Customs duty

Introduction to Customs Duty and rules for valuation

1. Dr. Sunilraj. N.V

2. Customsdutyisakindofindirecttaxwhich
isleviedongoodsofinternationaltrade.
Dutiesleviedinrelationtoimportedgoods
arereferredtoasimportdutyandduties
leviedontheexportgoodsarecalledexport
duty.
The levy and rate of customs duty in India are
governed by Customs Act 1962 And Customs
Tariff Act 1975.

3. Section12ofthecustomsActoftenknownas
chargingsectionprovidesthatdutiesof
customsshallbeleviedatsuchratesasmay
bespecifiedintheCustomsTariffAct1975
oranyotherlawforthetimebeinginforce,
ongoodsimportedinto,orexportedfrom,
India.

4. Theprimarypurposeofcustomsdutyisto
raiserevenue,safeguarddomesticbusiness,
jobs,environmentandindustriesetc.from
predatorycompetitorsofothercountries.
Moreover,ithelpsreducefraudulentactivities
andcirculationofblackmoney.

5. SincetheimplementationofIndia’snew
taxationsystem,GST,integratedgoodsand
value-addedservicetax(IGST)isbeing
chargedonthevalueofanyimportedgoods.
UnderIGST,allproductsandservicesare
taxedunderfourbasicslabsof5percent,12
percent,18percent,and28percent.

6. Two cases
1. Goods cleared for home consumption
2. Goods cleared for warehousing and later
cleared for home consumption
1. Goods cleared for
home consumption
When the goods reach the
customers barriers and
bill if entry for home
consumption is filed
2. Goods cleared for
warehousing and later
cleared for home
consumption
Import take place when
the goods are cleared
from warehouse

7. Export of goods takes place when the goods
cross the territorial waters of India.
If ship sinks within the territorial waters, export is
not complete.
However, duty is to be collected before ship
leaves the port.

8. Type of goods Relevant Date
a.Ifgoodsareenteredfor
HomeConsumption
DateofPresentationofBillofEntry;or
DateofentryInwardsofthevesselordate
ofarrivalofAircraftorvehicle,whichever
islater.
b.Ifgoodsareclearedfrom
awarehouse
DateofpresentationofEx-BondBillof
EntryforHomeConsumption.
c.IncaseofanyothergoodsDateofPaymentofDuty

9. 1. Date of determination of Rate of duty and
tariff valuation of exported Goods [Section 15
of Customs Act, 1962](Other than Baggage
and export by Post).
Type of goods Relevant Date
a.Ifgoodsareentered
forExport:
DateonwhichtheProper
Officermakesanorder
permittingclearanceand
loadingofthegoodsunderthat
section.
b.Incaseofanyother
goods
DateofPaymentofDuty

10. TheCentralGovernmentmay,bynotification
intheOfficialGazette,prohibiteither
absolutelyorsubjecttosuchconditions(to
befulfilledbeforeorafterclearance)asmay
bespecifiedinthenotification,theimportor
exportofgoodsofanyspecifieddescription.

11. 1.ThemaintenanceofthesecurityofIndia;
2.Themaintenanceofpublicorderandstandardsof
decencyormorality;
3.Thepreventionofsmuggling;
4.Thepreventionofshortageofgoodsofanydescription;
5.Theconservationofforeignexchangeandthe
safeguardingofbalanceofpayments;
6.Thepreventionofinjurytotheeconomyofthecountry
bytheuncontrolledimportorexportofgoldorsilver;
7.Thepreventionofsurplusofanyagriculturalproductor
theproductoffisheries;
8.Themaintenanceofstandardsfortheclassification,
gradingormarketingofgoodsininternationaltrade;

12. 9.Theestablishmentofanyindustry;
10.Thepreventionofseriousinjurytodomestic
productionofgoodsofanydescription;
11.Theprotectionofhuman,animalorplantlifeorhealth;
12.Theprotectionofnationaltreasuresofartistic,historic
orarchaeologicalvalue;
13.Theconservationofexhaustiblenaturalresources;
14.Theprotectionofpatents,trademarksandcopyrights;
15.Thepreventionofdeceptivepractices;
16.Thecarryingonofforeigntradeinanygoodsbythe
State,orbyaCorporationownedorcontrolledbytheState
totheexclusion,completeorpartial,ofcitizensofIndia;

13. 17. The fulfillment of obligations under the Charter of the United
Nations for the maintenance of international peace and security;
18. The implementation of any treaty, agreement or convention with
any country;
19. The compliance of imported goods with any laws which are
applicable to similar goods produced or manufactured in India;
20. The prevention of dissemination of documents containing any
matter which is likely to prejudicially affect friendly relations with
21. Any foreign State or is derogatory to national prestige;
22. The prevention of the contravention of any law for the time being
in force; and
23. Any other purpose conducive to the interests of the general
public.

14. Theterms"ProhibitedGoods"havebeen
definedinsub-section33ofSection2ofthe
CustomsActasmeaning"anygoodsthe
importorexportofwhichissubjecttoany
prohibitionundertheCustomsActorany
otherlawforthetimebeinginforce“.

15. Valuationofcustomsdutymaybeonthebasis
oftariffvalueoronthebasisoftransaction
value.
Tariff value
The Central Government has been empowered
to fix values, under sub-section (2) of Section 14
of the Customs Act, 1962 for any product which
are called Tariff Values. If tariff values are fixed
for any goods, ad valorem duties are to be
calculated with reference to such tariff values.

16. Rule4(i)thereofstatesthatthetransaction
valueofimportedgoodsshallbetheprice
actuallypaidorpayableforthegoodswhen
soldforexporttoIndia,adjustedin
accordancewiththeprovisionsofRule9.it
includesallpaymentsmadeasaconditionof
saleoftheimportedgoodsbythebuyerto
thesellersuchascommission,brokerage,
licensefees,royalties,costoftransportation
etc.

17. Thesaleisintheordinarycourseoftradeunderfullycompetitive
conditions;
Thesaledoesnotinvolveanyabnormaldiscountorreductionfrom
theordinarycompetitiveprice;
Thesaledoesnotinvolvespecialdiscountslimitedtoexclusive
agents;
Objectiveandquantifiabledataexistwithregardtotheadjustments
tobemadeunderRule9;
Therearenorestrictionsconcerningthedispositionoruseofthe
goodsbythebuyer(subjecttocertainexceptions);
Thesaleorpriceisnotsubjecttosomeconditionorconsideration;
Nopartoftheproceedsofthegoods(byresale,disposaloruse)
afterimportationaccruestotheseller;
Buyerandsellerarenotrelated,andifrelated,therelationship
shouldnothaveinfluencedtheprice.

18. ValuationFactors(seeRule9)arethevarious
elements(dutiablefactors),whichshouldbe
addedwhiledeterminingtheCustomsvalue.
Thefactorsshouldbeaddedtotheextent
theyarenotalreadyincludedintheprice
actuallypaidorpayable(invoicevalue).

19. Commissionsandbrokerage,exceptbuyingcommissions;
ThecostofcontainerswhicharetreatedasbeingoneforCustoms
purposes
Thecostofpacking
Thevalue,apportionedasappropriate,ofthefollowinggoodsand
serviceswheresupplieddirectlyorindirectlybythebuyerfreeof
chargeoratreducedcostforuseinconnectionwiththeproduction
andsaleforexportoftheimportedgoods,totheextentthatsuch
valuehasnotbeenincludedinthepriceactuallypaidorpayable:-
eg.
Material,components,partsandsimilaritemsincorporatedin
theimportedgoods;
Tools,dies,mouldsandsimilaritemsusedintheproductionof
theimportedgoods;etc.

20. Royaltiesandlicensefeesrelatedtogoodsbeing
valued
Thevalueofanypartoftheproceedsofany
subsequentresale,disposaloruseofthegoodsthat
accruesdirectlyorindirectlytotheseller;
Advancepayments;
Freightchargesuptotheplaceofimportation;ifcost
oftransportationisnotknown,thenitwillbedeemed
tobe20%oftheFOBvalue.
Loading,unloadingandhandlingchargesassociated
withtransportingthegoods;
Insurance.-ifcostofinsuranceisnotknown,thenit
willbedeemedtobe1.125%oftheFOBvalue.

21. Thefollowingchargesarenottobe
addedforthepurposesofdeterminingthe
Customsvalueprovidedtheyareclearly
distinguishableandseparatelydeclaredin
thecommercialinvoice:-
Buyingcommission:
Interestchargesfordeferredpayment;
Post-importationcharges(e.g.inland
transportationcharges,installationor
erectioncharges,etc.);
DutiesandtaxespayableinIndia.

22. Whenyoucannotusetransactionvalue,you
mustuseanestablishedvaluefordutyof
identicalgoods.Identicalgoods are
consideredthesameinallrespectsasthe
goodsbeingappraised.Theyhaveone
exceptionhoweverandthatisforminor
differencesinappearance.Thesedifferences
cannotaffectthevalueofthegoods.For
goodstoqualify,productionwouldhaveto
beinthesamecountryastheidentical
goods.

23. When you cannot use transaction and
identical goods, you must use an established
value for duty of similar goods. For goods to
qualify, the value of goods must be:
Closely resembling the similar goods
Capable of performing the same function
Commercially interchangeable
Produced in the same country and by the
same manufacturer as the similar goods

24. Thedeductivevaluemethodisusedinthose
caseswheretheconditionsofthetransaction
involvingtheimportedgoodsaresuchthat
theimportercannotdeterminethevaluefor
dutyunderanyofthepreviousmethodsof
valuation.Thepriceperunitisthepriceat
whichthegreatestnumberofunitsissold.

25. Computed value
The computed value is the cost of production,
profit and general expenses of the imported
goods.
Residualmethod
Theresidualmethoddoesnotidentify
specificrequirementsfordeterminingavalue
forduty.Instead,thevalueisbasedononeof
theothermethods(consideredinsequence).
Italsorequirestheleastamountof
adjustment.Thevaluemustbefairmarket,
andreflectcommercialreality.

26. Theassessablevalueofthegoodsis
determinedinaccordancewiththeprovisions
ofsection14ofthecustomsAct,1962.
Assessedvalueisthetotalvalueofgoods
includesthecostofproducts,transportation
costuptothebuyer’slocationandinsurance.

27. 1. Determine the assessable value of goods
2. Convert the foreign exchange value of
imported goods into Indian currency.
3. Compute the customs duty.

28. The customs duties are usually calculated on
Ad valorem basis on the value of the goods.
The value of goods is calculated according to
the regulations stated under Rule 3(i) of the
Customs Valuation Rules, 2007.

29. Customsdutycanalsobecalculatedbyusing
thecustomsdutycalculatorthatisavailableon
theCBECwebsite.Aspartofthecomputerised
andelectronicservicedriveintheyear2009,
Indiastartedaweb-basedsystemknownas
ICEGATE.ICEGATEistheabbreviationofIndians
CustomsElectronicCommerce/ElectronicData
Interchangegateway.Itprovidesaplatformfor
thecalculationofdutyrates,import-export
goodsdeclaration,shippingbills,electronic
payment,verificationofimportandexport
licenses.

30. TheIndianclassificationoftheCustomsDutyis
based on theHarmonized Commodity
Description(HS)andCodingsystem.TheHS
codesareof6digits.
TheIGSTthatappliestoallimportsandexports
ischargedonthevalueofthegoodalongwith
theprimarycustomsdutyonthegood.The
structureisasfollows:
Valueoftheimportedgoods+BasicsCustoms
Duty+SocialWelfareSurcharge=Valuebased
onwhichIGSTiscalculated

31. Thank You