STUDY MATERIAL-H

CUSTOMS DUTY
Customs Duty is a tax on imports and exports.

Entry 83 to List-I (Union List) of Seventh Schedule to Constitution deals with duties of customs.
By virtue of this Customs Duty is levied by the Central Government. The charging provision
under Customs Act (Sec.12) provides that duties of customs shall be levied at the rates as may
be specified under the Customs Tariff Act 1975.

As per Sec.2(18) ‘export’ means taking out of India to a place outside India.

As per Sec.2(23) ‘import’ means bringing into India from a place outside India.

Sec 2(27) of Customs Act defines India as inclusive of territorial waters.

As per Sec.3 of the ‘Territorial Waters, Continental Shelf, Exclusive Economic Zone and other
Maritime Zone Act, 1976’Act Territorial waters extend up to 12 nautical miles from the base line
on the coast of India and include any bay, gulf, harbor, creek, or tidal river. (1 nautical mile
=1.1515miles=1.853KMs) Souvereignty of India extends to the territorial waters and to the
seabed ad subsoil underlying and the air space over the waters.

Taxable Event

Taxable event for imports is the completion of the event of import. The process of import is
completed only when goods cross customs barrier. So, the taxable event is the day of goods
crossing customs barrier and not on the date when goods landed in India or had entered
territorial waters. In the case of goods which are in the warehouse the customs barrier would be
crossed when they are sought to be taken out of the customs and brought to the mass of goods
in the country.

Taxable event for exports is the completion of the event of export. The export is said to be
completed when goods cross territorial waters of India. (Export duty is collected before ship
leaves the port, that does not mean that taxable event has occurred – duty can be collected in
advance also).

Types of Duties of Customs

Mainly, Basic customs duty, IGST and Education Cess are applied in case of imports. In addition,
duties like anti-dumping duty, safeguard duty, NCCD are imposed in specific cases.
BASIC CUSTOMS DUTY

Basic Customs Duty is levied under section 12 of the Customs Act. It is normally levied as a
percentage of the value as determined under section 14(1) of the Customs Act.Though the rates
vary general rate is 10%.

IGST on Imports

Any article imported into India is liable for IGST at the rate which is applicable on like article on
its supply in India. The value for this purpose is determined under section 3(8) or 3(8A) of Customs
Tariff Act. As per these provisions IGST is payable on the value of the good (customs value) + Basic
Customs Duty.

GST COMPNSATION CESS

As per section 3(9) of the Customs Tariff Act any article imported into India is liable for GST
Compensation Cess at the rate which is applicable under GST for like article on its supply in
India.GST Compensation Cess is payable on Value of the imported good (customs value) + Basic
Customs Duty.

SOCIAL WELFARE SURCHARGE

Social Welfare Surcharge (SWS) has been introduced from 2-2-2018. It will be collected as duty
of customs.

However, SWS is not payable on some of the duties like safeguard duty, countervailing duty, and
anti-dumping duty.

PROTECTECTIVE DUTIES

To protect interests of Indian industry protective customs duty, on the recommendation of the
Tariff Commission, may be imposed under section 6 of the Customs Tariff Act. The protective
duty will be valid till the date prescribed in the notification. The government can
reduce/increase/withdraw this duty by a notification. Levying of this duty or altering the duty
rate requires the approval of the Parliament.

COUNTERVAILING DUTY ON SUBSIDISED GOODS

Under section 9 of the Customs Tariff Act the Central Government is empowered to impose
countervailing duty on the goods imported from a country if such goods are given subsidy,
directly or indirectly, by the exporting country. The duty can be up to the amount of subsidy. If
subsidy amount cannot be ascertained provisional amount can be collected and upon the final
determination the excess duty collected, if any, may be refunded. Such duty can be levied with
retrospective effect but not beyond 90 days earlier to the issue of notification. This duty can be
imposed for a period of five years. Education cess and secondary and higher education cess is not
payable on this duty.

ANTI-DUMPING DUTY

Dumping means exporting a product to another country at a price which is less than the domestic
price in the exporting country and which is below the ‘normal value’ of the product. Such pricing
practices usually arise when the exporting country’s market is monopolistic or oligopolistic and
the foreign market is competitive.

The contracting countries to the GATT recognized that dumping is to be condemned if it causes
or threatens to cause material injury to an established industry in the territory of a contracting
country or materially slows the establishment of a domestic industry of a developing country. To
offset or prevent dumping, a country may levy an anti-dumping duty on any dumped product not
greater in amount than the margin of dumping in respect of the dumped product.

Under section 9A of the Customs Tariff Act central Government can impose anti-dumping duty if
the imported goods are being sold for less than their normal value. Pending determination of
margin of dumping the Government can impose anti-dumping duty on provisional basis. After
dumping duty is finally determined Government can reduce such duty and refund extra duty
collected, if any. Such duty can be imposed from up to 90 days prior to the date of notification,
if there is history of dumping which importer was aware or where serious has been caused due
to dumping.

Margin of Dumping: Margin of dumping means the difference between the normal value and
export price.

Normal Value: Normal value means the normal price of the imported good in the domestic
market of the exporting country.

Export Price: Export price means the price at which the goods are exported.

The anti-dumping duty will be equal to the dumping margin or injury margin – whichever is lower.
[Injury margin means difference between fair selling price of domestic industry and landed cost
of imported product. The landed cost will include basic customs duty]. Thus anti-dumping duty
enough to remove the injury to the domestic industry can be levied.

Ex. :If normal value in exporting country is Rs.11 and export price is Rs.8,dumping margin is
Rs.3. If landed cost is Rs.9 and fair selling price of domestic industry is Rs.10, then injury margin
is Rs1. Hence, anti-dumping duty of re.1 can be imposed. [Not more than Re1].
SAFEGUARD DUTY

If the Government is satisfied that the goods are being imported in large quantities and they are
causing or threatening to cause serious injury to domestic industry then it can impose a duty
called ‘safeguard’ duty on specified goods. For this purpose the Government has to conduct an
enquiry and then issue a notification under section 8B(1) of the Customs Tariff Act. The duty once
imposed is valid for four years, unless withdrawn earlier. The Government can extend this duty
beyond four years but the total period cannot be more than ten years. This duty is in addition to
other duties levied. When imports are made from a developing country safeguard duty can be
imposed only when the imports of the article cross 3% of the total imports. In case the import of
the article originates from more than one developing country and import each country is less
than 3% of the total imports this duty can be levied if the total imports from all such developing
countries exceed 9% of the total imports.

Central Government can impose provisional safeguard duty, pending final determination up to
200 days.

NCCD OF CUSTOMS

National Calamity Contingent Duty (NCCD) of customs is imposedvide section134 of the

FinanceAct,2003 on certain goods. Eg. pan masala, chewing tobacco, cigarettes, etc.

Export duty
As the government encourages exports, duty on exports is levied on only a few products. Such
goods are mentioned in second schedule of the Customs Tariff Act.

Valuation under Customs Duty

‘Valuation’ of imported goods or export goods is an important aspect under customs. The duty
on goods is to be paid on the basis of its value at specified rates. While the rates are provided on
the basis of their classification under Customs Tariff Act the value is to be decided for every
import transaction by the concerned customs authority. Usually, customs duty is an ‘ad valorem’
duty [duty as a percentage of the value] on the ‘assessable value’ also called as ‘customs value’
of the imported articles or export articles. In India, the assessable value/customs value is
determined on the basis of the provisions of section 14(1) or 14(2) of the Customs Act. Valuation
under section 14(1) is on the basis of transaction value of the imported goods or export goods
and valuation under section 14(2) is on the basis of tariff value of the imported goods.

Transaction Value [Sec. 14(1)]

Transaction value of imported goods is the price actually paid or payable for the goods when sold
for export to India for delivery at the time and place of importation, where the buyer and seller
or not related and price is the sole consideration for sale, subject other conditions and rules as
made in this behalf.

Transaction value of export goods is the price actually paid or payable for the goods for export
from India for delivery at the time and place of exportation, where the buyer and seller are not
related and price is the sole consideration for the sale, subject to such other conditions and rules
as made in this behalf.

As per Rule 10 of Customs valuation rules the following are included in the transaction value.

• commission and brokerage,except buying commission

• cost of container[which are treated as being one with goods]
• cost of packing
• cost of material, tools, components, etc.
• engineering charges
• royalties and license fees
• value of proceeds of subsequent resale that accrues directly or indirectly to seller
• all other payments made as a condition of sale of goods
• cost of transportation up to place of importation
• insurance up to place of importation

PROBLEM-1

From the following particulars determine the assessable value of the imported equipment:

FOB cost of equipment: 2,00,000 YEN

Freight charges:20,000 YEN

Development expenses paid separately [in Japan]: 60,000 YEN

Insurance charges: Rs.15,000 [paid in India]

Selling commission: Rs. 15,000[payable in India]

Exchange rate as per CBEC:1 YEN = Re.0.50

Solution:
FOB Value of equipment: 200000 YEN = Rs.1,00,000

Add: Development charges of equipment: 60,000 YEN = Rs. 30,000

Add: Freight charges : 20000 YEN = Rs.10,000

Add: Insurance: Rs. 15,000

Add: Selling commission: Rs.15,000

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TOTAL: CIF VALUE AND ASSESSABLE VALUE Rs. 1,70,000

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Notes:

• Development charges paid in Japan are part of assessable value.

• Selling commission is part of assessable value.
• Exchange rate is as notified by CBEC.

PROBLEM-2

X Ltd. of Bengaluru imported an equipment from Japan , CIF value of which is Rs. 1,70,000.

Compute the customs duty liability based on the following information-

Basic Customs Duty: 10%, IGST: 18%, and SWS: 10%.

Solution

Customs Value: Rs. 1,70,000

Basic Customs Duty @10% = Rs. 17,000

IGST @18% on value + BCD [on Rs.1,70,000 + 17,000] = Rs33,660

Social Welfare Surcharge @10% on BCD = Rs. 1700

Total Customs Duty: [Rs.17,000 + Rs.33,660 + Rs. 1,700]= Rs.52,360