Types of Custom Duties

Basic Customs Duty

Basic custom duty is the duty imposed on the value of the goods at a specific rate. The duty is fixed at a specified rate of ad-valorem basis. This duty has been imposed from 1962 and was amended from time to time and today is regulated by the Customs Tariff Act of 1975. The Central Government has the right to exempt any goods from the tax.

Countervailing Duty (CVD)

This duty is imposed by the Central Government when a country is paying the subsidy to the exporters who are exporting goods to India. This amount of duty is equivalent to the subsidy paid by them. This duty is applicable under Sec 9 of the Customs Tariff Act.

Additional Customs Duty or Special CVD

To equalize imports with locals’ taxes like service tax, VAT and other domestic taxes which are imposed from time to time, a special countervailing duty is imposed on imported goods. Hence, is imposed to bring imports on an equal track with the goods produced or manufactured in India. This is to promote fair trade & competition practices in our country.

Safeguard Duty

To make sure that no harm is caused to the domestic industries of India, a safeguard duty is imposed to safeguard the interest of our local domestic industries. It is calculated on the basis of loss suffered by our local industries.

Anti-Dumping Duty

Often, large manufacturer from abroad may export goods at very low prices compared to prices in the domestic market. Such dumping may be with intention to cripple domestic industry or to dispose of their excess stock. This is called ‘dumping’. To avoid such dumping, Central Government can impose, under section 9A of Customs Tariff Act, anti-dumping duty up to 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. Anti-dumping action can be taken only when there is an Indian industry producing ‘like articles.

National Calamity Contingent Duty

This duty is imposed by Sec 129 of the Finance Act. The duty is levied on goods like tobacco, pan masala or any items that are harmful for health. The rate of the tax varies from 10% to 45% and different rates are applied for different reasons.

Education Cess on Customs Duty

At the prescribed rate is levied as a percentage of aggregate duties of customs. If goods are fully exempted from duty or are chargeable to nil duty or are cleared without payment of duty under prescribed procedure such as clearance under bond, no cess would be levied.

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 notification.

Calculating Custom Duty

Custom duty can be calculated on either a specific or an ad valorem basis. The value of goods, for the latter, is determined by Rule 3(i) of the Customs Valuation Rules, 2007. If there is no quantifiable data w.r.t. valuation factors, then the valuation of the items is done using other means based on a system of hierarchy, as follows:

• Comparative Value Method: This method compares transaction values of items similar in nature (Rule 4)
• Comparative Value Method: This method compares transaction values of items similar in nature (Rule 5)
• Deductive Value Method: This method uses the sale price of items in the importing country (Rule 7)
• Comparative Value Method: This method uses costs related the fabrication, materials as well as profit in the production country (Rule 8)
• Fallback Method: This method is based on the earlier methods that offer higher flexibility (Rule 9)

Custom Duty Rates

These rates can either be specific or ad valorem. The duty, in general, varies from the range 0-150%. The average rate, however, is 11.90%. There is a list to refer to for goods that are exempted from this duty.

There are other types of fee that are applicable to custom duty. Thy include:

• LC: Landing charge – 1% CIF
• CVD: Countervailing Duty – 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)