Customs Duty

Important Definition:
1. Territorial Waters: It means that position of sea which is adjacent to the
shores of a country. Territorial waters extend up to 12 nautical miles from
the base line on the coast of India and include any bay, gulf, harbor or tidal
waters. All the provision of Customs Act are applicable. Thus, in case of
importation, import of goods will commence when they cross territorial
waters and exportation is completed when the goods cross the territorial
waters.

2. Customs Waters [ Sec 2 (8)]: It means the waters extending into the
sea up to the limit of Exclusive Economic Zone, Territorial waters, Continental
Shelf and other Maritime Zone and includes any bay, gulf, harbor and tidal
river. The limit of Indian Customs Water has been extended for the coverage
under the Customs Act.

3. Indian Exclusive Economic Zone: It extends up to 200 nautical miles

from the base line. India has exclusive rights to exploit it economic purposes
such as fishing, oil exploration, power generation, research etc.

4. High Sea: It is the distance beyond 200 nautical miles from the base line.
All countries have equal rights over this area.

Indian Customs Waters 24 NM

Indian Shore ITW 12 NM ICZ 12 NM IEEZ 176 NM High Sea

200 NM

Here, ITW – Indian Territorial Waters

ICZ – Indian Contiguous Zone.
IEEZ – Indian Exclusive Economic Zone.
To sum-up: 1st 12 NM not available for navigation by others. Next 12 NM
available for navigation by others. Next 176 NM available for navigation by
others but not for economic exploitation by others. Beyond 200 NM available
for all for any purpose but without damage to world.

5. Customs Station [ Sec 2(13)]: Customs offices are stationed at customs

stations to check cargo, passengers and conveyances. Customs station
constitute gateway port of India. Conveyance from abroad may enter India
through them only.

6. Customs Bonded Warehouse: Where imported goods are kept

temporarily.
7. Customs Area [Sec 2(11)]: It means the area of a customs station and
includes any area in which imported goods and export goods are ordinarily
kept before clearance by Customs Authorities. Thus, the following places will
fall under customs area:
(i) Inland Container Depots- Notified by Central Govt. u/s 7(aa) for the
loading of export goods and unloading of imported goods.
(ii) Customs Bonded Warehouses- Where in imported goods are temporarily
kept.
(iii) Foreign Parcel Department of Govt Post Offices- Where in customs officer
sits along with the Foreign Post Master to clear the post parcels.

8. India: India includes the territorial waters of India [ i.e., a portion of sea,
which is adjacent to the shores of India, 12 nm from the base lines]. As a
consequence, export is complete only when goods cross territorial waters
and import is complete as soon as goods entered territorial waters.
Sovereignty of India extends to the territorial waters and to the sea bed and
subsoil underlying and the air space over the waters.

Different Types of Customs Duty

Different types customs duties are attracted in the case of import or export.
These are:
(a) Basic Customs Duty.
(b) Social Welfare Surcharge.
(c) IGST.
(d) CGST compensation cess.
(e) NCCD.
(f) Safeguard Duty.
(g) Anti-dumping Duty.
(h) Protective Duty.
(I) CVD.
 Basic Customs Duty [BCD]: It is the most common duty levied on almost
all imports and some exports. It is levied u/s 12 of the Customs Act and Sec 2
of the Customs Tariff Act 1975 as a percentage of value.

Safeguard Duty: It is a step in providing a need based protection to

domestic industry for a limited period with ultimate objective of restoring
free and fair competition. In order to ensure that goods imported in
increased quantity do not cause or threaten to cause serious injury to
domestic industry, there are provision to levy safeguard duty on import on
such articles into India u/s 8B. Social welfare surcharge is not payable on
safeguard duty.

Anti-dumping Duty: Large manufacturer from abroad may export goods at

low prices compare to prices in his domestic market. Such dumping may be
with intention to cripple domestic industry or to dispose of their excess
stock. This is called ‘Dumping’ and is an unfair trade practice.
The anti-dumping duty impose by the Govt. should be restricted to lower of
the following two:
(a) Margin of Dumping (b) Injury Margin.

Margin of Dumping= Normal Value – Export Price.

Here, export price = Price of an article exported from the exporting country .
Normal Value= Comparable price in the ordinary course of trade for like
article.

Injury Margin = Fair selling price – Landed value of the dumped imports.
Here, FSP = The price expected to have charge in normal circumstances.
Landed Value= Assessable under Customs Act.

Q. The assessable value of imported goods is Rs. 1,00,000. The basic customs
duty is 10%. The goods are not subject to CVD or any other customs duty.
Compute total customs duty payable.

Sol: Computation of Customs duty

Amount (Rs) Amount (Rs)
Assessable value 1,00,000
Add: Basic customs duty @10% 10,000
Add: Social Welfare Surcharge @10% 0n 10,000 1,000
11,000 11,000
Total Landed cost 1,11,000

Proforma showing computation of Customs Duty

Amount (Rs)
Assessable Value A Xxxxxx
Add: Basic Customs Duty @10% on A B Xxxxxx
Add: Social Welfare Surcharge @10 on B C Xxxxxx
Value for the purpose of levy Integrated Tax and GST D Xxxxxx
compensation cess
Add: Integrated Tax on D E Xxxxxx
Add: GST compensation cess on D F Xxxxxx
Total Cost of imported goods G Xxxxxx

Total Customs Duty payable [ G -A] xxxxxx

Q. The AV of an imported goods from Japan is Rs. 20 lakhs. The BCD is 10%
and Social Welfare Surcharge is 10%. The IGST as per Customs Tariff Act is
12%. Calculate the amount of total customs duty and IGST payable.

Sol: Computation of Customs Duty payable

Amount (Rs) Amount (Rs)
Assessable value 20,00,000
Add: Basic Customs Duty @10% 2,00,000
Add: Social Welfare Surcharge @10% on 2 Lakhs 20,000 2,20,000
Total Value before Integrated Tax 22,20,000
Add: Integrated Tax u/s 3 (7) as per Customs Tariff 2,66,400
Act @ 12% on 22,20,000
Total Landed Cost 24,86,400