C O N T E N T S

S.No. Subject

1.Introductory

2.Arrival of goods and procedure prior to lodgment of goods declaration

3.Procedure for clearance of imported & export goods

4.System of classification of goods

5.Special classification schemes for imported goods; for a Project, baggage and postal articles

6.Customs valuation

7.Provisional assessment

8.Import/export restrictions/prohibitions under Customs law

9.Customs clearance procedure for food items, livestock products, plant and plant materials

10.Warehousing

11.Transhipment of cargo

12.Consolidation of cargo

13.Merchant Overtime fee

14.Procedure for less charge demand

15.Refunds

16.Imported and export cargo - release/storage options in disputed cases

17.Import and Export through courier

18.Clearance by post

19.Import of samples

20.Re-importation and Re-exportation of goods

21.Disposal of unclaimed/uncleared cargo

22.Export Promotion Schemes -

 

(a) Duty Drawback/DEEC/DEPB/EPCG

(b) 100% EOU scheme

(c) Export Processing Zone (EPZ) scheme

(d) STP/EHTP scheme

(e) Special Economic Zone scheme

23.Setting up of ICDs/CFSs

24.Passenger clearance system - facilitation-cum-enforcement

25.Offences and penal provisions

26.Appeal and review / Settlement of cases

27.System of grievance redressal in the field formations of Customs

Introductory

Indian Customs are assigned a number of tasks more important of which are :-

(i) collection of customs duties on imports and exports as per basic Customs laws (Customs Act, 1962 and Customs Tariff Act, 1975);

(ii)

enforcement of the various provisions of the Customs Act governing imports and exports of cargo, baggage, postal articles and arrival & departure of vessels, air crafts etc.;

(iii)discharge of various agency functions and enforcing various prohibitions and restrictions on imports and exports under Customs Act and other allied enactments;

(iv) prevention of smuggling including interdiction of narcotics drug trafficking; and

(v) international passenger processing.

2.        The Constitutional provisions have given to Union the right to legislate and collect duties on imports and exports as per the entry at Sl.No.83 of list 1 to Schedule VII of our Constitution. The Customs Act, 1962 is the basic Statute, effective from 1.2.1963 which empowers, under Section 12, duties to be levied on goods imported into or exported from India. The categories of items and the rates of duties which are leviable have been specified in two schedules to the Customs Tariff Act, 1975. The first Schedule to the said Act specifies the various categories of import items in a systematic and well considered manner, in accordance with an international scheme of classification of internationally traded goods – termed ‘harmonized system of commodity classification’. Different rates of duties are prescribed by the legislature on different commodities/group of commodities mentioned in the first Schedule. The duties are levied both on specific and ad-valorem basis, while there are few cases where at times specific-cum-ad valorem duties are also collected on imported items. Second Schedule to Customs Tariff Act, 1975 incorporates items subject to exports duties and rates thereof.

3.        Where ad-valorem duties (i.e., duties with reference to value) are collected, which are the predominant mode of levy, the value of the goods has to be determined for customs duty

purposes as per provisions laid down under Section 14 of the Customs Act and the Customs Valuation (determination of prices of imports goods) Rules, 1988 issued thereunder. These provisions are essentially adoption of GATT based valuation system and followed internationally (now termed WTO Valuation Agreement) and were incorporated in our law in 1988. The importer as well as the assessing officer has to carefully study and apply these provisions so that the duties as due after proper valuation as per law get discharged before the goods get out of customs control.

Control and regulatory provisions under Customs Act:

4.        To handle growing international traffic properly and effectively and to make it administratively possible that all the cargo/goods/passengers etc., imported/coming into India or exported/going out of the country by sea, air, land or rail routes are checked by the Customs (for ensuring that they are complying with all the related laws before entry/exit into/from India) unrestricted freedom of access into the country or exit out of the country is not permitted. In tune with international practice the entry/exit of carriers/passengers etc., is therefore regulated in this county by law and the Customs Act, 1962 is the basic statute which governs/regulates this entry/exit of different categories of vessels/crafts/goods/passengers etc., into or outside the country.

5.        Under the Customs Act, Government is given the powers to appoint Customs ports and airports where alone the imported goods can be brought in for unloading or export goods loaded on ships or air crafts. Similar powers have been given to the Government to notify the places which alone shall be the Land Customs Stations for clearance of imported goods or goods to be exported by land or by inland water. Even the routes of passage by land and inland water into or out of the country can be regulated and these provisions have been made use of specially for regulating traffic for our neighboring countries like Nepal.

6.        Suitable powers have also been vested to further approve at a Customs port/airport, specific places where only loading and unloading can take place as also specify the limits of customs area (which essentially is the area of a Customs Port/Airport/Land Customs Station) where the imported goods or the export goods are ordinarily kept before clearance by the Customs authorities.

Role of Custodians:

7.        Both in regard to sea cargo as well as air imports, the Customs authorize and appoint "custodians" and all imported goods unloaded in a Customs area remains in their custody & till these are cleared for home consumption, or are warehoused or transhipped as provided in the law. With the growth of containerized traffic the facility of customs clearances at the interior centres in the country has been provided by opening various Inland Container Depots(ICDs) which act like Dry Ports. The goods also move to these internal Dry ports where they remain with the appointed custodian till these are customs cleared. The custodian after taking over the goods from the carrier, arranges its proper storage and safety and allows clearance to the importers only after they fulfill all the customs formalities, pay up requisite duties and other charges/fees and discharge various other obligations before their goods are allowed entry into the country and the customs have given clear permission for clearance out of customs area.

8.        Various port trusts and other authorities in the public and private sectors handle the import and export cargo when kept in their custody at various ports, international airports/ICDs. The cargo handling and custody at the international airports is generally entrusted to International airport authority of India. A number of cargo complexes have been set up at most international airports with appropriate storage facilities for imported cargo pending customs clearance. New ICDs are being opened at various industrial centres as a facilitation measure, as per detailed guidelines laid down by the Government, and Customs Cargo clearances – both for imported and export cargo, from interior centres has expanded substantially in recent years.

9.        Maximum import and export cargo is handled at different sea ports; increasing part of import cargo from some ports like Nhava Sheva also moves by transhipments to interior ICDs for final clearance by various importers almost at their door steps. In the ports which have vast Dock area and which are appropriately walled, security arrangements are provided to ensure that there is no pilferage/theft or carrying away of the cargo without proper customs clearance.

Requisite arrangements of loading and unloading of cargo at different berths in various docks, their movement to different places including container yards/storage godowns etc., are arranged by the port authorities. They deploy a large work force and different & modern material handling equipments for movement of cargo which now is increasingly becoming containerized. As per the provisions of the Customs Act, the custodians are under obligation to ensure safe custody of the goods till delivery and in fact for unaccounted imported cargo duties are also recoverable by Customs from the custodians.

10.        The customs authorities are given appropriate office place and requisite facilities in the dock area as well as international cargo complexes/ICDs etc., to discharge their functions in relation to imports and exports such as supervision on loading/unloading from vessels/crafts etc., supervisions on stuffing or de-stuffing of containers, inspection and suitable examination of the goods which are imported/presented for exportation before customs clearance formalities etc.

Customs law and Obligations of Carrier:

11.        To regulate and have a proper and effective control on imports and exports the Customs Act enjoins certain liabilities on the carrier. Thus, they have to bring in the cargo imported into the country for unloading only at notified ports/airports/land custom stations - as mentioned earlier. Further obligation has been cast on the carrier for giving detailed information to customs about goods in their vessels/air crafts which have been brought in at any port/airport for unloading at that particular port/international airport as also that which would be carried further for other ports/airports. Declarations of such cargo has to be made in a prescribed form (which is termed ‘Import General Manifest’). This declaration/filing of IGM has to be made within 24 hours of entry of the vessel at the customs station. In the case of imports through Land Custom Stations the person in charge of the vehicle has to give similar import report. Since the cargo clearance formalities are linked generally with the availability of this information about cargo being brought by a vessel for unloading at any port, provisions have also been made in law for prior filing of IGMs if all details of relevant cargo for any port are available even before the vessel arrives. The final manifest can be filed again after arrival of the vessel.

12.        Unless, the aforesaid details and IGM have been furnished in the prescribed form, no unloading of cargo can be undertaken from any vessels/air crafts/vehicles in normal circumstances. After the manifest is duly delivered the unloading takes place under the supervision of the preventive staff of customs. The law prohibits unloading of any goods at a customs station which is not mentioned in the manifest/import report. Similarly, there are restrictions on loading for export. No vessel/air craft can start loading goods for export unless an intimation has been given to customs and customs have given permission for loading – what is also called ‘entry outward of the vessel’. All loading, as mentioned, of cargo on such vessels (and even air crafts) has to be checked and supervised by preventive customs staff and they have to essentially ensure that cargo loaded has discharged the prescribed customs formalities such as payment of duties or cess where leviable, and any other formalities enjoined by the law before the exports are permissible, and authorization for exports has been duly given by the proper appraising staff posted in the docks/cargo complexes/ICDs as a part of customs clearance formalities.

13.        The persons in charge of the vessels/air crafts are also required to furnish details of all the goods loaded on a vessel or air craft in a prescribed form which is termed ‘Export General Manifest’. This EGM can be furnished before the vessel/air craft departs or within 7 days of departure of the vessel/air craft and is essentially taken as the final proof of shipment/export once the ship/aircraft leaves the country. Similar provisions exist for export by land route where the export manifest is called export report.

Preventive Control:

14.        It is worth noting that no conveyance can leave a customs station unless a written order for port clearance for the vessel has been given by the proper officer of customs. The permission for departure of any vessel is given subject to the satisfaction of the proper officer that all the prescribed formalities have been fulfilled, duties/penalties etc., have been paid or secured. The preventive officers are also authorized to go on board the vessels/air crafts to take suitable declarations, Crew property list etc., and to check whether there are any goods which

are not declared for unloading at a particular station in the manifest with an intention to smuggle them without following the prescribed formalities and payment of duties. A thorough examination and checking of the vessels/air crafts is also undertaken – by what is known as rummaging staff generally on selective basis taking due note of the past history of the vessel, the area/country from which the vessels are arriving, the intelligence report etc.

15.        The preventive staff of the customs also keep a very careful vigil in the port areas for checking any illegal activities and develop intelligence to guard against any possible attempts of unauthorized removals from the docks and unloading of unmanifested cargo etc.

Customs Clearance of cargo:

16.        Before any goods imported and kept with the custodians as mentioned earlier can be cleared for home consumption in the country immediately – or for warehousing and customs clearances as and when needed etc., the importers have to comply with prescribed customs clearance formalities. Essentially, these involve presentation of certain documents along with a prescribed application (normally termed ‘bill of entry’, which gives essential particulars in relation to imported goods, its country of origin, particulars of vessel/aircraft etc.) seeking clearance of goods for home consumption/warehousing etc. The importer either himself handles the import clearance documents vis-à-vis Customs or appoints an authorized agent in the Custom House. Major part of Customs clearance work is handled on behalf of importers/exporters by CHAs or Custom Houses Agents – who are trained and experienced in Customs clearance work and are licensed by Customs for such work subject to certain conditions as laid down in CHA Regulations.

17.        The clearance documentation presentation and processing is handled in the main Custom Houses where staff trained in assessment matters (termed appraising staff) handles this import clearance work. After a tally has been made with related IGM to ensure that the goods sought for clearance have arrived and declared in the particular manifest of the vessel/air craft mentioned in the Entry (or even where the prior manifest is filed, that they are expected to be landed by particular vessel) the scrutiny of documents – manually or through EDI system is taken up. One of the main function of the appraising staff in the Custom Houses is careful scrutiny of the entry and the related particulars, and information on various documents with a view to checking the import permissibility in terms of the EXIM policy and any other laws regulating imports/exports. The more important job specially after the liberalization of import regime, is determining classification and duties leviable on the goods on import – (Basic, Additional, Anti-dumping, Safeguards etc.) and value of the goods (where the duties are assessable on value basis), to assess the duty liability which is required to be paid by the importer. Permissibility of various benefits of duty free clearances under different schemes or applicability of any exemption notification benefits – where claimed is also checked and decided.

18.        For determining this duty liability and even permissibility of import it may become necessary to examine the goods in advance. Normally, however, the declarations made are scrutinized without prior examination with reference to documents made available and the other information about the values/classification available with Customs and duties chargeable on the goods are assessed and paid up by the importer or his authorized representative. It is only at the time of clearance from the custody of the port trusts/international airport authority or other custodians that the examination of the goods on percentage basis is carried out. For expediting assessment and clearance formalities, separate staff for checking assessment related work is posted in the custom houses as well as in the premises where the goods are stored pending customs clearance; the later said officers undertake checking of nature of goods, valuation and other part of declaration, or draw samples as may be ordered by the scrutinizing officers of the Custom House/Cargo Complexes/ICDs.

19.        In majority of the cases the assessment is completed and duties also paid without prior examination. If no discrepancies in relation to the nature of goods, quantity, value etc., are observed at the time of examination of the cargo by the appraising officers in the dock/cargo complex etc., out of Customs control orders are issued, and thereafter goods can be cleared after discharging any other fees/charges etc., of the custodians.

20.        Where prior examination, at times becomes necessary before assessment is finalized or permissibility of import determined, goods are got examined first after filing of Bill of entry and other documents. Based upon the report of the examining staff, duties etc., are assessed and if there is no prohibition etc., on payment of duty the goods are taken clearance from the custodian without the need for further examination.

21.        Where disputes arise in the matter of classification/valuation or any violations of any laid down provisions of law are observed, where the goods cannot be allowed clearance finally without further investigations and following adjudication proceedings - where necessary, the law and instructions provide for even provisional clearances subject to suitable bond/security. Only where the goods are of prohibited nature or in certain other exceptional cases, where release on provisional basis is not considered advisable, the final decision may be taken after results of enquiries etc., are known & where necessary adjudication proceedings completed.

22.        Similar customs clearance formalities for goods meant for export have to be fulfilled by presenting what are termed as ‘shipping bills’ and other related documents to the export wing of the custom houses or EDI service Centres. The appraising staff in the Custom House/Air Cargo Complex checks the declarations to assess the duties/cess if leviable, propriety of export incentives where claimed under different schemes like duty drawback or duty free exemption schemes etc. Appropriate orders for examination before shipments are allowed are given on the Shipping Bill. The staff in the docks/cargo complexes/ICDs examines the goods meant for export on percentage basis, and allow shipment if there are no discrepancies/ mis-declarations etc., and no prohibitions/violations come to light. Appropriate penal action as per law is initiated where any fraudulent practices get detected during initial stage of scrutiny or at the time of examination etc.

23.        Thus, aforesaid provisions in the law and the various functions assigned to the customs are essentially provided to ensure that all cargo which is brought into the country passes through authorized points, is reported to customs and the concerned importers fulfil the prescribed legal and procedural requirements laid down under Customs Act and allied laws, paying up the duties leviable if any before the goods enter into the country. These provisions similarly help customs to regulate the outflow of the goods out of the country and enable them to subject the goods to proper checks before allowing final exit out of the country by sea/air/land/rail routes. They also help detect any attempts of smuggling or commercial frauds by unscrupulous parties.

Smuggling & Other Violations and Penal Provisions:

24.        Unscrupulous parties do attempt to evade the duties leviable and bypass various prohibitions/restrictions in relation to imports by attempting to bring the goods into the country from places other than the notified ports/airports/Land Custom Stations without reporting or presenting the goods to customs. Similar attempts are made to take out goods out of the country unauthorizedly. This is essentially what is termed ‘smuggling’ and customs officers have very important role to play in ensuring that they detect any such attempts of smuggling into or out of the country and take appropriate action both against the goods as well as against the persons involved in smuggling or violation of various restrictions/prohibitions for personal gains at the cost of exchequer unmindful of various other harmful effects which the prohibited and sensitive goods may have, if these are allowed entry into the country. Strict penalties in relation to the goods/persons – involving seizure/absolute confiscation of the prohibited goods, fines and penalties on the persons involved in the offence as well as those abetting the offence are provided. The law also empowers Customs for carrying out searches, arrests and prosecution of persons involved in smuggling and serious commercial frauds and evasion of duties or misuse of export incentives by fraudulent practices (mis-declaration of nature, and value of the goods or suppression of quantities etc.)

25.        The customs law provides deterrent penal provisions for all such violations but due processes of law have to be followed before any action is taken against the offending goods or persons/conveyance etc. involved. The customs officers have to act as quasi-judicial authorities and the liabilities for duty evaded or sought tobe evaded, fines and penalties etc., are adjudged by adjudication action wherein the persons concerned are duly given notice of the contemplated action against the goods/persons/conveyance etc. including the gist of the charges and their

basis, and they are provided opportunity for representation as well as personal hearing. The adjudication powers are vested in the customs officers of different specified ranks.

26.        In grave offence cases prosecution action with imprisonment upto 7 years is also permissible under the Customs Act, but this action is to be taken following the usual criminal proceedings in a court of law, after prosecution sanction has been given by the competent Customs officer.

Appellate Remedies:

27.        The parties aggrieved with the departmental adjudication action are also given the right to appeal – at the departmental higher level [Commissioner (Appeal)] as well as at independent tribunal level. On questions of law, the orders of tribunal could also be considered for reference to the High Court and certain categories of decisions involving matters relating to classification or valuation can be appealed even before the Supreme Court.

Passenger Processing:

28.        Apart from the aforesaid functions in relation to control/regulation/ clearance of import/export of goods international passenger processing is another important area of work handled by the Indian customs authorities. All incoming passengers after immigration clearance have to pass through Customs who have the onerous duty to ensure that there is maximum facilitation and quick passenger clearance, but at the same time the passengers do not try to smuggle goods into the country which are sensitive and otherwise prohibited/restricted or where substantial duties may be involved which are sought to be evaded by non-declaration/mis-declaration to Customs. Similarly, though duties are not very relevant for outgoing passengers, Customs have to ensure that outgoing passengers do not smuggle out foreign currency, antiques or other wildlife & prohibited items or narcotics drugs or psychotropic substances – and this later part, i.e., checking of drug smuggling is becoming of considerable importance in recent years. The customs have also to ensure enforcement of various other allied laws before any goods carried by the passengers on person, in hand bag or accompanied baggage enter into the country or get out of the country.

Import/Export by Post/Courier:

29.        Another important role performed by Customs, though not very visible, is necessary coordination with Postal authorities and giving customs clearances after appropriate checking on selective basis of various goods coming by post parcels, etc. They have to ensure that these postal mail/packets/parcels enter into the country following the provisions of the Customs Act. The goods brought by parcels unless these are within permissible free gift limits or free sample limits have to be assessed to duties by customs & indicated to postal authorities. The duties are collected before the postal authorities deliver the goods to the addressees. Lastly, it may also be mentioned that small item imports/exports through couriers is fast catching up in this country and customs have made appropriate provisions by Regulations for ensuring that goods brought in by courier get customs cleared quickly – discharging duties where leviable on import before these are forwarded for delivery to the consignees. The regulations framed are reviewed to meet the changing needs of trade & industry/general public.

30.        These are some of the basic areas of work which are handled by the Indian Customs. As could be seen it covers substantial areas of activities affecting trade and industry and general public. Customs officials come in contact with international passengers and general public, importers and exporters, traders and manufacturers, the carriers, the port and airport authorities, postal authorities and various other Government/semi-Government agencies, Banks etc. The importers and exporters have to realize that various agencies get involved in any customs clearance work in relation to cargo. Even international passenger processing and faster clearances depend upon various agencies working at Air Ports. Indian Customs authorities are very conscious of the various onerous tasks assigned to it and is attempting, consciously in recent years, to rationalize and modernize its Customs procedures for customs clearance of cargo/passenger processing etc. India is an active member of the World Customs Organisation and has adopted various international Customs Conventions and procedures; the Harmonized Classification System, the GATT based Valuation system in relation to valuation etc. It is moving fast in direction of total automation of the imports and exports clearance work.

The use of Electronic Data Interchange System for customs clearance for imports and exports & disbursement of duty drawback etc., started from 1995 and is now operative at 23 customs stations/ports/ICDs (covering almost 90% of cargo). With the Customs Gateway Project, under serious & advance stage of implementation, it should be possible to have connectivity of all Customs stations by the end of the year or January, 2002 and there may be substantial further speeding up of the customs clearance work in not distant future.

31.        Customs in this country are committed in its Citizen Charter, to provide to trade & industry time bound and speedy cargo clearance facility, quick redressal of grievance, and inculcating in its officers’ sense of service with stress on courtesy, understanding, integrity. objectivity and transparency. Steps are afoot to further professionalize Customs to be able to render efficient and prompt service to our clients almost at par with those rendered by other customs services in developed countries.

32.        It is difficult to have a manual which could cover all aspects of the customs functions in one place or to explain the changes contemplated taking due note of demand of trade & industry and in tune with international practices. But an attempt is made in the following chapters, briefly to further explain some of the more important aspects and areas of work of Customs for the benefit of all concerned - with focus on the importers/exporters and the concerned agencies including the international passengers and general public. Considering the importance the country attaches to the export promotion, the various export promotion schemes have been elaborated somewhat at length. It is hoped that the information would be found useful. Taking into account the demands/suggestions from the trade and industry and general public and even departmental officials, areas which are not covered by this first edition of the manual, would be taken up for coverage in the next edition.

Arrival of Goods and Procedures Prior to Lodgement of Goods Declaration

 

Conveyances to call only at Notified Customs Ports / Airports:

Customs Act, 1962, envisages that only places notified by the Government shall be Customs ports or Customs airports for the unloading of imported goods and loading of export goods. At each such customs ports, the Commissioner of Customs is empowered to approve proper places for the unloading and loading of goods and he also specifies the limits of any Customs area. The law further provides that the person in charge of the vessel or an aircraft shall not call or land at any place other than the Customs port/airport, except in cases of emergencies.

Power to board conveyance, to question and to demand documents :

2.        Section 37 empowers the proper officer to board any conveyance carrying imported goods or export goods. He may remain on board as long as he decides to remain. The proper officer may question the person in charge of the vessel or aircraft. He may demand production of documents and also ask questions, to be answered by such person. The person in charge of the conveyance is bound to comply with these requirements [Section 38].

Delivery of Import Manifest:

3.        The Master / Agent of the vessel or an aircraft has to deliver an import manifest (an import report in case of a vehicle), within 24 hours after arrival in the case of a vessel and 12 hours after arrival in the case of an aircraft or a vehicle in the prescribed form. The time limit for filing the manifest is extendable on showing sufficient cause. In the case of a vessel or an aircraft, a manifest may also be filed even before arrival of the vessel or aircraft (known as Prior Entry Manifest). In the case of vessels, for administrative convenience, such advance manifests are accepted on any day within 14 days before the expected arrival of the vessel.

4.        If the vessel does not arrive within the stipulated time of 14 days or such extended time as may be granted by the Assistant Commissioner (Imports), the manifest accepted

provisionally is cancelled and the fact circulated through public notices. All the Bills of Entry filed against the cancelled manifest, become void. The importers have to return those Bills of Entry to the Import Department and to claim refund of duty, if paid on any such Bills of Entry. If the same vessel enters the port after the cancellation of the original manifests, it will be treated as a fresh entry and a fresh manifest is insisted upon.

General conditions:

5.        A person filing declarations under this section has to declare the truthfulness of contents. This declaration has legal consequences, which bind the carrier. [Section 30(2)].

Amendments:

6.        If for any reason, the carrier desires to amend or supplement the IGM, it will be permitted by the proper officer on payment of prescribed fees, if he is satisfied that there is no fraudulent intention behind the move. [Section 30(3)].

Penal liability:

7.        Any mis-declaration in this document will attract the penal provisions of Section 111(f) and Section 112.

Excision from IGMs of items originally manifested:

(a) Excision from I.G.Ms of items originally manifested are permitted only:

(i) On application in writing from the ship’s Agents;

(ii) On production of the documentary evidence of short shipment of goods;

(iii)

On payment of a fee as prescribed.

(b)

(i) Excisions or amendments of items in the Import Manifest involving reduction in

number of Packages:

8.        An application from the steamer agents for excisions or amendments in the Import Manifest involving reduction in the number of packages or quantity or weight thereof, should be submitted with the connected documentary evidence. Such excisions or amendments will only be allowed; if after due investigation, it is proved that the excess quantity was originally shown in the import manifest as a result of an error. In the absence of such proof, the application will be kept over for being dealt with by the Manifest Clearance Section at the time of closure of the ship’s file.

(ii)        Applications for the excision or amendments of items for which Bills of Entry have been noted will be dealt with by the Manifest Clearance Section if made two months after the arrival of the vessel.

            Matters such as the number of copies of manifests to be filed, nature of forms, manner of declaring cargo etc. are governed by the following Regulations:

(i) Import Report (Form) Regulation, 1976;

(ii) Import Manifest (Aircraft) Regulation, 1976; and

(iii)

Import Manifest (Vessels) Regulation, 1971;

Generally speaking, the above Regulations stipulate declaring separately cargo to be landed, unaccompanied Baggage, goods to be transported and same bottom or retention cargo. Separate declarations are also to be filed in respect of dangerous/prohibited/ sensitive goods such as Arms and Ammunitions, Narcotics, Gold etc. The prime condition in the Regulations is that the manifest shall cover all the goods carried in the conveyance.

            In respect of a vessel, an import manifest shall, in addition, consist of an application for entry inwards.

Entry Inwards:

9.        The Master of the vessel is not to permit the unloading of any imported goods until an order has been given by the proper officer granting Entry Inwards of such vessel. Normally, Entry Inwards is granted only after the import manifest has been delivered. This entry inward date is crucial for determining the rate of duty, as provided in section 15 of the Customs Act, 1962. Unloading of certain items like accompanied baggage, mail bags, animals, perishables and hazardous goods are exempted from this stipulation.

Enclosures to Import General Manifest:

10.        The amendment made in 1995 (w.e.f. 1-7-1995) introduces a new form for obtaining entry inwards. The forms are designed according to IMO-FAL Convention. The forms have to be filed in prescribed sizes only. Host of enclosures are sought along with these forms. This practice has its origin in other statutes such as Merchant Shipping Act, 1880. However, keeping the said convention in view, Board has issued instructions dispensing with submission of various documents. The following declarations have, however, to be filed along-with IGM:

(a) Deck Cargo Declaration / Certificate.

(b)

Last port clearance copy.

(c) Amendment application (when relevant).

(d) Income Tax Certificate in case of Export Cargo.

(e) Nil export cargo certificate.

(f) Port Trust "No Demand" certificate.

(g) Immigration certificate.

(h) Application for sign on/sign off of crew (when relevant).

(i) Application for crew baggage chceking when they sign on (When relevant).

[C.B.E & C. Circular No.36/95-Cus., dated 10-4-1995, 1995 (77) E.L.T. T51. Refers. ]

Procedure for filing IGM at Custom Houses operating EDI service centres:

(i)        IGM by Shipping lines:

11.        The shipping line/steamer agent needs to submit the manifest in prescribed form at the Service Centre. The shipping lines are required to submit the electronic version of the Import General manifest in floppies, containing all the details and particulars. It is to be ensured by the Shipping Lines that all the particulars and details of the Import general manifest submitted either manually or through floppies are correct. The shipping agents who do not have arrangement for data in floppy, may approach the Service Center of Customs and get the data of IGM submitted in system. They are also to ensure that details of House Bill of Lading are also incorporated in the IGM in case of consol cargo.

12.        On arrival of the vessel, the shipping line needs to approach the Preventive officer for granting entry inwards. Before making the application, the shipping line has to make payment of the Light House dues.

13.        In case the shipping line is filing an IGM after arrival of the vessel, the procedure as mentioned above for prior IGM, is to be followed except that the date of arrival of vessel is also indicated. After submission, the shipping line has to approach the proper officer for grant of entry inwards in the system.

(ii)            IGM by Air:

14.        The airlines are required to file IGM in prescribed format. In case of Air Cargo Complexes having EDI, the IGMs may be filed through electronic mode. The IGMs to be submitted need to contain all details and particulars. In other words, the airlines would not only be furnishing the details of the Master Airway Bills but also the House Airway bills in the case of console cargo. The airlines are also to furnish the additional information, namely, the ULD Nos. for use by the custodians.

Filing of Stores List:

15.        When entering any port, all ships are required to furnish to the Commissioner of Cus toms, a list (or nil return) of ships stores intended for landing (excluding any consumable stores issued from any dutified shops in India). Retention on board of imported stores is governed by Import Store (Retention on board) Regulations, 1963. The consumable stores can remain on board without payment of import duties during the period the vessel/Aircraft remains foreign going. Otherwise, such consumable stores are to be kept under Customs seal. Even in respect of foreign going vessels, only the stores required for immediate use of the personnel may be left unsealed. Excessive stocks of stores such as liquor, tobacco, cigarettes, etc are kept under Customs seal.

Unloading and Loading of Goods:

16.        Imported goods are not to be unloaded from the vessel until Entry Inwards is granted. No imported goods are to be unloaded unless they are specified in the import manifest/report for being unloaded at that Customs station. No imported goods shall be unloaded at any place other than the places provided for such unloading. Further, imported goods shall not be unloaded from any conveyance except under the supervision of the proper officer. Similarly, for unloading imported goods on any Sunday or on any holiday, prior notice shall be given and fees prescribed in this regard shall be paid.

Other liabilities of carriers:

17.        Under Section 115 and 116, the persons in charge of vessel or aircraft have other liabilities, which are important and noteworthy. Section 115 provides for confiscation of vessel or other conveyance under the following circumstances:

(a) A conveyance within Indian waters or port or customs area which is adopted, fitted, modified or altered for concealing goods.

(b) A conveyance from which goods are thrown overboard, staved or destroyed so as to

prevent seizure by customs officers.

(c) A conveyance which disobeys any order under Section 106 to stop or land, without sufficient cause.

(d) A conveyance from which goods under drawback claim are unloaded without proper officer’s permission.

(e) A conveyance which has entered India with goods, from which substantial portion of goods are missing and failure of the master to account therefor.

Any vessel when used as means of transport for smuggling of any goods or in the carriage of any smuggled goods, is liable to confiscation, unless the owner establishes that it was used without the knowledge or connivance of the owner, his agent and the person in-charge of the vessel. When any such conveyance is confiscated, an option to pay redemption fine has to be given to the owner of the conveyance. The upper limit for imposing the redemption fine is the market value of impugned goods.

18.        Under Section 116, penalty may be imposed on the person incharge of vessel if there is failure to account for all goods loaded in the vessel for importation into India or transhipped under the provisions of Customs Act and these are not unloaded at the place of destination in India or if the quantity unloaded is short of the quantity to be unloaded at particular destination. Penalty may be waived if failure to unload or deficiency in unloading is accounted for to the satisfaction of competent officer. Thus, if there is any shortage which is not satisfactorily accounted for, the person incharge of the vessel will be liable to penalty, which may be twice the duty payable on the import goods not accounted for.

Procedure for Clearance of Imported and Export Goods

I. Import:

Bill of Entry – Cargo Declaration:

Goods imported in a vessel/aircraft attract customs duty and unless these are not meant for customs clearance at the port/airport of arrival by particular vessel/aircraft and are intended for transit by the same vessel/aircraft or transhipment to another customs station or to any place outside India, detailed customs clearance formalities of the landed goods have to be followed by the importers. In regard to the transit goods, so long as these are mentioned in import report/IGM for transit to any place outside India, Customs allows transit without payment of duty. Similarly for goods brought in by particular vessel/aircraft for transhipment to another customs station detailed customs clearance formalities at the port/airport of landing are not prescribed and simple transhipment procedure has to be followed by the carrier and the concerned agencies. The customs clearance formalities have to be complied with by the importer after arrival of the goods at the other customs station. There could also be cases of transhipment of the goods after unloading to a port outside India. Here also simpler procedure for transhipment has been prescribed by regulations, and no duty is required to be paid. (Sections 52 to 56 of the Customs are relevant in this regard)

2.        For other goods which are offloaded importers have the option to clear the goods for home consumption after payment of the duties leviable or to clear them for warehousing without immediate discharge of the duties leviable in terms of the warehousing provisions built in the Customs Act. Every importer is required to file in terms of the Section 46 an entry (which is called Bill of entry) for home consumption or warehousing in the form, as prescribed by regulations.

3.        If the goods are cleared through the EDI system no formal Bill of Entry is filed as it is generated in the computer system, but the importer is required to file a cargo declaration having prescribed particulars required for processing of the entry for customs clearance.

4.        The Bill of entry, where filed, is to be submitted in a set, different copies meant for different purposes and also given different colour scheme, and on the body of the bill of entry the purpose for which it will be used is generally mentioned in the non-EDI declaration.

5.        The importer clearing the goods for domestic consumption has to file bill of entry in four copies; original and duplicate are meant for customs, third copy for the importer and the fourth copy is meant for the bank for making remittances.

6.        In the non-EDI system alongwith the bill of entry filed by the importer or his representative the following documents are also generally required:-

Signed invoice Packing list Bill of Lading or Delivery Order/Airway Bill GATT declaration form duly filled in Importers/CHA’s declaration License wherever necessary Letter of Credit/Bank Draft/wherever necessary Insurance document Import license Industrial License, if required Test report in case of chemicals Adhoc exemption order DEEC Book/DEPB in original Catalogue, Technical write up, Literature in case of machineries, spares or chemicals

as may be applicable Separately split up value of spares, components machineries Certificate of Origin, if preferential rate of duty is claimed No Commission declaration

7.        While filing the bill of entry and giving various particulars as prescribed therein the correctness of the information given has also to be certified by the importer in the form a declaration at the foot of the bill of entry and any mis-declaration/incorrect declaration has legal consequences, and due precautions should be taken by importer while signing these declarations.

8.        Under the EDI system, the importer does not submit documents as such for assessment but submits declarations in electronic format containing all the relevant information to the Service Centre. A signed paper copy of the declaration is taken by the service centre operator for non-repudiability of the declaration. A checklist is generated for verification of data by the importer/CHA. After verification, the data is submitted to the system by the Service Centre Operator and system then generates a B/E Number, which is endorsed on the printed checklist and returned to the importer/CHA. No original documents are taken at this stage. Original documents are taken at the time of examination. The importer/CHA also need to sign on the final document after Customs clearance.

9.        The first stage for processing a bill of entry is what is termed the noting of the bill of entry, vis-à-vis, the IGM filed by the carrier. In the non-EDI system the importer has to get the bill of entry noted in the concerned unit which checks the consignment sought to be cleared having been manifested in the particular vessel and a bill of entry number is generated and indicated on all copies. After noting the bill of entry gets sent to the appraising section of the Custom House for assessment functions, payment of duty etc. In the EDI system, the Steamer Agents get the manifest filed through EDI or by using the service centre of the Custom House and the noting aspect is checked by the system itself – which also generates bill of entry number.

10.        After noting/registration of the Bill of entry, it is forwarded manually or electronically to the concerned Appraising Group in the Custom House dealing with the commodity sought to be cleared. Appraising Wing of the Custom House has a number of Groups dealing with earmarked commodities falling under different Chapter Headings of the Customs Tariff and they take up further scrutiny for assessment, import permissibility etc. angle.

Assessment:

11.        The basic function of the assessing officer in the appraising groups is to determine the duty liability taking due note of any exemptions or benefits claimed under different export

promotion schemes. They have also to check whether there are any restrictions or prohibitions on the goods imported and if they require any permission/license/permit etc., and if so whether these are forthcoming. Assessment of duty essentially involves proper classification of the goods imported in the customs tariff having due regard to the rules of interpretations, chapter and sections notes etc., and determining the duty liability. It also involves correct determination of value where the goods are assessable on ad valorem basis. The assessing officer has to take note of the invoice and other declarations submitted alongwith the bill of entry to support the valuation claim, and adjudge whether the transaction value method and the invoice value claimed for the basis of assessment is acceptable, or value needs to be redetermined having due regard to the provisions of Section 14 and the valuation rules issued thereunder, the case law and various instructions on the subject. He also takes note of the contemporaneous values and other information on valuation available with the Custom House.

12.        Where the appraising officer is not very clear about the description of the goods from the document or as some doubts about the proper classification which may be possible only to determine after detailed examination of the nature of the goods or testing of its samples, he may give an examination order in advance of finalisation of assessment including order for drawing of representative sample. This is done generally on the reverse of the original copy of the bill of entry which is presented by the authorized agent of the importer to the appraising staff posted in the Docks/Air Cargo Complexes where the goods are got examined in the presence of the importer’s representative.

13.        On receipt of the examination report the appraising officers in the group assesses the bill of entry. He indicates the final classification and valuation in the bill of entry indicating separately the various duties such as basic, countervailing, anti-dumping, safeguard duties etc., that may be leviable. Thereafter the bill of entry goes to Assistant Commissioner/Deputy Commissioner for confirmation depending upon certain value limits and sent to comptist who calculates the duty amount taking into account the rate of exchange at the relevant date as provided under Section 14 of the Customs Act.

14.        After the assessment and calculation of the duty liability the importer’s representative has to deposit the duty calculated with the treasury or the nominated banks, whereafter he can go and seek delivery of the goods from the custodians.

15.        Where the goods have already been examined for finalization of classification or valuation no further examination/checking by the dock appraising staff is required at the time of giving delivery and the goods can be taken delivery after taking appropriate orders and payment of dues to the custodians, if any.

16.        In most cases, the appraising officer assessees the goods on the basis of information and details furnished to the importer in the bill of entry, invoice and other related documents including catalogue, write-up etc. He also determines whether the goods are permissible for import or there are any restriction/prohibition. He may allow payment of duty and delivery of the goods on what is called second check/appraising basis in case there are no restriction/prohibition. In this method, the duties as determined and calculated are paid in the Custom House and appropriate order is given on the reverse of the duplicate copy of the bill of entry and the importer or his agent after paying the duty submits the goods for examination in the import sheds in the docks etc., to the examining staff. If the goods are found to be as declared and no other discrepancies/mis-declarations etc., are detected, the importer or his agent can clear the goods after the shed appraiser gives out of charge order.

17.        Wherever the importer is not satisfied with the classification, rate of duty or valuation as may be determined by the appraising officer, he can seek an assessment order. An appeal against the assessment order can be made to appropriate appellate authority within the time limits and in the manner prescribed.

EDI Assessment:

18.        In the EDI system of handling of the documents/declarations for taking import clearances as mentioned earlier the cargo declaration is transferred to the assessing officer in the groups electronically.

19.        The assessing officer processes the cargo declaration on screen with regard to all the parameters as given above for manual process. However in EDI system, all the calculations are done by the system itself. In addition, the system also supplies useful information for calculation of duty, for example, when a particular exemption notification is accepted, the system itself gives the extent of exemption under that notification and calculates the duty accordingly. Similarly, it automatically applies relevant rate of exchange in force while calculating. Thus no comptist is required in EDI system. If assessing officer needs any clarification from the importer, he may raise a query. The query is printed at the service centre and the party replies to the query through the service centre.

20.        After assessment, a copy of the assessed bill of entry is printed in the service centre. Under EDI, documents are normally examined at the time of examination of the goods. Final bill of entry is printed after ‘out of charge’ is given by the Custom Officer.

21.        In EDI system, in certain cases, the facility of system appraisal is available. Under this process, the declaration of importer is taken as correct and the system itself calculates duty which is paid by the importer. In such case, no assessing officer is involved.

22.        Also, a facility of tele-enquiry is provided in certain major Customs stations through which the status of documents filed through EDI systems could be ascertained through the telephone. If nay query is raised, the same may be got printed through fax in the office of importer/exporter/CHA.

Examination of Goods:

23.        All imported goods are required to be examined for verification of correctness of description given in the bill of entry. However, a part of the consignment is selected on random selection basis and is examined. In case the importer does not have complete information with him at the time of import, he may request for examination of the goods before assessing the duty liability or, if the Customs Appraiser/Assistant Commissioner feels the goods are required to be examined before assessment, the goods are examined prior to assessment. This is called First Appraisement. The importer has to request for first check examination at the time of filing the bill of entry or at data entry stage. The reason for seeking First Appraisement is also required to be given. On original copy of the bill of entry, the Customs Appraiser records the examination order and returns the bill of entry to the importer/CHA with the direction for examination, who is to take it to the import shed for examination of the goods in the shed. Shed Appraiser/Dock examiner examines the goods as per examination order and records his findings. In case group has called for samples, he forwards sealed samples to the group. The importer is to bring back the said bill of entry to the assessing officer for assessing the duty. Appraiser assesses the bill of entry. It is countersigned by Assistant/Deputy Commissioner if the value is more than Rs. 1 lakh.

24.        The goods can also be examined subsequent to assessment and payment of duty. This is called Second Appraisement. Most of the consignments are cleared on second appraisement basis. It is to be noted that whole of the consignment is not examined. Only those packages which are selected on random selection basis are examined in the shed.

25.        Under the EDI system, the bill of entry, after assessment by the group or first appraisement, as the case may be, need to be presented at the counter for registration for examination in the import shed. A declaration for correctness of entries and genuineness of the original documents needs to be made at this stage. After registration, the B/E is passed on to the shed Appraiser for examination of the goods. Along-with the B/E, the CHA is to present all the necessary documents. After completing examination of the goods, the Shed Appraiser enters the report in System and transfers first appraisement B/E to the group and gives 'out of charge' in case of already assessed Bs/E. Thereupon, the system prints Bill of Entry and order of clearance (in triplicate). All these copies carry the examination report, order of clearance number and name of Shed Appraiser. The two copies each of B/E and the order are to be returned to the CHA/Importer, after the Appraiser signs them. One copy of the order is attached to the Customs copy of B/E and retained by the Shed Appraiser.

Green Channel facility:

26.        Some major importers have been given the green channel clearance facility. It means clearance of goods is done without routine examination of the goods. They have to make a declaration in the declaration form at the time of filing of bill of entry. The appraisement is done as per normal procedure except that there would be no physical examination of the goods. Only marks and number are to be checked in such cases. However, in rare cases, if there are specific doubts regarding description or quantity of the goods, physical examination may be ordered by the senior officers/investigation wing like SIIB.

Execution of Bonds:

27.        Wherever necessary, for availing duty free assessment or concessional assessment under different schemes and notifications, execution of end use bonds with Bank Guarantee or other surety is required to be furnished. These have to be executed in prescribed forms before the assessing Appraiser.

Payment of Duty:

28.        The duty can be paid in the designated banks or through TR-6 challans. Different Custom Houses have authorised different banks for payment of duty. It is necessary to check the name of the bank and the branch before depositing the duty. Bank endorses the payment particulars in challan which is submitted to the Customs.

Amendment of Bill of Entry:

29.        Whenever mistakes are noticed after submission of documents, amendments to the of entry is carried out with the approval of Deputy/Assistant Commissioner. The request for amendment may be submitted with the supporting documents. For example, if the amendment of container number is required, a letter from shipping agent is required. Amendment in document may be permitted after the goods have been given out of charge i.e. goods have been cleared on sufficient proof being shown to the Deputy/Assistant Commissioner.

Prior Entry for Bill of Entry:

30.        For faster clearance of the goods, provision has been made in section 46 of the Act, to allow filing of bill of entry prior to arrival of goods. This bill of entry is valid if vessel/aircraft carrying the goods arrive within 30 days from the date of presentation of bill of entry.

31.        The importer is to file 5 copies of the bill of entry and the fifth copy is called Advance Noting copy. The importer has to declare that the vessel/aircraft is due within 30 days and they have to present the bill of entry for final noting as soon as the IGM is filed. Advance noting is available to all imports except for into bond bill of entry and also during the special period.

Mother Vessel/Feeder vessel:

32.        Often in case of goods coming by container ships they are transferred at an intermediate ports (like Ceylon) from mother vessel to smaller vessels called feeder vessels. At the time of filing of advance noting B/E, the importer does not know as to which vessel will finally bring the goods to Indian port. In such cases, the name of mother vessel may be filled in on the basis of the bill of lading. On arrival of the feeder vessel, the bill of entry may be amended to mention names of both mother vessel and feeder vessel.

Specialised Schemes:

33.        The import of goods are made under specialised schemes like DEEC or EOU etc. The importer in such cases is required to execute bonds with the Customs authorities for fulfillment of conditions of respective notifications. If the importer fails to fulfill the conditions, he has to pay the duty leviable on those goods. The amount of bond would be equal to the amount of duty leviable on the imported goods. The bank guarantee is also required alongwith the bond. However, the amount of bank guarantee depends upon the status of the importer like Super Star Trading House/Trading House etc.

Bill of Entry for Bond/Warehousing:

34.        A separate form of bill of entry is used for clearance of goods for warehousing. All documents as required to be attached with a Bill of Entry for home consumption are also required to be filed with bill of entry for warehousing. The bill of entry is assessed in the same manner and duty payable is determined. However, since duty is not required to be paid at the time of warehousing of the goods, the purpose of assessing the goods at this stage is to secure the duty in case the goods do not reach the warehouse. The duty is paid at the time of ex-bond clearance of goods for which an ex-bond bill of entry is filed. The rate of duty applicable to imported goods cleared from a warehouse is the rate in-force on the date on which the goods are actually removed from the warehouse.

(References: Bill of Entry (Forms) Regulations, 1976, ATA carnet (Form Bill of Entry and Shipping Bill) Regulations, 1990 ,Uncleared goods (Bill of entry) regulation, 1972, , CBEC Circulars No. 22/97, dated 4/7/1997, 63/97, dated 21/11/1997).

 

II. Export :

For clearance of export goods, the export or his agents have to undertake the following formalities:

(a)        Registration:

35.        The exporters have to obtain PAN based Business Identification Number(BIN) from the Directorate General of Foreign Trade prior to filing of shipping bill for clearance of export goods. Under the EDI System, PAN based BIN is received by the Customs System from the DGFT online. The exporters are also required to register authorised foreign exchange dealer code (through which export proceeds are expected to be realised) and open a current account in the designated bank for credit of any drawback incentive.

36.        Whenever a new Airline, Shipping Line, Steamer Agent, port or airport comes into operation, they are required to be registered into the Customs System. Whenever, electronic processing of shipping bill etc. is held up on account of non-registration of these entities, the same is to be brought to the notice of Assistant/Deputy Commissioner in-charge of EDI System for registering the new entity in the system.

(b)        Registration in the case of export under export promotion schemes:

37.        All the exporters intending to export under the export promotion scheme need to get their licences/DEEC book etc. registered at the Customs Station. For such registration, original documents are required.

(c)        Processing of Shipping Bill - Non-EDI:

38.        Under manual system, shipping bills or, as the case may be, bills of export are required to be filed in format as prescribed in the Shipping Bill and Bill of Export (Form) regulations, 1991. The bills of export are being used if clearance of export goods is taken at the Land Customs Stations. Different forms of shipping bill/bill of export have been prescribed for export of duty free goods, export of dutiable goods and export under drawback etc.

39.        Shipping Bills are required to be filed along with all original documents such as invoice, AR-4, packing list etc. The assessing officer in the Export Department checks the value of the goods, classification under Drawback schedule in case of Drawback Shipping Bills, rate of duty/cess where applicable, exportability of goods under EXIM policy and other laws inforce. The DEEC/DEPB Shipping bills are processed in the DEEC group. In case of DEEC Shipping bills, the assessing officer verifies that the description of the goods declared in the shipping bill and invoice match with the description of the resultant product as given in the DEEC book. If the assessing officer has any doubts regarding value, description of goods, he may call for samples

of the goods from the docks. He may also call for any other information required by him for processing of shipping bill. He may assess the shipping bill after visual inspection of the sample or may send it for test and pass the shipping bill provisionally.

40.        Once, the shipping bill is passed by the Export Department, the exporter or his agent present the goods to the shed appraiser (export) in docks for examination. The shed appraiser may mark the document to a Custom officer (usually an examiner) for examining the goods. The examination is carried out under the supervision of the shed appraiser (export). If the description and other particulars of the goods are found to be as declared, the shed appraiser gives a ‘let export’ order, after which the exporter may contact the preventive superintendent for supervising the loading of goods on to the vessel.

41.        In case the examining staff in the docks finds some discrepancy in the goods, they may mark the shipping bill back to export department/DEEC group with their observations as well as sample of goods, if needed. The export department re-considers the case and decide whether export can be allowed, or amendment in description, value etc. is required before export and whether any other action is required to be taken under the Customs Act, 1962 for mis-declaration of description of value etc.

(d)        Processing of Shipping Bill - EDI:

42.        Under EDI System, declarations in prescribed format are to be filed through the Service Centers of Customs. A checklist is generated for verification of data by the exporter/CHA. After verification, the data is submitted to the System by the Service Center operator and the System generates a Shipping Bill Number, which is endorsed on the printed checklist and returned to the exporter/CHA. For export items which are subject to export cess, the TR-6 challans for cess is printed and given by the Service Center to the exporter/CHA immediately after submission of shipping bill. The cess can be paid on the strength of the challan at the designated bank. No copy of shipping bill is made available to exporter/CHA at this stage.

(e)        Octroi procedure, Quota Allocation and Other certification for Export Goods:

43.        The quota allocation label is required to be pasted on the export invoice. The allocation number of AEPC is to be entered in the system at the time of shipping bill entry. The quota certification of export invoice needs to be submitted to Customs along-with other original documents at the time of examination of the export cargo. For determining the validity date of the quota, the relevant date needs to be the date on which the full consignment is presented to the Customs for examination and duly recorded in the Computer System. In EDI System at Delhi Air cargo, the quota information is automatically verified from the AEPC/TEXPROCIL system.

44.        Since the shipping bill is generated only after the 'let export order' is given by Customs, the exporter may make use of export invoice or such other document as required by the Octroi authorities for the purpose of Octroi exemption.

(f)        Arrival of Goods at Docks:

45.        The goods brought for the purpose of examination and subsequent 'let export' is allowed entry to the Dock on the strength of the checklist and other declarations filed by the exporter in the Service Center. The Port authorities have to endorse the quantity of goods actually received on the reverse of the Check List.

(g)        System Appraisal of Shipping Bills:

46.        In many cases the Shipping Bill is processed by the system on the basis of declarations made by the exporters without any human intervention. In other cases where the Shipping Bill is processed on screen by the Customs Officer, he may call for the samples, if required for confirming the declared value or for checking classification under the Drawback Schedule. He may also give any special instructions for examination of goods, if felt necessary.

(h)        Status of Shipping Bill:

47.        The exporter/CHA can check up with the query counter at the Service Center whether the Shipping Bill submitted by them in the system has been cleared or not, before the goods are brought into the Docks for examination and export. In case any query is raised, the same is required to be replied through the service center or in case of CHAs having EDI connectivity through their respective terminals. The Customs officer may pass the Shipping Bill after all the queries have been satisfactorily replied to.

(i)        Customs Examination of Export Cargo:

48.        After the receipt of the goods in the dock, the exporter/CHA may contact the Customs Officer designated for the purpose present the check list with the endorsement of Port Authority and other declarations as aforesaid along with all original documents such as, Invoice and Packing list, AR-4, etc. Customs Officer may verify the quantity of the goods actually received and enter into the system and thereafter mark the Electronic Shipping Bill and also hand over all original documents to the Dock Appraiser of the Dock who many assign a Customs Officer for the examination and intimate the officers’ name and the packages to be examined, if any, on the check list and return it to the exporter or his agent.

49.        The Customs Officer may inspect/examine the shipment along with the Dock Appraiser. The Customs Officer enters the examination report in the system. He then marks the Electronic Bill along with all original documents and check list to the Dock Appraiser. If the Dock Appraiser is satisfied that the particulars entered in the system conform to the description given in the original documents and as seen in the physical examination, he may proceed to allow "let export" for the shipment and inform the exporter or his agent.

(j)        Variation Between the Declaration & Physical Examination:

50.        The check list and the declaration along with all original documents is retained by the Appraiser concerned. In case of any variation between the declaration in the Shipping Bill and physical documents/examination report, the Appraiser may mark the Electronic Shipping Bill to the Assistant Commissioner/Deputy Commissioner of Customs (Exports). He may also forward the physical documents to Assistant Commissioner/Deputy Commissioner of Customs (Exports) and instruct the exporter or his agent to meet the Assistant Commissioner/Deputy Commissioner of Customs (Exports) for settlement of dispute. In case the exporter agrees with the views of the Department, the Shipping Bill needs to be processed accordingly. Where, however, the exporter disputes the view of the Department principles of natural justice is required to be followed before finalisation of the issue.

(k)        Stuffing / Loading of Goods in Containers

51.        The exporter or his agent should hand over the exporter copy of the shipping bill duly signed by the Appraiser permitting "Let Export" to the steamer agent who may then approach the proper officer (Preventive Officer) for allowing the shipment. In case of container cargo the stuffing of container at Dock is dome under Preventive Supervision. Loading of both containerized and bulk cargo is done under Preventive Supervision. The Customs Preventive Superintendent (Docks) may enter the particulars of packages actually stuffed in to the container, the bottle seal number particulars of loading of cargo container on board into the system and endorse these details on the exporter copy of the shipping bill presented to him by the steamer agent. If there is a difference in the quantity/number of packages stuffed in the containers/goods loaded on vessel the Superintendent (Docks) may put a remark on the shipping bill in the system and that shipping bill requires amendment or changed quantity. Such shipping bill also may not be taken up for the purpose of sanction of Drawback/DEEC logging, till the shipping bill is suitably amended for the changed quantity. The Customs Preventive Officer supervising the loading of container and general cargo in to the vessel may give "Shipped on Board" endorsement on the exporters copy of the shipping bill.

(l)        Drawal of Samples:

52.        Where the Appraiser Dock (export) orders for samples to be drawn and tested, the Customs Officer may proceed to draw two samples from the consignment and enter the particulars thereof along with details of the testing agency in the ICES/E system. There is no

separate register for recording dates of samples drawn. Three copies of the test memo are prepared by the Customs Officer and are signed by the Customs Officer and Appraising Officer on behalf of Customs and the exporter or his agent. The disposal of the three copies of the test memo are as follows:-

i)      Original – to be sent along with the sample to the test agency.ii)     Duplicate – Customs copy to be retained with the 2nd sample.iii)    Triplicate – Exporter’s copy.

53.        The Assistant Commissioner/Deputy Commissioner if he considers necessary, may also order for sample to be drawn for purpose other than testing such as visual inspection and verification of description, market value inquiry, etc.

(m)        Amendments:

54.        Any correction/amendments in the check list generated after filing of declaration can be made at the service center, provided, the documents have not yet been submitted in the system and the shipping bill number has not been generated. Where corrections are required to be made after the generation of the shipping bill No. or after the goods have been brought into the Export Dock, amendments is carried out in the following manners.

i)        If the goods have not yet been allowed "let export" amendments may be permitted by the Assistant Commissioner (Exports).ii)        Where the "Let Export" order has already been given, amendments may be permitted only by the Additional/Joint Commissioner, Custom House, in charge of export section.

55.        In both the cases, after the permission for amendments has been granted, the Assistant Commissioner/Deputy Commissioner (Export) may approve the amendments on the system on behalf of the Additional /Joint Commissioner. Where the print out of the Shipping Bill has already been generated, the exporter may first surrender all copies of the shipping bill to the Dock Appraiser for cancellation before amendment is approved on the system.

(n)        Export of Goods Under Claim for Drawback:

56.        After actual export of the goods, the Drawback claim is processed through EDI system by the officers of Drawback Branch on first come first served basis. There is no need for filing separate drawback claims. The status of the shipping bills and sanction of DBK claim can be ascertained from the query counter set up at the service center. If any query has been raised or deficiency noticed, the same is shown on the terminal. A print out of the query/deficiency may be obtained by the authorized person of the exporter from the service center. The exporters are required to reply to such queries through the service center. The claim will come in queue of the EDI system only after reply to queries/deficiencies are entered by the Service Center.

57.        All the claims sanctioned on a particular day are enumerated in a scroll and transferred to the Bank through the system. The bank credits the drawback amount in the respective accounts of the exporters. Bank may send a fortnightly statement to the exporters of such credits made in their accounts.

58.        The Steamer Agent/Shipping Line may transfer electronically the EGM to the Customs EDI system so that the physical export of the goods is confirmed, to enable the Customs to sanction the drawback claims.

(o)        Generation of Shipping Bills:

59.        After the "let export" order is given on the system by the Appraiser, the Shipping Bill is generated by the system in two copies i.e., one Customs copy, one exporter’s copy (E.P. copy is generated after submission of EGM). After obtaining the print out the appraiser obtains the signatures of the Customs Officer on the examination report and the representative of the CHA on both copies of the shipping bill and examination report. The Appraiser thereafter signs & stamps both the copies of the shipping bill at the specified place.

60.        The Appraiser also signs and stamps the original & duplicate copy of SDF. Customs copy of shipping bill and original copy of the SDF is retained along with the original declarations by the Appraiser and forwarded to Export Department of the Custom House. He may return the exporter copy and the second copy of the SDF to the exporter or his agent.

61.        As regards the AEPC quota and other certifications, these are retained along with the shipping bill in the dock after the shipping bill is generated by the system. At the time of examination, apart from checking that the goods are covered by the quota certifications, the details of the quota entered into the system needs to be checked.

(p)        Export General Manifest:

62.        All the shipping lines/agents need to furnish the Export General Manifests, Shipping Bill wise, to the Customs electronically within 7 days from the date of sailing of the vessel.

63.        Apart from lodging the EGM electronically the shipping lines need to continue to file manual EGMs along with the exporter copy of the shipping bills as per the present practice in the export department. The manual EGMs need to be entered in the register at the Export Department and the Shipping lines may obtain acknowledgements indicating the date and time at which the EGMs were received by the Export Department.

64.        The above is the general procedure for export under EDI Systems. However special procedures exist for specified schemes, details of which may be obtained from the Public Notice/Standing Orders issued by the respective Commissionerates.

System of classification of Goods

Customs duties are chargeable on the act of importation of Goods. On some goods, customs duties are also charged on the act of exportation. The Goods that enter international trade are not charged to a single rate of customs duty by the importing / exporting country. It is required that such goods which enter the international trade are grouped into exclusive similar categories / class of goods [chemicals, metals, textiles, machinery, etc.] and enumerated on the basis of well defined criteria. The sub division and enumeration of all goods entering International trade along with well defined rules of interpretation, form what is normally termed as the nomenclature of goods, in a country. Governments utilise the nomenclature as the basis for prescribing appropriate duty on goods imported / exported. The nomenclature combined with the duty rates is called the Tariff. As the tariff is normally a part of the Tariff Act in a country, it is called the ‘Tariff Schedule’.

2.        A good nomenclature of goods should ensure;

(i)that every product manufactured or otherwise, will get covered under a code number uniformly applied the world over.

(ii) that a set of rules is available for interpretation.

(iii)that the nomenclature is accepted internationally as a technical and legal basis for improving trade relations amongst countries.

(iv)

that a statistical base, suitable for computerisation is available.

3.        The need of the nomenclature was largely fulfilled by the Brussels Tariff Nomenclature (BTN) evolved by the world body, Customs Cooperation Council. However, with a view to facilitate trade flow and analysis of trade statistics in a much more coordinated manner, the Customs Cooperation Council (since renamed as World Customs Organisation) developed the Harmonised Commodity Description and Coding System (HS) in 1986. India adopted this nomenclature for tariff purposes with effect from 28.2.86. The Customs Tariff is fully aligned with the HS. The Central Excise Tariff is fully aligned with the HS at the four digit level, and at the six digit level, proper enumeration and subdivision of products is done keeping in view the

goods that enter the trade, our experience with the concept of manufacture and the level of growth of the indigenous industry.

4.        The World Customs Organisation (WCO), for purposes of uniform interpretation of the HS, has published detailed Explanatory notes to various headings / subheadings explaining their scope. This forms the basis for interpreting the HS. The WCO, in its various committees discusses about the classification of individual products and gives classification opinion on them. Such information, though not binding in nature provide a useful guideline for classifying goods.

5.        In the Tariff Schedule, commodities are arranged in a fixed pattern with the duty rates specified against each of them. The pattern of arrangement of goods in the Tariff is in the increasing degree of manufacture involved. The pattern of arrangement of goods is in the following sequence. Natural products, raw materials, semi finished goods and fully finished goods / article / machinery, etc. The legal text of the Tariff consists of Sections, Chapters, Headings, Subheadings, subheading notes and the General Interpretative Rules (GIR). The Indian Customs Tariff has 21 sections and 99 chapters. A Section is a grouping together of a number of Chapters which codify a particular class of goods. The Section notes explain the scope of chapters / headings, etc. The Chapters consist of chapter notes, brief description of commodities arranged at four digit and six digit levels. Every four digit code is called a ‘heading’ and every six digit code is called a ‘subheading’.

6.        The process of arriving at a particular heading / Subheading code, either at four digit or six digit level for a commodity in the Tariff Schedule is called ‘classification’. This helps in determining the rate of duty leviable as prescribed by the legislature. However goods intended for a ‘project’ or goods imported by post / baggage for personal use, are earmarked a separate heading in the Indian Customs Tariff, under which they will be classified straightaway. These provisions are explained separately.

7.        Goods are classified taking into consideration the scope of headings / subheadings, related Section Notes, Chapter Notes and the General Interpretative Rules (GIR). The GIR is a set of 6 rules for classification of goods in the Tariff Schedule. These rules have to be applied sequentially.

8.        The Interpretative Rules play a very important role in the classification of the goods. Rule 1 of the GIR gives precedence to the Section notes / Chapter notes while classifying a product. Rule 2(a) applies to goods imported in assembled / unassembled condition. Such goods may be in incomplete or finished form. Rule 2(b) is applicable to ‘mixtures’ and ‘composite goods’. Goods which are not classifiable by application of Rule 2(b), will have to be classified by application of Rule 3. Rule 3 has three sub rules. Rule 4 states that goods which cannot be classified by application of the preceding rules may be classified under the heading appropriate to the goods to which they are most akin. Rule 5 applies to packing materials / articles in which the goods are carried. Rule 6 provides the general guideline for classification of goods under the appropriate sub heading.

9.        While classifying goods, the foremost consideration is the ‘statutory definition’. In the absence of any statutory definition, and any guideline provided by HS explanatory notes, the cardinal principle would be the way goods are known in ‘common parlance’. Many times statutes contain definitions and meanings of only a restricted number of words, expressions or phrases. While interpreting the common words used in the statute, giving more importance than due to common dictionary meanings may be misleading many a times as the dictionary gives all shades of meaning of a particular word. Similarly, meanings assigned in technical dictionaries will also have limited application.

10.        The ‘trade meaning’ should be given due importance unless the Tariff itself requires that the terms should be interpreted in a strict technical sense. Technical dictionaries should be used in such circumstances. If any scientific test is to be performed, the same has to be carried out as prescribed to arrive at the classification of goods. The common dictionary meaning of technical words should not be accepted in such cases. Normally, the common parlance understanding is indicative of the functional character of the goods. Further, in matters of classification it makes no difference whether the quality of goods is prime or defective. There is no prohibition on customs authorities in revising the classification once decided. However

revision of classification should be only done for good and sufficient reasons. In case of difficulty in understanding the scope of the headings / subheadings, reference should be made to supplementary texts like the Explanatory Notes to the HS.

11.        The rate of duty specified in the Tariff Schedule is called ‘Tariff rate of duty’. Goods which are not identified for concessional rate of duty / exemption from duty by issue of an exemption notification issued in terms of Customs Act provisions, are levied to the tariff rate of duty. In the export tariff schedule, only the commodities on which export tariff is levied are stated which does not involve the rigorous process of classification. In fact export duties are leviable only on listed 26 commodities but by exemption notifications, all but one set of item (i.e., leather items) are completely exempt from export duties. In the Central Excise Tariff, an Excise Duty is specified against each subheading. Goods which are prescribed ‘nil’ rates of duty in the Tariff are those goods which are levied to ‘free’ rates of duty.

12.        In the Tariff Schedule, over the years, a systematic effort has been done to unify rates on similar products to achieve economic rationality and reduction in the scope of classification disputes. As far as possible, similar goods are subjected to uniform duty rates. Various class goods are also levied to different ‘Slabs of rates of duty’. These slabs have also been reduced progressively. There are four different duty slabs in general and these are 5%, 15%, 25% & 35% at present.

13.        The CBEC issues Tariff advices in the form of circulars on classification matters to ensure uniformity in classification of goods at an all India level. Such issues also get discussed in the Conferences of Commissioners of customs on Tariffs and Allied Matters (Tariff conferences) held periodically at various Custom Houses in which all the Commissioners / Chief Commissioners of customs participate. The decisions of the Tariff conferences is published in the form of minutes (in printed book form) and circulated to all the Custom Houses for compliance. An Advance Ruling Authority has been set up for giving binding tariff information to Joint Ventures set up by Non residents.

14.        Permissibility of import and export of Goods is governed by the nomenclature, ITC(HS) classification of import and export goods, published by the Directorate General of Foreign Trade (DGFT). In this nomenclature, goods are arranged as they are in the HS but are codified by ten digit numerical code to identify goods with more precision for purposes of import / export control.

15.        CBEC, has undertaken an exercise for unifying the classification codes under the Customs tariff, Central Excise tariff, ITC(HS) and the statistical schedule to evolve a Combined Nomenclature at the eight digit level to make it in tune with international statistical schedule. Once legislated, it will provide a base for collecting comprehensive trade data for statistical purposes.

16.        The process of classification of goods is of paramount importance now, as both industrialised and developing countries use it as a tool for implementation of various trade policy instruments, international commercial arrangements, multilateral Tariff agreements. Further, as the variety of products traded internationally grows rapidly, it is all the more necessary that the nomenclature keeps up with the technological progress. The HS, taking note of the trade flow, technological progress, etc., is amended from time to time. The amended version is incorporated in the Indian Tariff Schedule, periodically.

Special Classification Schemes for Imported Goods; for a Project, Baggage and Postal Articles

(A)        Project Import:

The ‘Project Import Scheme’ is an Indian innovation to facilitate setting up of and expansion of industrial projects. Normally, imported goods have to be classified ‘on merits’ under the Customs and Excise Tariffs for levy of duty. This implies that each individual article has to be classified separately and assessed to appropriate duty not only for the purposes of customs duty but also for the purposes of Countervailing Duty (CVD). For setting up of a ‘Project’, a number of goods may be imported in one or many consignments. If all goods required for the

project are to be classified and valued separately for assessment to duty, the process becomes cumbersome. This may lead to delay in clearance of goods. Further, the suppliers, while sending goods for a contracted project, do not value each and every item or parts of machinery manufactured and supplied in stages. Ascertaining values for different items further delayed assessment on merits and leading to demurrage and time and cost overruns for the project. The project import assessment provisions introduced in Customs Tariff in 1965 and continued ever since facilitate early and quick assessment by simplifying the process of classification and valuation of goods required for a project.

2.        The Project Import Scheme seeks to achieve the objective of simplifying the assessment in respect of import of capital goods and all the related items required for setting up of a project by levy of a flat rate of duty in respect of such goods. This objective has been achieved by incorporating a heading 98.01 under Chapter 98 of the Customs Tariff and prescribing a uniform customs duty rate under this heading. All the goods approved for importation in connection with an industrial project are classified under this heading. Goods classified under this heading cannot be classified under any other heading which may cover the product more specifically.

3.        The different projects to which heading 98.01 applies are; irrigation project, power project, mining project, oil / mineral exploration projects, etc. Such an assessment is also available for an industrial plants used in the process of manufacture of a commodity. However this benefit is not available to hotels, hospitals, photographic studios, photographic film processing laboratories, photocopying studios, laundries, garages and workshops. This benefit is also not available to a single or composite machine. The Central Government can also notify projects in public interest keeping in view the economic development of the country to which this facility will apply. This is achieved by issuing a notification. A number of notifications have been issued notifying a large number of projects for assessment under heading 98.01.

4.        Goods that can be imported under this scheme are machinery, prime movers, instruments, apparatus, appliances, control gear, transmission equipment, auxiliary equipment, equipment required for research and development purposes, equipment for testing and quality control, components, raw materials for the manufacture of above items, etc. In addition, raw material, spare parts, semifinished material, consumable upto ten percent of the assessable value of goods can also be imported.

5.        The purposes for which such goods can be imported are for initial setting up’ or for ‘substantial expansion’ of an unit of the project. The ‘unit’ is any self contained portion of the project having an independent function in setting up the project. A project falls under the category of ‘substantial expansion’ if the installed capacity of the unit is increased by not less than twenty five percent, as per the Project Import Regulations.

6.        The Central Government has formulated the Project Import Regulations (PIR) prescribing the procedure for effecting imports under this scheme. The procedure is as follows:

Procedure for Availing Benefits Under Project Imports

7.        Registration of Contracts : The basic requirement for availing the benefit of Project Import Regulations is that the importer should have entered into one or more contracts with the suppliers of the goods. Such contracts should be registered prior to clearance in the Customs House through which the goods are expected to be cleared. The importer shall apply for such registration in writing to the proper officer of Customs.

8.        As per Regulation 4, the assessment under Heading No.98.01 is available only to those goods which are imported against one or more specific contracts, which have been registered with the appropriate Custom house in the manner specified in Regulation 5 .The contract is required to be registered.

i) before any order is made by the proper officer of customs permitting the clearance of the goods for home consumption;

ii in the case of goods cleared for home consumption without payment of duty subject to

) re-export in respect of fairs, exhibitions, demonstrations, seminars, congresses and conferences, duly sponsored or approved by the Government of India or Trade Fair Authority of India, as the case may be, before the date of payment of duty.

To expedite early registration, the importers are advised to submit the following documents at the time of registration:-

a)

An application for registration of the contract.

b)

Original deed of contract together with true copy thereof.

c) Industrial Licence and letter of intent, SSI Certificate granted by the appropriate authority with a copy thereof.

d)

Original Import licence, if any, with a list of items showing the dimensions, specifications, quantity, quality, value of each item duly attested by the Licensing Authority and a copy thereof.

e)

Recommendatory letter for duty concession from the concerned Sponsoring Authority, showing the description, quantity, specification, quality, dimension of each item. Sponsoring authority should indicate whether the recommendatory letter is for initial set-up or substantial expansion, giving the installed capacity and proposed addition thereto.

f) Continuity Bond with Cash Security Deposit equivalent to the 2% of CIF value of contract sought to be registered subject to the maximum of Rs.50,00,000/- and the balance amount by Bank Guarantee backed by an undertaking to renew the same till the finalisation of the contract. The said continuity bond should be made out for an amount equal to the CIF value of the contract sought to be registered.

g)

Process flow chart, plant layout, drawings showing the arrangement of imported machines along with an attested copy of the Project Report submitted to the Sponsoring authorities, Financial Institution, etc.

h)

Write up, drawings, catalogues and literature of the items under import.

i) Two attested copies of foreign collaboration agreement, technical agreement, know-how, basic/detailed engineering agreement, equipment supply agreement, service agreement, or any other agreement with foreign collaborators/suppliers/persons including the details of payment actually made or to be made.

j) Such other particulars as may be considered necessary by proper officer for the purpose of assessment under Heading No. 98.01.

Procedure Followed in Custom Houses:

9.        After satisfying that goods are eligible for project imports benefit and importer has submitted all the required document, the contract is registered by the Custom House and as a token of registration the provisional duty bond is accepted by the Asst./ Dy.Commissioner of Customs, Project Group. The details of the contracts are entered in the register kept for the purpose and a project registration number is assigned and is communicated to the importer. The importer is required to refer to this number in all subsequent correspondence.

Clearance of Goods after Registration:

10.        On every Bill of Entry filed for clearance of goods under the Project Import Scheme, the importer/clearing agent is required to indicate the Project Contract number allotted to it. After noting, the Bill of Entry is sent to the project group, which is required to check the description, value and quantity of the goods imported vis-à-vis the description, value and quantity registered. In case these particulars are found in order, the bill of entry is assessed provisionally and handed over to the importer or his agent for payment of duty. The Project Group keeps a

note of the description of the goods and their value in the project contract register and in the file maintained in the group for each project.

Finalisation of Contract:

(a)        Submission & Reconciliation Statement by Importer:

11.        Under Rule 7 of the PIR, 1986 the importer is required to submit, within three months from the date of clearance of the last consignment or within such extended time as the proper officer may allow the following documents for the purpose of finalization of the assessment:

(i) a reconciliation statement i.e. a statement showing the description, quantity and value of goods imported along with a certificate from a registered Chartered Engineer certifying the installation of each of the imported items of machinery;

(ii)

Copies of the bills of entry, invoices, and final payment certificate.

The final payment certificate is insisted upon only in cases where the contract provides that the amount of the transaction wilt be finally settled after completion of the supplies.

(b)        Plant Site Verification:

12.        To ensure proper that the imported goods have actually been used for the projects for which these have been imported, plant site verification may be done in cases where value of the project contract exceeds Rs.1 crore. In other cases plant site verification is normally done selectively.

(c)        Action by the Assessing Group:

13.        In the normal course after submission of the reconciliation statement and other documents by the importers, the provisional assessments are finalized within a period of three months where plant site verification is not required and within six months where plant site verification is required. In cases where a demand has been issued and confirmed on such finalisation and importer has not paid the duty demanded, coercive steps are taken to realise the amount.

(B)        Baggage:

14.        Similar to project imports, all goods imported by a passenger or a member of crew in his baggage are classifiable under one heading / subheading 98.03 and levied to a single rate of duty. Such goods need not have to be classified separately in the Tariff. [except motor vehicles, alcoholic drinks, goods imported through courier service]. Such assessment will however not apply to goods imported by a passenger or a member of the crew under an import license or a customs clearance permit.

(C)        Postal goods:

15.        Similar to project imports and baggage, all goods imported by post/ air or for personal use are classifiable under a single heading, i.e., 98.04 and levied to duty accordingly. This heading has been sub divided into two subheadings. One applicable to drugs & medicines and other, the rest. Such goods will however be governed by the Exim policy as far importibility is concerned. Motor vehicles, alcoholic drinks and goods imported through courier service can however not be classified under this heading. Goods imported under an import license or a customs clearance permit will however not be classified under this heading.

Customs Valuation

The rates of customs duties leviable on imported goods (& export items in certain cases) are either specific or on ad valorem basis or at times specific cum ad valorem. When customs duties are levied at ad valorem rates, i.e., depending upon its value, it becomes essential to lay down in the law itself the broad guidelines for such valuation to avoid arbitrariness and to ensure that there is uniformity in approach at different Customs formations. Section 14 of the Customs Act, 1962 lays down the basis for valuation of import & export goods in the country. It has been subject to certain changes – basic last change being in July-August, 1988 when present version came into operation. Briefly the provisions are explained in the following paragraphs.

Tariff Value:

2.        The Central Government has been empowered to fix values, under sub-section (2) of Section 14 of the Customs Act, 1962 for any product which are called Tariff Values. If tariff values are fixed for any goods, ad valorem duties are to be calculated with reference to such tariff values. The tariff values may be fixed for any class of imported or export goods having regard to the trend of value of such or like goods and the same has to be notified in the official gazette. Recently tariff values have been fixed in respect of import of Crude Palm Oil, RBD Palm Oil, RBD Palmolein under Notification No.36/2001-CUS (N.T.), dated 3.8.2001 and for RBD Crude Palmolein under Notification No. 40/2001-CUS (N.T.) dated 28.08.2001.

Valuation of Imported/Export Goods where no Tariff Values fixed:

3.        Section 2(41) of the Customs Act, 1962 defines ‘Value’ in relation to any goods to mean the value thereof determined in accordance with the provisions of sub-section (1) of Section 14 thereof.

4.        Sub-section (1) of Section 14 in turn states that when a duty of customs is chargeable on any goods by reference to their value, the value of such goods shall be deemed to be: -

"the price at which such or like goods are ordinarily sold, or offered for sale, for delivery at the time and place of importation or exportation, as the case may be, in the course of international trade, where the seller and the buyer have no interest in the business of each other and the price is the sole consideration for the sale or offer for sale".

5.        As far as export goods are concerned, provisions of sub-section (1) of Section 14 provide a complete code of valuation by itself. On the other hand, for imported goods, as per sub-section (1A) of Section 14, the value is required to be determined in accordance with rules made in this behalf. Accordingly, the Customs Valuation (Determination of Price of Imported Goods) Rules, 1988 have been framed and notified under Notification No.51/88-CUS (N.T.) dated 18.7.1988.

6.        The provisions of sub-section (1) of Section 14 follow the provisions contained in Article VII of GATT. The Customs Valuation Rules, closely follow the WTO Customs Valuation Agreement to implement Article VII of GATT. The methods of valuation prescribed therein are of a hierarchical order. The importer is required to truthfully declare the value in the B/E and also provide a copy of the invoice and file a valuation declaration in the prescribed form to facilitate correct and expeditious determination of value for assessment purposes.

Methods of Valuation:

7.        According to the Customs Valuation Rules, 1988, the Customs Value should normally be the "Transaction Value", i.e., the price actually paid or payable after adjustment by Valuation Factors (see below) and subject to (a) Compliance with the Valuation Conditions (see below) and (b) Customs authorities being satisfied with the truth and accuracy of the Declared Value.

Transaction Value:

8.        Rule 3(i) of the Customs Valuation Rules, 1988 states that the value of imported goods shall be the transaction value. Rule 4(i) thereof states that the transaction value of imported

goods shall be the price actually paid or payable for the goods when sold for export to India, adjusted in accordance with the provisions of Rule 9.

9.        The price actually paid or payable is the total payment made or to be made by the buyer to the seller or for the benefit of the seller for the imported goods. It includes all payments made as a condition of sale of the imported goods by the buyer to the seller or by the buyer to a third party to satisfy an obligation of the seller.

10.        If objective and quantifiable data do not exist with regard to the Valuation Factors, if the Valuation Conditions are not fulfilled, or if Customs authorities have doubts concerning the truth or accuracy of the declared value in terms of Rule 10A of the Customs Valuation Rules, valuation has to be carried out by another method in the following hierarchical order:

Comparative Value Method – Comparison with Transaction Value of Identical goods (Rule 5);

Comparative Value Method – Comparison with Transaction Value of Similar goods (Rule 6);

Deductive Value Method – Based on sale price in the importing country (Rule 7); Computed Value Method – Based on cost of materials, fabrication and profit in the country of production (Rule 7A);

Fallback Method – Based on previous methods with greater flexibility (Rule 8).

VALUATION FACTORS:

11.        Valuation Factors are the various elements which must be taken into account by addition (Dutiable factors) to the extent these are shown to be not already included in the price actually paid or payable or deduction (Non-dutiable factors) from the total price incurred in determining the Customs Value, for assessment purposes.

Dutiable Factors:

Commissions and brokerage, except buying commissions;

The cost of containers which are treated as being one for Customs purposes with the goods in question;

The cost of packing whether for labour or materials;

The value, apportioned as appropriate, of the following goods and services where supplied directly or indirectly by the buyer free of charge or at reduced cost for use in connection with the production and sale for export of the imported goods, to the extent that such value has not been included in the price actually paid or payable:-

material, components, parts and similar items incorporated in the imported goods;

tools, dies, moulds and similar items used in the production of the imported goods;

materials consumed in the imported goods;

engineering, developing, artwork, design work, and plans and sketches undertaken elsewhere than in the importing country and necessary for the production of imported goods;

Royalties and license fees related to goods being valued that the buyer must pay either directly or indirectly, as a condition of sale of the goods being valued, to the extent that such royalties and fees are not included in the price actually paid or payable;

The value of any part of the proceeds of any subsequent resale, disposal or use of the goods that accrues directly or indirectly to the seller;

Advance payments;

Freight charges up to the place of importation;

Loading, unloading and handling charges associated with transporting the goods;

Insurance.

Non-dutiable Factors:

The following charges provided they are separately declared in the commercial invoice:-

Interest charges for deferred payment;

Post-importation charges (e.g. inland transportation charges, installation or erection charges, etc.);

Duties and taxes payable in the importing country.

Cases where transaction value may be rejected:

12.        The transaction value may not be accepted for customs valuation in the following categories of cases as provided in Rule 4(2):-

(a)        If there are restrictions on use or disposition of the goods by the buyer. However, the transaction value not to be rejected on this ground if restrictions:

(i)are imposed by law or public authorities in India;

(ii)limit geographical area of resale;

(iii)

do not affect the value of the goods substantially.

(b)        If the sale or price is subject to a Condition or consideration for which a Value cannot be determined. However, conditions or considerations relating to production or marketing of the goods shall not result in rejection.

(c)        If part of the proceeds of the subsequent resale, disposal or use of the goods accrues to the seller, unless an adjustment can be made as per valuation factors.

(d)        Buyer and seller are related; unless it is established by the importer that –

(i)

The relationship has not influenced the price;

(ii) The importer demonstrates that the price closely approximates one of the test

values.

13.        The transaction price declared can also be rejected in terms of Rule 10A, when the proper customs officer has reasons to doubt the truth or accuracy of the value declared & if even after furnishing of further information/documents or other evidence produced, proper officer is not satisfied & has reasonable doubts about the value declared.

Rights of appeal:

14.        The principles of natural justice are also required to be followed in valuation matters. When the Customs authorities do not accept the declared value and re-determine the Customs value, the importer or his representative is required to be given a written notice normally and even a personal hearing. An adjudication order giving in detail the basis of determination of the value can be obtained if the importer is aggrieved with the re-determination of value. Under the Customs Act, 1962, an importer can appeal against a decision on valuation to the Commissioner (Appeal) in the first instance. A second appeal lies to the Tribunal consisting of administrative and judicial members. A third appeal lies to the Supreme Court of India. The importer is informed regarding his rights of appeal by each of the adjudicating and appellate authorities.

Provisional clearance of imported goods:

15.        Section 18 of the Customs Act, 1962 and Customs (provisional duty assessment regulation), 1963 [M.F. (D.R.) Notification No.181-Cus., dated 13th July, 1963], allows an importer to provisionally clear the imported goods from Customs pending final determination of value by giving a guarantee in the form of surety, security deposit or bank guarantee.

Valuation of Imported goods in case of related party transaction:

16.        Sub-rule 2 of Rule 2 of Customs Valuation Rules, 1988 has enumerated the persons who shall be deemed to be "related". Sub-Rule 3 of Rule 4 provides that where buyer and seller are related, the transaction value can be accepted if the examination of circumstances of the sale of the imported goods indicate that the relationship did not influence the price or if the importer demonstrates that the declared value of the goods being valued, closely approximately to one of the test values namely transaction value of identical/similar goods, deductive value for identical/similar goods or computed value for identical/similar goods ascertained at or about the same time.

17.        The related party transactions are examined by Special Valuation Branches located at four major Custom Houses namely Mumbai, Calcutta, Chennai & Delhi. The guidelines for examination of the circumstances of the sale of the imported goods in case of related parties have been laid down vide Ministry’s Circular No.11/2001-Cus., dated 23.2.2001. The circular provides a questionnaire to be filed up and a list of documents to be furnished and the same could be studied for ensuring timely action by concerned importers so that finalisation of provisional assessments is expedited.

Provisional Assessment

Once goods declaration is submitted in the prescribed form (Bill of Entry or Shipping Bill ) containing all the relevant information/details and along-with all the relevant documents, the duty leviable on the imported goods or export goods, if any, is assessed by the Customs officer. Sometimes, it is not possible to assess the duty due to non-availability of some relevant information/document or any other reason. Withholding clearance of goods in such cases may cause hardship to the importers by way of payment of demurrage/detention charges, disturbance in production schedule and other financial losses. Similarly in exports, delay in clearance may cause cancellation of export order, increase in interest liability and other financial losses to the exporters. To meet such exigencies, provisions have been made in

section 18 of the Customs Act, 1962 to assess the duty provisionally and allow clearance of the goods by taking a bond with appropriate security.

Conditions for allowing provisional assessment

2.        The provisional assessment may be resorted to in following situations: (a)

where the proper officer of Customs is satisfied that an importer or exporter is unable to produce any document or furnish any information necessary for the assessment of duty on the imported goods or the export goods, as the case may be; or

(b)

where the proper officer of Customs deems it necessary to subject any imported goods or export goods to any chemical or other test for the purpose of assessment of duty thereon; or

(c) where the importer or the exporter has produced all the necessary documents and furnished full information for the assessment of duty but the proper officer of Customs deems it necessary to make further enquiry for assessing the goods.

3.        In above situations, pending the production of such documents or furnishing of such information or completion of such test or enquiry, the proper officer of Customs may order that the duty leviable on goods be assessed provisionally. The importer (or exporter), has to execute appropriate bond and furnish requisite security to the satisfaction of officer for payment of the deficiency, if any, between the duty finally assessed and duty provisionally assessed. On final assessment of duty in case of goods cleared for home consumption or exportation, the amount paid provisionally is adjusted against the duty finally assessed. If the amount so paid falls short of the duty finally assessed, the importer or exporter has to pay the deficiency; however, if amount so paid is in excess of duty finally assessed, the importer or exporter is entitled to a refund. In the case of goods being warehoused, if duty finally assessed is in excess of the duty provisionally assessed, the proper officer of Customs may require the importer to execute a bond, binding himself in a sum equal to twice the amount of the excess duty.

Terms of the Bond

4.        (i)        Where the provisional assessment is allowed pending the production of any document or furnishing of any information by the importer or exporter, as the case may be, the terms of bond generally are that required document/information shall be furnished within one month or within such extended period as the proper officer may allow, and that the person executing the bond shall pay the deficiency, if any, between the duty finally assessed and the duty provisionally assessed.

(ii)        Where the provisional assessment is allowed pending the completion of any test or enquiry, the terms of bond generally are that the person executing the bond shall pay the deficiency, if any, between the duty finally assessed and the duty provisionally assessed.

Determination of amount of bond for provisional assessment

5.        The provisions of the Customs (Provisional Duty Assessment) Regulations, 1963 lay down that the importer or exporter claiming provisional assessment is required to execute a bond for the difference between the duty that may be finally assessed and the provisional duty. The same regulations also provide that the proper officer of Customs may require that the bond to be executed under these regulations may be with such surety, or security or both as the proper officers deems fit. There may of course, be cases where calculation of exact difference between duty provisionally assessed and duty finally assessed may not be possible. But, even in such cases invariably, it would be possible to make some estimate of the same. In all the cases, the amount of surety and security for provisional assessment is normally restricted to the difference of duty provisionally assessed and duty which may be finally assessed.

Surety and Security of the bond

6.        The Customs (Provisional Duty Assessment) Regulations, 1963 allows proper officer of Customs to accept bond for provisional assessment with such surety or security or both, as he

deems fit. Normally requirement of surety/security is dispensed with in respect of Government Departments (or even Government Undertakings).

Finalisation of provisional assessment

7.        It is to be ensured that most of the ordinary type of cases of provisional assessment are finalised expeditiously well within six months of the date of provisional assessment. In respect of machinery contract cases or registered large project import cases, where imports take place over long periods, some times extending over a number of years and where action to finalise the case can be taken only after all the imports under the contract have been made, every effort should be made to finalise the cases within six months of the date of import of the last consignment covered by the contract.

(Ref. Customs (Provisional duty Assessment) Regulations, 1963 issued vide M.F.Director (ICD).R) Notification No. 181-Cus., dated 13/7/1963 and instructions issued vide Board's letters F.No. 512/5/72-Cus.VI dated 23/4/1973 and F.No. 511/7/77-Cus. VI dated 9/1/78).

Import / Export Restrictions / Prohibitions under Customs law

Under sub-section (d) of section 111 and sub-section (d) of Section 113, any goods which are imported or attempted to be imported and exported or attempted to be exported, contrary to any prohibition imposed by or under the Customs Act or any other law for the time being in force shall be liable to confiscation. Section 112 of the Customs Act provides for penalty for improper importation and Section 114 of the Customs Act provides for penalty for attempt to export goods improperly. In respect of prohibited goods the Adjudicating Officer may impose penalty upto five times the value of the goods. It is, therefore, absolutely necessary for the trade to know what are the prohibitions or restrictions in force before they contemplate to import or export any goods.

2.        The terms "Prohibited Goods" have been defined in sub-section 33 of Section 2 of the Customs Act as meaning "any goods the import or export of which is subject to any prohibition under the Customs Act or any other law for the time being in force".

3.        Under section 11 of the Customs Act, the Central Government has the power to issue Notification under which export or import of any goods can be declared as prohibited. The prohibition can either be absolute or conditional. The specified purposes for which a notification under section 11 can be issued are maintenance of the security of India, prevention and shortage of goods in the country, conservation of Foreign Exchange, safeguarding balance of payments etc. The Central Govt. has issued many notifications to prohibit import of sensitive goods such as coins, obscene books, printed waste paper containing pages of any holy books, armored guard, fictitious stamps, explosives, narcotic drugs, rock salt, saccharine, etc.

4.        Under Export and Import Policy, laid down by the DGFT, in the Ministry of Commerce, certain goods are placed under restricted categories for import and export. Under section 3 and 5 of the Foreign Trade (Development and Regulation) Act, 1992, the Central Government can make provisions for prohibiting, restricting or otherwise regulating the import of export of the goods. As for example, import of second hand goods and second hand capital goods is restricted. Some of the goods are absolutely prohibited for import and export whereas some goods can be imported or exported against a licence. For example export of human skeleton is absolutely prohibited whereas export of cattle is allowed against an export licence. Another example is provided by Notification No.44(RE-2000) 1997 dated 24.11.2000 in terms of which all packaged products which are subject to provisions of the Standards of Weights and Measures (Packaged Commodities) Rules, 1997, when produced/packed/sold in domestic market, shall be subject to compliance of all the provisions of the said Rules, when imported into India. All packaged commodities imported into India shall carry the name and address of the importer, net quantity in terms of standard unit of weights measures, month and year of packing and maximum retail sale price including other taxes, local or otherwise. In case any of the conditions is not fulfilled, the import of packaged products shall be held as prohibited, rendering such goods liable to confiscation.

5.        Another restriction under the aforesaid Notification issued by the Ministry of Commerce is that the import of a large number of products, presently numbering 133, are required to comply with the mandatory Indian Quality Standards (IQS) and for this purpose exporters of these products to India are required to register themselves with Bureau of Indian Standards (BIS). Non-fulfillment of the above requirement shall render such goods prohibited for import.

6.        Import and export of some specified goods may be restricted/prohibited under other laws such as Environment Protection Act, Wild Life Act, Indian Trade and Merchandise Marks Act, Arms Act, etc. Prohibition under those acts will also apply to the penal provisions of the Customs Act, rendering such goods liable to confiscation under section 111(d) of the Customs Act (for import) and 113 (d) of the Customs Act (for export).

7.        Any Importer or Exporter for being knowingly concerned in any fraudulent evasion or attempted evasion of any prohibition under the Customs Act or any other law for the time being in force in respect to any import or export of goods, shall be liable to punishment with imprisonment for a maximum term of three years (seven years in respect of notified goods) under section 135 of the Customs Act. Any person who is reasonably believed to be guilty of an offence, punishable under section 135, may be arrested under the provisions of section 104 of the Customs Act.

8.        Keeping in view the above penal provisions in the Customs Act to deal with any deliberate evasion of prohibition/restriction of import of export of specified goods, it is advisable for the Trade to be well conversant with the provisions of EXIM Policy, the Customs Act, as also other allied Acts. They must make sure that before any imports are effected or export planned, they are aware of any prohibition/restrictions and requirements subject to which alone goods can be imported/exported, so that they do not get penalised and goods do not get involved in confiscation etc. proceedings at the hands of Customs authorities.

Customs Clearance Procedure for Food Items, Livestock Products, Plant and Plant Materials.

The Government has enacted several laws to regulate importation of food items, livestock products, plant materials and other agricultural commodities into the country. The import of plants and plant materials is regulated as per the Plants, Fruits, Seeds (Regulation of Import into India) Order{PFS} Order, 1989 issued under the Destructive Insects & Pests Act, 1914 to prevent introduction of exotic pests and diseases into the country. The Livestock Importation Act, 1898 regulates the imports of livestock and livestock products in a manner that such imports do not adversely affect the health of human and animal population of the country. As per the Prevention of Food Adulteration Act, 1954, any product not fulfilling the statutory provisions is not allowed to be imported into the country. Likewise, there are several rules, regulations, orders, notifications, etc. issued by the Government, laying down procedures as to how the imports of above products are to be dealt with. The Customs has a pivotal role to play because, it is the agency stationed at the border to enforce the rules, regulations and orders issued by various administrative Ministries.

2.        Until very recently, the general awareness about various rules and regulations on importation of food items, livestock products, plant materials and other agricultural commodities was somewhat limited because, the bulk of the items were not allowed to be imported into the country. The licensing mechanism itself acted as a check on unbridled imports. The situation has changed after removal of Quantitative Restrictions with effect from 1.4.2001. Now there is a real danger of import of these items flooding the market which could, unless regulated properly, adversely affect the health and safety of our human and animal population. The WTO Agreement on the Application of Sanitary and Phytosanitary Measures enables member countries to take sanitary and phytosanitary measures necessary for the protection of human, animal or plant life or health, provided that such measures are not inconsistent with the provisions of this Agreement. The Agreement permits the member countries to carry out a detailed import risk analysis for applying sanitary and phytosanitary measures. Consistent with our obligations under the WTO, the Government has issued several orders, notifications, etc. in recent months to regulate the importation of food items, livestock products, plant materials and other agricultural commodities, more important of which are mentioned below.

Notification No.44(RE-2000)/1997-2002, dated 24.11.2000:

3.        In November, 2000, the Director General of Foreign Trade (DGFT) had issued a notification {No.44 (RE-2000)/1997-2002, dated 24.11.2000} to regulate the imports of packaged commodities into India. As per this notification, all packaged products, which are subject to the provisions of the Standards of Weights and Measures (Packaged Commodities) Rules, 1977, when produced/packed/sold in the domestic market, shall be subject to compliance of all the provisions of the said Rules, when imported into India. It is provided that compliance of the provisions of the notification shall be ensured by the Customs before the consignments are cleared for home consumption. The notification further states that all pre-packaged commodities imported into India shall, in particular, carry the declarations, such as, name and address of the importer, net quantity, month and year of packing and maximum retail price. It has been clarified by the DGFT vide Circular No.38(RE-2000)/1997-2002, dated 22.1.2001 that the labeling requirements is applicable only to imports of those pre-packaged commodities which are intended for retail sale. As imported raw materials, components, bulk imports, etc. would invariably undergo further processing or assembly before they are sold to consumers, these imports shall not invite the application of labeling requirements.

Notification No.3(RE-2001)/1997-2002, dated 31.3.2001:

4.        In the wake of removal of quantitative restrictions, the DGFT has issued a notification No.3(RE-2001)/1997-2002, dated 31.3.2001 for regulating import of meat and poultry products, edible/food products and primary agricultural products. As per this notification import of meat and poultry products will be subject to the compliance of conditions regarding manufacture, slaughter, packing, labeling and quality conditions as laid down in Meat Food Products Order, 1973. The notification also states that all manufacturers of meat/poultry products exporting their goods to India shall be required to meet the sanitary and hygienic requirements as stipulated under Schedule-II of the aforementioned Order. The imported product shall also comply with the specified packaging, labeling and quality standards as laid down in Schedule-IV of the Order. It is provided that the Customs has to ensure compliance of these conditions before allowing clearance of the consignments.

5.        In regard to edible/food products, the notification stipulates that the import of such products, domestic sale and manufacture of which are governed by Prevention of Food Adulteration Act, 1954, shall be subject to all the conditions laid down in the said Act. Import of all these products thus will have to comply with the quality and packaging requirements as laid down in the aforesaid Act. The notification enjoins Customs to ensure compliance of these conditions before allowing clearance of the consignments.

6.        Further, as per the aforesaid notification, import of all primary agricultural commodities will be subject to a Bio Security & Sanitary-Phytosanitary Import Permit, to be issued by Department of Agriculture and Co-operation, as per conditions of PFS Order, 1989. The Permit will be based on import risk analysis of the product, to be conducted on scientific principles, in accordance with the WTO Agreement on the Application of Sanitary and Phytosanitary Measures. The import risk analysis will be conducted based on various scientific principles, including inter alia, (a) the type of pests etc. known to be associated with the particular product in the exporting country; (b) the organisms already established in India; and (c) the potential impact of such organisms on India’s international trade.

The PFS Order, 1989:

7.        As mentioned earlier, import of plants and plant materials into the country is regulated under the Destructive Insects & Pests (DIP) Act, 1914 and the PFS Order, 1989. The PFS Order, 1989 was amended in 1992 to exempt the requirement of Import Permit in respect of plants, fruits, seeds and any other material of plant origin imported for consumption. Further, such material imported as accompanied baggage and through international postal channels was also allowed to be imported without a Phytosanitary Certificate or an Import Permit. The Ministry of Agriculture (Department of Agriculture & Co-operation) has since issued a notification on 1.5.2001 amending the provisions of the PFS Order introduced in 1992. As per the amendment made, with effect from 1.6.2001 no consignment shall be imported even for consumption unless it is accompanied by an Import Permit (and also, of course by an Official Phytosanitary Certificate) issued by the authorised officer. However, cut flowers, garlands,

bouquets, fruits and vegetables weighing less than 2 Kgs. imported for personal consumption is allowed without a Phytosanitary Certificate or an Import Permit. Likewise, the relaxation of Import Permit for import of (a) Mushroom Spawn Culture by 100% Export Oriented Units; (b) tissue culture materials of any plant origin and flower seeds granted earlier will continue.

The Livestock Importation Act, 1898:

8.        The Livestock Importation Act, 1898 has been recently amended vide the Livestock Importation (Amendment) Ordinance, 2001 which was promulgated on 5.7.2001. Prior to amendment, the said Act was applicable only for livestock whereas the livestock products were not regulated under the Act. The amendment to the said Act has been made to regulate the import of livestock products in such a manner that these imports do not adversely affect the human and animal health population of the country. Under the said Livestock Importation Act, 1898, the Department of Animal Husbandry and Dairying has issued a notification on 7.7.2001 to regulate the import of livestock products, namely, (i) meat and meat products of all kinds including fresh, chilled and forzen meat, tissue or organs of poultry, pig, sheep, goat; (ii) egg and egg powder; (iii) milk and milk products; (iv) bovine, ovine and caprine embryos, ova or semen; and (v) pet food products of animal origin. A procedure has also been laid down to regulate such imports. The notification, inter-alia, provides that import of livestock products will be allowed against valid sanitary import permit issued by the Department of Animal Husbandry and Dairying and the same will be allowed only through the airports and seaports at Delhi, Mumbai, Kolkata and Chennai which have Animal Quarantine and Certification Services Stations.

9.        Taking note of various developments referred to above, the Central Board of Excise & Customs has issued detailed instructions, laying down procedures for clearance of food articles, livestock products, plant and plant materials.

Customs Clearance Procedure for Food Items:

10.        Circular No.36/2001-Customs dated 15.6.2001 (issued from F.No.450/21/98-CUS.IV) lays down detailed guidelines for examination and testing of food items prior to customs clearance. This circular enjoins Customs to undertake certain general checks in addition to testing of samples. First, the Customs should check the condition of the hold in which the products were transported. This is basically to see whether they meet the requirements of storage as per the nature of the product, and does not in any way cause deterioration or contamination of the products. In the second place, the Customs is required to check the physical/visual appearance of goods in terms of possible damage – whether it is swollen or bulged in appearance and also for rodent/insect contamination or presence of filth, dirt, etc. The third important thing is compliance of labeling requirements under the Prevention of Food Adulteration Rules and the Packaged Commodities Rules. This includes ensuring that the label is written not only in any foreign language, but also in English. The details of ingredients in descending order, date of manufacture, batch number, best before date, etc. are other mandatory requirements. Further, all products will also have to indicate details of best before on all food packages. The Customs should check that imported food articles meet the above labeling requirements. Recently, the DGFT has issued a notification {No.22(RE-2001/1997-2002) dated 30.7.2001 to the effect that the imported food item, at the time of its import, should have a valid shelf life of not less than 60% of original shelf life. In other words, the time period between ‘best before date’ and ‘date of import’ should be at least 60% of time period between ‘date of manufacture’ and ‘best before date’. The Customs has to ensure that the food articles which do not meet this condition are not allowed clearance for home consumption.

11.        Apart from the general checks referred to above, all the consignments of edible/food products imported through Ports, Inland Container Depots (ICDs), Air Cargo Complexes (ACCs), Container Freight Stations (CFSs) and Land Customs Stations (LCSs) are required to be referred to the Port Health Officer (PHO) for testing. For alleviating the difficulties of importers it has been decided that pending receipt of the test report, such consignments can be allowed to be stored in warehouses under section 49 of the Customs Act, 1962. The circular makes it clear that clearance for home use will be allowed only after receipt of the test report. If the product fails the test, the Customs authorities will ensure that the goods are re-exported out of the country by following the usual adjudication procedure or destroyed as required under the relevant rules. As regards ICDs/CFSs/Ports/ACCs/LCSs where PHOs are not available, the

Customs is required to draw the samples and get them tested from the nearest Central Food Laboratory or a Laboratory authorised to conduct such testing by the Directorate General of Health Services.

12.        In addition to testing of food items under the PFA Act, 1954, these items shall also be subject to examination/testing to ensure compliance of the requirements of other Acts, Regulations and Orders such as Meat Food Products Order, 1973, PFS Order, 1989, the Livestock Importation Act, etc., if applicable, before these are allowed clearance into the country.

Customs Clearance Procedure for Livestock Products:

13.        The livestock products, namely, (i) meat and meat products of all kinds including fresh, chilled and frozen meat, tissue or organs of poultry, pig, sheep, goat; (ii) egg and egg powder; (iii) milk and milk products; (iv) bovine, ovine and caprine embryos, ova or semen; and (v) pet food products of animal origin are allowed to be imported only against a sanitary import permit issued by the Department of Animal Husbandry and Dairying. For this purpose, a detailed import risk analysis is carried out and a sanitary import permit is issued only after the concerned authorities are satisfied that the import of the consignment will not adversely affect the health of the animal and human population of this country. The Import Permit lays down the specific conditions that will have to be fulfilled in respect of the consignment, including pre-shipment certifications and quarantine checks. The Permit also specifies the post-import requirements with regard to quarantine inspection, sampling and testing. The Import Permit is generally issued for a period of six months and can be extended by the concerned authorities for a further period of six months.

14.        As mentioned earlier, the livestock products are allowed to be imported into India only through the sea ports or airports located at Delhi, Mumbai, Kolkata and Chennai, where the Animal Quarantine and Certification Services Stations are located. On arrival at the port/seaport, the livestock product is required to be inspected by the officer in-charge of the Animal Quarantine and Certification Services Station or any other veterinary officer duly authorised by the Department of Animal Husbandry and Dairying. After inspection and testing, wherever required, quarantine clearance is accorded by the concerned quarantine or veterinary authority for the entry of the livestock product into India. If required in public interest, the quarantine or veterinary authority may also order the destruction of the livestock product or its return to the country of origin.

15.        Wherever any disinfection or any other treatment is considered necessary in respect of any livestock product, it is the importer who on his own or at his cost has to arrange for disinfection or other treatment of the consignment under the supervision of a duly authorised quarantine or veterinary officer.

16.        The Customs will have to ensure that the livestock products are granted clearance for home consumption only after necessary permission is granted by the concerned quarantine or veterinary authorities. It may be noted that the Government has recently issued a notification on 30.5.2001 prohibiting import of all poultry products from Hongkong (China), Honduras, Italy, Laos and Pakistan for a period of six months from the date of issue of this notification in view of reported outbreak of Avian Influenza (Fowl Plague) in these countries. The products prohibited for import are domestic and wild birds, day-old chicks, turkeys, poultry and other newly hatched avian species, hatching eggs, semen of domestic and wild birds, fresh meat of domestic and wild birds, products of animal origin (from birds) destined for use in animal feeding or for industrial use, pathological material and biological products (from birds) which have not been processed to ensure the destruction of Avian Influenza (Fowl Plague) virus. The question of allowing clearance of these products for home use, therefore, does not arise.

Plant/Plant Materials for Sowing/Planting/Propagation/Consumption:

17.        The above products are allowed to be imported only on the basis of an Import Permit issued by the Department of Agriculture & Co-operation. The Import Permit is issued after conducting a detailed import risk analysis. This Permit is generally issued for a period of six months and can be extended by the concerned authorities for a further period of six months.

The Department of Agriculture & Co-operation has issued detailed guidelines for inspection and clearance of plant/plant materials. The basic features of the guidelines are given below:-

(a)        Registration of application: The importer or his authorised Custom House Agent is required to file an application at the Plant Quarantine Station in respect of each consignment immediately upon arrival at the port. In case of perishable consignments, such application can be filed in advance to enable the Plant Quarantine authorities to organize inspection/testing on priority. Alongwith application for registration, copies of documents namely, import permit, phyto-sanitary certificate issued at the country of origin, copy of bill of entry, invoice, packing list and fumigation certificate, etc. are required to be submitted. After scrutinising the application, the Plant Quarantine Officer registers the application. The assessed inspection fee is required to be paid by the importer or his authorised agent.

        In the case of import of plant and plant materials through passenger baggage and post parcels, no such application is required to be filed.

(b)        Sampling/inspection/fumigation of consignments: The importer or his authorised Custom House Agent is required to arrange for inspection/sampling of the consignment. In the event of live insect infestation having been noticed, the importer or his authorised Custom House Agent shall arrange for fumigation of consignment by an approved pest control operator at his own cost under the supervision of the Plant Quarantine officer.

(c)        Release/detention of consignments: A release order is issued to Customs, if a consignment on inspection is found to be free from pests. However, in case a consignment is found to be infested with live pests, the same is permitted clearance only after fumigation and re-inspection. The detention order is issued, if the consignment is imported in contravention of the PQ Regulations, for arranging deportation failing which the same shall be destroyed at the cost of importer under the supervision of the Plant Quarantine Officer, in presence of Customs Officers after giving due notice in advance i.e. for perishable plant material 24-48 hours and 7 days in other type of plant material.

18.        The Customs will have to ensure that plant/plant material (primary agricultural products) are granted clearance for home consumption only after necessary permission is granted by the concerned Plant and Quarantine Officer.

Reference:

Circular No.36/2001-Cus., dated 15.6.2001 (issued from F.No.450/21/98-Cus.IV); Circular No.43/2001-Cus., dated 6.8.2001 (issued from F.No.450/44/2001-Cus.IV); CBEC letter F.No.450/80/2000-Cus.IV dated 24.7.2000; DGFT Notification No.44(RE-2000)/1997-2002, dated 24.11.200; DGFT Policy Circular No.38(RE-2000)/1997-2002, dated 21.1.2001; DGFT Notification No.3(RE-2001)/1997-2002, dated 31.3.2001; Department of Animal Husbandry and Dairying Notification dated 7.7.2001 (issued from F.No.109-6/2001-Trade); Department of Animal Husbandry and Dairying Notification dated 30.5.2001 [issued from F.No.50-4/84-LDT (AQ)]; Department of Agriculture & Co-operation letter F.No.82-2/2001-P&D, dated 11/15.5.2001; Department of Agriculture & Co-operation Notification No.[GSR378(E)] dated 1.5.2001 and Press Note communicated vide letter F.No.8-26/2000-PP-I dated 9.5.2001.

Warehousing

The facility of warehousing of imported goods in Customs Bonded Warehouses, without payment of Customs duty otherwise leviable on import, is permitted under the Customs Act, 1962. Apart from specific provisions in the said Act (specially under Chapter IX), certain Regulations have been also framed and provisions of Warehoused Goods (Removal) Regulations, 1963 and Manufacture and Other Operations in Warehoused Regulations, 1966 could be referred to in this regard. Basically, goods after landing are permitted to be removed to a warehouse without payment of duty and duty is collected at the time of clearance from the warehouse. The law lays down the time period upto which the goods may remain in a warehouse, without incurring any interest liability and with interest liability.

Warehousing Stations:

2.        The warehouses are to be appointed/licensed at particular places only which have been so declared by Central Board of Excise and Customs. The Board has delegated its power for declaring places to be Warehousing Stations to the Chief Commissioners of Customs. In respect of 100% EOUs, the powers to declare places to be Warehousing Stations have been delegated to the Commissioners of Customs.

3.        After the declaration of any place as a Warehousing Station, the Assistant/Deputy Commissioner of Customs, may appoint a Public Bonded Warehouse where imported dutiable goods may be deposited. Under section 58, the Assistant/Deputy Commissioner of Customs can licence Private Bonded Warehouses where goods imported by or on behalf of the licencee, or other imported goods where facility for Public Warehouse is not available, may be deposited. The following guidelines are generally followed for ensuring uniformity in the practice in the declaration of Warehousing Stations:-

i)        the industrial development of the proposed area and the need for warehousing of imported goods should be assessed;

ii)        only those places be notified as warehousing Stations where adequate facilities are available for appointing Public Bonded Warehouses;

However, this condition can be relaxed in case of 100% EOUs, subject to use by 100% EOUs only.

iii)        adequate Customs/Central Excise staff should be available in the vicinity of the proposed Warehousing Stations and necessary arrangements for training etc.of the staff should be made.

        Cases not fulfilling the aforesaid criteria are to be decided in the Board.

Appointing of Public Bonded Warehouse:

4.        In respect of Public Bonded Warehouses, other than the Central Warehousing Corporation and the State Warehousing Corporations, private operators can also be appointed as custodians. For this purpose, all such applications for custodianship are to be carefully scrutinised and due consideration given to factors such as the feasibility and financial viability of the warehouse operator, his credibility, his financial status, his past record to comply with Customs & Excise laws, expertise in warehousing field, etc. The applicant should accept to pay cost-recovery charges on payments of Merchant Overtime/Supervision Charges for obtaining services of Customs officers.

Licensing of Private Bonded Warehouses:

5.        In case of Private Bonded Warehouses, the applications for such licences have been classified into two categories viz., storage of sensitive goods such as liquor, cigarettes, foodstuffs, consumables, etc. and other non-sensitive goods. Under Board’s Circular No.99/95 dated 20.9.1995, the following guidelines in case of storage of sensitive goods have been provided:-

i) Applicants should produce a Solvency Certificate from a Scheduled Bank of repute for a value not less than Rs. 50 lakhs;

ii) Such warehouses may not be located in residential areas;

iii)

The premises should be secure, possess fire-fighting provisions and easily accessible to the Customs Officers;

iv) Goods deposited should be fully insured for a value at least equal to the customs duty;

v) The proprietor/partner/director must not be involved in any Customs or Excise offence . In case of any involvement in such offences, the licence may be terminated

after following the prescribed procedure;

vi)

In the case of individual consignments to be warehoused, a double duty-bond as prescribed under section 59 should be given by the licencee. In case of sensitive goods, a cash deposit/ bank guarantee equal to 25% of the duty liability (effective duty foregone) will be taken for each consignment. At the same time, a revolving bond with a single bank guarantee for a higher amount can be accepted if so requested for a number of consignments.

            In the case of non-sensitive goods, applicants for Private Bonded Warehouses have to abide by all provisions as pertaining to sensitive goods discussed above, except that the requirement of furnishing a Solvency Certificate has been waived. The applicant, however, should be solvent for Rs. 10 lakhs and should possess a good record. A double duty bond with surety would suffice for storage of non-sensitive bonded goods. In case the Customs are not satisfied about the transactions of a particular bonder, the applicant may be asked to furnish a bank guarantee [Details of the guidelines are available under Board’s Circular No.99/95 dated 20.9.1995].

6.        A licence granted by the Customs under section 58 may be cancelled or suspended under certain conditions after observing the procedure prescribed under section 58 of the Customs Act.

Bonding of Import Goods:

7.        Where bonding facility is desired on importation, the importer or his representative is required to present to the Customs a Bill of Entry for warehousing (also known as Into-Bond Bill of Entry) in the prescribed form along with relevant documents required. The duties liable are assessed but not required to be paid. A suitable bond has to be executed with the Bond Section before Customs allow bonding. Once the warehousing bond has been executed by the importer, the Customs may order the deposit of the goods in the warehouse. The goods are normally escorted to Bonded Warehouse if the warehouse is at the same port/airport station where goods landed. Otherwise these are allowed to be moved under a transit bond - without escort.

            The whole of the bonded goods are to be fully accounted for - by way of home consumption/export etc. Once all the goods brought under any bond have beeen accounted for to the satisfaction of the Customs officer, after payment of all duties etc., the Customs officer cancels and returns the bond executed as discharged in full.

Storage Period of Warehoused Goods:

8.        Any goods deposited in a warehouse may be stored upto a period of one year in the Bonded Warehouse. In the case of capital goods intended for use in any 100% EOU, such goods can however be stored up to a period of 5 years. The warehousing period can be extended by the Commissioner of Customs for a period of 6 months and by the Chief Commissioner of Customs for such further period as is deemed fit by him. The importers should file their applications for extensions well before the expiry of the initial/extended period of warehousing.

        Before granting extensions, officers have to examine the condition of the goods to see that they are not likely to deteriorate during the extended period. A somewhat liberal approach in extending warehousing period in the following categories of cases is considered, if the interests of revenue are not likely to be jeopardized:-

i) Goods supplied as ship stores/aircraft stores.

ii) Goods supplied to diplomats.

iii) Goods used in the units operating under manufacture-in-bond scheme.

iv Goods imported by 100% EOUs.

)

v) Goods warehoused and sold through duty free shops.

vi)

Machinery, equipment and raw material imported for building and fitment to ships.

            Extensions in warehousing period are not meant to be granted routinely but only in such cases where the goods have to be kept in the warehouse under circumstances beyond the control of the importer. Lack of finance to pay the duty is not considered as valid and good ground of seeking extensions which are otherwise given for short period.

            In case the warehoused goods are likely to deteriorate, the Commissioner of Customs may reduce the one year’s period of warehousing to such shorter period as he may deem fit.

Rate of Interest on Customs Duty in case of Bonded Goods:

9.        In cases where the capital goods for 100% EOUs remain in a warehouse beyond a period of 5 years, interest at the rate of 24% per annum (as applicable currently under notification No.10/2001-Cus.(N.T) dated 1.3.2001) shall be charged on the customs duty payable at the time of clearance of the goods for the period from the expiry of the said warehousing period till the date of payment of duty on the warehoused goods. In the case of all other goods, w.e.f 1.6.2001, interest at the rate of 24% per annum is payable after the expiry of thirty days in the warehouse under notification No.23/2001-Cus.(N.T.) dated 22.5.2001.

Waiver of Interest:

10.        Under section 61(2) of the Customs Act, if necessary in the public interest, the Board may by order and under circumstances of an exceptional nature to be specified in that order, waive the whole or a part of any interest payable in respect of warehoused goods. In this regard, the power to grant waiver of interest upto an amount of Rs. 15 lakhs has been delegated to the Chief Commissioners of Customs, and guidelines framed by the Board, specifying cases where the interest waiver would be considered. The types of such cases are: -

i) Goods supplied as ship stores/aircraft stores;

ii) Goods supplied to diplomats;

iii) Goods used in the units operating under manufacture-in-bond scheme;

iv) Goods imported by 100% EOUs;

v) Goods warehoused and sold through duty free shops;

vi) Machinery, equipment and raw materials imported for building and fitment to ships;

vii) Petroleum products;

viii)

Plant and Machinery imported for projects;

ix) Machinery, equipment and raw-materials imported for manufacture and installation of power generation units;

x) Goods imported under OGL and warehoused for subsequent clearance against valid advance licences/Import-Export Pass book scheme or any similar scheme;

xi) Goods imported in bulk by canalising agencies/public sector trading or service agencies and warehoused for subsequent release for export production; and

xii) Goods warehoused and subsequently re-exported under section 69 of the Customs act, 1962 subject to the conditions that –

a) The re-export realises the full foreign exchange spent in import in hard currency (in case the import is paid for in that currency); and

b) The import in the first instance was not unauthorised or in contravention of the Import-Export Policy.

        In all the above categories of cases, which are export related, Customs officers are required to raise the demand for interest due, but the demands are not to be enforced immediately. The activity of the importers, including clearance of goods etc., is allowed to continue and only at the stage after the goods have been cleared or at the time of de-bonding of 100% EOUs, the request for waiver of interest is to be decided. 100% EOUs which have not fulfilled their export obligations and have been allowed to debond their warehoused goods prematurely are not granted waiver of interest except under very exceptional circumstances. Cases of waiver of interest not covered under the aforesaid guidelines have to be referred to the Board for decision.

        Vide notification No. 67/95- Cus. (N.T.) dtd. 1.11.1995, interest accrued on customs duties payable on certain specified bonded goods like capital goods, components/spares, office equipments, captive power plants, tools etc. have been exempt at the time of clearance in the following cases:-

i)        goods imported by 100% EOUs under notfication No. 13/81-Cus.

ii)        goods imported by 100% EOUs in EHTPs under various notifications and

iii)        goods imported by 100% EOUs in STPs under certain notifications.

Operations on Warehoused Goods:

11.        All warehoused goods are subject to the control of the Customs officers. The owner of the warehoused goods may inspect, sort, show for sale, take samples etc. from the bonded goods with the permission of the proper officer. The owner of the bonded goods shall also pay warehouse-keeper rent and warehouse charges at the rates fixed under law.

Manufacture-in-Bond Operations:

12.        With the permission of the Assistant/Deputy Commissioner of Customs, the owner of any bonded goods may carry on any manufacturing process or other operations in the bonded warehouse in relation to such goods. As a policy, it has been decided to extend in-bond manufacture facility under section 65 of the Customs Act mainly to EOUs or to units which are primarily engaged in exports. Manufacture-in-bond operations are to be carried out under Customs supervision on cost-recovery basis. Customs may grant a licence under section 65 after scrutinising the application and satisfying itself that the applicant is financially secure, has good credibility and has not been involved in Customs or Excise duty-evasion in the preceding five years. The premises should be adequately secure and the provisions of Manufacture and Other Operations in Warehouse Regulations, 1966 which provide the detailed procedure for application and operation etc. must be observed.

Movement under Bond:

13.        With the permission of the Customs Officer, the owner of bonded goods may remove the said goods from one warehouse to another either under the supervision of the Customs officer or by executing a bond equal to the amount of import duty leviable on such goods if the goods are to be removed to a warehouse in another town. Details of the procedure to be followed and terms of the bond to be executed are provided under Warehoused Goods (Removal) Regulations, 1963. Under Circular No.99/95-Cus. dated 20.9.1995, customs duty is to be secured by a transit bond backed by a bank guarantee/cash security for 50% of the duty involved in case the goods are of sensitive nature. In respect of non-sensitive goods, transit bonds would be covered by a Bank Guarantee or a cash security for 25% of the duty involved. Commissioners of Customs may demand greater guarantee/security if felt necessary in certain cases.

        In the case of 100% EOUs/EHTP/STP and EPZ units, the requirement of bank guarantee for transfer of imported goods has been waived vide Board’s Circular No.41/97-Cus. dated 19.9.1997, subject to the conditions prescribed in the said Circular.

Clearance of imported goods:

14.        The importer of any warehoused goods can clear the goods for home consumption by filing an ex-bond Bill of Entry and after payment of duties etc. in terms of section 68 of the Customs Act.

Rate of Duty/ Value for Assessment:

15.        The rate of duty applicable is as per provisions of Section 15 of the Customs Act i.e. on the date on which the goods are actually removed from the warehouse. However, when the warehousing period or the extended warehousing period has expired, the duty payable is with respect to the date when the warehousing/extended warehousing period expired and not the actual date of removal. Insofar as value for assessment of duty for warehoused goods is concerned, it is not required to be redetermined and it is the original value as determined at the time of filing of into Bond Bill of Entry and assessments before warehousing.

Transfer of Bonded Goods:

16.        Section 59 (3) of the Customs Act, 1962 provides for the transfer of bonded goods to another person. The sale of the warehoused goods to holders of duty exemption or duty concession license for the goods is permitted under the law (Board’s instructions issued from F. No. 473/43/94 dtd. 22.9.1994 refers in this regard).

Export of bonded goods:

17.        Warehoused goods may also be exported out of India without payment of duty after the filing of a Shipping Bill/Bill of Export and the payment of relevant export duties etc. However, in view of the apprehension that warehoused goods when exported from India to certain neighbouring countries are likely to be smuggled back to India, the Government has directed vide Notification No.45-Cus. dated 1.2.1963 (as amended) that warehoused goods shall not be exported without payment of import duty to any place in Bhutan or Nepal. Similar restrictions are placed in the case of warehoused goods to be exported by land to any place in Myanmar, Sikang, Tibet or Sinkiang.

        A ban has also been placed on export from bond of vessels of less than 1000 tons (subject to conditions prescribed under notification No.46-Cus. dated 1.2.1963). The following items viz., alcoholic liquors, cigarettes, cigars and pipe tobacco are also not permitted to be taken on board any foreign-going vessel of less than 200 tons without payment of import duty leviable (notification No.47-Cus. dated 1.2.1963).

Recovery of Duty on Bonded Goods:

18.        Customs Officers may demand from the owner of bonded goods the full amount of duty chargeable on such goods, along with all penalties, rent, interest and other charges payable in the following cases:-

i)        where any warehoused goods are removed in contravention of the Customs Act, 1962;

ii)        where such goods have not been removed from a warehouse at the expiry of the period permitted under section 61;

iii)        where any warehoused goods have been taken under section 64 as samples without payment of duty; and

iv)        where any bonded goods have not been cleared for home consumption or exportation or are not duly accounted for to the satisfaction of the Customs.

        In case the owner fails to pay the amount as demanded above, Customs may detain and sell, after notice to the owner, such sufficient portion of the bonded goods as may be selected.

Transhipment of Cargo

In India, a number of ports, airports, Inland Container Depots(ICD), Container Freight Stations(CFS) having Customs clearance facilities have been developed to reduce congestion at the gateway ports/airports and to allow importers and exporters to take Customs clearance of imported and export goods at their door steps. Sometimes, cargo meant for third country lands at an Indian port or airport. It has to be carried to its actual destination. The objectives of bringing the Customs facility to door step of importing community & decongesting the gateway ports/ airports, can be achieved only if movement of imported cargo or export cargo is allowed between a port/airport and other ports/airports, ICDs/CFSs in India or a port/airport abroad .

2.        As per the Customs Act, duty becomes payable immediately after imported goods are landed at a port or airport. To avoid payment of duty at the port of landing in cases where goods are to be carried to another port/airport or ICD/CFS or to a port/airport abroad, the Customs Act provides a facility of transhipment of cargo without payment of duty. The goods can be transhipped from one port/airport to another port/airport/ICD/CFS either by vessel, air, rail or road or by combination of more than one such mode of transport..

3.        The procedure for transhipment provided in section 54 of the Act is applicable for imported cargo only. In regard to export cargo cleared from a port/ACC or ICD/CFS and exported through some gateway port/airport, a similar procedure is being followed to allow carriage of Customs cleared export cargo from a port/airport/ICD/CFSs to another port/airport.

Procedure for transhipment of containerised imported cargo

A. from gateway port to another port/ICD/CFS in India

4.        The imported cargo unloaded at a port is allowed to be transhipped to another port/ICD/CFS or a port abroad, if the cargo is mentioned in the import manifest for such transhipment. The transhipment procedure of imported cargo is governed by the provisions of section 54 of the Customs Act and the Goods Imported (Conditions of Transhipment) Regulations, 1995. Broadly, the transhipment procedure is as follows:

(i)        Transhipment Permit:

5.        A 'transhipment permit' is the permission granted by the Customs, at the port/airport of unloading of imported goods, to shipping agents for carriage of goods to another port/airport/ICD/CFS in India. The shipping agent submits an application along-with transhipment forms (5 copies), sub-manifest and a copy of IGM to the Customs. The Customs scrutinizes the details furnished by the shipping agents in the application for transhipment. In case, the documents are in order and there is no alert notice against the shipping agent, permission for transhipment is granted by the Customs.

(ii)        Execution of Bond and Bank Guarantee:

6.        To ensure that imported cargo, on which duty has not been paid, are not pilfered en-route to another port/airport/ICD/CFS and reach there safely, a bond with bank guarantee (@ 15% of bond value) is executed by the carrier engaged for the transhipment of the goods. The carriers in public sector i.e. CONCOR and CWC are exempted from the requirement of bank guarantee for transhipment of goods. The terms of the bond is that if the carrier produces a certificate from Customs of the destination port/airport/ICD/CFS for safe arrival of goods there, the bond stands discharged. In case such certificate is not produced within 30 days or within such extended period as the proper officer of Customs may allow, an amount equal to the value, or as the case may be, the market price of the imported goods is forfeited.

7.        The bond value should be equal to the value of the goods. However, considering the difficulties of shipping agents in producing documents for determination of value of the goods

sought to be transhipped, the bond value is determined on the basis of notional value of the goods, which is an average value of cargo per container transhipped in the past.

8.        To avoid multiplicity of bonds, the carriers are allowed to execute mother bonds instead of individual bonds. The mother bonds are like running bonds. The value of mother bond can be arrived on the basis of the average number of containers carried per trip, the average time taken for submission of proof of safe landing of containers at the destination ICDs/CFSs, frequency of such transhipment as well as notional value of cargo per container. As mother bond is a running bond, its amount may be high. If a running bank guarantee @ 15 % of total bond amount is taken, it may block huge sum of money. To avoid blockage of money of carriers, an option has been given to them to furnish either a running bank guarantee or individual bank guarantees for each transhipment. Individual bank guarantee for each transhipment is released as soon as the landing certificates from destination Customs are produced.

9.        The bond or, as the case may be, mother bond and bank guarantee are debited at the time of transhipment of import/export containers at the port of origin, and the same is credited on receipt of proof of safe landing of containers at the port/ICD/CFS of destination.

(iii)        Execution of Bond for Re-export of Containers:

10.        As the containers themselves are liable to duty, Customs duty exemption is provided vide notification No. 104/94-Cus. dated 16/3/94 which, inter-alia, facilitates its being taken out of the port without duty payment subject to execution of bond. The shipping agents are required to file this bond with the container cell of the Custom house in terms of the notification No. 104/94-Cus. dated 16/3/94, binding themselves to re-export containers within six months of their import into India. The period of six months may be extended by the Deputy/Assistant Commissioner of Customs.

(iv)        Sealing of Containers:

11.        After issuance of transhipment permit and execution of bonds as mentioned above, containers are sealed with 'one time bottle seal' by the Customs. In case, containers are already sealed with 'one time bottle seal' by the shipping agents, containers are not required to be sealed again by the Customs. In such cases, shipping agents are required to inform the serial number of seals to Customs, which is just verified by the Customs.

(v)        Carriage of Containers:

12.        After sealing and/or checking of seals by Customs, containers are moved from the gateway port and carried by the shipping agents to destination port/ICD/CFS by vessels, rail or road.

(a)        Carriage by Rail:

13.        Presently, rail movement is undertaken only by CONCOR, a Public Sector Undertaking (PSU) under the Ministry of Railways. The CONCOR, being a PSU, is exempt from execution of bank guarantee for transhipment. However, a bond is required to be executed by them. After completing all the above-said formalities, containers are allowed to be loaded on wagons under the supervision of Customs. The fact of such loading of the containers is endorsed by the preventive officer on all copies of transhipment permit and one copy of the permit is given to the steamer agent. One copy is retained for record, one copy accompanies the container and the fourth copy is handed over in a sealed cover to the carrier i.e. CONCOR. The carrier has to hand over the sealed cover to the Customs authorities at the destination.

(b)        Carriage by Vessels:

14.        The CBEC Circular 31/99-Cus. dated 27/5/1999 allows carriage of imported container from gateway port to another port by vessels. For transhipment through a vessel, procedure as explained above, i.e. issue of transhipment permit, execution of bond, sealing of containers etc.,

needs to be followed. The formalities required to be followed for transhipment through vessels are similar to those followed for transhipment by rail.

15.        To optimize the capacity utilisation of vessels, carriers have been allowed to carry domestic cargo along-with the transhipment containers. However, to guard against the possibility of replacement of transhipment goods with domestic containerised cargo, some safeguards have been prescribed. All the transhipment containers as well as domestic containers are required to be sealed by 'one time bottle seal' at the port of loading. The domestic containers are required to be suitably painted with bold letters ' For Coastal Carriage only' for their identification. Further, carriers are required to file a manifest for domestic containers.

(c)        Carriage by Road:

16.        The containers are also allowed to be carried from the gateway ports to ICDs/CFSs by road. Many custodians of ICDs/CFSs, particularly those which are not connected by rail, carry the container by road. The formalities to be followed are similar to those followed for transhipment by rail.

(vi)        Formalities at the Destination:

17.        At the destination, carrier is required to present the sealed cover containing a copy of transhipment permit to Customs. The Customs checks the particular of containers, seals etc. with reference to transhipment permit. The carrier is required to obtain a certificate regarding landing of container from the Customs.

18.        In case, the seals are found to be broken at the time of examination of containers by the Customs, a survey of contents of the containers is conducted in presence of Customs officer, carrier, importer or his representative and representative of insurance company. Shortage, if any, noticed is recorded and is signed by all those present. The carriers are required to pay the duty for pilferage in terms of the condition of bond executed by them with the Customs at the port of loading. This is apart from other action which can be taken under section 116 of the Customs Act, 1962.

(vii)        Submission of Landing Certificates to Customs at the Originating Port:

19.        The carriers have to obtain the landing certificates of containers from the Customs at the destination port/ICD/CFS and submit the same to the Customs at the originating port. The Customs reconciles its record and closes IGMs on the basis of these certificates.

(viii)        Clearance of the Goods:

20.        After safe landing of containers at the destination port/ICD/CFS, the importers or their authorised agents are required to follow all Customs formalities such as filing of bill of entry, assessment, examination of goods etc., for clearance of the goods.

B.        from Gateway Port to a Port Abroad:

21.        For transhipment of containers from a port in India to a port abroad, shipping agents have to file transhipment application along-with relevant documents to Customs. The Customs scruitinises the application and if these are found to be in order, permission to tranship the cargo is granted. In such cases, execution of bond or bank guarantee is not required. After issuance of transhipment permit, goods are allowed to be loaded on to the ship under the Customs supervision. The preventive officer supervising the loading is to acknowledge loading of such cargo. The record is reconciled on the basis of endorsement of the preventive officer and copy of EGM showing details of such transhipment.

A.        from Gateway Port to EPZ and SEZ:

22.        The procedure for transhipment of cargo from gateway port to Export Processing Zones(EPZs) and Special Economic Zones(SEZs) is similar to what has been stated above for transhipment of cargo from port to another port/ICD/CFS above. For transhipment to EPZs and SEZs, a bond with bank guarantee is required to be furnished. The Customs in EPZ/SEZ give suitable landing certificate after checking, which is to be submitted to Customs at the originating port.

Movement of export cargo from port/ICD/CFS to gateway port

23.        The export cargo, after its clearance at a port/ICD/CFS, may be carried in sealed containers to the gateway port for export. Broadly, the procedure in this regard is as follows:

(a)        The exporters are required to bring their goods meant for exports to the Port/ICD/CFS and file six copies of Shipping Bill with all necessary documents like GR form, AR-4 Form, Certificate issued by Export Promotion Councils, documents regarding quotas wherever applicable etc.. In addition to the usual information given in the shipping bill, the exporter is required to mention the gateway port of export on the shipping bill along-with the serial number(s) of the container(s). The Shipping Bills are assessed as usual, the goods are examined, samples drawn, and if required, inspection carried out by other agencies to check compliance with provisions of various Allied Acts before export is permitted. The original GR form is forwarded to the concerned branch of Reserve Bank of India.

            The examination order is given on the duplicate and two transference copies of the Shipping Bill. The examination report is required to be recorded on all these copies. After examination of the goods, container is sealed by the Customs with 'one time bottle seal'. The duplicate copy of Shipping Bill is retained at the ICD/CFS/port and the transference copies are forwarded to the gateway port. The E.P. copy of shipping bill is required to be suitably endorsed/stamped by the Customs officer to the effect that the goods are to be transhipped at the gateway port mentioned on the shipping bill for their destination outside India.

            The goods cleared for export at the port/ICD/CFS is allowed to be carried to the gateway port for export subject to the conditions of execution of bond similar to that provided for transhipment of import goods under relevant Regulations, and if export goods are manifested for the final destination through the gateway port. The FOB value of goods is to be debited from the continuity bond executed by the custodians. The carriers/custodians transporting the goods, are to be handed over the transference copies of Shipping Bills in a sealed cover.

            The containers are allowed to be carried from a port/ICD/CFS to the gateway port by vessel or rail or road or by combination of two or more of these modes of transport.

            The drawback is required to be paid to the exporters as soon as the shipping bills are passed and goods are shipped at the originating port/ICD/CFS subject to the condition that the necessary bond has been executed by the Steamer Agent/carrier to bring back and submit the proof of export to the Customs within 90 days.

            At the gateway port, the containers are normally allowed to be exported under Customs supervision after checking the seals. In case seals are intact and documents are in order, no further examination of goods is undertaken. The preventive officer supervising the export of container, endorses the fact of shipment in both the transference copies. Steamer agent has to file Export General manifest(EGM) in duplicate.

            One copy of transference shipping bill along-with a copy of EGM is sent back to the originating port/ICD/CFS.

            At the originating port/ICD/CFS, export manifest and transference copy of shipping bill, received from the gateway port, are co-related with the duplicate copy of the shipping bill and other relevant documents for closure of export manifest and cancellation of bond.

Bonded Trucking facility:

24.        To give flexibility to trade to choose mode of transport and to facilitate movement of LCL cargo, a scheme has been introduced to allow movement of export cargo and imported cargo between a port/ICD/CFS and gateway port in closed trucks. Broadly, the features of the scheme for movement of export and imported cargo are as follows:

A.        Export :

25.        A procedure allowing carriage of export goods in truck from manufacturing factories/ICDs/CFSs to the airport for further shipment by air or to the port for further consolidation of such goods into a container and subsequent export has been laid down. Prior to introduction of the facility, full container load(FCL) cargo was allowed to be transferred under Customs/Central Excise seal from ICD/CFS or from the factories (in case of container stuffed inside the factory) to the gateway port. The truck movement of export cargo allows carriage of smaller packages belonging to more than one exporter in one truck which is to be sealed after stuffing in the ICD/CFS. In case the goods are moving in truck from the manufacturing factory, factory owner or exporter is responsible to account for the goods, whereas in case of goods moving from ICD/CFS, the custodian of the ICD/CFS is responsible to account for the goods. The procedure for movement of export cargo by truck has been prescribed in the CBEC Circular No. 57/98-Cus., dated 4/8/1998. Broadly, the procedure is as follows:

(a)        Under the scheme, shipping bills in six copies along-with all necessary documents like GR form, AR form, certificates issued by Export promotion Councils, documents regarding quotas wherever applicable, etc. are to be filed by the exporters. The shipping bills are assessed and examined at the ICD/CFS as is being done for cargo to be carried in containers to the gateway port. The examination report is recorded on the duplicate copy as well as on the two transference copies of shipping bills. The duplicate copy of shipping bill is retained in the ICD/CFS and transference copies are sent to the gateway airport or port. FOB value of the goods is debited from the continuity bond executed by the custodians.

(b)        After the examination of goods is over, all the packages are handed over by the Customs authorities to the custodians along-with two transference copies of the shipping bills, certified copy of invoice, packing list and other documents in a sealed envelope. All the packages are stuffed in the trucks under the supervision of Customs and representative of custodians. After the stuffing, trucks are sealed with temper proof bottle seals. The endorsement that the trucks are sealed, are made on both the transference copies of shipping bill. The seal number of seals is endorsed on all the documents.

(c)        At the gateway port or airport, documents are presented to the Customs, who verifies the genuineness of documents and checks the marks and numbers of the seals on the truck. If the seals are found intact and documents in order, the goods are allowed to be de-stuffed from the trucks under Customs supervision. The goods are then stuffed in containers by the shipping agents under Customs supervision. In case of export by air, goods after de-stuffing from the truck, are palletized and loaded in the aircraft under the Customs supervision. The preventive officer, supervising de-stuffing of goods from the trucks and stuffing of such goods in containers or as the case may be, palletisation of goods, endorses the transference copies of shipping bills with 'shipment allowed' endorsements. At the time of actual shipment endorsement 'let export' is made on the transference copies of the shipping bills and AR-4. One copy of shipping bill is retained at the gateway port/airport and the other is sent back to originating ICD/CFS.

(d)        In case seals are found broken or some discrepancy is noticed, goods are subjected to 100% examination. Action in terms of the bond can be taken against the carrier in such cases.

B.        Imports:

26.        Movement of import cargo from the airports/air-cargo complexes to another airport/air-cargo complex/ICD/CFS by truck has also been allowed vide CBEC Circular No. 69/99-Cus. dated 6/10/1999. Broadly, the procedure is as follows:

(a)        Under the scheme, the airlines or their agents or custodians of gateway airport/air-cargo complex or the custodians of destination ICDs/CFSs/airports/ACCs are appointed as custodians of imported cargo to be transhipped in bonded truck from an airport/ACC to another

airport/ACC/ICD/CFS. The transhipment under the scheme is governed by the provisions of the Goods Imported (Conditions of Transhipment) Regulations, 1995. The cargo to be transhipped needs to be manifested as for transhipment by the incoming international carrier.

(b)        The custodian executes a suitable running bond with a bank guarantee for an amount approved by the jurisdictional Commissioner of Customs for proper accountal of goods. The amount is debited from the bond when transhipment cargo is taken by the custodians and the bond is credited when the proof of handing over of the cargo to Customs at final destination is produced.

(c)        The custodians are required to submit the list of trucks together with registration numbers to be used for movement of each transhipment cargo. The cargo to be transhipped, after its unloading at the airport, is immediately shifted to transhipment warehouse of airlines or custodian. In case, the airlines/custodian does not have a transhipment warehouse, the import cargo duly passed with transhipment application is received by them from the Airport Authority of India's (AAI) custody to their make up area specially earmarked for the purpose of palletisation/containerisation on the same day under the Customs supervision.

(d)        The custodian has to submit transhipment application along-with a copy of airway bill to Customs. After scrutiny of the application, transhipment permit for transhipment of cargo is issued. On getting the permission for tanshipment, goods are shifted from the warehouse into truck under the supervision of Customs. After loading of goods, truck is sealed with one time bottle seal by the Customs.

(e)        The Customs at the destination check the Customs seal and description of packages as per the transhipment permit. The custodian is responsible for the safety and security of the cargo. After unloading of the goods at the destination airport/ACC/ICD/CFS, the Customs makes suitable endorsement on the copies of transhipment permit, a copy of which is retained by the Customs at the destination airport/ACC/ICD/CFS and other copy is returned to the originating airport. The custodians are required to submit proof of safe arrival of goods at the destination, to the Customs at the originating airport/ACC within 30 days from the despatch of goods, failing which suitable action in terms of the condition of bond may be taken against the custodians.

Transhipment of cargo by air:

27.        The CBEC Circular No.47/96-Cus., dated 16/9/1996 provides a detailed procedure for transhipment of imported cargo by air (i) from an airport in India to another airport in India, and (ii) from an airport in India to an airport abroad. The circular also provides a procedure for movement of export cargo from an inland airport in India to an airport abroad through a gateway airport in India. The movement of cargo between the gateway airport and inland airport is allowed in Indian Airlines flights and also in private sector airlines flights. The procedures in brief are as follows:

(i)        Transhipment of cargo from a gateway airport to an inland airport:

(a)        The transhipment of imported cargo from a gateway airport to an inland airport is governed by the Goods Imported (Conditions of Transhipment) Regulations, 1995. The airlines bringing the import cargo, files an application for transhipment permit along-with copies of airway bills to Customs. The Customs, after scrutiny of details furnished in the application, issues transhipment permit. After issuance of transhipment permit, goods are allowed to be stuffed in closed trucks and taken to transhipment warehouse of the domestic carrier under the Customs preventive escort.

(b)        On receipt of the goods at the warehouse of domestic carrier, the Customs Officer posted in the warehouse has to acknowledge receipt of the goods and make suitable endorsement on the copies of the transhipment permit accompanying the goods. A copy of transhipment permit is returned to the transhipment warehouse of airlines where from the goods originated. The domestic carrier has to execute a bond with security in terms of the said regulations. On receipt of goods, domestic carrier has to prepare EGMs clearly mentioning transhipment cargo as international cargo and submit the same to the Customs. The

transhipment cargo is loaded in the aircraft in presence of Customs. Two copies of EGMs are also sent to Customs at the destination airport.

(c)        The Customs at the destination airport, has to check the packages with reference to EGM and make suitable endorsement on the EGMs. One copy of EGM is returned to the Customs officer at the warehouse of domestic cargo at the airport where from cargo originated, for reconciliation of their record. One copy is to be retained there.

(ii)        Transhipment of cargo received at an airport in India from an airport abroad to an airport abroad:

        The cargo to be transhipped to any foreign destination is to be sorted out immediately after landing at an Indian airport and is transferred to special enclosure meant for storage of transhipment cargo under Customs supervision by the concerned airlines. Before transhipment of any goods, cargo transfer manifest is required to be presented in triplicate to the Customs. One copy is retained at the warehouse of the airlines. The remaining two copies with cargo are handed over to the carrier, who is to carry the goods to foreign destination. The loading of cargo in the aircraft is undertaken under the Customs supervision. The officer supervising the loading makes suitable endorsement on the bill of transhipment and send a copy back to the warehouse of the airlines.

(iii)        Movement of export cargo from an inland airport to an airport abroad through an intermediate airport in India:

(a)        The shipping bills are filed, assessed and goods examined as usual at the originating airport. The domestic carrier has to furnish a bond to Customs to ensure that goods are safely exported out of India. The domestic carrier is to carry cargo only under E.G.M. duly certified by the Customs.

(b)        At the gateway airport, the cargo received from the inland airport is removed from the aircraft to the transhipment warehouse of domestic carrier under Customs supervision. The domestic carrier presents the EGM copies brought from inland airport, to the officer in-charge of warehouse.

(c)        After storage of goods in transhipment warehouse, the domestic carrier files cargo transfer manifest to the Customs. After obtaining the permission from the Customs, goods are taken in closed trucks under Customs supervision to the warehouse of foreign airlines. After shipment of cargo, the officer in-charge of warehouse will reconcile his records on the basis of EGM submitted by the foreign airlines. The Customs officer at the warehouse of the foreign airline has to make suitable endorsement evidencing receipt of cargo and subsequent export on the copies of EGM brought by domestic carrier from the originating airport. A copy of the said EGM is to be sent back to the originating airport for accountal of goods by the Customs at the originating airport. In case duly endorsed copy of EGM is not received by the Customs at the originating airport within 30 days, action may be taken in terms of the conditions of the bond.

(Reference: Goods Imported (Conditions of Transhipment) Regulations, 1995 issued vide notification No. 61/95-Customs(Nt) dated 26/9/1995. Circulars No. 47/96-Cus., dated 16/9/1996, 57/98-Cus., dated 4/8/1998, 31/99-Cus., 27/5/1999,69/99-Cus., dated 6/10/1999, 34/2000-Cus., dated 3/5/2000, 56/2000-Cus., dated 5/7/2000,61/2000-Cus., dated 13/7/2000).

Consolidation of Cargo

With the development of a number of ICDs/CFSs in the hinterland, importers and exporters have got the option to either get their import/export consignments cleared at the gateway ports or any nearby ICD/CFS. The export goods cleared by Customs at an ICD/CFS are sent to gateway port in sealed containers. At the gateway port, such containers are normally allowed to be exported without any further physical examination of the goods. Similarly, imported cargo meant for any ICD/CFS is allowed to be transhipped in sealed containers from the gateway ports to such ICDs/CFSs and all Customs formalities in relation to clearance of cargo are completed by the importers at ICD/CFS.

2.        The export containers once sealed at the ICD/CFS were not allowed to be re-opened for consolidation at the gateway port. In such a situation, if shipping line did not have full container load of LCL cargoes for a particular destination, he had to either wait for more cargoes for that destination to come or send the container half empty. Carrying half empty container increases freight charges for exporter and waiting for more cargoes at the ICD delays the export resulting in other problems. To minimize the freight charges on export, the shipping lines used to stuff the containers with LCL cargoes irrespective of their destinations and carry such containers to international hub ports e.g. Dubai, Singapore and Colombo. At the hub ports, they used to re-open the containers of LCL cargoes and consolidate the cargo in containers destination wise. Similarly, import containers stuffed with LCL cargoes irrespective of destinations used to be brought to hub ports, where shipping lines used to consolidate the cargo and stuff in containers destination wise.

3.        There was a consistent demand from the Exporters, Importers, Shipping Lines, Agents and Consolidators of the country to allow the re-working of containers at the Gateway Ports of the country to avoid the extra expenditure incurred by them for undertaking the same job at the foreign hub ports e.g. Dubai, Singapore and Colombo. It was reported that the ports like Colombo are mainly handling Indian transhipment cargo. Considering the difficulties of the trade, the Board has issued a Circular No.55/2000-cus., dated the 30th June, 2000 as amended by circular No.22/2001-Cus., dated 17.4.2001 laying down a procedure for re-working of containers at Gateway Ports.

4.        This facility allows shipping lines to take the containers stuffed with LCL export cargo, irrespective of destination, from ICD/CFS to a gateway port, where these can be opened and reworked with cargoes received from different ICDs/CFSs. After such re-working, cargoes can be stuffed in containers destination wise. Similarly, LCL import cargo brought from different destinations at any gateway port can be re-worked and consolidated to stuff containers ICD wise. With this facility of re-working of containers at Gateway Ports, the exporters get benefited by way of saving in freight charges, reduction in transit time, better handling and safer delivery of cargo as the activity takes place under the supervision of Indian agencies. The facility reduces freight charges for imported LCL cargo also as it helps in optimum utilization of container capacity, It also helps in attracting business for Indian ports and developing these Ports as transhipment hubs.

Procedure for consolidation of export and import cargo

5.        Broadly, the procedure for consolidation of export and import cargo at the gateway ports is as follows:

B.        Exports :  

(a)

LCL cargo brought to an ICD/CFS is subject to routine documentation, assessment and examination by Customs. After examination and clearance of LCL cargo at the ICD/CFS, the packages opened for Customs examination are sealed by the Customs. The shipping line is required to use identification mark on each package, clearly indicating serial number of package, description of goods, total number of packages covered under that particular shipping bill, exporters identity and their own codified identity;

(b)

After completion of Customs formalities, the packages are handed over to the custodians along with two transference copies of shipping bill, certified copies of invoice, packing list, bill of lading and other documents;

(c) The custodians consolidate the cargo irrespective of shipping line and destination and stuff these in containers. After sealing of such containers in presence of Customs, containers are carried to the gateway port or a CFS near gateway port by the custodian;

(d)

At the gateway port, the documents are handed over to Customs and the containers are opened in presence of Customs. The cargo is handed over to shipping lines/their agents/MTOs/consolidators, etc., who re-work the cargoes received from different ICDs as well as cargo cleared for export at the gateway port or CFSs near the gateway port and re-stuff the cargo in containers destination-wise in presence of Customs;

(e)

The custodians of the gateway port or CFS near gateway port have to maintain a tally sheet container-wise indicating details of the export consignments, the previous container number, shipping bill number, AR-4 number and the details of new containers in which goods have been re-stuffed;

(f) The container number in which such cargoes are stuffed is to be indicated by the Customs Officer on both the transference copies of shipping bill and AR-4. One copy of shipping bill is retained by the Customs at the gateway port and other copy of shipping bill is returned to the originating ICD/CFS;

(g)

The LCL cargo cleared by Customs at the ICD/CFS under this scheme is normally not to be examined again by the Customs at the gateway port or at the CFS where LCL cargoes are being consolidated;

(h)

The drawback is be paid at the inland ICDs/CFSs immediately after the clearance of LCL cargo by Customs without waiting for actual shipment of cargo from the gateway port.

 

C.        Imports :

(a)

On arrival of the LCL cargo meant for ICDs/CFSs, at the Gateway Port the concerned shipping line files the I.G.M. with the Customs, as per the procedure;

(b)

The de-stuffing and consolidation of the LCL cargo ICD/CFS wise is to be done at the earmarked space under supervision of the Customs and surveyors of the custodians;

(c) After consolidation of LCL cargo (ICD/CFS wise), the custodian at the Gateway Port is to prepare a tally list showing details of the import consignments, the previous container number, IGM No. and the details of the new container. The shipping line has to file sub-IGMs for all LCL (Import) cargo IGM wise;

(d)

After acceptance of sub-IGM by the Customs, the LCL cargo ICD/CFS wise is allowed to be re-stuffed in empty containers. The containers so re-stuffed are sealed by the custodian as per the procedure. The details of the new bottle seal should be indicated in the sub-IGM;

(e)

For transhipment of re-stuffed LCL cargo in new containers to different ICDs/CFSs, the concerned shipping line is to follow the procedure laid down in the Goods Imported (Conditions of Transhipment) Regulations, 1995;

(f) After completion of Customs formalities and clearance of LCL cargo at the respective ICDs/CFSs, a copy of the sub-IGM is to be sent back to the Customs authorities at the Gateway Port for confirmation/closure of IGM.

(Reference Circulars No.55/2000-Cus., dated 30.6.2000, 67/2000-Cus., dated 17.8.2000 and 22/2001-Cus., dated 17.4.2001)

Merchant Overtime Fee

At times, requests are received from trade for providing Customs clearance facilities or for Customs supervision of activities such as loading/unloading of vessels, stuffing, de-stuffing of containers, examination of cargo etc. beyond normal working hours of Customs or on holidays. Sometimes requests are received for posting of officers to supervise activities like stuffing, de-stuffing of containers etc., at a place beyond the Customs area. Normally, the trade is required to plan its activities requiring Customs supervision or presence during working hours on working days and within the Customs area. However, in certain cases, e.g. in case of perishable cargo, life saving drugs or other consignments required urgently which has landed at an airport after working hours or on holidays, the importer may want immediate clearance. Similarly, the loading/unloading of goods on/from a vessel is to take place even on holidays or after working hours, as ship detention charges may be very high. Further, the trade requests for Customs supervision for factory stuffing of export cargo to avoid hassles of examination and stuffing of cargo at the ports.

2.        Considering the difficulties of the trade, the services of Customs, after normal working hours or on holidays within the Customs area or at any time at a place beyond Customs area, are provided on payment of overtime fee. The overtime fee is collected in terms of section 36 of the Customs Act, 1962 and the Customs (Fees for Rendering Services by Customs officers) Regulations, 1998 made thereunder. Section 36 of the Customs Act, 1962 allows unloading/loading of imported/export cargo from/on a vessel beyond working hours on a working day or on holidays only on payment of a prescribed fees. The Customs (Fees for Rendering Services by Customs Officers) Regulations, 1998, prescribes the rates and the manner for collection of such fee.

Basic features of the provisions for levy of overtime fee:

3.        The overtime fee is levied for services rendered by the Customs officers to trade beyond normal working hours or on holidays. If the service is rendered by officials at a place which is not their normal place of work or at a place beyond the Customs area, overtime is levied even during the normal working hours. The term 'service' means any function performed by the Customs officer under the Customs Act, 1962 and it includes-

(a)    examination of the goods and related functions,

(b)    loading and unloading of goods whether generally or specifically,

(c)    escorting goods from one Customs area to the other, and

(d)    any other Customs work authorised by the Commissioner of Customs.

4.        The term 'working hours' means the duty hours prescribed by the Commissioner of Customs in his jurisdiction for normal Customs work. Where different working hours have been prescribed by the Commissioner of Customs for different items of Customs work or for different places within his jurisdiction, such working hours are to be considered as 'working hours' for the purpose of levy of overtime fee.

5.        The prescribed rates of overtime fee for rendering services by the Custom officers are as follows:

Category of officers

Fee per hour or part thereof on working

days (in rupees)

Fee per hour or part thereof on holidays

(in rupees)

 6 AM to 8

PM8 PM to 6

AM6 AM to 8

PM8 PM to 6

AM

(1) (2) (3) (4) (5)

1.   Appraisers, Superintendent (Customs Preventive) and Superintendent (Central Excise)

85 125 140 180

2.   Air Customs Officers, Examiners, Preventive Officers and Inspectors of Central Excise

75 100 105 145

3.   Class IV staff

35 45 55 60

6.        Overtime fee as mentioned above is levied for a minimum of 3 hours in each case, except in cases of overtime postings immediately preceding or immediately following the working hours of the concerned cadre of officers. The period between the midnight and 6 AM is to be treated as a block for calculation of overtime fee whether the services are required for the entire block or for a portion thereof. In regard to services provided by Customs officers during working hours at a place beyond Customs area, the overtime fee is charged for the entire block of working hours before lunch or after lunch, as the case may be, whether the request for the services of Customs officer is for the entire block or a portion thereof.

Procedure for posting of officers on overtime basis

7.        The party desirous of availing of the services of officers on overtime basis is required to make prior request to the Department for such posting. The Customs scrutinises the application made by the parties and ascertains the requirement of the job. The overtime fee is calculated on the basis of rates prescribed in the said regulations as mentioned above. A separate fee is to be charged if either of the three namely CHA/Vessel /Party(Importer/ Exporter) changes. In case a CHA has more than one Bill of Entry/Shipping Bill of an importer/exporter, he need not pay separate set of fee for each such document. Similarly, if an exporter or importer has more than one activity to be supervised by Customs during the same block, he need not pay overtime fee for each activity separately. Once the party pays the overtime fee, the officers are posted to perform Customs work.

(Reference - The Customs (Fees for Rendering Services by Customs Officers) Regulations, 1998 issued vide notification No.69/98-Cus.(N.T), dated 4th September, 1998).

Procedure for Less Charge Demand

Section 28 of the Customs Act, 1962 provides for recovery of any duty which has not been levied or has been short levied or erroneously refunded or if any interest payable has not been paid, part paid or erroneously refunded provided a notice demanding such duties/interests is issued within the time limit specified in that Section. Where the short levy is by reason of collusion or any willful misstatements or suppression of facts by the Importer the period for issuing the demand notice is five years from the relevant date specified in Section 28.

2.        When the short levy is discovered or pointed out by Audit, a notice is served on the importer or the persons chargeable with duty to show cause as to why the amount due should not be recovered from him. Normally a period of 15 days is given to show cause why he should not pay the amount. The basis and the working of the short levy is required to be clearly stated in the Show Cause Notice. Copies of relied upon documents are also be furnished to the noticee, to enable him to represent his case. All such notices are required to be sent by Registered Post or given to the Agent under receipt/acknowledgement after being entered in the less charge demand register maintained in the respective sections of the Custom House.

3.        It is important that the demand should be served on the importer within the time limit under section 28 of the Custom Act as otherwise the demand shall become time barred and legally not recoverable. In the case of IAD or CRA objections demands are issued immediately on receipt of the objection wherever it appears that there may be a short levy of duty as indicated in the objection.

4.        Demands issued for short levy of duty as a result of audit objection, arising out of assessment etc. are to be finalised within 6 months from the date of issue of the demands and cases which could not be finalised should be reviewed for examining the reasons for delay and adopting suitable remedial measures.

5.        Upon receipt of the reply from the Noticee the matter is examined in detail and the Noticee is offered an opportunity of Personal Hearing to explain his case before the adjudicating authority. After the Personal Hearing the adjudicating authority shall examine the material placed before him and shall come to the conclusion after taking into consideration the provisions of Law concerning the issue. Generally, the issues involved are misdeclaration of the description of the goods resulting in wrong classification and levy of lesser duty, misdeclaration

of value, quantity and weight having a bearing on duty, calculation error resulting in short levy of duty, non inclusion of certain components of value in the assessable value etc.

6.        The adjudicating authority is required to take an independent decision as an quasi-judicial authority and pass appropriate orders either determining the amount of short levy in terms of section 28 (2) of Customs Act or dropping the proceedings where it is found that there is no short levy. In either case an appealable order is to be issued by the adjudicating authority. The duties, fines and penalties imposed, if any, are required to be paid immediately, unless the party files an appeal and obtains a stay from the competent authority.

7.        As regards breach of condition of the notification after availing of the exemption thereunder, it has been held by the Apex Court that the obligation under a notification is a continuing one and the Customs authorities are well within their power to recover the duty whenever it comes to their notice that the imported has failed to fulfil the conditions. In such cases the demand can be issued irrespective of the time factor and the amount can be recovered in terms of the provisions of the Customs Act.

8.        The confirmed demands are enforced and recoveries effected in accordance with the provisions under Section 142 of Customs Act, 1962. Where it is not possible to recover the amount by adjusting against any money which the department owes to such persons, or by detaining and selling any goods belonging to such persons which are under the control of the Department, action is initiated to recover the Government dues through the District Collector as if it were an arrears of land revenue. Powers are also vested with Customs for attaching/detaining and selling any movable or immovable property belonging to/or under control of such person, and these can also be resorted to.

Refunds

On import or export of goods, at times, it is found that duty has been paid in excess of what was actually leviable on the goods. Such excess payment may be due to lack of information on the part of importer/exporter or non-submission of documents required for claim of lower value or rate of duty. Sometimes, such excess payment of duty may be due to shortage/short landing, pilferage of goods or even incorrect assessment of duty by Customs. In such cases, refund of excess amount of duty paid can be claimed by the importer or exporter. If any excess interest has been paid by the importer/exporter on the amount of duty paid in excess, its refund can also be claimed. Section 27 of the Customs Act, 1962 refers in this regard. The refund of any duty and interest, can be claimed either by a person who has paid the duty in pursuance to an order of assessment or a person who has borne the duty. Any person claiming refund of any duty or interest, has to make an application in duplicate in the form as prescribed in the Customs Refund Application(Form) Regulations, 1995, to the jurisdictional Deputy/Assistant Commissioner of Customs. Such application is to be made before the expiry of six months from the date of payment of duty and interest. However, in case of any import made by any individual for his personal use or by Government or by any educational, research or charitable institution or hospital, application for refund can be made before the expiry of one year from the date of payment of duty and interest.

2.        The application for refund is required to be filed with documentary or other evidence including documents relating to assessment, sales invoice and other like documents to support the claim that the duty and interest was paid in excess, incidence of duty or interest has not been passed on by him to any other person, and the refund has not been obtained already.

3.        Where on scrutiny, the application is found to be complete in all respects, the Customs issues an acknowledgement in the prescribed Form as per the Customs Refund Application(Form) Regulations, 1995. However, in case the application is found to be incomplete, the Customs has to return the application to the applicant, pointing out the deficiency. The applicant has to re-submit the application after making good the deficiency, for scrutiny by Customs again for admissibility of the refund claim.

Relevant dates for submission of a refund application:

4.        As stated above, application for refund is required to be filed within six months from the date of payment of duty and interest and in case of any import made by an individual for his personal use or by Government or by an educational, research or charitable institution or hospital, application for refund is to be filed within one year from the date of payment of duty and interest. However, the limitation of one year or six months, as the case may be, does not apply where any duty and interest has been paid under protest. Normally, the time limit of six months or one year is computed from the date of payment of duty, however, in following situations, such time limit is computed differently:

(a)            In case of goods which are exempt from payment of duty by an ad-hoc exemption order issued under sub-section (2) of section 25 of the Act, the limitation of one year or six months, as the case may be, is to be computed from the date of issue of such order;

(b)            Where any duty is paid provisionally under section 18 of the Act, the limitation of one year or six months, as the case may be, is to be computed from the date of adjustment of duty after the final assessment thereof;

(c)            The date of payment of any duty and interest in relation to a person, other than the importer shall be 'the date of purchase of goods' by such person.

Processing of refund claim :

5.        The application of refund found to be complete in all respects by Customs, is processed to see if the whole or any part of the duty and interest paid by the applicant is refundable. In case, the whole or any part of the duty and interest is found to be refundable, an order for refund is passed. However, in view of the provisions of unjust enrichment enshrined in the Customs Act, the amount found refundable has to be transferred to the Consumer Welfare Fund. Only in following situations, the amount of duty and interest found refundable, instead of being credited to the Consumer Welfare Fund, is to be paid to the applicant:

(a)            if the importer has not passed on the incidence of such duty and interest to any other person;

(b)            if imports were made by an individual for his personal use;

(c)            if the buyer who has borne the duty and interest, has not passed on the incidence of such duty and interest to any other person;

(d)            if amount found refundable relates to export duty paid on goods which has returned to exporter as specified in section 26;

(e)            if amount relates to drawback of duty payable under section 74 and 75;

(f)            if the duty or interest was borne by a class of applicants which has been notified for such purpose in the Official Gazette by the Central Government.

Interest on delayed refund :

6.        The Customs has to finalize refund claims immediately after receipt of the refund application in proper form along-with all the documents. In case, any duty ordered to be refunded to an applicant is not refunded within 3 months from the date of receipt of application for refund, an interest @ 15% is to be paid to the applicant. The interest is to be paid for the period from the date immediately after the expiry of 3 months from the date of receipt of such application till be date of refund of such duty. For the purpose of payment of interest, the application is deemed to have been received on the date on which a complete application, as acknowledged by the proper officer of Customs, has been made.

7.        Where any order of refund is made by the Commissioner (Appeals), Appellate Tribunal or any Court against an order of the Assistant Commissioner/Deputy Commissioner of Customs, the order passed by the Commissioner (Appeals), Appellate Tribunal or by the Court,

as the case may be is deemed to be an order for the purpose of payment of interest on delayed refund.

8.        The interest on delayed refund is payable only in respect of delayed refunds of Customs duty and no interest is payable in respect of deposits such as deposits for project imports, security for provisional release of goods etc.

(Reference : The Customs Refund Application (Form) Regulations, 1995 issued vide notification no. 34/95(NT)-Customs, dated 26/5/1995, Notifications no. 32/95(NT)-Customs, dated 26/5/1995. Circular No. 59/95-Cus., dated 5/6/1995)

Detention of Imported & Export Cargo and Release/Storage Options in Disputed Cases

In the last few years, the Department has taken a number of steps to simplify customs procedures for expeditious clearance of export and import goods. The Department has made a commitment in its Citizen's Charter & Vision Document that it would take all possible measures to maximize trade facilitation and minimize the grievances of importers/exporters, inter-alia, by ensuring speedy clearance. However, in a number of situations, such speedy clearance is not possible and it becomes necessary to detain the goods for investigation. Normally, the goods liable for confiscation under the Customs Act, are seized by the Customs. However, in some cases where seizure is not practicable, the goods are detained.

2.        The provisions for detention of goods are contained in section 110 of the Customs Act. Once order for detention of goods is served to the owner of the goods, he cannot remove, part with, or otherwise deal with the goods except with the prior permission of the proper officer of the Customs. The goods are detained for various reasons and at the instance of various agencies of the Department, such as the Directorate of Revenue intelligence, the Directorate of Central Excise Intelligence, Narcotics Control Bureau and Directorate of Enforcement and even other agencies, like the Central Bureau of Investigation. During such investigation and subsequent adjudication proceedings, sometimes the contravention of provisions of the Customs Act and other allied laws is established, and action is taken against the importers/ offending goods as provided in the law. In some cases, the charges are dropped at initial stages or at the appeal stage.

3.        In respect of goods detained at the port/airport/ICD/CFS/LCS etc, the custodians of goods demand their dues for storing the goods (i.e.the warehousing charges) from the importers/exporters. Likewise the shipping lines demand container detention charges for the period the goods are kept in their custody. In situations where the goods are detained for a long period, the warehousing/demurrage charges and container detention charges become high. In cases where the charges against the importers or exporters are dropped, the Customs usually issues detention certificates for the period when goods were under detention. The custodians normally remit the detention/demurrage charges wholly or partially on the basis of detention certificates issued and recommendation made by the Customs. However, it is not obligatory, as held in some recent Court judgements that cutodians must waive the rentals payable to them.

4.        The issues like the quantum of demurrage and payability of demurrage, were examined by the Honourable Supreme Court in the case of International Airport Authority of India vs Grand Slam International (1995 (77) ELT 753 SC) and Trustees of Port of Madras Vs. Nagavedu Lungi & Co., [1995 (80) ELT 241 SC]. The final decision of these two judgements is that the detention charges and warehousing charges are payable to the custodians and shall be paid by the exporter or the importer even where the Customs detention has been finally held as improper/illegal.

Guidelines for expeditious Customs clearance/provisional release:

5.        To avoid delays in the release & minimise hardship to importers which is caused if goods remain detained pending investigation into any dispute in relation to assessment etc., a number of instructions have been issued recently. The stress is on expeditious assessment/investigations and unless the goods are prohibited or involved in serious fraud even if there is a dispute in assessment etc., provisional release option be given to the

importers. Broadly the following guidelines are to be followed by importers/officers of the Department to keep a check on unnecessary detention of goods & ensure speedy Customs clearance: -

(a)Import/export goods are not to be detained by the Department unless prohibited as per the EXIM Policy and/or under other allied laws. Goods are not to be detained on simple valuation or classification disputes.

(b)

If it becomes necessary to detain the goods for investigation of any serious suspected fraud etc., the importer/exporter must be intimated in writing that he may shift the goods to a bonded warehouse under section 49 of the Customs Act, 1962, with a clear indication that if he does not avail of this facility and the goods incur demurrage, etc., he would have to bear the demurrage and other charges levied by the custodian/other agencies.

(c)

But for certain exceptional categories, in any dispute case pending investigation wherever importer or exporter is willing, he should be allowed provisional clearance of the goods by furnishing a bond for full value of the goods supported by adequate bank guarantee as may be determined by the proper officer. (The value of bank guarantee shall not exceed twice the amount of duty). The provisional clearance should be allowed as a rule and not as an exception. However, in the following situations, provisional release may not be resorted to:

(i) The prohibited goods whose import/export are not in the interests of the country;

(ii)

imports which do not comply with the prescribed specifications/conditions/requirements of various Orders/Acts. (eg. those laid down under DGFT Notification Nos.3 to 5/(RE-2001)/1997-2002 dated 31.3.2001); Livestock Importation Act, 1898, Prevention of Food Adulteration Act, 1954, etc.);

(iii)

where gross fraudulent practices are noticed and it is viewed that release of the consignment may seriously jeopardize further investigations as also interests of the revenue ;

            In these situations also, as mentioned earlier, option for storage in warehouses under Sec.49 should be provided to the importers. Goods can be allowed entry into the country only after the laid down quality standards etc. are satisfied.

(a)

In the case of containerized cargo, wherever the parties are not in a position to execute bond and bank guarantee for taking provisional release or the Department is of the view that clearance cannot be allowed, the goods may be even de-stuffed from the containers after giving notice to all concerned and stored in port's godowns and warehouses to avoid container detention charges.

(b)

Wherever in adjudication proceedings, the parties have been allowed to clear the goods on payment of redemption fine and penalty and parties, instead of clearing the goods on payment of fine and penalty, prefer an appeal, they will have to pay demurrage/detention charges, etc. even if they succeed in appeal, as the liability has arisen due to their filing appeal and not clearing the goods for which option was available.

(c) The officers will be held accountable for cases where detention of goods have been ordered on insufficient and weak grounds resulting in unconditional release of detained goods in adjudication stage itself, where importers have to suffer avoidable demurrage charges/loss by pilferage etc.

(Reference Board's instructions issued vide letter F.No. 450/82/95-Cus.IV, dated 7th July, 1997 and circular No. 42/2001-Cus. dated 31/7/2001)

Import and Export through Courier

Imports and exports through courier mode have registered a healthy rate of growth in recent years. For regulating such imports and exports, the Government has framed the Courier Imports and Exports (Clearance) Regulations, 1998. At present, the facility of courier clearance is available at Customs airports in Mumbai, Delhi, Chennai, Calcutta, Bangalore, Hyderabad, Ahmedabad, Jaipur, and Land Customs Stations at Petrapole and Gojadanga. Under the scheme, the courier goods are cleared through a fast track mode on observance of simple formalities by courier companies. Examination of parcels is kept to the minimum and clearance is allowed on the basis of selective scrutiny of documents. The duty, where leviable, is paid by the courier company on behalf of importers/exporters before taking delivery of the parcels. The weight limit for courier/express material (individual packages) for imports and exports is fixed at 70 kg.

2.        The facility of imports and exports through courier mode is allowed to only to those courier companies which are registered by the Customs. These courier companies are called "Authorized Couriers". The courier parcels are normally carried by passenger/cargo aircrafts. In the case of clearance through Land Customs Stations, other mode of transport is used. The regulations gives option to the courier company to get the goods imported through an on-board courier or the person in-charge of the aircraft (commander of the aircraft). Both of them are allowed to file the Courier Import Manifest. However, due to security reasons the Bureau of Civil Aviation Security (BCAS) insists that courier consignments in an aircraft are accompanied by an on-board courier. On arrival of import goods at the airport or at the Land Customs Station, the on-board courier/the authorized agent of the courier company carrying goods by any other mode of transport hands over the goods to different courier companies for undertaking Customs clearance of their consignments.

Categories of Goods Allowed for Import or Export through Courier :

3.        (A)        Import :    Except for certain excluded categories, all goods are allowed to be imported through the courier mode. The goods which are not allowed to be imported through courier are (a) animals and plants; (b) perishables; (c) publications containing maps depicting incorrect boundaries of India; (d) precious and semi precious stones, gold or silver in any form; and (e) chemicals falling within Chapters 28, 29 and 38 of the Customs Tariff. Perishables and chemicals require testing of samples before clearance. Import of animals and plants is subject to sanitary and phyto sanitary regulations. In either case, the assessment and clearance takes time. These goods, therefore, do not fit into the scheme, which envisages Customs clearance on a fast track mode. Further, passenger terminals and Land Customs Stations are not equipped to handle precious and semi precious cargo.

           (B)        Export :    As in the case of imports, all goods are allowed to be exported though courier except for certain excluded categories. The goods not allowed to be exported through courier mode are those which attract any duty on exports or those exported under export promotion schemes, such as Drawback, DEPB, DEEC, EPCG etc. Other exclusions include goods where the value of the consignment is above Rs.25,000/- and transaction in foreign exchange is involved. The limit of Rs.25,000/- does not apply where the G.R. waiver or specific permission has been obtained from the Reserve Bank of India.

Import and Export of Gems and Jewellery:

4.        Import of gems and jewellery including samples thereof by Export Oriented Units or units in Export Processing Zones is allowed through courier. Likewise, export of cut and polished diamond, gems and jewellery under any scheme of EXIM Policy from Export Oriented Units, units in Export Processing Zones or units in the Domestic Tariff Area is allowed through courier subject to the condition that the value of each export consignment under such export does not exceed Rs. 20 lakhs.

Classification of Goods:

5.        For facilitating Customs clearance, the goods imported by courier have been divided into three categories, viz (a) documents; (b) samples and free gifts; and (c) dutiable or commercial goods. The documents include any message, information or data recorded on paper, cards or photographs having no commercial value, and which do not attract any duty or subject to any prohibition/restriction on their import or export. Samples have been defined to mean any

bonafide commercial samples and prototypes of goods supplied free of charge of a value not exceeding Rs.50,000/- for exports and Rs.5000/- for imports which are not subject to any prohibition or restriction on their import or export and which does not involve transfer of foreign exchange. Free gifts means any bonafide gifts of articles for personal use of a value not exceeding rupees 25,000/- for a consignment in case of exports and Rs.5000/- for imports which are not subject to any prohibition or restriction on their import or export and which do not involve transfer of foreign exchange. The third category of imports is dutiable or commercial goods.

Packing Requirements and Procedural Formalities for Clearance of Import Goods:

6.        The Regulations require the above three categories of goods to be packaged distinctively in identifiable courier company bags with appropriate labels. This is because, the scheme of assessment and clearance of the goods is different for the three categories. Essentially, the goods in the first two categories do not attract any customs duty. Therefore, simplified Bills of Entry (Courier Bill of Entry-III for documents and Courier Bill of Entry-IV for samples and free gifts) have been specified for their clearance. One single Courier Bill of Entry is sufficient for clearance of any number of such goods imported by any Authorised Courier on a particular flight. It is, however, necessary that for the purpose of clearance of documents, the manifest filed by the Authorised Courier specifies the nature of document i.e. whether letters, brochures, catalogues, manuals, etc. This is necessary to verify that indeed the item of import viz., ‘document’ is duty free and deserves to be cleared under CBE-III of the regulations. For clearing dutiable or commercial goods, Form Courier Bill of Entry-V is required to be filed. This Form can contain a number of individual consignments imported by one courier on behalf of more than one consignee. There is no limit as regards the quantity of dutiable or commercial goods which can be imported through the courier. These goods are assessed to duty on merits like any other imported goods, and exemption, wherever available, is allowed to such imports when claimed.

7.        It may be mentioned that the value limit prescribed for samples and free gifts is exclusive of freight and insurance element. However, in case of goods valued above Rs.5,000/-, freight and insurance is added to calculate the duty payable.

8.        The simplified procedure for filing Courier Bills of Entry does not apply to all goods. The regulations stipulate that for certain categories of imports, a regular Bill of Entry prescribed in the Bill of Entry (Forms) Regulations, 1976 is to be filed. These include, (a) goods imported under duty exemption scheme applicable to EOUs and units in EPZs; (b) goods imported under DEPB, DEEC and EPCG Schemes; (c) goods imported against the license issued under the Foreign Trade (Development and Regulation), Act, 1992 and (d) goods imported by a related person defined under the Customs Valuation Rules, 1988.

Procedural Formalities for Clearance of Export Goods:

9.        In case of export goods, the Authorised Courier files Courier Shipping Bills with the proper officer of Customs at the airport or Land Customs Station before departure of flight or other mode of transport, as the case may be. Different Forms have been prescribed for export of documents and other goods. The Authorised Courier is required to present the export goods to the proper officer for inspection, examination and assessment.

10.        However, for certain categories of export goods, a regular Shipping Bill prescribed in the Shipping Bill and Bill of Export (Form) Regulations 1991 is required to be filed. Such Shipping Bills are processed at the Air Cargo Complex or the EOUs or EPZs or STP or EHTP and thereafter with the permission of Customs, the goods are handed over to a courier agency for onward dispatch. The goods to which the above procedure applies are those – (a) originating from EOUs, units in FTZs/STPs/EHTP; (b) proposed to be exported under DEPB, DEEC, EPCG and Drawback Schemes and (c) which require a licence for export under the Foreign Trade (Development and Regulation) Act, 1992.

11.        It may be noted that the scheme of clearance of imports and exports by courier mode introduces certain procedural relaxation in regard to customs clearance procedures. Such imports and exports will, however, continue to be governed by the provisions of the EXIM Policy applicable to such imports and exports. In other words, the courier imports and exports will

have to comply with the provisions and requirements of the EXIM Policy or any other law for the time being in force, subject to which only imports or exports may be permissible.

Disposal of Uncleared Goods:

12.        The regulations prescribe a procedure for clearance of uncleared goods. In case of imported goods, a notice is required to be issued to the Authorised Courier and goods can be disposed of after the expiry of 30 days of the arrival of the said goods. The charges payable for storage and holding of such goods are to be borne by the Authorised Courier. In the case of export goods, a similar procedure has been prescribed, the only difference being that such goods can be disposed of if they have not been exported within seven days of arrival into the Customs Area or within such extended period as may be permitted by the Customs.

Registration of Authorised Courier:

13.        A person desirous of operating as an Authorised Courier is required to get himself registered with the jurisdictional Commissioner of Customs. The registration is valid for 3 years and it can be renewed for another 3 years if performance of courier is satisfactory. An Authorised Courier is allowed to have registration at more than one airport or Land Customs Station. However, separate bond and security will have to be furnished at each airport and Land Customs Station. The person applying for registration should be financially viable and in support thereof he is required to produce a certificate issued by a scheduled bank or such other proof evidencing possession of assets of a value not less than Rs. 5 lakhs. Further, he will have to execute a bond with a security of Rs.2 lakhs for registration at Mumbai, Calcutta, Delhi and Chennai. At other airports and Land Customs Stations, the security deposit is kept at Rs. 1 lakh. The security can be in cash or in the form of postal security or National Savings Certificate or Bank Guarantee. A condition of the bond is that the applicant agrees to pay the duty, if any, not levied or short levied with interest, if applicable, on any goods taken clearance by the Authorised Courier.

Obligation of Authorised Courier:

14.        A number of obligations have been cast on the Authorised Courier under the Courier Imports and Exports (Clearance) Regulations. These include obtaining an authorization from the consignees for clearance of import or export goods; advising his client to comply with the provisions of the Customs Act, 1962 and rules and regulations made there-under; exercising due diligence in furnishing information to the Customs in relation to clearance of import or export goods; not withholding any information communicated to him by Customs relating to assessment and clearance of import/export goods from a client; not withholding any information relating to assessment and clearance of import/export goods from the assessing officer and not attempting to influence the conduct of any officer of Customs in any matter by the use of threat, false accusation, duress or offer of any special inducement etc. Further, he is required to maintain records and accounts prescribed by the Customs.

De-registration and Forfeiture of Security:

15.        The registration of an authorised courier can be revoked by the Commissioner and his security can be forfeited on grounds of his failure to comply with the conditions of the bond, the provisions of regulations and misconduct. Revocation of registration can be made only after a notice has been issued to the Authorised Courier and he is given an opportunity to present his case in writing as well as opportunity of being heard in the matter. In cases where an inquiry needs to be conducted to establish prima facie the grounds against the Authorised Courier, the Commissioner of Customs can, pending such inquiry, suspend the registration. An Authorised Courier, if aggrieved by the order of the Commissioner, may represent to the Chief Commissioner within 60 days of communication of the impugned order.

{Reference: Courier Imports and Exports (Clearance) Regulations, 1988; Circular No.56/95-Customs, dated 30.5.95 (issued from F.No.446/18/94-Cus. IV); and Circular No.85/98-Customs dated 13.11.98 (issued from F.No.450/120/97-Cus.IV).

Clearance by Post

The facility for import of goods by Post Parcels has been provided by the Postal Department at its Foreign Post Offices and sub- Foreign Post Offices. Customs facilities for examination, assessment, clearance etc. are available at these Post Offices. Export of parcels can also be effected at the facilities provided at Foreign Post Offices and sub-Foreign Post Offices. Limited facility for export clearances are also available at Export Extension Counters opened by the Postal Department where parcels for export are accepted and cleared by the Customs.

2.        Letter Mail Articles are generally cleared by the Customs at the time of their arrival and sorting unless they appear to contain contraband or dutiable articles. In such cases, the Letter Mail is subjected to further examination at the Foreign Post Offices or sub- Foreign Post Offices, as the case may be.

3.        Goods imported or exported by post are governed by sections 82, 83 & 84 of the Customs Act, 1962. Furthermore, vide Notification No. 53/Cus dated 17.6.1950 (as amended by Notification No. 111/Cus dated 8.7.1955) Rules Regarding Postal Parcels & Letter Packets From Foreign Ports In/Out Of India have also been framed.

Importability of items through Post:

4.        Import of dutiable goods by letter, packet or parcel posts is prohibited under Notification No. 78-Cus., dated 2.4.1938 (as amended), read with section 11 of the Customs Act, 1962, except where such letter or packet bears a declaration stating the nature, weight and value of the contents or if such a declaration is attached alongside indicating that the letter/packet may be opened for Customs examination. Dutiable goods may also not be imported by Post in case the Customs is not satisfied that the details as above are incorrectly stated in the declaration.

5.        Items intended for personal use, which are exempt from the prohibitions under the Exim Policy, 1997-2002 or the Customs Act, 1962, can be imported by postal channel on the payment of appropriate duties under Chapter Heading No. 98.04 of the Customs Tariff. This, however, does not apply to items viz. Motor Vehicles, Alcoholic Drinks and goods imported through Courier Service which are to be assessed at merit rates of duty. In case the customs duty payable is not more than Rs. 100/-, the same is exempt vide Notification No. 17/2001-Cus. dtd. 1.3.2001, as amended.

Import of Gifts:

6.        At the same time, bona fide gifts upto a value-limit of Rs. 5, 000/-, imported by post, are exempt from basic and additional customs duties vide Notification No. 171/93-Cus. dtd. 16.9.1993. Items imported as gift should not be restricted for importation under Foreign Trade (Development and Regulation) Act, 1992.

7.        The sender of the gift may not necessarily be residing in the country from where the goods have been dispatched. Any person abroad can send the gifts to relatives, business associates, friends, companies and acquaintances. The gifts have to be for bonafide personal use. The purpose of this stipulation is that the person receives the gift genuinely free and the payment is not made for it through some other means. The quantity and frequency of the gifts should not give rise to the belief that it is used as a route to transfer money. The gifts can be received by individuals, societies, institutions, like schools and colleges and even corporate bodies.

8.        For the purposes of calculating the value-limit of Rs. 5, 000/- in case of imports of gifts, postal charges or the airfreight is not taken into consideration. The exemption under the above-referred Notification is subject to revision from time to time. The value of Rs. 5, 000/- is taken as the value of the goods in the country from where the goods have been dispatched.

9.        If the value of the gifts received is more than Rs.5, 000/-, the receiver has to pay customs duty on the whole consignment, even if the goods have been received free, unsolicited. In addition, at the discretion of the Assistant/ Deputy Commissioner, if the goods are restricted or banned for import, the receiver has a liability for penalty for such import, even if the goods have been sent unsolicited.

10.        Customs duty is chargeable on gifts assessed over Rs. 5, 000/- by the Customs. In case of post parcel, the customs department assesses the duty payable and the postal department collects the assessed duty from the receiver of the gift and subsequently deposits it with the customs. In case of imports of gifts by the Courier mode, the courier company deposits the amount with customs and collects the same from the receiver at the time of giving delivery. If the amount is high, the courier company intimates the receiver to contact Customs or make payment of duty for the said goods before release of the goods to the receiver.

Import of Samples:

11.        Bona fide commercial samples and prototypes imported by post are also exempted from customs duty, subject to the value limit of Rs. 5, 000/-, provided that the samples are supplied free of cost by the supplier. Subject to conditions prescribed under Notification No. 154/94-Cus. dtd. 13.7.1994 (as amended from time to time), samples and prototypes of higher value are also permitted to be imported with a view to help exports.

Parcels containing medicines and life saving drugs:

12.        Life saving drugs and items specified under Sl. No. 371 in the Notification No. 17/2001-Cus. dtd. 1.3.2001 (as amended), subject to the conditions prescribed therein, may be imported by post free from customs duty for personal use.

13.        In addition to the above, various general exemptions from customs duties on merits would be available on imports made through postal channel.

Procedure in case of Postal Imports:

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

(a)

The boxes or bags containing the parcels labeled as "Postal Parcel", "Parcel Post", "Parcel Mail", "Letter Mail" will be allowed to pass at the Foreign Parcel Department of the Foreign Post Offices and Sub Foreign Post Offices.

(b)

On receipt of the parcel mail, the Postmaster hands over to the Customs the following documents:

(i) a memo showing the total number of parcels received from each country of origin;

(ii) parcel bills in sheet form (in triplicate) and the senders’ declarations (if available) and any other relevant documents that may be required for the examination, assessment etc. by the Customs Department;

(iii) the relative Customs Declarations and dispatch notes (if any); and

(iv)

any other information required in connection with the preparation of the parcel bills which the Post Office is able to furnish.

(c) On receipt of the documents, the Customs Appraiser shall scrutinize the particulars given in the parcel bill and shall identify the parcels required to be detained for examination either for want of necessary particulars or defective description or suspected misdeclaration or under-valuation of contents. The remaining parcels are to be assessed by showing the rates of duty on the declarations or parcel bill, as the case may be. For this purpose, the Appraisers are generally guided by the particulars given in the parcel bill or Customs declarations and dispatch notes (if any). When any invoice, document or information is required whereby the real value, quantity or description of the contents of a parcel can be ascertained, the addressee may be called upon by way of a notice to produce or furnish such invoice, document and information.

(d)

Whenever necessary, the values from the declarations are entered into the parcel bill and after conversion into Indian Currency at the ruling rates of exchange, the amount of

duty is calculated and entered. The relevant copies of parcel bills with the declarations so completed are then returned to the Postmaster immediately. In case of postal imports, duty is calculated at the rate and valuation in force on the date that the postal authorities present a list of such goods to the Customs. In case the list is presented before the arrival of the vessel carrying the goods, the list is deemed to have been presented on the date of the arrival of the vessel.

(e)

All parcels marked for detention in the manner indicated above are to be detained by the Postmaster. Rest of the parcels will go forward for delivery to the addressee on payment of the duty marked on each parcel.

(f) As soon as the detained parcels are ready for examination, they are submitted together with the parcel bill to the Customs. After examining them and filling in details of contents of value in the parcel bills, Customs note the rate and amount of duty against each item. The remarks "Examined" is then to be entered against the entry in the parcel bill relating to each parcel examined by the Customs Appraiser and the Postmaster’s copies will be returned by the Customs.

(g)

In the case of receipt of letter mail bags, the Postmaster gets the bags opened and scrutinized under the supervision of the Customs with a view to identify all packets containing dutiable articles. Such packets are to be detained and are presented in due course to the Customs Appraiser with letter mail bill and assessment memos for assessment.

        As soon as packets so detained are ready for examination and assessment, they shall be submitted together with the relative letter mail bill and assessment memos to the Customs. After examining them and filling the details of contents of value in the bill, the Customs Appraiser will note the rate and amount of duty against each item. He will likewise fill in these details on the assessment memos to be forwarded alongwith each packet.

(h)

All parcels or packets required to be opened for Customs examination are opened, and after examination, re-closed by the Post Office officials and are then sealed by them with a distinctive seal. The parcels or packets remain throughout in the custody of the Post Office officials.

(i) If on examination the contents of any parcel or packet are found to be misdeclared or the value understated or to consist of prohibited goods, such parcels or packets must be detained and reported to the Customs and the Postmaster does not allow such parcels or packets to go forward without the Customs’ orders.

(j) The duties as assessed by the Customs Appraiser and noted in the parcel bill or letter mail bill shall be recovered by the Post Office from the addressees at the time of delivery to them. The credit for the total amount of duty certified by the Customs Appraiser at the end of each bill are given by the Post Office to the Customs Department in accordance with the procedure settled between the two Departments.

(k) The parcel bills or letter mail bills and other documents on which assessment is made remain in the custody of the Post Office, but the duplicates, where these are prepared, are kept in the Customs Department for dealing with claims for refunds, etc.

Procedure in case of Postal Exports:

(a) The rate of duty and tariff value, if any, applicable to any goods exported by post shall be the rate and valuation in force on the date on which the exporter delivers such goods to the Postal Authorities. Goods for exportation may be delivered at Foreign Post Offices (including Export Extension Counters) and Sub-Foreign Post Offices which have been notified by the Customs under section 7 of the Customs Act, 1962.

(b) The articles exported by post are required to be covered by a declaration in the prescribed form.

(c) All exports by post, where the value exceeds Rs. 50/- and payment has to be received, must be declared on the exchange control form viz. P.P. form. When the postal article is covered by a certificate issued by the RBI (with or without limit) or by an authorised dealer in foreign exchange that the export does not involve any transaction in foreign exchange upto Rs. 500/-, the declaration in a P.P. form is not necessary.

(d) Export by post of Indian and Foreign currency, bank drafts, cheques, National Saving Certificates and such other negotiable instruments is not allowed unless accompanied by a valid permit issued by the R.B.I., except incases where such negotiable instruments are issued by an authorised dealer in foreign exchange in India.

(e) Export of all goods is allowed under OGL to all destinations except those that are covered by the Negative List of exports. Goods upto the values of Rs. 15, 000/- are allowed for exports as gifts in a licensing year. Items covered under Negative List are not allowed as gifts without a license except in the case of edible items.

(f) Prohibition/restrictions under the Exim Policy and the Customs Act, 1962 exist on the export of various articles by Post. Some of these articles are viz. arms and ammunitions, explosives, inflammable material, intoxicants, obscene literature, certain crude and dangerous drugs, antiquities, etc.

(g) Export of purchases made by the foreign tourists is allowed subject to proof that the payment has been made in foreign exchange.

(h) If the addressee take delivery of parcels on payment of duty and then wish to have them returned to the senders they can do so only under claim for drawback under the observance of the prescribed procedure. Permitting an addressee to open a parcel and take the delivery of part contents on payment of duty and repack the balance of the contents for re-export without payment of duty thereon is not authorised and is irregular.

Import of samples

In the International trade it is considered often necessary that samples of goods manufactured in one country be sent to another country for being shown or demonstrated for Customer appreciation and familiarisation and for soliciting orders for goods from another country. India is also a signatory to a 1952 convention to facilitate the Importation of Commercial samples and Advertising materials. The notifications issued in this regard enable duty free import of genuine Commercial samples into the country for smooth flow of trade. It is however not a means to avoid paying Customs Duty through repeated imports of samples in smaller lots.

What are samples?

2.        The Commercial samples are basically specimens of goods that may be imported by the traders or Representatives of Manufacturers Abroad in India, to know its characteristics and usage and to assess its marketability in India. Samples include consumer goods, consumer durables, prototypes of engineering goods or even high value equipment, machineries (including agricultural machinery) and their accessories. However, goods which are prohibited under Foreign Trade (Development and Regulation) Act, 1992 are not allowed to be imported as samples e.g. wild animals, wild birds and parts of wild animals and birds, ivory, arms & ammunitions, and Narcotic drugs.

Who can import samples?

3.        Samples can be imported by the trade, industry, individuals, Companies, Associations, Research Institutes or Laboratories. These can also be brought by the Representatives of foreign Manufacturer as a part of their personal Baggage or through port or in Courier. They can also be sent by Manufacturers/Traders abroad to above parties in India.

Value limit

4.        The bonafide trade samples can be imported by Trade and Industry provided the said goods have been supplied free of charge. For duty free clearance the value of individual sample should not exceed Rs.5000/- and aggregate value should not exceed Rs.60,000/- per year or 15 units of samples in a year. However, the Prototypes of engineering goods can be imported even if the value is more than Rs.5000/-. Such prototype goods can be imported upto a value of Rs. 10,000/- without payment of duty as long as the goods are rendered useless as merchandise by a suitable process. In case the value exceeds Rs.10,000/-, the said goods have to be re-exported within a period of nine months or such extended period as the Assistant Commissioner of Customs may allow. The high valued samples are cleared after depositing duty with Customs and giving an undertaking for their re-export within nine months. The deposited duty is refunded when the machinery is exported back. However, if more than one product is being imported into the India, the value limit is increased proportionately. Similarly, if

the samples are consigned to more than one consignee, by any foreign company, and are sent at the same time through the same Port/Airport, it shall not be charged to duty if the value limit of Rs.5000/- per unit is adhered to. The consignments meant for distribution to different parties in India can also be imported together for convenience of transport, if the packets are clearly marked and addressed to different persons in India.

5.        The value of Rs.5000/- is the value of the goods at a country of dispatch excluding local refundable taxes like VAT in the country of dispatch. In case of free samples of Rs.5000/-, it does not include freight or courier charges. If value is above Rs.5000/-, the freight and insurance charges would be added to calculate the duty payable .

Records

6.        Importers are trusted to declare correctly and adhere to the undertaking of the limit of yearly value and quantity. However, if any person is suspected to contravene the limit or undertaking deliberately he is liable to be investigated, penalized and / or prosecuted.

How will a salesman from a foreign country bring in the samples to India?

7.        A commercial traveller of foreign country is eligible to import bonafide samples if the value of each of the item is not more than Rs.5000/- per unit. He is also not required to produce the IEC code at the time of clearance of these goods.

8.        The importing executive must declare that these goods are meant for securing export order or guidance of exporters, and that the total value does not exceed Rs.60000/- per item during the 12 month period and that he has not imported more than 15 units of the said goods within the last 12 months. He also undertakes that he would not sell these goods and if he sells he will pay the duty leviable on those goods.

Machinery import

9.        Machinery, which are prototypes of engineering goods, imported either for further manufacturing of the said goods or to be used as capital goods for export production or in connection of securing further export orders can also be imported duty free if the value does not exceed Rs.10000/-. The said goods are normally defaced or made un-saleable by punching, cracking, marking with indelible ink etc. In case the machinery is valued more than Rs.10000/- such goods are always chargeable to duty. The goods can be cleared by furnishing a Bank Guarantee(or) deposit of the duty payable and an undertaking from the importer that the said goods would be re-exported within 9 months of import. In case of high valued machinery the importer given an undertaking that the said goods are utilised for the purpose of demonstration at the place (s) which is declared. The Customs authority may also seal the machinery during its journey from the Port of importation to the place of demonstration and it is unsealed only at the place of operation or place of demonstration

Failure to re-export

10.        The samples have to be re-exported within 9 months. However, the Assistant Commissioner, Customs, may under special circumstances extend the period of 9 months for a further reasonable period.

Import of samples under other scheme

11.        In addition to above the following specific provisions/ schemes are available for duty free import of samples;

(a)        Under 100% EOUs, EPZ, EHTP Schemes the samples of all types of goods manufactured by the Units can be imported duty free.

(b)        Sample can also be imported for Government of India sponsored events viz. Trade and Industry fairs. These machineries are imported under a Carnet (Notification No.57/90).

(c)        Samples can also be imported for Private Commercial exhibition for display or demonstration with the prior permission of Ministry of Commerce and Indian Trade Promotion Organization, (Notification No.3/89).

(d)        Samples are allowed duty free import for promotion of tourism equipment and ancillary goods. (Notification No.113/57)

Re-Importation/Re-Exportation of Goods

Re-importation of indigenously manufactured/imported goods:

Often goods indigenously manufactured when exported are returned back for various reasons including cancellation of export order or after exhibition/display etc., these are returned or the machinery etc., is returned after use in particular project/contract and completion of the contract etc. Imported goods which may have discharged duties at the time of original importation have also to be often sent out for repair, reconditioning etc. Private, personal imported property may also have to be sent abroad for repair within the warranty period and returned. There are also goods which may have to be sent for special processes like electroplating, polishing or coating and re-imported.

2.        It is to be noted that under Section 12 on import duties of Customs are leviable and no distinction is made whether the goods being imported had discharged duties earlier and they are being re-imported after exportation for particular purposes. Similarly, even if goods are indigenously manufactured which had been exported earlier under various export incentive schemes or duty drawback claim or even without any export incentive claim, when these are re-imported they attract and have to discharge the customs duty leviable on like import goods (as the duty is on the act of importation) unless an exemption is issued.

3.        To avoid repeat total duty on the full value of the imported goods when sent abroad for repairs, certain relief from duty liable has been provided. Similarly, where the goods are indigenously manufactured the basic intention is that when re-importation is effected on customs clearance for consumption in the market, they should bear the Central Excise duties which are otherwise leviable and which may not have been discharged at the time of exportation. Further, the exporters shold not get away with any benefits which may have been given as an export incentive and these benefits should be recovered by way of duty. Exemption notification has been issued under Notification No.94/96-Cus. dated 16.12.1996 covering re-importation of indigenously manufactured goods under duty drawback/rebate claims export under bond or under other export incentive claims and the same may be referred to. Thus, certain duties have to be paid equivalent to the export incentives etc., on re-importation. It is only where the goods were exported earlier on payment of Central Excise duty, without claiming any rebate, and without claiming any export incentives such as duty drawback or benefits of the duty exemption schemes, EPCG scheme or under DEPB scheme and where the indigenously manufactured goods are being returned that no customs duties are leviable.

4.        Where the indigenously manufactured goods are exported for repair and returned without claiming any benefits as provided in the said notification, duty is to be paid on a value comprising fair cost of repairs including cost of materials used in repairs, insurance and freight charges both ways.

5.        For availing the benefit of the said notification the Assistant Commissioner has to be satisfied that the goods are the same which were exported earlier and certain other conditions as laid down in the said notification.

6.        Where the gods manufactured in India or parts thereof are re-imported into India for repairs or reconditioning or reprocessing/refining/remaking etc., and returned, complete exemption from the import duties leviable is available in terms of notification No.158/95-Cus dated 14.11.1995 if the re-importation takes place within a specified period, the goods are re-exported within six months of re-importation, the Assistant Commissioner is satisfied as regards the identification of the goods and certain other conditions for ensuring re-export (including execution of bonds etc.) are fulfilled.

7.        A separate exemption notification also has been provided to take care of re-importation of the private personal property which was imported earlier but exported out for any alteration, renovation, repair free of charge etc. If the goods are repaired on free of charge basis in accordance with the terms of warranty given by the manufacturers and in accordance with the established trade practice and subject to certain laid down conditions about non-availment of any drawback or other facilities, the whole duty of customs is exempted in terms of notification No.174/96-Cus. However, if any alterations, renovations or additions or repairs executed subsequent to their export, certain custom duties are payable equivalent to the cost of alterations/renovations/additions.

Re-Exportation:

There are often occasions where imported goods may have to be re-exported. Such situations arise where the import goods found defective after customs clearance or these are not found according to specifications or requirements of the Indian consignee. Various machinery items after import for use in certain projects or otherwise are also often sought to be re-exported by the original owner. Re-exports can be made by sea, air, baggage or post.

2.        Section 74 of the Customs Act provides for grant of 98% of the Customs duties leviable at the time of importation, by way of Drawback if it is re-exported by the importer, subject to laid down conditions to be satisfied. The re-export is to be allowed within two years from the date of import – (which period can be extended on sufficient grounds being shown) and goods have to be identified with the earlier import documents and duty payments - to the satisfaction of the Assistant Commissioner at the time of export. If such goods have been used in India after importation, refund is granted on a proportionate basis under Notification No.19/95-Cus dated 6.2.1995, as amended, and there being no refund admissible if the goods have been used after the re-importation which have been out of customs control for more than 36 months after the date of clearance for home consumption and the date when the goods are placed under customs control for export. For specific categories of goods as mentioned in notification if these are used no drawback of the import duty paid is permissible. In respect of motor vehicles imported for personal and private use drawback formula is slightly different and same is calculated by reducing the import duty paid according to the laid down percentage for use for each quarter or part thereof, but upto four years of use.

Disposal of Unclaimed/Uncleared Cargo

The imported goods are allowed to be cleared for home consumption by the Customs, if there are no restrictions or prohibitions, the assessment formalities have been completed and the duty leviable has been paid by the importers. It is often noticed that the importer files the bill of entry but does not clear the goods due to various reasons such as financial problems, lack of demand for the goods, etc. Such goods are called 'uncleared goods'. In some cases, the importer does not even come forward to file the bill of entry for clearance of goods. Such goods are known as 'unclaimed goods'.

2.        In terms of the provisions of the Customs Act, 1962, the duty is leviable on imported goods, regardless of whether they are cleared by the importers or not. Similarly, dues of other agencies, such as, carriers and custodians for carriage and storage of goods respectively, may also arise. Where the importers do not come forward to make payment of such dues, the Customs duty and other dues can be recovered by selling the unclaimed/uncleared goods.

3.        As per section 48, if any goods brought into India from a place outside India are not cleared for home consumption or warehoused or transhipped within 30 days from the date of unloading thereof at a port, such goods can be disposed of by the custodian. The Act, however, stipulates that the goods can be sold only after a notice is issued to the importer and the permission of the Customs is obtained. The provisions relating to manner of disposal of unclaimed/uncleared goods and apportionment of sale proceeds thereof are contained in sections 48 and 150 of the Customs Act, 1962.

Procedure for sale of unclaimed/uncleared goods:

4.        For sale of such unclaimed/uncleared goods, the custodian first identifies the goods which are lying uncleared for more than 30 days. He then prepares an inventory of such goods and sends it to the Customs for their 'no objection'. The Customs scrutinizes the list of consignments forwarded by the custodians and withdraws the items which are the subject matter of any investigation/adjudication or court proceedings. The goods prohibited for import, are also withdrawn from the auction as these are subject to adjudication proceedings and goods may get absolutely confiscated. Once goods are confiscated, the ownership is transferred to the Government and the Customs becomes responsible for disposal of such goods. Disposal of certain items such as drugs/pharmaceuticals, chemicals, foodstuffs, insecticides, fertilizers, etc., also requires clearance from the respective authorities regulating import of these items.

5.        Once 'no objection' for disposal is received from the Customs, the custodian gets the fair price of the goods determined by Customs. The price approved by the Customs (inclusive of duty leviable) generally forms the basis of 'reserve price' for the purpose of auction of the goods.

6.        After fixation of reserve price, the custodians arrange public auctions which are held in the presence of proper officer of Customs. In the event of the goods not being disposed of at the 'reserve price' (or within the permissible margin) in the first auction, the 'reserve price' is reduced according to prescribed scale in the subsequent auctions. In case, efforts to sell the goods through public auction fail, these are sold through tender.

7.        Once the goods are sold, the Customs duty on the goods is calculated. For calculation of Customs duty, the sale proceeds from sale of unclaimed/uncleared goods is taken as cum duty price (value + duty) and customs duty is calculated working backwards on the price realised.

Apportionment of sale proceeds of goods:

8.        On the unclaimed/uncleared goods, liabilities towards Customs duty as well as carrier's charges and storage charges arise, which are to be recovered from the sale proceeds. In addition, sales expenses incurred on sale of such goods are to be recovered. In most of the cases, the sale proceeds of such goods may not be sufficient to meet liabilities of all the agencies. In such cases, question arises as to which liability is to be met first. To take care of such a situation, provisions have been made in section 150(2) of the Customs Act. The sale proceeds of any such sale of unclaimed/uncleared goods is to be applied in following manner:-

(a)

first, to the payment of the expenses of the sale,

(b)

next to the payment of the freight and other charges, if any, payable in respect of the goods sold, to the carrier, if notice of such charges has been given to the custodians.

(c) next to the payment of the duty, if any, on the goods sold,

(d)

next to the payment of the charges in respect of the goods sold due to the person having the custody of the goods,

(e)

next to the payment of any amount due from the owner of the goods to the Central Government under the provisions of this Act or any other law relating to Customs,

After making above-said payments, if any balance remains, that is to be paid to the owner of the goods.

Export Promotion Schemes

1.        Duty Drawback Scheme:

Under Duty Drawback Scheme relief of Customs and Central Excise Duties suffered on the inputs used in the manufacture of export product is allowed to Exporters. The admissible duty drawback amount is paid to exporters by depositing it into their nominated bank account. Section 75 of the Customs Act, 1962 and Section 37 of the Central Excise Act, 1944, empower

the Central Government to grant such duty drawback. Customs and Central Excise Duties Drawback Rules, 1995 have been framed outlining the procedure to be followed for the purpose of grant of duty drawback (for both kinds of duties suffered) by the Customs Authorities processing export documentation.

2.        Under Duty Drawback Scheme, an exporter can opt for either All Industry Rate (AIR) of Duty Drawback Scheme or brand rate of Duty Drawback Scheme. Major portion of Duty Drawback is paid through AIR duty Duty Drawback Scheme which essentially attempts to compensate exporters of various export commodity for average incidence of customs and Central Excise duties suffered on the inputs used in their manufacture. Brand rate of duty drawback is granted in terms of rules 6 & 7 of Customs and Central Excise Duties Drawback Rules, 1995 in cases where the export product does not have any AIR or duty drawback rate, or where the AIR duty drawback rate notified is considered by the exporter insufficient to compensate for the Customs/Central Excise duties suffered on inputs used in the manufacture of export products. For goods having an AIR the brand rate facility to particular exporters is available only if it is established that the compensation by AIR is less than 80% of the actual duties suffered in the manufacture of the export goods.

3.        Duty Drawback facilities on re-export of duty paid goods is also available in terms of Section 74 of Customs Act, 1962. Under this Scheme part of the customs duty paid at the time of import is remitted on re-export of the goods subject to identification and prescribed procedure being followed.

A.        Scheme for All Industry Rate(AIR) of Duty Drawback:

4.        AIR of Duty Drawback for a large number of export products are notified every year by the Government after an assessment of average incidence of Customs and Central Excise duties suffered on Inputs utilized in the manufacture of export products. This facility is generally availed by the exporters as no proof of actual duties suffered on inputs used is required to be produced.

5.        After announcement of Union Budget every year, new AIR of drawback are notified every year usually with effect from 1st June, after factoring in the changes in duty rates effected by the budget. The Directorate of Drawback requests all Export Promotion Councils/Associations, etc. to collect, collate and furnish representative data in respect of the existing export products as also for any new product which the Councils feel have sufficient export from the country. After the announcement of the Budget various Export Promotion Council/Associations are also consulted by the Joint Secretary (Drawback), and their suggestions as well as their requests and justification for suitable enhancement of rates and also any changes sought in the scheme of the Drawback Table or the entries therein are taken note of while finalizing and announcing new AIRs.

6.        The AIRs are generally fixed as a percentage of FOB price of export product. Often very good export prices are obtained for a product or class of products which have no co-relation with the actual duties suffered on inputs used – which is sought to be refunded to Exporters as drawback. In order to safeguard Government revenue but also be fair to exporters, reasonable duty drawback caps have been imposed in respect of many export products having rates on FOB basis. These caps essentially reflect the average duty incidence suffered on the inputs used in the manufacture of the particular goods exported by several exporters with different prices and they are fixed on the basis of data supplied by the export promotion councils and collected by Directorate from other sources.

7.        The duty drawback claim scrutiny, sanction and payment in 23 Custom Houses is now done through the Electronic Data Interchange (EDI) System. This system facilitates credit/disbursal of drawback within 72 hours from the date of shipment and electronic filing of Export General Manifest (EGM) in respect of related aircraft/vessel, directly to the exporter’s, accounts in the specified bank branches.

8.        Customs notification Nos. 29/2001(NT) dated 1.6.2001 and 30/2001(NT) dated 22.6.2001 refer for ascertaining the details of current All Industry Rates of drawback for various export products.

B.        Brand Rate of Duty Drawback Scheme:

9.        In respect of export products where AIR of duty drawback is not notified or where the AIR of duty drawback in considered by the exporter to be insufficient to fully neutralize incidence of duties suffered on the inputs utilized in the production/manufacture of the export product, the exporters opt for Brand Rate Duty Drawback Scheme. Under this Scheme, the exporters are compensated by paying the amount of Customs & Central Excise Duty incidence which is actually incurred on the inputs used in the manufacture of export products. For this purpose, the exporter has to produce documents/proof about the actual quantity of inputs utilized in the manufacture of export product along with evidence of payment of duties thereon.

10.        The exporter has to make an application to the Directorate of Drawback in prescribed format along with enclosures (in the form of 3 drawback statements called DBK-I, II & III), within 60 days from the date of export of goods. The application has to be submitted to Directorate of Drawback with copies to the concerned Central Excise Commissionerate which has jurisdiction over the factory of production of export product. The Central Excise Authorities conduct verification of the authenticity/fact of utilization of inputs/payments of duties on the inputs on the basis of records maintained by the factory of the exporter, current production of identical goods, if being effected, etc. A verification report has to be sent to the Directorate of Drawback. The Directorate of Drawback, on the basis of verification report and other relevant documents submitted by the exporter, process and issue drawback Brand Rate Letter to the exporter on the basis of which the concerned Custom House (from where the goods were exported) makes payment of duty drawback. The Brand Rate Letter may be valid for particular export shipment or series of shipment and may also be extended for future shipments for one or more ports on request subject to proof of availability of related raw materials and duty evidence, etc., when verification was carried out.

C.        Simplified Scheme of Brand Rate:

11.        Under Brand Rate of Duty Drawback Scheme, a "Simplified Scheme" is also available to limited companies and registered partnership firms. Under this Scheme, a rate letter for duty drawback is issued prior to receipt of verification report from the jurisdictional Central Excise Authorities on the basis of application made by the exporter subject to certain certification etc. For this purpose, besides application in the prescribed format along with enclosures, the exporter is also required to submit Chartered Accountant/Chartered Engineer’s certificate about the authenticity of consumption pattern and duty payments as claimed. An indemnity bond undertaking to pay back the duty drawback being claimed by him if it is found later on verification that the drawback amount paid to him is in excess of the admissible amount, has also to be furnished. In all cases where duty drawback is paid under Simplified Scheme, after receipt of the verification report from jurisdictional Central Excise Authority, the veracity of the application is counter checked with the said verification report and recovery action taken, where ever found necessary.

D.        Section 74- Drawback:

12.        In case of goods which were earlier imported on payment of duty and are later sought to be re-exported within a specified period, customs duty paid at the time of import of the goods with certain cut can be claimed as duty drawback by the exporter at the time of export of such goods. Such duty drawback is granted in terms of Section 74 of the Customs Act, 1962 read with Re-export of Imported Goods (Drawback of Customs Duty) Rules, 1995. For this purpose, at the time of import, the identity particulars of the goods are recorded at the time of examination of import goods; at the time of export, cross verification of the goods under export is done with the help of related import documents to ascertain whether the goods under export are the very ones which were imported earlier.

13.        Where the goods are not put into use after import, 98% of duty drawback is admissible at the maximum under Section 74 of the Customs Act, 1962. In cases where the goods are put into use in India after import (and prior to its export), duty drawback is granted on a sliding scale basis depending upon the extent of use of the goods. No duty drawback is available if the goods are put into use for a period exceeding 36 months after import. Application for duty drawback is required to be made within 3 months from the date of export of goods.

E.        Limitations on Drawback Admissibility:

14.        The Customs Act lays down certain limitations and conditions which exporters claiming drawback have to meet/fulfill. Thus, no drawback is admissible under Section 75 if the market price is less than the amount of drawback claimed. Drawback is also not admitted if the claim is less than Rs.50/- in individual shipments. Government has also powers to deny or admit drawback claim subject to laid down conditions where there is likelihood of goods exported being smuggled back. These powers have been used for exports to Nepal where normal provisions of duty drawback are not applied. The Drawback Rules also further lay down in Rule 8 some further limitations, where rate is less than 1%, and this may be referred to. Government has also powers to deny drawback facility in such cases where export of goods if less than the value of imported material used in their manufacture. If necessary, certain minimum value addition over the value of imported materials can also be prescribed before granting drawback.

15.        It is also pertinent to note that the drawback is permitted to encourage exports and essentially there must be export proceeds repatriation. Though prior repatriation of export realization is not pre-requisite, the law prescribes that if sale proceeds are not received within the stipulated period, the drawback paid will be recoverable by the Government as per procedure laid down in drawback.

F.        Procedure for Claiming Drawback:

16.        The drawback on export goods – whether under AIR or Brand Rate is to be claimed at the time of export and requisite particulars have to be filled in the prescribed format of shipping bill/bill of export under Drawback. Triplicate copy of the Shipping Bill is treated as claim for Drawback. The claim is also to be accompanied by certain documents as laid down in the Duty Drawback Rules. If the requisite documents are not furnished or there is any deficiency, the claim may be returned after shipment for complying with the requirements and furnishing requisite information/documents (e.g. Brand Rate letter which may not be available at the time of export but becomes available after shipment).

(Reference: Customs notification No.19 dated 6.2.1965)

2.        Duty Exemption Scheme:

17.        Duty Exemption Scheme is an export promotion scheme and it enables import of inputs required for export production free of Customs duty. Advance Licences are issued under Duty Exemption Scheme to allow import of inputs, which are physically incorporated in the export product (after making normal allowance for wastage). In addition, fuel, oil, energy catalysts, etc., which are consumed in the course of their use to obtain the export product can also be allowed under the scheme. Value and quantity of each item permitted duty free import are specified in the Advance Licence. Standard input-output norms (SIONs) notified by the DGFT under para 7.8 of the Handbook of Procedures (Vol.I) or as modified under para 7.10 of the said Handbook facilitate determination of the proportion of various inputs which can be used or are required in the manufacture of different resultant products.

18.        Advance Licences are issued for Physical exports, Intermediate supplies and Deemed exports. Advance Licences are also issued on the basis of annual requirement for exports/supplies. This enables the exporter to plan out his manufacturing/export programme on long term basis. Advance Licences for deemed exports are issued to (i) manufacturer exporter or main contractor in case of deemed exports, and (ii) Merchant exporter having supporting manufacturer.

19.        All Advance Licences and/or materials, imported thereunder are not transferable even after completion of export obligation. Advance Licences are issued with a positive value addition stipulation. However, for exports for which payments are not received in freely convertible currency, the same are subject to higher value addition.

20.        In order to ensure proper monitoring and utilisation of inputs imported against Advance Licences (except Advance Licence for deemed exports), a Duty Entitlement Exemption Certificate (DEEC) Book is issued alongwith the Advance Licence by DGFT authorities. At the

time of import and export against Advance Licence, entries are made in the DEEC Book by Customs to keep record of the import/export made against it. After completion of export obligation and imports against the Advance Licence, the DEEC book, Advance Licence and relevant export/import documents are submitted to Customs for logging (reconciling) of DEEC Book. Thereafter the Advance Licence, DEEC book and export/import documents are submitted to DGFT authorities for issue of export obligation (EO) discharge certificate. On the basis of EO discharge certificate issued by DGFT, redemption of bond/B.G. filed by the Advance Licence holder with Customs is allowed.

21.        Advance Licence are issued on pre-export or post export basis in accordance with the Export/Import Policy and procedure in force on the date of issue of licence and are subject to the fulfillment of a time bound export obligation as in the licence. The Advance Licence holder fulfils export obligation (EO) by exporting the resultant product specified in the Advance Licence upto specifed quantity/value. In order to ensure fulfillment of such export obligation, the Advance Licence holder executes a bond with or without Bank Guarantee (B.G) with Customs undertaking to fulfill the specified export obligation. In the event of failure to fulfil the specified EO., the licence holder becomes liable to pay differential Customs duty with interest @ 24% per annum on such duty. Exemption from furnishing of bank guarantee is given in the following categories of cases :-

(i) where the licence holder is a manufacturer exporter having export turnover of Rs.1 crore or above during preceding financial year and he has a clean track record; and

(ii)

where the licence holder is certified as a super star trading house, star trading house, etc. by DGFT.

        In such cases a bond is considered sufficient. In all other cases the Advance Licence holder is required to furnish 100% bank guarantee for the duty difference.

22.        Advance Licence holder for intermediate supply is required to fulfill his export obligation by supplying the intermediate goods, which are required in the manufacture of resultant export product to the advance licence holder. In order to ensure such fulfillment of EO the licence holder is required to give bond with or without bank guarantee and in the event of failure to fulfil the EO he becomes liable to pay differential Customs duty with interest @ 24% per annum on such duty.

23.        Advance Licence holder for deemed export is permitted import of materials which are required in the manufacture of resultant product free of Customs duty. The licence holder is required to fulfil his EO by supplying the resultant product to the project, specified in the said licence, in India and in the event of failure to do so, he is required to pay differential Customs duty with interest @ 24% per annum on such duty.

24.        All Advance Licences are normally valid for import of goods upto 18 months from the date of issue and the relevant DGFT authority (who issues the licence) is competent to grant revalidation. DGFT authority (who issues the licence) is also competent to grant extension of EO period beyond the normal EO period of 18 months. No duty drawback is normally admissible to an Advance Licence holder. However the licence holder is entitled to claim brand rate of duty drawback in respect of inputs which are not imported against the advance licence and on which Customs/excise duty has been paid.

25.        Since Advance Licence Scheme involves technicalities, its operation has been restricted to limited ports, airports, ICDs, etc. which are notified for the purpose. Commissioners of Customs have, however, been empowered to permit export/import under the Scheme from any other place which has not been notified, on case to case basis by making suitable arrangements at such other places.

(Reference: Customs notification No.48/99-Customs, dated 29.4.99 and 50/2000-Cus., and 51/2000-Customs, both dated 27.4.2000 )

3.        Duty Remission Scheme:

Duty Remission Scheme consists of ;

        (a)    Duty Free Replenishment Certificate and        (b)    Duty Entitlement Passbook Scheme.

A.        Duty Free Replenishment Certificate(DFRC) Scheme:

26.        DFRC Scheme was announced on 1.4.2000 under the EXIM Policy 1997-2002. It is an export promotion scheme under which DFRC licences are issued permitting duty free import of inputs which were used in the manufacture of export product on post export basis as replenishment.

27.        Duty Free Replenishment Certificate (DFRC) Licence is issued to a merchant-exporter or manufacturer-exporter. DFRC licences are issued only in respect of export products covered under the Standard Input Output Norms (SION) as notified by DGFT. DFRC Licences are issued for import of inputs, as per SION, having same quality, technical characteristics and specifications as those used in the export product and as indicated in the shipping bills. The validity of such licences is normally 18 months and relevant DGFT authority (who issues the licence) is competent to grant extension of validity period. DFRC licence and or the material(s) imported against it are freely transferable.

28.        Exporters operating under DFRC Scheme are entitled for availing AIR of duty drawback in respect of those duty paid materials, whether imported or indigenous, used in the export product, which are not specified in the DFRC licence. Brand rate of duty drawback can also be availed in respect of such inputs.

29.        Since DFRC Scheme involves technicalities like Advance Licence Scheme, its operation has been restricted to limited ports, airports, ICDs, etc. which are notified for the purpose. Commissioners of Customs have, however, been empowered to permit export/import under the Scheme from any other place which has not been notified, on case to case basis by making suitable arrangements at such other places.

(reference: Customs notification No.48/2000-cus., dated 25.4.2000)

4.        Duty Entitlement Pass Book(DEPB) Scheme:

30.        DEPB Scheme was first announced on 1.4.1997 under EXIM Policy 1997-2002. It is an export promotion scheme and envisages grant of DEPB Credit Entitlement to an exporter at the time of export at an ad-valorem rate notified by DGFT, in relation to FOB value of the export product. The DGFT have so far notified DEPB rates for nearly 2000 export products. These rates are based on the computation of Basic Customs Duty suffered by the exporters on the inputs listed in the Standard Input-Output Norms (SION) applicable to the export product. The crucial feature of the DEPB Scheme is that all the inputs listed in the Standard Input-Output Norms are deemed to have been imported and to have suffered Customs duties. DEPB rates are finalised by the DEPB Committee, chaired by Additional DGFT and consists of representative from Ministry of Finance also. Value caps have been imposed on export products having DEPB rates of 15% or more to curb the tendency of unscrupulous exporters to avail most of the runaway benefits by over-invoicing export.

31.        The normal validity period of a DEPB Scrip is 12 months and DGFT authority (who issues the scrip) is empowered to grant revalidation. These scrips are for a certain amount of DEPB credit and can be utilised for adjusting Customs Duties (Basic or CVD) against import of any products into India, without the necessity of any co-relation between the export product and the import goods, i.e. it is not necessary to import only the relevant inputs corresponding to the export product.

32.        Since DEPB Scheme also involves technicalities like DFRC Scheme, its operation has also been restricted to limited ports, airports, ICDs, etc. which are notified for the purpose. Commissioners of Customs have, however, been empowered to permit import/export under the scheme from any other place which has not been notified, on case to case basis. The DEPB

and/or the items imported against it are freely transferable. Import against DEPB scrips is allowed at the port specified in the DEPB which is the port from where exports have been made. Imports from a port other than the port of export are also allowed under TRA (Telegraphic Release Advice) facility as per the terms and conditions of the notification issued by Department of Revenue.

33.        No duty drawback is allowed on exports made under DEPB Scheme. However, in cases where CVD is paid in cash on imported inputs, or where indigenous duty paid inputs, not specified in SION, are used in the manufacture of export product, in such cases brand rate of duty drawback is admissible as per circular issued by the Ministry of Finance, provided CENVAT Credit in respect of such duty incidence is not availed.

(Reference: Customs notification No.34/97-cus., dated 7.4.97)

5.        Export Promotion capital Goods (EPCG) Scheme:

34.        Under EPCG Scheme import of capital goods which are required for the manufacture of resultant export product specified in the EPCG Licence is permitted at concessional rate of Customs duty. This Scheme also enables upgradation of technology of the indigenous industry. For this purpose EPCG Licences are issued on the basis of approval granted by EPCG Committee. The EPCG Committee comprises of officers from DGFT, MOF and concerned Administrative Ministry. At present the EPCG licence holder is permitted to import capital goods at 5% or 10% Customs duty. Whereas under 5% duty EPCG Scheme the licence holder is required to undertake to fulfill export obligation equivalent to 5 times the CIF value of imported capital goods within a period of 8 years reckoned from the date of issue of licence, under 10% duty EPCG Scheme, the licence holder has to fulfill export obligation equivalent to 4 times the CIF value of imported capital goods in five years. EPCG licences are issued to manufacturer exporters and merchant exporter with or without supporting manufacturer, and service providers. The licence specifies the value/quantity of resultant export product to be exported against it. In the case of manufacturer/merchant exporters, such Export Obligation (EO) is required to be fulfilled by exporting resultant products manufactured with the help of imported capital goods. In the case of service providers the export obligation is required to be fulfilled by earning foreign exchange through rendering service. In order to ensure fulfillment of specified export obligation as also to secure interest of revenue, the licence holder is required to file bond with or without bank guarantee with the Customs Authority prior to commencement of import of capital goods. Bank guarantee equal to 50% of the differential duty is required to be filed by the licence holder excepting the following cases;

(i) where the licence holder is a manufacturer exporter having export turnover of Rs.1 crore or above during preceding financial year and he has a clean track record; and

(ii)

where the licence holder is certified as a superstar trading house, star trading house, etc. by DGFT.

        In such cases, a mere bond is sufficient.

35.        Capital goods imported under EPCG Scheme are subject to actual user condition and the same cannot be transferred/sold till the fulfillment of export obligation specified in the licence. In order to ensure that the capital goods imported under EPCG Scheme are utilized in the manufacture of resultant export product, after importation/clearance of capital goods from Customs, the licence holder is required to produce certificate from the jurisdictional Central Excise Authority(CEA) or Chartered Engineer(CE) confirming installation of such capital goods in the declared premises.

36.        The normal validity period of EPCG licence is 24 months and DGFT authority (who issues the licence) is empowered to grant further revalidation. In order to ensure proper accountal of fulfillment of export obligation, the EPCG licence holder is required to indicate the EPCG licence No/date on the body of the Shipping Bill. After fulfillment of specified export obligation, the licence holder submits relevant export documents alongwith EPCG licence to the DGFT authorities for the purpose of obtaining EO discharge certificate. After obtaining EO discharge certificate from DGFT, the licence holder produces the same before Customs for the

purpose of obtaining redemption of bond/B.G. filed by him. In order to ensure that the licence holder maintains a specified level of export obligation throughout the EO period of 5/8 years, in addition to overall EO, yearwise/blockwise EO are also specified. A gestation period of 1/2 years is allowed for the purpose of installation of capital goods and commencement of production.

37.        In cases where the EPCG licence holder is unable to maintain the specified level of yearwise/blockwise EO or overall EO., extension of yearwise/blockwise EO period upto a maximum of 1 year/block is allowed by DGFT Authority. Similarly in cases where the licence holder is not able to fulfill overall EO within specified period, extension of 1 year is allowed. In case of default in EO the licence holder has to pay differential Customs duty alongwith 24% interest per annum on such duty.

38.        Exporter of goods manufactured with the help of Capital Goods imported under the EPCG Scheme is entitled to input duty incidence neutralisation benefits like Drawback, DFRC, Advance Licence, etc. in accordance with the terms of the individual scheme(s).

(Reference: Customs notification Nos.28/97-cus.,dated 1.4.97 (10% duty) and 49/2000-cus. dated 27.4.2000 (5% duty))

Export Oriented Unit Scheme

The EOU scheme was introduced in the year 1980 vide Ministry of Commerce resolution dated 31st December 1980. The purpose of the scheme was basically to boost exports by creating additional production capacity. It was introduced as a complementary scheme to the Free Trade Zones/ Export Processing Zone (EPZ) Scheme introduced in the sixties which had not attracted many units due to locational restrictions. The exporters showed willingness to set up units with long term commitment to exports under Customs bond operations provided they had the freedom to locate them in places of their choice and given most of the benefits as provided to units set up in the Zones.

2.        Over the years the Scheme has undergone various changes and its scope also expanded substantially as compared to the initial Scheme, which was basically for manufacturing sector with certain minimum value addition in terms of export earnings. The EOU scheme is, at present, governed by the provisions of Chapter 9 of the Export and Import (EXIM) Policy, 1997-2002 and Chapter 9 of the Handbook of Procedures, Volume-I ( HOP). Under this scheme, the units undertaking to export their entire production of goods are allowed to be set up. These units may be engaged in the manufacture, services, development of software, trading, repair, remaking, reconditioning, re-engineering including making of gold/silver/platinum jewellery and articles thereof, agriculture including agro-processing, aquaculture, animal husbandry, bio-technology, floriculture, horticulture, pisiculture, viticulture, poultry, sericulture and granites. The EOUs can export all products except prohibited items of exports in ITC (HS).

3.        Under the EOU scheme, the units are allowed to import or procure locally without payment of duty all types of goods including capital goods, raw materials, components, packing materials, consumables, spares and various other specified categories of equipments including material handling equipments, required for export production or in connection therewith. Even the goods appearing in the restricted list of the EXIM Policy (1997-02) are permitted to be imported. However, the goods prohibited for import are not permitted. In the case of EOUs engaged in agriculture, animal husbandry, floriculture, horticulture, pisciculture, viticulture, poultry, sericulture and granite quarrying, only specified categories of goods mentioned in the relevant notification have been permitted to be imported duty-free.

4.        The Customs exemption notifications for import & related Central Excise exemption notification when the goods are procured from local manufacturing units, prescribe several conditions to be fulfilled by the beneficiaries keeping in view the objective of the Scheme and to prevent abuse. Working in Customs Bond is one of the essential prerequisite-there being few exceptions. They also provide various flexibilities in the matter of taking out the materials for jobwork, interunit transfer. The EOUs are required to achieve the minimum NFEP (Net Foreign Exchange Earning as a Percentage of Exports) and the minimum EP (Export Performance) as per the provisions of EXIM Policy. The NFEP and EP varies from sector to sector. As for

instance, the units with investment in plant and machinery of Rs.5 crore and above are required to achieve positive NFEP and export US$ 3.5 million or 3 times the CIF value of imported capital goods, whichever is higher, for 5 years. For electronics hardware sector, minimum NFEP has to be ‘positive’ and minimum EP for 5 years is US$ 1 million or 3 times the CIF value of imported capital goods, whichever is higher. NFEP is calculated cumulatively for a period of 5 years from the commencement of commercial production according to a prescribed formula.

5.        The EOUs are licensed to manufacture goods within the bonded premises for the purpose of export. As per the policy, the period of bonding is initially for five years, which is extendable to another five years by the Development Commissioner. On completion of the bonding period, it is for the unit to decide whether to continue under, or to opt out, of the scheme. The imported capital goods are allowed to be warehoused for a period of 5 years. For other goods, the warehousing period is one year, which can be extended further by the Commissioner / Chief Commissioner of Customs. On an application being made by the unit, extension of the time limit is granted in all cases unless there is malafide and diversion of duty free materials. As on 31-3-2001, there are about 1350 EOUs functioning in the country.

Monitoring and Administrative Control :

6.        The EOUs basically function under the administrative control of the Development Commissioner of the Export Processing Zones, whose jurisdiction has been notified by the Ministry of Commerce. In all, there are seven Development Commissioners at Mumbai, Gandhidham, Chennai, Cochin, Vizag, Noida and Calcutta, who supervise the functioning of the EOUs and eight Export Processing Zones/Special Economic Zones in the country. The Development Commissioners of the EPZs/SEZs are the Licensing Authorities in respect of units under the EOU Scheme, as per specified territorial jurisdiction as indicated in the Export and Import Policy.

7.        The provisions of the Customs and Central Excise law in respect of the EOUs are administered by the Commissioners of Customs and Central Excise, who work under the control of Central Board of Excise & Customs. The work relating to EOUs is handled by the staff of jurisdictional Commissioner of Central Excise. However, in the case of EOUs located in port cities/towns or within the municipal limits of port cities/towns, the work is handled by jurisdictional Commissioner of Customs, Seaport. (Reference Board’s Circular Nos. 72/2000-Cus, dated 31-8-2000 and 87/2000-Cus, dated 2-11-2000.)

8.        For setting up of an EOU, three copies of the application in the prescribed form are required to be submitted to the Development Commissioner. In certain cases, approval of the Board of Approval (BOA) is required. Applications for setting up of Electronic Hardware Technology Park/Software Technology Park units are submitted to the officer designated by the Ministry of Information Technology for this purpose. After approval of the application and issuance of Letter of Permission, the applicant is required to execute a legal undertaking with the Development Commissioner/Designated Officer concerned within the prescribed time period. On execution of legal undertaking, a green card is issued to the unit.

9.        On the policy front, all decisions relating to the EOUs are taken by the Board of Approvals (BOA), set up under the Ministry of Commerce. The BOA is chaired by the Secretary, Ministry of Commerce and includes the Chairman, C.B.E.C. or his nominee as a member. In the case of units engaged in manufacture of electronic hardware and software, the policy decisions are taken by the Inter Ministerial Standing Committee (IMSC) set up under the Ministry of Information Technology and the same are implemented through its Designated Officers. Chairman, C.B.E.C. or his nominee is a member of the IMSC. The availability of any benefit under Customs or Central Excise Acts or the notifications issued thereunder has, however, to be determined by the Commissioner of Customs or Central Excise having jurisdiction-guided by CBEC in areas of doubt. Appropriate inter Ministerial liaison is maintained for ensuring uniformity as far as possible in the Exim Policy provisions and the provisions built in the relevant Customs & Central Excise notifications.

Customs Bonding of EOUs :

10.        The premises of EOU are approved as a Customs bonded warehouse under the warehousing provisions of the Customs Act. The manufacturing and other operations are

carried out under customs bond and the unit bearing appropriate charges for officers on cost recovery basis. In case of units in Aquaculture, Horticulture, Floriculture, Granite quarrying etc exemption from bonding is given for administrative reasons with certain other safeguards being put in place to check that duty free benefits where availed are not abused. The EOUs are required to execute a multipurpose bond with surety/ security with jurisdictional Customs/ Central Excise officers. (Reference Board’s Circular No. 15/95-Cus, dated 23-2-1995)

Customs and Central Excise Notifications relating to EOU Scheme:

11.        To enable EOUs to import / procure locally their requirement of raw materials, capital goods and office equipment etc. duty free, a number of Customs and Central Excise notifications have been issued by the Ministry of Finance. These notifications specify the different categories of items allowed to be imported / procured duty free as well as the conditions thereof. The notifications are as under:

(i) General activity of manufacture, production, packaging of products and service activities for export- Notification Nos. 53/97 Cus dated 3.6.97 and 1/95-CE, dated 4-1-1995.

(ii) Software technology products for export- Notification Nos. 140/91 Cus, dated 22.10.91 and 1/95-CE, dated 4-1-1995.

(iii) Electronic hardware products for export- Notification Nos. 96/93 Cus, dated 2.3.93 and 1/95-CE, dated 4-1-1995.

(iv) Floriculture, Pisciculture etc. for export- Notification Nos. 126/94-Cus dated 3.6.94 and 136/94-CE, dated 23-2-1995.

(v) Aquaculture for export- Notification Nos. 196/94 Cus dated 8.12.94 and 10/95-CE, dated 8-12-1995.

(vi) Gold, silver and jewellery products for export- Notifications No. 277/90-Cus dated 12.12.90.

(vii)

Granite quarrying for export– Notification No. 58/2000-Cus, dated 8-5-2000 and 37/2000-CE, dated 8-5-2000.

General Conditions of Duty free Import:

12.        The facility of duty free import (extending exemption both from basic & countervailing duty) is subject to certain general conditions in accordance with the EXIM Policy and these are summed up as follows:

(i) The goods are required to be imported into the EOU premises directly. However, Granite Quarrying units, agriculture and allied sector units are allowed to supply /transfer the capital goods and the inputs in the farms/fields with prior permission of Customs.

(ii) Prior to undertaking import / local procurement duty free, the unit is required to get their premises customs bonded. The unit is also required to execute a B-17 bond with surety/ security with jurisdictional Customs/ Central Excise officers and take out a licence under section 58 of the Customs Act, 1962.

(iii) The goods, except capital goods and spares, are required to be utilised within a period of one year or within such period as may be extended by the Customs authorities.

(iv) The importer is required to maintain a proper account of the import, consumption and utilisation of all imported/locally procured materials and exports made and submit them periodically to the Development Commissioner/ Customs.

(v) The importer is required to achieve minimum NFEP/export performance as per the provisions of EXIM Policy.

(vi) The importer is required to abide by the terms and conditions of the Letter of Permission/Letter of Intent /Industrial Licence issued to the unit.

However, the sector specific customs / excise duty exemption notification(s) have certain additional conditions, which are also required to be followed by the units.

B-17 Bond :

13.        All the EOUs are required to execute a single all purpose bond i.e B-17 bond undertaking themselves to fulfil the conditions stipulated in the exemption notification of EOU scheme. This bond is taken to take care of the interests of revenue arising out of goods lost in transit, goods taken into Domestic Tariff Area for job work/ repair/ display etc but not brought back etc. The bond is executed with the jurisdictional Assistant Commissioner of Customs/Central Excise in charge of the unit. The format of the bond is prescribed vide notification No. 6/98-CE ( NT) dated 2-3-1998. The bond covers the activities which include, inter alia, transhipment of import /export goods between port of import/export and units' premises; duty-free import/procurement from the indigenous sources as per relevant notification and warehousing/storage in the unit; movement of duty-free goods for job work and return; temporary clearance for repair and display in exhibitions, testing/approvals etc.; and movement of goods against AR-4, AR-3A and CT-3 etc. and transfer from one warehouse to another. However, it does not cover the differential duty amount against advance DTA sale for which a separate bond is to be executed. The bond is taken for an amount equal to 25% of the duty forgone on the sanctioned requirement of capital goods plus the duty forgone on raw materials required for 3 months. Surety or security equivalent 5% of the bond amount in the form of bank guarantee is required to be given by the EOUs.

(Reference Board’s Circular Nos. 14/98-Customs, dated 10-3-1998, 42/98-Cus. dated 19-6-1998, 66/98-Cus, dated 15-9-98, 76/99-Cus, dated 17-11-1999, and 50/2000-Cus, dated 24-5-2000).

Import and Export Procedure :

14.        With regard to clearance of import cargo, the EOUs are placed in a special category, eligible for fast track or green channel clearance through the Customs. Clearance of import consignments is allowed at the gateway port/ Aircargo Complexes on the strength of procurement certificate issued to the EOU by the jurisdictional Assistant Commissioner/Deputy Commissioner. In general, the EOU cargo is not examined at the gateway port. In case of loose cargo, marks & numbers on the packages are verified. As for sealed containers, the seal number and container number are verified with the Bill of Lading. If the seal is found intact, the container is allowed clearance. The imported cargo so cleared and brought into the unit’s premises are examined by the jurisdictional Customs/Central Excise officials. After examination (percentage check only), the goods are allowed to be used for export production. Re-warehousing certificate is to be submitted to the Assistant Commissioner/Deputy Commissioner in charge of the port of import within 90 days of the issue of procurement certificate.

            On the export side, the units having status of a Super Star Trading House, Star Trading House, Trading House, and Export House are allowed the facility of self-sealing of their export containers. (Board’s Circular Nos. 63/97-Cus, dated 21-11-1997, 14/98-Cus dated 10-3-98 and 90/98-Cus, dated 8-12-1998.)

Goods Imported /Exported and Found Defective:

15.        Subject to grant of GR Waiver by the RBI the EOUs are allowed to make free replacement of the goods exported by them earlier and found defective, damaged or otherwise unfit by the overseas buyer. However, such defective, damaged or otherwise unfit for use goods are required to be brought back subsequently, to the country. The units are also allowed to re-import part consignment/full consignment in case of failure of the foreign buyer to take delivery.

16.        The EOUs are also allowed to receive free replacement of the goods imported and found defective, damaged or otherwise unfit for use prior to re-export of the same. However, such damaged, defective goods are required to be re-exported subsequently. In case the supplier of such goods does not insist for re-exportation, such goods are required to be either destroyed or cleared into DTA on payment of full customs duty. (Reference Boards Circular 60/99-Cus, dated 10-9-1999)

Procurement of Goods Indigenously under CT-3 Procedure :

17.        The EOUs can procure goods from DTA without payment of Central Excise duty subject to following of the Chapter X procedure of erstwhile Central Excise Rules, 1944. Such procurement from DTA is against CT-3, which is issued by the Superintendent of Customs/Central Excise in charge of the EOU. Such goods are required to be brought directly from the manufacturer /warehouse into the unit's premises under AR3A and examined by the designated officer. After examination of such goods, one copy of AR-3A is sent by registered post to the jurisdictional Central Excise authorities as a Re-warehousing Certificate in token of receipt of the goods in the unit. To avoid separate permission every time, the EOUs are issued pre-authenticated CT-3 in booklet form and against such pre-authenticated CT-3, the EOUs are allowed to procure capital goods, raw materials, consumables etc. Goods procured from DTA and found to be defective can be returned to the manufacturer under Chapter X procedure of erstwhile Central Excise Rules, 1944.

( Reference Board’s Circular No. 24/91-CX-8, dt. 01.07.1991 and 504/70/99 CE, dt. 30.12.99 and Board’s instructions dated 25-7-2001 issued from F. No. 305/121/2001-FTT)

DTA sale :

18.        The EOUs ( other than gems & jewellery units) are allowed to sell goods (including rejects and byproducts) manufactured by them in DTA upto 50% of FOB value of exports on payment of concessional duty subject to achievement of prescribed NFEP. However, the DTA sale facility is not available for certain products such as motor car, alcoholic liquor, tea (except instant tea), books etc. The EOUs are allowed to remove the goods into DTA on a invoice. The invoice is used both as a transport document and also as a document for determining the assessable value. The EOUs can pay the duty by depositing the same in an authorized bank or the duty can also be debited from the Personal Ledger Account if an account current is maintained.  

Valuation of Goods Sold in DTA :

19.        Section 3 of the Central Excise Act, 1944 provides that the valuation of goods manufactured in the EOU and cleared into DTA is to be done in accordance with the provisions of the Customs law. Thus, when the invoice price of the goods under assessment is in the nature of transaction value, such invoice value can be accepted. (Board’s Circular No. 23/84-CX-6 dated 29-5-84 and Instructions issued vide File No. 268/35/92-CX-8 dated 17-8-94 and Circular No. 330/46/97-CX dated 20-8-97).

Levy of Central Excise Duty on Goods Produced or Manufactured by EOUs and Cleared into Domestic Tariff Area :

20.        In terms of section 3 of the Central Excise Act, 1944, the excise duty leviable on goods manufactured in an EOU/EPZ unit and cleared into Domestic Tariff Area is the amount equal to the customs duty leviable under section 12 of the Customs Act, 1962 or under any other law for the time being in force on like goods produced or manufactured outside India, if imported into India. Thus, the measure of excise duty leviable on goods manufactured in EOU/ EPZs is worked out exactly in the same manner as applicable to imported goods.

21.        On fulfillment of NFEP (Net Foreign Exchange Earnings as Percentage of Exports) the EOUs other than gem and jewellery units, are allowed to sell goods including rejects (upto 5% of FOB value of exports), waste, scrap, byproducts and services in DTA upto 50% of FOB value of exports at a concessional rate of duty in an amount equal to 50% of Customs duties. Sales beyond 50% attract full duties. It may be noted that the words "FOB value of exports" refers to physical exports only. Therefore, the value of deemed exports made by the unit is not considered while determining the FOB value of exports. However, the sales made to private bonded warehouses set up under paragraph 11.14 or a trading unit set up under paragraph 9.21 of the EXIM Policy are taken into account for the limited purpose of arriving at FOB value of exports by EOU/EPZ units provided payment for such sales are made from EEFC accounts. (Reference: Notification No.2/95-CE, dated 4.1.1995).

Goods Manufactured from Indigenous Materials in 100% EOUs

22.        A concessional duty has been prescribed for goods sold in DTA which are manufactured entirely out of indigenous materials. In such cases, the duty charged is the effective rate of excise duty which is leviable on like goods manufactured & cleared by DTA units. (Reference: notification No.8/97-CE dated 1-3-97). However, if such goods manufactured by a DTA unit are fully exempt from excise duty or are chargeable to ‘nil’ rate of duty, the EOUs are required to pay 30% of each of duties of customs leviable on similar imported goods. (Reference: Notification No.13/98-CE, dated 2-6-98).

Clearance of Byproducts, Rejects, Waste and Scrap, Non-excisable Goods, etc.:

23.        The DTA clearance of by-products and rejects on concessional rate duty is not allowed to the EOUs, which have failed to achieve the prescribed NFEP. In such cases, the EOUs are liable to pay full duty. Further, in case of these units, DTA clearance of finished goods is not allowed even on payment of full duty. In case of waste/scrap/remnants, the same are allowed to be sold in DTA on payment of concessional rate of duty within overall limit of 50% of FOB value of exports without insisting on achievement of prescribed NFEP. In case of sale of scrap/waste/remnants beyond this limit, it is allowed on payment of full duty. As for DTA clearance of goods manufactured by the EOUs which are not excisable (e.g. cut flowers) the duty on inputs and consumables etc. procured/imported duty free under exemption notifications, which have gone into production of such non-excisable goods cleared into DTA, is recovered.

Special Concessions for Certain Waste products and Other Goods Cleared from 100% EOUs :

24.        Apart from the above general concessions, special concessions are available for certain products. As per instance, under notification No.103/93-CE, dated 27.12.93 rags, trimmings and tailor cuttings arising in the course of manufacture of readymade garments are fully exempt from excise duty when cleared into DTA by EOUs. This is subject to the condition that the percentage of waste material in the form of rags, trimmings and tailor cuttings does not exceed the percentage fixed in this regard by the Board of Approval. (Reference: Notification No. 103/93-CE, dated 27-12-1993). Further, under notification No. 6/97-CE, dated 1-3-1997, the waste of fish or crustaceans, mollusks or other aquatic invertebrates falling in chapter heading 05.01, castor oil cake manufactured from the indigenous castor oil seeds on indigenous plant and machinery falling under chapter heading 23.02, guar meal manufactured wholly from indigenous guar seeds falling under chapter heading 23.01 and yarn of jute and goods of jute, manufactured from wholly indigenous raw materials headings 53.07, 53.10, 5702.12, 5703.20, 58.01, 58.02, 58.06 or 6305.10 are fully exempt from payment of duty if manufactured by EOUs and cleared into DTA. Also, cotton waste falling under heading 52.02 are fully exempted if produced or manufactured by EOU and allowed to be sold in India. ( Reference: Notification No. 6/97-CE, dated 1-3-1997)

25.        In case of Gems and Jewellery EOUs, the units are allowed to sell upto 10% of FOB value of exports of the preceding year in DTA subject to fulfillment of NFEP as prescribed under the Export and Import Policy. In case of sale of plain gold jewellery, plain silver jewellery, studded gold jewellery, unsuitable/broken cut and polished diamonds, rough diamonds, precious and semi precious stones or dead stock in DTA, the units are allowed to pay concessional rate of duty. (Reference notification No. 20/97-CE, dated 11-4-1997).

26.        In addition to the above, under notification No. 20/98-CE, dated 18-7-1998, certain specified textile items are allowed to pay concessional duty in case of DTA sales of such items by EOUs. ( Reference: notification No. 20/98-CE, dated 18-7-1998).

Manner of Calculation on Duty of Goods Cleared in Domestic Tariff Area under Paragraph 9.9(b) of the Exim Policy:

27.        The manner of calculation of duty leviable on goods cleared in Domestic Tariff Area in terms of paragraph 9.9(b) of Exim Policy, 1997-2002 read with notification No. 2/95-CE, dated 4-1-1995 has been laid down in Board’s Circular No. 7/2001-Cus, dated 6-2-2001. To work out the total quantum of duty payable on goods cleared into DTA, each of the duty leviable on import of like goods is worked out first and thereafter, 50% of the amount of each duty so calculated, taken together is collected as excise duty on such goods produced by EOUs units when cleared into the DTA. (Reference: Board’s Circular No. 7/2001-Cus, dated 6.2.2001)

Clearance of Waste/ Scrap/ By products in DTA:

28.        The EOUs are allowed to clear waste and scrap in Domestic Tariff Area on payment of concessional rate of duty or full rate of duty as explained in detail in paragraph 22. Norms for scrap/ waste material for export products under EOU have been prescribed in Appendix 41 of the Handbook of Procedures, Vol. I .

29.        In case of gem & jewellery EOUs, scrap, dust or sweepings generated in the unit is allowed to be forwarded to the Government Mint or Private Mint for conversion into standard gold bars and return thereof to the unit subject to the observance of procedure laid down by the Commissioner of Customs. The said dust, scrap or sweepings are also allowed clearance into DTA on payment of applicable customs duty on the gold content in the said scrap, dust or sweepings. Samples of the sweepings/dust are taken at the time of clearance and sent to mint for assaying. The assessment is finalized when the reports are received from the mint.

( Board’s Circular 19/99-Cus, dated 29-4-1999)

Clearance of Samples :

30.        The EOUs are allowed to supply or sell in DTA samples of goods produced by them for display or market promotion upto 1% of the previous year’s exports or maximum of Rs. 10 lakhs in the case of new unit going into production on payment of applicable duties. The units are also allowed to take out samples into DTA without payment of duty on returnable basis for the purpose of display/market promotion. In such cases, the procedure prescribed for sub-contracting is required to be followed.

31.        The EOUs are allowed to send samples abroad through the courier. The packages containing such samples are sealed in the presence of the Customs officer and are handed over to the representative of the courier company authorised by the Commissioner of Customs for presentation to the Customs at the port of export. These sealed samples are not normally examined again before " let export" is given if the seals are found intact and not tampered. The representative of the courier company later hands over the proof of export to the jurisdictional Assistant/ Deputy Commissioner. (Reference Board’s Circular Nos. 22/98-Cus, dated 27-3-1998 and 52/99-Cus, dated 20-8-1999).

Clearance of Personal Computers :

32.        The EOUs are allowed to remove personal computers not exceeding two in number for installation in their registered/administrative offices located in DTA subject to the following of the procedure prescribed in this regard. (Board’s Circular No.41/99-Customs dated 30-6-99)

Sale of Surplus/ Unutilized Goods :

33.        The EOUs are allowed to sell surplus/unutilized goods, imported or procured duty free in DTA on payment of duty on the value at the time of import/procurement and at rates in force on the date of payment of such duty, in case the unit is unable for valid reasons to utilize the goods. The permission for such DTA sale is given by the jurisdictional Assistant Commissioner /Deputy Commissioner of Customs/ Central Excise as the case may be. Likewise, obsolete/surplus capital goods and spares can either be exported or disposed of in the DTA on payment of applicable duties. The benefit of depreciation, as applicable, is allowed in such cases. Duty is not charged if the goods are destroyed with the permission of Customs.

Destruction of Flowers/Horticulture Products :

34.        Flowers, vegetables and agricultural products have a very short shelf life and are prone to malformation, injury, damage, infection etc. These products cannot be preserved for a longer period. There are circumstances (especially in case of floriculture units) when the units do not find the goods exportable/marketable for various reasons such as malformation, injury, damage, infection by pest and diseases etc. and the units have to resort to forced destruction of flowers, vegetables etc. In such cases, duty is not charged from the EOUs.

35.        At times, the flowers and floriculture products deposited in the warehouse of the airlines at the international airports for the purpose of exports are not exported owing to various reasons, such as, delay in flights, cancellation of flights etc. In such cases, the units are allowed to sell such flowers and floriculture products in DTA on payment of applicable duty. For such DTA sales, the unit must have DTA sale entitlement under the scheme. The unit is required to bring permission from the concerned Development Commissioner for such DTA sale and shall clear the goods on payment of duty assessed by the concerned Assistant Commissioner/ Deputy Commissioner in charge of the cargo. The DTA sale is allowed against documents as are used for DTA sale by EOUs in the manner as if the goods cleared from the unit itself. (Reference Board’s Circular No.31/2001-Cus, dated 24-5-2001).

Clearance of Goods Manufactured by EOUs against Advance Release Order (ARO) or Back-to-Back Inland Letter of Credit issued against an Advance Licence or Duty Free Replenishment Certificate (DFRC).

36.        The goods manufactured by EOUs are allowed to be cleared against ARO & Back-to-Back Inland Letter of Credit issued against Advance Licence (except Advance Licence for intermediate supply) without payment of basic and additional duty of customs subject to following the provisions of EXIM Policy & HOP Vol.–1, 1997-2002 & conditions of notification 28/2001-CE dated 16-5-2001. The goods may also be cleared to a person holding an ARO issued by the Licensing Authority against a DFRC or Back-to-Back Inland Letter of Credit issued by a bank on the payment of additional duty of customs subject to following of the provisions of EXIM Policy and HOP Vol.1 Vol.–1, 1997-2002 & conditions of notification No. 28/2001-CE dated 16-5-2001. (Reference Board’s circular No.31/2001-Cus, dated 24-5-2001).

Sub-Contracting :

37.        The EOUs, other g than Gem & Jewellery units, are allowed to sub-contract part of their production process in DTA. These units may also sub-contract up-to 50% of production for job-work in DTA. Sub-contracting of both production and production process are also allowed to be undertaken through other EOU/EPZ/EHTP/STP/SEZ units on the basis of records maintained by the unit.

38.        For sub-contractual work performed outside, the units are required to take annual permission from the Customs authorities and are required to furnish information, such as, processes to be carried out on sub-contract basis and the name, address of the subcontractor etc. After getting the permission, the unit is required to follow the Receipt Challan/ Despatch Challan ( RCDC) procedure. Under this procedure, at the time of removal of goods, the unit prepares Despatch Challan giving information, such as, value of the goods, name & address of job worker, duty forgone on the goods and the period within which the goods will be received back. Similarly, the goods after completion of sub contractual work are received back in the unit on the basis of Receipt Challan. The scrap/waste/remnants generated at the job worker’s premises can be either cleared from the job worker’s premises on payment of duty or returned to the supplying unit. Exports from job worker’s premises are allowed in cases where the job workers are registered with the Central Excise department. A sample of goods exported is sent to the EOU for checking whether the goods supplied by it are utilised by the job worker in the export product.

39.        The EOUs are also allowed to remove moulds, jigs, tools, fixtures, tackles, instruments, hangers and patterns and drawings to the premises of sub-contractors subject to the condition that they are brought back to the bonded premises of EOU on completion of the job work within a stipulated period.

40.        The EOUs are allowed to sub-contract part of the production process abroad. The approval for sub-contracting abroad is accorded by the Board of Approval. The goods sent for job-work abroad are required to be returned to the unit for final processing/manufacturing before exports. The unit is required to execute a suitable bond for sub-contracting of goods abroad and is required to account for the goods including waste/rejects in the manner as prescribed by the Commissioner of Customs/ Central Excise in this behalf.

41.        To help utilize the idle capacity, the EOUs are allowed to undertake job work for export on behalf of DTA units. This is subject to the condition that the finished goods are exported

directly from the EOU and export documents are made in the name of the DTA unit. On export of such goods manufactured by EOUs on behalf of the DTA unit, the DTA unit is entitled to refund of duty paid on the inputs by way of brand rate of duty drawback.

42.        As mentioned earlier, the gem & jewellery EOUs are not allowed to subcontract the production or production process in DTA. However, such gem & jewellery EOUs are allowed to receive plain gold/silver/platinum jewellery from DTA against exchange of gold/silver/platinum of the same purity & quantity in weight as that of the jewellery. The EOU is not eligible for any wastage or manufacturing loss against such jewellery. The DTA units supplying such jewellery against exchange of gold/silver/platinum are not entitled for deemed export benefits.

(Reference Board’s Instructions F. No. 305/107/93-FTT dated 31-1-1994 and 8-4-1994, Circular Nos. 59/98-Cus, dated 12-8-1998, 67/98-Cus, dated 14-9-98, 35/99-Cus, 74/99-Cus, dated 5-11-99, 31/2001-Cus, dated 24-5-2001).

Temporary Removal of Goods :

43.        The EOUs, Software Technology Park Units or Electronic Hardware Technology Park Units engaged in development of software are allowed to remove imported laptop computers and video projection system out of the bonded premises temporarily without payment of duty subject to following the prescribed procedures.

(Reference Board’s Circular Nos.17/98-Cus dated 16-3-98 & 84/2000-Cus dated 16-4-2000 ).

Inter-unit transfer :

44.        An EOU is allowed to transfer imported or manufactured goods to another EOU/EPZ/STP/EHTP/SEZ unit. The officers in charge of the EOU supplying the material and the EOU receiving the material are expected to keep a watch on the movement of material between the EOUs. The rewarehousing certificate on transfer of the goods from one EOU to another is obtained by post and is crosschecked occasionally with the Superintendent in charge of the other unit to see whether the goods have been actually received in the unit or not. In case of non-receipt of rewarehousing certificate and similarly, non-receipt of proof of export from the proper officer within 90/180 days, the duty is demanded from the sending unit.

Repair, Reconditioning etc.:

45.        The EOUs are permitted to import goods of any origin to carry on re-conditioning, repair, testing, calibration, quality improvement, upgradation of technology and re-engineering activities for export in freely convertible foreign currency provided such repairs, reconditioning, reengineering etc. are carried out in Customs bonded premises and the final goods are not sold within the country.

Special Provisions Relating to Gems & Jewellery EOUs.

46.        The EOUs in gem & jewellery sector are allowed certain special facilities as mentioned below:

(i) the items of gem and jewellery to be taken out temporarily into DTA without payment of duty for the purpose of display and to be returned thereafter;

(ii) personal carriage of gold/silver/platinum jewellery or precious or semi-precious stones or beads and articles as samples upto US$ 1,00,000 for export promotion tours and temporary display or sale abroad subject to the condition that the exporter would bring back the jewellery or the goods or its sale proceeds within 45 days from the date of departure through normal banking channel;

(iii) export of jewellery including branded jewellery for display and sale in the permitted shops setup abroad, or in the showroom of their distributors or agents provided that items not sold abroad within 180 days, shall be re-imported within next 45 days;

(iv) gem and jewellery units to remove parts & tools of machine temporarily without payment of duty for the purpose of

repair and return thereof.

(v) gem and jewellery manufactured in the EOU situated in the municipal limits of Calcutta, Chennai, Delhi and Mumbai and sold to a foreign-bound passenger are allowed to be transferred to the retail outlets or showrooms set up in the departure lounge or Customs warehouse at international airports for being handed over to the said passenger for the purpose of export.

(vi) Removal of moulds, tools, patterns, and drawings into the DTA for jobwork without payment of duty and to be returned to the unit thereafter.

(vii)

For availing of the above mentioned facilities, prior permission of Assistant Commissioner / Deputy Commissioner is required.

Cost Recovery Charges/Cost Sharing

47.        Cost recovery charges are the amount recoverable from the EOU on account of the expenses incurred by the Government for the posting of Customs staff at its premises to supervise their operations. The cost of posts created for EOUs has been determined at an amount equivalent to the actual salary and emoluments of the staff deployed i.e. the average pay and allowances including D.A., H.R.A., C.C.A. etc. The EOUs pay in advance the cost recovery charges determined for the entire year. Generally, one Customs officer supervises the functioning of four to five units and the cost recovery charges are shared amongst them.

(Reference Board’s instruction F. No. 11018/63/87-Ad IV, dated 11-1-88 and F.No.305/105/85-FTT, dated 10.6.86)

Supervision of EOUs by the Customs/ Central Excise:

48.        Operational flexibility has been provided to EOUs by amendment of "Manufacture and Other Operations in Warehouse Regulations, 1966". The EOUs no longer carry out manufacturing operations under physical supervision of Customs officers. The procedure for locking of the warehouse, contral over the issue of imported goods etc. has been abolished. All the movements from and to the unit like clearance of raw materials/ component to the job workers premises, return of goods from the job-workers’ premises, clearance to other EOUs, export and sale in DTA are allowed to be made by the unit subject to maintenance of the records. Physical control over the EOUs has, thus, been replaced by Record Based Control.

49.        As physical control has been abolished greater stress is given on proper maintenance of prescribed records & accounts and non-maintenance of the accounts by the units is viewed seriously. The cost recovery officers/the officers incharge of EOUs are required to scrutinize /examine the accounts/ records of the units and transaction undertaken by the unit at least once in a month. The cost recovery officer has to ensure that all movements of goods are recorded in the proper register. The Chief Commissioner is empowered to order special audit of the unit by Cost Accountant nominated by him in this regard. Cost audit is employed as a tool to check the correctness of raw materials, quantity used, finished goods produced or other such situation.

(Board’s Circular No. 88/98-Cus, dated 2-12-1998)

Joint Monitoring of EOUs:

50.        The guidelines for monitoring the performance of EOUs have been laid down in Appendix 16-E of the Handbook of Procedures (Vol.I). As per the said guidelines, the performance of EOUs is to be jointly reviewed by the Development Commissioner and the concerned Customs/Central Excise officers. The purpose of joint review is to ensure that the performance of EOUs are effectively monitored and action is taken against the units which have contravened the provisions of the EXIM Policy/Handbook and the Customs Law/Procedures. Besides, such joint monitoring gives an opportunity to the Government to discuss and help resolve the problems/difficulties being faced by the EOUs. The idea is to remove all bottlenecks in export promotion efforts while not jeopardizing the interests of revenue.

Recovery of Duty Forgone under EOU Scheme and Penal Action for Abuse/ Diversion etc. :

51.        Under EOU Scheme, the units are required to achieve minimum NFEP and Export Performance as stipulated in the Exim Policy. In case of failure to achieve the minimum NFEP and EP, the duty forgone under the EOU scheme along with interest is recoverable from the units. Further, the duty is recoverable from the units in case of non receipt of imported/ indigenously procured goods in the factory premises after import/procurement, loss of goods in transit, non accountal of imported/ indigenously procured goods, unauthorized DTA sale, clandestine removal etc. Duty can also be demanded in case of failure to utilize duty free imported/indigenously procured goods including capital goods within the prescribed time limit. The duty is also recoverable on goods removed for job working/ display/ testing/ quality testing, but not received back in the unit within the specified period of time.

52.        Apart from recovery of duty forgone, the law also provides for taking penal action where any 100% EOU is found to have indulged into any fraudulent activities eg. clandestine removal of production into DTA without payment of duties, diversion of duty free materials in transit to the unit after customs clearance or after receipt etc., not only the offending goods can be seized and confiscated, but even units penalized heavily/ prosecuted.

De-Bonding :

53.        An EOU may debond into a normal DTA unit subject to the approval of the Development Commissioner and following of prescribed procedure & fulfilling the laid down conditions. Such de-bonding is subject to penalty, if any, that may be imposed and payment of duties of customs and excise applicable at the time of de-bonding. The standard conditions of de-bonding, as indicated in the Handbook of Procedures provide, amongst other conditions, that the applicable customs and central excise duty would be paid on imported and indigenous capital goods, finished goods, raw materials, consumables, components etc. in stock. Further, the unit in question continues to be treated as an EOU till the date of final de-bonding order.

54.        The duty payable in terms of the relevant notifications by the units seeking debonding is as under:

(a)

Semi-finished and finished goods lying in stock at the time of de-bonding can be cleared on payment of the excise duty equal to aggregate duties of Customs payable on similar imported goods.

(b)

Capital goods, material handling equipment, office equipment and captive power plants can be cleared on payment of an amount equal to the customs duty leviable on such goods on the depreciated value thereof and at the rates in force on the date of payment of such duty.

(c)Goods including containers suitable for repeated use other than those at (b) above can be allowed clearance on payment of customs duty on their value at the time of import and at the rate of duty in force on the date of payment of such duty.

(d)

Used packing materials such as cardboard boxes, polyethylene bags of a kind unsuitable for repeated use can be cleared without payment of duty.

55.        At the time of debonding, the EOUs are entitled for depreciation on imported/indigenous capital goods. The rate of depreciation on capital goods have been specified and in case of the computers and computer peripherals, accelerated rate of depreciation have been provided for.

56.        In the event of a gem and jewellery unit ceasing its operation, gold and other specious metals, alloys, gem and other materials available for manufacture of jewellery are handed over to a nominated agency (nominated by Department of Commerce) at a price determined by that agency.

(Reference Board’s instructions issued from F. No. 305/136/92-FTT dated 5-6-1992, Circular Nos. 27/98, dt. 1.04.1998 and 43/98-Cus., dt. 26.06.1998).

Export Processing Zone Scheme

Free Trade Zones (FTZ)/ Export Processing Zones (EPZs) have emerged as an effective instrument to boost export of manufactured products. The Zones, set up as enclaves separated from the Domestic Tariff Area (DTA) by physical barriers, are intended to provide an internationally competitive duty free environment for export production at low costs. The basic objectives of EPZs are to enhance foreign exchange earnings, develop export-oriented industries and to generate employment opportunities. The first Zone was set up at Kandla (Gujarat) in 1965, followed by SEEPZ, Mumbai in 1972. Thereafter, four more Zones were set up at NOIDA (UP), FALTA (West Bengal), Cochin (Kerala), Chennai (Tamil Nadu) in 1984 and at Vishakapatnam (Andhra Pradesh) in 1989. In 1997, Surat Export Processing Zone came into existence. With the announcement of Special Economic Zone Scheme in year 2000, the four Export Processing Zones / FTZ, namely Kandla, SEEPZ, Cochin and Surat have been converted into Special Economic Zones with effect from 1-11-2000.

2.        Each Zone provides basic infrastructural facilities, like developed land, standard design factory buildings, built-up sheds, roads, power supply and drainage, in addition to a whole range of fiscal incentives by way of Customs, Excise and Income Tax exemptions. Customs clearance facilities are offered within the Zone at no extra charge, while facilities like banking, post office and clearing agencies are also available in the service centers attached to each Zone.

3.        The Export & Import Policy provisions for Export Processing Zones are the same as applicable to EOUs. Thus, the provisions of EXIM Policy regarding importability of goods, DTA sale, clearance of samples, sub-contracting, inter-unit transfer, repairs, re-conditioning and re-engineering, sale of unutilized material, debonding etc. for EOUs are applicable to EPZ units.

4.        The Development Commissioners appointed by the Ministry of Commerce monitor and coordinate the functioning of each Zone. The Customs act in close liaison with the Development Commissioner of the respective Zone in providing bond facilities and for ensuring that goods imported/indigenously procured duty free are utilised in the production of goods for export. To enable the EPZs to import/procure locally their requirement of raw materials, capital goods and office equipment etc. duty free, a number of Customs and Central Excise notifications have been issued by the Ministry of Finance. These notifications specify the different categories of items allowed to be imported/procured duty free as well as the conditions thereof. The permissible item, cover almost all categories of goods required in connection with the production activity for export & include capital goods, raw materials, components, packing, consumables, spares etc. The relevant notifications are as under:-

(i) 133/94-Cus, dated 22.6.1994 for allowing duty free import of specified goods to the units located in the Export Processing Zone;

(ii) 58/2000-Cus, dated 8.5.2000 for allowing granite-quarrying units located in the Export Processing Zone to import specified goods duty free;

(iii)

177/94-Cus, dated 21.10.1994 for allowing Gems & Jewellery units located in the Export Processing Zone to import specified goods duty free;

(iv) 126/94-CE, dated 2.9.1994 for allowing EPZ units to procure locally the specified goods duty free;

(v) 37/2000-CE, dated 8.5.2000 for allowing granite-quarrying units located in the Export Processing Zone to procure specified goods duty free;

            As the policy provisions for units located in Export Processing Zone are the same as those applicable to EOUs, for details the chapter on EOUs may please be referred to. It may be mentioned that in case of EPZ, the units are not required to take licence under section 58 of the Customs Act. Further, the EPZ units are not required to pay cost recovery charges for the Customs staff posted in the Zone.

STP/EHTP Scheme

Software Technology Parks (STPs) are export oriented projects catering to the needs of software development for exports. STPs can be set up by the Central Government, State Government, Public or Private Sector Undertakings or any combination thereof. An STP may be an individual unit by itself or it may be one of such units located in an area designated as STP Complex by the Ministry of Information Technology. The Government has already set up Software Technology Parks at Pune, Bangalore, Bhubaneshwar, Hyderabad, Thiruvananthapuram, Gandhinagar and Noida. In these Parks all the required facilities are made available. The STP Scheme is administered by the Ministry of Information Technology.

2.        For encouraging exports of electronic hardware items including hard disk drives, computers, television, etc., such parks have been developed by the Ministry of Information Technology. An Electronic Hardware Technology Park (EHTP) may be an individual unit by itself or a unit located in a area designated as EHTP Complex. As in the case of STP Scheme, the EHTP Scheme is also administered by the Ministry of Information Technology.

3.        Under STP Scheme, a software development unit can be set up for the purpose of development of software, data entry and conversion, data processing, data analysis and control data management or call centre services for exports. Under EHTP Scheme, a unit can be set up for the purpose of manufacture and development of electronics hardware, or electronics hardware and software in an integrated manner for exports. The policy provisions for STP and EHTP Schemes are substantially the same as those applicable to the general EOU Scheme. Thus, the provisions of EXIM Policy regarding importability of goods, DTA sale, clearance of samples, sub-contracting, inter-unit transfer, repairs, re-conditioning and re-engineering, sale of unutilized material, debonding etc. are more or less same for STP/EHTP units as well as general EOUs. However, considering the special requirements of the software/hardware development sector, some specific provisions have been made for the STP/EHTP units in the EXIM Policy as well as in the Customs notifications governing the Scheme, which may be referred to.

4.        To implement STP scheme, the Government has issued two notifications, namely, 138/91-Cus, dated 22-10-1991 (for units located in Software Technology Park Complexes) and 140/91-Cus, dated 22-10-1991(for stand alone software development units ) allowing duty free import of specified goods to such units. In respect of EHTP scheme, notification Nos 95/93-Cus, dated 2-3-1993 (for units located in Electronic Hardware Technology Park Complexes) and 96/93-Cus, dated 2-3-1993 (for stand alone electronic hardware units) allow duty free import of specified goods to such units. To enable such STP /EHTP units to procure specified goods from DTA without payment of duty, a notification No. 1/95-CE, dated 4-1-1995 has been issued. The sector specific provisions in respect of STP/EHTP units are as follows:-

(i) EHTP/ STP units are allowed to make DTA sale of software through data communication/ telecommunication links. This is subject to the condition that the Director of STPI (Software Technology Park of India) certifies the valuation of such software sold in DTA. (Circular No. 54/98-Cus, dated 31-7-1998).

(ii) STP units are allowed to import telematic infrastructure equipments for creating a central facility for export of software without payment of duty. The central facility so developed by STP units for transmission of data / software for export are allowed to be utilised by other STP units and units in DTA for export of software. In case of EHTP unit, such facility is not available. However, agency/society authorised to set up the EHTP Complex is allowed to create a central facility for use by EHTP units located within such Complex.

(iii) Under STP scheme, the units are allowed to render consultancy services for development of software "on site" abroad and consultancy fees received by such units in convertible foreign currencies is deemed to be exports for the purposes of fulfillment of export obligation under the Scheme.

(iv)

The STP units are allowed to use the computer system for the purpose of training including commercial training provided the unit has achieved the prescribed NFEP. However, computer terminals are not allowed to be installed outside the bonded premises for the purpose of imparting training. In case of EHTP, the units are allowed to use computer system for imparting training to the workers only.

            The provisions at serial (i), (iii) and (iv) are also applicable to the software development units under general EOU scheme operating under notification Nos. 53/97-Cus, dated 3-6-1997 and 1/95-CE, dated 4-1-1995.

Special Economic Zone Scheme

A new export promotion scheme entitled ‘Special Economic Zone’ (SEZ) was introduced in the Export and Import (EXIM) Policy which came into effect from 1.4.2000. The Scheme envisages a simple and transparent policy and procedure for promotion of exports with minimum paper work. The most important feature of the Scheme is that the SEZ area is considered essentially as a foreign territory for the purposes of trade operations, duties & tariffs. Therefore, goods supplied to SEZ from the Domestic Tariff Area (DTA) are treated as deemed exports and goods brought from SEZ to DTA are treated as imported goods.

2.        As per the EXIM Policy, a SEZ can be set up for the manufacture of goods and rendering of services, production, processing, assembling, trading, repair, remaking, reconditioning, re-engineering including making of gold/silver/platinum jewellery and articles thereof.

3.        Under the SEZ Scheme, the units are allowed to make or procure locally without payment of duty all types of goods including capital goods, whether new or second-hand, required by them for export production or in connection therewith. Even the goods appearing in the restricted list of the EXIM Policy (1997-2002) are permitted to be imported. However, the goods prohibited for import are not permitted. The Scheme also allows duty free import of goods including capital goods on loan basis.

4.        As per the EXIM Policy, the SEZ unit has to be a positive net foreign exchange earner. Net Foreign Exchange Earning (NFE) is calculated cumulatively for a period of five years from the commencement of commercial production according to a prescribed formula.

5.        The Special Economic Zones can be set up in the country in the public, private, joint sector or by the State Governments. The minimum size of the Special Economic Zone, however, shall not be less than 1000 hectares. This measure is intended to provide self-contained areas supported by world-class infrastructure oriented towards export production.

6.        In pursuance of the policy, four existing Export Processing Zones (EPZ) have been converted into Special Economic Zones w.e.f. 1-11-2000. These Special Economic Zones are: (i) SEEPZ Special Economic Zone, Mumbai; (ii) Kandla Special Economic Zone, Kandla ; (iii) Cochin Special Economic Zone, Cochin; and (iv) Surat Special Economic Zone, Surat.

7.        The detailed policy and procedures governing the operations of SEZ units are contained in Chapter 9 A of Export and Import Policy and Handbook of Procedures, Vol. I issued by the Ministry of Commerce. To enable the units located in the Special Economic Zone to import or procure goods without payment of duty, the Department of Revenue has issued two exemption notifications, namely, Nos. 137/2000-Cus. and 52/2000-CE, both dated 19.10.2000.

8.        The SEZ Scheme places full trust on the units and, therefore, import and export operations of the units in the Zone are on the basis of self-certification. These units are governed by simplified Customs and Central Excise procedures as discussed below.

Import and Export:

9.        The SEZ units are allowed to import and export through port, airport, land customs station, ICD, CFS, courier mode (as per courier rules) and post parcel. The software development units can import and export through data communication and telecommunication links. In the case of exports through data communication and telecommunication links, the SEZ units follow the same procedure and practice as is followed in case of EPZ/STP units. As for imports of software through above modes, the units are required to file the Bill of Entry within 24 hours of such import alongwith bank attested invoice and other relevant documents for obtaining notional 'out of charge'. The documents such as invoice etc. in respect of such import are required to be routed through the banks. The value of such software is certified by the

Director of the STP/Development Commissioner of SEZ. Further, in case of such software imports, instructions issued by RBI, if any, are also required to be followed.

10.        In case of imports, the Bill of Entry with specially stamped endorsement as "SEZ Cargo" is filed with the Assistant Commissioner/Deputy Commissioner of Customs in the SEZ for assessment. For procurement of goods from domestic sources by SEZ units, CT-3 certificates are issued to the units and against such CT-3, the goods including capital goods are procured from DTA without payment of duty. In both cases, i.e. both in respect of imported and domestically procured cargo, the goods are assessed on the basis of documents furnished by the units. Goods are not examined physically and ‘out-of-charge’ is given after verifying the marks and numbers on the packages only.

11.        When the import consignments are required to be transhipped to a SEZ located at a station away from the place of import, the same is allowed under normal transit procedure. The unit files the Bill of Entry with the Assistant Commissioner/ Deputy Commissioner of Customs in-charge of the SEZ on the basis of the transit document.

12.        In case of exports, the Shipping Bill alongwith relevant documents is filed with the Customs authorities in the Zone. As in the case of imports, the SEZ export cargo is not examined in routine and export is allowed on the basis of self-certification by the units. The units, after self-examination of the consignments, are required to submit the shipping bills to the Assistant Commissioner/Deputy Commissioner of Customs for "let export" order. After obtaining the "let export" endorsement on the shipping bill, the consignment is taken to the gateway port for export. At the gateway port also, the SEZ export consignment is not examined in routine. However, whether at the Zone or at gateway port or during transit of such cargo, the Customs authorities can examine the consignments when there is a specific information/intelligence. For this purpose, the orders of the Assistant Commissioner/Deputy Commissioner of Customs are required to be obtained.

Sub-contracting:

13.        Clearance of goods to DTA without payment of duty for jobwork/further processing is permitted on the basis of a bond furnished by the unit. The bond is discharged as and when the goods are received back after job work/processing. The goods so processed are allowed to be cleared from the job worker’s premises for export directly, provided the job worker is registered with Central Excise and the procedure as applicable to the EPZ is followed. In such cases, the bond is discharged after the proof of export is produced. Scrap/waste/ remnants /rejects generated at the job worker’s premises can either be cleared therefrom on payment of applicable customs duty or returned to the SEZ unit.

14.        The SEZ units are allowed to sub-contract part of the production process abroad. Approval for sub-contracting abroad is accorded by the Board of Approval. The goods sent for job-work abroad are to be returned to the unit for final processing/manufacturing before exports. The unit is required to execute a suitable bond for sub-contracting goods abroad and is required to account for the goods including waste/rejects in the manner as prescribed by the Commissioner of Customs/ Central Excise in this behalf.

15.        The SEZ units are also allowed to undertake job-work for export on behalf of DTA units. This is subject to the condition that the finished goods are exported directly from SEZ units and export documents are made in the name of the DTA unit. On export of such goods manufactured by SEZ unit on behalf of the DTA unit, the DTA unit is entitled to refund of duty paid on the inputs by way of brand rate of duty drawback.

16.        The SEZ units are allowed to remove the moulds, jigs, tool, fixtures, tackles, instruments, hangers, patterns and drawings without payment of duty to the premises of the sub-contractors subject to the condition that such goods are brought back to the unit on completion of the jobwork within the period specified in this behalf.

Temporary Removal of Goods into the DTA:

17.        The SEZ units can take out the goods from the Zone into the DTA temporarily without payment of duty for the purpose of test, repairs, replacement, calibration, refining, processing, display or any other process necessary for manufacture of final product. For this purpose, the unit is required to execute a bond with the Assistant Commissioner/ Deputy Commissioner of Customs. On receipt of the goods back in the SEZ unit, the bond gets discharged. In case of failure of the unit to bring back the goods within the prescribed period, the unit is liable to pay applicable duty on such goods.

Removal of Goods into Another EOU/EPZ/EHTP/STP/SEZ Unit:

18.        The SEZ units are allowed to clear the goods to another EOU/EPZ/EHTP/STP/SEZ unit without payment of duty for repairs, processing, testing or display on the basis of permission given by the Assistant or Deputy Commissioner of Customs. In these cases, the goods are required to be returned to the unit within the period specified in this behalf. Goods may also be sent to EOU/EHTP/STP/EPZ/SEZ units for the purposes of manufacture and export therefrom subject to maintenance of proper accounts by both the receiving and supplying units. For the above purposes, the unit is required to execute a bond with the Assistant Commissioner/Deputy Commissioner of Customs. The bond is discharged on receipt of the goods back in the SEZ or after they have been properly accounted for by way of exports. In case of failure of the unit to bring back the goods within the prescribed period or failure to account for the goods, the unit becomes liable to pay applicable customs duty on such goods.

Gem and Jewellery units in SEZ:

19.        Generally speaking, sub-contracting is not allowed to gem and jewellery units. However, the gem and jewellery units in SEZ are allowed to take out gold/silver/platinum for sub-contracting subject to the condition that goods, finished or semi-finished, including studded jewellery, containing quantity and purity equal to the gold/silver/platinum so taken out are brought back to the Zone within 30 days. It is to be noted that diamonds, precious or semi-precious stones are not allowed to be taken out for sub-contracting. The gem and jewellery units are also allowed to receive plain gold/silver/platinum jewellery from DTA in exchange of gold/silver/platinum of equal quantity and purity. These units are, however, not eligible for any wastage or manufacturing loss against the jewellery received from DTA after processing or against exchange of gold/silver/platinum. The DTA units undertaking job work or supplying jewellery against exchange of gold/silver/platinum are not entitled to deemed export benefits. The gem and jewellery units are also allowed to sub-contract part of the production or production process through other units in the same SEZ subject to records being maintained by both the supplying and the receiving units.

20.        Further, the gem and jewellery units in SEZ are allowed certain other facilities as mentioned below:

(i)Taking out the items of gem and jewellery into DTA temporarily without payment of duty for the purpose of display and return thereafter;

(ii)

Personal carriage of gold/silver/platinum jewellery or precious or semi-precious stones or beads and articles as samples upto US$ 1,00,000 for export promotion tours and temporary display or sale abroad subject to the condition that the exporter would bring back the jewellery or the goods or its sale proceeds within 45 days from the date of departure through normal banking channel;

(iii)Export of jewellery including branded jewellery for display and sale in the permitted shops setup abroad, or in the showroom of their distributors or agents provided that items not sold abroad within 180 days, shall be re-imported within next 45 days;

(iv)Removal of parts & tools of machine temporarily without payment of duty for the purpose of repair and return thereof.

(v)Taking out gem and jewellery manufactured in the SEZ to the retail outlets or showrooms set up in the departure lounge at international airports for sale to a tourist, as defined in the Baggage Rules, 1998, leaving India.

(vi) Sale of gem and jewellery manufactured in the SEZ to a foreign-bound passenger

and transferring the same to the retail outlets or showrooms set up in the departure lounge or Customs warehouse at international airports for being handed over to the said passenger for the purpose of export.

(vii)

Removal of moulds, tools, patterns, and drawings into the DTA for jobwork without payment of duty and to be returned to the unit thereafter.

For availing of the above mentioned facilities, prior permission of Assistant Commissioner / Deputy Commissioner is required.

21.        In case of gem & jewellery units, scrap, dust or sweepings generated in the unit is allowed to be forwarded to the Government Mint or Private Mint for conversion into standard gold bars and return thereof to the Zone subject to the observance of procedure laid down by the Commissioner of Customs. The said dust, scrap or sweepings are also allowed clearance into DTA on payment of applicable customs duty on the gold content in the said scrap, dust or sweepings. Samples of the sweepings/dust are taken at the time of clearance and sent to mint for assaying. The assessment is finalized when the reports are received from the mint.

Inter-Unit Transfer:

22.        Inter unit transfer of goods amongst units in a SEZ does not require any prior permission, but the supplying and receiving units are required to maintain proper accounts of the transaction.

Duty Remission on Destruction of Goods:

23.        A provision has been made in the notifications that duty would not be levied on capital goods, raw materials, components, waste or scrap etc. if these goods are destroyed in the presence of the Customs authorities. This provision, however, does not apply to gold, silver, platinum, diamond, precious stones and semi-precious stones. The officers supervising destruction are required to ensure that goods are destroyed fully rendering them unfit for further use and give certificate to that effect. After destruction of capital goods, raw materials, components, waste or scrap etc., if the remains have scrap value, the same can be cleared by the unit in DTA on payment of duty applicable to scrap.

DTA Sale:

24.        The facility of DTA sale is available to the SEZ units. Under the Scheme, finished goods including by-products and services and waste/scrap/remnants/rejects etc. can be sold in the DTA on payment of applicable duty and in accordance with the Export-Import Policy in force. However, where such finished goods (including rejects, waste and scrap materials) are not excisable, duty equal in amount to that leviable on the inputs imported/indigenously procured under the notifications and used for the purpose of manufacture of such finished goods, which would have been paid but for the exemption under the said notifications, is payable at the time of clearance of such finished goods. In case of service sector SEZ units, the rendering of services in DTA is allowed subject to the condition that the unit has achieved the positive NFE, cumulatively, as specified in the Policy. This would mean that service units will not be eligible for making DTA sale if the NFE is not positive cumulatively at any point of time. Further, if any of such services are taxable under provisions of Chapter V of Finance Act, 1994, then rendering of such services in DTA would require payment of service tax as per the provisions of Finance Act, 1994.

Levy of Central Excise Duty on Goods Produced or Manufactured by SEZ Units and Cleared into Domestic Tariff Area :

25.        In terms of section 3 of the Central Excise Act, 1944, the excise duty leviable on goods manufactured in an SEZ unit and cleared into Domestic Tariff Area is an amount equal to the customs duty leviable under section 12 of the Customs Act, 1962 or under any other law for the time being in force on like goods produced or manufactured outside India, if imported into India. Thus, the duty is worked out exactly in the same manner as applicable to imported goods.

Valuation of Goods Cleared into DTA:

26.        Under the SEZ Scheme, the goods cleared from the Zone are treated as imported goods. Therefore, in case of DTA clearances, though the duty charged is central excise duty, this duty is taken as equal to the aggregate of all duties of customs. In other words, the SEZ units are required to pay full customs duty (applied duty) on their DTA clearances. In view of this, in case of sale/clearance of goods referred to in the preceding paragraphs, the valuation is made as per the provisions of the Customs Act, 1962 and the Customs Valuation Rules, 1988. Further, the DTA sales are subjected to the same assessment and examination procedure as applicable to imported goods in DTA. Licences, wherever applicable, will have to be produced before clearing the goods into DTA.

Disposal of Obsolete Goods:

27.        The SEZ units are allowed to dispose of obsolete or unusable capital goods, spares and other goods in the DTA on payment of applicable customs duty. Such disposal is governed by the conditions of Import Policy in force. In case of capital goods, clearance is allowed on payment of applicable duty on the depreciated value thereof and at the rate in force on the date of payment of such duty. In case of other goods (including empty cones, bobbins, containers suitable for repeated use) clearance is allowed on payment of applicable duty on the value at the time of import and at rates in force on the date of payment of such duty. However, no duty is charged on clearance of used packing materials such as cardboard boxes, polyethylene bags of a kind unsuitable for repeated use. Similarly, no duty is charged if the goods are destroyed with the permission of Customs authorities.

Clearance of Samples :

28.        The units in SEZ are allowed to supply or sell in DTA samples of goods produced by them for display or market promotion on payment of applicable duties. The units are also allowed to take out samples into DTA without payment of duty on returnable basis for the purpose of display/market promotion. In such cases, the procedure prescribed for sub-contracting is required to be followed.

29.        The units in SEZ are allowed to send samples abroad through the courier. The packages containing such samples are sealed in the presence of the Customs officer and are handed over to the representative of the courier company authorised by the Commissioner of Customs for presentation to the Customs at the port of export. These sealed samples are not normally examined again before " let export" is given if the seals are found intact and not tampered. The representative of the courier company later hands over the proof of export to the jurisdictional Assistant / Deputy Commissioner.

De-Bonding :

30.        A SEZ unit may debond into a normal DTA unit subject to the approval of the Development Commissioner. Such de-bonding is subject to penalty, if any, that may be imposed and payment of duties of customs and excise applicable at the time of de-bonding. The standard conditions of de-bonding, as indicated in the Handbook of Procedures provide, amongst other conditions, that the applicable customs and central excise duty would be paid on imported and indigenous capital goods, finished goods, raw materials, consumables, components etc. in stock. Further, the unit in question continues to be treated as a SEZ unit till the date of final de-bonding order.

31.        The duty payable in terms of the relevant notifications is as under:

(a)

Semi-finished and finished goods lying in stock at the time of de-bonding can be cleared on payment of the excise duty equal to aggregate duties of Customs payable on similar imported goods.

(b)

Capital goods, material handling equipment, office equipment and captive power plants can be cleared on payment of an amount equal to the customs duty leviable on such goods on the depreciated value thereof and at the rates in force on the date of payment

of such duty.

(c) Goods including containers suitable for repeated use other than those at (b) above can be allowed clearance on payment of customs duty on their value at the time of import and at the rate of duty in force on the date of payment of such duty.

(d)

Used packing materials such as cardboard boxes, polyethylene bags of a kind unsuitable for repeated use can be cleared without payment of duty.

32.        At the time of debonding, the unit is entitled for depreciation on imported/indigenous capital goods. The rate of depreciation on capital goods have been specified and in case of the computers and computer peripherals, accelerated rate of depreciation have been provided for.

Maintenance of Accounts:

33.        A SEZ unit is required to maintain proper account in the format convenient to it and financial year-wise, of all foreign exchange inflow by way of exports and other receipts, all foreign exchange out flow on account of imports, payment of dividend, royalty, fees etc., consumption and utilisation of the materials and sale in the DTA. The units are required to submit regularly quarterly statement to the Development Commissioner and the Customs in this regard in the format prescribed at Appendix 16H of the Hand Book of Procedures.

Monitoring of activities of SEZ units:

34.        All activities of the SEZ unit, unless otherwise specified, are through self-certification procedure and are monitored by a Committee comprising Development Commissioner and Customs. The Development Commissioner in charge of the Zone heads the Committee. The Committee is also required to see that wastage / manufacturing loss on gold/ silver/platinum jewellery and articles are within the overall percentage prescribed in Appendix-41 of the Handbook (Vol-1). In case of higher wastage/manufacturing loss, the Committee is required to satisfy itself of the reasonableness of the same.

Penal action in case of default:

35.        The Customs officials posted in SEZs are not supposed to visit the units for verification of records or even otherwise in routine. However, in case of specific information/intelligence which, prima facie, show that there is fraud, collusion, mis-declaration, suppression of information etc having a bearing on the export performance of the unit or where there is specific information regarding clandestine/unauthorized removal of goods into DTA etc, the Customs officials can visit the units for verification of records, goods etc. so as to initiate proceedings under Customs Act, 1962. The Assistant Commissioner/Deputy Commissioner may keep a watch on the export performance of the units and in the event of non-achievement of positive NFE within the stipulated period, action can be taken against the units for recovery of the duty and interest. So far as utilization of imported/indigenously procured goods is concerned, the same may be utilized within the period of five years. In case of failure to utilize the imported / indigenously procured goods within the period of five years, the unit is liable to pay duty on the said unutilized goods along with the interest at the rate of 24% per annum from the date of importation or procurement of the said unutilized goods till the date of payment of such duty.

Transitional arrangements:

36.        In case of conversion of existing Export Processing Zone into Special Economic Zone, an existing EPZ unit can opt for SEZ scheme. On conversion, its previous obligations as an EPZ unit are subsumed by its obligations under the SEZ scheme. The raw materials, components, consumables and finished goods lying in stock with the unit at the time of conversion are taken as its opening balance under the SEZ scheme. All un-utilised DTA sale entitlements of the unit under EPZ scheme also ceases to exist from the date of conversion as notified by the Ministry of Commerce and Industry. In case an existing EPZ unit decides not to work under the SEZ Scheme, it may either debond itself on payment of applicable duties on unutilized raw materials, depreciated value of capital goods and other goods imported /

procured locally duty free by such unit or convert itself into an EOU. In both cases, the unit is required to physically move out of SEZ.

Bond:

37.        The SEZ units are allowed to operate under a single all-purpose bond. The bond amount is equal to 25% of the duty foregone on the sanctioned requirement of capital goods plus the duty foregone on raw materials required for three months. Surety or security equivalent to 5% of the bond amount in the form of bank guarantee is required to be given. The SEZ units having a turnover of Rs. 1 crore or more in the preceding financial year are exempted from the requirement of furnishing security/surety. This facility is not available to the units against whom offence cases have been proved in a court of law. In case of new units, they are required to give surety or security till they achieve the turnover of Rs.1 crore.

Setting up of ICDs/CFSs

With the liberalization of Indian economy, last few years have seen considerable growth in import and export volumes. With the new modes of transportation and increase in international trade and containerisation, the ports were getting congested. Further, with widespread industrialization and economic growth, the imports for use in hinterland and exports originating from there have increased over time. It was difficult for importers or exporters based in the hinterland, to come to a gateway port for clearance of imported or export goods. With the development of multi-modal transport system with its stress on greater facilitation to importers/exporters, a need was felt to develop Inland Container Depots (ICDs) or Container Freight Stations (CFSs). These were to essentially function like a dry port. These ICDs/CFSs were to function as common user facilities offering all the services for Customs clearance like any other port.

2.        An Inland Container Depot (ICD)/ Container Freight Station (CFS) may be defined as :-

"A common user facility with public authority status equipped with fixed installations and offering services for handling and temporary storage of import/export laden and empty containers carried under Customs transit by any applicable mode of transport placed under Customs control. All the activities related to clearance of goods for home use, warehousing, temporary admissions, re-export, temporary storage for onward transit and outright export, transhipment, take place from such stations."

3.        To monitor the growth of ICDs/CFSs, a regulatory authority in the form of an Inter-Ministerial Committee (IMC) under the chairmanship of the Additional Secretary(Infrastructure), Ministry of Commerce, has been set up. It comprises representatives from the Department of Revenue, Ministry of Surface Transport, Ministry of Railways and the Ministry of Commerce. The Committee considers the proposals submitted by Public Sector as well as Private Sector entrepreneurs for setting up of new ICDs/CFSs at different centres in the country and monitors their progress. There were about 30 ICDs/CFS prior to constitution of the IMC. After its constitution in the year 1992, the IMC has approved about 135 ICDs/CFS and out of total 165 ICDs/CFSs, about 100 are reported to be already in operation and others are in pipe line.

Distinction between ICD & CFS

4.        An ICD is a place where containers are aggregated for onward movement to or from the ports whereas CFS is a place where containers are stuffed, unstuffed and aggregation/segregation of cargo takes place. ICDs are normally located outside the port towns whereas no site restrictions apply to CFS. An ICD may have a CFS attached to it. CFS is treated as an extension of a port/ICD/air-cargo complex.

Existing Guidelines for approval of ICD/CFS

5.        The proposal for setting up of ICDs/CFSs are examined by the IMC on the basis of following guidelines:

(a)        Feasibility report: A survey/feasibility study must precede the setting up of ICDs/CFSs and copy of the report should invariably accompany the application for setting up such a facility. The facility has to be economically viable for the management and attractive to users, to the railways for full train movements; and to other transport operators; shipping lines; freight forwarders, etc.

In the background of growing international trade, the infrastructure facilities have to precede the actual generation of demand. This is particularly important, as such facilities have a long gestation period for being fully operationalised. For approval of an ICD/CFS, following minimum level of traffic volume is prescribed:

For ICD - 6,000 TEUs per year (Two way)

For CFS - 1,000 TEUs per year (Two way)

(b)        Land requirements: For the ICDs/CFSs proposed to be set up outside limits of major cities, a minimum of 3 acres of land is required and for such facilities inside city limits /port area, a minimum area of 1 acre (about 4500 sq. mts) is required.

(c)        Design and Lay-out of ICD/CFS: The design and lay-out should be the most modern & state-of the-art, equipped with mechanical/electrical facilities of international standards. The lay-out should allow smooth flow of containers, cargo and vehicles through the ICD/CFS and it should take into account initial volume of business, estimated volume in 10 years and the type of facilities exporters would require.

(d)        Equipping the ICD/CFS: The ICD/CFS should plan for the most modern handling equipment for loading, unloading of containers from rail flats, chassis, their stacking, movement, cargo handling, stuffing/de-stuffing, etc.

(e)        Rail head ICDs: The parties desirous of setting up a rail based ICD, have to provide at their own cost all infrastructure facilities including land, track, handling equipment for containers, maintenance of assets including track, rolling stock, etc. as per extant railway rules applicable to private sidings.

(f)        Tariff :Tariff structure and costing is to be worked out as a part of the feasibility study .

(g)        General: The main function of an ICD/CFS being receipt, despatch and clearance of containerised cargo, the need for an up-to-date inventory control and tracking system to locate containers/cargo is paramount. Each functional unit of the facility (e.g. siding, container yard, gate, stuffing, de-stuffing area etc.) should have uptodate, and where possible online information about all the containers etc., to meet the requirements of customers, administration, railways etc.

Procedure for approval of ICD

6.        (a)    Application (8 copies) in prescribed form along with the copies of feasibility reports mentioned above are to be submitted to the Infrastructure Division in the Ministry of Commerce, Udyog Bhavan, New Delhi. The applicant should send a separate copy of application to the jurisdictional Commissioner of Customs. The Commissioner of Customs is expected to examine the proposal on the basis of guidelines and send his comments to the Central Board of Excise & Customs, North Block, New Delhi within 30 days.

(b)        On receipt of the proposal, the Ministry of Commerce sends a copy of proposal to each of the IMC members. The proposals are then discussed in the IMC meeting.

(c)        The proposals for setting up of ICD/CFS is considered on the basis of prescribed guidelines and cleared on merits by the IMC

(d)        On acceptance of a proposal by the IMSC, a letter of intent is issued to the applicant by the Ministry of Commerce.

(e)        The applicant is required to set up the infrastructure within one year from the date of approval. The time period of one year can be extended by another 6 months by the Ministry of Commerce. A request for extension beyond 6 months needs approval from IMC.

(f)        After issuance of letter of intent, the facility is notified as an ICD under section 7 (aa) of the Customs Act, 1962 by the Department of Revenue. In case of CFSs which are considered as extension of ports/ICDs/air-cargo complexes, notification under section 7(aa) is not required.

(g)        Once required infrastructure for an ICD/CFS is developed, a notification under section 8 of the Customs Act declaring the facility as a custom area is issued by the jurisdictional Commissioner of Customs. The operators of the ICDs/CFSs are appointed custodians under section 45 of the Customs Act, 1962, provided they satisfy the conditions relating to development of infrastructure & facilities and furnish bonds and securities as laid down for such purpose in the CBEC Circular No.128/95-Cus., dated 14.12.95. Custodians are responsible for safety and security of the goods stored in their ICD/CFS.

Posting of Customs officers on cost recovery basis

7.        For the purpose of Customs clearance at the ICDs/CFSs, Customs staff is provided at the ICD/CFS on cost recovery basis. The sanction for posting of officers is issued by the Administrative Wing of the Central Board of Excise & Customs. The custodians are required to pay @ 185% of total salary of officers actually posted at the ICD/CFS. Normally, 13 officers (1 Assistant/Deputy Commissioner, 2 Appraisers, 2 Inspectors, 2 UDCs, 2 LDCs, 4 Sepoys) are posted at an ICD/CFS having both import and export. The ICD/CFS having only export is given 7 officers (1 Assistant/Deputy Commissioner, 1 Appraiser, 1 Inspector, 1 UDC, 1 LDC, 2 Sepoys).

8.        In the initial stages of operations of an ICD/CFS, due to less volume of trade, full strength of the officers may not be required. In such a situation, if the custodian requests, the Commissioner of Customs may, after due consideration post the officers in less than the sanctioned strength in the said ICD/CFS. Gradually, when the business picks up at the ICD, the full contingent of staff may be posted. The Commissioner of Customs also would accept the deposit of advance cost recovery charges for three months for the number of staff which will be actually posted in an ICD/CFS.

(Reference instructions issued vide letter F.No.434/12/92-Cus.IV, dated 5.6.92, Circulars No.128/95-Cus., dated 14.12.95, 133/95-Cus., dated 22.12.95, 52/97-Cus., dated 17.10.97 and 80/98-Cus., dated 26.10.98)

Passenger Clearance System – Facilitation-cum-Enforcement

All passengers entering or leaving India by international flights pass through Customs whose basic role is to ensure that any passenger is not carrying on his person/handbag or accompanied baggage, high valued dutiable goods more than the permissible quantity/value which is not declared for duty payment or he does not try to smuggle any prohibited or banned or sensitive goods which may adversely affect interests of the society/economy. The passengers, specially the residents on return from a county abroad generally pick up certain items for personal use or use by his family and they all expect quick customs clearance. The businessmen, trade delegations & professionals frequently travel on international flights expecting speedy clearance through customs in minimum time. Similarly, tourists arriving through international flights also expect fast and green channel customs clearance facilities in tune with the international practices and any delays could cause damage to our tourism promotion efforts.

2.        On the other hand, there are also passengers trying to abuse the air route for smuggling, carrying high valued and even sensitive goods-including narcotics and other sensitive drugs, gold or other high valued low bulk items bearing substantial duties, which they may like to evade by non-declaration/concealment in baggage or on person, for earning high profit by sale in the market. The Customs posted at the Airports have, therefore, a difficult role of ensuring quick clearance and maximum passenger facilitation, as well as enforcing the Customs Act and various allied laws to protect the interests of the society/economy/revenue.

3.        With the growth of international passenger traffic Indian Customs have changed its procedures in tune with international practices. Over the years the Government has also – considering the demands of general public & trade & industry and recommendations of various committees substantially liberalized the duty free baggage allowances and other facilities and procedures so that minimum genuine needs of passengers can be met and they could get reasonable quantity/value of items customs cleared without charging duties. Steps have also been taken to educate general public and the incoming and outgoing passengers of the extant Customs rules and regulations and the various facilities available to different kinds of passengers and the items which are not permitted for import or permitted on payment of duty etc. Even in regard to outgoing passengers the nature of items which attract prohibitions like endangered species or articles made from flora and fauna such as Ivory, Musk, Reptile skins, Furs, Shahtoosh or antiques etc., are publicized so that there are no attempts made to smuggle them by mis-declaration/concealment and the passengers are aware of the severe penalties which are otherwise attracted.

4.        Customs also prominently display these provisions/baggage allowances and the prohibited items etc., at all international airports, with the ‘dos and don’ts’ for benefit of passengers. The information in the form of "Customs guide to Travellers" is also taken out periodically and circulated and made available at all airports as well as to our embassies/consulates abroad. The passenger related customs information is also made available on the CBEC's web-site www.cbec.gov.in. It is expected that if the travelling passengers cooperate and comply with the legal provisions the passenger clearance system in India can become faster and least intrusive from Customs angle.

5.        The following paragraphs briefly explain the passenger clearance system presently followed and the various allowances and entitlements with respect to goods/currency/jewellery etc., available to passengers including tourists through accompanied or unaccompanied baggage, as well as benefits that are admissible on transfer of residence etc.

(A)        ARRIVAL:

6.        The airlines generally provide the Disembarkation Card to the passengers in the aircraft itself. Every passenger must fill up the Disembarkation Card clearly mentioning the quantity and value of goods that he has brought. On his arrival the passenger is first cleared by immigration, who retain the Immigration portion of the Disembarkation Card. Thereafter passenger takes the delivery of his baggage from the conveyer belts & passes through Customs. At all international Airports in the Customs Areas in our country the passenger has the option of seeking clearance through the Green Channel or through the Red Channel – a practice/facility available at most other major international airports in the world.

7.        The Green Channel or Walk through Channel – without any question being asked by Customs is meant for passengers who have nothing to declare and are carrying dutiable goods within the prescribed free allowance (Details are given later). The passengers can simply walk through the Green Channel with their baggage on the basis of their Oral declaration/Declaration on their Disembarkation Card.

8.        The Red Channel is meant for passengers who have something to declare or are carrying goods in excess of the duty free allowance. The passenger hands over the Customs portion of the Disembarkation Card to the officer on duty at the channel. In case the card is incomplete the Customs officer helps record the Oral declaration (O.D) of the passenger and thereafter he countersigns/stamps the same, after taking the passenger’s signature. In order to identify the frequent short visit passengers the Customs officer also generally scrutinizes the passport and other travel documents of the passengers. The declaration of goods and their values is generally accepted and duty assessed. On payment of this duty the passenger is allowed clearance.

9.        Any passenger found walking through the Green Channel with dutiable/prohibited goods or found misdeclaring the quantity, description or value of dutiable goods at the "Red Channel" (the baggage is examined where misdeclaration suspect), is liable to strict penal action including arrest/prosecution - apart from seizure/confiscation of the offending goods depending upon gravity of violation detected. In case the passenger brings any goods in baggage which are essentially for commerce & not for personal use, or imports goods in commercial quantity,

these goods become liable to confiscation and the passenger liable to strict penal action. Only bonafide baggage items for personal use or use by members of his family are allowed to be imported freely. In case of frequent short visit passengers and repeat offenders, instructions exist to the Customs officers to impose higher levels of fines and penalties and even consider prosecution action in the court of law so that there is a deterrent effect & the facilities provided to expedite Customs clearances are not abused.

Duty Free Allowances and Entitlements for Indian Residents and Foreigner Residing in India

10.        The duty free entitlement of passengers includes his used personal effects (excluding jewellery) that are required for satisfying the daily necessities of life. In addition articles upto Rs. 12000/-in value is allowed free of duty if this is carried as accompanied baggage of the passenger. This amount is proportionately reduced to Rs. 6000/- (if stay abroad is of three days or less). For children below 12 year the free allowance is only Rs. 3000/- (Rs1500/- if stay is 3 days or less). However, if the passenger is coming from Nepal, Bhutan, Myanmar or China, by routes other than by Land route, the free allowance is Rs. 3000/-. For passengers coming from Pakistan by land route the free allowance is Rs. 3000/- only.

11.        In addition, to the above the following quantities of Tobacco products and Alcohols are also allowed within the aforesaid duty free allowances viz :

(1)        200 cigarettes or 50 cigars or 250 gms tobacco.(2)        Alcoholic liquor & wines upto 1 litre each. 

            The items that are not allowed free of duty include firearms, cartridges of firearms, cigarettes/ cigars/ tobacco or alcoholic liquor and wines that is in excess of what is allowed within the free allowance, gold or silver, in any state (other than ornaments) except as provided in the paragraph below.

12.        The bonafide baggage items that are in excess of the duty free allowance can be cleared on payment of a uniform rate of Customs duty of approximately 61%, except for items like Liquor, cigarette etc that are charged to a higher rate of duty.

Professional returning after 3 months

13.        In the case of professionals who are returning to India after atleast 3 months stay abroad the person is eligible for additional free allowance over and above mentioned above, for used household articles such as utensils, linen, kitchen appliances, iron etc (upto Rs 6000) and professional equipment( Upto Rs 10,000). The allowance is proportionately higher if passenger is returning after 6 months stay or 1-year stay abroad.

Import of Jewelry /Gold/Silver

14.        a)        Jewellers: An Indian passenger who has been residing abroad for over one year is allowed to bring jewelry, free of duty in his bonafide baggage upto an aggregate value of Rs. 10,000/- (in the case of a male passenger) or Rs.20, 000/- (in the case of a lady passenger)

b)        Gold: Any passenger of Indian origin (even if a foreign national) or a passenger holding a valid passport issued under the Passport Act, 1967. is allowed to import upto 10 kg of gold as baggage if the passenger is coming to India after a period of not less than six months of  stay abroad. The duty at the rate of Rs.250 per 10 gms has to be paid by the passenger in foreign currency.

     The passenger can also obtain the permitted quantity of gold from the authorized Banks such as SBI, Bank of Nova Scotia etc.

c)        Silver: Any passenger of Indian origin (even if a foreign national).     Or a passenger holding a valid passport issued under the Passport Act, 1967 are allowed to import silver    not exceeding 100 kgs. per passenger, if the passenger is coming to India after a period of not less

than six months of stay abroad. Like in the case of gold the passenger can also obtain the permitted quantity of silver from an authorized Bank. The duty is payable by the passenger at the rate of Rs.500 per kg. in foreign currency.

Duty free allowances and entitlements for tourists

15.        A tourist is a passenger who is not normally resident in India or who enters India for a stay of not more than six months in the course of any twelve months period for legitimate non-immigrant purposes, such as : touring, recreation, sports, health, family reasons, study, religious pilgrimage, or business. The duty free allowances and entitlements for tourists of Indian origin coming to India (other than those coming from Pakistan by land route) are similar to what has been mentioned above for Indian passengers or foreigners residing in India.. The foreign tourists are however allowed articles upto a value of Rs,. 4000/-. except the tourists of Nepalese & Bhutanese origin who are not allowed any free allowance and tourists of Pakistani origin who are allowed free allowance of Rs 3000 only.

Allowances and Entitlements on Transfer of Residence (T.R.)

16.        In the case of a person transferring his residence to India there are certain additional benefits that the passenger is allowed subject to certain conditions. There should be minimum stay of two years abroad, immediately preceding the date of his arrival on transfer of residence . However short visits are permitted but total stay in India on short visits during the 2 preceding years should not exceed 6 months.  [A shortfall in period of stay abroad can be relaxed upto 2 months by the Asstt/Deputy Commissioner. The Commissioner of Customs in deserving and exceptional cases can relax visits to India, exceeding 6 months].

17.        The person transferring his residence to India after 2 years stay abroad as mentioned above is eligible to clear free of duty, articles such as used personal and household articles for a value upto Rs 1.5 Lakhs.. The goods such as firearms, cartridges of firearms, cigarettes/ cigars/ tobacco or alcoholic liquor and wines that are in excess of what is allowed within the free allowance, gold or silver, in any state (other than ornaments) are not allowed to be imported. However the following goods are not eligible for a complete duty exemption and are charged to a lower concessional rate of duty of 31%. The items include T.V, VCR/VCP/VTR, Washing Machine, Air Conditioner, Microwave oven, personal computer, Dish washer, Music System, Electrical/LPG Cooking Range(Other than cooking range with not more than 2 burners and without any extra attachment), Refrigerator, Deep Freezer, Video Camera or a combination of Video camera and TV Receiver; Sound recording or reproducing apparatus; Video reproducing apparatus, Word Processing Machine, Fax machine, Vessels, Aircraft, Cinematographic films of 35 mm and above, Gold or Silver, in any form, other than ornaments.

18.        TR concession is available provided the passenger has not availed this facility in the preceding 3 years. In other words there is no bar if the passenger who returns for stay in India on TR goes abroad but on his return again the TR concession is available for another 3 years.

Import of baggage of deceased person

19.        Used, bonafide personal and household articles of a deceased person are allowed free of duty subject to the condition that a Certificate from the concerned Indian Embassy / High Commission is produced regarding the ownership of the goods by the deceased person.

Import of unaccompanied baggage

20.        The provisions relating to clearance of unaccompanied baggage of a passenger are similar to that of accompanied Baggage; as long as the Unaccompanied baggage were in the possession abroad of the passenger and are dispatched within one month of his arrival in India or within such further period as the Assistant Commissioner of Customs may allow. However no free allowance is admissible in respect of unaccompanied Baggage. The unaccompanied baggage may arrive in India upto two months before of the passenger or within such period, not exceeding one year, as may be permitted by the Assistant Commissioner of Customs if he is satisfied that the passenger was prevented from arriving in India within the period of two months due to circumstances beyond his control.

Import of Foreign Exchange/Currency 

21.        Any person can bring into India foreign exchange without any limit. However, declaration of foreign exchange/currency is required to be made in the prescribed Currency Declaration Form in the following cases:-

(a)

Where the value of foreign currency notes exceeds US$ 5000/- or equivalent

(b)

Where the aggregate value of foreign exchange (in the form of currency notes, bank notes, traveler cheques etc.) exceeds US$ 10,000/- or its equivalent

Import of Indian currency as baggage

22.        The import of Indian Currency is prohibited, however, in the case of passengers normally resident in India who are returning from a visit abroad, import of Indian Currency not exceeding Rs. 1000 is allowed  

Import of fire arms as baggage

23.        Import of firearms is strictly prohibited. Import of Cartridges in excess of 50 is also prohibited. However, in the case of persons transferring their residence (as per conditions specified in the rules) to India for a minimum period of one year, one firearm of permissible bore can be allowed to be imported subject to the conditions that:

the same was in possession and use abroad by the passenger for a minimum period of one year and also subject to the condition that such firearm, after clearance, shall not be sold, loaned, transferred or otherwise parted with, for consideration or otherwise, during the lifetime of such person

The firearms are allowed in such cases on payment of applicable duty provided the passenger has a valid arms licence from the local authorities.

Import of pet animals as baggage

24.        Domestic pets like dogs, cats, birds etc. may be imported. Import of animals and  birds is governed by strict health certificate regulations

Detained Baggage

25.        There may be occasions when the passenger may not be in a position to clear his baggage for any reasons e.g. inability to pay up the Customs duty demanded. In such a situation, the passenger may request the Customs to detain his baggage either for re-export at the time of his departure from India or for clearance subsequently on payment of duty. The detained baggage would be examined and full details are inventorised before being taken in the custody of customs.

Mishandled Baggage

26.        There are numerous occasion when the passenger baggage gets lost or mishandled by the Airlines. In all such cases the passenger is required to obtain a certificate to that effect from the airlines and get it countersigned by Customs indicating specifically the unutilized portion of the free allowance. This would enable  the passenger to avail the unutilised portion of the duty free allowance when his baggage is delivered by the airlines. A simplified system of clearance of mishandled baggage, by the Airlines, has also been recently introduced at IGI Airport, Delhi.

(B) DEPARTURE:

27.        On the departure side, the principal task of Customs is enforcement related. These include checks to prevent narcotic drug trafficking, smuggling of other sensitive items such as

Indian including foreign currency, wild life products, antiques etc. It is therefore important for the public to know their obligation & entitlements.

28.        In order to facilitate the re-import of the high valued articles including jewelry, being carried out of the country, the departing passengers may request Customs for issue of a re-export certificate at the time of his/her departure from India.

Export of gold jewellery as baggage

29.        There is no value limit on the export of Gold jewellery by a passenger through the medium of baggage so long as it constitutes the bonafide baggage of the passenger

Export of Indian currency

30.        Export of Indian Currency is strictly prohibited. However Indian residents when they go abroad are allowed to take with them Indian currency not exceeding Rs. 1000.

Export of foreign currency 

31.        Indians going abroad are permitted to take with them foreign currency without any limit so long as the same has been purchased from an authorised foreign exchange dealer.

32.        Tourists while leaving India are allowed to take with them foreign currency not exceeding an amount brought in by them at the time of their arrival in India. As no declaration is required to be made for bringing in foreign exchange / currency not exceeding equivalent of U.S. $ 10000, generally tourists can take out of India with them at the time of their departure foreign exchange/currency not exceeding the above amount.

Offences & Penal Provisions

Persons involved in smuggling and other modus operandi of imports and exports, in violation of prohibitions/ restrictions in vogue or with intent to evade duties or fraudulently claim export incentives are liable to serious penal action under the Customs Act. The offending goods can be confiscated and heavy fines and penalties imposed. There are also provisions for arrests and prosecution to deter them from smuggling and commercial frauds-which seriously affect the economy and even society at large when it comes to sensitive goods like drugs, arms and ammunition. The following paras briefly indicate the provisions in law for seizure, confiscation of goods, imposition of penalties by adjudication. Later paras indicate the arrests and prosecution provisions.

Seizure

2.        An officer of Customs can seize any goods, if he has reason to believe that the same are liable to confiscation, under the Customs Act. The proper officer may also seize any document or things that may be relevant to any proceedings under the Custom Act. However, the person from whom these documents are seized is entitled to make copies of the same.

3.        The person from whom the goods are seized is issued a show cause notice, usually within six months. However, the Commissioner of Customs, on sufficient cause being shown, can extend the time period for issue of Show cause notice, by a further six months.

4.        In case the seized goods are perishable or hazardous in nature or is prone to depreciate in value over time or for reasons of constraints in space, the government can notify these goods and these goods can be disposed off before the conclusion of the proceedings eg. All electronic goods, Currency, Liquors, P&P medicine, Gold, Silver etc.

Confiscation

5.        The word ‘confiscation’ implies appropriation consequential to seizure. The essence and the concept of confiscation is that after confiscation, the property of the confiscated goods vests with the Central Government.

6.        The adjudicating authority makes the decision regarding confiscation of goods. The specific/ different categories of violations under which the import or export goods are liable to confiscation, are enumerated in Section 111 and 113 of the Customs Act. In general, the goods that are attempted to be smuggled into or out of the country, by route other than land routes or is attempted to be cleared by way of misdeclaration in quantity, description or value etc are liable to be confiscated. The import or exported goods are also liable to confiscation if there is an intention to evade Customs duty or to fraudulently avail the benefits available under various export promotion schemes, such as duty drawback, DEPB, 100% EOU etc.

Confiscation of Conveyances/ Packages & Their Contents

7.        In additon to confiscation of Goods, the conveyances, i.e., vessels, aircrafts or vehicles, or animals that are used in the smuggling activities or in connection with fraudulent availment of drawback are liable to confiscation as per specific provisions in section 115 of the Customs Act. ( Tt is worth noting that the term " Smuggling", in Customs Act has vast connotations and it means " any act or omission which will render such goods liable for confiscation under section 111 or 113 of the Customs Act.)

8.        In case the goods liable to confiscation are imported in a package, the package and its other contents, if any, are also liable to confiscation as per specific provisions in section 118 of the Customs Act.

Confiscation of goods used for concealing smuggled goods

9.        The goods used for concealing smuggled goods are also liable to confiscation as per specific provisions in section 119 of the Customs Act.

Confiscation of smuggled goods notwithstanding any change in form, etc.

10.        Smuggled goods may be confiscated even if its form has been changed. In case the smuggled goods with other goods in such a manner that the goods cannot be separated then the whole of goods are liable to be confiscated as per specific provisions in section 120 of the Customs Act.

Confiscation of sale proceeds of smuggled goods

11.        There may be situations when the smuggled goods are sold off. In such a situation, the sale-proceeds thereof are also liable to confiscation as per specific provisions in section 121 of the Customs Act.

Penal Provisions under the Customs Act:

12.        The word ‘penalty’ means punishment under the law, i.e., such punishment as is provided in penal laws. It also means the sum payable as a punishment for a default.

Penalties in respect of improper importation of goods:

13.        The person involved in omission or commission under the Customs Act, in relation to any goods which renders such goods liable to confiscation under section 111, or abets the same, or acquires possession of or is in any way concerned in carrying, removing, depositing, harbouring, keeping, concealing, selling or purchasing, or in any other manner dealing with any goods which he knows or has reason to believe are liable to confiscation under section 111, shall be liable to penalties as follows :-

(a) in the case of goods in respect of which any prohibition is in force under the Customs

Act or any other law for the time being in force, to a penalty not exceeding the value of the goods or five thousand rupees, whichever is the greater;

(b)

in the case of dutiable goods, other than prohibited goods, the person shall be liable to a penalty not exceeding the duty sought to be evaded on such goods or five thousand rupees, whichever is the greater;

(c) in the case of goods or baggage in respect of which misdeclaration of value has been done, to a penalty not exceeding the difference between the declared value and the value thereof or five thousand rupees, whichever is the greater;

(d)

in the case of goods falling both under clauses (i) and (iii), to a penalty not exceeding the value of the goods or the difference between the declared value and the value thereof or five  thousand rupees, whichever is the highest;

(e)

in the case of goods falling both under clauses (ii) and (iii), to a penalty not exceeding the duty sought to be evaded on such goods or the difference between the declared value and the value thereof or five thousand rupees, whichever is the highest.

Penalties in respect of improper exportation of goods

14.        The person involved in commission or omission, in relation to any goods, which renders such goods liable to confiscation under section 113, or abets the same, shall be liable to penalties in different types of cases as follows:-

(i)in the case of goods in respect of which any prohibition is in force under this Act or any other law for the time being in force, to a penalty not exceeding *  the value of the goods or five thousand rupees, whichever is the greater;

(ii)in the case of dutiable goods, other than prohibited goods, to a penalty not exceeding the duty sought to be evaded on such goods or five thousand rupees, whichever is the greater;

(iii)

in the case of goods under claim for drawback, to a penalty not exceeding the amount of drawback claimed or five thousand rupees, whichever is the greater.

Mandatory Penalty for Short-levy or Non-levy of duty in certain cases ( Section 114 A)

15.        In cases of non-levy or short levy of duty or where the interest has not been charged or paid or has been part paid or the duty or interest has been erroneously refunded by reason of collusion or any wilful mis-statement or suppression of facts, the person who is liable to pay the duty or interest, as the case may be, as determined under sub-section (2) of section 28 shall also be liable to pay a penalty equal to the duty or interest so determined. However, where such duty or interest, as the case may be, and the interest payable thereon, is paid within thirty days from the date of the communication of the order, the amount of penalty to be paid shall be reduced to 25% of the duty or interest.

16.        If the duty or interest determined to be payable is reduced or increased by the Commissioner (Appeals), the Appellate Tribunal or, as the case may be, the Court, then, the duty or interest as reduced or increased, as the case may be, shall be taken into account. Also, in a case where the duty or interest determined to be payable is increased by the Commissioner (Appeals), the Appellate Tribunal or, as the case may be, the Court, then, the benefit of reduced penalty shall be available if the amount of the duty or the interest so increased, along with the interest payable thereon, and 25% of the consequential increase in penalty have also been paid within thirty days of the communication of the order. Where any penalty has been levied under this section, no penalty shall be levied under section 112 or section 114.

Penalty for not Accounting for Goods ( Section 116)

17.        If any goods loaded in a conveyance for importation into India, or any goods transhipped under the provisions of this Act or coastal goods carried in a conveyance, are not unloaded at their place of destination in India, or if the quantity unloaded is short of the quantity to be unloaded at that destination, and if the failure to unload or the deficiency is not accounted for to the satisfaction of the Assistant Commissioner of Customs or Deputy Commissioner of Customs, the person-in-charge of the conveyance shall be liable to: -

(a)

in the case of goods loaded in a conveyance for importation into India or goods transhipped under the provisions of this Act, to a penalty not exceeding twice the amount of duty that would have been chargeable on the goods not unloaded or the deficient goods, as the case may be, had such goods been imported;

(b)

in the case of coastal goods, to a penalty not exceeding twice the amount of export duty that would have been chargeable on the goods not unloaded or the deficient goods, as the case may be, had such goods been exported.

Penalties for contravention, etc., not expressly mentioned

18.        Any person who contravenes any provision of this Act or abets any such contravention or who fails to comply with any provision of this Act with which it was his duty to comply, where no express penalty is elsewhere provided for such contravention or failure, shall be liable to a penalty not exceeding ten thousand rupees.

Adjudication of confiscations and penalties

19.        The Customs Act enjoins quasi-judicial proceedings to be followed before any penalties are imposed and any confiscation action etc. initiated against any offending goods. Apart from issuing proper show cause notice under section 124, the persons concerned are also required to be given opportunity of representation in writing and personal hearing in the matter. The proper adjudication authority is then to pass final order taking due note of all evidences brought on record. As per Section 122 of the Customs Act, adjudication powers have been given to different class of officers as follows:-

(a)

without limit, by a Commissioner of Customs or a Joint Commissioner of Customs;

(b)

where the value of the goods liable to confiscation does not exceed fifty thousand rupees, by an Assistant Commissioner of Customs or Deputy Commissioner of Customs;

(c) where the value of the goods liable to confiscation does not exceed two thousand five hundred rupees, by a Gazetted Officer of Customs lower in rank than an Assistant Commissioner of Customs or Deputy Commissioner of Customs.

        Generally, ‘mens rea’ is not required to be proof for the imposition of penalty under the provisions of the Customs Act. The amount of penalty depends on the gravity of the offence and is to act as the deterrent for future.

20.        Whenever the goods are confiscated by an adjudicating authority, if these are not prohibited goods, an option is to be given to the party as per Section 125 of the Customs Act, to pay a fine known as ‘redemption fine’ of quantum as the adjudicating authority deems fit, in lieu of the confiscation. Prohibited goods can be confiscated absolutely.

Arrest:

21.        To tackle the menace of smuggling and other serious economic offences including commercial frauds effectively, apart from penal action in departmental adjudication, the Customs Act, also provides for criminal prosecution action. The persons involved can be arrested and prosecuted in a Court of Law. Prosecution action can also be taken for providing false documents/declarations to Customs and for obstructing Customs officers working intentionally.

22.        Any person guilty of serious offence under Customs Act, which is punishable under section 135 of the said Act, can be arrested by a customs officer authorised in this behalf, as provided under section 104 (1) of the Act. Under the law, the person being arrested is entitled to be informed about the grounds for such arrest under the law. The said section also enjoins that provides that every person arrested under the Act has to be taken without unnecessary delay to the nearest Magistrate. Since the Customs Act doesn’t contain any provision regulating the manner in which a person arrested is to be dealt with by the Magistrate, therefore, the provisions of the Criminal Procedure Code which regulate this aspect would be applicable to the person arrested under the provisions of the Customs Act. The power to remand to judicial custody vests in the Magistrate by virtue of section 165 of the Cr.P.C.

23.        Department has issued several instructions to ensure that powers of arrest by Customs officers are exercised with care at senior level and arrest should be resorted in sufficient grave nature of officers as per laid down guidelines.

Offences & Prosecution

        The offences under the Customs Act can be broadly categorised in two categories – non-bailable or cognisable offences & bailable or non-cognisable offences

Non-bailable or cognisable offences

24.        The offences punishable with imprisonment for a term of more than 3 years are covered in this category. As per section 135 (1) of the Customs Act if any person is involved, in relation to any goods, in any way knowingly concerned in any fraudulent evasion or attempt at evasion of any duty chargeable thereon or of any prohibition for the time being imposed under this Act or any other law for the time being in force with respect to such goods, or acquires possession of or is in any way concerned in carrying, removing, depositing, harbouring, keeping, concealing, selling or purchasing or in any other manner dealing with any goods which he knows or has reason to believe are liable to confiscation under section 111, shall be punishable, in the case of an offence relating to any of the goods to which section 123 applies and the market price whereof exceeds one lakh of rupees, with imprisonment for a term which may extend to seven years and with fine.

25.        If any person convicted of an offence under section 135(1) or of section 136 (1) (applicable to customs officers) of the Act is again convicted of an offence under the same sections, then, he shall be punishable for the second and for every subsequent offence with imprisonment for a term which may extend to seven years and with fine.

(ii) Bailable or non-cognisable offences

26.        The offences punishable with imprisonment for a term of less than 3 years or only fine are covered in this category .The offences under this category are as follows:-

(a)

If a person makes, signs or uses, or causes to be made, signed or used, any declaration, statement or document in the transaction of any business relating to the customs, knowing or having reason to believe that such declaration, statement or document is false in any material particular, he shall be punishable with imprisonment for a term which may extend to six months, or with fine, or with both (section 132).

(b)

If any person intentionally obstructs any officer of customs in the exercise of any powers conferred under this Act, such person shall be punishable with imprisonment for a term, which may extend to six months, or with fine, or with both (section 133).

(c)

If any person resists or refuses to allow a radiologist to screen or to take X-ray picture of his body in accordance with an order made by a Magistrate under section 103, or resists or refuses to allow suitable action being taken on the advice and under the supervision of a registered medical practitioner for bringing out goods liable to confiscation secreted inside his body, as provided in section 103, he shall be punishable with imprisonment for a term which may extend to six months, or with fine, or with both (section 134).

(d)

In all offences under the Customs Act other than those mentioned under ‘non-bailable or cognisable offences’ above, the punishment for imprisonment may extend to a term of three years, or with fine, or with both. However, in the absence of special and adequate reasons to the contrary to be recorded in the judgment of the court, such imprisonment shall not be for less than one year {section 135 (i)}.

(e)

If a person makes preparation to export any goods in contravention of the provisions of this Act, and from the circumstances of the case it may be reasonably inferred that if not prevented by circumstances independent of his will, he is determined to carry out his intention to commit the offence, he shall be punishable with imprisonment for a term which may extend to three years, or with fine, or with both (section 135A).

(f)

The officers of Customs also cannot escape serious action including prosecution action, if they are found abusing their powers or are shown to be colluding/conniving with tax evaders. In the following cases, prosecution proceeding against a customs officer may be initiated under section 136 of the Customs Act:-

(i) In cases of connivance in the act or thing whereby any duty of customs leviable on any goods, or any prohibition for the time being in force under this Act or any other law for the time being in force with respect to any goods is or may be evaded, a customs officer shall be punishable with imprisonment for a term which may extend to three years, or with fine, or with both.

(ii) In cases of vexatious search, i.e., where any person is searched for goods liable to confiscation or any document relating thereto, without having reason to believe that he has such goods or document secreted about his person, a customs officer may be punishable with imprisonment for a term which may extend to six months, or with fine which may extend to one thousand rupees, or with both; or

(iii) If a customs officer arrests any person without having reason to believe that he has been guilty of an offence punishable under section 135, he may be punishable with imprisonment for a term which may extend to six months, or with fine which may extend to one thousand rupees, or with both; or

(iv)

If a customs officer searches or authorises any other officer of customs to search any place without having reason to believe that any goods, documents or things of the nature referred to in section 105 are secreted in that place, he may be punishable with imprisonment for a term which may extend to six months, or with fine which may extend to one thousand rupees, or with both.

(v) If any officer of customs, except in the discharge in good faith of his duty as such officer or in compliance with any requisition made under any law for the time being in force, discloses any particulars learnt by him in his official capacity in respect of any goods, he may be punishable with imprisonment for a term which may extend to six months, or with fine which may extend to one thousand rupees, or with both.

Presumption of culpable mental state

27.        As per section 138A of the Customs Act, in prosecution proceedings under the said Act for an offence under the said Act, the culpable (guilty conscience or mens rea) on the part of the accused person shall be presumed and it will be for the accused to proof that he had no deliberation with respect of alleged offence. When the presumption of culpable mental state is drawn under this provision, that presumption includes intention, motive, knowledge, belief as well as reason to belief. The presumption could be deemed as rebutted only if the proof is beyond reasonable doubt not merely when its existence is established by a preponderance of probability.

Prosecution:

28.        No prosecution proceedings can be launched in a Court of Law against any person under Customs Act, and no cognizance of any offence under sections 132 to 135 of the Customs Act, 1962 can be taken by any Court, except with the previous sanction of concerned Commissioner of Customs. Based upon the results of investigations and evidence brought on record, Commissioners of Customs apply their mind before sanctioning prosecution- after being satisfied that there are sufficient reasons justifying prosecution. Criminal complaint is thereafter filed in appropriate Court of law and followed up with a view to get expeditious orders / conviction.

Appeal and Review/Settlement of cases

Appeal to Commissioner (Appeal)/CEGAT

        Chapter XV of Customs Act incorporates the provisions regarding appeals and revision. Under Section 128 an appeal lies to the Commissioner of Customs (Appeals) against any decision or order passed under that Act by an Officer of Customs lower in rank than a Commissioner of Customs.

        Under Section 129A (as it stands at present) an appeal lies to the Customs, Excise and Gold (Control) Appellate Tribunal (CEGAT for short) against-

- any decision or order passed by a Commissioner of Customs as an adjudicating authority; or

- an order passed by the Commissioner (Appeals) under Section 128;

Revision Application:

2.        The first proviso to Section 129A(1) take away this appellate jurisdiction of CEGAT for certain categories of cases enumerated therein. These cover baggage, Drawback and short-landing cases. In these cases, aggrieved person may file an application for revision before the Central Government as provided in section 129 DD.

3.        Section 129A(2) provides for appeals at the instance of the Commissioner against orders passed by either an Appellate Collector or Commissioner (Appeals). It may be further noted that under Section 129A(4) a right to file cross objections has been provided, such cross objections also having the force of an appeal. Under Section 129D of the Customs Act, the Board and the Commissioner are given right, in suitable cases, to direct the lower adjudicating authority to apply to the Tribunal or the Commissioner (Appeals) respectively to determine any points in the order of the adjudicating authority which, according to them, have been wrongly decided. Section 129D(4) provides that such applications shall be heard as appeals and the provisions of Section 129A(4) shall also apply to such proceedings.

Appeal to Supreme Court:

Under Section 130E of the Customs Act, an appeal lies to the Supreme Court against-

(i) any judgement of a High Court delivered on a reference under Section 130 or Section 130A, provided the High Court had certified it to be a fit case for such an appeal;

(ii)

an order of the CEGAT, relating among other things to the determination of any question having relation to the rate of duty of customs or to the value of the goods for purposes of assessment.

Time limit for filing Appeal and Form of Appeal:

4.        Under the amended provisions the appeal is to be filed within 60 days from the date of communication of such decision or order. In the event of the appellant showing sufficient cause which prevented him from filing the appeal within the specified period of 60 days, the Commissioner (Appeals) can condone the delay of a further period of 30 days. It should be noted that the Commissioner (Appeals) is not empowered to condone delay beyond 30 days.

The appeal before the Commissioner (Appeals) is to be filed in Form No.C.A.1. in duplicate and is to be accompanied by a copy of decision or order appealed against. The grounds of appeal and the form of verification as contained in form No.C.A.1 is to be signed by the appellant. The time limit for filing appeal before Appellate Tribunal is three months from the date on which the order to be appealed against is communicated to the appellant. Upon showing sufficient cause, the Tribunal can condone delay in filing appeal before it. Appeal to the Appellate Tribunal is to be filed in Form No.C.A.3 and is to be verified in the prescribed manner and has to be accompanied by the prescribed fee and prescribed documents. One should refer to Sections 128, 128A, 129A, 129B & 129C of the Act, Customs (Appeals) Rules, 1982 and CEGAT (Procedure) Rules, 1982.

5.        Sub-section 4A of Section 128A of the Act requires the Commissioner (Appeals) to as far as possible decide every appeal within six months from the date on which it is filed.

Revenue Appeals:

6.        Under the provisions of Section 129D the revenue is also permitted to file appeals under the Customs Act. In case an order or decision has been passed by an Additional Commissioner or Joint Commissioner or Deputy Commissioner or Assistant Commissioner or Appraiser/Supdt., the jurisdictional Commissioner of Customs can examine the propriety and legality of such order and issue direction under section 129D(2) of the Customs Act to the adjudicating authority to apply before Commissioner (Appeals) for determination of such points as specified in the review order. The review order is to be passed within a period of one year from the date of decision or order. The application before the Commissioner (Appeals) is to be filed within three months from the date of communication of the review order.

7.        The jurisdictional Commissioner of Customs can examine the legality or propriety of an order-in-appeal passed by Commissioner (Appeals). In case he finds the order of Commissioner (Appeals) to be not legal or proper, he can direct any Customs Officer (authorised by him in this behalf) to file an appeal on his behalf to the Appellate Tribunal against the said order of Commissioner (Appeals). Such an appeal is to be filed within a period of three months from the date on which such order is communicated to the Commissioner of Customs.

8.        The Board can review the Order-in-Original passed by a Commissioner of Customs as an adjudicating authority. In case Board is not satisfied with the legality or propriety of such order, it can direct the Commissioner to apply before the Appellate Tribunal for determination of such points as may be specified in the review order. Review by Board under Section 129D(1) is to be completed within one year from the date of decision or order of the adjudicating authority. The application before the Appellate Tribunal in pursuance of that direction is to be filed within three months from the date of communication of the review order.

Memorandum of cross objections:

9.        Sub-section 4 of Section 129A provides for filing a memorandum of cross objections, verified in the prescribed manner by the respondent, to be filed within forty-five days of the receipt of notice of filing of appeal before the Tribunal. In the said cross objections, the respondent can agitate against any part of the order appealed against and such cross objections are disposed of by the Tribunal as if it were an appeal. Rules 15 and 15A of the CEGAT (Procedure) Rules, 1982 allows filing of reply to such appeal within a month by the respondent, and rejoinder to the reply within a month by the appellant. Attention is also invited to Rule 6 of the Customs (Appeals) Rules, 1982 in this regard.

Pre deposit of Duty demanded or penalty levied:

10.        Section 129E of the Customs Act requires that a person desirous of appealing against a decision or order of the Officer of Customs before Commissioner (Appeals) or the Appellate Tribunal shall, pending the appeal, deposit with the adjudicating authority the duty demanded or the penalty levied. In case an appellant is not in a position to pre-deposit the entire amount of duty demanded or penalty levied, the appellant should file the stay application for waiver of pre-deposit. . The Commissioner (Appeals) and the Appellate Tribunal are empowered to waive pre-deposit, either fully or partially, if the appellant is able to show that pre-deposit of duty or

penalty levied would cause undue hardship to such person. As per the amended provisions of Section 129E, Commissioner (Appeals) is required, wherever it is possible to do so, to decide a stay application within thirty days from the date of its filing.

Reference to High Court:

11.        Section 130A of the Customs Act provides that within one hundred and eighty days of receipt of order of Tribunal passed under Section 129B, a person can file an application in prescribed from (Form No.C.A.6) if the order of the Tribunal does not relate to determination of any question having relation to the rate of duty of customs or the valuation of goods for purposes of assessment. Hence, it should be noted that High Court can not be approached under this provision if the issue relates to classification or valuation of the goods.

Civil Appeal before the Supreme Court:

12.        In case the order of the Tribunal passed under Section 129B relates to classification or valuation, direct appeal lies to the Supreme Court of India in terms of Section 130E(b). Similarly, one can file civil appeal before the Supreme Court against the order of the High Court delivered on a reference made under Section 130 or 130A if the High Court certifies the same to be fit case for appeal to the Supreme Court. The time limit for filing civil appeal before the Supreme Court is sixty days only.

Settlement Commission:

13.        An alternative channel for resolution of dispute for assessees finally- without going into the prolonged litigation in adjudication/appeals/revisions etc., has been created by constituting Customs & Central Excise Settlement Commission. (Provisions of section 127A to 127N of the Customs Act refer). Presently, three Benches in the Settlement Commission have been constituted and they are functioning at Delhi, Mumbai and Chennai . The fourth bench at Kolkata will be constituted in due course.

            Section 127B of the Customs Act provides filing of application by the assessee for settlement of cases before the Settlement Commission. Certain conditions are prescribed which inter-alia require that the Settlement Commission cannot entertain the cases which are pending with the Appellate Tribunal or in a Court. Similarly, the matters relating to classification cannot be raised before the Commission. It is also specified that no application can be made unless the appellant has filed a bill of entry, or a shipping bill etc., or a show cause notice issued by proper Officer and the additional amount of duty accepted by the applicant in his application exceeds two lakh rupees.

            The procedure prescribed essentially requires examination of the application for its acceptability under Settlement provisions, payment of additional duty admitted by the applicant, calling and examination of records from jurisdictional Commissioner of Customs, getting further enquiries/investigations caused from Commissioner of Customs or Commissioner (Investigation) attached to Settlement Commission, giving opportunity for detailed submission to the applicant and passing order by the Commission. Every order passed by the Settlement Commission under Section 127J is conclusive as to the matters stated therein and no matter covered by such order can be reopened in any proceedings. The Settlement Commission can consider immunity from prosecution proceedings if the applicant cooperates with the Commission in the proceedings before it and makes full and true disclosure of his duty liability. Even grant of immunity, whole or part, from imposition of penalty, fine and interest may also be considered.

System of Grievance Redressal in the field formations of Customs

The Citizen’s Charter of the Department envisions that the Customs & Central Excise officers shall carry out their assigned tasks with integrity and judiciousness; courtesy and understanding; objectivity and transparency; promptness and efficiency. The officers are also committed to providing every possible assistance to the public and trade in implementation of the Customs policies and procedures. The Customs department has also initiated a number of

measures to ensure that complaint(s)/grievance(s) are minimized and where received these are attended to promptly.

2.        In order to take care of the grievance(s)/complaint(s) the department has put in place a grievance redressal mechanism in the field formations of Customs. The grievance redressal machinery can broadly be categorized into two, viz:

(I) Grievance Redressal System related to Cargo clearance;(II) Grievance Redressal System related to Passenger clearance

I)        Grievance Redressal System related to Cargo clearance :

3.        The clearance of cargo at ports, air cargo complexes, ICDs and CFSs involves interaction of the trade with the officials of the Customs department. To redress the grievance of the public in so far as it relates to clearance of imported goods/export cargo a number of steps have been taken. The main stress has been to review and change procedures and on cutting down contact with the officers to the extent possible, and introducing computerization in Customs clearances to cut down delays at various level which is the main cause of corrupt practice. Some of the major policy initiative & procedural simplification measures in Customs include simplified procedure for movement of export goods from factories/EOUs /EPZs; Reduced percentage of examination of export goods; Fast Track Clearance Scheme; simplification in procedures relating to coastal shipping; transshipment of imported/export goods by trucks etc. The specific measures for facilitation, reducing problem & handling complaints/grievances of trade and industry are mentioned below:

A.        Management Information System (MIS)

4.        The majority of the problem faced by the importers, exporters, Custom House Agents or their representative is in respect of information regarding clearance of their consignments. With the introduction of EDI (Electronic Data Interchange) for the clearance of consignments at all major Custom houses it is now possible for the supervisory level /senior officers of Customs to monitor the delay in clearance at any stage. A report is generated every evening of all Bills of entry, Shipping Bills, DBK claim that are pending in the EDI system along with the date of receipt and the level at which the document is pending.

5.        The System Manager looks after all EDI related problems. The System Manager holds regular meetings with the Remote EDI (RES) users, CHAs representatives, NIC, CMC and other agencies that support the EDI system.

6.        In all major Custom Houses, a "Tele Enquiry System" has also been introduced in recent months. Any exporter, importer or his agent can dial the assigned numbers and ascertain the status of his bills of entry/shipping bills or DBK claim. The system provides a voice response and can also be used on fax mode.

B.        Accessibility of Senior Officers

7.        The Chief Commissioner/Commissioners earmark time on all working days during which any person having any grievances relating to Customs is free to meet the officer without any prior appointment. A number of Commissioners allow the meeting even outside earmarked hours, the matter is brought to notice are looked into for prompt remedial measures.

C.        Public Grievance officer:

8.        Each Commissioner has designated a Public Grievance Officer. Public Notices have been issued giving the names and telephone numbers of these officers so that any person from the trade and public may contact them if he has a grievance that is not being redressed by the dealing officer or his supervisor.

9.        Public notices are also issued in most Custom Houses periodically explaining the Public grievance redressal machinery available for quick redressal of grievances from the Trade and

Industry including grievances relating to delay or unreasonable attitude of the part of any Customs Officer(s).

D.        Public Grievance Committee

10.        A Public Grievance Committee exists at the level of the Commissioner in each Commissionerate of Customs. The committee consists of representatives of trade and industry, Custom House Agents, representatives of Custodians, such as AAI, CONCOR, Banks, Export Promotion Agencies, such as the Garments Exporters Association, Handicraft Export Association, and Chambers of Commerce etc.

11.        The committee meets once in a month and grievances relating to Customs functioning are taken note of for taking prompt remedial action- either during the meeting or after further examination. The minutes of the meeting are circulated to all concerned. In case grievances relate to other agencies such as the Wild Life, NIC or CMC their representatives are also invited for these meetings.

E.        Watch Dog Committee:

12.        In addition to the above a watchdog committee has also been constituted under the chairmanship of the Chief Commissioner. This committee meets once in two months. Leading association of trade and industry and other agencies that interact with Customs have been included in the committee along with the senior officers of Customs to ensure meaningful dialogue. This Committee takes note of various procedural delays or problems in general being faced in Customs clearance on export/import or grant of various incentives. The feedback from trade and industry is used for necessary review of procedures & taking measures to remove the difficulties of importers/exporters.

II)        Grievance Redressal related to Passenger clearance :

13.        A number of measures have been taken to ensure that the international passengers do not face any difficulty in Customs clearance at the international airports.

A.        Passenger Facilitation/grievance redressal mechanism:

14.        More than 90% of the passengers walk through the green channel if they have nothing to declare. The officers of Customs have been sensitized to show due courtesy and exemplary conduct especially towards the elderly, illiterate passengers. However, in case the passenger still has a grievance there are a number of illuminated boards installed by Customs in the arrival/departure halls and in the immigration area suggesting that they may approach the PRO (Customs) for help.

15.        Senior officers of the rank of Assistant Commissioner/Deputy Commissioner of Customs are available round the clock and the passenger can directly approach them for redressal of their grievances.

16.        It has also been displayed that for any vigilance angle grievance the passenger can lodge the complaint with the Commissioner of Customs or the CVC.

B.        Airport Facilitation Committee

17.        The Airport Facilitation Committee has also been constituted to look into the complaints of the passengers arriving at the airport. The committee meets once in a month and has members from various agencies working at the airport like IAAI, Customs, Immigration, and Police etc.