Customs Duty

Customs Duty refers to the duty on the Import of the goods as well on the Export of the goods.
Duty imposed on the goods imported into the country is called Import Duty and the duty levied
on the goods exported out of the country is called Customs duty.

Brief History of the Customs Duty

During the ancient period whenever a trader entered into the boundaries of a country for selling
his merchandise, he offered some gifts to the King/Administrator of that country. Later on this
practice got converted into the customs duty. These days import and export duties are an
important source of revenue for all the countries of the world.

The Customs Act, 1962 and the customs Tariff Act, 1975 have been amended from time to time.
The amendments made up to finance Act, 2016 have been taken into account and an effort has
been made to present the provisions in a simple language.

Basis of determining the Duty: Import duty and Export duty may be determined on the
following two bases:

1. Specific Duty: When the duty is determined on the basis of measurement of goods, it is called
Specific duty.

2. Ad Valorem Duty: When the duty is determined on the basis of value of goods it is referred
to Ad Valorem Duty.

Specific Duty is a kind of duty which is levied on certain physical measurement of goods such
as weight, length, volume, thickness etc of the item. In such cases calculation of duty payable is
comparatively easy; however, the disadvantage is that even if selling price product increases,
revenue earned under duty does not increase correspondingly.

Ad Valorem Duty: It is the duty which is levied on the basis of valuation of goods. The
valuation in money term may be as per Tariff value fixed by the Board or Assessable Value
based on Transaction value.

Combined Rates or Compound Duty: It is a combination of the specific and Ad valorem duties
on a single product. For example tariff may be Rs.100 per qtl. Plus 5% Ad valorem.

Advantages:

• Receiving the Revenue

• Protection to Domestic Industry

• Reducing deficit in the Balance of Trade and Balance of Payment

 • Controlling the Smuggling

• Reducing the Export

• Savings and Foreign Exchange

Disadvantages:

• Causing Inflation

• Increases Black Money

• Absences of Better Quality goods

• Complex Procedure

Customs Law Comprises

The customs Act,1962 This is a consolidating enactment proving levy of import and
export duties
The customs tariff Act contains various types of customs duties to be levied on the
Act,1975 importation and exportation of the articles
Rules Section 156 of the customs Act 1962 empowers the central
government to make rules consistent with this Act
Regulations Section 157 of the customs Act, 1962 empowers the Central
Board of Indirect Taxes and customs to make regulations
consistent with the Act
Notifications under Notification, means a written printed matter that gives notice.
customs Act Central government has been empowered to issue notifications
under various sections of the customs Act,1962

Taxable event and date for determination of duty and tariff valuation

Section 12 of customs Act, 1962, which is the charging section, lays down the following
propositions:

 Duties of customs shall be levied on goods

 The goods should be imported into or exported from India
 The duty shall be at such rate as is specified in the Customs Tariff Act, 1975.
 Government goods should be treated at par with the non-government goods for the
purpose of levy of customs duty.
 Such levy shall be subject to the other provisions of the customs Act,1962

Types of Customs Duties: Basis customs duty is levied under the provisions of section 12 of the
Customs Act and section 2 of the Customs Tariff Act
 • Charging section: The duties of customs shall be levied
At such rates as may be specified under the customs tariff Act 1975
On the goods imported into or exported from India
• Preferential rate of Duty: If the goods are imported from the areas notified by the
central government to be preferential, then the preferential rate of duty will be applicable.
The Government may by be notification prescribe preferential rate of duty in respect of
imports from certain preferential areas.

• Conditions to be fulfilled for preferential rate of duty: The importer will have to fulfill the
following conditions to make the imported goods eligible for preferential rate of duty

(a) At the time of importation, he shall make a specific claim for the preferential goods rate

(b) He should also claim that the goods are produced or manufactured in such areas

(c) The area should be notified under the customs Tariff Act to be a preferential area

(d) The origin of the goods shall be determined in accordance with the rulles made under the
customs Tariff Act

If the importer fails to discharge the above duties, the goods shall be liable to standard rate of
duty

Integrated Tax: Integrated Tax under section 3(7) of customs tariff act 1975

1. It is the tax equal to : IGST as levyable under section of the IGST act,2017 on a like
article on its supply in India

2. Levyable on : Sum of total assessable value of imported goods, customs duties and
applicable social welfare surcharge

The two types of customs duties are revenue duties and protective duties

 Revenue duties: Are those which are levied for the purpose of raising customs revenue
 Protective Duties: Are intended to give protection to indigenous industries. If resort to
protective duties is not made there could be a glut of cheap imported articles in the
market making the indigenous goods unattractive
Safeguard Duty
Central Government can impose the safeguard duty u/s 8B of the customs Tariff Act,
1975, if it is satisfied that,
(a) Any article is imported into India in increased quantities
(b) Such increased importation is causing or threatening to cause serious injury to
domestic industries.
The duty is imposed by issuing a notification in the official Gazette
Objective of safeguard duty: The safeguard duty is imposed for the purpose of protecting the
interests of any domestic industry in India aiming to make it more competitive.

Merits of Safeguard Duty

I. Safeguard duty is product specific i.e. the safeguard duty is applicable only for certain
articles in respect of which it is imposed.
II. This duty is in addition to any other duty in respect of such goods levied under this Act or
any other law for the time being in force
III. Education cess and secondary and higher education cess is not payable on safeguard duty.

Countervailing Duty on subsidized articles

The countervailing duty on subsidized articles is imposed u/s 9 of Customs Tariff Act, 1975, if
the following conditions are satisfied.

(a) Any country, directly or indirectly, pays subsidy upon the manufactures or Production or
exportation of any article. Such subsidy includes subsidy on transportation of such article
(b) Such articles are imported to India
(c) The importation may/may not directly be from the country of manufacture /production.

The amount of countervailing duty shall not exceed the amount of subsidy paid ot bestowed
as aforesaid.

Merits:

1) This duty is in addition to any other duty chargeable under this Act or any other law
for the time being in force.
2) Countervailing duty shall not be levied unless it is determined that:
(a) The subsidy relates to export performance;
(b) The subsidy relates to the use of domestic goods over imported goods in the
export article

Anti-Dumping Duty (u/s 9A of customs tariff Act)

When the export price of a product imported into India is less than the Normal Value of like
articles sold in the domestic market of the exporter, it is known as dumping. Designated
Authority can initiate necessary action for investigations and subsequent imposition of anti-
dumping duties. If such dumping causes or threatens to cause material injury to the domestic
industry of India.

Anti-dumping action can be taken only when there is an Indian industry which products “like
articles” when compared to the allegedly dumping imported goods. Further, this duty is country
specific i.e.it is imposed one imports from particular country
 Education Cess and Secondary and Higher Education Cess Repealed

Education Cess @2% and Secondary and Higher Education Cess @1% on imported goods have
been abolished by repealing the concerned legal provisions by Financial Act.

Social Welfare Surcharge on Imported goods.

Prior to presentation of Finance Bill, 2018, Education Cess @2% and SHEC @1% were levied
on aggregated of duties of customs on items imported into India.

However, with affect from 02-02-2018 all goods imported into India have been exempted from
levy of such Education cess of 3%, but in lieu of these education cesses, Social Welfare
Surcharge (SWS) @10% has been levied for providing and financing education, health and
social security.

SWS are levyable on the aggregate of duties, taxes and cesses levyable on such goods, as a duty
of customs. However, the following duties shall be excluded for computing SWS.

 Safeguard duty u/s 8B of the customs Tariff Act, 1975.

 Countervailing duty u/s 9 of the customs tariff Act, 1975.
 Anti –dumping duty u/s 9A of the customs tariff Act, 1975.
 Social welfare surcharge itself on imported goods.

Social Welfare Surcharge is not levied on “Integrated Tax” and GST Compensation Cess
vide notification No. 13/2018 dated 02-02-2018.

Valuation rules for Customs Duty

Transaction Value

Transaction value is the price actually paid or payable for the goods when sold for export into
India, adjusted in accordance with provisions of valuation rules

Conditions subject to which transaction valued acceptable

The transaction value of the imported goods shall be accepted as the Assessable value only if the
following conditions are fulfilled

 The sale is in the ordinary course of trade under fully competitive conditions.
 The sale does not involve any abnormal discount or reduction from ordinary competitive
price.
 The sale does not involve any special discount limited to exclusive agents.
 No part of the proceeds of any subsequent resale, disposal or use of goods by the buyer
flows back directly or indirectly to the seller.
  The sale price is not subject to condition or consideration for which a value cannot be
determined.
 The buyer and seller must not be related person.
 Following expenses, if not already included, to be included in the value of the imported
goods:
1. Commission and brokerage
2. Packing cost
3. Value of goods and services provided by the importer
4. Royalty and Licence fees payable in relation to the exporter(seller) either directly
or indirectly
5. Cost of transport
6. Cost of Insurance
7. The loading, unloading and handling charges

Assessable Value

The Assessable Value of the goods (i.e. imported goods or export goods) is determined in
accordance with the provisions of section 14 of the customs Act,1962.

Where a duty of customs is chargeable on any goods by reference to their value. The value of
such goods shall be deemed to be the price at which such or like goods are ordinarily sold or
offered for sale delivery at the time and place of importation/exportation in the course of
international trade, where:

 The seller and the buyer have no interest in the business of the other
 One of them has no interest in the business of the other
Important Ingredients of Assessable Value
(a) Assessable value is deemed value
(b) Value shall be the price at which such or like goods are ordinarily sold
(c) The price should be such that it is for delivery
(d) The sale should be in the course of international trade
(e) The seller and buyer should not have interest in the business of each other
(f) The price should be the sole consideration for the sale
(g) Price calculated with reference at rate of exchange.

Following procedure is adopted for determining the customs duty on the imported goods:

 Determining the Assessable Value of goods

 Converting the foreign exchange value of the imported goods into Indian Currency i.e.
Rupees
 Computing the customs duty
 Computation of Assessable Value of goods

Sl.No Particulars Amount in Rs. Amount in Rs.

01 Purchase price of goods Xxxx
02 Commission and brokerage (expect buying Xxxx
commission)
03 Cost of packing Xxxx
04 Material and service provided by the importer Xxxx
05 Royalty and Licence Fee Xxxx
F.O.B. value of goods xxxx
Sub total
06 Transportation cost (upto 20% of F.O.B. Value) Xxxx
07 Insurance Premium (Upto 1.125% of F.O.B. value) xxxx xxxx
Assessable Value being CIF value of goods Total
Assessable Value of goods in Foreign X Rate of
Currency X Rate of exchange Exchange

Computation of Customs Duty

Particulars Amount in Rs.

Assessable Value of imported goods Xxxx
Add:1. Basic customs duty @ 10% (Assessable valuex10%) Xxxx
2.Social Welfare Surcharge (10% of Basic customs duty) xxxx
Sub Total xxxx
3.Integrated tax u/s 3(7) of CTA 1975 say @12% (Sub total x12%) xxxx
Grand Total xxxx
Total customs Duty 1+2+3 as above (Ignoring GST compensation cess)

Questions
Part-A
1. What is customs duty?
2. What is taxable event in case of import?
3. What is taxable event in case of export?
4. Mention the types customs duty
5. What is Basic customs duty (BCD)
6. What is anti-dumping duty?
7. What is countervailing duty?
8. What is safeguard duty?
9. What is Baggage?
 Part-B
1. What are the benefits and disadvantages of Customs duty?
2. State the technical terms relating to value in the course of import or export.
a) FOB (b) CIF (c) FAS
3. Explain the items includable in determining Assessable Value under Customs Duty
Act
4. Explain in details of Social Welfare Surcharge duty (SWS)?
5. Explain valuation rules under Customs Duty?

Part-C
Practical Questions

1.