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Law Relating to Customs and Foreign Exchange
Previous Year Question Paper with Solution
LLM · Group 2 Business Law
2019 Examination
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LLM Group 2 Business Law Law Relating to Customs and Foreign Exchange 2019 Question Paper with Solutions
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First published on munotes.in on 12 August 2026.
Published by munotes.in, Mumbai.
Model answers written and edited by the munotes.in editorial desk.
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The University does not publish an official answer key for this paper. The answers in this volume are model answers, written to show how a full-mark answer is built. They are a study aid, not an authority on what an examiner marked.
The question paper reproduced here is the paper as set by the University of Mumbai at the 2019 examination.
The answers in this volume state the law as it stands today, not as it stood when the paper was set, and four changes alter answers here. The Customs and Central Excise Settlement Commission ceased to accept applications after 31 March 2025 and ceased to operate from 1 April 2025 under the Finance Act 2025, its work passing to an Interim Board for Settlement of three revenue officers with no judicial member, so immunity from prosecution under section 127H is no longer obtainable. FEMA has had no Appellate Tribunal of its own since 26 May 2017, the SAFEMA Tribunal serving under a substituted section 18 with sections 20, 22, 24, 25, 26 and 29 to 31 omitted. Section 6(3) was omitted on 15 October 2019, moving non-debt capital account transactions to the Central Government. And from 1 May 2025 section 18(1B) requires a provisional assessment to be finalised in two years and section 18A allows a voluntary post-clearance revision of an entry.
Contents
The questions below are the paper as the University of Mumbai set it at the 2019 examination, in the order it was set.
MarksPage
MarksPage
The Paper as Set
The questions in this volume are the questions asked at the 2019 examination, reproduced as the University of Mumbai set them, in the order it set them. Nothing has been reworded, added or left out. Only the answers are ours. See the original question paper.
Duration 3 hours · Total marks 100 · 14 questions answered
Instructions printed on the paper
- N.B: Please check whether you have got the right question paper. All the answers should be in neat and legible handwriting.
How to use this volume
Solve the paper first, under exam conditions and against the clock. Then read the answers here and mark your own. Reading a solution before attempting the question feels productive and teaches very little, because recognising an answer is not the same as being able to write one.
SECTION I
Q.P. Code 50132. Attempt any four questions, all questions carry equal marks of 25 each, cite case laws wherever necessary
any four of seven · 100 Marks
1)The Customs Act, 1962 is a "fiscal and preventive statute" simultaneously. Discuss with reference to the relevant Sections of the Act.[25]
Answer
For full marks, cover: what each of the two characters means before showing where each lives in the Act, because the question is a proposition to be proved and not a topic to be described; the fiscal provisions, charge, valuation, assessment, recovery, refund and exemption; the preventive provisions, prohibition, search, seizure, confiscation, penalty, arrest and prosecution; then the three places where the two characters collide and the Act has to choose between them, which is where the marks are; and a conclusion that says which character predominates and why the answer has changed since 2017.
What the proposition means
A fiscal statute exists to raise revenue. Its provisions identify a taxable event, fix a base, quantify a rate, and provide machinery to assess, collect, recover and refund. It is construed strictly against the State on the charge, because Article 265 requires authority of law for every levy, and there is no equity about a tax.
A preventive statute exists to stop conduct. Its provisions prohibit, empower officers to search, seize and confiscate, and attach penal consequences. It is construed to make the prohibition effective, and it may legitimately reverse burdens of proof and confer summary powers, because its object is to control an activity rather than to collect a sum.
The Customs Act is both at once, and the proposition in the question is not a rhetorical flourish but a description of its architecture. The same statute levies a duty on lawful trade and suppresses smuggling, and the same officer performs both functions on the same consignment. Most of the difficulties in the subject arise where the two characters point in different directions.
The fiscal character, section by section
The charge. Section 12 levies duties of customs at the rates specified under the Customs Tariff Act, 1975 on goods imported into or exported from India, and Parliament's competence comes from Entry 83 of List I.
The base. Section 14 fixes the transaction value, the price actually paid or payable for delivery at the time and place of importation, where the buyer and seller are not related and price is the sole consideration, with the specified additions and with the Customs Valuation Rules, 2007 supplying a mandatory sequence of alternatives.
The rate and the date. Section 15 ties the rate and valuation for imports to the date of presentation of the bill of entry under section 46, or for warehoused goods to the bill of entry for home consumption under section 68; section 16 does the same for exports by reference to the let export order under section 51.
The assessment. Section 17(1) requires the importer or exporter to self-assess; sections 17(2) to (5) give the officer power to verify, re-assess and pass a speaking order within fifteen days. Section 18 permits provisional assessment on bond, now subject to a two-year finalisation limit under section 18(1B) since 1 May 2025, and section 18A permits a voluntary post-clearance revision.
The recovery. Section 28 allows a demand within two years, or five where collusion, wilful mis-statement or suppression is alleged, with interest under section 28AA at a rate between ten and thirty-six per cent, and recovery machinery in section 142.
The refund. Section 27 with the unjust enrichment test, section 28D's presumption that the incidence was passed on, and the Consumer Welfare Fund, all codifying Mafatlal Industries Ltd v. Union of India, (1997) 5 SCC 536.
The exemption and the concessions. Section 25 for general and special exemptions, section 26 for refund of export duty, section 26A for refund on defective goods, sections 74 and 75 for drawback, and Chapter IX for warehousing, which defers the duty because the rate crystallises on removal and not on importation.
The preventive character, section by section
The prohibition. Section 11 empowers the Central Government, if satisfied that it is necessary to do so for any of the purposes specified, to prohibit either absolutely or conditionally the import or export of goods of any specified description.
The purposes listed are the clearest statement of the Act's non-fiscal ambitions: the maintenance of the security of India, of public order and standards of decency or morality, the prevention of smuggling, the prevention of shortage of goods, the conservation of foreign exchange and the safeguarding of balance of payments, the prevention of injury to the economy by the uncontrolled import or export of gold or silver, the protection of human, animal or plant life or health, the protection of national treasures of artistic, historic or archaeological value, the conservation of exhaustible natural resources, the prevention of the contravention of any law for the time being in force, and others. Only one of those purposes, the conservation of foreign exchange, is even remotely fiscal.
Smuggling as a defined concept. Section 2(39) defines smuggling by reference to liability to confiscation under sections 111 and 113, so the preventive apparatus supplies the content of the Act's central prohibited concept.
Search and seizure. Sections 100 to 103 for search of persons, with the safeguard in section 102 and the Magistrate's direction in section 103; section 105 for premises; section 106 for conveyances, including the power to fire upon a vessel or aircraft that will not stop; section 110 for seizure, with the six-month rule in section 110(2); and section 108 for summoning and examining persons in an inquiry deemed a judicial proceeding.
Confiscation and penalty. Sections 111 and 113 for goods, section 115 for conveyances, sections 118 to 121 for packages, concealing goods, transformed goods and sale proceeds, sections 112, 114, 114A and 114AA for penalties on persons, section 124 for the notice, and section 125 for the option of a fine in lieu.
Reversal of burdens. Section 123 places on the possessor the burden of proving that seized gold, watches or other notified goods are not smuggled, where the seizure was made in a reasonable belief; section 138A requires the court to presume the culpable mental state; section 139 presumes the genuineness and contents of documents.
Arrest and prosecution. Section 104 for arrest, confined to offences under sections 132, 133, 135, 135A and 136, with the four cognizable categories in section 104(4) turning on prohibited goods or on figures exceeding fifty lakh rupees; sections 132 to 135AA for the offences, section 135 carrying up to seven years for the aggravated cases; section 137 for sanction and compounding.
Where the two characters collide
Collision one: the option to redeem confiscated goods. Section 125 requires the officer to offer a fine in lieu of confiscation where the goods are not prohibited and merely permits him to do so where they are. That distinction is the Act deciding, in terms, that its fiscal interest in non-prohibited goods can be satisfied by money, while its preventive interest in prohibited goods cannot necessarily be. Section 125(2), which keeps duty payable in addition to the fine, is the fiscal character reasserting itself even where the preventive one has been engaged.
Collision two: parallel civil and criminal proceedings. Adjudication decides duty, confiscation and penalty on the preponderance of probabilities; prosecution decides guilt beyond reasonable doubt, and section 138A(2) says so expressly. Both may run on the same facts, because the objects differ and departmental adjudication is not a prosecution before a court so Article 20(2) is not attracted. Section 127 puts it beyond doubt, providing that an award of confiscation or penalty does not prevent the infliction of any other punishment. The qualification is that an exoneration in adjudication on the merits, on the same evidence, will not leave a prosecution standing, because the department has failed on the easier standard.
Collision three: interpretation. A charging provision is construed strictly in favour of the subject, because the State must show its authority to tax. A preventive provision is construed to make the prohibition effective. And since Commissioner of Customs v. Dilip Kumar and Company, (2018) 9 SCC 1, a Constitution Bench decision, an exemption notification is construed strictly against the claimant, ambiguity being resolved in favour of the revenue. So the same Act is read three different ways depending on which of its characters the provision serves, and a candidate who applies a single canon throughout will misstate the law.
Which character predominates, and how that has changed
The fiscal character has grown institutionally weaker and the preventive character stronger, and two developments show it.
First, the introduction of the goods and services tax on 1 July 2017 removed the greater part of the fiscal work from the Customs Act. Since then the additional duty of customs and the special additional duty have been replaced by integrated goods and services tax under section 3(7) of the Customs Tariff Act, which is creditable to the importer against his output liability. Basic customs duty remains, but a large part of what a modern importer pays at the border is a tax he recovers, so the border has become less a point of collection and more a point of control.
Second, the preventive apparatus has been reinforced. The cognizable categories in section 104(4) were extended by amendments in 2012, 2013 and 2019 after Om Prakash v. Union of India, (2011) 14 SCC 1; section 135AA was inserted in 2022 to punish publication of import and export data; section 114AA allows a penalty up to five times value for the use of false material particulars; and Radhika Agarwal v. Union of India, 2025 INSC 272, decided on 27 February 2025, upheld the arrest powers of the Act while requiring credible material, recorded reasons to believe and communication of those reasons.
Against that must be set the one significant retreat on the preventive side, which is the abolition of the Settlement Commission on 1 April 2025 by the Finance Act 2025, removing the forum that could grant immunity from prosecution under section 127H and leaving compounding under section 137(3) as the only exit.
Conclusion
Conclusion. The proposition in the question is accurate and it describes the Act's architecture rather than a feature of it. The fiscal statute is complete in itself: section 12 charges, section 14 values, section 15 dates, section 17 assesses by self-assessment with verification, section 18 assesses provisionally under a two-year limit since 1 May 2025, section 28 recovers within two or five years with interest under section 28AA, section 27 refunds subject to unjust enrichment, and section 25 exempts. So is the preventive statute: section 11 prohibits for a long list of purposes, running from clause (a) to clause (s), of which only one is fiscal, section 2(39) defines smuggling by reference to confiscation, sections 100 to 110 search and seize, sections 111 to 125 confiscate and penalise, sections 123, 138A and 139 reverse burdens of proof, and sections 104 and 132 to 137 arrest and prosecute.
The two characters meet at three points and the Act resolves each deliberately. Section 125 makes redemption mandatory for goods that are not prohibited and discretionary for those that are, which is the fiscal interest yielding to the preventive one exactly where the preventive one is engaged. Section 127 and the difference in the standard of proof allow adjudication and prosecution to run together, subject to the rule that an exoneration on the merits ends the prosecution. And the canons of construction differ by function, a charging provision being read in favour of the subject while, since Dilip Kumar in 2018, an exemption is read against him.
If a preponderance has to be named, the preventive character has been gaining. Since the integrated goods and services tax took over the greater part of border taxation on 1 July 2017, much of what is collected is creditable and the border's fiscal significance has narrowed, while the offence and arrest provisions have been widened three times since 2011 and were upheld with new safeguards in Radhika Agarwal in February 2025. The Act of 2026 taxes less and controls more than the Act of 1962 did, and the two characters the question names are no longer in balance.
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