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CA Final · Indirect Tax Laws

Levy of and Exemptions from Customs Duty: CA Final Indirect Tax Study Guide

Levy of customs duty means the Customs Act, 1962 charges duty on goods imported into or exported from India at rates in the Customs Tariff Act, 1975. To solve questions, identify the goods, classify them, find the duty type, check exemptions, then compute and apply penalty provisions.

What this chapter covers

This chapter explains when customs duty is charged, on what goods, at what rate, and when it can be reduced or waived. The charging provision is Section 12 of the Customs Act, 1962. The rates sit in the First and Second Schedules to the Customs Tariff Act, 1975. So the chapter joins the two Acts.

You first learn the base: levy and classification. Then you study the add-on duties: safeguard duty, anti-dumping duty and countervailing duty (CVD). After that come the relief provisions: exemption under Section 25, remission (Section 23), abatement (Section 22) and duty drawback (Sections 74 and 75). The chapter ends with the penalty under Section 114A. It applies where duty has not been levied, short-levied, not paid, short-paid or erroneously refunded by reason of collusion, or any wilful misstatement or suppression of facts. In such cases duty is demanded by a notice under Section 28(4), and Section 114A imposes a penalty equal to the duty determined. If the duty and interest are paid within 30 days of the order, the penalty is reduced to 25% of the duty, provided the reduced penalty is also paid in that period. Section 28(5) lets the person pay the duty, interest and a penalty of 15% of the duty within 30 days of the notice, which concludes the proceedings on that notice. Where such conduct is absent, duty is demanded by a notice under Section 28(1), and the person may pay before the notice under Section 28(2), with interest under Section 28AA. No Section 114A penalty applies in those cases. Section 112 may apply where the goods are liable to confiscation for improper importation.

This chapter links to the rest of Part II of Paper 5. Valuation gives you the assessable value on which the duty rates apply. Import and export procedures, warehousing and the Foreign Trade Policy depend on knowing which duties and exemptions apply. Penalty and demand provisions build on the idea of short-levy introduced here. Master this chapter and the later chapters become easier.

Part II (Customs and FTP) is only 20 of the 100 marks in Paper 5, so it supplements your preparation of Part I and does not replace it. Every chapter in it must give you good return for limited study time. This chapter is concept-heavy. The paper pattern may include computation or case-scenario questions, so prepare for both. Rates are usually given in the question, but you must know the sequence in which the duties are computed. Case-scenario MCQs test whether you can spot the duty type or the exemption that applies. Descriptive answers reward a clear provision-facts-conclusion structure.

Levy of and Exemptions from Customs Duty: topics in the order to study them

  1. 1Levy of Customs Duty under Section 12This is the charging section. Every other topic assumes you know what is taxed, on whom and under which Act.
  2. 2Classification of Goods and Customs TariffThe rate depends on the tariff heading, so you must understand classification before you study any duty or exemption.
  3. 3Types of Duties: Safeguard, Anti-Dumping and CVDAfter the basic duty, you learn safeguard duty, anti-dumping duty and CVD, and the purpose of each. Keep the two CVDs apart: the Section 3(1) additional duty, which is the excise equivalent, and the Section 9 anti-subsidy CVD.
  4. 4Exemptions from Customs Duty (Section 25)Exemptions only make sense once you know the duties being exempted and the classification that decides eligibility.
  5. 5Remission, Abatement and Duty Drawback of DutyThese are relief routes that work differently from a Section 25 exemption, so study them after it and compare them. Abatement (Section 22) covers damaged or deteriorated goods. Remission (Section 23(1)) covers goods lost or destroyed before clearance, and Section 23(2) allows the owner to relinquish title to the goods and not pay duty. Drawback is under Sections 74 and 75.
  6. 6Penalty for Short-Levy or Non-Levy by Collusion, Misstatement or Suppression (Section 114A)Section 114A applies only where duty is not levied, short-levied, not paid, short-paid or erroneously refunded by reason of collusion, wilful misstatement or suppression of facts. The duty in such cases is demanded by a notice under Section 28(4), and the penalty under Section 114A equals the duty determined. If the duty and interest are paid within 30 days of the order, the penalty is reduced to 25% of the duty, provided it is also paid in that period. Section 28(5) lets the person pay the duty, interest and a 15% penalty within 30 days of the notice, which concludes the proceedings on that notice. It comes last, once you know the duty and relief rules. Where such conduct is absent, duty is demanded by a notice under Section 28(1), and the person may pay before the notice under Section 28(2), with interest under Section 28AA. No Section 114A penalty applies there. Section 112 may apply where the goods are liable to confiscation for improper importation.

How to prepare Levy of and Exemptions from Customs Duty

Prepare this chapter by linking provisions to facts. Do not just memorise sections. Ask what triggers each provision and what the outcome is.

  1. Read the charging provision and the Tariff Act structure first. Write one line on who is liable, on what goods and under which Act.
  2. Learn classification as a method: look at the heading, the section and chapter notes, and the interpretative rules. Practise placing a given product under a heading.
  3. Make a comparison note for safeguard duty, anti-dumping duty and CVD. For each, write the purpose, the trigger and the type of goods or situation it addresses. For CVD, keep the Section 3(1) excise-equivalent duty and the Section 9 anti-subsidy duty as separate entries.
  4. Learn the duty computation sequence (assessable value, BCD, SWS, IGST) and practise a few numerical questions with the rates given.
  5. Study Section 25 with its two limbs: exemption by notification and exemption by special order. Note who issues it, the conditions and the public-interest basis.
  6. Create a chart for remission, abatement and duty drawback. Mark the situation, who benefits and what is given. Note Section 22 (abatement for damaged or deteriorated goods) and Section 23 (remission under Section 23(1) for goods lost or destroyed before clearance; under Section 23(2) the owner may relinquish title to the goods and not pay duty). For drawback, note Section 74 (re-export of imported goods) and Section 75 (imported materials used in goods that are exported).
  7. Read Section 114A as provision, facts, conclusion. The trigger is non-levy, short-levy, non-payment, short-payment or erroneous refund of duty by reason of collusion, wilful misstatement or suppression of facts. Duty in such cases is demanded by a notice under Section 28(4), and the penalty equals the duty determined. If duty and interest are paid within 30 days of the order, the penalty is reduced to 25% of the duty, provided it is also paid in that period. Under Section 28(5) the person can pay the duty, interest and a 15% penalty within 30 days of the notice, which concludes the proceedings on that notice. If that conduct is missing, duty is demanded by a notice under Section 28(1), and the person may pay before the notice under Section 28(2), with interest under Section 28AA. Section 114A does not apply there. Section 112 may apply where the goods are liable to confiscation for improper importation.
  8. Solve case-scenario MCQs and past written questions. Write answers in provision-facts-conclusion form and check them against the Act text.

Common mistakes in Levy of and Exemptions from Customs Duty

  • Quoting rates or exemptions from memory without linking them to the classification heading.

    Fix: Always write the heading first, then the duty and any exemption that applies to that heading.

  • Mixing up safeguard duty, anti-dumping duty and CVD.

    Fix: Keep a three-column table of purpose, trigger and affected goods, and revise it often. List the Section 3(1) excise-equivalent duty and the Section 9 anti-subsidy CVD separately, and do not treat them as one general additional duty.

  • Treating exemption, remission, abatement and drawback as the same relief.

    Fix: Note when each applies, who gets it and what is actually given or refunded, then compare them in one chart. Remember abatement is Section 22, remission is Section 23, and drawback is Sections 74 and 75.

  • Applying Section 114A without checking the facts that trigger it.

    Fix: Check the facts for collusion, wilful misstatement or suppression of facts behind the short-levy or non-levy. If present, demand duty by a notice under Section 28(4) and apply Section 114A, where the penalty equals the duty determined. If duty and interest are paid within 30 days of the order, the penalty is 25% of the duty, provided it is also paid in that period. Under Section 28(5) the person can pay the duty, interest and a 15% penalty within 30 days of the notice, which concludes the proceedings on that notice. If the conduct is missing, apply Section 28(1), with payment before notice allowed under Section 28(2) and interest under Section 28AA, and do not apply Section 114A. Consider Section 112 if the goods are liable to confiscation for improper importation. Then state provision, facts and conclusion.

  • Ignoring the conditions attached to a Section 25 exemption.

    Fix: Check every condition in the facts, and if any is missing, say the exemption is not available.

  • Skipping duty computation because the chapter feels theoretical.

    Fix: Practise computing duty from assessable value in the correct sequence (BCD, SWS, IGST) using the rates given.

  • Writing long theory answers with no application to the case.

    Fix: Practise short answers that quote the rule in plain words, apply the given facts and give a firm conclusion.

Last-day revision: Levy of and Exemptions from Customs Duty

  • Section 12 of the Customs Act, 1962 is the charging section for customs duty on imported and exported goods.
  • Customs duty rates are found in the Customs Tariff Act, 1975, not in the Customs Act itself.
  • Classification decides the rate, so identify the heading before looking for any duty or exemption.
  • Use the section and chapter notes along with the interpretative rules to settle a classification dispute.
  • Safeguard duty protects domestic industry from a surge in imports.
  • Anti-dumping duty (Section 9A of the Customs Tariff Act) counters imports sold below their normal value that injure domestic industry.
  • CVD under Section 3(1) of the Customs Tariff Act is equivalent to excise duty. It applies to goods still subject to excise, such as certain petroleum and tobacco products. IGST on imports is levied under Section 3(7). The anti-subsidy countervailing duty under Section 9 is a separate duty that offsets subsidies given by the exporting country.
  • Section 25 lets the Government exempt goods from duty, by notification or by special order, in the public interest.
  • Remission (Section 23), abatement (Section 22) and drawback are different reliefs, so do not use the terms as if they mean the same thing. Section 23(1) covers goods lost or destroyed before clearance. Section 23(2) lets the owner relinquish title to the goods and not pay duty.
  • Duty drawback is a refund under Sections 74 and 75. Section 74 covers re-export of imported goods. Section 75 covers imported materials used in the manufacture of goods that are exported.
  • Section 114A applies where duty is not levied, short-levied, not paid, short-paid or erroneously refunded by reason of collusion, wilful misstatement or suppression of facts. Duty is demanded by a notice under Section 28(4), and the penalty equals the duty determined. If duty and interest are paid within 30 days of the order, the penalty is reduced to 25% of the duty, provided it is also paid in that period. Section 28(5) lets the person pay the duty, interest and a 15% penalty within 30 days of the notice, which concludes the proceedings on that notice. Where such conduct is absent, duty is demanded by a notice under Section 28(1), and the person may pay before the notice under Section 28(2), with interest under Section 28AA. Section 114A does not apply there. Section 112 may apply where the goods are liable to confiscation for improper importation.
  • In every answer, state the provision, apply the facts, and end with a clear conclusion.

Levy of and Exemptions from Customs Duty practice questions

Levy of and Exemptions from Customs Duty in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Levy of and Exemptions from Customs Duty: frequently asked questions

Is Levy of and Exemptions from Customs Duty important for CA Final Paper 5?

Yes. It forms the base of Part II (Customs and FTP), which carries 20 marks of Paper 5. The concepts in this chapter are used again in valuation, procedures and penalty questions.

Do I need to memorise customs duty rates?

No. Rates are usually given in the question when needed. But the paper may include computation or case-scenario questions on assessable value and duty (BCD, SWS, IGST), so you must know the computation sequence and how classification and exemptions affect the rate.

How should I answer a Section 114A question?

Use provision, facts and conclusion. State that the section applies where duty is not levied, short-levied, not paid, short-paid or erroneously refunded by reason of collusion, wilful misstatement or suppression of facts. Duty is demanded by a notice under Section 28(4), and the penalty equals the duty determined. If duty and interest are paid within 30 days of the order, the penalty is 25% of the duty, provided it is also paid in that period. Section 28(5) lets the person pay the duty, interest and a 15% penalty within 30 days of the notice, which concludes the proceedings on that notice. Pick out those facts, then say whether the penalty applies. If the conduct is absent, duty is demanded by a notice under Section 28(1), the person may pay before notice under Section 28(2), with interest under Section 28AA, and Section 114A does not apply. Section 112 may apply where the goods are liable to confiscation for improper importation.

What is the difference between exemption under Section 25 and duty drawback?

An exemption means duty is not charged, fully or partly, on the goods covered. Duty drawback is a refund of duty already paid. Section 74 allows it on re-export of imported goods, and Section 75 allows it on imported materials used in making goods that are exported.