Custom 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 export duty. Countries around the world levy custom 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 is levied as per the value of goods or dimensions, weight and other such criteria according to the goods in question. If duties are based on the value of goods, then they are called as ad valorem duties, while quantity/weight based duties are called specific duties. Compound duties on goods are a combination of value as well as various other factors.
Types of Custom Duty:
Custom duties are levied almost universally on all goods imported into the country. Export duties are levied on a few goods as specified under 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 Custom Duty:
Basic custom duty is applicable on imported items that fall under the ambit of Section 12 of the Customs Act, 1962. These duties are levied at the rates prescribed in First Schedule to Customs Tariff Act, 1975, under the terms specified in Section 2 of the act. The levied rates may be standard or preferential as per the country of import.
- 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 BDC and landing charges.
- Protective Duty:
Protective duty may be imposed to shield the domestic industry against imports at a rate recommended by the Tariff Commissioner.
- Education Cess:
This duty is levied at 2% and higher education cess at another 1% of aggregate of customs duties.
- 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 exports can potentially damage the domestic industry.