What is Custom Duty?
Custom duty is a tax imposed by a federal or central government on goods and services when they cross international borders. Customs duty can be charged both on exports as well as imports and they're referred to as export duty and import duty respectively. In India, the Central Government, through the Central Board of Excise and Customs, levies customs duties on all imports (except a few items such as life-saving drugs or equipment, fertilizers, food grains, etc.) and a few exported goods as specified in the Second Schedule of the Customs Tariff Act.
There are several government schemes and programs that allow for exemption in export duty to promote Indian exports and create a level playing field for Indian companies in the global market.
Under the new GST regime in play since 2017, customs duty has been replaced by IGST as per Article 269A of the Constitution of India. As per this act, the IGST on import of goods & services is levied under the purview of the IGST Act,2017 . In this case, the importer of the services, who is based in India, will have to pay the tax on reverse charge basis. For import of goods, IGST is levied under the Customs Act, 1962 read with the Custom Tariff Act, 1975.
Since customs duties are primarily levied on imports, this article will mainly focus on import duties and their details.
Types of custom duty
Before the GST regime, customs duties included various heads such as basic customs duty, additional customs duty, true countervailing duty, protective duty, education cess and anti-dumping duty or safeguard duty. Some of these have been subsumed into the IGST regime as listed in the next section.
Ever since IGST has replaced the old tax regime, the duty now includes the following heads:
1. Basic Customs Duty
The basic customs duty varies from 5% to 40% of the assessable value of the goods being imported.
2. Integrated Goods and Services Tax (IGST)
The IGST component depends on the HSN code of the goods being imported. In cases where imported goods are liable to Anti-Dumping Duty or Safeguard Duty, value for calculation of IGST as well as Compensation Cess shall also include Anti-Dumping Duty amount and Safeguard duty amount.
3. GST Compensation Cess
This Cess is being collected to compensate the states of India for any loss of revenue on account of the implementation of GST in the country. This Cess is supposed to be applicable only till 1st July 2022. It is calculated as 15% of the IGST value.
4. Education Cess
This Cess is charged at 2% of the aggregate of customs duties. Higher Education Cess at 1% is also applicable.
5. Countervailing duty on subsidized articles (CVD)
Administered by the Central Government’s Directorate General of Anti-dumping and Allied Duties (DGAD), CVD is the duty charged to the importer to somewhat neutralize the subsidies given by the government to the exporting country.
6. Anti-dumping duty
Some imports are liable for anti-dumping duty in India to discourage such imports into the country. Anti-dumping duty can range from 0% to 550% of the invoice value of the goods.
7. Safeguard duty
Safeguard duty is applied by the government for a period of time when sudden increase in imports is seen for a particular product. This increase typically stems from import tariff concessions or World Trade Organization (WTO) obligations taken by the importing country. The safeguard duty gives domestic producers a grace period to become more competitive.
8. Social welfare surcharge on imported goods
This surcharge is calculated at 10% of the aggregate of customs duties, taxes and cesses levied by the government.
9. National Calamity Contingent Duty
The National Calamity Contingent Duty, or NCCD, is levied for goods as specified in the Seventh Schedule of the Constitution of India. These rates vary depending on the goods being imported.
Also Read: Duty Credit Scrips: Meaning & How to sell them
Types of customs duty that have been subsumed into GST
Certain duties that were previously applicable have been replaced by IGST. These include the following heads.
1. Additional duties of customs or Special CVD
Now subsumed into IGST, additional customs duty or special countervailing duty (CVD) used to be levied on goods being imported under Section 3 of the Customs Tariff Act, 1975. It used to be equal to the Central Excise duty leviable on “the like goods” if produced or manufactured in India. At present, this duty is not applicable in India.
2. Protective duties
Now subsumed into IGST, this duty used to be levied, similar to anti-dumping duty and safeguard duty, to protect certain industries established in India. At present, this duty is not applicable in India.
Customs duty calculation example
Here’s an example of the most likely applicable duties, assuming an importer is importing goods worth an assessable invoice value of Rs. 1000
Assuming the Basic Customs Duty is 10% and IGST is chargeable at 18%.
The customs duties and taxes will be calculated as:
Also Read: Shipping Bill | Understand the Meaning, Types & Format
Input Tax Credit of Integrated Tax
Importers can claim and utilize input tax credit of IGST and GST Compensation Cess paid at the time of import for payment of taxes on their outward supplies. Input tax credit on the Compensation Cess can only be used against payable Compensation Cess. Basic Customs Duty and Education Cess cannot be availed for input tax credit.
Conclusion
Customs duties at import, as applicable, are payable by the party making the customs declarations. This means that if the original importer sells the goods to another party before the goods have entered for customs clearance (also known as High Seas Sales), the party that will be filing the Bill of Entry and other declarations in front of the customs authorities will be eligible to pay the duties.
