MEANING

Customs duty is a form of indirect tax which is imposed at the time of both import and export
of goods and services. The tax which is imposed on the import of goods and services are is
known as Import duty and for export of goods and services are known as Export duty. The
government levied these taxes on the export and import of goods and services for raising
money and to protect the domestic establishment from competitors which are in other
countries.

In the past few months, the Government of India brought a major change in the tax collection
system of a nation. For this, a new concept came into existence is GST (Goods and Services
Tax). It is a new tax collection system in which customer is required to pay when they are
using any goods and services.

Previously tax system was quite complex as there are multiple taxes such as Central Excise,
value-added tax or service tax, state tax, etc.  which were imposed on goods and services. But
now GST subsumed all taxes and there is now just one tax only.

DEFINITION
Customs duty refers to the tax imposed on goods when they are transported across
international borders. In simple terms, it is the tax that is levied on import and export of
goods. The government uses this duty to raise its revenues, safeguard domestic industries,
and regulate movement of goods.
 
The rate of Customs duty varies depending on where the goods were made and what they
were made of.
 
Custom duty in India is defined under the Customs Act, 1962, and all matters related to it fall
under the Central Board of Excise & Customs (CBEC).

FEATURES
Customs duty is applied to the movement of goods irrespective of sales or purchase.
Customs duty is a tax which is applied indirectly by government.
Customs duty is applicable only on goods, not on services.
Education cess is applied to it too.

ADVANTAGES

The goal of levying customs duty is to protect each country's economy, jobs, environment,
and citizens by regulating the movement of commodities in and out of the country,
particularly restricted and restrictive goods.

Every good has a predetermined rate of duty that is determined by several criteria, including
where it was purchased, where it was manufactured, and what it is composed of. This gives a
clear idea of the country’s tax with its global partners.

In addition, anything you bring into India for the first time must be declared according to
customs regulations. For example, you must declare any products purchased in a foreign
country as well as any gifts received outside of India.

Manipulating the Customs Duty can help in promoting sustainable energy, reducing non-
essential imports, encouraging domestic industry, and raising income.

Customs duty on numerous inputs can be reduced to encourage domestic manufacture,

while duty on completed products can be raised to generate additional money.

DISADVANTAGES

Raising import taxes is now widely acknowledged to be effective only as an anti-dumping

strategy against another country.

The economy remains in continuous tussle due to manipulation in Customs Duty.

Manufacturers in other industry segments will fight fervently for equal protection from
imports as a result of a duty cut in one sector.

Customs Duty weakens the economy's competitiveness, potentially forcing consumers to

settle for inferior items.

The protection is given by increasing the duty on imports acts as a reward for local
manufacturers' persistent inefficiency, raising the cost of goods.
A protected environment would put a premium on enterprises that invest in R&D,
disincentivizing innovation.

Competing countries have already labeled the hike in Customs duty as a violation of World
Trade Organization (WTO) rules.

While India has used emergency powers in its Customs rules to implement these hikes, it will
be tough to persuade players such as Japan, the EU, and the US of their validity.

As a result, India's credibility as a trading partner may be harmed, making external markets
less favorable to Indian products.

TYPES

 Basic Customs Duty

Basic custom duty is the duty imposed on the value of the goods at a specific rate. The duty is
fixed at a specified rate of ad-valorem basis. This duty has been imposed from 1962 and
was amended from time to time and today is regulated by the Customs Tariff Act of 1975.
The Central Government has the right to exempt any goods from the tax.

 Countervailing Duty (CVD)

This duty is imposed by the Central Government when a country is paying the subsidy to the
exporters who are exporting goods to India. This amount of duty is equivalent to the subsidy
paid by them. This duty is applicable under Sec 9 of the Customs Tariff Act.

 Additional Customs Duty or Special CVD

In order to equalize imports with locals taxes like service tax, VAT and other domestic taxes
which are imposed from time to time, a special countervailing duty is imposed on
imported goods. Hence, is imposed to bring imports on an equal track with the goods
produced or manufactured in India. This is to promote fair trade & competition practices in
our country.
 Safeguard Duty
In order to make sure that no harm is caused to the domestic industries of India, a

safeguard duty is imposed to safeguard the interest of our local domestic industries. It is

calculated on the basis of loss suffered by our local industries.

 Anti Dumping Duty

Often, large manufacturer from abroad may export goods at very low prices compared to
prices in the domestic market. Such dumping may be with intention to cripple domestic
industry or to dispose of their excess stock. This is called ‘dumping’. In order to avoid such
dumping, Central Government can impose, under section 9A of Customs Tariff Act, anti-
dumping duty up to margin of dumping on such articles, if the goods are being sold at less
than its normal value. Levy of such anti dumping duty is permissible as per WTO agreement.
Anti dumping action can be taken only when there is an Indian industry producing ‘like
articles’.

 National Calamity Contingent Duty

This duty is imposed by Sec 129 of the Finance Act. The duty is levied on goods like
tobacco, pan masala or any items that are harmful for health. The rate of the tax varies from
10% to 45% and different rates are applied for different reasons.

 Education Cess on Customs Duty

At the prescribed rate is levied as a percentage of aggregate duties of customs. If goods are
fully exempted from duty or are chargeable to nil duty or are cleared without payment of duty
under prescribed procedure such as clearance under bond, no cess would be levied.

 Protective Duties
Tariff Commission has been established under Tariff Commission Act, 1951. If the Tariff
Commission recommends and Central Government is satisfied that immediate action is
necessary to protect interests of Indian industry, protective customs duty at the rate
recommended may be imposed under section 6 of Customs Tariff Act. The protective duty
will be valid till the date prescribed in the notification.
 RULES

 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