Customs Act, 1962 Section 25 — Power to grant exemption from duty
Customs Act, 1962 · Power to grant exemption from duty
Plain-English Explanation
Overview
Section 25 of the Customs Act, 1962, empowers the Central Government to grant exemptions from customs duty. This provision is crucial for shaping trade policy, promoting specific industries, and addressing exceptional circumstances by reducing or eliminating import duties.
Who Does This Apply To?
This section affects importers, exporters, manufacturers, customs officers, and anyone involved in cross-border trade. The exemptions granted under this section directly impact the landed cost of goods, influencing business decisions and competitiveness.
How It Works
The Central Government can provide duty exemptions in two primary ways:
- General Exemption via Notification:
- The Central Government, if satisfied it is in the public interest, may issue a notification in the Official Gazette.
- This notification can exempt goods of a specified description from the whole or any part of the customs duty.
- The exemption can be absolute or subject to conditions that must be fulfilled before or after clearance of the goods.
- Specific Exemption via Special Order:
- The Central Government, again if satisfied it is in the public interest, may issue a special order in each case.
- This order exempts goods from duty payment under exceptional circumstances, which must be explicitly stated in the order.
The government can clarify the scope and applicability of a notification or order within one year of its issue through an explanation published in the Official Gazette, which has retrospective effect. The exemption can also be granted by providing for levy of duty at a rate or method different from the statutory duty rate or method, ensuring that in no case the duty exceeds the statutory duty.
Important Conditions & Exceptions
- Condition 1: Exemptions under sub-section (1) granted with conditions are valid up to March 31st falling immediately after two years from the date of grant/variation, unless otherwise specified or varied or rescinded. The two year period is reckoned from 1st February 2021 for exemptions in force as on the date the Finance Bill, 2021 received presidential assent.
- Condition 2: No duty is collected if the amount of duty leviable is equal to, or less than, ₹100.
- Exception: Certain exemptions are not subject to the two-year validity restriction, including those related to:
- Multilateral/bilateral trade agreements
- International treaties/conventions
- Privileges of constitutional authorities
- Schemes under the Foreign Trade Policy
- Central Government schemes with validity exceeding two years
- Re-imports, temporary imports, gifts, personal baggage
- Customs duties other than basic customs duty (BCD).
Practical Example
Imagine a manufacturer in India imports specialized machinery for producing solar panels. The Central Government, aiming to promote renewable energy, issues a notification under Section 25(1) exempting solar panel manufacturing equipment from 5% Basic Customs Duty (BCD). If the machinery is valued at ₹1 crore, the manufacturer saves ₹5 lakh in customs duty, making the solar panel production more cost-competitive.
Key Amendments
- The introduction of sub-section (2A) allowed for the clarification of notifications and orders through explanations with retrospective effect.
- The addition of sub-section (4A) introduced a limited validity period for conditional exemptions, promoting periodic review.
- Sub-sections (7) & (8) provided retrospective exemptions for mineral oils extracted in India's continental shelf and clarified no refunds will be made.
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Browse all case laws →Frequently Asked Questions
Under what circumstances can the Central Government exempt goods from customs duty under Section 25 of the Customs Act, 1962?
The Central Government can grant exemptions from customs duty under Section 25 when it deems it necessary in the public interest. This can be done through a notification in the Official Gazette, either absolutely or subject to specific conditions. Additionally, special orders can be issued in exceptional circumstances.
What is the difference between a notification and a special order for customs duty exemption under Section 25?
A notification under Section 25(1) provides a general exemption applicable to goods of a specified description and is published in the Official Gazette. A special order under Section 25(2) provides an exemption in each specific case, addressing circumstances of an exceptional nature and is not usually a general application instrument.
How long are exemptions granted under Section 25(1) valid, and what are the exceptions?
Generally, exemptions under Section 25(1) are valid until March 31st, falling immediately after two years from the grant or variation date as per Section 25(4A). Exceptions to this two-year validity include exemptions related to trade agreements, international obligations, constitutional authorities' privileges, Foreign Trade Policy schemes, Central Government schemes exceeding two years, re-imports, temporary imports, gifts, personal baggage, and duties other than those under Section 12, as detailed in the provisos to Section 25(4A).
Can the form or method of levying customs duty be altered when an exemption is granted under Section 25?
Yes, Section 25(3) allows for an exemption to be granted by providing for the levy of duty in a form or method different from the statutory duty. However, the duty charged on the goods cannot exceed the statutory duty. The "form or method" refers to the basis on which the duty is calculated, such as valuation, weight, or volume.
What is the significance of Section 25(2A) regarding explanations to notifications or orders?
Section 25(2A) allows the Central Government to clarify the scope or applicability of a notification issued under Section 25(1) or an order issued under Section 25(2) by inserting an explanation via notification in the Official Gazette. This explanation must be issued within one year of the original notification or order and has retrospective effect, as if it were always part of the original notification or order.
What happens if the amount of customs duty leviable is very small?
Section 25(6) states that no duty will be collected if the amount of duty leviable is equal to or less than one hundred rupees. This provision aims to reduce administrative burden for insignificant amounts.
How does Section 25 impact the Foreign Trade Policy (FTP)?
Exemptions granted under Section 25 often implement schemes outlined in the Foreign Trade Policy (FTP). Specifically, Section 25(4A) provides that the sunset clause of two years does *not* apply to schemes under the Foreign Trade Policy, allowing these FTP-related exemptions to continue beyond the standard two-year period.
Key Conditions & Requirements
| Condition | Details |
|---|---|
| Public Interest Requirement | Exemption can only be granted if the Central Government is satisfied that it's necessary in the public interest. This is a primary condition for granting any exemption. |
| Notification in Official Gazette | General exemptions are granted via notification published in the Official Gazette, specifying goods and conditions. |
| Conditions Precedent/Subsequent | Exemptions can be subject to conditions that must be fulfilled either before or after the goods are cleared from customs. |
| Special Order for Exceptional Circumstances | Exemptions can be granted via special order in cases of exceptional nature, where circumstances must be stated in the order. |
| Exemption Validity Period (Generally Two Years) | Unless otherwise specified, exemptions under sub-section (1) are valid up to March 31st two years after the grant or variation date, but with modifications effective from 2021. |
| Exceptions to the Two-Year Validity | The two-year validity does not apply to specific cases like trade agreements, international obligations, constitutional privileges, FTP schemes, long-term central government schemes, re-imports, gifts, or customs duties beyond section 12. |
| De minimis duty collection | No duty shall be collected if the duty leviable is equal to, or less than, one hundred rupees. |
| Clarification of Notifications/Orders | The Central Government may clarify the scope of notifications or orders within one year of their issuance via explanation in the Official Gazette, effective retroactively. |
Amendment History
Substituted by Act 32 of 2003, section 107(a), for sub-section(2)(w.e.f. 14-5-2003). Earlier sub-section(2) was substituted by Act 27 of 1999, section 102(w.e.f. 11.5.1999)
Inserted by Act 20 of 2002, section 119(a) (w.e.f. 11-5-2002)
Inserted by Act 11 of 1983, section 49(w.e.f. 13-5-1983)
Substituted by Finance Act, 2016 (w.e.f. 14-5-2016), section 119(i), for-sub-section (4). Earlier sub-section (4) was inserted by Act 21 of 1988, section 99(w.e.f. 1-8-1988) and was amended by Act 20 of 2002, section 119 (b) (w.e.f. 11-5-2002). Sub-section (4), before substitution by the Finance Act, 2016, stood as under: "(4) Every notification issued under sub-section (1) or sub-section (2A) shall,- (a) unless otherwise provided, come into force on the date of its issue by the Central Government for publication in the Official Gazette; (b) also be published and offered for sale on the date of its issue by the Directorate of Publicity and Public Relations of the Board, New Delhi."
Inserted (w.e.f. 28-03-2021) s. 91 of Finance Act 2021 (13 of 2021)
Sub-section(5) omitted by the Finance Act, 2016, section 119(ii). Sub-section(5), before omission stood as under:(w.e.f. 14-05-2016) "(5) Notwithstanding anything contained in sub-section (4), where a notification comes into force on a date later than the date of its issue, the same shall be published and offered for sale by the said Directorate of Publicity and Public relations on a date on or before the date on which the said notification comes into force."
Inserted by Act 32 of 2003, section 107(b) (w.e.f. 14-5-2003).
Inserted by Act 25 of 2014, section 81(w.e.f. 6-8-2014).
Inserted by Act 08 of 2023, section 128(w.e.f. to be notified).