INDIRECT TAXATION LAW

Assignment on

Introduction and Types of Custom Duties

Submitted by

ANURAG SUSHANT
Enrollment No: 374817
Roll No: 15225BLT004
B.A. LL.B. (Hons.)
10th Semester
Batch: 2015-20
Session: 2019-20

Of Law School,
Banaras Hindu University, Varanasi.

Under the guidance of

Prof. D. K. Srivastava

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 ACKNOWLEDGEMENT
I would like to take this opportunity to express my sincere and
profound gratitude to my guide and mentor for this subject
Prof. D. K. Srivastava for his guidance and constant
encouragement throughout the course of my work. He gladly
accepted all the pains in going through my work, and
participated in enlightening and motivating discussions, which
were extremely helpful.

I humbly extend my words of gratitude to other faculty

members, teachers and administration of the department for
promising me the valuable help and time whenever it was
required.

I would like to express my deepest sense of appreciation to

my family members and mates for their constant
encouragement and support, and finally thanks to the almighty
strength which inspired and continues to inspire me greatly.

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 INDEX

S.No. TOPIC Page No.

1 Introduction to Custom Duty 04
2 Custom Administration in India 05
3 Calculation of Custom Duty 06
4 Types of Custom Duty 07
5 Bibliography 13

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 INTRODUCTION TO CUSTOM DUTY

The ancient "custom" of gifting a part of his merchandise by a merchant to the

King while entering a kingdom came to be formalized by the modern States into
customs duty. Customs duty is imposed on the goods imported into or exported
out of the country. Developing economies including India use customs duties as
an important source of revenue and also a method to regulate the flow of goods.

Customs Duty refers to the tax that is imposed on the transportation of goods
across international borders. It is a kind of indirect tax that is levied by the
government on the imports and exports of goods. Companies that are into the
export-import business need to abide by these regulations and pay the customs
duty as required. Put differently, the customs duty is a kind of fees that are
collected by the customs authorities for the movement of goods and services to
and from that country. The tax that is levied for the import of products is
referred to as import duty, while the tax levied on the goods that are exported to
some other country is known as export duty. To simplify it, any tariff that is
introduced on goods across national borders is referred to as custom duty.

The duty levied depends on the value of the goods, its dimensions and weight
along with a lot of other criteria. While value-based duties are called valorem
duties, quantity-based duties are called specific duties. On the other hand, duties
on values plus other factors are called compound duties.

The primary purpose of customs duty is to raise revenue, safeguard domestic

business, jobs, environment and industries etc. from predatory competitors of
other countries. Moreover, it helps reduce fraudulent activities and circulation
of black money.

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 CUSTOM ADMINISTRATION IN INDIA

Custom Duty in India falls under the Customs Act, 1962. As per this act, the
government levies duties on both import and export of goods along with their
procedures, prohibitions, penalties etc.

The Central Board of Indirect Taxes and Customs (CBIC) is the apex body for
customs administration. Central Board of Indirect Taxes and Customs (CBIC) is
a part of the Department of Revenue under the Ministry of Finance,
Government of India. CBIC deals with the task of formulation of policy
concerning levy and collection of customs duties. The Board discharges the
various tasks assigned to it, with the help of its field formations namely the
Customs, Customs (Preventive) and Central Goods and Services Tax Zones,
Commissionerates of Customs, Commissionerates of Customs (Preventive),
Commissionerates of Central Goods and Services Taxes, Central Revenues
Control Laboratory and Directorates. There are 11 zones of Customs and
Customs (Preventive) and 21 Central Goods and Services Tax Zones spread
across the country. These zones are headed by the Principal Chief
Commissioners/ Chief Commissioners. There are 57 Commissionerates
exclusively of Customs, Customs (Preventive) and Customs (Appeals), 205
Commissionerates of Central Goods and Services Tax, Central Goods and
Services Tax (Audit) and Central Goods and Services Tax (Appeals) headed by
Principal Commissioners/ Commissioners.

The CBIC helps in formulating policies w.r.t. the collection and imposition of
custom duties including custom duty evasions, prevention of smuggling etc. It
oversees the tax administration of inland and foreign travel. It has different
divisions to take care of field work such as the Commissionerate of Customs,
Central Revenues Laboratory and Directorates etc.

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 CALCULATION OF CUSTOM DUTY

Calculation of Customs duty depends on the determination of assessable value

in case of items for which the duty is levied ad valorem. The assessable value is
often the transaction value or the value assessed in accordance with Brussels
definition. India is an active member of the World Customs Organisation and
has adopted various international customs conventions and procedures,
including the Harmonised Classification System and the General Agreement on
Tariffs and Trade (GATT) based Valuation System.

Products are given an identification code known as the Harmonized System

Code for the purpose of assessment of Customs duty. This code has been
evolved and assigned by the World Customs Organization based in Brussels.
Introduction of HS Code in 1990s has largely replaced the earlier Standard
International Trade Classification (SITC), though SITC still remains in use for
statistical purposes. In drawing up the national tariff, the revenue departments
often specify the rate of Customs duty with reference to the HS Code of the
product.

The customs duty is calculated based on various factors such as the following:

• The place of acquisition of the good.

• The place where the goods were made.

• The material of the goods.

• Weight and dimensions of the good etc.

Moreover, if you are bringing a good for the first time in India, you must
declare it as per the customs rule.

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 TYPES OF CUSTOM DUTY

Custom duties are levied on nearly all goods that are imported into the nation.
While export duties are levied on goods as specified by the Second Schedule,
import duties are not levied on certain items like fertilizers, food grains,
lifesaving drugs etc. Custom duty can be classified into the following types:

Basic Customs Duty (BCD)

This duty is levied on imported goods in terms of section 12 of the Customs

Act, 1962, at the rates prescribed under the First Schedule to the Customs Tariff
Act, 1975 in terms of section 2 of the Customs Tariff Act. The rates are either
standard rates or in the case of imports from certain specified countries at
preferential rates.

Additional Customs Duty (CVD)

This duty, commonly referred to as countervailing duty (CVD), is levied on

imported goods in terms of section 3 of the Customs Tariff Act, 1975 and is
equal to the Central Excise duty leviable on the like goods if produced or
manufactured in India. In cases where like article is not so produced or
manufactured in India, this duty will be at such rate which is leviable on the
class or description of articles to which the imported article belongs. If there is
more than one rate of excise duty, then the rate to be applied will be the highest.
This duty is calculated on a value base of aggregate of value of the goods
including landing charges and basic customs duty. Other duties such as anti-
dumping duty, safeguard duty, additional customs duty of 4% etc. are not taken
into account. Except tobacco; manufactured tobacco substitutes; mineral fuels,
mineral oils and products of their distillation; bituminous substances; mineral
waxes, this duty has been subsumed in the IGST after the introduction of GST
w.e.f. 01-07-2017.
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In the case of goods covered by provisions of the Standards of Weights and
Measures Act, 1976, the value base would be the retail sale price declared on
the package of the goods less the rebate as notified under section 4A of the
Central Excise Act, 1944 for such goods. From 01.03.2001, packaged consumer
goods are being charged to this duty on the basis of their Maximum Retail Price
(MRP) in India and are also required to conform to Bureau of Indian Standards
(BIS) quality standards and MRP labeling. This practice has been discontinued
after the introduction of GST w.e.f. 01-07-2017.

In the case of alcoholic liquors, the additional duty at present is chargeable at a

uniform rate as specified by the Central Government irrespective of varying
rates in force in the States.

Special Additional Duty (SAD)

A 4% Special Additional Duty (SAD) under section 3(5) of the Customs Tariff
Act, 1975 was first imposed in the Union Budget 2005-2006 to counter balance
various internal taxes like Sales Tax and Value Added Tax (VAT) and to
provide a level playing field to indigenous goods which have to bear these
taxes. This was extended in general to all goods in the Budget 2006-2007.
Manufacturers will be able to take credit of this additional duty for payment of
excise duty on their finished products. In the case of most of the items, this duty
has been subsumed in IGST after the introduction of GST w.e.f. 01-07-2017.

Protective Duty

This is levied for the purpose of protecting indigenous businesses and domestic
products against overseas imports. The rate is decided by the Tariff
Commissioner.

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Preferential Rate of Duty (PRD)

In the case of imports from certain specified countries at prescribed preferential

rates.

National Calamity Contingent Duty (NCCD)

It is imposed at present @ Rs. 50/- per MT, on imported crude oil and @ 1% on
polyester filament yarn, two-wheelers, motor cars and multi-utility vehicles.

Anti-dumping duty / Safeguard Duty (ADD/ SD)

Anti-dumping duty or Safeguard duty is imposed on import of specified goods

with a view to protecting domestic industry from unfair injury. It would not
apply to goods imported by a 100% Export Oriented Units (EOU) and units in
Free Trade Zone (FTZ) and Special Economic Zone (SEZ). On export of goods,
anti-dumping duty is rebatable only by way of a special brand rate of drawback.
Safeguard duties do not require the finding of unfair trade practice such as
dumping or subsidy on the part of exporting countries but they must not violate
the most favoured nation provision, that is, they should not discriminate
between imports from different countries. Provisional safeguard duty shall
remain in force for a period not exceeding 200 days. Safeguard action is
resorted to only if it has been established that a sudden increase in imports has
caused or threatens to cause serious injury to the domestic industry. Safeguard
action can restrict import of a product for a temporary period by raising the
tariffs.

Education Cess (EC)

In the Budget 2004-2005, an education cess on the customs duties had been
levied on items imported into India. It is chargeable @ 2%, on the aggregate of
duties of customs (except safeguard duty and anti-dumping duty) leviable on
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such goods. This came into effect on 9th July, 2004. No credit of this cess will
be available. In addition to this, in the Budget 2007-2008, the Central
Government again imposed a Secondary and Higher Education Cess on goods
specified in the First Schedule to the Customs Tariff Act, 1975, being goods
imported into India. The rate of this cess is one per cent, calculated on the
aggregate of duties of customs. If the goods are fully exempted from duty or are
chargeable to nil rate of duty or are cleared without payment of duty under
bond, no cess will be leviable. Imported goods are exempted from these cesses
w.e.f. 02-02-2018 as the Finance Bill, 2018 proposed to abolish the same.

Integrated Goods and Services Tax (IGST)

With effect from 01-07-2018, under the GST regime, Article 269A
constitutionally mandates that the supply of goods, or of services, or both in the
course of import into the territory of India shall be deemed to be supply of
goods, or of services, or both in the course of inter-State trade or commerce for
levy of integrated tax. So import of goods or services are treated as deemed
inter-State supplies and subjected to Integrated tax. While IGST on import of
services would be leviable under the IGST Act, the levy of the IGST on import
of goods would be levied under the Customs Act, 1962 read with the Custom
Tariff Act, 1975. The importer of services will have to pay tax on reverse
charge basis. However, in respect of import of online information and database
access or retrieval services (OIDAR) by unregistered, non-taxable recipients,
the supplier located outside India shall be responsible for payment of taxes.
Either the supplier will have to take registration or will have to appoint a person
in India for payment of taxes. Supply of goods or services or both to a Special
Economic Zone (SEZ) developer or a unit shall be treated as inter-State supply
and shall be subject to levy of integrated tax.

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Import of goods has been defined in the IGST Act, 2017 as bringing goods into
India from a place outside India. All imports shall be deemed as inter-State
supplies and accordingly Integrated tax shall be levied in addition to the
applicable Custom duties. The IGST Act, 2017 provides that the integrated tax
on goods imported into India shall be levied and collected in accordance with
the provisions of the Customs Tariff Act, 1975 on the value as determined under
the said Act at the point when duties of customs are levied on the said goods
under the Customs Act, 1962. The integrated tax on goods shall be in addition
to the applicable Basic Customs Duty (BCD) which is levied as per the Customs
Tariff Act.

The Customs Tariff Act, 1975 has accordingly been amended to provide for
levy of integrated tax and the compensation cess on imported goods.
Accordingly, goods which are imported into India shall, in addition to the Basic
Customs duty, be liable to integrated tax at such rate as is leviable under the
IGST Act, 2017 on a similar article on its supply in India. Further, the value of
the goods for the purpose of levying integrated tax shall be, assessable value
plus Customs Duty levied under the Act, and any other duty chargeable on the
said goods under any law for the time being in force as an addition to, and in the
same manner as, a duty of customs.

GST Compensation Cess (GCC)

Under the GST regime, i.e. w.e.f. 01-07-2018, in addition to IGST, a GST
compensation cess, is also levied on certain luxury and demerit goods under the
Goods and Services Tax (Compensation to States) Cess Act, 2017.

The Customs Tariff Act, 1975 has accordingly been amended to provide for
levy of integrated tax and the compensation cess on imported goods.
Accordingly, goods which are imported into India shall, in addition to the Basic

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Customs duty, be liable to integrated tax at such rate as is leviable under the
IGST Act, 2017 on a similar article on its supply in India. Further, the value of
the goods for the purpose of levying integrated tax shall be, assessable value
plus Customs Duty levied under the Act, and any other duty chargeable on the
said goods under any law for the time being in force as an addition to, and in the
same manner as, a duty of customs.

The value of the imported article for the purpose of levying cess shall be,
assessable value plus Basic Customs Duty levied under the Act, and any sum
chargeable on the goods under any law for the time being, in force as an
addition to, and in the same manner as, a duty of customs. The integrated tax
paid shall not be added to the value for the purpose of calculating cess.

Social Welfare Surcharge (SWS)

Finance Bill, 2018 while abolishing the Education Cess and Secondary and
Higher Education Cess on imported goods w.e.f. 02-02-2018, imposed a Social
Welfare Surcharge, at the rate of 10% of the aggregate duties of Customs, on
imported goods, to provide for social welfare schemes of the Government.
Goods which were hitherto exempted from Education Cesses are exempted
from this Surcharge also. In addition, certain specified goods, attract the
Surcharge at the rate of 3% of the aggregate duties of customs only.

Road and Infrastructure Cess

An additional duty of customs, called the Road and Infrastructure Cess, on the
specified imported goods for the purpose of financing infrastructure projects has
been introduced w.e.f. 02-02-2018. This additional duty of customs is in
addition to other duties of customs chargeable on scheduled goods under the
Customs Act, 1962 or any other law for the time being in force.

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 BIBLIOGRAPHY

DOCUMENTS AND WEBSITES REFERRED:

• https://cleartax.in/s/customs-duty-india
• https://www.coverfox.com/personal-finance/tax/custom-duty/
• http://www.referencer.in/General_Information/Customs.aspx#:~:text=Cu
stoms%20duty%20is%20a%20kind,goods%20are%20called%20export%
20duty.
• https://www.shiprocket.in/blog/customs-duty-meaning-types-india/
• https://www.business-standard.com/about/what-is-customs-duty
• https://economictimes.indiatimes.com/definition/customs-duty

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