (Special Additional Duty) @ 4% is also payable, as explained in an earlier paragraph. SAD @ 4% on Rs 15,080 [10,000+ 3,000 + 2,080] is Rs 603.20.
Calculation of CVD – CVD is payable on Assessable Value [as determined u/s 14(1) of Customs Act or tariff value fixed u/s 14(2) of Customs Act] plus basic customs duty chargeable u/s 12 of Customs Act plus basic customs duty chargeable u/s 12 of Customs Act plus any other sum chargeable on that article under any law in addition to, and in the same manner as duty of customs (e.g. NCCD of customs). However, while calculating CVD, following duties are not to be considered - * Special Additional Duty payable u/s 3A of Customs Tariff Act * Safeguard duty u/ss 8B and 8C of Customs Tariff Act * Countervailing duty, if any, u/s 9 of Customs Tariff Act * Anti-dumping duty payable u/s 9A of Customs Tariff Act * CVD itself which is payable u/s 3(1). [section 3(2) of Customs Tariff Act]. - - In other words, CVD is payable on assessable value plus basic customs duty plus NCCD of customs. While calculating CVD, Anti Dumping Duty, SAD and safeguard duty is not required to be considered. [This amendment is with retrospective effect from 1-3-2002. It was also clarified in Explanatory Note - Customs released with Budget Papers on 28-2-2002].
CVD is not Customs Duty - CVD is leviable under section 3(1) Customs Tariff Act, while customs duty is levied u/s 12 of Customs Act. Thus, these are two separate independent duties. under different statutes. However, u/s 3(6) of Customs Tariff Act, the provisions of Customs Act regarding recovery, payment, drawbacks, exemption, refunds, appeals etc. are applicable to Additional Customs Duty.
CVD is not excise duty – Though excise duty rate is considered for measurement or quantifying CVD payable, it is not excise duty. – Mohd. Zackria v. State of Tamilnadu (1999) 115 STC 697 (TNTST).
CVD Payable at effective rate of Excise duty - Additional duty (CVD) is payable at effective rate of duty i.e. any concession granted by a notification should be considered e.g. if Excise Tariff Rate is 25%, but by an unconditional exemption notification, excise duty is reduced to 15%. In such case, additional duty is payable @ 15% and not @ 25%.
CVD payable if cess or AED is payable on goods manufactured in India – If cess or Additional Excise Duty (AED) is payable on goods manufactured in India, CVD equal to cess or AED leviable on goods manufactured in India is payable. – CC v. Birla Jute Industries 1992(61) ELT 554 (CEGAT) * Vareli Textile Industries v. UOI 1997(91) ELT 279 (Guj) * Vikrant Tyres v. CC 2002(144) ELT 554 (CEGAT).
CVD payable even if similar goods not produced in India - Additional duty is leviable even if like goods are not produced in India.
Additional duty if conditional excise exemption notification - As per case law discussed below, the legal position that emerges is that if conditional exemption is such that it is impossible to be fulfilled, the exemption notification cannot be considered, i.e. duty is payable at tariff rate. However, if the requirement is only procedural requirement, exemption notification can be held as applicable, i.e. duty will be payable at effective rate after considering exemption notification.
Valuation for CVD when goods are under MRP provisions – In respect of some consumer goods, excise duty is payable on basis of MRP (Maximum Retail Price) printed on the carton as per section 4A of Central Excise Act. If such goods are imported, duty will be payable on basis of MRP printed on the packing, i.e. at MRP specified on the packing carton less abatement as permissible u/s 4A of Central Excise Act. [proviso to section 3(2)(ii) of Customs Tariff Act].
However, it has been clarified by DGFT vide policy circular No. 38(RE-2000) / 1997-2002 dated 22.1.2001 that labelling requirements for pre-packed commodities are applicable only when they are intended for retail sale. These are not applicable to raw materials, components, bulk imports etc. which will undergo further processing or assembly before they are sold to consumers.
Additional Duty under section 3(3) - In addition to Additional Duty under section 3(1) of Customs Tariff Act; which is chargeable on all goods, further additional duty can be levied by Central Government to counter-balance excise duty leviable on raw materials, components etc. similar to those used in production of such article. [Section 3(3) of Customs Tariff Act].
Central Government has issued notifications under this section levying additional duty on stainless steel manufactures for household use and transformer oil. After extension of Cenvat to most of commodities, there is no need to counter-balance the duty paid on inputs.
Protective Duties - ‘Tariff Commission' has been established under Tariff Commission Act, 1951. If the Tariff Commission recommends and Central Government is satisfied that immediate action is necessary to protect interests of Indian industry, protective customs duty at the rate recommended may be imposed under section 6 of Customs Tariff Act. This notification should be introduced in Parliament in next session by way of a Bill. (or in the same session if Parliament is in session). If the Bill is not passed within six months of introduction in Parliament, the notification ceases to have force, but action already taken remains valid. The protective duty will be valid till the date prescribed in the notification. The protective duty can be rescinded, reduced or increased by a notification. Such notification should also be placed before Parliament for approval in next session. [This duty does not seem to be compatible with WTO regulations]
Countervailing duty on subsidised goods - If a country pays any subsidy (directly or indirectly) to its exporters for exporting goods to India, Central Government can impose Countervailing duty upto the amount of such subsidy under section 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. Such imposition should be by way of a notification.
Customs Tariff (Identification, Assessment and Collection of Countervailing Duty on Subsidised Articles and for determination of Injury) Rules, 1995 [Customs Notification No. 1/95 (N.T.) dated 1-1-95 provide detailed procedure for determining the injury in case of subsidised articles.]
Anti Dumping Duty on dumped articles - Often, large manufacturer from abroad may export goods at very low prices compared to prices in his domestic market. Such dumping may be with intention to cripple domestic industry or to dispose of their excess stock. This is called ‘dumping'. In order to avoid such dumping, Central Government can impose, under section 9A of Customs Tariff Act, anti-dumping duty upto margin of dumping on such articles, if the goods are being sold at less than its normal value. Levy of such anti-dumping duty is permissible as per WTO agreement. Anti dumping action can be taken only when there is an Indian industry producing 'like articles'.
Pending determination of margin of dumping, duty can be imposed on provisional basis. After dumping duty is finally determined, Central Government can reduce such duty and refund duty extra collected than that finally calculated. Such duty can be imposed upto 90 days prior to date of notification, if there is history of dumping which importer was aware or where serious injury is caused due to dumping.
‘Margin of dumping' means the difference between normal value and export price (i.e. the price at which these goods are exported). [section 9A(1)(a)]. ‘Normal Value' means comparable price in ordinary course in trade, for consumption in the exporting country or territory. If such price is not available or not comparable, comparable representative price of like article exported from exporting country or territory to appropriate third country can be considered. [section 9A(1)(c)]. 'Export Price' means the price at which goods are exported. If the export price is unreliable due to association or compensatory arrangement between exporter and importer or a third party, export price can be constructed (revised) on the basis of price at which the imported articles are first sold to independent buyer or according to rules made for determining margin of dumping. [section 9A(1)(b)].
Margin of dumping is determined on basis of weighted average of 'normal value' and the 'export price' of product under consideration.
In Volznsky Pipe Plant v. Designated Authority 2001(129) ELT 408 (CEGAT), it was held that domestic price of foreign exporter in his country should be considered, provided it is not below per unit cost of production plus administrative selling and general cost. (i.e. overheads)
In case of non-market economy countries (mostly communist countries), 'normal value' can be determined on basis of price in a market economy third country, price paid in India for a like product or any other reasonable basis.
As per para 8 of Annexure I to Anti-Dumping Duty Rules, ‘non-market economy’ means any country which the designated authority determines as not operating on market principles of cost or pricing structure, so that the sales in such country do not reflect the fair value of merchandise. Designated Authority will consider various aspects to determine whether the country is a market economy.
Dumping duty for WTO countries - Section 9B provide restrictions on imposing dumping duties in case of imports from WTO countries or countries given `Most Favoured Nation' by an agreement. Dumping duty can be levied on import from such countries, only if Central Government declares that import of such articles in India causes material injury to industry established in India or materially retards establishment of industry in India. [WTO agreement permits levy of anti-dumping duty when it causes injury to domestic industry as a result of specific unfair trade practice by foreign producer, by selling below normal value].
'Injury to domestic industry' will be considered on basis of volume effect and price effect on Indian industry. There must be a 'casual link' between material injury being suffered by dumped articles and the dumped imports. .
Imposition of minimum anti-dumping duty is not permissible in law. - Oswal Woollen Mills v. Designated Authority 2000(118) ELT 275 (CEGAT).
Gains to other sections not considered - In India, only injury to concerned local industry is considered, but gains to other industry and economy in general due to availability of imports at lower prices are not considered, i.e. welfare of society at large is not taken into account. This principle is adopted in Europe and in certain cases, dumping duties were not imposed, even when dumping was established, considering that public at large is being benefited.
Quantum of dumping duty - The anti-dumping duty will be dumping margin or injury margin, whichever is lower. 'Injury margin' means difference between fair selling price of domestic industry and landed cost of imported product. The landed cost will include landing charges of 1% and basic customs duty. Thus, only anti-dumping duty enough to remove injury to domestic industry can be levied.
No anti dumping duty in certain cases - Anti-dumping duty is not applicable for imports by EOU or SEZ units, unless it is specifically made applicable in the notification imposing anti-dumping duty. [section 9A(2A) of Customs Tariff Act]
No CVD or SAD on anti dumping duty - Anti Dumping Duty and Safeguard Duty is not required to be considered while calculating CVD or SAD.
No Anti dumping duty on goods warehoused prior to levy of anti dumping duty – Anti dumping duty is leviable on date of importation. Hence, if goods are already warehoused prior to imposition of anti-dumping duty, anti-dumping duty will not be leviable on warehoused goods, even if cleared subsequent to imposition of anti-dumping duty. Section 15(1)(b) of Customs Act does not apply to anti-dumping duty u/s 9A of Customs Tariff Act. – CC v. Suja Rubber Industries 2002(142) ELT 586 (CEGAT).
Rules for deciding subsidy or dumping margin - Central Government has been empowered to make rules for determining (a) subsidy or bounty in case of bounty fed goods (b) the normal value and export price to determine margin of dumping in case of dumping. Accordingly, Customs Tariff (Identification, Assessment and Collection of Anti-dumping duty on Dumped Articles and for determination of Injury) Rules, 1995 [Customs Notification No. 2/95 (N.T.) dated 1-1-95] provide detailed procedure for determining the injury in case of dumped articles. [for detailed guide and forms - see Chartered Secretary, Nov. 1998 page 1168 to 1179]
Under the rules, Central Government will appoint a person as ‘Designated Authority'. Complaint with all details and evidence should be made to Designated Authority, Directorate General of Anti-Dumping and Allied Duties, Ministry of Commerce, Govt. of India, Udyog Bhavan, New Delhi - 110 011. The information, as required in trade notice No. 1/98 dated 15.5.1998, issued by Directorate General of Anti-Dumping and Allied Duties should be furnished.
He will normally initiate enquiry on receiving request from affected domestic industry. Domestic producers supporting the application must account for at least 25% of production in India. However, even suo motu enquiry can be initiated.
Appeal against order determining dumping duty - Appeal against the order determining the duty can be made to CESTAT. The appeal will be heard by at least three member bench consisting of President, one judicial member and one technical member [section 9C of Customs Tariff Act].
Safeguard duty - Central Government is empowered to impose 'safeguard duty' on specified imported goods if Central Government is satisfied that the goods are being imported in large quantities and under such conditions that they are causing or threatening to cause serious injury to domestic industry. Such duty is permissible under WTO agreement. The only condition under WTO is that it should not discriminate between imports from different countries having Most Favoured Nation (MFN) status.
Safeguard duty is a step in providing a need based protection to domestic industry for a limited period, with ultimate objective of restoring free and fair competition. Safeguard duty is targeted at remedying or preventing serious injury to domestic industry with a view to making it competitive and to enable it to stand on its own. - Mr. R K Gupta – (Earlier) Director General (Safeguards).
Government has to conduct an enquiry and then issue a notification. [section 8B(1) of Customs Tariff Act]. The duty, once imposed, is valid for four years, unless revoked earlier. This can be extended by Central Government, but total period of 'safeguard duty' cannot be more than ten years. [section 8B(4)]. The duty is in addition to any other customs duty being imposed on the goods. [section 8B(3)]. In case of imports from developing countries, such safeguard duty can be imposed only if import of that article from that country is more than 3% of total imports of that article in India. [proviso to section 8B(1)].
Central Government can impose provisional safeguard duty, pending final determination upto 200 days. [section 8B(2) of Customs Tariff Act]. [This provision has been added w.e.f. 14th May, 1997]. 'Customs Tariff (Identification and Assessment of Safeguard Duty) Rule, 1997 have been notified on 29.7.1997, providing for procedure for investigation and fixing safeguard duty. Mr. R K Gupta in office of Director General of Inspection, Customs & CE has been appointed as Director General (Safeguards), vide notification No 45/97-Cus dated 16.9.1997. He has issued a trade notice dated 26.9.97, indicating details required to be submitted and procedure to be followed. Some orders issued under these provisions have been summarised in an Article in Chartered Secretary - July 1999. - page 736.
Concession on TRQ basis – Central government can exempt specified quantity of article imported into India, from whole or part of safeguard duty leviable thereon. [section 8B(2) of Customs Tariff Act]. The provision has been made to enable Central Government to grant exemption from safeguard duty on Tariff Rate Quota (TRQ) basis.
No safeguard Duty in certain cases - Safeguard duty is not applicable for imports by EOU or SEZ units, unless it is specifically made applicable in the notification imposing anti-dumping duty. [section 8B(2A) of Customs Tariff Act]
No CVD on Safeguard Duty - CVD is to be calculated on Assessable Value plus basic customs duty. However, Anti Dumping Duty and Safeguard Duty is not required to be considered while calculating CVD.
Product specific safeguard duty on imports from China – Besides general provisions in respect of Safeguard duty (u/s 8B as above), special provisions of safeguard duty is made in respect of goods imported from Peoples Republic of China by inserting section 8C to Customs Tariff Act w.e.f. 11-5-2002. Central Government is empowered to impose ‘product specific safeguard duty’ on any article imported from China, if the quantities are increased and such import is causing or threatening to cause market disruption to domestic industry. [section 8C(1)].
Provisional duty can be imposed on basis of preliminary finding. However, if on final determination, it is found that the imports have not caused market disruption to a domestic industry, the safeguard duty provisionally collected is refundable.
Such product specific safeguard duty is not payable in respect of imports by EOU / SEZ units unless specifically made applicable to them . [section 8C(3)].
Government will make rule prescribing mode of identifying the threat and then how to assess and collect the safeguard duty.
The duty can be imposed for maximum four years. It can be extended to safeguard interests of domestic industry, but maximum period cannot exceed 10 years.
‘Domestic Industry’ means either producer of whole of India or producers having major share of total production of that article in India. ‘Market disruption’ shall be caused whenever the imports of a like article or a directly competitive article produced by the domestic industry, increases rapidly, either absolutely or relatively, so as to be a significant cause of material injury, or threat of material injury to domestic industry. The threat of market disruption should be clear and imminent danger of market disruption. [section 8C(7)].
Customs Tariff (Transitional Product Specific Safeguard Duty) Rules, 2002 make provisions for determining the safeguard duty. Director General (Specific Safeguard) will be appointed. He will investigate and submit his report on market disruption or threat to market disruption to domestic industry on any article due to imports from China. Central Government can fix provisional duty on basis of preliminary finding for upto 200 days. Final duty will be on basis of final finding.
Director General (Safeguard) has been appointed as Director General (Specific Safeguard). – Notification No. 4/2003-Cus(NT) dated 16-1-2003.
NCCD of customs - A ‘National Calamity Contingent Duty’ (NCCD) of customs has been imposed vide section 129 of Finance Act, 2001. This duty is imposed on pan masala, chewing tobacco and cigarettes. It varies from 10% to 45%. - - NCCD of customs of 1% was imposed on PFY, motor cars, multi utility vehicles and two wheelers and NCCD of Rs 50 per ton was imposed on domestic crude oil, vide section 134 of Finance Act, 2003.
Export duty - At present, 15% Export Duty is levied only on hides, skins and leather, and duty of 10% is levied on snake skins, hides, skins and leathers, and fur lamb skins. (No export duty is levied on hides, skins and leather of finished leather of goat, sheep and bovine animals and their young ones). There is no export duty on any other product.
Classification for Customs and Rate of Duty
Classification is as per Central Excise Tariff Act for Central Excise and as per Customs Tariff Act for Customs. Both are based on HSN. Customs Tariff Act, 1975 earlier contained schedule based on CCCN - Customs Cooperation Council Nomenclature. This was replaced by schedule based on Harmonised Commodity Description and Coding system w.e.f. 28th Feb., 1986. Central Excise Tariff Act, based on HSN was also brought into force on same day.
Though both tariffs are based on HSN, they are not copies of HSN. Many changes have been made to suit requirements of customs and excise. Customs tariff and excise tariffs are also not identical and both vary from each other. However, broad sections and chapter headings are same.
Sections and Chapters in Customs Tariff - Division of sections and chapters is similar under Customs Tariff Act and Central Excise Tariff Act, but there are quite a few changes.
Some Chapters blank in CETA - Central Excise Tariff is only upto Chapter 96 and has 5 blank Chapter heads. Out of these, Chapter number 77 is blank in Customs Tariff too, which is kept for future use. Other Chapters are : Chapter 1 : Live Animals; Chapter 6 : Live trees and other plants, cut flowers; Chapter 10 : Cereals and Chapter 12 : Oil seeds, seed and fruit. The obvious reason is that these items are not excisable and hence not required in Central Excise Tariff, but these can be imported and hence are required in Customs Tariff.
Additional Section and Chapters - Excise Tariff contains 20 sections upto Chapter 96. Customs Tariff contains one additional section XXI, covering Chapters 97 to 99. Chapter 97 of Customs Tariff is devoted to ‘work of art, collectors' pieces and antiques'. Chapter 98 is used for ‘project imports, passenger's baggage, personal importations by air or post and ship stores.' Chapter 99 of Customs Tariff Act is for ‘Miscellaneous Goods' like blood, postage stamps, paper money, work of art and antiques imported for national museum etc.
Thus, Customs has 98 used Chapters (1 to 99 with Chapter No. 77 blank), while excise tariff has 91 Chapters (1 to 96 with Chapters 1, 6, 10, 12 and 77 blank).
Principles of Classification - Method of classification in heading and sub-heading and Rule for interpretation of tariff are same as per Central Excise. Principles of classification like trade parlance etc. are also same.
Classification of parts - Principles for classification of parts is also same as per Central Excise. However, often some accessories and spare parts and maintenance implements are compulsorily supplied with the machine and its cost is included in the cost of machine itself. In such cases, the duty chargeable is the same as duty on the main article, as per Accessories (Condition) Rules, 1963 and section 19 of Customs Act, if the importer is unable to give breakup.
Classification of containers/packing cases - Central Excise Tariff does not make any separate provision for classification of containers/packing cases. However, rule 5 for interpretation of schedule to Customs Act specifically provides that cases for camera, musical instruments, drawing instruments, necklaces etc. specially shaped for that article, suitable for long term use will be classified along with that article, if such articles are normally sold along with such cases. Further, packing materials and containers are also to be classified with the goods except when the packing is for repetitive use. This provision is obviously made to ensure that the packing and the goods are charged at same rate of duty.
Cost of packing is not to be included when the packing is for repetitive use. [This provision is similar to provision of 'durable and returnable packing' in Central Excise']
Preferential Area Rates - Central Excise Tariff has only four columns in each Chapter i.e. Heading No, Sub-Heading No, Description and Rate of Duty. Customs Tariff have five columns i.e. Heading No. Sub-Heading No. Description, Standard rate of duty and Rate of duty for Preferential area. If no rate is mentioned in the column ‘Rate for Preferential Area', then Standard rate is applicable.
Export Tariff under Customs Act - Customs Tariff Act has two schedules - first schedule is in respect of Import Tariff, which we have discussed above. Second Schedule is ‘Export Tariff', showing export duties leviable. Since most of exports are exempt from export duty, the schedule contains only 26 items, out of which 24 items are exempt by way of a notification !
Rate of duty applicable - Provisions in respect of rate of duty are as follows:
Basic Customs duty - The rate of customs duty applicable will be as provided in Customs Act, subject to exemption notifications, if any, applicable. In case of imports from preferential area, the preferential rate is applicable, if mentioned in the Tariff. It is needless to mention that if partial or full exemption has been granted by a notification, the effective rate (as per notification) will apply and not the tariff rate (as mentioned in Customs Tariff).
Rate for additional duty - Rate for additional duty (CVD) will be as mentioned in Central Excise Tariff Act, subject to any general exemption notification. Any specific exemption notification (e.g. exemption to goods manufactured by SSI unit or goods manufactured without aid of power) is not considered while calculating CVD.
Subscribe to:
Posts (Atom)