Law of Indirect Taxation - Assignment

Classification of Customs
Duties

Table of Contents
 S No. Particulars Page No.
1 Introduction
2 Types of customs duties
3 Integrated Goods and Services
Tax (IGST), 2017
4 Types of customs duty that
have been subsumed into GST
5 Conclusion
6 Reference

Table of Case Laws

S No. Case Law Citation

1 Collector Of Central Excise, vs (2000) 10 SCC 393
J.K. Synthetics
2 Cc (Preventive)Amritsar vs (2009) 235 ELT 214 (SC
M/S.Malwa Industries Ltd
3 Hyderabad Industries Ltd.And 1995 (78) E.L.T. 641 (S.C.)
Anr vs Union Of India
4 Union of India v. Mohit 2022, 331 (SC)
Minerals (P.) Ltd

Introduction
‘Customs Duty’ refers to the tax imposed on the goods when they are transported across the
international borders. The objective behind levying customs duty is to safeguard each nation’s
economy, jobs, environment, residents, etc., by regulating the movement of goods, especially
prohibited and restrictive goods, in and out of any country.

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. In India, the Central
Government, through the Central Board of Excise and Customs, levies customs duties on all imports
(except a few items such as life-saving drugs or equipment, fertilizers, food grains, etc.) and a few
exported goods as specified in the Second Schedule of the Customs Tariff Act.

Types of custom duties

1. Basic Customs Duty (BCD)

2. Countervailing Duty (CVD)
3. Additional Customs Duty or Special CVD
4. Countervailing Duty on Subsidised Article
5. Protective Duty
6. Safeguard Duty
7. Anti-dumping Duty

1. Basic Customs Duty

Basic Customs Duty (BCD) is a type of tax that is imposed under the Customs Act, 1962. The basic
customs duty that is imposed on the goods emanates from Section 12 of the Customs Act, which
talks about dutiable goods. Clause 1 of Section 12 reads, “Except as otherwise provided in this Act, or
any other law for the time being in force, duties of customs shall be levied at such rates as may be
specified under [the Customs Tariff Act, 1975 (51 of 1975)], or any other law for the time being in
force, on goods imported into, or exported from, India”.

The rates of BCD are indicated in Schedule I of Customs Tariff Act deals with the rates of duty charged
on goods imported to India, while Schedule II specifies the chargeable rates on the goods of export.

Under Customs Tariff Act, 1975 Schedule I, articles or goods have been divided into various
categories that are subjected to varying rates of BCD. The Basic Custom duty is determined either on
the ad-valorem basis i.e., value of the subject matter or on a specific rate basis that is ascertained as
per its weight or other miscellaneous criteria. Another mode of categorization of the rates of BCD
could be into standard rates and preferential rates. The articles are ordinarily subjected to standard
rates but in specific cases, a preferential rate, a reduced rate of tax, is imposed on the goods of
import.

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.

2. 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 a like article is not produced or manufactured in India, rate of duty is the rate of excise duty which
would be leviable on the class or description of article to which the imported article belongs. Where
such duty is leviable at different rates, the highest of such rates of duty (Finished Goods). Education
Cess and Secondary and Higher education cess leviable on addl. Duty of customs are exempt.

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).

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).

3.Additional Customs Duty or Special CVD

As per Section 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). In order to equalize imports
with local 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.

4. Countervailing Duty on Subsidised Article

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

CVDs are special measures meant to neutralize the negative effects that subsidies of the production
of a good in one country have on that same industry in another country, in which the production of
that good is not subsidized.

5.Protective Duty

As per section 6(1) of Customs Tariff Act, protective duty is levied by the Central Government upon
recommendation made by the Tariff Committee and upon Central Government being satisfied that it
is necessary to provide protection to any industry established in India.

6.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. Central Government can impose provisional
safeguard duty, pending final determination up to 200 days. Effective from 6th August 2014, if
imported goods are cleared in Domestic Tariff Area (DTA) then safeguard duty is payable.

7.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.

Integrated Goods and Services Tax (IGST) Act 2017

Under the new GST regime in play since 2017, Some of the duties have been subsumed into the
IGST. As per the act, the IGST on import of goods & services is levied under the purview of the
IGST Act,2017. In this case, the importer of the services, who is based in India, will have to pay the
tax on reverse charge basis. For import of goods, IGST is levied under the Customs Act, 1962 read
with the Custom Tariff Act, 1975.

As per section 3(7) of Customs Tariff Act, any article being imported into India shall be liable to pay
Integrated Goods and Services Tax (IGST) at such rate as is leviable under section 5 of IGST Act,
2017, on a like article on its supply in India, on the value of imported article as determined under
section 3(8) or section 3(8A) of Customs Tariff Act.

Integrated Goods and Services Tax (IGST)

The IGST component depends on the HSN code of the goods being imported. In cases where
imported goods are liable to Anti-Dumping Duty or Safeguard Duty, value for calculation of IGST as
well as Compensation Cess shall also include Anti-Dumping Duty amount and Safeguard duty
amount.

GST Compensation Cess

This Cess is being collected to compensate the states of India for any loss of revenue on account of
the implementation of GST in the country. This Cess was applicable only till 1st July 2022 but
Government has now extended the levy of GST Compensation Cess till 31 March 2026. It is
calculated as 15% of the IGST value.

Types of customs duty that have been subsumed into GST.

Certain duties that were previously applicable have been replaced by IGST. These include the
following heads.

1. Additional duties of customs or Special CVD

Now subsumed into IGST, additional customs duty or special countervailing duty (CVD) used to be
levied on goods being imported under Section 3 of the Customs Tariff Act, 1975. It used to be
equal to the Central Excise duty leviable on “the like goods” if produced or manufactured in India.
At present, this duty is not applicable in India.

2. Protective duties

Now subsumed into IGST, this duty used to be levied, similar to anti-dumping duty and safeguard
duty, to protect certain industries established in India. At present, this duty is not applicable in
India.

Union of India v. Mohit Minerals (P.) Ltd.(2022, 331 (SC), The Supreme Court has found the levy
of IGST on ocean freight to be unconstitutional. The ultimate verdict on the (un)constitutionality
of the levy rests quite heavily on the finding that a CIF (cost, insurance and freight) contract is a
“composite supply” that is separately taxed under the Act. As such, one leg of the transaction
cannot be taken apart to be taxed again.

Conclusion
The custom act 1962 has been enacted by the parliament to provide unified law that controls all
the affairs pertaining to the import export of goods, imposition of custom duties, exemptions
granted upon the specified goods imported from country given special status by the government
of India and collection of the custom duty by the agency. The objective behind imposing custom
duty is to protect domestic goods and manufacture industries, and to control the flow of
commodities. Additionally, the government also receives income by the collection of the custom
duty on export or import of goods.

REFERENCE:

THE CUSTOMS ACT, 1962

THE INTEGRATED GOODS AND SERVICES TAX ACT, 2017

Customs Act with Rules & Regulations Book By Taxmann.

https://www.indiafilings.com

https://www.investopedia.com