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.
The development of organised taxation on imports and exports to its present form, originated in 1786, when the Britishers formed the first Board of Revenue in Calcutta. The provincial import duties were replaced by uniform Tariff Act through Customs Duties Act, 1859 which was made applicable to all territories in
the country. The general rate of duty was 10%, which was subsequently revised to 7.5% in 1864. Several revisions in the Customs policy and tariff took place during subsequent years, though such revisions were mainly related to the textile products.
- Sea Customs Act was passed by Government in 1878.
- The Indian Tariff Act was passed in 1894.
- Air Customs having been covered under the India Aircrafts Act of 1911, the Land Customs Act was passed in 1924.
- The Indian Customs Act, 1934, governed the Customs Tariff.
- After Independence, the Sea Customs Act and other allied enactments were repealed by a consolidating and amending legislation entitled the Customs Act, 1962 (CA).
- Similarly the Act of 1934 was repealed by the Customs Tariff Act, 1975(CTA).
There are two Acts, which form part of Customs Law in India, namely, the Customs Act.1962 and Customs Tariff Act, 1975:
Objects of customs duty
The customs duty is levied, primarily, for the following purpose:
1. To raise revenue.
2. To regulate imports of foreign goods into India.
3. To conserve foreign exchange, regulate supply of goods into domestic market.
4. To provide protection to the domestic industry from foreign competition by restricting import of selected goods and services, import licensing, import quotas, and outright import ban.
Taxable Event: Goods become liable to import duty or export duty when there is ‘import into,
or export from India.
The determination of Indian customs waters is necessary in view of certain provisions of the Customs Act, which empower the Customs Officers:
(a) To arrest a person in India or within the Indian customs water ( section 1041)
(b) To stop and search any vessel in India or within the Indian customs water; (section 1061)
(c) To fire and/or confiscate the vessel, if it does not stop; (section 115) etc.
Type of customs duties:
While Customs Duties include both import and export duties, but as export duties contributed only nominal revenue, due to emphasis on raising competitiveness of exports, import duties alone constituted major part of the revenue from Customs Duties. The import duties are imposed under The Customs Act, 1962 and Customs Tariff Act, 1975. The structure of Customs Duties includes the following:
Basic Customs Duty: All goods imported into India are chargeable 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, 1975as amended from time to time under Finance Acts. The duty may be fixed on ad -valorem basis (a percentage of the value of the goods) or specific rate basis. The Central Government has the power to reduce or exempt any good from these duties.
Customs duty is payable as a percentage of ‘Value’ often called ‘Assessable Value’ or ‘Customs Value'. The Value may be either (a) ‘Value’ as defined in section 14 (1) of Customs Act or (b) Tariff value prescribed under section 14 (2) of Customs Act.
Additional (Countervailing) Duty of Customs: This countervailing duty is leviable as additional duty on goods imported into the country and the rate structure of this duty is equal to the excise duty on like articles produced in India. The base of this additional duty is assessable value of imports plus the duty levied earlier.
Anti Dumping Duty on dumped articles: Often, large manufacturer from abroad may export goods at very low prices compared to prices in his domestic market. Such dumping may be with intention to cripple domestic industry or to dispose of their excess stock. This is called ‘dumping'. In order to avoid such dumping, Central Government can impose, under section 9A of Customs Tariff Act, anti-dumping duty upto
margin of dumping on such articles, if the goods are being sold at less than its normal value. Levy of such anti-dumping duty is permissible as per WTO (world trade organisation) agreement. Anti dumping action can be taken only when there is an Indian industry producing 'like articles'.
Central Government is empowered to impose 'safeguard duty' on specifiedimported 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. 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
Goods: Customs 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, ships or aircrafts 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.
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
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.
Classification of goods
Classification of goods is governed by a set of General Interpretative Rules. As per these Rules, classification is determined according to the terms of the Headings or Sub-headings or Chapter Notes. These Rules also
- incomplete or unfinished article is to be classified as complete or finished article, if it has an essential character of the latter article. GIR 2(a)
- Similarly a complete or fiinished article is imported in an unassembled or disassembled condition, is to be
classified an complete or finished article and not as parts. GIR 2(a)
Valuation has to be on the basis of condition at the time of import –
(a) CVD should be levied on goods in the stage in which they are imported - stage subsequent to processing of goods is not relevant -
(b) It is well settled that the imported goods have to be assessed to duty in the condition in which they are imported.
Valuation in Customs Act has to be done as per valuation rules. These rules are based on ‘WTO Valuation Agreement’ (Earlier termed as GATT Valuation Code). These rules are only for valuation of imported goods and not applicable to export goods.
The Valuation Rules, 1988, based on WTO Valuation Agreement (earlier GATT Valuation Code); consist of rules providing six methods of valuation. The methods are:
(a) Transaction Value of Imported goods
(b) Transaction Value of Identical Goods
(c) Transaction Value of Similar Goods
(d) Deductive Value, which is based on identical or similar imported goods, sold in India.
This method should be applied if transaction value of identical goods or similar goods is not available; but these products are sold in India. The assumption made in this method is that identical or similar imported goods are sold in India and its selling price in India is available. The sale should be in the same condition as they are imported. Assessable Value is calculated by reducing post- importation costs and expenses from this selling price. This is called ‘deductive value’ because assessable value has to be arrived at by method of deduction (deduction means arrive at by inference i.e. by making suitable additions/subtractions from a known price to arrive at required ‘Customs Value').
(e) Computed value, which is based on cost of manufacture of goods plus profits
(f) Residual method based on reasonable means and data available.
The sixth and the last method is called “residual method”.It is also often termed as ‘fallback method’. This is similar to ‘best judgment method’ of the Central Excise. This method is used in cases where ‘Assessable Value’ cannot be determined by any of the preceding methods. While deciding Assessable Value under this method, reasonable means consistent with general provisions of these rules should be the basis and valuation should be on basis of data available in India. This method can be considered if valuation is notpossible by any other method
These are to be applied in sequential order, i.e. if method one cannot be applied, then method two comes into force and when method two also cannot be applied, method three should be used and so on. The only exception is that the ‘computed value’ method may be used before ‘deductive value’ method, if the importer requests and Assessing Officer permits.
Valuation for CVD when goods are under MRP provisions –
In respect of some consumer goods, excise duty is payable on basis of MRP (Maximum Retail Price) printed on the carton. If such goods are imported, CVD will be payable on basis of MRP printed on the packing. However, it has been clarified by DGFT vide policy circular No. 38(RE-2000) / 1997-2002 dated 22-1-2001 that labelling requirements for pre-packed commodities are applicable only when they are intended for retail sale. These are not applicable to raw materials, components, bulk imports etc. which will undergo further processing or assembly before they are sold to consume.
Valuation for Assessment of Export Goods
Customs value of export goods is to be determined under section 14 (1) of Customs Act. Customs Valuation Rules are applicable only for imported goods. Thus, Assessable Value of export goods shall be “deemed to be the price at which such or like goods are ordinarily sold, or offered for sale, for delivery at the time and place of exportation in the course of international trade, where the seller and the buyer have no interest in the business of each other or one of them has no interest in the other, and the price is the sole
consideration for the sale or offer for sale”.
Normally, ‘FOB Value’ of exports will be the basis. If the export sale contract is a CIF contract, post exportation elements i.e. insurance and outward freight will have to be deducted. However, now many instances have come to notice where exported goods have been over-valued to get export benefits.