Custom Duty is a type of indirect tax levied on imports (imported goods) into India and exports (exported goods) out of India. Duties levied on exported goods are known as Export Duty, and duties levied on imported goods are known as Import Duty. Countries levy customs duty on import or export of goods as a means to raise revenue. It is levied as per the value of goods or weight, dimensions and another such basis according to the goods. If duties are based on the quantity/dimensions/weight, then they are called as specific duties. If duties are based on the value of goods, they are called as ad valorem duties. The combination of both value of goods and quantity/weight, as well as various other factors, are called as specific duties.
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Customs Duty in India
Customs duty in India is defined under the Customs Act, 1962. All matters related to Customs Duty fall under the CBEC (Central Board of Excise & Customs). Central Board of Excise & Customs has various divisions that take care of the field work including Customs, Commissionerate of Customs, etc. Some of the definitions under Customs Act, 1962 is as follows.
Bill of Entry:
It means a bill of entry referred in Section 46. It is the basic document for the assessment of customs duty. The importer has to present this bill of entry for clearance of imported goods.
Bill of Export:
It means a bill of export referred in Sec 50.
It means any airport appointed under Sec 7(a) to be a customs airport and includes a place appointed under section 7(aa) to be an air freight station.
The area of the custom station and includes any area in which imported goods or export goods are ordinarily kept before clearance by customs authorities.
Custom Station means any customs port, customs airport or land custom station.
Any goods which are chargeable to duty and on which duty has not paid.
India includes Indian territorial waters. Territorial water extends to 12 nautical miles from the baseline. It also includes any creek or tidal water. The outer boundary of territorial waters is an international boundary of India beyond which the high sea lies.
Taxable Event & Date for determination of rate of Duty and tariff valuation of Imported goods
Essential ingredients for charge of custom duty:
- The levy of duty is on goods.
- The goods must be imported into or exported from India.
- The rate at which duty of custom is to be levied is specified in Customs Tariff Act 1975.
In case of importation:
The taxable event is when goods reach the custom barrier and bill of entry for home consumption is filled.
Date for the determination of rate of Duty and tariff valuation of imported goods:
- In case goods are entered for home consumption:
- The date of presentation of the bill of entry or date of entry in words of vessel or aircraft by which goods are imported, whichever is later.
- In case goods are cleared from a warehouse:
- The date of presentation of Ex-bond clearance bill of entry for home consumption under that section.
Types of Custom Duty
Basic Custom Duty (Rates of Custome Duty)
Basic Custom Duty may be at the standard rate or the preferential rate (in the case of import from some other countries). The Basic Customs Duty are 5%, 7.5% & 10%. The highest rate of basic customs duty is 10% for non-agricultural items (with some exceptions). On baggage, the general rate of duty is 35%, and no additional duty of customs is leviable on baggage.
Additional Customs Duty
Additional Customs Duty is equal to the Central Excise Duty leviable on goods that are produced or manufactured in India. It is also known as Countervailing Duty (CVD). Additional Duty is payable only if the imported article is produced in India. Its process of production would amount to ‘manufacture’ as per the Central Excise Act,1944. Exemption from ED (Excise duty) has the effect of exempting Additional Customs Duty.
Additional duty is computed on a value basis of the aggregate of value of the goods including basic customs duty and landing charges. Other duties like safeguard duty, anti-dumping duty, etc. are not taken into account while computation.
As per Section 6 of the Customs Tariff Act, 1975, the Central Government levy Protective Duty for the protection of the interest of domestic industry established in India on the recommendation of the Tariff Commission of India.
Safeguard duty can be levied if the government on enquiry finds that the imports in increased quantity have caused serious injury to domestic industry or is threatening to cause injury to domestic industry (a clear and imminent danger of serious injury). Serious Injury means an injury causing significant overall impairment in the position of a domestic industry.
Anti-dumping Duty is levied on dumped articles (goods being imported at below fair market price). However, it can not exceed the Margin of Dumping. The margin of dumping means the difference between its export price and normal value.
Anti-subsidy Duty is imposed, in case, any foreign country or territory gives any subsidy, indirectly or directly, up on the production or manufacture, exportation or transportation of such article into India. It is imposed by the Central Government not exceeding the amount of such subsidy mentioned above.
Education Cess is levied @ 2% and SHEC (Secondary and Higher Education Cess) at the rate of 1% of the aggregate of customs duties.
Classification of Goods and the Rates of Custom Duty
Classification of Goods
The Customs Tariff Act, 1975 provides the Classification of Goods and the Rates of Custom Duty. It comprises of 2 schedules.
- First Schedule.
- Second Schedule.
1. First Schedule: In this schedule goods chargeable with import duty are listed. It is also known as ‘Import Tariff’.
2. Second Schedule: In this 2nd schedule goods chargeable with export duty are listed. It is also known as ‘Export Tariff’.
Rates of Custom Duty
The Basic Customs Duty are 5%, 7.5% & 10%. The highest rate of basic customs duty is 10% for non-agricultural items (with some exceptions). On baggage, the general rate of duty is 35% and no additional duty of customs is leviable on baggage.
Valuation of Custom Duty
The value of imported goods will be the transaction value of such goods if the following conditions are satisfied.
- Price actually paid or payable for the goods.
- Buyer and seller for the goods are not related.
- Price is sole consideration for sale.
Import Valuation Rules
(Customs valuation (determination of value of imported goods) Rules 2007)
According to rule 3, the value of imported goods shall be transaction value adjusted in accordance with the cost & services of rule 10.
However, for any reason if the transaction value is not acceptable or cannot be determined then value shall be determined according to rules 4 to 9.
Rule 4: Transaction value of identical goods:
If the value of imported goods cannot determine as per rule 3 then the value thereof shall be transaction value of identical goods of imported goods.
Rule 5: Transaction value of similar goods:
The above principles of valuation on the basis of identical goods is equally applicable to similar goods.
If the value of imported goods cannot determine under provisions of rule 3 to 5 then value should be determined under provisions of rule 7 or 8.
Rule 7: Deductive Value
It means the unit price at which imported goods or identical goods or similar imported goods sold in greatest aggregate quality to the persons who are not related to sellers in India after making following deductions from the unit price.
- The Cost of Transportation and Insurance.
- Customs duties and other taxes.
Rule 8: Computed Value
It consists of Sum of
- Value or cost of materials used in producing imported goods.
- The amount of profit and general expenses.
Rule 9: Residual method of valuation
The value is to be determined using reasonable means consistent with principals and general provisions.
Export Valuation Rules
The Value of export goods shall be transaction value for this purpose customs valuation (determination of value of export goods) Rules 2007 have been framed.
Rule 3: Transaction value
Rule 4: Determination of value by comparison
Rule 5: Computed value
Rule 6: Residual method
Custom Duty Payment
The procedure for Custom Duty Payment is as follows.
- Customs Duty can be paid online in the portal “icegate.gov.in“.
- Visit the website and click on e-Payment or utilise the direct link given below.
- Enter the IEC and Location Code, which are mandatory and click on submit.
- You can see all the unpaid challans of yours.
- Select the desired challan and choose a payment method.
- Make the payment at that particular bank’s payment gateway.
- After payment, you will be redirected to the ICEGATE portal.
- Take a print of payment copy for further reference.