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TYPES OF CUSTOMS DUTY IN INDIA

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TYPES OF CUSTOMS DUTY IN INDIA
Mr. M. GOVINDARAJAN By: Mr. M. GOVINDARAJAN
November 28, 2024
All Articles by: Mr. M. GOVINDARAJAN       View Profile
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‘Customs Duty’ refers to the tax imposed on the goods when they are transported across the international borders. It is levied by the Central Government.  Custom duty is a form of taxation imposed on goods crossing international borders that serves multifaceted purposes that extend beyond revenue generation. The objective behind levying customs duty is to safeguard each nation’s economy, jobs, environment, residents, etc., by regulating the movement of goods, especially prohibited and restrictive goods, in and out of any country.  Every good has a predefined rate of duty that is determined based on various factors, including where such good was acquired, where such goods were made, and what these goods is made of. 

Customs duty is leviable on goods and not on the person exporting/importing it.  The goods shall be imported to or exported from India.  The duty shall be at such rate as may be specified by the Government under the Customs Tariff Act, 1975.

The rate of customs duty is according to the classification of the goods.  The Customs Tariff Act, 1975 contains two schedules – First Schedule and Second Schedule.  The First Schedule covers the goods liable for import duty.  It has 21 sections that contains 98 chapter.  The Second Schedule covers the goods liable for export duty.

The various types of customs duty are as below-

  • Basic Customs duty;
  • Protective duty;
  • Safeguard duty;
  • Countervailing duty on subsidized articles;
  • Anti-dumping duty;
  • Integrated Goods and Service Tax;
  • GST Compensation Cess.

Basic Customs Duty

Basic Customs Duty (‘BCD’ for short) is the primary charges levied on imported goods. It is a percentage of the assessable value of the imported item and serves as a source of revenue for the government. The rates of BCD can vary based on the nature of the goods and the country of origin.

Basic Customs Duty is the most common type of customs duty in India. It is a duty that is levied as a percentage of the assessable value of the imported goods. The assessable value of the goods is calculated by adding the cost of the goods, insurance charges, and freight charges incurred in transporting the goods to India. The rate of BCD varies depending on the type of goods being imported and their country of origin. Such value is determined as per the rules laid down in the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007.  BCD is an important source of revenue for the Indian government, and it is used to protect domestic industries by making imported goods more expensive than locally produced goods. 

Protective duty

Protective duties are imposed to shield domestic industries from unfair competition from imported goods. These duties are designed to make imported products less attractive by increasing costs through additional tariffs, thereby safeguarding local producers.

Section 6 of the Customs Tariff Act, 1975 provides for the levy of protective duty.  The said section provides that if the Central Government is satisfied that circumstances exist which render it necessary to take immediate action to provide for the protection of the interests of any industry established in India, the Central Government may, by notification in the Official Gazette, impose on any goods imported into India in respect of which the said recommendation is made, a duty of customs of such amount, not exceeding the amount proposed in the said recommendation, as it thinks fit.

Section 107 of the Finance Act (2) of 2024 omitted Section 6 with effect from 16.08.2024.

Safeguard duty

Safeguard duties are temporary measures implemented to protect domestic industries facing a sudden import surge that threatens to cause serious injury. These duties provide a breathing space for domestic industries to adjust and become more competitive.

Safeguard measures are measures introduced by a country that qualify as “emergency” actions under the World Trade Organisation (‘WTO’ for short) Agreement on Safeguards. These actions are intended to prevent or mitigate serious injury to the member state’s domestic industry. They can include tariffs, duties, or other trade barriers that reduce the flow of a good into an importing country’s borders.

Countervailing duty

Countervailing Duty, also known as Additional Customs Duty (‘ACD’ for short), is imposed to counteract the impact of subsidies provided by exporting countries on their products. It is levied on the assessed value of imported goods and is intended to ensure a level playing field for domestic producers.  Additional Customs Duty is a type of customs duty that is levied on certain goods that are imported into India. It is charged at the same rate as the excise duty that is applicable to similar goods produced in India. The purpose of ACD is to prevent the evasion of excise duty on goods produced in India by imposing an equivalent duty on imported goods.   The WTO only permits countervailing duties to be charged after the importing nation has conducted an in-depth investigation into the subsidized exports.

Anti-dumping duty

Dumping is said to occur when the goods are exported by a country to another country at a price lower than its normal value. This is an unfair trade practice which can have a distortive effect on international trade. Anti-dumping is a measure to rectify the situation arising out of the dumping of goods and its trade distortive effect. Thus, the purpose of anti-dumping duty is to rectify the trade distortive effect of dumping and re-establish fair trade. The use of anti-dumping measure as an instrument of fair competition is permitted by the WTO. In fact, anti-dumping is an instrument for ensuring fair trade and is not a measure of protection per se for the domestic industry. It provides relief to the domestic industry against the injury caused by dumping.   Broadly, injury may be analysed in terms of the volume effect and price effect of the dumped imports. The parameters by which injury to the domestic industry is to be assessed in the anti-dumping proceedings are such economic indicators having a bearing upon the state of industry as the magnitude of dumping, and the decline in sales, selling price, profits, market share, production, utilisation of capacity etc.

Integrated Goods and Services Tax

With the introduction of the Goods and Services Tax in India, IGST is applicable to the import of goods and services. The IGST Act, 2017 provides that the integrated tax on goods imported into India shall be levied and collected in accordance with the provisions of the Customs Tariff Act, 1975 on the value as determined under the said Act at the point when duties of customs are levied on the said goods under the Customs Act, 1962.

GST Compensation Cess

Compensation cess is charged on luxury products like pan masala, tobacco and aerated drinks for the period of 5 years which is further extended.  Any article which is imported into India, in addition, be liable to the goods and service tax compensation cess at such rate as leviable under section 8 of the GST (Compensation to States) Cess Act, 2017 on a like article on its supply in India.

 

By: Mr. M. GOVINDARAJAN - November 28, 2024

 

 

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