Article 265 of Indian Constitution provides that ‘no tax shall be levied or collected except by authority of law’.
Entry No. 83 of List 1 to Schedule VII of the Constitution empowers the Union Government to legislate and collect duties on import and exports. By virtue of this provision, the Customs Act, 1962 was enacted, which empowered the Central Government to collect the taxes in the name of Custom Duty.
Indirect tax is one of the major sources of the revenue for the Central Government and 30% of its tax revenues are from Custom Duties.
Since immemorial times it had been a custom that whenever a merchant entered into a kingdom together with his merchandise, he had to make an appropriate offering of gift to the king. Gradually it become a binding procedure for any tradable goods when it travels across the borders.
In course of time, the modern State formalised this ‘Custom’ into ‘Custom Duty’ which the State collects on goods imported into or, occasionally, exported out of its borders.
- The initial step towards imposing custom duty by the State was formulated within the British regime. In 1786, the Revenue Board was formed for the first time in Calcutta which imposed custom duty for goods imported in Bengal.
- Thereafter, in 1808, a new Trade Board was formed for export and import of goods from and to India.
- In 1859, the Customs Duties Act introduced uniform Tariff to all Indian territories.
- Thereafter, in 1878, the Sea Customs Act was passed by British Government.
- In 1894, the Indian Tariff Act was passed.
- Subsequently, in 1911, ‘Air Customs’ Was introduced under the India Aircrafts Act.
- Then in 1924, the first Land Customs Act was passed
- After Independence, the Sea Customs Act, the Land Customs Act and other allied enactments were repealed and the Customs Act, 1962 was enacted.
Objectives of Custom Duty
Custom Duty is an indirect tax, imposed under the Customs Act formulated in 1962. As per Section 12 of the said Act, custom duty is imposed on goods imported into or exported out of India.
The rates of custom duty shall be as specified under the Customs Tariff Act, 1975 or in accordance with any other law for the time being in force.
The objectives of levy of customs duty is primarily:
- To restrict imports for conserving Foreign Exchange.
- To protect the Indian Industry from undue international competition.
- To control imports and encourage exports of goods for achieving the policy objectives of the Government.
- To ensure compliance of the legal provisions of Foreign Trade Act, Foreign Exchange Regulation Act, Conservation of Foreign Exchange and Prevention of Smuggling Act, etc.
Mode of Levy of Customs Duty
There are three modes of imposing Customs Duty:
- SPECIFIC DUTIES:
Generally, specific custom duty is imposed on each and every unit of a commodity imported or exported. Here, the value of the commodity is not considered. The rate of duty shall be a specific amount for a specific quantity of goods imported of exported.
2. ADVALOREM DUTIES:
Ad-valorem custom duty is a duty imposed on the total value of a commodity imported or exported. This is the most widely accepted form of imposing custom duty. Here, the physical units of commodity are not considered. The applicable rate shall be a précised percentage of the value of goods imported or exported.
3. COMPOUND DUTIES:
Compound custom duty is the combination of specific and ad-valorem custom duties. Here, both the quantity and the value of the commodity are considered while computing tariff.
Types of custom duties
Customs duties are charged almost universally on every article which are imported into a country. These are divided into:
- Basic Customs Duty (BCD)
- Countervailing Duty (CVD)
- Additional Customs Duty or Special CVD
- Special Additional Duty (SAD)
- Preferential Rate of Duty
- National Calamity Contingent Duty (NCCD)
- Anti-dumping Duty/Safeguard Duty
- Education Cess on Custom Duty
- Custom Health Cess
- Integrated Goods and Service Tax (IGST)
- GST Compensation Cess (GCC)
- Social Welfare Surcharge
- Road and Infrastructure Cess
Basic Customs Duty
This duty is levied on imported goods in terms of section 12 of the Customs Act, 1962. It is the standard rate of duty as specified in the first schedule of the Customs Tariff Act, 1975 for imports and as specified in the second schedule of the said Act for exports.
Basic custom duty may vary for various items at different rates. This duty is calculated on the Assessable Value of the goods arrived or landed at the customs area in India.
Countervailing Duty (CVD)
Countervailing duty (CVD) shall be a specific duty that the government imposes on import articles. They are imposed only under the guidelines of World Trade Organisation Rules and also are called anti-subsidy duties. To guard the domestic producers by countering negative impact of import subsidies is the foremost object of imposing this duty.
Some foreign countries every now and then provide subsidy to their domestic producers to make their products cheaper and boost their demand in other countries. This, results increase in export of such articles by those countries.
To avoid flooding of the market within the importing country with these goods, the government of the importing country imposes countervailing duty.
The CVD nullifies and eliminates the low-price advantage enjoyed by an imported product. This duty raises the price of the imported product, bringing it closer to its true market value.
The World Trade Organization (WTO) permits the imposition of countervailing duty by its member countries. In India, the CVD is imposed as an additional duty besides customs on imported products when such products are given tax concession within the country of their origin.
Additional Customs Duty or Special CVD
This duty is levied on imported goods in terms of section 3 of the Customs Tariff Act, 1975 and is equal to the Central Excise duty leviable on the like goods if produced or manufactured in India.
In cases where like article is not so produced or manufactured in India, this duty will be at such rate which is leviable on the class or description of articles to which the imported article belongs.
Additional custom duty is calculated on a value based on aggregate of value of the goods including landing charges and basic customs duty. This duty has been subsumed in the IGST after the introduction of GST w.e.f. 01-07-2017.
Special Additional Duty (SAD)
A 4% Special Additional Duty (SAD) under section 3(5) of the Customs Tariff Act, 1975 was first imposed in the Union Budget 2005-2006. This measure was introduced to counter balance various internal taxes like Sales Tax and Value Added Tax (VAT).
This also provides a level playing field to indigenous goods which have to bear these taxes. This was extended in general to all goods in the Budget 2006-2007 onwards.
Manufacturers were allowed to take credit of this additional duty for payment of excise duty on their finished products. In the case of most of the items, this duty has been subsumed in IGST after the introduction of GST w.e.f. 01-07-2017.
Preferential Rate of Duty (PRD)
In the case of imports, certain preferences are provided for some specified countries in terms of levy of import duty at prescribed rates.
The expression “preferential rate” means a lesser rate of duty than the normal rate that is basic rate of the duty. These duties are reduced tariff rates levied on the basis of trade agreements between two or more countries.
These rates are usually substantially lower than the normal tariff rates.
National Calamity Contingent Duty (NCCD)
This is a surcharge collected by the Union Government for the goods specified in the Seventh Schedule, being goods manufactured or produced, to be called the National Calamity Contingent duty. The Seventh Schedule also provides the applicable rates for the goods.
The National Calamity duty chargeable on the goods as specified in the Seventh Schedule. It shall be in addition to any other duties of excise chargeable on such goods under the Central Excise Act, 1944 (1 of 1944) or any other law for the time being in force.
Anti-dumping Duty/Safeguard Duty
The main object of imposing this duty is to protect the domestic industry from unfair injury. Anti-dumping duty or Safeguard duty would not apply to goods imported by a 100% Export Oriented Units (EOU) and units in Free Trade Zone (FTZ) and Special Economic Zone (SEZ).
There are countries which use the practice of dumping goods by providing excessive subsidies. This is a kind of unfair trade practice towards the importing country.
In order to impose Safeguard duties, it is not required the finding of unfair trade practice such as dumping or excessive subsidy on the part of exporting countries. However, they must not violate the provision of most favoured nation. This means, they should not discriminate between imports from different countries.
Provisional safeguard duty shall not exceed 200 days from its implementation. When it is noticed that a sudden increase in imports has caused or threatens to cause serious injury to the domestic industry, safeguard provisions are initiated.
Safeguard duty can help to restrict import of a particular product for a temporary period by raising the tariffs.
By way of special brand rate of drawback, anti-dumping duty is rebated on export of goods.
It has been started to impose an Education Cess on the customs duties effective from the Budget 2004-2005 on goods imported into India. It was chargeable @ 2%, on the aggregate of duties of customs leviable on such goods. Credit of this cess was not available.
In the Budget 2007-2008, the Central Government again imposed a Secondary and Higher Education Cess on goods specified in the First Schedule to the Customs Tariff Act, 1975, being goods imported into India.
This cess is calculated at the rate of 1% on the aggregate of duties of customs. Where goods are fully exempted or chargeable at nil rate of duty, no cess would be leviable.
However, this Cess was exempted with effected from02-02-2018 as the Finance Bill, 2018 proposed to abolish the same.
Customs Health Cess
In order to promote ‘Make in India’ initiative and also to promote Domestic Manufacturing and accelerating medical devices manufacturing, a new Cess introduced in the name of Health Cess on Medical Devices.
Provision for this Cess was announced in the Budget’ 2020. The Health Cess at the rate of 5%shall be calculated on the assessable value of the imported goods.
The value for the purpose shall be calculated in the same manner as the value of goods is calculated for the purpose of customs duty under the provisions of section 14 of the Customs Act, 1962.
Integrated Goods & Services Tax (IGST)
The GST regime with effect from 01-07-2018 mandates that the supply of goods, or of services, or both in the course of import into the territory of India shall be deemed to be the supply of goods, or of services, or both in the course of inter-State trade or commerce for levy of integrated tax.
Hence, import of goods or services is treated as deemed inter-State supplies and integrated tax made applicable thereby.
The levy of the IGST on the import of goods and services would be levied under the Customs Act, 1962 read with the Customs Tariff Act, 1975 and IGST Act, 2017.
With regard to the supply of goods or services or both to a Special Economic Zone (SEZ) developer or a unit, the transaction shall be treated as inter-State supply and shall be subject to levy of IGST.
According to the IGST Act, 2017, Import of goods has been defined as bringing goods into India from a place outside India. In addition to the applicable Custom duties, all imports shall be deemed as inter-State supplies and accordingly, IGST shall be levied.
The integrated tax on goods imported into India shall be levied and collected in accordance with the provisions of the Customs Tariff Act, 1975. This shall be on the value of goods as determined under the said Act at the point, when duties of customs are levied on the said goods under the Customs Act, 1962.
The Customs Tariff Act, 1975 has accordingly been amended to provide for levy of IGST and the Compensation Cess on imported goods. Accordingly, goods which are imported into India shall, in addition to the Basic Customs duty, be liable to integrated tax at such rate as is leviable under the IGST Act, 2017.
Further, the value of the goods for the purpose of levying IGST shall be, assessable value plus Customs Duty levied under the Act, and any other duty chargeable on the said goods under any law for the time being in force.
GST Compensation Cess (GCC)
In addition to IGST, with effect from 01-07-2018, there also levied a GST compensation cess on certain luxury and demerit goods under the Goods and Services Tax (Compensation to States) Cess Act, 2017.
The Customs Tariff Act, 1975 has been amended accordingly to provide for levy of IGST and the GCC on imported goods.
The value of the imported article for the purpose of levying cess shall be, assessable value plus Basic Customs Duty levied under the Act, and any sum chargeable on the goods under any law for the time being in force. However, the IGST paid shall not be added to the value for the purpose of calculating cess.
Social Welfare Surcharge (SWS)
Finance Bill, 2018 abolished the Education Cess and Secondary and Higher Education Cess on imported goods. In the said bill, however, there introduced a Social Welfare Surcharge, at the rate of 10% of the aggregate duties of Customs, on imported goods, to provide for social welfare schemes of the Government. Goods which were hitherto exempted from Education Cesses are exempted from this Surcharge also.
Road and Infrastructure Cess
On certain specified imported goods, an additional duty of customs has been introduced with effect from 02-02-2018 in the name of the Road and Infrastructure Cess. This cess was imposed for the purpose of financing infrastructure projects of the country.
This additional duty of customs is in addition to other duties of customs chargeable on scheduled goods under the Customs Act, 1962 or any other law for the time being in force.
Custom Duty Calculator
You can access the custom duty calculator in the ICEGATE (Indian Customs and Excise Gateway) portal.
- Go to the ICEGATE site and access the calculator
- Confirm the captcha, then you will be directed to another page
- Enter the HS Code (CTH Code) and description of the goods you imported or planning to import. Enter at least four digits of the code.
- Select the country of origin (for Anti-dumping or preferential duty). Where Anti-dumping duty or Preferential duty is not applicable, country of origin is not required.
- Click on Search and you will see a list of goods that falls under the chapter starts with the given code.
- Click on the code number which matches your search description. Now you will be directed to the duty calculator with all information related to the custom duty on selected item.
- Now enter the following details:
- Assessable value of the goods in INR
- Quantity if applicable
- Select relevant notifications wherever applicable.
The applicable import duty to be paid in Indian Rupees will be shown in the screen.