Meaning and Purpose of Customs Duties

Taxation on import and export of goods

Customs duty is a type of indirect tax imposed on goods when they are transported across international borders. It is levied by the government on both imports (goods brought into the country) and exports (goods sent out of the country, in certain cases).

• Import Duty: Levied on goods brought into India from a foreign country.
• Export Duty: Levied on certain goods being exported out of India, especially essential or strategic resources.

Example: If a company imports machinery worth ₹10,00,000 from Germany, and the applicable customs duty is 10%, then the company has to pay ₹1,00,000 as customs duty.

Protection of domestic industry

Customs duties help protect domestic industries by making imported goods costlier compared to locally produced ones. This encourages the consumption of local products and promotes indigenous industries.

• Prevents dumping of cheap foreign goods into the Indian market.
• Supports local employment and production.
• Acts as a trade policy tool to regulate foreign trade.

Illustration: A textile manufacturer in India faces competition from cheap garments imported from another country. By imposing higher customs duties on such imports, the government ensures that Indian manufacturers are not adversely affected.

The Customs Act, 1962

Objectives and Scope

The Customs Act, 1962 is the principal legislation governing the levy and collection of customs duties in India. It provides the legal framework for the import and export of goods, the imposition of duties, and the prevention of illegal trade practices such as smuggling.

Key Objectives:

• To regulate imports and exports through designated ports and customs stations.
• To assess and collect customs duties on goods imported into or exported from India.
• To prevent smuggling and ensure national security.
• To facilitate legitimate international trade through efficient customs processes.
• To implement provisions related to warehousing, baggage, duty drawback, etc.

Scope of the Act:

• Applies to the whole of India including territorial waters.
• Covers all types of goods — commercial, personal, baggage, and postal articles.
• Empowers customs officers to search, seize, arrest and conduct inquiries.

Example: Under the Customs Act, if an importer attempts to undervalue goods to evade duty, customs authorities have the power to reassess the value, seize the goods, and impose penalties.

Types of Customs Duties

Basic Customs Duty (BCD)

Basic Customs Duty is imposed under Section 12 of the Customs Act, 1962 and levied at rates prescribed under the Customs Tariff Act, 1975. It is charged on the assessable value (also known as CIF value — Cost, Insurance, Freight).

Example: If a mobile phone worth ₹10,000 is imported and BCD is 10%, the importer will pay ₹1,000 as basic customs duty.

Integrated Goods and Services Tax (IGST) on Imports

IGST is levied on imports in lieu of GST. It is charged in addition to BCD and is calculated on the aggregate of assessable value plus BCD and other duties.

Formula: IGST = (CIF + BCD + other duties) × applicable IGST rate

Compensatory Cess on Imports

This cess is applicable on certain notified goods such as tobacco, aerated water, motor vehicles, etc. It is levied under the GST (Compensation to States) Act, 2017 to compensate states for loss of revenue after GST implementation.

Protective Duty

Protective duty is imposed to protect the interests of domestic industries. It is recommended by the Tariff Commission and imposed by the Central Government under Section 6 of the Customs Tariff Act.

Example: Protective duty may be imposed on cheap steel imported from a foreign country to protect Indian steel manufacturers.

Anti-Dumping Duty

This duty is imposed when goods are imported at a price less than their normal value (i.e., dumping). It is intended to protect local industries from unfair foreign pricing.

Example: If a product is sold for ₹100 in the home country but exported to India for ₹60, anti-dumping duty may be levied to bridge this gap.

Safeguard Duty

Safeguard duty is a temporary measure imposed to protect domestic industry against sudden surge in imports, which causes or threatens to cause serious injury.

It is permitted under WTO agreements and regulated by the Directorate General of Trade Remedies (DGTR).

Valuation of Goods for Customs Duty

The value of imported goods for customs purposes is generally the **transaction value**, i.e., the price actually paid or payable for the goods when sold for export to India. This is governed by the **Customs Valuation (Determination of Value of Imported Goods) Rules, 2007**.

Key Components Included in Customs Value:

• Cost of goods
• Freight and insurance
• Loading/unloading charges
• Design and development charges incurred abroad
• Royalty/license fees (if applicable)

Example: If the cost of goods is $1,000, freight is $100, and insurance is $50, the assessable value = $1,150. Customs duty will be calculated on the INR equivalent of this value.

Classification of Goods (HS Code)**

Classification of goods is based on the **Harmonized System of Nomenclature (HSN)** adopted by the World Customs Organization (WCO). In India, it is governed by the **Customs Tariff Act, 1975**.

Purpose of Classification:

• To determine the correct rate of duty
• To ensure uniform application of customs laws
• To facilitate international trade statistics

Each product is assigned a unique code (HS code) based on its description, use, material composition, etc.

Example: Mobile phones may have the HS code 8517.12.00, while laptops may fall under 8471.30.10. Misclassification may lead to penalty and reassessment.

Procedure for Import and Export

Filing of Bills of Entry and Shipping Bills

Bill of Entry is a legal document filed by importers or customs brokers for the clearance of imported goods. It must be submitted to the customs department electronically through the Indian Customs Electronic Gateway (ICEGATE) before the arrival of goods.

Shipping Bill is the primary document required for export of goods. Exporters must file it with the customs authorities, typically through the electronic platform.

• Both documents include details such as description of goods, quantity, value, duty applicable, and classification codes.

Assessment and Clearance of Goods

After filing, customs officials assess the documents and determine the value, duty liability, and classification of goods. This is called **Customs Assessment**.

• Post assessment, goods are either cleared for home consumption (if duty is paid) or moved to a bonded warehouse.
• Clearance is allowed only after proper examination and duty payment.

Warehousing of Goods

Under Sections 57 to 73 of the Customs Act, goods can be kept in government or private warehouses without immediate payment of duty. This is helpful for importers who wish to defer duty until goods are sold or used.

• Duties are paid at the time of removal from the warehouse.
• Warehousing period is generally one year but can be extended.

Offences and Penalties

Smuggling

Smuggling involves the illegal import or export of goods with the intent to evade customs duties or violate prohibitions. It includes acts such as:

• Importing restricted/prohibited goods without authorization
• Non-declaration or concealment of goods
• Transporting goods through unauthorized routes

Penalty: Goods are liable for confiscation, and individuals may face fines and imprisonment under Sections 111 and 135 of the Customs Act.

Mis-declaration

Mis-declaration means giving incorrect details regarding description, value, quantity, or classification of goods to evade duty or to import/export restricted goods.

Example: Declaring high-value electronics as spare parts to pay lower duty is a case of mis-declaration.

Penalties and Confiscation**

Under Section 112 and 113 of the Customs Act, penalties may be imposed for improper import/export, and goods may be confiscated. The severity of the penalty depends on the nature of the offence.

• Personal Penalty: Up to ₹1 lakh for minor offences, or the amount of duty evaded for serious offences.
• Confiscation: Both goods and conveyance (vehicle, ship, etc.) used for smuggling may be confiscated.

Offenders may also be prosecuted, especially in cases involving deliberate fraud or large amounts of revenue loss.

Appeals in Customs Matters

When any person is aggrieved by an order or decision passed by a customs officer, they can file an appeal. The Customs Act provides a multi-stage appeal mechanism:

1. First Appeal: Commissioner (Appeals) under Section 128 of the Act
2. Second Appeal: Appellate Tribunal (CESTAT) under Section 129A
3. Further Appeal: High Court and then to the Supreme Court on matters involving substantial questions of law

Important Note: Appeals must be filed within the prescribed time limit (usually 60 to 90 days) and should be supported by a copy of the order appealed against, along with relevant documents.