Introduction and types of Custom Duty

BANARAS HINDU UNIVERSITY

INDIRECT TAXATION ASSIGNMENT

PROJECT ON:

Topic : Introduction And Types Of Custom Duty

Submitted by:
Name : Shivam Pachauri
Roll No. : 15225BLT011
Enrollment No. – 374824

TABLE OF CONTENT

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 Introduction and types of Custom Duty

1. Acknowledgement ………………………………………………………………….2

2. Introduction………………………………………………………………………….3

3. statutory provision of Custom Duty……………………………………………….4

4. Custom Duty in India………………………………………………………………6

5. Limbs Of Custom Duty……………………………………………………………6-8

6. Some Important Procedure of Custom Duty……………………………………8-9

7. Types of Custom Duty ………………………………………………………….9-13

8. Cases referred …………………………………………………………………..13-14

9. Valuation of Custom Duty……………………………………………………….14-15

10. Conlusion…………………………………………………………………………16

11. Bibliography…………………………………………………………………….…17

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 Introduction and types of Custom Duty

AKNOWLEDGEMENT

No endeavour’ssuccess is on account of its author alone. There are multiple individuals, and
institutions, who assist in the process, and it is apt we acknowledge their contributions.
Hence, at the very outset, my gratitude for, and acknowledgement of, those who assisted me
in completing this project. At the very beginning, I extend my gratitude to the Prof. D.K.
Srivastava for providing me these topic. I record my gratitude to the Dean Prof. R.P.Rai for
his guidance, and support, throughout the period of this pandemic . I also record my thanks to
all the Staff, and the Registry, of the Legal Department ,

I would like to thank my faculties of law who always supported me. I also thanks to my
mentor Jay Prakash for guiding me in completing my assignment

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 Introduction and types of Custom Duty

INTRDUCTION

Meaning of Customs Duty

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. 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.

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.

Customs Act, 1962 just like any other tax law is primarily for the levy and collection of
duties but at the same time it has the other and equally important purposes such as:
(i) regulation of imports and exports;
(ii) (ii) protection of domestic industry;
(iii) (iii) prevention of smuggling;
(iv) conservation and augmentation of foreign exchange and so on. Section 12 of the
Custom Act provides that duties of customs shall be levied at such rates as may be
specified under the Customs Tariff Act, 1975 or other applicable Acts on goods
imported into or exported from India.

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 Introduction and types of Custom Duty

STATUTORY PROVISION OF CUSTOM DUTY :

Customs Act, 1962 came into force from 1-2-1963. It extends to whole of India. The whole
Act is divided into XVII chapters comprising of 161 sections.

I. Preliminary
Section 1 to 2 :Short title, extent and commencement and Definitions
II. II. Officers of Customs Section 3 to 6: Appointment and powers of officers of
customs
III. III. Appointment of Customs Ports, Airports, WareSection 7 to 10 :Appointments of
Customs Ports, Airports, Warehousing Stations etc. Lesson 5 Customs Law:
Valuation, Assessment of imported and export Goods and procedural aspects housing
Stations etc.
IV. IV. Prohibitions on importation and exportation of goods Section 11: Powers to
prohibit import and export of goods
V. IVA. Detection of illegally imported goods and prevention of the disposal thereof
Sections 11A to 11G :Provisions for illegal importation of notified goods and
prevention of the disposal thereof
VI. IVB. Prevention or Detection of Illegal Export of Goods Sections 11H to 11M
:Provisions for illegal export of specified goods
VII. IVC. Power to exempt from the provisions of Chapters IVA and IVB Section 11N
:Power to exempt
VIII. V. Levy of, and Exemption from, Customs Duties Sections 12 to 28BA: Chargeable
section, valuation of goods, Recovery and refund of duty
IX. VA. Indicating amount of duty in the price of goods, etc., for purpose of refund
Section 28C to 28D: Price of goods and incidence of duty passed on to the buyer
X. VB. Advance Rulings Section 28E to 28M :Provisions for advance ruling such as
authority, application, procedure and powers of authority
XI. VI. Provisions relating to conveyances carrying imported or exported goods Sections
29 to 43: Arrival or departure of goods, delivery of export manifest or export report
XII. VII. Clearance of imported goods and export goods Sections 44 to 51: Clearance of
import and export goods other than by way of baggage and postal articles.
XIII. VIII. Goods in Transit Sections 52 to 56: Transit and transshipment of goods

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 Introduction and types of Custom Duty

XIV. IX. Warehousing Section 57 to 73: Provision relating to public and private
warehouse
XV. X. Drawback Sections 74 to 76 :Duty drawback on re-export of duty paid goods or
material used in the manufacture of goods
XVI. XA. Special Provisions relating to Special Economic Zone Sections 76A to 76N
:Omitted in view of the introduction of a special Act, namely, Special Economic
Zones Act, 2005
XVII. XI. Special provisions regarding baggage, goods imported or exported by post, and
stores Section 77 to 90: Special provisions regarding baggage, goods imported or
exported by post, and stores
XVIII. XII. Provisions relating to Section 91 to 99 :Provisions relating to coastal goods and
Lesson 5 Customs Law: Part I Introduction and Basic Concepts 9 coastal goods and
vessels carrying coastal goods vessels carrying coastal goods other than baggage and
stores
XIX. XIII. Searches, seizure and arrest Section 100 to 110A: Power to search, inspect,
examine persons and seizure of goods, documents and things XIV. Confiscation of
goods and conveyances and imposition of penalties Section 111 to 127: Adjudication
proceedings and confiscation of goods.
XX. XIVA. Settlement of cases Sections 127A to 127N: Provisions relating to Settlement
Commission
XXI. XV. Appeals and Revision Sections 128 to 131C: Procedure and time limits for
appeals and revisions
XXII. XVI. Offences and Prosecutions Section 132 to 140A: Offences and cognizance of
offences XVII. Miscellaneous- Section 141 to 161 Conveyances, duty deferment,
licencing of Customs house agent, appearance by authorised representative,
delegation of power etc.

CUSTOMS DUTY IN INDIA

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 Introduction and types of Custom Duty

India has a well-developed taxation structure. The tax system in India is mainly a three-tier
system which is based between the Central, State Governments and the local government
organisations. Customs duty in India falls under the Customs Act 1962 and Customs Tariff
Actof1975. Since the implementation of India’s new taxation system, GST, integrated goods
and value-added service tax (IGST) is being charged on the value of any imported goods.
Under IGST, all products and services are taxed under four basic slabs of 5 percent, 12
percent, 18 percent, and 28 percent. Furthermore, the office of the Director General of
Foreign trade validates the registration of all importers before they engage in any import and
export activities

Structure of a Customs Duty in India

Usually, the goods that are imported to the country are charged customs duty along with
educational cess. For industrial products, the rate has been slashed to 15%. The customs duty
is evaluated on the value of the transaction of the goods.

The basic structure of import and export tariffs in India include:

 Basics Customs Duty
 Additional Duty
 Special additional duty
 Education assessment or cess
 Other state level taxes
The additional duty is applied to all imports except for wine, spirits and alcoholic beverages.
Furthermore, the special additional duty is calculated on top of the basics duty and additional
duty. Apart from these, the percent of cess charged is 3% on most of the goods.

LIMBS OF CUSTOMS LAW

Customs Act, 1962 and Customs Tariff Act, 1975 are the two limbs of Customs Law in India
which must be read with rules and regulations. The rule making power is delegated to the
Central Government while the regulation making power delegated to the Central Board of
Excise and Customs (CBEC). There are a number of rules and regulation prescribed from

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 Introduction and types of Custom Duty

time to time to carry the objective of the Act. Some of the rules and regulations are
enumerated here as follows:

 Customs , Central Excise Duties and Service Tax Drawback Rules,1995

 Re-Export of Imported Goods (Drawback of Customs Duties) Rules, 1995

 Customs Valuation (Determination of Price of Imported Goods) Rules, 2007

 Customs Valuation (Determination of Value of Export Goods) Rules, 2007

 Customs (Advance Rulings) Rules, 2002

 Customs (Appeals) Rules, 198

2 Customs( Import of Goods at Concessional Rate of Duty for Manufacture of Excisable

Goods)

 Rules, 1996 Specified Goods (Prevention of Illegal Export) Rules, 1969

 Customs (Compounding of Offences) Rules, 2005

 Customs (Settlement of Cases) Rules, 2007

 Notified Goods (Prevention of Illegal Import) Rules, 1969

 Bill of Entry (Electronic Declaration) Regulations, 2011

 Customs (Provisional Duty Assessment) Regulations, 2011

 Customs House Agents Licensing Regulations, 2004

 Lesson 5 Customs Law: Valuation, Assessment of imported and export Goods and
procedural aspects Intellectual Property Rights (Imported Goods) Enforcement Rules, 2007

Lady Amphthil Nurses Instns And vs Cc, Chennai And Cc1

In the instant case the Customs have initiated proceedings of demanding customs duty
after following the procedure prescribed in law.

SOME IMPORTANT PROCEDURES OF CUSTOM DUTY :

1 22 August 2002

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 Introduction and types of Custom Duty

Charge of Customs Duty:

Duties of custom are levied under section 12 of the Act on goods imported into or exported
from India. The rates of duty are specified under the Customs Tariff Act, 1975 (hereinafter
Tariff Act) or under any other law for the time being in force. For instance, special duties of
customs may be levied under Finance Acts.

Valuation of Goods:

The basis of valuation is the "transaction value" of goods. The transaction value 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 or as the case may be or export from India for delivery at the time
and place of exportation. The transaction value as declared is normally accepted, except in
cases where the buyer and seller of the goods are related persons and the price is not the sole
consideration for the sale of goods. Section 14 of the Customs Act provides that the
transaction value shall include, in addition to the price, any amount that is paid or payable for
costs and services, including commissions and brokerage, engineering, design work, royalties
and licence fees, costs of transportation to the place of importation, insurance, loading,
unloading and handling charges. The extent and the manner in which such charges are to be
added are specified in the Rules framed under the Customs Act.

From the point of view of valuation the relevant Rules are the Customs Valuation
(Determination of Value of Imported Goods) Rules, 2007 and the Customs Valuation
(Determination of Value of Export Goods) Rules, 2007. These Rules, inter alia, provide for
the circumstances in which the buyer and seller shall be deemed to be related, the manner of
determination of value in respect of goods in cases where there is no sale or where the buyer
and seller are related, or the price is not the sole consideration for the sale, the manner of
acceptance or rejection of value declared by the importer or exporter, where the concerned
Customs Authorities doubt the truth or accuracy of the value declared.

Procedures:

Imports:

For purposes of clearance of imported goods from the port/airport of arrival, an importer is
required to file a Bill of Entry with the concerned officer of Customs. The importer has the

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 Introduction and types of Custom Duty

option of either clearing the goods for 'home consumption' or of having the goods put in a
warehouse (customs bonded warehouse) for clearance at a later date.

The Bill of Entry may be filed 30 days prior to the arrival of vessel carrying the goods. In the
Bill of Entry the importer is required to fill in the description of the goods, classification,
transaction value, rate of duty applicable, (both for basic and additional duties), and the
customs duties payable.

Cenvat Credit:

An importer of capital goods or raw materials, who utilises the imported goods in setting up a
factory or in the manufacture of goods in India, is allowed to take additional duty of customs
(imposed under section 3 (1) of the Tariff Act, which is equivalent to the excise duty for the
time being leviable) as credit under the Cenvat Credit Scheme and utilize it for payment of
duty on the final goods manufactured in his factory.

Advance Ruling:

Under the Customs Act, 1962 (like the Central Excise Act, 1944) an Authority for Advance
Ruling was constituted in the year 1999. This Authority has basically been set up for
purposes of determination of questions of law or fact regarding the liability to pay customs
duty to an activity proposed to be undertaken by the applicant. This facility can be availed of
only by non-residents or individuals in joint ventures with non-residents. This Authority
would, inter alia, determine (in advance of imports) the classification of goods under the
Tariff Act, the principles to be adopted for valuation and the applicability of notifications
having a bearing on the rate of duty. Any determination is statutorily binding. This is a great
boon for importers as it takes away the uncertainties and vagaries of taxing statutes.

TYPES OF CUSTOMS DUTY :

Customs duties are levied on almost all goods that are imported into the country. On the other
hand, export duties are levied on a few items as mentioned in the Second Schedule. Customs
duties are not levied on life-saving drugs, fertilizers and food grains. Customs duties are
divided into different taxes, such as:

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 Introduction and types of Custom Duty

1. Basic Customs Duty: This is levied on imported items that are part of Section 12 of
the Customs Act, 1962. The tax rate is levied as per First Schedule to Customs Tariff
Act, 1975. It is levied under Section 12 of Customs Act, 1962, and specified under
Section 2 of the Customs Tariff Act, 1975. Normally, it is levied as a percentage of
Value as determined under section 14(1). There are different rates for different goods.
But the general basic rate is 10%. This basic duty may be exempted by a notification
under Section 25. The basic duty may have two rates under the First Schedule to
Customs Tariff Act, 1975; viz. standard rates and preferential rates. Standard and
Preferential Rates Duty at the ―Standard rateǁ is charged where there is no provision
for preferential treatment. To be eligible, for the preferential treatment the goods
should be the one which are imported from any preferential area covered under the
Government of India Agreements for charging preferential rate of duty. The Central
Government has the power to increase or reduce or discontinue the preferential rate in
respect of any article specified in the First Schedule provided it considers it to be
necessary in the public interest. Preferential rate is applied only where the owner of
the article (importer) claims at the time of importation, with supporting evidence, that
the goods are chargeable with the preferential rate of duty.
2. Additional Customs Duty: It is levied on goods that are stated under Section 3 of the
Customs Tariff Act, 1975. The tax rate is more or less similar to the Central Excise
Duty charged on goods produced within India. This tax is subsumed under GST now.
This is levied under Section 3(1) of the Customs Tariff Act, 1975. The amount of this
duty is equivalent to the amount of excise duty payable on like goods manufactured or
produced in India. In “S.K. Patnaik v. State of Orissa”,2. it was held that
countervailing duty is imposed when excisable articles are imported in order to
counter balance the excise duty, which is leviable on similar goods if manufactured in
India:
— Countervailing Duty is payable at effective rates.
— When excise duty is exempt/nil rate is applicable on goods imported, no
Countervailing Duty is levied (Collector v. J. K. Synthetics 2000 (120) E.L.T. 54(SC)
— Countervailing Duty is leviable even if similar goods are not produced in India.
— Exemption of basic customs duty doesn‘t automatically mean exemption of
Countervailing Duty.

2 2000 S.C

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 Introduction and types of Custom Duty

— Countervailing Duty is payable in case of goods leviable under State Excise also.
— When the imported goods are valued under Section 4A [valuation based on retail
price], or Tariff Values under section 3(2) the amount of Countervailing Duty is
calculated accordingly if the goods are sold in retail in India.
Value for calculation of duty:
Additional duty/ IGST is calculated on a value of the imported article Lesson 5
Customs Law: Valuation, Assessment of imported and export Goods and procedural
aspects determined under section 14 of the Customs Act and basic custom duty under
section 12 of the Customs Act and any other law for the time being in force but does
not include;
 additional duty referred to in section 3(5) of The Customs Tariff Act, 1975
 The safeguard duty referred to in section 8B of The Customs Tariff Act, 1975.
 The countervailing duty referred to in section 9 of The Customs Tariff Act,
1975
 The anti dumping duty referred to in section 9A of The Customs Tariff Act,
1975

In other words, the additional customs duty is payable on assessable value plus basic
customs duty plus NCCD of customs. While calculating additional customs duty, Anti
Dumping Duty, education cess of customs and safeguard duty is not required to be
considered.
In case of alcoholic liquor for human consumption imported into India:
“ the Central Government may specify rate of additional duty having regard to the
excise duty for the time being leviable on a like alcoholic liquor produced or
manufactured in different States or, if a like alcoholic liquor is not produced or
manufactured in any State, then, having regard to the excise duty which would be
leviable for the time being in different States on the class or description of alcoholic
liquor to which such imported alcoholic liquor belongs.

“ Under GST regime, alcoholic liquor is still under state excise which has not been
subsumed under GST. So, IGST is not leviable on its import. “3
Rate of duty:

3 Import duty

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 Introduction and types of Custom Duty

Such portion of the excise duty leviable on such raw materials, components and
ingredients as, in either case, may be determined by rules made by the Central
Government in this behalf.
Input Tax Credit of CVD/ IGST:
If imported goods are used in manufacture of final products or for provision of output
service, Input Tax credit of CVD/ IGST paid on imported capital goods is also
available. Important Note: GST has already been brought into effect in India. By
virtue of it, IGST (Integrated goods and service tax) is chargeable on goods imported
into India. CVD is still payable, wherever applicable on the imported goods for which
GST Laws are not applicable. National Calamity Contingent Duty will be levied only
on tobacco products and crude oil. Additional duty of Customs is to be levied on pan
masala and tobacco products imported. Petroleum products such as motor spirit, high
speed diesel, aviation turbine fuel, and tobacco products will be outside the scope of
GST and additional duties of Customs will be levied on the import of the same.

3. Special Additional Duty “ Under Section 3(5)”:

It is levied to offset the effect of sales tax, VAT, local tax or other charges leviable on
articles on its sale, purchase or transaction in India. It is leviable on imported goods
even if article was not sold in India. The Central Government may levy additional
duty to counter balance the sales tax, value added tax, local tax or any other charges
leviable in the like article on its sale, purchase or transportation in India.
The rate shall be notified by the Central Government which cannot exceed 4%. The
value of the imported article shall, be the aggregate of the value determined under
section 14(1) of the Customs Act, 1962 and any duty of customs chargeable on that
article under section 12 of the Customs Act, 1962, and any sum chargeable on that
article under any law for the time being in force as an addition to such additional duty
of custom under section 3(1) and section 3(3), but does not include—
(a) the duty referred to in sub-section ( 5);
(b) the safeguard duty referred to in sections 8B
(c) the countervailing duty referred to in section 9; and
(d) the anti-dumping duty referred to in section 9A. This additional duty is eligible
for Cenvat Credit for a manufacturer but not for a provider of taxable service. In
respect of capital goods, 100% credit of SAD is available to manufacturers in the first
year itself.4

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 Introduction and types of Custom Duty

4. 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.

5. Education Cess: This is charged at 2%, with an additional higher education cess 1%,
as included in the customs duty.
6. Anti-dumping Duty: This is levied if a particular good is being imported is below
fair market price.
7. Safeguard Duty: This is levied of the customs authorities feel that the exports of a
particular good can damage the economy of the country.

CASES RELATED TO CUSTOM DUTY:

Praveen Saxena,New Delhi vs Department Of Income Tax5

The ld. DR pointed out that the assessee was arrested by the DRI in the Custom Duty
Evasion case and the assessee was in judicial custody and the payment of legal fees and other
expenses were incurred by the assessee for hiring lawyers to represent his criminal case in the
Lower Courts, therefore, these legal expenses are not allowable under the provisions of the
Act.

CIT Vs. Chaman Lal & Brothers6

He factual matrix of the present case is that there was a criminal case against the assessee
with an allegation of custom duty evasion and he incurred impugned expenditure of legal fees
for hiring lawyers to represent his criminal case before the Hon'ble High Court and Lower
Courts to get the bail order. As the assessee was arrested and sent in judicial custody by the
DRI in the Custom Duty Evasion case which cannot be said to be incurred bona fidely wholly
and exclusively for the purpose of business of the assessee. It is also pertinent to mention that
it is not the case of the assessee, that the assessee initiated any proceedings or prosecution to
defend his business and the claimed expenditure was incurred wholly and exclusively for the
purpose of business of the assessee.

4 Special CVD is subsumed now under IGST, as such this duty is leviable only on the imported goods for which
GST Laws are not applicable. It may be noted that petroleum products are yet to be brought under GST.
5 31 October,2014

6 1971) 82 ITR 166 (SC)

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 Introduction and types of Custom Duty

Alpesh Navinchandra Shah vs State Of Maharashtra 7

There would be no deleterious effect on the national economy, on the contrary, even if after
settlement of case the detention order is allowed to be continued, the legislative intent in
introducing the settlement provision would be defeated which may have adverse and
deleterious effect on the national economy. It is further submitted that the Settlement
Commission is a forum of legal criterion and the powers are drawn from the enacted statutes
such as Customs Act, 1962 and Central Excise Act, 1944 in the case of eligible persons, who
in addition to fulfilling the other criteria admit additional duty liability of a minimum of Rs. 2
lacs, the option of knocking the doors of Settlement Commission is available, inter alia, in
the cases under the Customs Act

VALUATION OF CUSTOMS DUTY

The customs duties are usually calculated on Ad valorem basis on the value of the goods. The
value of goods is calculated according to the regulations stated under Rule 3(i) of the
Customs Valuation Rules, 2007. You can also make use of the customs duty calculator that is
available on the CBEC website. As part of the computerised and electronic service drive in
the year 2009, India started a web-based system known as ICEGATE. ICEGATE is the
abbreviation of Indians Customs Electronic Commerce/Electronic Data Interchange gateway.
It provides a platform for the calculation of duty rates, import-export goods declaration,
shipping bills, electronic payment, verification of import and export licenses.
The Indian classification of the Customs Duty is based on the Harmonized Commodity
Description (HS) and Coding system. The HS codes are of 6 digits. The IGST that applies to
all imports and exports is charged on the value of the good along with the primary customs
duty on the good. The structure is as follows:
Value of the imported goods+ Basics Customs Duty + Social Welfare Surcharge = Value
based on which IGST is calculated
In case there is a confusion regarding the common valuation factors, the following factors are
taken into consideration as per exception Comparative Value Method to calculate the
transaction value of the same items as per Rule 4. Comparative Value Method to calculate the
transaction value of the same items as per Rule 5. Deductive Value Method to calculate the
sale price of an item in importing country as per Rule 7. Computed Value Method that is used

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26 February, 2007

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 Introduction and types of Custom Duty

as per the fabrication materials and profit as per Rule 8. Fallback Method used to calculate
goods with higher flexibility as per Rule 9. The Central Board of Excise and Customs under
the Ministry of Finance manages the customs duty process in the country. International trade
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CONCLUSION:

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 Introduction and types of Custom Duty

The Custom duty derived its value from the word ―customǁ under which whenever a
merchant entered a Kingdom with his merchandise, he had to give some gift to the king.
Subsequently, this custom formalized into the levy of custom duty or tax on goods imported
into and exported from the country was organized through various laws during the British
period. After Independence the Sea Customs Act 1878, the Land Customs Act, 1924 and
other allied enactments were repealed by a consolidating and amending legislation entitled
the Customs Act, 1962. Similarly the Indian Customs Act, 1934 was repealed by the Customs
Tariff Act, 1975(CTA). Here some points of custom duty which discussed about
understanding of the basic and practical aspects of customs law ,value the imported and
export goods for payment of duty , clearance procedures involved in importation and
exportation of goods.

BIBLIOGRAPHY

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 Introduction and types of Custom Duty

 Act Reffered :
Custom Regulation Rules 2007
Customs Act,1963
Customs Tariff Act, 1975
 Books reffered:
Custum Law Manual
BDP Customs Tarrif with IGST and Foreign Trade Policy
Cusom tarrif of India
 Website Reffered:
www.legalservice.com
www.encyclopidea .com
www.indian kanoon.com’

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