Customs Duty & GST

Karan Mathur 242007

WMG - 24
Origin of Customs Duty

Origin in the British period

As per ancient custom, a merchant entering a kingdom with his goods had to
make a suitable gift to the King
This custom was formalised into Customs Duty
Customs Duty in India is linked with history of textile industry
British established its first Board of Revenue in 1786 at Calcutta with New
Board of Trade established in 1808
A uniform Tariff Act was introduced in 1859 all over India
The Customs Act was formulated in 1962
Customs Act

The Customs Act was formulated in 1962 to prevent illegal imports and
exports of goods
Central Board of Excise and Customs (CBEC or the Board), Department of
Revenue, Ministry of Finance, Government of India deals with the formulation
of policy concerning levy and collection of Customs and Central Excise duties
and Service Tax
Section 12 of Customs Act, often called Charging Section, provides that
duties of customs shall be levied at such rates as may be specified under
The Customs Tariff Act, 1975', or any other law for the time being in force, on
goods imported into, or exported from, India.
Reasons for Customs Duty

Raising revenue for the Central Government

Regulate Exports and Imports

Protection from Dumping

Domestic Employment
Functions

Collection of Customs duties on imports and exports as per the Customs Act,
1962 and the Customs Tariff Act, 1975
Enforcement of various provisions of the Customs Act, 1962 governing
imports and exports of cargo, baggage, postal articles and arrival and
departure of vessels, aircrafts etc.
Discharge of agency functions and enforcing prohibitions and restrictions on
imports and exports under various legal enactments
Prevention of smuggling including interdiction of narcotics drug trafficking
International passenger clearance
Rules Under Customs Act

Under Section 156 of Customs Act, 1962, Central Government has been
empowered to make rules, to carry out purposes of the Act
Customs Valuation Rules, 1998: for valuation of imported goods for calculating
duty payable
Customs and Central Excise Duties Drawback Rules, 1995: mode of
calculating rates of duty drawback on exports
Baggage Rules, 1998: rules and allowances for bringing in baggage from
abroad by Indian and tourists
Customs (Import of Goods of Concessional Rate of Duty for Manufacture of
Excisable Goods) Rules, 1996: provides procedure to be followed when goods
are imported for export purposes
Types of Custom Duties

Basic Customs Duty

Additional Customs Duty u/s 3(1) (CVD)
Additional Duty under Section 3(3)
Additional Duty under Section 3(5)
Education Cess on Customs Duty
Anti Dumping Duty
Safeguard Duty
NCCD
Export Duty
Basic Customs Duty

All goods imported into India are chargeable under Section 12

It is levied as a percentage as determined under Section 14(1)

Central Government has the power to reduce or exempt any good from these
duties
Additional Customs Duty u/s 3(1) (CVD)

Countervailing duty is leviable as additional duty on goods imported into the

country
Most popular example for CVD is the imposition of additional duty by an
importing country when the product has given export subsidy by the
exporter/producer country
Objective is to nullify or eliminate the price advantage (low price) enjoyed by an
imported product when it is given subsidies or exempted from domestic taxes in
the country where they are manufactured
CVD is payable on assessible value (as determined u/s 14(1) of Customs Act or
tariff value fixed u/s 14(2) of Customs Act) plus Basic Customs Duty chargeable
u/s 12 of Customs Act plus any other sum chargeable on that article
Additional Duty under Section 3(3)

As per section 3(7) of Customs Tariff Act, this duty is in addition to any other
duty imposed under Customs Act or any other law

As per section 3(8), all provisions of Customs Act and Rules, including those
relating to drawbacks, refunds and exemptions will apply to this duty

This levy has use when goods manufactured indigenously is exempt from
excise duty, hence, this becomes additional cost to indigenous manufacturer

This is intended to offset such cost advantage to foreign supplier

Additional Duty under Section 3(5)

Termed as Special CVD or SAD (Special Additional Duty)

As per section 3(7) of Customs Tariff Act, this duty is in addition to any other duty
imposed under Customs Act or any other law
As per section 3(8), all provisions of Customs Act and Rules, including those
relating to drawbacks, refunds and exemptions will apply to this duty
Purpose of the Additional Duty is to counter-balance Sales tax, VAT local tax or
other charges leviable on articles on its sale, purchase or transaction in India
Intention is to provide level field to manufacturers in India who are manufacturing
similar goods
Additional duty u/s 3(5) can be imposed by issuing a notification and such tax
cannot exceed 4% of value of that Article
Education Cess on Customs Duty

Imposed on imported goods w.e.f 9-7-2004

As per section 3(8), all provisions of Customs Act and Rules, including those
relating to drawbacks, refunds and exemptions will apply to this duty
The cess will be 2% of the aggregate duty of Customs
Education cess will not be payable on
Special CVD payable u/s 3(5) of Customs Tariff Act
Safeguard duty under sections 8B and 8C
Countervailing duty under section 9
Anti Dumping Duty under section 9A of the Customs Tariff Act
Anti Dumping Duty

Manufacturers may often export goods at very low prices compared to prices in
their domestic market
In order to avoid such dumping, Central Government can impose, under
section 9A of Customs Tariff Act, Anti Dumping Duty up to margin of dumping
on such articles, if the goods are being sold at less than its normal value
Anti dumping action can be taken only when there is an Indian industry
producing 'like articles
Margin of dumping means the difference between normal value and export
price (i.e. the price at which these goods are exported)
Pending determination of margin of dumping, duty can be imposed on
provisional basis
Safeguard Duty

Central Government is empowered to impose Safeguard Duty on specified

imported goods if the goods are being imported in large quantities and under
such conditions that they are causing or threatening to cause serious injury to
domestic industry

The duty, once imposed, is valid for four years, unless revoked earlier,
however, this can be extended by Central Government, but total period
cannot be more than 10 years
NCCD

National Calamity Contingent Duty (NCCD) of customs has been imposed

vide section 134 of Finance Act, 2003, on pan masala, chewing tobacco and
cigarettes

Varies from 10% to 45%. - NCCD of customs of 1% was imposed on motor

cars, multi-utility vehicles and two wheelers and NCCD of Rs 50 per ton was
imposed on domestic crude oil

There are different rates of duty for goods imported from certain countries in
terms of bilateral or other agreement with such countries which are called
Preferential rate of duties
Export Duty

Under Customs Act, 1962, goods exported from India are chargeable to
export duty

Items on which export duty is chargeable and the rate at which the duty is
levied are given in the Customs Tariff Act, 1975 as amended from time to time
under Finance Acts

Section 8 of Customs Tariff Act empowers Central Government to amend

second schedule to Customs Tariff and increase or impose export duty on any
product, by issue of a notification
GST

Goods and Services Tax is an indirect tax introduced in India on 1 July 2017
Under GST, goods and services are taxed at the following rates - 0%, 5%,
12% ,18% and 28%
In addition, a cess of 15% or other rates on top of 28% GST applies on few
items like aerated drinks, luxury cars and tobacco products
GST would make doing business in the country tax neutral, irrespective of the
choice of place of doing business
GST is expected to decrease the cost of collection of tax revenues of the
Government, and will therefore, lead to higher revenue efficiency
GST Changes in
Tax Structure
 GST Example

Particulars Without GST(Rs) With GST(Rs)

Manufacture to Wholesaler
Cost of Production 5,000.00 5,000.00

Input tax credit available to Wholesaler is . 980 and . 1,680 in Add: Profit Margin
Manufacturer Price
2,000.00
7,000.00
2,000.00
7,000.00
case of without and with GST respectively Add: Excise Duty @ 12% 840
Total Value(a) 7,840.00 7,000.00
Add: VAT @ 12.5% 980
Add: CGST @ 12% 840
Add: SGST @ 12% 840
Input tax credit available to Retailer is . 1,078 and . 1,848 in Invoice Value 8,820.00 8,680.00
Wholesaler to Retailer
case of without and with GST respectively COG to Wholesaler(a) 7,840.00 7,000.00
Add: Profit Margin@10% 784 700
Total Value(b) 8,624.00 7,700.00
Add: VAT @ 12.5% 1,078.00
Add: CGST @ 12% 924
The saving to consumer would be 1.15% if VAT rate is considered to Add: SGST @ 12% 924

be 12% Invoice Value

Retailer to Consumer:
9,702.00 9,548.00

COG to Retailer (b) 8,624.00 7,700.00

Add: Profit Margin 862.4 770
Total Value(c) 9,486.40 8,470.00
Add: VAT @ 12.5% 1,185.80
Add: CGST @ 12% 1,016.40
Add: SGST @ 12% 1,016.40
Total Price to the Final consumer 10,672.20 10,502.80

Cost saving to consumer 169.4

% Cost Saving 1.59
IGST Model

IGST means Integrated Goods and Service Tax, one of the three categories
under Goods and Service Tax (CGST, IGST and SGST) with a concept of one
tax one nation
IGST is charged when movement of goods and services from one state to
another (cumulative rate for CGST and SGST)
Since ITC of SGST shall be allowed, the Exporting State will transfer to the
Centre the credit of SGST used in payment of IGST
The Importing dealer will claim credit of IGST while discharging his SGST
liability (while selling the goods in state itself)
 SGST, CGST and IGST

CENTRE

CGST@900 IGST@3150 CGST@2700

Goods@10,000 Goods@17,500 Goods@30,000

Intra-State Intra-State Inter-State

A B C D
Maharashtra Maharashtra Rajasthan Rajasthan

SGST@900 SGST@2700

MAHARASHTRA GOVERNMENT RAJASTHAN GOVERNMENT

https://cleartax.in/s/what-is-sgst-cgst-igst