Last updated: September 16th, 2021 6:29 PM

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.

Customs Manual of 2001

The Manual gives an overview of the Customs Law and Procedures.

Public Notices

The Commissioners of Customs would issue Public Notices.