INTRODUCTION TO CUSTOMS DUTY

HISTORY OF CUSTOMS LAW

 As per ancient custom, a merchant entering a
kingdom with his goods had to make a suitable
gift to the King. In the course of time, this
‘custom’ was formalised to ‘Customs Duty’.
This is collected on imports and occasionally
on exports too.
 NATURE OF CUSTOMS DUTY

 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.
TAXABLE EVENT FOR IMPORT DUTY
 Goods become liable to import duty or export
duty when there is ‘import into, or export from
India’.
 Section 2(27) of Customs Act defines ‘India’ as
inclusive of territorial waters.
 TERRITORIAL WATERS AND CUSTOMS WATERS
 Territorial waters means that portion of sea which is
adjacent to the shores of a country.
 Section 3 of the ‘Territorial waters, Continental Shelf,
Exclusive Economic Zone and other Maritime Zone Act,
1976’ specifies that territorial water extend upto 12
nautical miles from the base line on the coast of India
and include any bay, gulf, harbour, creek or tidal river.
 Sovereignty of India extends to the territorial waters
and to the seabed and subsoil underlying and the air
space over the waters.
 ‘Exclusive Economic Zone’ extends to 200
nautical miles from the base-line. In this zone, the
Coastal State has exclusive rights to exploit it for
economic purposes like constructing artificial
islands (for oil exploration, power generation
etc.), fishing, mineral resources and scientific
research.
 However, other countries have right of navigation
and over-flight rights.
 Other countries can lay submarine cables and
pipelines with consent of Indian Government. Such
Consent may be declined for protecting interest of
India.
 Beyond 200 nautical miles, the area is ‘High Seas’,
where all countries have equal rights.
 ‘Continental shelf’ is an area of relatively shallow
seabed between the shore of a continent and the
deeper ocean.
 Extension of Income tax Act, Customs Act,
service Tax and Excise Act to designated areas
in EEZ- Customs Act has been extended to
designated areas in Continental Shelf and
Exclusive Economic Zone of India.
INDIAN CUSTOMS WATERS
 ‘Indian Customs Waters’ means the waters extending
into the sea up to the limit of contiguous zone of India’.
 Contiguous zone of India comes immediately after
territorial waters. The outer limit of contiguous zone is
24 nautical miles from the nearest point of base line.
Thus, area beyond 12 nautical miles and upto 24
nautical miles is ‘contiguous zone of India’
 ‘Indian Customs Waters’ extend upto 12 nautical miles
beyond territorial waters.
 Significance of definition of ‘Indian Customs
Waters’ is as follows-
a) Customs Officer has powers to arrest a person in
India or within Indian customs waters.
b) Customs Officer has powers to stop and search
any vessel in India or within the Indian Customs
waters. If such vessel does not stop, it can be
fired upon. If a vessel does not stop, it can be
confiscated.
 A vessel which is within Indian Customs waters
or which has been in Indian customs Waters can
be confiscated which is constructed or fitted in
any manner for purpose of concealing goods.
 Customs Officer has power to search any person
who is on board any vessel within customs water,
if he has reason to believe that goods liable to
confiscation are secreted about his person.
 Any goods brought within customs waters
contrary to any prohibition for import are liable
to confiscation.
 Thus, powers of customs officers extend upto 12
nautical miles beyond territorial waters.
‘GOODS’ UNDER CUSTOMS ACT
 Customs Duty is on ‘goods’ as per section 12 of
Customs Act.
 ‘Goods’ includes (a) vessels, aircrafts and
vehicles (b) Stores (c) Baggage (d) Currency and
negotiable instruments and (e) any other kind of
movable property.
 Dutiable Goods- Dutiable goods means any goods
which are chargeable to duty on which duty has not
been paid.
Imported Goods- Imported Goods means goods
brought into India from a place outside India, but
does not include goods which have been cleared
for home consumption.Once goods are cleared they
are not imported goods
 Smuggled goods are not “imported goods’.
CLASSIFICATION FOR CUSTOMS & RATE OF CUSTOMS DUTY

 Classification is as per Central Excise Tariff Act

for Central Excise and as per Customs Tariff Act
for Customs. Both are based on HSN.
 Though both tariffs are based on HSN, they are
not copies of HSN.
 However, broad sections and chapter headings
are same.
RATE OF CUSTOMS DUTY APPLICABLE
 Basic Customs Duty- 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.
 Rate for IGST( earlier additional duty)- Rate for additional
duty (CVD) will be as mentioned inIGST ACT
(earlier Central Excise Tariff Act), subject to any general
exemption notification.
 Rate when goods consist of articles liable to different rates

of duty- Often goods may be imported in sets. One set may

contain goods under different chapter headings and different
rates may be applicable. If importer is unable to give breakup
with suitable evidence , the duty will be charged at the highest
rate. Even articles exempt from duty will be chargeable at the
highest rate, if breakup is not avaiable
MIXED GOODS LIABLE TO DIFFERENT RATES OF DUTY

 At times, articles are despatched in CKD packs or

sets. Each pack or set will contain various goods
which may be liable to different rates of duty, but
price in invoice may be a consolidated price. In such
cases, section 19 of customs Act, 1962 provides that:
 (a) If importer is able to produce satisfactory
evidence to assessing officer regarding break up of
values of different articles, duty will be charged at
different applicable rates based on such breakup
CONTINUE MIXED GOODS DUTIES
 (b) If break up is not available and if items are chargeable at
different rates, the goods will be charged at highest of such
rates
 (C) If break up is not available, duty will be payable even on
goods not liable to duty at the highest rate.
 (d) If accessories and spare parts for maintenance are
compulsorily supplied with the article and if no separate charge
is made, accessories will be chargeable at the same rate as the
article.
 (e) If items are chargeable on basis of quantity – i.e. tariff
value, that rate will be applied
BASIC CUSTOMS DUTY
 Basic customs duty is levied as a percentage of
value as determined under section 14(1). The
rates vary for different items, but general rate on
non-agricultural goods at present is 10%
 Assessable value = CIF Value of imported goods
converted into Rupees at exchange rate specified
in notification issued by CBE & C plus landing
charges 1%
CALCULATION OF CUSTOMS DUTY PAYABLE IS AS
FOLLOWS, IF ASSESSABLE VALUE = RS 10,000
Seq. Duty Description Duty Amount Total Customs
% Duty
(A) Assessesable Value 10,000
(B) Basic Customs Duty 10. 1,000 1,000.00
(C) Sub total for calculating CVD’(A+B) 11,000
(D) CVD ‘C’ x excise Duty Rate 12.5 1,375 1,375.00
(E) Sub-total for Edu. cess on Customs ‘B+D’ 2,375
(F) Edu. Cess of customs – 2% of ‘E’ 2 47.50 47.50
(G) SAH Edu.Cess of customs – 1% of ‘E’ 1 23.75 23.75
(H) Sub total for Spl CVD ‘C+D+F+G’ 12,446.25
(I) Special CVD Under section 3(5) – 4% ‘H’ 4 497.85 497.85
(J) Total Customs Duty 2,944.10
(K) Total duty Rounded to Rs. 2,944.00
Buyer who is manufacturer is eligible to avail
Cenvat Credit Of D and I above.
 ADDITIONAL CUSTOMS DUTY U/S 3(1) (CVD)
 ‘Additional customs duty’ is often called
‘Countervailing Duty’(CVD). This duty is equal to
excise duty levied on a like product manufactured or
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. If the product is leviable with different
rates, then highest rate among those rates is to be
considered. The duty is leviable on value of goods
plus customs duty payable.
MODE OF CALCULATION OF CVD
 CVD is payable on Assessable value [as
determined under section 14(1) of customs Act or
tariff value fixed under section 14(2) of customs
Act] plus basic custom s duty chargeable under
section 12 of customs Act plus any other sum
chargeable on that article under any law in
addition to, and in the same manner as duty of
customs.
CENVAT CREDIT OF CVD
 Cenvat Credit is available on CVD paid
on imported goods, if the imported
goods are used in manufacture of final
products or for provision of output
service. Cenvat of CVD paid on capital
goods imported is also available in
terms of Cenvat Credit Rules.
NUMERICAL EXAMPLE.

Question :
Assessable value of certain goods imported from
USA as per customs law is Rs 5,50,000. The packet
contains 5,000 pieces with maximum retail price Rs
190 each. The goods are assessable u/s 4A of the
Central Excise Act,1944, after allowing an abatement
of 40% . The excise duty rate w.e.f. 1-3-2015 is
12.50% ad valorem. Calculate the amount of
Additional duty of customs u/s 3(1) of the customs
Tariff Act , 1975 and total Customs duty payable,
assuming basic custom duty @ 10% ad valorem.
ANSWER :
CVD is to be calculated on basis of MRP. After allowing 40% of
abatement from MRP of Rs 190 the assessable value for purpose of
Central Excise is Rs 114 per piece i.e. total Rs 5,70,000 (114*5,000)
for calculation of CVD. Hence ,CVD @12.50% would be Rs 71,250.

Seq Duty Description Duty Amount Total Customs

% Duty
(A) Assessable Value Rs. 5,50,000
(B) Basic Customs Duty 10 55,000 55,000.00
(C) CVD on basis of MRP printed on package 12.5 71,250 71,250.00
(D) Sub-total for edu. cess on customs ‘B+C’ 1,26,250
(E) Edu. Cess of customs – 2% of ‘D’ 2 2,525 2,525.00
(F) SAH Edu Cess of Customs – 1% of ‘D’ 1 1,262.50 1,262.50
(G) Special CVD Nil as product is covered under MRP 0.00
(H) Total Customs Duty Rs. 1,30,037.50
(I) Total Duty rounded to 1,30,038.00
ANTI DUMPING DUTY ON DUMPED ARTICLES
Often, large manufacturer from abroad may export goods at
very low prices compared to prices normally prevalent in
export market. Such dumping may be with intention to cripple
domestic industry or to dispose of their excess stock. This is
called ‘Dumping’ and is an unfair trade practice. In order to
avoid such dumping and to protect domestic industry, Central
Government can impose, under section 9A of Customs tariff
Act, anti-dumping duty, if the goods are being sold at less than
its normal value. Levy of such anti-dumping duty is
permissible as per WTO agreement. Anti- dumping action can
be taken only when there is an Indian industry producing ‘like
articles’.
Presently, countries like China, Taiwan are said to be
involved in dumping . Even Indian Steel exporters were facing
charges of dumping goods in USA.
FOR EXAMPLE
If Normal value in exporting country is Rs 11
and export price is Rs 8, dumping margin is Rs 3. If
landed cost is Rs 9 and fair selling price of
domestic industry is Rs 10, then injury margin is Rs
1. Hence, anti-dumping of only Rs 1 can be
imposed.
Landed value should include basic customs
duty plus landing charges, as otherwise, resultant
anti-dumping duty will be more than injury margin.
DUMPING DUTY FOR WTO COUNTRIES
Restriction on imposing dumping duties in
case of imports from WTO countries or countries
given ‘Most Favoured Nation’ by an agreement.
Dumping duty can be levied on import from such
countries, only if Central Government declares
that import of such articles in India causes
material injury to industry established in India or
materially retards establishment of industry in
India.
SAFEGUARD DUTY
 Central Government is empowered to impose ‘Safeguard duty’ on
specified imported goods if Central Government is satisfied that
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. Such duty is permissible under WTO
agreement. The only condition under WTO is that it should not
discriminate between importers from different countries.
 Safeguard duty is a step in providing a need based protection to
domestic industry for a limited period, with ultimate objective of
restoring free and fair competition. Safeguard duty is targeted at
remedying or preventing serious injury to domestic industry with a
view to making it competitive and to enable it to stand on its own.
 Central Government can impose provisional Safeguard duty,
pending final determination up to 200 days.
EXPORT DUTY
 Since Government actively encourages export,
there is export duty on very few products.

 De- oiled rice bran oil cakes

 Luggage leather
 Leather
 Snake skins
 Raw fur lamb skins
 Ferrous waste and scrap
CALCULATION OF EXPORT DUTY
 Export duty will be calculated on FOB price. If
duty rate is 15% and FOB price is Rs 100, the
export duty will be Rs 15.