Understanding Customs Duty In India

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  • 23 Feb 2023

Customs duty is a tax levied by the central government on imports into the country; and sometimes even on a few exports. This tax is a type of indirect tax. Duties that are levied on imports are called ‘import duty’ and the ones that are charged on exports are ‘export duty’.

Customs duty aims to achieve two objectives; to boost tax revenues and to shield domestic industries from excessive competition from international goods coming into the country.

Customs duty is charged depending on the weight of the good, value of the good or the size. There are three main categories of customs duty:

  • Ad Valorem Duty: When the customs duty is charged based on the value/ price of the imported good.

  • Specific Duty: When the weight or quantity of the item is the basis of customs duty.

  • Compound Duties: If the imported article’s value is considered along with one or more of the other factors.

The Customs Act, 1962 defines customs duty in India and gives the government the authority to:

  • Levy duty on imports and exports
  • Prohibit import and export of goods
  • Draft procedures for importing or exporting
  • Collect penalties for offences

All matters associated with customs duty in India are overseen by the Central Board of Excise & Customs (CBEC), which in turn is a division of the Department of Revenue of the Ministry of Finance. Therefore, all policies related to collection or levying of customs duties on different imported goods, punishment/penalties for customs duty evasion, smuggling prevention and administrative decisions are managed by the CBEC.

For efficient functioning, the CBEC has different divisions that take responsibility of the field work, which includes Commissionerate of Customs, Customs (preventive and Central Excise Zones, Central Revenues Control Laboratory and Directorates etc). CBEC also manages appropriate tax administration for foreign and inland travel.

The concept of customs duty exists in almost all countries across the world. Import duties are levied on most international items that come in except lifesaving drugs or equipment, fertilizers, food grains etc. Export duties are charged on only a few items (these are mentioned in the Second Schedule of the Customs Act).

Import duties are charged under several categories. These include:

  • Basic Customs Duty: This is related to imported items that come under the domain of Section 12 of the Customs Act, 1962. the Basic custom duties are charged according to terms and rates suggested in Section 2 of the First Schedule of Customs Tariff Act, 1975. The rates depend on the country of import; it may be standard or preferential.

  • Additional Customs Duty (Countervailing Duty - CVD): This duty is imposed on imported items under Section 3 of the Customs Tariff Act, 1975. It is equivalent to the Central Excise Duty which is charged on similar goods produced within India. The rate of this duty is computed on the aggregate value of goods, which also comprise landing and BDC charges.

  • Protective Duty: As the name suggests, the protective duty may be levied to protect the domestic industry against imports. The rate of this duty is recommended by the Tariff Commissioner.

  • Education Cess: This duty is imposed at 2% and another 1% of aggregated custom duties goes towards Higher Education Cess.

  • Anti-Dumping Duty: This duty is applied if the imported good is at a price that is lower than the fair market price, and is restricted to the difference between export and normal price (dumping margin).

  • Safeguard Duty: This duty is applied whenever the government believes a sudden increase in exports can possibly damage the domestic industry.

Customs duties are calculated according to the value of the imported goods; that is on specific or ad valorem basis. And the value of goods is figured by Rule 3(i) of Customs Valuation (Determination of Value of Imported Goods) Rules, 2007. This rule fixes the value of imported goods at the transaction value that has been adjusted according to the provisions under Rule 10.

However, if there are no quantifiable or objective data relating to the valuation factors, or there are concerns about the precision or truth of the declared value as per Rule 12 of Valuation Rules 2007, then the valuation of the imported items has to be done according to the following hierarchy –

  • Transaction Value of Identical Goods: This method compares the transaction value of identical items (Rule 4)

  • Transaction Value of Similar Goods: This associates the transaction value of similar items (Rule 5)

  • Deductive Value Method: This process uses the sale price of the particular item in the importing country (Rule 7)

  • Computed Value Method: According to this method, the costs of fabrication, materials and profit in the production country (Rule 8) is used

  • Fallback Method: This process is used when none of the earlier methods are applicable. It is based on previously determined values in the country of import. (Rule 9)

You can pay online customs duty at the Indian Customs Electronic Commerce/ Electronic Data Interchange (EC/EDI) Gateway or the ICEGATE . The Customs Department’s clients, including trade and cargo carriers, who are collectively known as Trading Partner, can log on to this portal to avail of customs duty e-filing services. ICEGATE also provides services like electronic filing of Bill of Entry, Shipping Bills, and access to related messages between customs and trading partners through e-mail, FTP and web-upload.

This gateway also gives airline and shipping agents the facility to file manifests and provides cargo logistics and custodians with an easy way to interact with customs EDI for logistics & cargo related information.

Besides e-filing, the portal permits online payment, tracking of documents, registration for IPR, IE code status, verification of DEPB/EPCG/DES licenses, PAN-based CHA data etc. A 24x7 helpdesk is available for all trading partners for information and resolution of queries.

The ICEGATE portal also gives access to customs duty calculator and import duty calendar. To use this,

  • Put in the HS Code (CTH Code) of the item that is to be imported

  • Enter description within 30 characters

  • Select the country of origin (for anti-dumping / preferential duty)

  • Click on search to view a list of goods that match the search criteria

  • Select any one and get to access to a chart with all information about customs duty on the selected item

  • The chart is dynamic and you can put in values to know the exact rate of customs duty that needs to be paid

Online customs duty payment is easy. Follow the steps mentioned below:

  • Login the ICEGATE e-payment portal

  • Put in the Import/ export code or login credential supplied by ICEGATE

  • Click on ‘e-payment’

  • All unpaid challans in your name can be seen

  • Select the challan you wish to pay

  • Select a bank or the payment method

  • The portal will take you to your bank’s payment gateway

  • You can make the payment

  • Once you complete payment, you will be brought back to the ICEGATE portal

  • Click ‘Print’ to save payment copy

Usually duty rates may vary from 0% to 150%. There are also a number of items that are exempted from customs duty. The average duty is about 11.90%. Customs duty can be specific (at certain rupees per unit) or ad valorem (at a percentage of the value).

There are other fees connected to custom duties:

  • Landing Charge (LC) – 1% CIF

  • Countervailing Duty (CVD) – (0%, 6% or 12% (CIFD + LC))

  • CEX (Education and Higher Education Cess) – 3% CVD

  • CESS (Education + Higher Education) – 3% (Duty + CEX (Education and Higher Education Cess) + CVD)

  • Additional CVD – 4% (CIFD + LC + CVD + CESS + CEX)

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