Customs Duty: Nature and Objectives

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. Customs duties now form a significant source of revenue for all countries, more so in the case of developing countries like India. In India, customs duties are levied on the goods and at the rate specified in the Schedules to the Customs Tariff Act, 1975.

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.

Customs duties in India are administrated by Central Board of Excise and Customs under Ministry of Finance.

Nature of Customs Duty

Entry 83 to List I of Seventh Schedule to Constitution reads ‘ Duties of customs including export duties’ Thus, import and export duty is a union subject and power to levy is derived from Constitution. Section 12 of Customs Act, 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.

‘’Customs Duty’’ means the customs duty levied under Section 3 of the Customs Act, 1962. Countervailing Duty means the additional duty of Customs levied under section 3(1) of the Customs Tariff Act, 1975. ‘’Special CVD’’ means the Additional duty of Customs levied under section 3(5) of the Customs Tariff Act, 1975.

Objectives of Customs Duty

  1. To raise revenue,
  2. To regulate imports of foreign goods into India,
  3. To conserve foreign exchange, regulate the supply of goods into the domestic market,
  4. To provide protection to the domestic industry from foreign competition by restricting the import of selected goods and services, import licensing, import quotas, an outright import ban.

Classification / Types of Customs Duties:

While Customs Duties include both import and export duties, but as export duties contributed only nominal revenue, due to an emphasis on raising the competitiveness of exports, import duties alone constituted a major part of the Customs Act, 1962 and Customs Tariff Act, 1975.

Classification/ Types of Customs Duties

  • Basic Customs Duty: It is levied under section 12 of Customs Act, 1962, and specified under section 2 of the Customs Tariff Act, 1975. Normally, it is levied as a percentage of value as determined under section 14(1). There are different rates for different goods. But the general basic rate is 10%. This basic duty may be exempted by a notification under Section 25 the basic duty may have two rates under the First Schedule to Customs Tariff Act, 1975; viz. Standard rates and preferential rates.
  • Auxillary Duty of Customs: This duty is levied under the Finance Act and is leviable all goods imported into the country at the rate of 50 percent of their value. However, this statutory rate has been reduced in the case of certain types of goods into different slab rates based on the basic duty chargeable on them.
  • Additional 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 the value of imports plus the duty levied earlier. If the rate of this duty is on ad valorem basis, the value for this purpose will be the total of the value of the imported article and the customs duty on it.
  • Export Duties: Under Customs Act, 1962, goods exported from India are chargeable to export duty. The 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. However, the Government has emergency powers to change the duty rates and levy fresh export duty depending on the circumstances.
  • Cesses: Cesses are leviable on some specified articles of exports like coffee, coir, lac, mica, tobacco marine products cashew kernels, black pepper, cardamom, iron ore, oil cakes and meals, animal feed and turmeric.
  • Education Cess on Customs Duty: An education cess has been imposed on imported goods w.e.f.9-7-2004. The cess will be 2% of aggregate duty of customs excluding safeguard duty, countervailing duty, antidumping duty.
  • Protective Duties: Tariff Commission has been established under Tariff Commission Act, 1951. If the Tariff Commission recommends and central Government is satisfied that immediate action is necessary to protect interests of Indian industry, protective customs duty at the rate recommended may be imposed under Section 6 of Customs Tariff Act. The protective duty will be valid till the date prescribed in the notifications.
  • Countervailing Duty on Subsidized Goods: If a country pays any subsidy to its exporters for exporting goods to India, Central Government can impose countervailing duty up to the amount of such subsidy under section 9 of Customs Tariff Act.
  • Anti-Dumpi9ng Duty on Dumped Articles: Often, a large manufacturer from abroad may export goods at very low prices compared to prices in his domestic market. Such dumping may be with the intention to cripple domestic industry or to dispose-off 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 up to the 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 agreement
  • 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.
  • National Calamity Contingent Duty: A National Calamity Contingent Duty of customs has been imposed vide selection 129 of Finance Act, 2001. This duty is imposed on pan masala, chewing tobacco and cigarettes. It 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 were imposed on domestic crude oil, vide Section  134 of Finance Act, 2003.

Levy and Collection of Custom Duty

Customs Duties are levied on goods that are exported or imported from India at a rate that is specified under the Customs Act of 1975. The Central Government of India in order to maintain proper surveillance on the different import and export activities happening within the country reserves the power to notify the various ports and airports.

The ports and airports have to provide information regarding all loading and unloading goods, the routies by which the imported and exported goods will pass and the different locations for clearance of goods etc. The Central Board of Excises Customs is the body that publishes books which provide information on the numerous tariffs rules.

Mode of Levy of Customs Duty

  • Specific Duties: Specific custom duty is a duty imposed on each and every unit of a commodity imported or exported. For example, Rs 5 on each meter of cloth imported or Rs 500 on each T.V. set imported in this case, the value of a commodity is not taken into consideration.
  • Ad Valorem Duties: Ad Volerem custom duty is a duty imposed on the total value of a commodity imported or exported. For example, 5% of F.O.B. valve of cloth imported or 10% of C.L.F. value of T.V. sets imported. In case of ad valorem customs duty, the physical units of commodity are not taken into consideration.
  • Compound Duties: Compound Custom duty is the combination of specific and ad valorem customs duties. In this case, the quantities, as well as the value of the commodity, are taken into consideration while computing tariff. Ex: 5% of F.O.B value plus, 50 paise per meter of cloth imported.