Customs duties are levied by Central Govt on exports & imports
From the point of view of revenue, importance of export duty is limited.
Import duties are levied on the basis of ad valorem.
In Pre- Tax reform period, India had become a country with one of the highest levels of custom tariffs in the world Since 1991, the customs duty structure was pruned. Maximum Rate of
Customs Duty is 10% now. In India, Customs duties are levied on the goods and at the rate specified in
the schedules of the Customs Tariff Act, 1975.
i.
To prevent illegal import and exports of goods.
ii.
To regulate imports of foreign good into India,
iii.
To raise revenue.
iv.
To protect indigenous industries.
v.
To conserve foreign exchange, regulate supply of goods into domestic market.
vi.
To protect domestic industry from foreign competition by restricting import of the selected goods and services, import licensing, import quota, and outright import ban.
Basically there are three modes of imposing Customs Duty: 1.
- Specific custom duty is a duty imposed on each and every unit of a commodity imported or exported. For example, Rs.5 on each meter of cloth imported or Rs.500 on each T.V. set imported. In this case, the value of commodity is not taken into consideration.
2.
Advalorem custom duty is a duty imposed on the total value of a commodity imported or exported. For example, 5% of F.O.B. value of cloth imported or 10% of C.LF. Value of T.V. sets imported. In case of Advalorem custom duty, the physical units of commodity are not taken into consideration.
3.
- Compound custom duty is the combination of specific and advalorem custom duties. In this case, the quantities as well as the value of the commodity are taken into consideration while computing tariff. For example, 5% of F.O.B. value plus, 50 paisa per meter of cloth imported.
This is a very vital and important document which every importer has to submit under section 46 Bill of Entry should be submitted in quadruplicate – original and duplicate for customs, triplicate for the importer and fourth copy is meant for bank for making remittances.
The term has not been defined as such. However, following may be noted: (a)
Baggage means all dutiable articles, imported by passenger or a member of a crew in his baggage.
(b)
Un-accompanied baggage, if dispatched previously or subsequently within prescribed period is also covered.
(c)
Baggage does not include motor vehicles, alcoholic drinks and goods imported through courier.
(d)
Baggage does not include articles imported under an import license for his own use or on behalf of others.
Imported goods are permitted to be unloaded only at specified places. Similarly, goods can be exported only from specified area. In view of this, a definition of ‘Customs Station’ is important. Customs Station means
Customs Port
Inland Container Depot
Customs Airport And
Land Customs Station
Customs area means all area of Customs Station and includes any area where imported goods or export goods are ordinarily kept pending clearance by Customs authorities. Thus, ‘Customs Area’ could include some area even outside the ‘Customs Station’.
Drawback means the rebate of duty chargeable on any imported materials or excisable materials used in manufacture or processing of goods which are manufactured in India and exported.
Entry’ in relation to goods means an entry made in a Bill of Entry, Shipping Bill or Bill of Export. It includes
Label or declaration accompanying the goods which contains description, quantity and value of the goods, in case of postal articles u/s 82
Entry to be made in case of goods to be exported
Entry in respect of goods imported which are not accompanied by label or declaration made as per provisions of section 84. [Section 2(16)].
Prohibited Goods means any goods the import or export of which is subject to any prohibition under this Act or any other law for the time being in force but does not include any such goods in respect of which the conditions subject to which the goods are permitted to be imported or exported have bee n complied with section.[2(33)]
Stores means goods for use in a vessel or aircraft and includes fuel and spare parts and other articles of equipment, whether or not for immediate fitting.
While Customs Duties include both import and export duties, but as export duties contributed only nominal revenue, due to emphasis on raising competitiveness of exports, import duties alone constituted major part of the revenue from Customs Duties. The import duties are imposed under The Customs Act, 1962 and Customs Tariff Act, 1975. The structure of Customs Duties includes the following:
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, 1975as amended from time to time under Finance Acts. The duty may be fixed on ad – valorem basis or specific rate basis. The duty may be a percentage of the value of the goods or at a specific rate. The Central Government has the power to reduce or exempt any good from these duties.
This duty is levied under the Finance Act and is leviable all goods imported into the country at the rate of 50 per cent of their value. However this statutory rate has been reduced in the case of certain types of goods into different slab rates based on the basic duty chargeable on them.
This countervailing duty is leviable as additional duty on goods imported into the country and the rate structure of this duty is equal to the excise duty on like articles produced in India. The base of this additional duty is c.i.f. value of imports plus the duty levied earlier. If the rate of this duty is on ad-valorem basis, the value for this purpose will be the total of the value of the imported article and the customs duty on it (both basic and auxiliary).
Under Customs Act, 1962, goods exported from India are chargeable to export duty. The items on which export duty is chargeable and the rate at which the duty is levied are given in the customs tariff act,1975 as amended from time to time under Finance Acts. However, the Government has emergency powers to change the duty rates and levy fresh export duty depending on the circumstances.
Cesses are leviable on some specified articles of exports like coffee, coir, lac, mica, tobacco (unmanufactured), marine products cashew kernels, black pepper, cardamom, iron ore, oil cakes and meals, animal feed and turmeric. These cesses are collected as parts of Customs Duties and are then passed on to the agencies in charge of the administration of the concerned commodities.
An education cess has been imposed on imported goods w.e.f. 9-7-2004. The cess will be 2% of the aggregate duty of customs excluding safeguard duty, countervailing duty, Anti Dumping Duty.
Tariff Commission' has been established under Tariff Commission Act, 1951. If the Tariff Commission recommends and Central Government is satisfied that immediate action is necessary to protect interests of Indian industry, protective customs duty at the rate recommended may be imposed under section 6 of Customs Tariff Act. The protective duty will be valid till the date prescribed in the notification.
If a country pays any subsidy (directly or indirectly) to its exporters for exporting goods to India, Central Government can impose Countervailing duty up to the amount of such subsidy under section 9 of Customs Tariff Act.
Often, large manufacturer from abroad may export goods at very low prices compared to prices in his domestic market. Such dumping may be with intention to cripple domestic industry or to dispose of their excess stock. This is called ‘dumping'. In order to avoid such dumping, Central Government can impose, under section 9A of Customs Tariff Act, anti-dumping duty upto margin of dumping on such articles, if the goods are being sold at less than its normal value. Levy of such anti-dumping duty is permissible as per WTO (world trade organization) agreement. Anti dumping action can be taken only when there is an Indian industry producing 'like articles'.
Central Government is empowered to impose 'safeguard duty' on specified imported goods if Central Government is satisfied that the goods are being imported in large quantities and under such conditions that they are causing or
threatening to cause serious injury to domestic industry. Such duty is permissible under WTO agreement. Safeguard duty is a step in providing a need-based protection to domestic industry for a limited period, with ultimate objective of restoring free and fair competition.
A National Calamity Contingent Duty (NCCD) of customs has been imposed vide section 129 of Finance Act, 2001. This duty is imposed on pan masala, chewing tobacco and cigarettes. It varies from 10% to 45%. NCCD of customs of 1% was imposed on PFY, motor cars, multi utility vehicles and two wheelers and NCCD of Rs 50 per ton was imposed on domestic crude oil, vide section 134 of Finance Act, 2003.
Customs duty is payable as a percentage of ‘Value’ often called ‘Assessa ble Value’ or ‘Customs Value'. The Value may be either
‘Value’ as defined in section 14 (1) of Customs Act or
Tariff value prescribed under section 14 (2) of Customs Act. - Tariff Value can be fixed by CBE&C (Board) for any class of
imported goods or export goods. Government should consider trend of value of such or like goods while fixing tariff value. Once so fixed, duty is payable as
percentage of this value. (The percentage applicable is as prescribed in Customs Tariff Act). - Customs Value fixed as per section 14 (1) is the ‘Value’ normally used for calculating customs duty payable (often called ‘customs value’ or ‘Assessable Value'.) provide following criteria for deciding ‘Value’ for purpose of Customs Duty: • Price at which such or like goods are ordinarily sold or offered for sale • Price for delivery at the time and place of importation or exportation • Price should be in course of International Trade • Seller and buyer have no interest in the business of each other or one of them has no interest in the other • Price should be sole consideration for sale or offer for sale • Rate of exchange as on date of presentation of Bill of Entry as fixed by CBE&C (Board) by Notification should be considered
This criterion is fully applicable for valuing export goods. However, in case of imported goods, valuation is required to be done according to valuation rules Valuation has to be on the basis of condition at the time of import –
CVD should be levied on goods in the stage in which they are imported stage subsequent to processing of goods is not relevant.
It is well settled that the imported goods have to be assessed to duty in the condition in which they are imported.
Some costs, services and expenses are to be added to the price paid or payable, if these are not already included in the invoice price. Rule 9 of Customs Valuation Rules provide that following cost and services are to be added – • Commission and brokerage • Cost of container, which are treated as being one with the goods for customs purposes • Cost of packing whether labour or materials • Materials, components, tools, dies etc. supplied by buyer • Royalties and license fees • Value of proceeds of subsequent sales • Other payment as condition of sale of goods being valued • Cost of transport up to place of importation • Landing charges • Cost of insurance.
The following charges shall be excluded:
• Charges for construction, erection, assembly, maintenance or technical assistance undertaken after importation of plant, machinery or equipment • Cost of transport after importation • Duties and taxes in India
The customs valuation based on WTO valuation agreement consist of rules providing six methods: 1. Transaction value of imported goods sec 14(1) and rule 3(1) It is the first or the primary method of customs valuation. As per customs valuation various additions like sales commission cost of containers, cost of packing, cost of materials, etc. are includable. 2. Transaction value of identical goods – rule 4 If the above rule is not possible then this method should be applied. Identical goods should be same in all respects, should be produced in the same country and by the same manufacturer. 3. Transaction value of similar goods – rule 5 4. If the above 2 methods are not applicable then this method of valuation is applied. Similar goods may not be identical but they have to be
manufactured in the same country and should be manufactured by the same manufacturer. 5. Deductive value which is based on identical or similar imported goods sold in India – rule 7 This is the next methods applied, provided all above are not applicable. It should be applied if the transaction value of identical goods or similar goods is not available, but these products are sold in India. The assumption made in this method is that the identical and similar goods sold in India, and their prices are available. 6. Computed value which is based on cost of manufacture of goods plus profits – rule 8 If valuation is not possible by the deductive method, then this method is applied. In this method value is the sum of cost of materials, amount of profit and amount of all other expenses. 7. Residual method based on reasonable means and data available – rule 9 The sixth and the last method is residual method. This is also called the fallback method or best judgment method. This method is used if the assessable value cannot be determined by the above methods.
Transaction value for export goods – customs value of export goods is to be determined under section 14 of customs act. Transaction value is the main criterion for valuation.
FOB value to be normally considered – FOB is normally considered for the valuation of export. However this can be rejected if it is overvalued.
Exchange rate as determined by CBE &C – exchange rate as on date when the shipping bill is presented. It is under section 50 determined by CBE & C.
Conditions for accepting transaction value for assessment – if there is no sale or buyer and seller are related or price is not sole consideration the valuation will be done as per the valuation rules.
Methods of valuation if the transaction value not acceptable – then it should be done using rule 4 to 6.
Vat is a multistage or multipoint tax calculated at each stage or point. It is levied at each stage in the economic supply chain. It applies to all commercial activities involving production of goods and provision of services. It is a consumption tax.
to reduce the number of taxes
merger of allied levies like turnover tax, cess and entry tax with sales tax.
To fully eliminate disputes as regards tax liability of a transaction or rate of tax applicable and reduce compliance costs.
To remove distortion/interference in sourcing raw materials.
To bring transparency as regards incidence of tax or the quantum of tax payable on a commodity.
To encourage voluntary compliance and simplify assessment procedures by introducing a total self- assessment scheme.
To fully remove cascading cost inflation effect because levy of both the taxes on raw material and finished products without which locally manufactured goods cannot be competitively priced in the international market and in domestic market as compared to imported goods.
It was invented by Maurice laure in 1954. It is an indirect tax. It is considered to be a transparent and accurate system of taxation. Also, it is a multipoint sales tax with set off for purchases and capital goods.
Vat ranges from 0% to 25% throughout the world in various countries. More than 135 countries have adopted VAT. Some goods of special importance are levied additional excise under additional duties of excise act 1957. Additional excise duty on pan masala and tobacco products. Introduced wef 1.3.2005 under finance bill of 2005, it is levied at 10%.
Central value added tax provisions are used in central excise to implement concept of VAT at manufacturing stage by giving credit of duty paid on inputs. Cenvat was known as modvat up to 2000. Cenvat was originated from vat itself and this system was highly implemented in western European countries. If a manufacturer A sells a product B at Rs.100. He has to pay a tax of Rs.10. therefore cost for B will be Rs.110. B adds some more value to the product, say of Rs.90 and sells it to C. he has to pay tax of Rs. 200 and not on Rs.90. this is known as cascading effect. The cascading effect has the following short comes…
Computation of exact tax content is difficult as product passes through
Different stages especially for providing export incentives
Varying tax burden
Discourages ancillarization
Increase the cost of production
Concession on the basis of is not possible.
Exports can be freed from domestic trade taxes
Provides an instrument of taxing consumption of goods and services.
Interference in the market force is minimum.
Rationalism of tax system
Aid tax enforcement
In case of Gross Product Variant, tax is levied on all sales but deductions for taxes on all purchases of raw materials and components (i.e. inputs) are allowed. However, no deduction is allowed for taxes paid on capital inputs with the result that in this variant of VAT, capital goods carry a heavier tax burden as they are taxed twice.
In case of Income Variant, tax is levied on all sales but deductions towards purchases of raw materials and components (i.e. inputs) as well as depreciation
on capital goods are allowed. Those following this variant of VAT hold incentives by classifying purchases as current expenditure to claim set-off. In this variant, gross investment minus depreciation i.e. net investment is taxed. The depreciation to be provided is dependent on the life of an asset as well as on the rate of inflation, therefore there are many difficulties connected with the variant in measuring depreciation.
In case of Consumption Variant, tax is levied as all sales but deduction on all business purchases including capital assets is allowed. Thus, gross investment is deductible in calculating value added. The economic base of the tax, under Consumption Variant of VAT is equal to the total private consumption. This variant of VAT does not distinguish between capital and current expenditures hence there is no need to specify the life of assets or depreciation allowances for different assets. This form is neutral between the methods of production; there will be net effect on tax liability due to the method of production (i.e. substitution capital for labour or vice versa). The tax is also neutral between the decision to save or consume. The consumption variant of VAT is most popular and widely used variant among the three variants of VAT. The reasons behind the preference of this variant over the other areas under:
(a) This variant is tax neutral as it does not affect decisions regarding investment because the tax on capital goods is also set-off against the VAT liability. (b) This variant relieves all exports from taxation while imports are taxed which is harmonious with the destination principle i.e. if the destination of goods is foreign country, it should not be taxed in India. (c) The consumption variant is convenient from the point of administrative expediency as it simplifies tax administration as it distinguishes between purchases of intermediate and capital goods on the one hand and consumption goods on the other hand. (d) It does not cause any cascading effect.
a) Baggage means all dutiable articles, imported by passenger or a member of a crew in his baggage. b) Un-accompanied baggage, if dispatched previously or subsequently within prescribed period is also covered. c) Baggage does not include motor vehicles, alcoholic drinks and goods imported through courier.
d) Baggage does not include articles imported under an import licence for his own use or on behalf of others. Elaborate provisions have been made for baggage as many Indians have tremendous craze for foreign goods- particularly electronic goods, white goods, liqour, perfumes etc. Section 2(3) states that baggage includes ‘un -a ccompanied baggage’ but does not include motor vehicles. Section 79(1) (b) of Customs Act exempts bona fide baggage of passenger which is for use of passenger or his family. It includes wearing apparels, toilet requisites, and other personal effects.
1. Foreign or Indian currency can be taken out/brought in only as per restrictions of RBI under FEMA. 2. Possession of narcotic drugs is strictly prohibited. 3. Domestic pets like dogs, cats, birds etc, can be brought as per strict health certificate regulations. 4. Taking out exotic birds, wind orchids and wild life, is strictly prohibited.
5. Endangered species or articles made from flora and fauna such as ivory, musk, reptile skins, furs, shahtoosh or antiques are prohibited.
Section 77 of the Customs Act provides that the owner of nay baggage has to make Customs Officer. It is impractical to ask every traveler to declare contents of his baggage. Hence, customs have provided two channels at airport. If a person does not have any dutiable goods, he can go through green channel. A person going through green channel carrying dutiable goods can be penalized for ‘false declaration’ . Person carrying dutiable goods should pass through red channel and should submit declaration, This declaration of goods and value as given by passenger in disembarkation card is generally accepted, but baggage can be inspected by Customs Officer.
All dutiable articles, imported by passenger or member of crew in his baggage. Tariff rate is 100%. However, effective rate (i.e. specified
by a notification) is 35% w.e.f. 1-3-2005. Baggage is exempt from CVD. However, education cess @ 2% and SAH education cess of 1% is payable. Thus, total custom duty on baggage is 36.05%. Since baggage does not include motor vehicles, liquor, and firearms, the rate is obviously not applicable for those goods. : Laptop computer (notebook computer) brought as baggage by person above 18 years of age (other than member of crew) is fully exempted from customs duty. : Gold brought as baggage by a passenger of Indian origin or a person holding Indian passport coming to India after a period of at least 6 months is 2% for gold. : Silver brought as baggage by a passenger of Indian origin or a person holding Indian passport coming to India after a period of at least 6 months is 6% for silver. Duty on platinum is Rs.300 per 10 grams
Questions 1. State various types of customs levied in India. (10 marks) 2. Explain the concept of CENVAT (3 marks) 3. Critically evaluate VAT as an indirect tax (7 marks) 4. Explain VAT. What are its benefits? (3 marks) 5. What are the objectives of levying customs duty? (3 marks) 6. Write a brief note on “Nature and types of custom duties” in India (10 marks) (repeated 3 times) 7. What are the modes to levy customs duty? (7 marks) 8. Briefly explain the rate of custom duty applicable. (10 marks) 9. What is VAT? What are its salient features? (7 marks) 10. Briefly explain the concept of VAT. Mention any 5 benefits that are to follow using VAT. (10 marks).
