What is Custom Duty?

Custom duty is a variant of Indirect Tax and is applicable on all goods imported and a few goods exported out of the country. Duties levied on import of goods are termed as import duty while duties levied on exported goods are termed as export duty. Countries around the world levy custom duties on import/export of goods as a means to raise revenue and/or shield domestic institutions from predatory or efficient competitors from other countries.

Customs duty is levied as per the value of goods or dimensions, weight and other such criteria according to the goods in question. If duties are based on the value of goods, then they are called as ad valorem duties, while quantity/weight based duties are called specific duties. Compound duties on goods are a combination of value as well as various other factors.

Custom Duty in India:

Custom duty in India is defined under the Customs Act, 1962 and enables the government to levy duty on exports and imports, prohibit export and import of goods, procedures for importing/exporting and offences, penalties etc. All matters related to custom duty fall under the Central Board of Excise & Customs (CBEC). The CBEC, in turn, is a division of the Department of Revenue of the Ministry of Finance. CBEC formulates policies that concern collection or levying of custom duties, custom duty evasion, smuggling prevention and administrative decisions related to customs formations.

CBEC has various divisions that take care of the field work including Commissionerate of Customs, Customs, Customs (preventive and Central Excise Zones, Central Revenues Control Laboratory and Directorates etc. CBEC also oversees proper tax administration for foreign and inland travel.

Types of Custom Duty:

Custom duties are levied almost universally on all goods imported into the country. Export duties are levied on a few goods as specified under the Second Schedule. Import duties are not levied on a few items including lifesaving drugs/equipment, fertilizers, food grains etc. Import duties are further divided into basic duty, additional customs duty, true countervailing duty, protective duty, education cess and anti-dumping duty or safeguard duty.

  • Basic Custom Duty:Basic custom duty is applicable on imported items that fall under the ambit of Section 12 of the Customs Act, 1962. These duties are levied at the rates prescribed in First Schedule to Customs Tariff Act, 1975, under the terms specified in Section 2 of the act. The levied rates may be standard or preferential as per the country of import.
  • Additional Customs Duty (Countervailing Duty (CVD)):This duty is levied on imported items under Section 3 of Customs Tariff Act, 1975. It is equal to the Central Excise Duty that is levied on similar goods produced within India. This duty is calculated on the aggregate value of goods including BDC and landing charges.
  • Protective Duty:Protective duty may be imposed to shield the domestic industry against imports at a rate recommended by the Tariff Commissioner.
  • Education Cess:This duty is levied at 2% and higher education cess at another 1% of aggregate of customs duties.
  • Anti-dumping Duty:Anti-dumping duty may be imposed if the good being imported is at below fair market price, and is limited to the difference between export and normal price (dumping margin).
  • Safeguard Duty:Safeguard duty is levied if the government feels that a sudden increase in exports can potentially damage the domestic industry.

Custom Duty Calculations:

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

In case there are no quantifiable or objective data regarding the valuation factors, valuation conditions aren’t satisfied, or there are doubts regarding the accuracy or truth of declared value as per Rule 12 of Valuation Rules 2007, valuation of items has to be done through other means as per the following hierarchy,

  • Comparative Value Method which compares the transaction value of similar items (Rule 4)
  • Comparative Value Method which compares the transaction value of similar items (Rule 5)
  • Deductive Value Method which uses the sale price of item in importing country (Rule 7)
  • Computed Value Method which uses the costs related to fabrication, materials and profit in production country (Rule 8)
  • Fallback Method which is based on the earlier methods with higher flexibility (Rule 9)

Online Custom Duty:

Online custom duty is available from ICEGATE or Indian Customs Electronic Commerce/Electronic Data Interchange (EC/EDI) Gateway. This portal allows E-Filing services to clients of Customs Department including trade and cargo carriers, collectively known as Trading Partner. ICEGATE offers services such as electronic filing of Bill of Entry, Shipping Bills, and other related messages between customs and the trading partner through e-mail, FTP and web-upload.

Shipping and airline agents can file manifests through this portal, while cargo logistics and custodians are able to interact with customs EDI for logistics and cargo related information. Apart from e-filing, this portal allows e-payment, document tracking, online registration for IPR, IE code status, verification of DEPB/EPCG/DES licenses, PAN based CHA data etc. There is a 24×7 helpdesk for all the trading partners to solve issues and collect information.

Custom Duty Payment:

Custom duty can be paid online by following the steps given below:

  • Access the ICEGATE e-payment portal
  • Enter Import/Export code or login credential supplied by ICEGATE
  • Click on e-payment
  • You can now see all the unpaid challans in your name
  • Select the challan you want to pay and select a bank or payment method
  • You will be redirected to the particular bank’s payment gateway
  • Make the payment
  • You will be redirected to ICEGATE portal, click print to save payment copy

Custom Duty Calculator:

You can access the custom duty calculator in the ICEGATE portal. Once you access the calculator, you will be required to enter the HS Code (CTH Code) of the good you are planning to import. Enter description within 30 characters and select the country of origin (for antidumping or preferential duty). Click on Search and you will see a list of goods that match your search criteria. Select one and you will be able to access a chart with all information related to the custom duty on selected item. This is a dynamic chart and you can enter values to check the exact custom duty you are liable to pay.

Custom Duty Rates:

Custom duty rates can be specific (rupees per unit) or ad valorem (percentage of value). In general, duty varies anywhere from 0% to 150%, with the average rate lying around 11.90%. There is also a list of goods that are exempted from custom duty.

Other fees related to custom duties include:

  • 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)