What is Customs Duty:

Customs 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 an export duty. Countries around the world levy customs 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.

Customs Duty in India:

Customs duty in India is defined under the Customs Act, 1962 and enables the government to levy duty on exports and imports, prohibit export and import of goods, procedures for importing/exporting and offenses, penalties etc. All matters related to customs duty fall under the Central Board of Excise & Customs (CBEC). The CBEC, in turn, is a division of the Department of Revenue of the Ministry of Finance.

Types of Customs Duty:

Customs duties are levied almost universally on all goods imported into the country. Export duties are levied on a few goods as specified in the Second Schedule. Import duties are not levied on a few items including lifesaving drugs/equipment, fertilizers, food grains etc. 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 Customs Duty (BCD): All goods imported into India are chargeable to a duty under Customs Act, 1962. The rates of this duty, popularly known as basic customs duty, are indicated in the First Schedule of the Customs Tariff Act, 1975
  • 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 BCD and landing charges.
  • Education Cess:  This duty is levied at 2% and higher education cess at another 1% of the aggregate of customs duties. The cesses are earmarked taxes collected to apparently finance primary education and higher education
  • 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 imports can potentially damage the domestic industry.
  • National Calamity Contingent Duty (NCCD):
    This duty is imposed on pan masala, chewing tobacco and cigarettes. There are different rates of duty for different goods there are different rates of duty for goods imported from certain countries in terms of the bilateral or other agreement with such countries which are called preferential rate of duties the duty may be the percentage of the value of the goods or at the specified rate.