Custom Duty

Sem 6
Unit 1 : Basic concept and Definitions :
Unit 2 : Different Types of Customs Duty :

Nature of Customs Duty; Definition as per

Customs Act- Territorial Waters and Customs
Waters, Indian Customs Waters, Indian
Exclusive Economic Zone; High Seas, Customs
Station, Customs Bonded Warehouse, Customs
Area, India, Import, Export.
What are the Types of Custom Duty in India?

•Basic Customs Duty (BCD)

This is the most common type of customs duty prevailing in India. It is levied on all the imported goods as a
percentage of the assessable value. The assessable value is calculated by adding up the cost of goods, freight for
transporting the goods, and insurance charges. There is no specific rate of BCD, and it can vary on the basis of the
country of origin and the types of goods being imported. Products like lifesaving drugs are exempt from BCD.

•Additional Customs Duty (ACD)

Additional customs duty is levied on the import of certain goods to India. It is also known as countervailing duty and
is charged at the same rate at which excise duty is levied on similar goods produced in India. The purpose of this
duty is to prevent people from evading excise duty on goods produced locally by imposing an equivalent tariff rate
on imported goods.
•Education Cess and Secondary and Higher Education Cess
This is the additional charge or an additional tax that is calculated over and above the total customs duty payable.
The education cess is charged at 2%, and the secondary and higher education cess is charged at 1% of the total
customs duty calculated. This amount is used for the development of the education sector of India.
•Anti-Dumping Duty
Anti-dumping duty is the duty that is levied on those products that receive subsidies or exemptions in their country
of manufacture. In other words, anti-dumping duty is levied on the goods valued at a price below their market price.
The purpose of this duty is to protect the domestic produce from unfair competition. Anti-dumping duty is levied as
a percentage of the imported goods value that has the potential to impact the domestic producers negatively.
a) Basic Customs Duty (BCD)
❑ BCD is the duty imposed on the value of goods imported under section 12 of the Customs
Act.
❑ It is levied at a specific rate as prescribed under section 2 of the Customs Tariff Act, 1975.
❑ Normally, BCD is levied at a standard rate, but in case of goods being imported from specified
areas and on fulfilment of other conditions as mentioned in the act, preferential rate shall be
applicable.
❑ In short, BCD varies for different items.
❑ And the CG has the power/right to reduce or exempt any goods from such duty.
b) Countervailing Duty u/s 9 (CVD)
❑ Condition for Levy: Import of any article from any country or territory, which pays directly or
indirectly, any Subsidy on Manufacture, Production, Exportation, or Transportation of the
article.
❑ Power to Levy: The Central Government may levy such duty by notification in Official Gazette.
❑ Maximum Limit: Rate of CVD shall not exceed the amount of subsidy.
❑ Duration: 5 years from the date of imposition, but extendable for a further period of 5 years
from the date of such extension.
Note: It has been subsumed into GST.
c) Protective Duty (PD)
❑ Protective Duty is levied purely for the protection of domestic industry where domestic
industry is temporarily unable to compete with the imported products.
❑ It is imposed on any goods imported into India in respect of which the Tariff
Commission has made a recommendation.
❑ However, the CG shall have to introduce a Bill and such Bill is to be passed in the
Parliament with in 6 months.
❑ The duration of Protective duty is determined by the schedule (given in Bill) itself.
❑ The CG has the power to alter such duty where it deems fit.
d) Safeguard Duty (SD)
❑ Safeguard Duty is a tariff barrier imposed by Central Government on the commodities to
ensure that imports in excessive quantities do not harm the domestic industry.
❑ It is mainly a temporary measure undertaken by government to safeguard domestic
industry from heavy imports causing or threatening to cause serious injury to domestic
market.
❑ Safeguard duty remains effective for a time span of 4 years from the date of its
imposition. However, the CG may extend such period of levy to 10 years.
❑ It’s worth noting, SD shall not be levied in the following conditions:
e) Anti-subsidy Duty (ASD)
❑ Sometimes the exporting country play a foul game by subsidizing
their product and creating unhealthy competition.
❑ Anti-subsidy Duty is levied with an intent to countervail the subsidy
provided by exporting government.
❑ CG by official notification in the Official Gazette may levy such duty
where it deems fit.
❑ It’s worth noting, however, amount of such duty can not exceed the
amount of such subsidy.
❑ Safeguard duty remains effective for a time span of 5 years.
However, the CG may extend such period for a further 5 years.
f) Anti-dumping Duty (ADD)
❑ Dumping is said to occur when the goods are exported by a country to another country
at a price lower than its normal value. This is an unfair trade practice which can have a
distortive effect on international trade.
❑ Anti-dumping is a measure to rectify the situation arising out of the dumping of goods
and its trade distortive effect.
❑ It provides relief to the domestic industry against the injury caused by dumping.
❑ Anti-dumping remains effective for a time span of 5 years. However, the CG may extend
such period for a further 5 years.
 Social Welfare Surcharge (SWS)
❑ Introduction: In accordance with the provisions Finance Act, 2018, w.e.f. 02nd February, 2018 a
duty of customs shall be levied and collected, to be called as SWS.
❑ Applicability: It shall be levied on the goods specified in the First Schedule of the Customs
Tariff Act, 1975.
❑ Utilization: This surcharge shall be utilized for the purpose of financing education, health and
social security.
❑ Rate of Tax: It is charged in addition to any other duties of customs or tax or cess chargeable
on imported goods. SWS is charged @ 10% on the aggregate Duties, Taxes or Cesses levied at the
time of import.
❑ Manner of Collection: It shall be levied and collected as per the provisions of the Customs Act 1962 and the rules and
regulations made thereunder.
❑ Exclusion: SWS shall not be levied on:
a) Safeguard Duty referred u/s 8B & 8C
b) CVD referred u/s 9
c) Anti-Dumping Duty referred u/s 9A
d) IGST referred u/s 3(7)
 g) GST Compensation Cess
❑ Applicability: It is levied on intra-state supply of goods or services and inter-state
supply of goods or services.
❑ Aim/Purpose: To provide compensation to the states for loss of revenue due to
implementation of GST in India.
❑ Items Covered: Luxury and goods like pan masala, tobacco etc.
❑ Applicability for Customs:
a) Charging section: 3(9) of the Customs Tarrif Act, 1975.
b) Leviable on any imported like articles
c) Rate of cess will be same as leviable u/s 8 of the GST Cess Act, 2017.
Baggage Rules
What is meant by Baggage?

a. It is the luggage of the passenger travelling by air or sea from one country to another

b. It also means all dutiable goods imported by a passenger or a member of crew in his/her baggage

c. Baggage INCLUDES unaccompanied baggage (except where they are specifically excluded) but DOES NOT
include motor vehicles, alcoholic drinks and goods imported through courier.

d. Baggage DOES NOT include articles imported under an import license for his own use or on behalf of others.

What is Unaccompanied Baggage?

a. It is the baggage which is not carried by the passenger at the time of her/his travel but sent before or after
arrival

b. Time limit if the baggage is received before arrival: up to 2 months before arrival, or within such period (not
exceeding 1 year) as allowed by Assistant/Deputy Commissioner of Customs (due to unavoidable
circumstances)
Statutory provisions:
• The owner of the baggage shall make a declaration of its contents to the proper
officer of customs.
• The rate of duty on baggage is 35% ad valorem plus 10% social welfare charge
(w.e.f 2 February 2018), so effective rate including social welfare charge comes to
38.5 %.
• The integrated Tax under section 3(7) of tariff Act is nil.

The Central Government has exempted one laptop computer (note book
computer) when imported into India by a passenger of the age of 18 years or
above ( other than member of crew) from whole of BCD.
Drawback of Custom Duty
Duty Drawback scheme was introduced by the Ministry of Finance as a rebate for duty chargeable on any
imported materials or excisable materials used in manufacture or processing of goods, manufactured in India
and exported. The exported products are revenue natural. The Central Government is empowered to grant Duty
Drawback under section 74 and 75 of the Customs Act, 1962. Under section 74 of the Customs Act, 1962 duty
drawback to the extent of 98 percent of the duty paid on imported goods can be claimed for re-export, provided
the goods are re-exported within two years of payment of import duty. Section 75 of the Act, empowers duty
drawback on export of manufactured articles.

Drawback allowable on Re-export of duty paid goods (Section 74): According to section 74 of Customs Act
1962, when duty paid imported goods are re-exported in used or unused condition within two years, the importer
may claim refund of import duty up to maximum 98% of the customs duty paid at the time of importation as duty
drawback. The following conditions to be satisfied in this regard:
a. The goods are identified to the satisfaction of the Assistant Commissioner of Customs or Deputy
Commissioner of Customs as the goods which were imported and
b. The goods are entered for export within two years from the date of payment of duty on the importation
thereof.

Time limit for Section 74 Drawback: Under sub-clause (b) of section 74(1), it has been provided that such
imported goods should be entered for export within 2 years from the date of payment of duty on the
importation. It may be noted that the time period is related to the date of payment of duty and not date of
importation.
a. Drawback on Imported Materials Used in the Manufacture of Export Goods (Section 75): The
drawback under section 75 is on a totally different footing. The following important aspects should be
remembered in this regard:

i. The goods exported are entirely different from the inputs.

ii. The input could be either imported goods on which duty of customs has been paid or indigenous goods
on which central excise duty has been paid.
iii. The existence of imported/indigenous excised duty paid goods in the final product is not capable of
easy verification at the point of export.
iv. The goods, namely the inputs might have undergone changes in physical shape, property etc.
v. The quantity of inputs per piece of final product may not be uniform and may not also be verification at
the time of exportation.

Upper limit of drawback amount or rate: The drawback amount or rate determined shall not exceed one
third of the market price of the export product.
Unit 3 : Valuation for
Customs Duty : 10 Marks
Find out the Value for the
purpose of Customs Duty-
Inclusions or Exclusions
from Customs Value.
Practical questions.
 Steps Involved
Step 1:
Determine Free on Board – ‘FOB’

Step 2.
Compute Assessable Value – ‘AV’

Step 3.
Find out ‘Landed Value’ & Total duty
payable
 Step 1: Determine “Free on Board” - FOB
Particulars ₹ ₹
Transaction Value (as given in the question) ✓
Add: Adjustments U/R 10(1):
a) Packing Charges ✓
b) Container Charges ✓
c) Commission (excluding buying commission) ✓
d) Royalty & License fees, charged as a condition of sale ✓
e) Any goods or services (such as raw materials, design work, engineering service,
plans & sketches, machine, tools etc.) supplied by the importer free of cost or at a
concessional rate ✓

f) Any expenses paid by the importer on behalf of exporter ✓

✓

g) Any pre-importation expenditure ✓

FOB ✓
Q: Mr. Roy imported 1000 units of goods @ ₹ 15 each and incurred the
following:
₹
Packing Charges 500
Container Charges 1,750
Sellers Commission 250
Buying Commission 1,000
Insurance 5,500
Royalty for patent 2,500
Freight 6,500
Design and Development Charges 2,250
Loading and unloading at Export Port 750
Loading and unloading at import Port 1050
Find out the FOB value.

Answer: 23,000
Step 2: Compute “Assessable Value” - AV
Step 3: Find out “Landed Value” & “Total Duty Payable”
Q1. From the following particulars, determine Assessable Value

Mr. Gupta import (by air) 2000 units of goods @ ₹ 100 each and incurred the
following expenditures:
₹
Freight (actually incurred) 5,000
Insurance Charges 1,500
Loading and unloading at Import Port 750
Transhipment Cost 1,700
Answer: 2,06,500
Q2. From the following particulars, determine Assessable Value:
₹
FOB 15,00,000
Freight from importing country to India (by air) 2,50,000
Transit Insurance (not ascertainable) ?
Freight from Indian airport to warehouse 1,750
Demurrage Charges 1,450
Ans: 17,66,875
Q: From the following particulars, determine Assessable Value:
UK Pound (£)
FOB 9,500
Freight 950
Transit Insurance 250 Ans: 9,63,000
Landing Charges 550
Additional Information:
a) Rate of exchange as on the date when Bill of Entry is filed - ₹ 90 per Pound.
b) Rate of exchange as on the date when Entry inward is filed - ₹ 85 per Pound.

Q: Mrs. Verma imported 5,000 units of goods from Mr. Taylor of NewYork @ $90 per unit. In addition,
she incurred the following expenditures:
$
Container Cost 650 FOB
Royalty 150 3,47,27,200
Sellers Commission - ₹ 15,600 -
Buying Commission 270
Freight (not ascertainable) ? AV
Insurance (not ascertainable) ? 4,20,63,321
Compute: a) FOB b) Assessable Value
Notes: Assuming rate of exchange as on the date when Bill of Entry is filed ₹ 77 per Dollar.
Q: Ayushman Ltd. imported a machine from UK. Following are the particulars furnished by them:

UK Pound (£)
Cost of the machine 20,000
Freight (Air) 6,000
Engineering & Design Charges paid to a firm in UK 100
License fee relating to imported goods payable by the buyer as a
condition of sale - 20% of machine cost
Materials and Components supplied by the supplier free of cost - ₹ 40,000

Insurance charges - ₹ 12,000

Buying Commission 200

Additional information:
a) Inter-Bank Exchange Rate as arrived by the Authorized Dealer - ₹ 72.50 per Pound.
b) CBIC rate of exchange - ₹ 70.25 per Pound.
c) Importer paid ₹ 10,000 towards Demurrage Charge for delay in clearing the machine from Airport.

Compute: a) FOB b) Assessable Value

Ans: 17,33,025, 20,91,630
Q: From the following details, compute duty payable:

Assessable Value - ₹ 5,00,000

Rate of Basic Custom Duty – 10%
Rate of additional Customs duty in lieu of IGST – 18%

Ans: Total Duty Payable, i.e. (50,000 + 5,000 + 99,900) 1,54,900

Q: Mr. Nandi imported goods at a transaction value of ₹ 10,00,000.
As per terms of sale following payments are further to be made:
₹
Freight charges 1,00,000
Insurance charges 50,000
Container Charges 5,000
Design & Development Charges 7,000
Royalty for patent needed for production 2,000
Packing charges 10,000
Sellers Commission 1,000
Buying Commission 500
BCD @ 10%
You are required to compute duty payable by Mr. Nandi.

Ans: Total Duty Payable,

(1,17,500+11,750+NIL) 1,29,250