Date: Tuesday, 28 December 2021

One of my junior colleagues, posted at an International airport to clear passengers’ baggage, lamented, “Many passengers come from Gulf countries who are mostly very lowly paid employees. Most of them bring old, used or second hand television sets, which are either gifted by their employers or purchased at throw away prices. When they approach the customs counter in the Arrival Hall their only request is to charge the least amount of duty. How to help them?”

1. Legal Framework under the Foreign Trade Act :

Section 3 of the Foreign Trade (Development and Regulation) Act, 1992 (Act No. 22 of 1992) empowers the Central Government to make provisions relating to imports and exports as, “(1) The Central Government may by Order published in the Official Gazette, make provision for the development and regulation of foreign trade by facilitating imports and increasing exports.”

Foreign Trade Policy thus formulated and notified by the Director General of Foreign Trade under the Ministry of Commerce and Industry of the Government of India under Para 26 of Chapter 2 allows clearance of baggage as per the limits, terms and conditions of the Baggage Rules notified by the Ministry of Finance. Para 26 under chapter 2 of the FTP is reproduced as under :

“2.26 Passenger Baggage

Bona-fide household goods and personal effects may be imported as part of passenger baggage as per limits, terms and conditions thereof in Baggage Rules notified by Ministry of Finance.

xxxxx

xxxxx”

In addition the ITC (HS) Classification Schedule - I (Import Policy) Chapter 98 brings the goods imported in the passengers’ baggage to the restricted list and to allows to be cleared as provided under the Customs Baggage Rules by saving clause 3(1)(h) of Foreign Trade (Exemption from Application of Rules in Certain Cases) Order, 1993 as below :

“Notes :                                                                

1.       This chapter is to be taken to apply to all goods which satisfy the conditions prescribed therein, even though they may be covered by a more specific heading elsewhere in the schedule.

2.       xxxxx

3.       xxxxx

4.       Headings 9803 and 9804 are taken not to apply to:            

a)       motor vehicles;                                   

b)       alcoholic beverages; and

c)       tobacco and manufactured products thereof.

5.       Heading 9803 is to be taken not to apply to articles imported by a passenger or a member of a crew under an import license or a Customs Clearance Permit either for his own use or on behalf of others.

6.       xxxxx.”

Certain goods such as motor vehicles, alcoholic beverages, tobacco and manufactured tobacco products are always kept out of the purview of the baggage.

2. Legal Framework under the Customs Act :

The Customs Act, 1962 (Act No. 52 of 1962), Chapter XI contains special provisions regarding baggage which is as extracted below :

“BAGGAGE

SECTION 77. Declaration by owner of baggage. – The owner of any baggage shall, for the purpose of clearing it, make a declaration of its contents to the proper officer.

SECTION 78. Determination of rate of duty and tariff valuation in respect of baggage. – The rate of duty and tariff valuation, if any, applicable to baggage shall be the rate and valuation in force on the date on which a declaration is made in respect of such baggage under section 77.

SECTION 79. Bonafide baggage exempted from duty. – (1) The proper officer may, subject to any rules made under sub-section (2), pass free of duty -

(a) any article in the baggage of a passenger or a member of the crew in respect of which the said officer is satisfied that it has been in his use for such minimum period as may be specified in the rules;

(b) any article in the baggage of a passenger in respect of which the said officer is satisfied that it is for the use of the passenger or his family or is a bonafide gift or souvenir; provided that the value of each such article and the total value of all such articles does not exceed such limits as may be specified in the rules.

(2) the Central Government may make rules for the purpose of carrying out the provisions of this section and, in particular, such rules may specify -

(a) the minimum period for which any article has been used by a passenger or a member of the crew for the purpose of clause (a) of sub-section (1);

(b) the maximum value of any individual article and the maximum total value of all the articles which may be passed free of duty under clause (b) of sub-section (1);

(c) the conditions (to be fulfilled before or after clearance) subject to which any baggage may be passed free of duty.

(3) Different rules may be made under sub-section (2) for different classes of persons.

SECTION 80. Temporary detention of baggage. – Where the baggage of a passenger contains any article which is dutiable or the import  of   which   is   prohibited and in respect of which a true declaration has been made under section 77, the proper officer may, at the request of the passenger, detain such article for the purpose of being returned to him on his leaving India and if for any reason, the passenger is not able to collect the article at the time of his leaving India, the article may be returned to him through any other passenger authorised by him and leaving India or as cargo consigned in his name.

SECTION 81. Regulations in respect of baggage. – The Board may make regulations, -

(a) providing for the manner of declaring the contents of any baggage;

(b) providing for the custody, examination, assessment to duty and clearance of baggage;

(c) providing for the transit or transshipment of baggage from one customs station to another or to a place outside India.

3. Baggage Rules :

The Baggage Rules are notified from time to time under section 79 of the Customs Act, 1962 (52 of 1962), by the Central Government, which lays down the limits, the terms and conditions for the clearance of the baggage. Classification and rate of duty are prescribed under Schedule I of the Customs Tariff Act, 1975. Further, concessional rates of duty applicable to the dutiable goods imported in the baggage are also separately notified from time to time.

4. Definition of Baggage :

The term “baggage” has not been conclusively defined under the Customs Act, 1962, rules or regulations notified thereunder. The Customs Act, under sub-section (3) of section 2, defines that “baggage” includes unaccompanied baggage and does not include motor vehicles. In addition section 2(22) makes “goods” to include baggage also. Baggage normally means personal belongings with which one travels and covers personal and household effects normally carried by a passenger while traveling. It also includes souvenirs and gift articles. As such baggage covers any goods classifiable under chapters 1 to 98 of Schedule I of the Customs Tariff Act, 1975. In order to avoid classification of dutiable goods in the baggage under various Tariff Headings / Tariff Items which would have made the clearance of passengers’ baggage a very cumbersome exercise, baggage is specifically classified under the Tariff Item 9803 00 00 of the said Tariff Act as shown below :

Further, the chapter notes under chapter 98 clearly prescribes that the goods even though they are covered by more specific heading elsewhere in the Schedule will include in Chapter 98. Some goods are also specifically excluded under note 4 therein. The relevant portion of the chapter notes are extracted as under :

“NOTES :

1.       This Chapter is to be taken to apply to all goods which satisfy the conditions prescribed therein, even though they may be covered by a more specific heading elsewhere in this Schedule.

2.       xxxxx

3.       xxxxx

4.       Headings 9803 and 9804 are taken not to apply to :

(a)     motor vehicles;

(b)     alcoholic beverages; and

(c)     tobacco and manufactured products thereof.

5.       Heading 9803 is to be taken not to apply to articles imported by a passenger or a member of a crew under an import licence or a Customs Clearance Permit either for his own use or on behalf of others.

6.       xxxxx”

5. General Free Allowance :

The baggage Rules always allowed a fixed amount of general free allowance under certain conditions to each category of passengers and it was regularly being enhanced as per the conditions prevalent at that time. General free allowance allowed during the earlier years are codified in the Table below :

Table 1

6. Baggage Rate of Duty :

Notifications issued from time to time by the Government of India, in the Ministry of Finance (Department of Revenue) under sub-section (1) of section 25 of the Customs Act, 1962 (52 of 1962), prescribes the concessional rates of duty applicable to the dutiable goods imported in the baggage. Table below shows the rate of duty from the year 1990.

Table 2

7. Clearance of Flat Panel Television Sets :

The Tables 1 and 2 above shows that the General Free Allowance has been increasing gradually during the last few decades. The rate of duty on the dutiable goods imported under baggage mode also has decreased substantially. This coupled with the decrease in the price of electronic goods abroad has contributed to an increased inflow of such goods through the baggage mode. This is not a very healthy situation as the goods imported as baggage and specifically those passed under the general free allowance escapes all the restrictions on import of goods into India. There is no record of the quantity or quality of such goods being imported as well.

Until the year 2005 or about, plasma displays were commonly used in large televisions (30 inches and larger) and such television sets using plasma displays were very costly. As such imports through baggage was also somewhat limited. After 2005, televisions with low-cost LCD and LED flat-panel displays started flooding the markets. Once the flat panel televisions using LCD and LED became cheaper, many passengers returning from abroad started bringing one or two such televisions in their baggage. Importing and clearing televisions under baggage mode where the passengers’ general free allowance is set off and duty is levied on the remainder of the value was much cheaper than buying a television locally. There used to be a margin of Rs. 10,000/- or more when a television was imported through baggage mode. The smugglers and traffickers also started making good use of the situation by sending passengers as carriers to go to the nearest foreign locations like Maldives, Sri Lanka, Singapore, Dubai, etc., to get one or two televisions in their baggage. This naturally started adversely affecting the already battered domestic television industry which led to the government to take the drastic step of disallowing the free allowance set off in the case of the flat panel televisions imported in baggage. This was done by adding the words and figures, “6. Flat Panel (LCD/LED/Plasma) Television” to the Annex I under the Baggage Rules, 1998 vide notification No.  84/2013-Cus. (N.T.), dated 19-08-2013. Annex I as it stood before 26-08-2013 and the said notification are shown as below :

Annex I under the Baggage Rules, 1998 (Notification No. 30/98-Cus. (N.T.), dated 02-06-1998 till 25-08-2013 :

“Annex - I

1.       Fire arms.

2.       Cartridges of fire arms exceeding 50.

3.       Cigarettes exceeding 200 or cigars exceeding 50 or tobacco exceeding 250 gms.

4.       Alcoholic liquor and wines in excess of one litre each.

5.       Gold or silver, in any form, other than ornaments.”

Notification No. 84/2013-Cus. (N.T.), dated 19-08-2013 :

“In exercise of the powers conferred by section 79 of the Customs Act, 1962 (52 of 1962), the Central Government hereby makes the following rules to further amend the Baggage Rules, 1998, namely :-

1. (1) These rules may be called the Baggage (Second Amendment) Rules, 2013.

(2) They shall come in to force on the 26th day of August, 2013.

2. In the Baggage Rules, 1998, in Annex I, after item 5 relating to Gold or silver, in any form, other than ornaments, the following item shall be inserted, namely :-

“6. Flat Panel (LCD/LED/Plasma) Television.”.”

8. Newspaper Coverage :

Times of India 20th August, 2013 reads :

“Pay duty on flat panel TV imports from August 26.

Now, get ready to shell out more for getting a flat panel television set from Thailand, Dubai or Singapore.

Starting August 26, the government has decided to levy 36% customs duty on LCD and LED television sets that passengers bring along with them as part of the duty-free baggage allowance of Rs 35,000.

The price arbitrage had turned into a lucrative business proposition with several carriers taking flights to South East Asia and making a killing in the domestic market.

For example, a 32-inch TV set in Thailand costs around Rs. 17,000 to Rs. 18,000 and in India it ranges between Rs. 30,000 and Rs. 35,000. A customer who bought a 42-inch TV in Dubai some days ago paid Rs. 33,000, whereas a comparable model of the same brand available on an e-retailer’s website costs around Rs. 55,000.

With the duty if the TV set was imported from Dubai, the cost would add up to around Rs. 45,000, which still leaves a price advantage for such imported sets but not sufficient enough to let carriers thrive on this business.

When contacted, revenue Secretary Sumit Bose confirmed that the move to stop import of flat panel television sets as part of the baggage allowance rules had been taken to stop the misuse of the scheme. “The local manufacturers had complained,” Bose told TOI, adding that manufacturers had said that couriers were being used to import flat panel television sets using the baggage allowance rules.

Bose said passengers would be allowed to import such TV sets but they have to pay duty at the prevailing rate. He also dismissed speculation that the move has been triggered by the need to trim the current account deficit (CAD). The government has been grappling with a widening CAD which has been blamed for the rupee’s sharp slide against the dollar. It has taken several steps to stem the rupee’s fall and has talked about curbing non-essential imports.

According to the baggage rules all passengers above 10 years returning after more than three days stay abroad were allowed to bring articles up to a value of Rs. 35,000, if these are carried on the person or in the accompanied baggage of the passenger.

Indian TV manufacturers cheered the move. “We have been waiting for it for a long time. “This kind of imports have been troubling us. It’s a win-win situation as the government will also get revenue,” said Sunil Nayyar, head of sales Sony India, adding that such imports added up to 10-15% of domestic sales.

According to a notification, the revenue department has decided to “disallow import of flat panel (LCD/LED/Plasma) television as part of free baggage allowance”. The rule comes into effect from August 26.

The availability of cheap television sets in Thailand, Dubai and Singapore had spawned a huge market from India as tourists took advantage of the price difference due to the baggage allowance.

Customs officials said the airports in major metros witnessed a sharp increase in imports of TV sets from largely from Thailand and Dubai by tourists from home. Passengers alighting from flights from Thailand and Dubai could be seen carrying huge flat panel television sets. “The price difference was almost double. It was largely from Thailand and Dubai,” said a customs officer, who did not wish to be identified.

Some industry experts said that the practice had been institutionalized and even some established electronics malls in Thailand and Dubai delivered the TV sets at the airport for the convenience of the passengers flying to India. The price differential also triggered tourism packages which were built around the purchase of a flat panel TV.”

9. Baggage Rules, 2016 :

The Baggage Rules, 2016 (Notification No. 30/2016-Cus. (N.T.), dated 01-03-2016) also incorporated the Annex I without any modification allowing the continuation of the flat panel televisions to be charged as before. Annexure I under the new Rules are reproduced as below :

“ANNEXURE - I

(See rule 3, 4 and 6)

(1)     Fire arms.

(2)     Cartridges of fire arms exceeding 50.

(3)     Cigarettes exceeding 100 or cigars exceeding 25 or tobacco exceeding 125 grams.

(4)     Alcoholic liquor or wines in excess of two litres.

(5)     Gold or silver, in any form, other than ornaments.

(6)     Flat Panel (Liquid Crystal Display/ Light - Emitting Diode/ Plasma) television.”

10. Valuation of Goods in Baggage :

There is no distinct provisions for valuation of the goods imported as baggage. As such valuation of these goods for purposes of assessment has to be carried out under the provisions of section 14 of the Customs Act, 1962 and the value should be the transaction value of such goods, as determined in accordance with the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007. The provisions of section 14 provide that wherever duty of customs is chargeable with reference to the value, such value shall be determined as per the said section and the valuation rules framed thereunder. The Customs Valuation (Determination of Value of Imported Goods) Rules, 2007 provide a complete code for determining the assessable value, if necessary, by resorting to best judgment method.

Most of the time the baggage Officer accepts the passenger declared value or the invoice value in case an invoice is produced. An invoice stands on a higher pedestal than internet or other prices. The valuation of goods imported as baggage, in the normal course, is being done based on the passenger’s oral declarations, contemporaneous values of the items imported by other passengers, market inquiries, best judgement method, etc. The concept of transaction value is not applied strictly in baggage, since in most of the cases proof of transaction value is either not forthcoming or is not relevant on account of the items having been used abroad and then brought into India. Moreover, what is of essence is quick clearance of the passenger, rather than a protracted legal dispute on the value. In such circumstances, resort to the best judgment method of valuation under rule 8 is certainly appropriate. However, this practice does not forbid the proper officer to accept the transaction value.

11. Valuation of Old, Used or Secondhand Goods :

It is necessary for the customs baggage Officer to determine the value of a baggage item so as to ascertain whether the total value of the dutiable articles brought by a passenger as baggage is within the duty free allowance or not and also for determining the amount of duty payable. For newly purchased items (less than 3 months old), the value at which the same is purchased abroad is taken as the value for assessment purposes after converting the same to Indian Rupees at the prevailing exchange rates. For old and used or secondhand items, value of the item can be computed by applying the rate of depreciation as per the CBIC circular No. 495/16/93-Cus., dated 26-05-1993.

Depreciation has to be taken on the following scale :

(i)              for every quarter in 1st year: 4%

(ii)            for every quarter in 2nd year: 3%

(iii)          for every quarter in 3rd year: 2.5%

(iv)          for every quarter in 4th and subsequent year: 2% subject to maximum of 70%.

Price-lists showing the prices of a number of items manufactured by various manufacturers were being published periodically by the Customs department for departmental use which is now discontinued. As such the customs baggage Officers are left to use their own resources to ascertain the correctness of the value declared by the passengers. However, if the value declared by a passenger is marginally less than the ascertained price, then the passenger's declaration is to be accepted. In case a passenger disputes the value of an item determined by customs Officer, he has the option to appeal to the higher Authority against the valuation order of the lower Officer after payment of duty "under protest" or without payment of duty and keeping the item under customs' custody against a detention receipt. For disputes on goods involving lower value a process of Spot Adjudication is resorted to, whereby, the goods are usually released immediately.

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Author : M.P. Vasudevan - 28-12-2021