Applicability of Custom Duty on imported goods under section 12 of the Customs Act,1962
In terms of import or export of goods we often use the term custom duty which is payable or to be paid but at what point of time and when the importation of goods would be treated as complete makes us confused.
As per section 12 of the Customs Act, 1962 duties of customs shall be levied as per rates specified under the Customs Tariff Act, 1975 on goods imported into or exported from India. When goods are brought into India it becomes imported goods from the moment they enter into territorial waters , custom duty become leviable on them. The taxable event will be counted at that point. It has to be determined whether they are exempt from duty or not on that date.
If they are exempt from duty , no question of calculating the duty payable arises at any later point of time. If they are chargeable to some duty and are not wholly exempt then only the question arises as to what duty is payable.
If the goods are wholly exempt from duty as against being partially exempt from such duty they cannot be subjected to duty even if the exemption is withdrawn or modified before the bill of entry is presented or the goods are cleared for home consumption.
Custom duty refers to the tax imposed on goods when they are transported across the international borders. In simple terms, it is the tax that is levied on import and export of goods. The government uses this duty to raise it’s revenues, safeguard domestic industries and regulate movement of goods.
The liability to pay custom duty commences as soon as goods enter the territorial water of India. No duty is leviable on goods which are in transit in the same ship or if goods are in transit from obe ship to another. No custom duty is leviable on sample goods. Basic custom duty The term territorial waters is sometimes used informally to refer to any area of water over which a sovereign state has jurisdiction. The maritime boundaries and areas are calculated from the baseline.
Baseline : It is the low water line along the coast as officially recognized in the coastal state.
Internal water: Internal waters are waters on the landward side of the baseline from which the breath of the territorial sea is measured. There is no right of innocent passage through internal water.
Territorial sea: The Territorial sea extends seaward up to 12 nautical miles from its baseline. The coastal States have sovereignty and jurisdiction over the territorial sea. These rights extend not only on the surface but also to the seabed, subsoil and even airspace.
Contiguous zone : This extends seaward up to 24 nautical miles from its baseline. It is an intermediary zone between the territorial sea and the high seas. The coastal state has the right to both prevent and punish infringement within its territory and territorial sea. Unlike the territorial sea, the contiguous zone only gives jurisdictions to a state on the ocean surface and floor. It does not provide air and space rights.
Exclusive Economic Zone: It extends seaward up to 200 nautical miles from its baseline. Within the EEZ(Exclusive Economic Zone) , a coastal state has sovereign rights for the purpose of exploring , exploiting , conserving and managing natural resources , whether living or nonliving of the seabed and subsoil. It has the right to carry out activities like the production of energy from water , current and wind. Unlike the territorial sea and the contiguous zone , the EEZ only allows for the above mentioned resource right. It does not give a coastal state the right to prohibit or limit freedom of navigation.
High sea: The ocean surface and the water column beyond the EEZ are referred to as the high seas.
Let us discuss the applicability of taxable event on import and export of goods. For exports the taxable event as per section 16(1) of the Customs Act , 1962 arises only when proper officer makes an order (LEO) I.e. entry outward granted and loading of the goods for exportation took place under section 51 of the Customs Act,1962.
Similarly for imports taxable event would be considered when goods are entered into the territorial water of India but continues and is completed when they become part of the mass of goods within the country and the taxable event being reached at the time when goods reach the customs barriers and bill of entry for home consumption is filed. Thus when goods are brought from outside the territorial waters of India , they become imported goods and become chargeable to duty up to the moment they are cleared for home consumption. No sooner than they are cleared for home consumption they cease to be imported goods.
Section 12 declares that duties of customs shall be levied on all goods imported into India. The goods imported shall have to be valued under section 14 of the Customs Act and the duty payable shall have to be determined according to the rates specified under section 15 of the Customs Act,1962 read with the Tariff Act. Under section 46(1) of the Customs Act every importer of goods is required to make an entry for home consumption or warehousing in the prescribed form. The goods may be unloaded only at the approved place and under the supervision of the customs officer as per section 31 of the Customs Act.
Section 29 of the Customs Act prohibits the person-in-charge of a vessel or aircraft entering India from any place outside India from permitting the vessel or aircraft to land at any place other than Customs port or Customs Airport. Within 24 hours of arrival the person-in-charge is required to deliver an IGM as per section 30 of the Customs Act. As per section 45 of the Customs Act all imported goods unloaded in Customs Area shall remain in the custody of the Customs until they are cleared for home consumption or are warehoused or are transhipped. Only the proper officer may clear the imported goods for home consumption after he is satisfied that they are not prohibited goods and the importer has paid the import duty if assessed thereon. Irrespective of whether the goods are dutiable or not the goods may be cleared only after an order permitting clearance of goods for home consumption is made. If the Assistant Collector of Customs is satisfied that the goods cannot be cleared within a reasonable time, he may permit the storage of imported goods in a warehouse pending clearance.
Section 14 of the Customs Act does not lay down when or what goods are chargeable to Customs duty. It only deals with the valuation of the goods imported which are chargeable to customs duty. It does not lay down at what point of time the goods become imported goods. Whether they are chargeable at all to duty and if so, when they become chargeable must be determined with reference to section 12 of the Customs Act. Section 15 of the Customs Act would become relevant only if goods are chargeable to duty. Only then for the purpose of determining the amount of duty payable on imported goods the rate at which the duty has to be levied has to be determined by section15.
Under all taxing statutes what has to be determined is when exactly did the taxable event occur because it is the crucial date. A taxing statue does not envisage that the taxable event , valuation of goods , income, the rate of duty or tax and quantification of duty or tax should be completed at any single point of time nor that they must be necessarily postponed until all stages are completed. Under the Customs Act chargeability is under section12 , valuation of goods under section 14 and the rate at which the duty should be assessed is under section 15. These different events may occur at different points of time , but unless the goods are chargeable to duty and the taxable event occurs , the question of valuation of goods and quantification of duty payable at any particular rate obviously cannot arise.
As per section 12 of the Customs Act import into India , which includes its territorial water, must mean that for the purpose of chargeability under section 12 , taxable event occurs when the goods enter the territorial water. Import duty would be applicable when goods enter the territorial waters of India and goods may be valued and the duty quantified and collected later ax laid down in section 14 and section 15 of the customs act. The rate itself can be fixed at a later date.
The Customs Act itself gives two options to an importer. The importer may clear the goods forthwith or lodge them in a warehouse for clearance from time to time. So when do they become imported goods? Is it only when they are cleared from the warehouse for home consumption? The goods lodged in the warehouse need not be cleared in one lot; they could be cleared in installments. Even in respect of goods unloaded on the land mass on the same day or even at the same time , section 15 if the Customs Act clearly envisages different rates of duties with reference to the date of clearance. Then there will be different dates of importation for the goods unloaded on the land mass on the same day but removed from the warehouse for home consumption on different dates. Then at what point of time the goods become imported goods? Is it when they enter the territorial waters of India ? or is it when the goods are unloaded on the land mass of India?
Import can be said to take place as soon as goods are brought into the territorial waters of India. The taxable event occurs when , as laid down by section 12 , goods are imported into India and once “india” includes its Territorial waters , the taxable event occurs no sooner than the goods enter the territorial waters of India and does not postpone till they are actually off loaded on the land mass or till the goods are valued under section 14 or till the date for determining the rate at which the Customs duty should be levied under section 15 of the Customs Act, 1962.
It is thus manifest that goods on entered the territorial waters of India become imported goods and chargeable to duty under section 12 but if not unloaded are exempt from payment of duty. They continue to be imported goods until cleared for home consumption. The taxable event occurs upon the goods entering the territorial waters of India. If at that point of time, the imported goods are chargeable to duty, then the duty has to be assessed as per the valuation made under section 14 and at rate specified under section 15.
If the goods are not chargeable to customs duty, then neither their valuation under section 14 of the customs act nor calculation of the duty payable at the rates as mentioned in under section15 of the Customs Act would be required.
In connection with section 12 of the Customs Act,1962 ,judgement of one legal case given in Kolkata High Court on 21 st July,1998 is given below basis on which everyone can have an idea of clear interpretation of section 12 of the customs act.
Dinesh Kumar Nevatia vs Collector of Customs: Kolkata High Court: 27..07.1998
Petitioner: Dinesh Kumar Nevatia
Respondent: Collector of Customs
Background
The petitioner purchased 252 metric tons of Dun peas which arrived at Kolkata Port on or about 27.01.1987 and discharge of the cargo was completed by 30.01.1987. The vessel entered the territorial water of India on 27.01.1987. The said goods were OGL items and no custom duty were payable. The said vessel contained similar other goods. As per notification 40/87 the Customs Authorities had imposed 25% duty on importation of Dun peas.
Petitioner’s Contention
According to petitioner notification came into force after the goods had entered into the territorial waters of India I.e. on 27.01.1987 and goods were unloaded on 29.01.1987 and he presented the bill of entry on03.02.1987. The question is whether the goods have been imported prior to 04.02.1987 I.e. before the said notification came into effect imposing a duty.
Respondents’ contention
For the purpose of fixing the rate of duty, the date of importation is not relevant. What is relevant is as provided under section 15 of the Customs Act. Section 15 fixes (1) the date and (2) the rate at which the duty is to be imposed. From section 15 it is clear that the date of importation is not mentioned therein. In the present case, the relevant date is the date when the bill of entry has been filed for home consumption. The petitioner presented the bill of entry on05.02.1987 when the same was assessed to duty on the said date. It is therefore, contended by the respondent that the petitioner is liable to pay duty.
The question is when was the importation complete. If the importation was completed on 27.91.1987 when the vessel ha entered the territorial waters of India , in that event no duty would be payable by the petitioner. If the importation takes place when the bill of entry is assessed the duty may have to be levied on the basis of such notification. The answer would invariably depend upon what exactly does expression “goods” imported into India occurring in section 12 mean?
As per section 2(27) of the customs act India includes the territorial beater of India and as per section 2(25) of the customs act “imported goods” mean any goods brought into India from a place outside India but does not include goods which have been cleared for home consumption.
A distance of twelve nautical miles from the base line of India constitute territorial waters of India. If goods are brought into India, meaning thereby into the territorial waters of India from outside India, that is, from outside the territorial waters of India there is import of goods and goods become “ imported goods”. Thus when goods are brought from outside the territorial waters of India into the Territorial waters of India, they become imported goods and become chargeable to duty and up to the moment they are cleared for home consumption, they constitute imported goods for the purpose of the Customs Act. No sooner than they are cleared for home consumption they cease to be imported goods.
According to the full bench there is no contradiction in fixing chargeability of goods to duty. With reference to time when the goods acquired the character of imported goods, that is when the taxable event occurred and the rate of duty with reference to date of clearance. Since the goods bought to India become imported goods from the moment they enter into the territorial waters, customs duty become leviable on them. The taxable event having occurred at that point of time , it has to be determined whether they are exempt from duty or not on that date. If they are exempt from duty , no question of calculating the duty payable arises at any later point of time; if they are chargeable to some duty and are not wholly exempt then only the question arises as to what duty is payable. If the goods are wholly or partially exempt , when the goods enter the territorial waters , they cannot be subjected to duty even if the exemption notification is withdrawn or modified before the bill of entry is presented or the goods are cleared for home consumption.
Judgement
The petitioner had to collect the goods upon payment of duties to save demurrage and other charges and a sum of Rs. 1.76 lacs has been paid by way of custom duty. The petitioner has also paid demurrage charge of Rs. 49 thousand.
Since the application succeeds the respondents must refund the sum of Rs. 1.76 lacs to the petitioner within 3 (three) weeks from the date of communication of this order. In default of refund within the time specified above the said sum of Rs 1.76 lacs will carry interest @12% p.a. from the date of judgement till the date of refund.
(Republished with Amendments)
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