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Types of Customs Duty in India

Custom duty refers to the tax imposed on goods when it crosses international borders. It is a tax levied by the government on the import or export of goods. Companies involved in the import or export of products need to follow the Custom duty regulations. India’s levy custom duties both on imported and exported products. Import custom duty is the custom duties levied on imported products, while export custom duty is a customs duty levied on export products. Export custom duties are usually very low to improve competitiveness in the export market. Import duties are a major revenue earner for the government.

The Indian government collects custom duty because:-

Restricting imports to preserve foreign exchange.
It ensures that commodities entering and leaving the country are not over or under invoiced.
Protect the Indian industry from undue completion.
Prohibiting the imports and export of goods that are a threat to country security or against the laws of the country.
Regulate exports.
Prevent smuggling.
To help regulate laws relating to the Foreign Trade Act, Foreign Exchange Regulation Act, Conservation of Foreign Exchange, and Prevention of Smuggling.
The information collected at custom ports is used by the government to frame policy decisions and is also used by international traders to formulate their business policy.

Indian Custom duty is charged on almost all goods imported into the county. We can categorize the types of customs duty levied by the government of India as:-

Basic custom duty (BCT) – All goods imported into India have to pay customs duty as per the provisions in the Customs Act, 1962. The basic custom duties are part of the Customs Tariff Act, 1975 and are changed under Finance acts. The duty is based on a percentage of the value of the product or a special rate. The central government can reduce, increase, or exempt goods from BCT.
Countervailing Duty (CVD) is levied as additional duty on goods imported into the country. The central government imposes the CVD when a country subsidizes the exporters exporting goods to India. The amount levied is equivalent to the subsidy they enjoy.
Additional Custom duty or special CVD is imposed on products to equalize imported commodities with the local duties imposed on domestic products. This tax ensures that the imported commodity on equalized to the product in India. This encourages fair trade and competition practices.
Safeguard Duty is charged to ensure that the local industry is not harmed. It is calculated based on the loss suffered by the local industry.
Anti-Dumping Duty is charged to ensure large corporations do not flood the domestic market with low priced exported products. Such dumping can kill local industries. To prevent dumping, the Central Government can impose an anti-dumping duty. These duties are permitted under the WTO but can only be levied when “like articles” are being manufactured in India.
National calamity contingent duty is imposed under section 129 in the financial act. The tax is imposed on goods that are harmful to our health such as tobacco, pan masala, etc.
Educational Cess on custom duty is applied at a prescribed rate on the aggregate of custom duty excluding safeguard duty, countervailing duty, and Antidumping Duty.
Protective duty was established as per the provision of the Tariff Act 1951. The commission can make recommendations and the Government of India feels that there is a need to protect the interest of the Indian industry. Protective duty is as per the rates recommended under section 6 of the Customs Tariff Act.
Export duties are charged under the Customs Act 1962 that goods exported from the country are charged an export duty. The duty charged on the product is given in the Customs Act of 1975 is changed with a Financial Act. The Government of India has special powers to change the rates on export products and charge special duties depending on circumstances.
Cesses are levied on specific products of export such as coffee, coir, lac, mica, marine products, spices, iron ore, oil cake, animal feeds, and turmeric. The cesses are collected as a part of Custom Duties and are passed on to the agencies that administer the said commodity.

The Goods Service Tax or GST was implemented in 2017. GST is an indirect tax and is a tariff charged on the manufacture, sale, and consumption of goods. This tax has replaced many financial taxes that were previously charged in the country such as Central Excise Tax, VAT, Service Tax, Sales Tax, and entry tax. The Custom duty after GST taxes the Integrated Goods and Service Tax (IGST) substituted Countervailing Duty (CVD) and Addition Custom Duty. The basic customs duty remains. The new system includes:-

Cess (Educational Cess+ higher education)
Integrated Goods and Service Tax (IGST)
Landing Charge (LC)

Customs duty in India is calculated either on a specific or on a proportional basis. The customs duty of the product depends on the valuation, dimension, weight, etc.

The value of the goods is based on the Customs Valuation Rules 2007. If quantifiable data is unavailable, then the valuation is done on the following basis:-

The comparative Value Method compares the product with a transactional value of items of a similar nature (Rule 4 & Rule 5).
The deductive Rule Method uses the sale price in the importing country (Rule 7).
The comparative Value Method uses cost related to the fabrication, raw material, and the profit margin in the production country (Rule 8).
The Fallback Method is based on previous methods with a higher degree of flexibility (Rule 9).

Users can pay custom Duty online through ICEGATE or Indian Custom Electronic Commerce/Electronic Data Exchange (ED or EDI) Gate. Through ICEGATE, traders can fill the bill of entry and shipping bills through Email, Web upload or FTP. Airline and shipping agents can file their manifest. The payment of custom duty in India has become very simple. E-Challan and payment can be made simply through the website. Custom Calculators are available online help you calculate the correct customs duty.

In the last few years India has taken major steps in taxation reforms though digitalization. The Central Board of Indirect taxes and Customs has launched e-Sanchits. The website allows users to file their returns online. Registered ICEGATE users can file returns using e-Sanchit link. Hardcopies uploaded during filing need not be produced during filing. The Government of India hopes to improve the speed of clearing documents.

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