CUSTOMS DUTY

TAXABLE EVENT : Goods will be liable to be taxed if the same enter India
from any of the any of the routes namely Road / Rail / Air / Sea

Definition: 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.

 Criteria: 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.

Custom duty in India is defined under the Customs Act, 1962, it enables
the government to levy duty on exports and imports, prohibit export and
import of goods, procedures for importing/exporting and offences,
penalties etc. + Customs Tariff Act of 1975.

All matters related to custom duty fall under the Central Board of Excise &
Customs (CBEC). -renamed as Central Board of Indirect Taxes and
Customs by the 2018 Budget. 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.

Central Board of Excise & Customs

Commissionerate of Customs (preventive and Central Revenues Control

Customs Central Excise Zones Laboratory and
Directorates

Custom duties are levied almost universally on all goods imported into the
country. Import duties are not levied on a few items including lifesaving
drugs/equipment, fertilizers, food grains etc. Export duties are levied on a
few goods as specified under the Second Schedule.
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.

Levy : An integrated goods and services value added tax (IGST) is applied
on all imports into India. IGST is levied on the value of the imported goods
plus any customs duty chargeable on the goods.

The structure of India’s customs tariff and fees system is complex and
characterized by a lack of transparency in determining net effective rates
of customs tariffs, excise duties, and other duties and charges.

The tariff structure of general application is composed of a basic customs

duty, an "additional duty," a "special additional duty," and an education
assessment ("cess").

Customs tariff = basic custom duty + additional duty

+education cess (3%).
Additional duty is applied to all imports with an exception to wine, spirits
and alcoholic beverages. It is equal to the excise duty applied to similar
domestic products.

India’s tariff regime is also characterized by pronounced disparities

between bound rates (i.e., the rates that under WTO rules generally
cannot be exceeded) and the most favoured nation (MFN) applied rates
charged at the border.

India has not systematically reduced the basic customs duty in the past
six years. India also maintains very high tariff peaks on several goods,
including flowers (60 percent), natural rubber (70 percent), automobiles
and motorcycles (60 percent to 75 percent), raisins and coffee (100
percent), alcoholic beverages (150 percent), and textiles (some ad
valorem equivalent rates exceed 300 percent).

Rather than liberalizing its customs duties, India instead operates several
complicated duty drawbacks, duty exemption, and duty remission
schemes for imports. Eligibility to participate in these schemes is usually
subject to several conditions. India maintains very high basic customs
duties, in some cases exceeding 20 percent.

AFTER GST:

 In July 2017, India implemented the Good and Services Tax (GST)
system to unify Indian states into a single market and improve the ease
of doing business.
 The GST is designed to simplify the movement of goods within India,
but it also applies to imports. Before the GST implementation, imports
could be subject to an "additional duty," a "special additional duty," an
education cess (tax), state level value added or sales taxes, the Central
Sales Tax, and/or various other local taxes and charges.
 Only tariff: The new GST system subsumed a number of these
charges, including the "additional duty" and the "special additional
duty," that were previously levied on imports into the single GST. The
tariff (or "basic customs duty") continues to be assessed on imports
separately and has not been incorporated into the GST.
 Customs = BCD + social welfare surcharge(instead of
education cess @10% of the value of goods
 IGST = GST is applicable on all imports into India in the form of levy of
IGST. IGST is levied on the value of imported goods + any customs duty
chargeable on the goods.
 Value upon which GST is calculated = Value of imported Goods +
Basic Customs Duty + Social Welfare Surcharge.
 IGST Payable = Value x IGST Rate

 GST compensation cess is a levy which will be applicable in addition

to the regular GST taxes. GST Cess is levied on supply of certain
notified goods – mostly belonging to the luxury and demerit category.
 Anti-dumping duty
 Safeguard duty
 Customs handling fee- The Indian government assesses a 1%
customs handling fee on all imports in addition to the applied customs
duty.

THE DUTY EXEMPTION PLAN enables duty free import of inputs

required for export production. An advance license is issued under the
duty exemption plan. The government has wide discretionary power to
declare full or partial duty exemptions “in the public interest” and to
specify conditions such as end-use provisions.

BUDGET 2018 – PROPOSED CHANGES IN CUSTOMS ACT 1962

 The Finance Minister has proposed changes in customs duty to promote

creation of more jobs in the country and also to incentivise domestic
value addition and Make in India in sectors such as food processing,
electronics, auto components, footwear and furniture.
 It is also proposed to abolish the Education Cess and Secondary and
Higher Education Cess on imported goods. In its place it is proposed to
impose a Social Welfare Surcharge at the rate of 10 percent of the
aggregate duties of Customs, on imported goods, to provide for social
welfare schemes of the government.
 With the roll of GST, the Budget also proposes to change the name of
the Central Board of Excise and Customs (CBEC) to the Central Board of
Indirect Taxes and Customs (CBIC).

CENTRAL EXCISE DUTY

Central Excise duty is an indirect tax which is on the goods manufactured

or produced in India. The term Manufacture means bringing into existence
a new product having a distinct name, character, use and marketability
and includes packing, labeling etc.

The initial purpose of this tax was to help the government to generate the
maximum possible revenue but in time it has become an important part of
fiscal policies and has been playing a critical role in economic growth.
Excise duty is also now known as CENVAT (Central Value Added
Tax).
DEFINITION AND SCOPE:

Excise Duty means the tax to be paid by the manufacturer, on the goods
manufactured in India, either at the time of manufacture or at the time of
removal of the goods from the factory. Excise Duty can be levied, only on
the fulfilment of the below mentioned following conditions:

1. The Duty is on Goods

2. The Goods must be excisable i.e., must be mentioned in Excise Tariff

Act

3. The goods must be manufactured or produced

4. Manufacture and Production must be in India

APPLICABLE TO

At a basic level, the producer or manufacturer of goods are responsible for

paying the excise duty. Following are the major entities who are supposed
to pay these taxes:

 who have personally manufactured the goods being subjected to

taxation
 Ones who outsource the production of their goods
 Ones who employ workers and professionals to manufacture or
produce their goods

LEGISLATIONS AND AUTHRORITIES:

The Central Excise Act, 1944

• This Act governs the levy of excise duty.

• The legislation provides for the parameters for levy of duty

like when it is to be charged, how the goods are to be valued
for the purpose of duty,

• how the duty would be regulated and administered such as

provisions for discharge of excise liability, filing returns,
powers of excise officers in this regard and also includes the
powers of investigation, appellate remedies, advance rulings
and other matters related to excise duties.
 • The Central Board of Excise and Customs (CBEC) are responsible for
administering the laws that govern excise laws. The CBEC is an
agency of the Department of Revenue, Ministry of Finance of India.

• Main responsibilities of CBEC are - Making policies for collecting and

levying central and customs excise duties; managing matters of
Customs, Narcotics and Central Excise according to the set limits.

• The Central Excise Tariff Act, 1985 (CETA)

This Act supplements the Central Excise Act by classifying products

and prescribing the rate of excise duty applicable to the various
classification of manufactured products. CETA classifies goods under
91 chapters and a specific code is assigned to each item. There are
over 1,000 tariff headings and 2,000 sub-headings. It is based on
the Harmonised System of Nomenclature (HSN).

• Other Rules made under these Acts. Important Rules are

Central Excise Rules, Cenvat Credit Rules and Central Excise
Valuation Rules.

Basic Excise Duty (BED):

• This is the duty charged under section 3 of the Central Excises and
Salt Act, 1944 on all excisable goods other than salt which are
produced or manufactured in India. Basic Excise Duty [also known
as Central Value Added Tax (CENVAT)] is levied at the rates specified
in Central Excise Tariff Act.

Special Excise Duty (SED):

• As per the Section 37 of the Finance Act, 1978 Special excise Duty
was attracted on all excisable goods on which there is a levy of
Basic excise Duty under the Central Excises and Salt Act,1944.
Special Excise Duty is levied at the rates specified in the Second
Schedule to Central Excise Tariff Act, 1985 @ 8, 16 and 24 %

Additional duty on goods of special importance: Some goods of

special importance are levied Additional Excise under Additional Duties of
 Excise (Goods of Special Importance) Act, 1957. The 'Additional Duty' is in
addition to excise duty. by agreement between Central and State
Governments, it was decided to make a beginning in 1957, by selecting
some items where additional duty will be collected instead of sales tax
and such additional duty will be distributed among various States.
Revenue from this duty is distributed among State Governments on the
basis of percentages given in the second schedule to the Act

Education Cess on Excise Duty

National Calamity contingent Duty (NCCD)” A 'National Calamity

Contingent Duty' (NCCD) has been imposed vide section 136 of Finance
Act, 2001 This duty is imposed on pan masala, chewing tobacco and
cigarettes.

POST GST SCENARIO

• government not to levy excise duty on goods other than petroleum

products i.e. petroleum crude, motor spirit (petrol), high speed diesel,
natural gas and aviation turbine fuel & alcohol have temporarily been
kept out.

EXCISE DUTY GST

Excise duty is levied on only While GST will be levied from

manufacture and levied at the time of manufacture till the sale of goods to
removal of goods. the customer. GST will levied on goods
and services also.

Excise is levied on goods and VAT is In GST, CGST, SGST / IGST will be
levied on value of goods plus Excise, levied only on the basic price so there
which leads to double taxation. will be no double taxation.
 As per central excise tariff rules the
rates of excise duty are specified.
Currently rate of excise duty is 12.36%
and it varies according to the type of
goods.
as per excise rules, payment has to be
made before 6th of the following month
and for the month March payment has
to be made on or before 31st March.
EXCISE DUTY
In Excise, credit can be taken on the tax
charged on input goods and services. In
GST also credit can be taken of both goods
and services.
There is no reverse charge mechanism in
excise duty. In service tax reverse charge
is only applicable to certain services and to
certain persons.
There is no composition scheme in Excise
In GST the rate will be 0%, 5%, 12%,
18%, 28%. However, which goods fall
in which type of category has not been
specified yet.
In GST, payment has to be made before
20th of the following month that means
the taxpayer will get 14 days extra for
payment of tax.
GST
The CGST credit cannot be adjusted
against SGST credit and vice versa. IGST
credit can be availed against IGST or CGST
or SGST. In GST, credit will be given on the
basis of invoice number matching,
however it was not matched in excise.
Credit of all expenses allowed.
In GST Reverse charge will be applicable
on purchases from unregistered dealers.
in GST composition is applicable to a
manufacturers if their turnover is below Rs.
50 Lakhs and they will have to pay tax at
the rate of 1%
in excise, the manufacturer have to In GST if documents and returns are
maintain many registers, records which properly filled then there will be no
were required by the department. problem. The government has introduced
E-Way bill which will be used to track the
goods sold. One can hope that there will be
simpler provisions in GST than in excise
duty.

Larsen & Toubro limited Vs. Collector of Customs, Bombay

classification of anchors in general made of steel and iron and the classification of anchors made
from stainless steel for a specific purpose of insertion into refractory lining of a boiler. Held that the
classification made by the subordinate authorities of the ‘anchor’ in ordinary sense for customs was
wrong and upheld its classification under heading 73.33 as the party did not dispute the fact that it
was made of stainless steel. But did not classify the stainless steel anchor to be covered under the
heading 73.30 which dealt with anchors and grapnels made of iron and steel as requested by the
appellant either.