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.
Meaning of Customs Duty
1. Customs duty is a duty or tax, which is levied by Central Govt. on import of
goods into, and export of goods from, India. It is collected from the importer or
exporter of goods, but its incidence is actually borne by the consumer of the goods
and not by the importer or the exporter who pay it.
These duties are usually levied with ad valorem rates and their base is determined
by the domestic value ‘the imported goods calculated at the official exchange rate.
Similarly, export duties are imposed on export values expressed in domestic
currency.
2. Customs duty refers to the tax imposed on goods when they are transported
across international borders. In simple terms, it is the tax that is levied
on import and export of goods. The government uses this duty to raise its
revenues, safeguard domestic industries, and regulate movement of goods.
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
Taxable Event for Import Duty
Goods become liable to import duty of export duty when there is “import
into, or export from India”.
As per section 2(18), ‘export’ with its grammatical variations and
cognate/similar expression, means taking out of India to a place outside
India.
As per section 2(23), ‘import’ with its grammatical variations and cognate
expressions, means bringing into India from a place outside India.
Section 2(27) of Customs Act defines ‘India’ as inclusive of territorial
waters. Hence it was thought that ‘import’ is completed as soon as goods
enter territorial water. Similarly, export is complete only when goods cross
territorial waters.
Territorial Water of India
Territorial waters mean that portion of sea, which is adjacent/closest to the shores of
a country.
As per section 3 of the Territorial waters, Continental Shelf, Exclusive Economic
Zones and Maritime Zones Act, 1976, territorial waters of India extend Upto 12
nautical miles from the baseline on the coast of India and include any gulf, harbour,
creek or tidal river. Sovereignty/control of India extends to the territorial waters and
to the seabed/ocean and subsoil underlying and the air space over the waters.
Earlier, the territorial waters of India extended up to the 6 nautical miles from the
baseline, but it was extended up to 12 nautical miles (1 NM 1.853 kms).
This definition is well in accordance with the Article 3 of the UN Convention on the
Law of Sea, which defines territorial sea. The determination of territorial waters is
important for determination of the Chargeabi1ity of the Customs duty, as the entry
of goods into the territorial waters is a taxable event.
‘Goods’ under Custom Act
Custom duty is on ‘goods’ as per section 12 of customs act. The duty is payable
on goods belonging to Government as well as goods not belonging to
Government.
Section 2(22) gives inclusive definition of goods as – ‘Goods’ includes (a)
vessels, aircrafts and vehicles (b) stores (c) baggage (d) currency and negotiable
instruments and (e) any other kind of movable property.
Thus, ship or aircraft brought for use in India or for carrying cargo for ports out of
India would be dutiable. Definition of goods has been kept quite wide as Customs
Act is used not only to collect duty on ‘goods' but also to restrict/prohibit import
or export of ‘goods' of any description. Main two tests for ‘goods' are (a) they
must be movable and (b) they must be marketable. The very fact that goods are
transported by sea/air/road means that they are ‘movable'. Since most of imports
are on payment basis, test of ‘marketability’ is obviously satisfied.
‘Goods’ under Custom Act
Dutiable Goods – Section 2(14) define 'dutiable goods' as any goods which
are chargeable to duty and on which duty has not been paid. Thus, goods
continue to be 'dutiable' till they are not cleared from the port. However, once
goods are assessed at 'Nil' rate of duty, they no more remain 'dutiable goods'.
Imported Goods - Section 2(25) define ‘imported goods' as any goods brought
in India from a place outside India, but does not include goods which have
been cleared for home consumption. Thus, once goods are cleared by customs
authorities from customs area, they are no longer ‘imported goods'. (Though
in common discussions, goods cleared from customs are also called 'imported
goods').If, imported goods are not chargeable to duty, they will not be
‘dutiable goods’.
‘Goods’ under Custom Act
Export Goods - As per section 2(19) of Customs Act, ‘export goods’
means any goods which are to be taken out of India to a place outside
India. Goods brought near customs area for export purpose will be ‘export
goods'. Note that once goods leave Indian Territory, Indian laws have no
control over them and hence the term ‘exported goods' has not been used
or defined.
Goods Imported Classified Into:
Goods entered for home consumption
Goods entered for Warehousing
Goods in transit
Goods for transshipment
Goods imported with restrictions &
Goods which are banned
Custom Tariff Act, 1975
Import duty 1st schedule to CTA, 1975
Two types 1. Preferential rate & 2. Standard rate.
Preferential Rates of Duty are reduced tariff rates levied on the basis of
trade agreements between two or more countries.
Preferential rate applicable to goods imported from Most Favoured
Nation (MFN) if country of origin is produced.
Export duty 2nd schedule to CTA, 1975
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
National Calamity Contingent Duty(NCCD)
Export Duty
Types of Custom Duty
Basic Customs Duty
All goods imported into India are chargeable under Section 12 to a
duty under Customs Act, 1962 .
The rates of this duty, popularly known as basic customs duty, are
indicated in the First Schedule of the Customs Tariff Act, 1975 as
amended from time to time under Finance Acts.
 The duty may be a percentage of the value of the goods or at a
specific rate is determined under Section 14(1).
The Central Government has the power to reduce or exempt any
good from these duties.
Rate of Customs Duty
(A) Basic Custom Duty : Basic Custom Duty levied u/s 12 of Customs Act is
generally 10% of non-agricultural goods, w.e.f. 1-3-2007. Total duty payable
generally comes to 26.85%. The rate of customs duty applicable will be as
provided in Customs Act, subject to exemption notifications, if any,
applicable. In case of imports from preferential area, the preferential rate is
applicable, if mentioned in the Tariff. It is needless to mention that if partial or
full exemption has been granted by a notification, the effective rate (as per
notification) will apply and not the tariff rate (as mentioned in Customs
Tariff). Total duty payable generally comes to 28.85% w.e.f. 17-3-2012. Total
customs duty payable wi.e.f. 27-2-2010 is 28.85% as excise duty rate is 12%
(earlier, the general excise duty rate was 10% during 26-2-2010 to 16-3-2012.
During that time, total customs duty payable was 26.85%).
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
(B) Additional Customs Duty u/s 3(1) (CVD) : ‘Additional Customs Duty’ is often called
‘Countervailing Duty’ (CVD). Additional duty is levied under section 3(1) of Customs
Tariff Act to counterbalance impact of excise duty on indigenous manufactures, to
ensure level paying field.
 This duty is equal to excise duty levied on a like product manufactured of produced in
India. If like article is not produced or manufactured in India, the excise duty that would
be leviable on that article had it been produced in India is the base.
 General excise duty rate is 10.30% w.e.f. 27-2-2010 (10% basic plus 2% education cess
and Secondary and Higher (HAS) Education cess of 1%).
 CVD is payable on assessable value plus basic customs duty. In case of products
covered under MRP provisions, CV duty is payable on MRP basis as per section 4A of
Central Excise.
 CVD can be levied only if there is ‘manufacture’.
 CVD neither excise duty nor basic customs duty. However, all provisions of Customs
Act apply to CVD.
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% w.e.f 01.03.2007 2% +1% of the aggregate duty of
customs 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
Levy of such anti-dumping duty is permissible as per WTO agreement.
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
‘Injury margin’ means difference between fair selling price of domestic industry and landed
cost of imported products.
Dumping duty will be lower of dumping margin or injury margin.
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.(protecting the interests of any domestic industries)

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
Special CVD : This is payable @ 4% on imported goods u/s 3(5) of
Customs Tariff Act. This is additional duty leviable u/s 3(1) and 3(3) of
Customs Tariff Act. This is in lieu of VAT/Sales Tax to provide level
playing field to Indian goods. Traders importing goods can get refund.
CVD is not payable if goods are covered under MRP valuation
provisions.

Education Cess : Education Cess of customs @ 2% and SAH (Secondary

and Higher) Secondary Cess of 1% is payable.

Total Duty : Total import duty considering all duties plus education cess on
non-agriculture goods is generally 26.85%.
Calculation of Customs Duty
Calculations of customs duty
General customs duty rate for non-agricultural goods s 10%. Total customs
duty payable w.e.f. 27-2-2010 is 26.85% as excise duty rate is generally
10%
Assessable value = CIF (FOB value + Cost Insurance and Freight) Value of
imported goods converted into Rupees at exchange rate specified in
notification issued by CBE&C plus landing charges 1%.
ParticularsDuty % Amt (Rs.) Total Duty
(A) Assessable Value 10,000
(B) Basic Custom Duty 10% 1,000 1,000
(C) Sub total for CVD 11,000
(D) CVD (12% of C) 12% 1,320 1,320
(E) Sub Total for Cess (B+D) 2,320
(F) Edu Cess (2% of E) 2% 46.40 46.40
(G) SAH Edu (1% of E) 1% 23.20 23.20
(H) Sub Total for Special CVD 12,389.60
(I) Spl CVD (4% of H) 4% 495.58 495.58
(J) Total Duty 2,885.18
(K) Total Duty rounded to 2,885
Valuation For Customs Duty
Value for the Purpose of Customs Act : Customs duty is payable as a
percentage of “Value” often called ‘Assessable Value’ or ‘Customs Value’.
TARIFF VALUE – Tariff Value can be fixed by CBE & C for any class of
imported goods or exported goods. CBE & C should consider trend of
value of such or like goods while fixing tariff value. Once so fixed, duty is
payable as percentage of this value. Fixing tariff value is not permitted
under GATT convention. Tariff Value for Crude Palm Oil,, RBD
Palmolein, Palm Oil, Crude Soyabean Oil and Brass Scrap has been fixed.
Section 14 (2) empowers CBE & C to fix tariff values of imported goods
or exported goods by issuing a notification.
TRANSACTION VALUE – Section 14 (1) of customs act states that ‘value’ of
imported and exported goods will be ‘transaction value’ of such goods i.e. 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 for export from India for
delivery at the time and place of exportation, where buyer and seller of the
goods are not related and price is the sole consideration for sale, subject to
such other conditions as may be specified in the rules made in this behalf.
First proviso to section 14 (1) states that such transaction value in the case of
imported goods shall include, in addition to the price as aforesaid, any amount
that they buyer is liable to pay for costs and services, including commission
and brokerage, engineering, design work, royalties and license fees, costs of
transportation to the place of importation, insurance, loading, unloading and
handling charges to the extent and in the manner specified in the Rules.
Price in case of High Sea Sale – HSS means sale of goods by transfer of
documents before clearance of goods from customs.
In case of HSS, price charged by importer to assesse would from the
assessable value and not the invoice issued to the importer by foreign
supplier.
Valuation should be on basis of last sale price. Even if there are more than
once high sea sales, the last sale price should be taken for purpose of
valuation, as that is the price at which final importation has been caused.
Exemptions from Customs Duty
Section 25 of the customs Act empowers the central government to issue
notification granting exemption from customs duty partially or wholly on
any goods.
 The exemptions may be in respect of basic duty or auxiliary duty.
General or specific exemptions may be granted.
 While general exemptions are in respect of user of goods, specific
exemptions are in respect of various products.
The exemptions are also granted subject to fulfillment of certain
conditions.
Type of Exemptions under Customs Duty
Alternate method for valuation
If transaction value is not available – we go for transaction value of
identical goods (rule 5) or transaction value of similar goods (similar
goods as defined in rule 2(e) = goods which are not alike in all respects,
have like characteristics and like component materials, which enable them
to perform the same functions and to be commercially interchangeable.

As per rule 7A, the computed value of imported goods will be calculated
on the basis of materials, fabrication, processing, profit, general expenses
etc.

If there is doubt, the customs officer may reject the value declared by the
importer
Customs Duty Drawback
Meaning of Drawback: “Drawback” in relations to any goods
manufactured in India and exported means-
 (a) Rebate of duty chargeable
 (b) Rebate of duty of excise
 (c) Draw back is equal to – (i) Customs duty paid on imported
inputs and (ii) Excise duty paid on indigenous inputs
Provisions relating to Draw back
Duty Drawback provisions are made to grant rebate of duty or
tax chargeable on any imported / excisable materials and input
services used in the manufacture of export goods.

Drawback allowable on re-export of duty paid goods [sec 74]

Drawback on imported material used in the manufacture of
goods which are exported sec 75]
Prohibition and regulation of draw back in certain cases [sec 76]
Prohibition on importation and exportation of goods
As Central Government has all the power under this act to levy duty on
various goods and to in the same way it has power to prohibit importation
and exportation of goods.

Prohibited goods -means any goods the import or export of which is

subject to any prohibition under this Act or any other law for the time
being in force but does not include any such goods in respect of which the
conditions subject to which the goods are permitted to be imported or
exported have been complied with
 Power to prohibit importation or exportation of goods
If the Central Government is satisfied that it is necessary so to do for any of the purposes specified in
sub-section (2), it may, by notification in the Official Gazette, prohibit either absolutely or subject to
such conditions (to be fulfilled before or after clearance) as may be specified in the notification, the
import or export of goods of any specified description.
The purposes referred to in sub-section (1) are the following :-
the maintenance of the security of India;
the maintenance of public order and standards of decency or morality;
the prevention of smuggling;
the prevention of shortage of goods of any description;
the conservation of foreign exchange and the safeguarding of balance of payments;
the prevention of injury to the economy of the country by the uncontrolled import or export of gold or silver;
the prevention of surplus of any agricultural product or the product of fisheries;
the maintenance of standards for the classification, grading or marketing of goods in international trade;
the establishment of any industry;
the prevention of serious injury to domestic production of goods of any description;
the protection of human, animal or plant life or health;
Various rules regarding prohibition
Absolute or Conditional Prohibition: Under section 11 of the Customs
Act, the Central Government has the power to issue Notification
under which export or import of any goods can be declared as
prohibited. The prohibition can either be absolute or conditional. The
specified purposes for which a notification under section 11 can be
issued. The Central Govt. has issued many notifications to prohibit
import of sensitive goods such as coins, obscene books, printed waste
paper containing pages of any holy books, armored guard, fictitious
stamps, explosives, narcotic drugs, rock salt, saccharine, etc.
Prohibited goods under other laws
Import and export of some specified goods may be
restricted/prohibited under other laws such as Environment
Protection Act, Wild Life Act, Indian Trade and Merchandise Marks
Act, Arms Act, etc.
Prohibition under those acts will also apply to the penal provisions
of the Customs Act, rendering such goods liable to confiscation
under section 111(d) of the Customs Act (for import) and 113 (d) of
the Customs Act (for export).
Punishment
Any Importer or Exporter for being knowingly concerned in any fraudulent
evasion or attempted evasion of any prohibition under the Customs Act or
any other law for the time being in force in respect to any import or export
of goods, shall be liable to punishment with imprisonment for a maximum
term of three years (seven years in respect of notified goods) under section
135 of the Customs Act. Any person who is reasonably believed to be
guilty of an offence, punishable under section 135, may be arrested under
the provisions of section 104 of the Customs Act.
Penalties Under Customs Act, 1962
Provisions of penalties and offences are quite similar to Excise Law. Like Excise,
Customs Law envisages two types of punishments i.e. (a) Civil Liability : Penalty for
violation of statutory provisions involving a penalty of money and confiscation of
goods. (b) Criminal Liability : Criminal punishment is of imprisonment and fine;
which can be granted only in a criminal court after prosecution. Both penalty and
punishment can be imposed for same offence.
Penalties are imposed on any person who, in relation to any goods, does or omits to do
an act which renders such goods liable for confiscation. Hence, it is necessary to first
understand what are goods liable for confiscation. Broadly, goods are liable for
confiscation in case of improperly importing goods or improperly attempting to export
goods. Section 111 provides goods liable for confiscation for improper imports while
section 113 contains details of goods liable for confiscation for attempt of improper
export.
Prosecution for Offences
Customs Law provides stiff punishments of imprisonment and fines for
violation of Customs Act. These can be imposed only by Court of
Law and these are independent of monetary penalties and confiscation
of goods that can be ordered by Customs Authorities through
departmental adjudication. Hon. Supreme Court have held that both
can be imposed simultaneously for same offence.