What is the Meaning of Customs Duty in

India and its Types

 

3 years ago

Planning to sell across the border, but can’t figure out what customs duty is?
Don’t worry, we’ve got you covered.

Read on to know all about customs duty in India and its types.

Customs Duty refers to the tax that is imposed on the transportation of goods
across international borders. It is a kind of indirect tax that is levied by the
government on the imports and exports of goods. Companies that are into the
export-import business need to abide by these regulations and pay the customs
duty as required. Put differently, the customs duty is a kind of fees that are
collected by the customs authorities for the movement of goods and services to
and from that country. The tax that is levied for the import of products is
referred to as import duty, while the tax levied on the goods that are exported
to some other country is known as export duty.

The primary purpose of customs duty is to raise revenue, safeguard domestic

business, jobs, environment and industries etc. from predatory competitors of
other countries. Moreover, it helps reduce fraudulent activities and circulation
of black money.

On what factors is the customs duty calculated?

The customs duty is calculated based on various factors such as the following:

 The place of acquisition of the good.

 The place where the goods were made.
 The material of the goods.
 Weight and dimensions of the good etc.

Moreover, if you are bringing a good for the first time in India, you must
declare it as per the customs rule.

Customs Duty in India

India has a well-developed taxation structure. The tax system in India is

mainly a three-tier system which is based between the Central, State
Governments and the local government organisations. Customs duty in India
falls under the Customs Act 1962 and Customs Tariff Act of 1975.

Since the implementation of India’s new taxation system, GST, integrated

goods and value-added service tax (IGST) is being charged on the value of any
imported goods. Under IGST, all products and services are taxed under four
basic slabs of 5 percent, 12 percent, 18 percent, and 28 percent.

Furthermore, the office of the Director General of Foreign trade validates the
registration of all importers before they engage in any import and export
activities.

Structure of a Customs Duty in India

Usually, the goods that are imported to the country are charged customs duty
along with educational cess. For industrial products, the rate has been slashed
to 15%. The customs duty is evaluated on the value of the transaction of the
goods.

The basic structure of import and export tariffs in India include:

 Basics Customs Duty

 Additional Duty
 Special additional duty
 Education assessment or cess
 Other state level taxes

The additional duty is applied to all imports except for wine, spirits and
alcoholic beverages. Furthermore, the special additional duty is calculated on
top of the basics duty and additional duty. Apart from these, the percent of cess
charged is 3% on most of the goods.

Types of Customs Duty in India

Customs duties are levied on almost all goods that are imported into the
country. On the other hand, export duties are levied on a few items as
mentioned in the Second Schedule. Customs duties are not levied on life-
saving drugs, fertilizers and food grains. Customs duties are divided into
different taxes, such as:

1. Basic Customs Duty: This is levied on imported items that are part of

Section 12 of the Customs Act, 1962. The tax rate is levied as per First Schedule
to Customs Tariff Act, 1975.
2. Additional Customs Duty: It is levied on goods that are stated under
Section 3 of the Customs Tariff Act, 1975. The tax rate is more or less similar to
the Central Excise Duty charged on goods produced within India. This tax is
subsumed under GST now.
3. Protective Duty: This is levied for the purpose of protecting indigenous
businesses and domestic products against overseas imports. The rate is
decided by the Tariff Commissioner.
4. Education Cess: This is charged at 2%, with an additional higher
education cess 1%, as included in the customs duty.
5. Anti-dumping Duty: This is levied if a particular good is being imported
is below fair market price.
6. Safeguard Duty: This is levied of the customs authorities feel that the
exports of a particular good can damage the economy of the country.

How to Calculate Customs Duty

The customs duties are usually calculated on Ad valorem basis on the value of

the goods. The value of goods is calculated according to the regulations stated
under Rule 3(i) of the Customs Valuation Rules, 2007.

You can also make use of the customs duty calculator that is available on the
CBEC website. As part of the computerised and electronic service drive in the
year 2009, India started a web-based system known as ICEGATE. ICEGATE is
the abbreviation of Indians Customs Electronic Commerce/Electronic Data
Interchange gateway. It provides a platform for the calculation of duty rates,
import-export goods declaration, shipping bills, electronic payment,
verification of import and export licenses.

The Indian classification of the Customs Duty is based on the Harmonized

Commodity Description (HS) and Coding system. The HS codes are of 6 digits.

The IGST that applies to all imports and exports is charged on the value of the
good along with the primary customs duty on the good. The structure is as
follows:

Value of the imported goods+ Basics Customs Duty + Social Welfare

Surcharge = Value based on which IGST is calculated

In case there is a confusion regarding the common valuation factors, the

following factors are taken into consideration as per exception:

Comparative Value Method to calculate the transaction value of the same items
as per Rule 4.
Comparative Value Method to calculate the transaction value of the same items
as per Rule 5.
Deductive Value Method to calculate the sale price of an item in importing
country as per Rule 7.
Computed Value Method that is used as per the fabrication materials and
profit as per Rule 8.
Fallback Method used to calculate goods with higher flexibility as per Rule 9.

The Central Board of Excise and Customs under the Ministry of Finance

manages the customs duty process in the country. International trade has huge
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 Customs Duty
Goods are imported in or exported from India through sea, air or land. Goods may even come through
post parcel or as baggage when passengers travel in and out of the country. The Customs Act was
formulated in the year 1962 to prevent the illegal import and export of goods. Moreover, all imported
goods are subject to the duty to affording protection to indigenous industries as well as to keep the
imports to a minimum in the interests of Indian companies and to secure the exchange rate of the Indian
currency. In this article, we look at customs duty in India in detail.

Objective of Customs Act and Customs

Duty
The following purposes are the reason why Customs Duty is levied on the import and export of goods in
India.

1. To restrict the imports for conserving foreign exchange.

2. To protect the imports and exports of goods for achieving the policy objectives of the
Government.
3. To regulate export
4. To co-ordinating legal provisions with other laws dealing with the foreign exchange such as
the Foreign Trade Act and the Foreign Exchange Regulation Act.
5. To safeguard domestic trade.
6. To protect the revenue of resources.
7. To protect the industries in India from unfair competition.
8. To prevent the smuggling of goods and activities related to the same.
9. To prevent the dumping of goods.

Types of Customs Duty in India

The different types of duties of customs collected are as follows.

1. Basic Custom Duty

2. Surcharge
3. Additional duty of customs
4. Special Additional duties
5. Other levies like Countervailing duty, Anti-dumping duty, Safeguard duty and so on. Also, cess
duty is leviable of certain goods.
Mode of Levy of Customs Duty
They are three modes of imposing Customs Duty. They are as follows:

Specific Duties
A Specific Custom Duty is a kind of duty imposed on every unit of a commodity imported or exported. For
example, INR 10 on each metre of cloth imported or INR 1,000/- on each TV set imported. In these cases,
the value of the commodity is not taken into consideration.

Ad Valorem Duties
Ad Valorem is the Latin for ‘According’ to the ‘Value’ or ‘Worth’. Ad Valorem custom duty is a duty
imposed on the total value of a commodity imported or exported. For example, 10 per cent of the F.O.B
value of cloth imported or 20 per cent of the C.I.F value of TV sets imported. In the case of Ad Valorem
custom duty, the physical units of commodity are not taken into consideration. Therefore it is the method
of charging duty, tax, or fee according to the value of the goods and services, instead of by a fixed rate, or
by the weight or the quantity.

Compound Duties
Compound custom duty is a combination of specific and Ad Valorem custom duties. In this case, the
quantity, as well as the value of the commodity, is taken into consideration while computing tariff.

Exemptions from Customs Duty

There are a few exemptions from Customs duty, and they are as follows.

 The Central Government can grant exemptions by issuing a notification. Capital goods and
spares can be imported under “project imports” at concessional/ Nil rate of customs duty.
 Section 25 of the Customs Act authorises the Central Government to issue notification granting
exemption from customs duty partially or wholly on any goods.
 The exemptions may be in respect of primary duty or auxiliary duty.
 General or specific exemptions may be granted. While general exemptions are in respect to the
user of goods, specific exemptions are in respect of various products.
 The exemptions are also granted subject to fulfilment of certain conditions.
Types of Exemptions
The following are the types of exemptions from Customs Duty.

1. By notification
2. By particular order on the Adhoc basis
3. General exemptions
4. Exemptions to Oil and Natural Gas Corporations Limited (ONGC)/ Oil India Limited (OIL)
5. Other exemptions

Customs Duty Drawbacks

“Drawbacks” about any goods manufactured in India and exported has either of the following meanings.

1. Rebate of duty chargeable.

2. Rebate of duty of excise.
3. A drawback is equal to the Customs duty paid on imported inputs and the Excise duty paid on
indigenous inputs.

Value of the Customs Act

Customs Duty is an amount that is payable as a percentage of ‘value’ often called as ‘Assessable Value’
or Customs Value. Sections 14(1) provides the following criteria for deciding ‘value’ for Customs Duty.

1. Price at which such or like goods are ordinarily sold or offered for sale.
2. Price for the delivery at the time and place for importation or exportation.
3. Price should be in the course of International Trade.
4. Seller and buyer have absolutely no interest in the business of each other, or one of them has no
interest in the other.
5. Price should be sole considerations for sale or offer for sale.
6. The rate of exchange as appropriate on the date of presentation of Bill of Entry as fixed by
CBE&C (Board) by Notification should be considered. This criterion is entirely appropriate for
valuing export goods. However, in the case of import goods valuation is required to be done
according to valuation rules as stated in Chapter 6 Para 5 of the CBE & C’s Customs Manual,
2001.

Scope and Coverage of Customs Law

Customs Law in India is covered under many Acts, rules, regulations and notifications. Some of the
essential laws concerning Customs Duty has been mentioned below.

The Customs Act of 1962

The Customs Act of 1962 is the most crucial Act that provides for the implementation and collection of
duty on goods imported and exported in the country. This Act also deals with the Import and Export
procedures, Prohibitions on importation and exportation of goods, penalties, offences and much more.
The Customs Tariff Act of 1975
The Customs Tariff Act of 1975 contains two schedules. Schedule-1 gives the classification and rate of
duties for imports. On the other hand, Schedule-2 gave classification and rated of duties for exports. In
addition to these two schedules, the Customs Tariff Act makes provisions for duties like additional duty
(CVD), special duty, anti-dumping duty and protective duties.

Note: The Customs Act of 1962 regulates the levy of duties of customs while the Customs Tariff Act of
1975 fixes the rates of the taxes.

Rules under the Customs Act

The Section 156 of the Customs Act of 1962 states that the Central Government has been empowered to
make regulations that are consistent with the provisions of the Act and to carry out the main purposes of
the Act. Multiple rules have been framed under these powers. The principal rules of this Act have been
mentioned below.

1. The Customs Valuation Rules of 1988: For the valuation of imported goods for calculating duty
payable.
2. The Customs and Central Excise Duties Drawback Rules of 1995: The mode of calculating rules
of duty drawback on exports.
3. Re-export of Imported Goods
4. Baggage Rules of 1998: This stated the rules and allowances for bringing in baggage from
abroad by Indian and tourists who visited the country. Duty-free baggage allowance carried by an
international passenger, when coming to India is INR 50,000/- per individual. Before the 31st of
March, 2016, the amount was INR 45,000/-. With effect from the First of April, 2016, all
international passengers travelling to India need not file declarations if not carrying dutiable goods
as part of the baggage they bring along with them.
5. Customs Rules of 1996: This states the import of goods at a concessional rate of duty for
manufacture of excisable goods. It also provides the procedure to be followed when goods are
imported into India for export purposes.

Regulations under the Customs Act

Under Section 157 of Customs Act of 1962, the Board has the authority to make rules that are consistent
with provisions of the Act to carry out the purposes of the Act. Various regulations have been framed
under these powers such as the ones stated below.

1. Project Import Regulations of 1986: Procedures for project imports

2. Customs House Agents Licensing Regulations of 1984
Other Specifics:
Notifications under the Customs Act
Various sections authorise the Central Government to issue notifications. The main sections have been
stated below.

1. Section 25(1): This section is to grant partial or full exemption from the duty, and Section 11
states the prohibition of import or export of goods.
2. Other sections are: A few of the other sections are ones like Section 11B that specifies notified
goods and Section 11-I that determines specific goods.

Board Circulars
Central Bureau of Indirect Taxes and Customs is empowered under Section 151A of the Customs Act.
The Bureau has the power to issue instructions, and directions to the officers of customs and they are
required to observe and follow, This is for uniformity in the classification of goods or concerning the levy
of duty.

Definition of 'Customs Duty'

Definition: Customs Duty is a tax imposed on imports and exports of goods.

Description: The rates of customs duties are either specific or on ad valorem basis, that is, it is
based on the value of goods. Rule 3(i) of the Customs Valuation (Determination of Value of
Imported Goods) Rules, 2007 states that the value of imported goods shall be the transaction
value adjusted in accordance with the provisions of its Rule 10.

If objective and quantifiable data do not exist with regard to the valuation factors, if the valuation
conditions are not fulfilled, or if Customs authorities have doubts concerning the truth or
accuracy of the declared value in terms of Rule 12 of the said Valuation Rules, 2007, the
valuation has to be carried out by other methods in the following hierarchical order: (i)
Comparative Value Method - Comparison with transaction value of identical goods (Rule 4); (ii)
(Comparative Value Method - Comparison with transaction value of similar goods (Rule 5); (iii)
Deductive Value Method - Based on sale price in importing country (Rule 7); (iv) Computed
Value Method - Based on cost of materials, fabrication and profit in country of production (Rule
8); and (v) Fallback Method - Based on earlier methods with greater flexibility (Rule 9).

Import duties are generally of the following types: 1. Basic duty; 2. Additional Customs duty; 3.
True Countervailing duty or additional duty of customs; 4. Anti dumping duty/Safeguard duty.

While revenue is a paramount consideration, Customs duties may also be levied to protect the
domestic industry from foreign competition.

Custom Duty?
What is Custom Duty?

Custom duty is a type of indirect tax that is levied on all the goods that are imported to the
country as well as some goods exported from the country. The duty levied on the former is
referred to as import duty while that on the latter is referred to as the export duty. To simplify it,
any tariff that is introduced on goods across national borders is referred to as custom duty.

The duty levied depends on the value of the goods, its dimensions and weight along with a lot of
other criteria. While value-based duties are called valorem duties, quantity-based duties are
called specific duties. On the other hand, duties on values plus other factors are called compound
duties.

Custom Duty in India

Custom Duty in the country falls under the Customs Act, 1962. As per this act, the government
levies duties on both import and export of goods along with their procedures, prohibitions,
penalties etc. Matters pertaining to this duty fall under the CBEC (Central Board of Excise and
Customs), a division of the Department of Revenue of the Ministry of Finance.

The CBEC helps in formulating policies w.r.t. the collection and imposition of custom duties
including custom duty evasions, prevention of smuggling etc. It oversees the tax administration
of inland and foreign travel. It has different divisions to take care of field work such as the
Commissionerate of Customs, Central Revenues Laboratory and Directorates etc.
Types of Custom Duty
Custom duties are levied on nearly all goods that are imported into the nation. While export
duties are levied on goods as specified by the Second Schedule, import duties are not levied on
certain items like fertilizers, food grains, lifesaving drugs etc. Custom duty can be classified into
the following types:

 Basic Customs Duty:This duty is imposed on the value of goods at a specified rate as it
is fixed on an ad-valorem basis. After being amended time and again, it is currently
regulated by the Customs Tariff Act, 1975. The Central Government, however, holds the
rights to exempt specific goods from this tax.

 Countervailing Duty:CVD or Additional Customs Duty is levied on imported goods that

fall under Section 3 of the Customs Tariff Act of 1975. It is the same as the CentralExcise
Dutywhich is levied on similar goods that are produced in India.

 Education Cess:The cess used to be levied at 2% and an additional 1% of the aggregate

of customs duties.

 Protective Duty:This duty is imposed in order to shield the domestic industry against the
imports at rates that are recommended by the Tariff Commissioner.

 Safeguard Duty:As the name suggests, this duty serves as a means of safeguarding the
rise in exports. Sometimes, if the government feels that a rise in exports can damage the
existing domestic industry, it may levy this duty.

 Anti-Dumping Duty:This duty is based on the dumping margin, i.e. the difference
between the export price and the normal price. It is only imposed when the goods that are
imported are below the fair market price.

Calculating Custom Duty

Custom duty can be calculated on either a specific or an ad valorem basis. The value of goods,
for the latter, is determined by Rule 3(i) of the Customs Valuation Rules, 2007. If there is no
quantifiable data w.r.t. valuation factors, then the valuation of the items is done using other
means based on a system of hierarchy, as follows:

 Comparative Value Method:This method compares transaction values of items similar

in nature (Rule 4)

 Comparative Value Method:This method compares transaction values of items similar

in nature (Rule 5)

 Deductive Value Method:This method uses the sale price of items in the importing
country (Rule 7)
  Comparative Value Method:This method uses costs related the fabrication, materials as
well as profit in the production country (Rule 8)

 Fallback Method:This method is based on the earlier methods that offer higher
flexibility (Rule 9)

Custom Duty Online

The portal that contains online custom duty is the ICEGATE or Indian Customs Electronic
Commerce/Electronic Data Interchange (EC or EDI) Gateway. It allows the clients of the
Customs Department an e-filing service that includes trade and cargo carriers, which is
collectively known as Trading Partner. Through ICEGATE, one can do an electronic filing of
Bill of Entry and shipping bills along with messages between the trading partner and customs
through email, web upload or FTP. This portal particularly helps airline and shipping agents who
file their manifests. Additionally, cargo logistics as well as custodians are able to have
interactions with customs EDI for pieces of information related to cargo and logistics. Besides e-
filing, document tracking, e-payment, online registration of IPR, PAN based CHA data, code
status and verification of certain licenses can be done too. For any queries and issues, the 24*7
helpdesk can be contacted by trading partners.

Payment of Custom Duty

In the world of the internet, payment of custom duty hasn’t been left far behind. It can easily be
paid online with a few simple steps:

 First, access the e-payment portal of ICEGATE

 Then, enter the import or export code or simply key in the login credentials given by
ICEGATE

 Finally, click on e-payment

 You will be able to check all the e-challans that are in your name

 You can then select the challan which you have to pay and choose the payment method or
select the bank

 You will be redirected to the payment gateway of the bank

 Initiate the payment

 Once it is done, you will be redirected to the ICEGATE portal

 The last step would be to click on the print button and save the payment copy.
Custom Duty Calculator

This calculator serves as a simple tool for calculating the custom duty you have to pay. You can
gain access to it at the ICEGATE portal. Upon accessing the custom duty calculator, you will
have to enter the CTH or HS Code of the goods that you plan to import. You will have to enter a
description of maximum 30 characters and then select the country of origin, be it for preferential
duty or antidumping. If you want to see the list of goods, then simply click on the search tab and
the list matching your criteria will appear. You can choose the right one and then gain access to a
chart loaded with relevant information. In this dynamic chart, you can enter the values to check
the exact custom duty you ought to pay.

Import Duty
By Adam Barone

Updated Apr 14, 2019

What Is Import Duty?

Import duty is a tax collected on imports and some exports by a country's customs authorities. A
good's value will usually dictate the import duty. Depending on the context, import duty may
also be known as a customs duty, tariff, import tax or import tariff.

Import Duty Explained

Import duties have two distinct purposes: raise income for the local government and to give a
market advantage to locally grown or produced goods that are not subject to import duties. A
third related goal is sometimes to penalize a particular nation by charging high import duties on
its products.

In the United States, Congress established import duties. The Harmonized Tariff Schedule (HTS)
lists the rates for imports and is published by the International Trade Commission (USITC).
Different rates are applied depending on the countries' trade relations status with the United
States. The general rate applies to countries that have normal trade relations with the United
States. The special rate is for countries that are not developed or are eligible for an international
trade program.

Key Takeaways

 Import duty is also known as customs duty, tariff, import tax or import tariff.
 Import duty is levied when imported goods first enter the country.
 Around the world, several organizations and treaties have a direct impact on import duties.

International Organizations

Around the world, several organizations and treaties have a direct impact on import duties.
Several countries have tried to reduce duties to promote free trade. The World Trade
Organization (WTO) promotes and enforces commitments that its member nations have made to
cut tariffs. Countries make these commitments during complex rounds of negotiations.

Another example of an international effort to reduce tariffs was the North American Free Trade
Agreement (NAFTA) between Canada, the United States, and Mexico. NAFTA eliminated
tariffs, except those on certain agriculture, between the three North American nations. In 2018,
the U.S., Canada, and Mexico signed a new deal to replace NAFTA called the USMCA.

In February 2016, 12 Pacific Rim nations entered into the Trans-Pacific Partnership (TPP),
which significantly impacts the import duties between these countries. It is expected to take
several years before the TPP comes into force.

Real World Example

In practice, import duty is levied when imported goods first enter the country. For example, in
the United States, when a shipment of goods reaches the border, the owner, purchaser or a
Customs broker (the importer of record) must file entry documents at the port of entry and pay
the estimated duties to Customs.

The amount of duty payable varies greatly depending on the imported good, the country of origin
and several other factors. In the United States, Customs uses the HTS, which has several hundred
entries, to determine the correct rate. For consumers, the price they pay includes duty costs.
Therefore, all other things being equal, the same good produced internally should cost less,
giving local producers an advantage.

It takes years for someone to learn how to classify an item to determine its correct duty rate.
Every product requires specialized knowledge to set a correct import duty. For instance, you
might want to know the rate of duty of a wool suit. A classification specialist will need to know,
does it have darts? Did the wool come from Israel or another country that qualifies for duty-free
treatment for specific categories of its products? Where was the suit assembled, and does it have
any synthetic fibers in the lining ?
What is the purpose of custom duty? /
importance

Functions of Tariffs by Definition

Tariffs are considered to have three primary functions: to serve as a source of revenue, to protect
domestic industries, and to remedy trade distortions (punitive function for product dumping).
The revenue function income from tariffs provides governments with a source of funding. In the
past this was the main function and reason for applying tariffs, but economic development and
the creation of systematic domestic for instance it only accounts for about 2% of tax revenue.
Nevertheless, revenue may still be an important tariff function in underdeveloped countries. In
our time tariffs are more of a trade policy tool to protect domestic industries by altering the
conditions under which goods compete. A case in point are “tariff quotas” that are used to strike
a balance between market access and protecting domestic industry. Tariff quotas normally work
by applying low or no duties to imports up to a certain volume and then higher rates to imports
that exceed that the quota level.

The short answer from US Customs:

“Customs Duty is a tariff or tax imposed on goods when transported across international borders.
The purpose of Customs Duty is to protect each country’s economy, residents, jobs,
environment, etc., by controlling the flow of goods, especially restrictive and prohibited goods,
into and out of the country.
The Anti-subsidy Duty

The anti-subsidy duty, also known as the countervailing duty, is a kind of import surtax levied to
countervail the bonus or subsidy received directly or indirectly at the manufacture, production
and output stage of the imported commodities.

Tax-free imports might relate to other things as follows:

· Imports of goods used in the manufacture of other goods for local consumption,

· Imports of goods used in the manufacture of other goods for export,

· Imports of goods which are only temporarily in the country for adjustments, repair, etc which is
then re-exported.

· Imports of goods for local consumption

There are vast differences in the rules that apply to each of these refunds and importers will not
automatically receive the refunds. Instead importers have to apply for these refunds, preferably
before the goods were imported, in order to receive these refunds.”

What effect do tariffs have on a given economy? It depends mainly on two broad issues:

1. Its traded volume

2. Its trade-price

There are however many secondary issues that can effectively affect the performance of a given
economy.

· Its protective effect: import duty raises the price of imported goods. This increase in the price
of imports reduces imports and increases the demand for domestic goods.

· Its consumption effect: increase in price of the taxed commodity reduces the consumption
capacity of the country

· Its distribution effect: an increase in the price of domestically produced goods amounts to
redistribution of income between the consumers and producers in favor of the producers.

· Its revenue effect: an import duty means increased revenue of the government

· Its income and substitution effects: the duty may cause a switch over from spending on
foreign goods to spending on domestic goods which should result in higher domestic income and
employment.
· Its competitive effect: overprotecting the domestic industries from foreign competition may
enable the domestic producers to become a monopoly in the domestic industry.

· Its terms of trade effect: in order to maintain previous levels of sales to the duty imposing
country exporter will reduce prices making imports to be purchased at a lower price.

· Its balance of payment effect: reducing the volume of imports helps the imposing country
improve its balance of payment position.

In conclusion, tariffs can have multiple functions that have marked effect on pricing for any
economy which will also affect terms of trade, employment, income, government revenue,
balance of payments and so on.

The importance of customs duties

We continually warn clients about the risks associated with international trade transactions and
advise on the numerous ways to mitigate these risks. Often clients are only concerned with
certain issues relating to relationship between the two parties, being the importer and the
exporter. In this context clients ask advice on the best method of securing payment, which
Incoterm (payment and risk terms) should be applied and what the most appropriate method of
dispute resolution should be.

These are very important considerations and should not neglected, however clients often omit to
consider customs duties.

Customs duties (or tariffs) could have a major influence on your revenue and could possibly
even make importation or exportation economically unfeasible. However, it may well be that no
customs duty is payable or that a lesser duty is levied or even that you may obtain a refund (or
rebate) of the customs duty paid. Unfortunately clients often commit grave mistakes in
determining which customs duty is applicable to their products. Determining which customs duty
is applicable to a product is a complex exercise and expert advice should be sought. Often clients
make use of clearing agents or freight forwarders (or worse still they decide for themselves) in
advising them on which customs duty will be applicable. Unfortunately there are very few
persons experienced in customs determinations and this leads to massive erroneous
determinations which have very real financial implications. The incorrect determination of a
customs duty does not only lead to the retrospective imposition of the correct duty, but could
lead to a substantial financial fine or imprisonment. In addition the goods are impounded until
the outstanding duties and fines have been paid. As we have seen in recent case law, the
importer's or exporter's ignorance or intention is also an irrelevant consideration in minimizing
retrospective imposition of the correct duty as well as fine or imprisonment.
The incorrect declaration could also imply that you do not have any history in importing or
exporting a particular product. This could, in certain circumstances, prevent you from further
importing or exporting that product. An example hereof was seen in the recent quotas imposed
on clothing and textiles being imported from China. All of a sudden many importers could not
receive a quota, because they have been importing under the incorrect tariff heading. Any such
hassle may be avoided by obtaining a prior legal opinion on the matter, which cost would mostly
be negligible in comparison with any loss which the business has now suffered as a result of not
seeking such advice.\

Customs duties are not however only about determining what tax is applicable to a product. It
may even be used to strategically position your business. A thorough knowledge of customs
duties will show you that there are various ways to claim a refund (also referred to a as rebate or
drawback) on the tax you pay for your imports. Such knowledge could therefore be used to
position your business as an exporter for example. Such tax-free' imports relate to amongst other
things the following:

 imports of goods used in the manufacture of other goods for local consumption,
 imports of goods used in the manufacture of other goods for export,
 imports of goods which are only temporarily in the country for adjustments, repair, etc which is
then re-exported, and
 imports of goods for local consumption.

There are vast differences in the rules that apply to each of these refunds and importers will not
automatically receive the refunds. Instead importers have to apply for these refunds, preferably
before the goods were imported, in order to receive these refunds. The importer will also have to
comply with certain legal requirements, which varies between the purposes for which the goods
are imported, before such an application will be approved. It will be worthwhile to request a
comprehensive review of your business' customs exposure. Such a review may save your
business a great deal of money.
Basic Customs Duty

Goods imported into India are chargeable to basic customs duty (BCD) under Customs Act,
1962. The rates of BCD are indicated in I Schedule (for Imports) of Customs Tariff Act, 1975.
Education cess (EC) @2% and secondary & higher education cess (SHEC) @1% are applicable
extra.

Generally, BCD is levied at standard rate of duty but if certain conditions are satisfied (below),
the importer can avail the benefit of preferential rate of duty on imported goods.

Conditions for availing the benefit of preferential rate of duty:

1. Specific claim for preferential rate must be made by the importer, Import must be from
preferential area as notified by the Central Government,

2. The goods should be produced/manufactured in such preferential area.

3. For more details on preferential rate of duty: http://www.cbec.gov.in/customs/cst2012-13/cs-

gen/cs-gen69-93.pdf.

National Calamity Contingent Duty (NCCD)

It is levied on import of pan masala, chewing tobacco & cigarettes at different rates as
applicable. It is levied @1% on PFY, motor cars, multi utility vehicles and 2-wheelers and Rs.50
per ton on crude oil vide section 169 of Finance Act, 2003.

Additional Duty of Customs or Countervailing Duty (CVD)

As per section 3(1) of Customs Tariff Act, any article imported into India is liable to duty (in
addition to BCD) equal to excise duty for the time being leviable on a like article if
produced/manufactured (or could be or capable of being produced/manufactured) in India.

If goods manufactured in India are exempt from excise duty, then there is no CVD – CCE Vs J
K Synthetics (2000) (SC).

CVD cannot be levied, if exemption from central excise duty is based on goods manufactured by
SSI units or goods manufactured without aid of power – CC Vs Malwa Industries (2009) 235
ELT 214 (SC). If the importer is the manufacturer availing benefit of SSI exemption under
notification 8/2003 under Central Excise, thereby not paying excise duty on final product
manufactured. Such manufacturer is not liable to pay CVD on imports, even if not liable to pay
any duty under Central Excise Act, 1944.

If imported goods are used by the importer in the same factory or factory belonging to the
importer, then no CVD attracted on such imported goods – CC Vs Malwa Industries (2009)
235 ELT 214 (SC).

If imported goods attract excise duty in India as per section 4A of Central Excise Act, then CVD
will be calculated on MRP basis only.

CVD can be levied only when the importer has imported manufactured goods. It means CVD can
be levied only if goods are obtained by a process of manufacture – Hyderabad Industries Ltd
Vs Union of India (1995) (SC).

CVD can be imposed even if there is exemption from BCD.

If the importer is the manufacturer, he can claim cenvat credit of CVD.

No EC and SHEC applicable on CVD w.e.f 1/3/2015.

No CVD on Anti-dumping duty, Safeguard duty, Protective duty or Countervailing duty on

subsidized articles.

Special Additional Customs Duty (Special CVD)

U/s 3(5) of Customs Tariff Act, imported goods in addition to BCD & CVD shall also be liable
to Special CVD at the rate notified by Central Government (CG) (at present, it is @4%).

Special CVD is fully exempt in respect of the following imported goods:

a) Goods packed for retail sales covered under Standards of Weight & Measurement Act (Legal
Metrology Act, 2009)

b) Wrist watches & pocket watches

c) Telephones for cellular networks

d) Articles of apparel excluding parts of made-up clothing accessories

A manufacturer is eligible to claim cenvat credit of Special CVD paid. A dealer is allowed
refund of Special CVD provided such dealer is liable for VAT. A service provider is not eligible
to avail cenvat credit of Special CVD.

Protective Duty

As per section 6(1) of Customs Tariff Act, protective duty is levied by the CG upon
recommendation made by the Tariff Committee and upon CG being satisfied that it is necessary
to provide protection to any industry established in India. At present, this duty is not in force. No
CVD, EC & SHEC are applicable.

Safeguard Duty

As per section 8B(1) of Customs Tariff Act, safeguard duty is imposed for protecting the
interests of any domestic industry in India and it is product specific. CG can impose provisional
safeguard duty, pending final determination up to 200 days. Effective from 6 th August 2014, if
imported goods are cleared in Domestic Tariff Area (DTA) then safeguard duty is payable. No
CVD, EC & SHEC are applicable.

Countervailing Duty on Subsidized Articles

As per section 9 of Customs Tariff Act, it is levied on articles which are imported by getting
subsidies from other country. No CVD, EC & SHEC are applicable.

Anti-dumping Duty

As per section 9A of Customs Tariff Act, it is imposed on imports of a particular country. It is

country specific. Dumping exists when a product is exported from one country to another at a
price which is less than its normal value prevailing in the exporting country. The difference
between the normal value and the export price is the dumping margin based on which anti
dumping duty is imposed. No CVD, EC & SHEC are applicable.

Illustrations

Illustration 1 (computation of customs duty on import):

The following information is furnished by X on 8 th June 2015 in respect of machinery imported

from USA:

Assessable Value: Rs.11,00,000

Particulars Amount in Rs. Amount in Rs. Remarks/Working

 Assessable value 11,00,000
Add: BCD @7.5% 82,500 82,500
Add: NCCD – Not applicable
Subtotal 11,82,500
Add: CVD @12.5% 1,47,813 1,47,813 11,82,500 x 12.5%
Add: EC & SHEC – Not applicable w.e.f 1/3/15

Subtotal 13,30,313
Add: EC & SHEC @3% 6,909 6,909 2,30,413 x 3%
Subtotal 13,37,222
Add: Special CVD @4% 53,489 53,489 13,37,222 x 4%
Value of imported goods 13,90,711    
Value of total customs   2,90,711  
duty

Basic Customs duty: 7.5%

Excise duty chargeable on similar goods in India as per tariff rate: 12.5%

Additional duty of customs u/s 3(5) of CTA: 4%

Calculate the total customs duty payable by X.

Solution 1:

Illustration 2 (computation of anti-dumping duty):

A commodity is imported into India from a country covered by a notification issued by CG u/s
9A of CTA. Following particulars are given:

Assessable value: USD25,250

Quantity imported: 500 kg

Exchange rate applicable: Rs.64 = USD1

BCD: 12%, EC & SHEC as applicable

As per the notification, anti-dumping duty will be equal to the difference between the cost of
commodity calculated @USD70 per kg and the landed value of the commodity imported.
Calculate anti-dumping duty and total customs duty payable.

Solution 2:
 Particulars Amount in Amount in Remarks/Working
Rs. Rs.
Assessable value 16,16,000 25250 x 64
Add: BCD @12% 1,93,920 1,93,920
Add: NCCD – Not applicable
Subtotal 18,09,920
Add: CVD @12.5% – Not applicable
Add: EC & SHEC – Not applicable w.e.f
1/3/15
Subtotal 18,09,920
Add: EC & SHEC @3% 5,818 5,818 1,93,920 x 3%
Subtotal 18,15,738
Add: Special CVD @4% – Not applicable
Value of imported goods 18,15,738    
(Landed value)
Market value of imported 22,40,000 500 kg x Rs.64 x
goods USD70
Anti-dumping duty 4,24,262 4,24,262 22,40,000 – 18,15,738
Value of total customs duty   6,24,000

How To Calculate Custom Duty?

For every good imported and some exports, the Government of India charges an amount. This charge is
a form of indirect tax and is known by custom duty. When import goods are charged with tax, it is called
import duty, while the tax on exported goods is called export duty.

Central Board of Excise and Customs (CBEC),

In India, the custom duty falls under the Customs Act, 1962. The act was meant to give the government
the right to levy a charge on imports and exports, stop imports and export, levy penalties, etc.

Central Board of Excise and Customs (CBEC), under the Department of Revenue of the Ministry of
Finance, is the body in charge of the custom duty. The policies for the collection, levying of custom duty,
evasion from custom duty, administrative decisions in relation to custom formations, smuggling
prevention are made by the CBEC. The CBEC also has its own divisions, like the Central Revenues Control
Laboratory and Directorates, Commissionerate of Customs, etc.
The Levy Of Custom Duty
Custom duties are levied almost on everything imported into the country, while export duties are levied
only on some goods. However, goods like foodgrains and fertilizers are not charged any import duties.
Import duties are classified further under divisions-

i. basic custom duty

ii. additional customs duty
iii. protective duty
iv. anti-dumping duty
v. safeguard duty.

The amount of custom duty depends upon factors such as value, dimensions, etc. Duties levied based on
weight or quantity are called ‘Specific Duties’, while value-based charges are called ‘Ad Valorem Duties’.
If duties are laid based on a combination of multiple factors and value, then they are called ‘Compound
Duties’.

In India, custom duties are evaluated on the basis of Ad Valorem (the value of the goods) or Specific
basis. Rule 3(i) of Customs Violation (Determination of Value of Imported Goods) Rules, 2007
determines the value of goods.

How Is Custom Duty Calculated?

Every import is subject to duty, and there are aspects that determine the charge. Read on to find out the
import duty calculator in brief.

1. The first duty levied is basic customs duty. It is levied as a specific rate on the unit or as ad
valorem
2. 10 per cent social welfare surcharge is levied on the value of goods.
3. IGST is levied, which is a combination of factors such as BCD, social welfare surcharge and the
entire value
4. Levy of GST Compensation cess
5. For some imports, even anti-dumping duty is levied
6. The government may also levy safeguard duty to protect domestic industry from any threat
7. Finally, every import will be charged 1 per cent of customs handling fee