India: Customs Duties In India

Last Updated: 23 May 2008
Article by Ashok Sagar

Customs duties form a significant source of revenue for India. The principle statute under which they are imposed is the Customs Act, 1962 (hereinafter Act).

Charge of Customs Duty:

Duties of custom are levied under section 12 of the Act on goods imported into or exported from India. The rates of duty are specified under the Customs Tariff Act, 1975 (hereinafter Tariff Act) or under any other law for the time being in force. For instance, special duties of customs may be levied under Finance Acts.

Valuation of Goods:

The basis of valuation is the "transaction value" of goods. The transaction value is the price actually paid or payable for the goods when sold for export to India for delivery at the time and place of importation or as the case may be or export from India for delivery at the time and place of exportation. The transaction value as declared is normally accepted, except in cases where the buyer and seller of the goods are related persons and the price is not the sole consideration for the sale of goods. Section 14 of the Customs Act provides that the transaction value shall include, in addition to the price, any amount that is paid or payable for costs and services, including commissions and brokerage, engineering, design work, royalties and licence fees, costs of transportation to the place of importation, insurance, loading, unloading and handling charges. The extent and the manner in which such charges are to be added are specified in the Rules framed under the Customs Act.

From the point of view of valuation the relevant Rules are the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007 and the Customs Valuation (Determination of Value of Export Goods) Rules, 2007. These Rules, inter alia, provide for the circumstances in which the buyer and seller shall be deemed to be related, the manner of determination of value in respect of goods in cases where there is no sale or where the buyer and seller are related, or the price is not the sole consideration for the sale, the manner of acceptance or rejection of value declared by the importer or exporter, where the concerned Customs Authorities doubt the truth or accuracy of the value declared.

Duties of Customs:

As stated above, section 12 of the Customs Act is the charging section. It provides that the duties of customs shall be levied at such rates as may be specified, inter alia, in the Tariff Act.

The Basic Duty of Customs:

Section 2 of the Tariff Act provides that the rates of duties of customs are specified in the First and Second Schedules. These are commonly referred to as basic customs duties. The First Schedule relates to import duties and the Second Schedule relates to export duties. The First Schedule to the Tariff Act envisages two rates of basic customs duties - standard and preferential. The Tariff Act empowers the Central Government to notify any country or territory to be a "preferential area". In the case of imports from such notified preferential country or territory, the preferential rate of duty would be leviable. The Second Schedule lists out the commodities on which export duty is leviable and the rates at which such duty is leviable.

Additional Duties of Customs:

Section 3 of the Tariff Act specifies the different categories of additional duties of customs that may be levied on goods imported into India.

 

  1. Under section 3 (1) of the Tariff Act (which is the charging section in respect of additional duty of customs) an additional duty of customs is leviable equivalent to the excise duty leviable on like goods manufactured or produced in India. Such duties are levied under the Central Excise Act, 1944 read with the rates of duties as specified under the Central Excise Tariff Act, 1985. Duty under the Excise Act may be levied if the article has come into existence as a result of production or manufacture. In other words articles which are not produced or manufactured cannot be subjected to levy of excise duty. For instance, in a case where the importer was importing brass scrap (broken taps and broken pipes), the Customs Authorities sought to levy additional duty of customs on the imports. The Supreme Court of India was of the view that additional duty could not be imposed as broken taps and pipes are neither manufactured nor produced.
  2. Under section 3 (3) of the Tariff Act an additional duty of customs may be imposed by the Union Government to counterbalance excise duty leviable on raw materials, components and ingredients of the same nature as, or similar to those used in the production or manufacture of such articles as the Union Government may specify by notification.
  3. Under section 3 (5) of the Tariff Act a further additional duty of customs may be imposed by the Union Government to counterbalance sales tax, value-added tax, local tax or any other charges for the time being leviable on a like article on its sale, purchase or transportation in India.

The aforesaid additional duties of customs are imposed to protect the domestic industry from unfair disadvantage.

Classification of Goods:

There are thousands of varieties of imported goods. All goods do not carry the same rate or amount of duty. It is not possible to identify all the goods individually. Therefore, it is necessary to identify the goods through groups and sub-groups and then to determine the rate of duty on each group or sub-groups. The exercise of placing the various imported goods under the various groups or sub-groups is known as 'Classification' of a product. This basically means the determination of the heading or sub-heading under which a particular product will be covered.

The classification of goods under various heads and/or sub-heads, is under the Tariff Act. The said Act is based on the International Convention of Harmonised System of Nomenclature (HSN). This is an International Nomenclature standard adopted by almost all countries to ensure uniformity and classification of goods in international trade.

The First Schedule of the Tariff Act relates to goods imported into India. It is divided into 21 sections, which broadly cover separate categories of goods. For instance Section I deals with live animals: animal products, Section II deals with vegetable products; Section XI deals with textile and textile articles; and Section XV deals with base metals and articles of base metal. Each Section contains a number of Chapters. The First Schedule comprises of 98 Chapters.

Principles of Classification:

Probably the most common and oft repeated principle of classification is that goods should be classified according to their popular meaning or as they are understood in commercial sense. The test applied is: how is the product identified by the class of people dealing with or using the product? This test is applied whenever a statute does not contain any definition. The courts in India have repeatedly held that while interpreting fiscal statutes resort should be had to the commercial or popular meaning attached to terms by those dealing in them and not to any scientific or technical meaning.

The trade parlance test may, however, have some limitations. For instance when a new product is introduced in the market, or where the structure of the heading in the Chapter is entirely based on technical identification of various products, the commercial parlance by which a particular product is known would have no relevance. In such cases the technical or scientific meaning may have to be resorted to for classifying the product.

Exemptions:

The Union Government also has the power, in public interest, to grant exemptions in the rate of duty applicable on imported goods as also goods for exports. These exemptions may reduce the duty to nil or may be partial and subject to certain conditions.

Project Imports:

A special facility has been granted under the Tariff Act to persons importing goods for the initial setting up or substantial expansion of industrial plants, irrigation projects, power projects, mining projects, projects for exploration of oil and other minerals and for such other projects as may be notified by the Union Government. In such cases all items of machinery, including prime movers, instruments, apparatus and appliances, control gear and transmission equipment, auxiliary treatment, as well as components or raw materials for the manufacture of the aforesaid items and their components are classified under a single heading in Chapter 98 of the First Schedule to the Tariff Act at a concessional rate of duty. The classification of such goods under one heading facilitates the import as otherwise the goods would be required to be classified under different headings/sub-headings.

Procedures:

Imports:

For purposes of clearance of imported goods from the port/airport of arrival, an importer is required to file a Bill of Entry with the concerned officer of Customs. The importer has the option of either clearing the goods for 'home consumption' or of having the goods put in a warehouse (customs bonded warehouse) for clearance at a later date.

The Bill of Entry may be filed 30 days prior to the arrival of vessel carrying the goods. In the Bill of Entry the importer is required to fill in the description of the goods, classification, transaction value, rate of duty applicable, (both for basic and additional duties), and the customs duties payable.

Cenvat Credit:

An importer of capital goods or raw materials, who utilises the imported goods in setting up a factory or in the manufacture of goods in India, is allowed to take additional duty of customs (imposed under section 3 (1) of the Tariff Act, which is equivalent to the excise duty for the time being leviable) as credit under the Cenvat Credit Scheme and utilize it for payment of duty on the final goods manufactured in his factory.

Advance Ruling:

Under the Customs Act, 1962 (like the Central Excise Act, 1944) an Authority for Advance Ruling was constituted in the year 1999. This Authority has basically been set up for purposes of determination of questions of law or fact regarding the liability to pay customs duty to an activity proposed to be undertaken by the applicant. This facility can be availed of only by non-residents or individuals in joint ventures with non-residents. This Authority would, inter alia, determine (in advance of imports) the classification of goods under the Tariff Act, the principles to be adopted for valuation and the applicability of notifications having a bearing on the rate of duty. Any determination is statutorily binding. This is a great boon for importers as it takes away the uncertainties and vagaries of taxing statutes.

Adjudication:

A hierarchy of authorities has been specified under the Customs Act for the adjudication of disputes that may arise between importers/exporters and the customs authorities. These may be in relation to classification of goods, valuation, exemptions etc.

In the first instance the adjudication is taken up before officers of the rank of Assistant Commissioner or Joint Commissioner or Additional Commissioner. In certain circumstances disputes may be adjudicated by a Commissioner.

Either party (the assessee and/or the customs authority) aggrieved by an order passed by an Assistant Commissioner or Joint Commissioner or Additional Commissioner may file in appeal before the appellate authority known as the Commissioner of Customs (Appeals). A second appeal lies before the Customs Excise & Service Tax Appellate Tribunal. However, if in the first instance the dispute is adjudicated by an officer of the rank of Commissioner, an appeal would also lie to the Customs Excise & Service Tax Appellate Tribunal.

Against orders of the Customs Excise & Service Tax Appellate Tribunal two streams of appeals are contemplated. In case the issue relates to either the classification or valuation of goods, an appeal lies to the Supreme Court of India. In other cases an appeal lies to the jurisdictional High Court. However, such an appeal to the High Court would only lie if the appeal involves a substantial question of law.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions