This article has been written by Sakshi Srivastav, am a fourth-year law student pursuing a degree in B.A.LL.B (Hons.) from the Rajiv Gandhi National University of Law, Punjab and Prakhar Mishra is a fourth-year law student pursuing a degree in BB.A.LLB (Hons.) from National Law University Odisha.
Table of Contents
The Customs Act and The Customs Tariff Act (hereinafter referred to as CTA), along with various Rules and Regulations in relation to them, serve as the consolidated codes of law on the levy of Custom duties on import and export in India. However, the purpose of these customs laws is more than regulating the export and import of goods. In addition, they keep a tab on smuggling but more importantly, as we will subsequently discuss, they strive for the protection of the domestic industry from any unwarranted damage. The article attempts to highlight the extent to which the Customs Laws in India serve the purpose of protecting domestic industry by examining the different types of Customs duty levied on goods transported across international borders. Further, the introduction of GST has brought certain changes in certain types of Customs Duty. The article, to a limited extent, also delves into that.
Custom duty, in simple language, is an indirect tax imposed on the export and import of goods from one country to another. The use of the term “custom” in custom duty, which means an ancient practice so uniform and persistent in its usage that it becomes a source of law, indicates that the system of levying a tax on imported or exported goods is being followed since antiquity. In ancient times, the merchants, upon their entry to a place, followed a widely prevalent custom of presenting some form of gift or the other to the king in whose kingdom they intended to sell their merchandise. As the system evolved, merchants started paying money. Kautilya in his work Arthashastra, which is a widely popular book on ancient Indian political diplomacy, makes a mention of the practice of imposition of Shulka that comprised of import and export duties collected at the city gates on the merchandise coming in and going out, respectively.
The British, after colonising India, introduced a set of legislation and, thus, provided us with a comprehensive and elaborate system of levy of custom taxes on the goods exported from or imported to the country. In Independent India, the Parliament repealed the colonial laws on customs and substituted them with the Customs Act 1962 and the Customs Tariff Act 1975, respectively. These two pieces of legislation derive constitutional validity from Article 265 and Entry No. 83, List I, Schedule 7 of the Indian Constitution. While Article 265 states, “No tax should be levied or collected except by the authority of law”, Entry No. 83 incorporates levy of customs duty along with export duty in the Union List. These two, when read together, give the Parliament the authority to enact the laws on Customs.
Types of duties
This chapter has been divided into two heads. The first head deals with different types of duties that are imposed on imported/exported goods. Further, there is a discourse on exemptions from Customs duty under the second head.
Different types of duties that could be imposed on goods transported across international borders are as follows-
Basic customs duty
Basic Customs Duty (hereinafter referred to as BCD) is a type of tax that is imposed under the Customs Act, 1962. Before discussing this type of custom duty, it is pertinent to note its primary source. The basic customs duty that is imposed on the goods emanates from Section 12 of the Customs Act, which talks about dutiable goods. Clause 1 of Section 12 reads, “Except as otherwise provided in this Act, or any other law for the time being in force, duties of customs shall be levied at such rates as may be specified under [the Customs Tariff Act, 1975 (51 of 1975)], or any other law for the time being in force, on goods imported into, or exported from, India”
Under the CTA, Schedule I deals with the rates of duty charged on goods imported to India, while Schedule II specifies the chargeable rates on the goods of export. While Schedule I is huge and comprehensive with pages running in hundreds, Schedule II only consists of a handful of pages. The reason for the aforementioned is that Customs Duty under Section is mostly imposed on the import of goods because as general practice goods exported outside the country are rarely subjected to any duty. Though the Central Government has the power to amend Schedule II and augment the list of goods that are subjected to export duty under Section 8 of the CTA.
Under Schedule I, articles or goods have been divided into various categories that are subjected to varying rates of BCD. The Basic Custom duty is determined either on the ad-valorem basis i.e. value of the subject matter or on a specific rate basis that is ascertained as per its weight or other miscellaneous criteria. Another mode of categorization of the rates of BCD could be into standard rates and preferential rates. The articles are ordinarily subjected to standard rates but in specific cases, a preferential rate, a reduced rate of tax, is imposed on the goods of import. However, to avail preferential rates, the importer needs to satisfy the eligibility criteria that are as follows-
- The importer must make a specific claim for the imposition of preferential rate;
- The goods of import must be manufactured or produced in any of the preferential areas notified in the official gazette by the Central Government from the power vested to it under Section 4(3) of the CTA. (An area becomes a preferential area upon trade agreements between two or more countries.) Further, for determining whether the goods in question have originated in a preferential area or not, Section 4(2) of the CTA authorises the Central Government to make rules in this regard and notify them in the official gazette.
With the introduction of GST in 2017, the goods being imported to India have started being subjected to Integrated Goods and Services Tax (IGST) in supplement to BCD.
As per the newly amended Section 3(7) of the CTA, an integrated tax at a rate, equivalent (though less than 40%) to the rate at which IGST is being charged on a good of similar nature that is in supply within the country, will be levied on the value of the imported goods. The said tax is being levied in addition to BCD and the additional duties if imposed.
Goods and services (GST) compensation cess
GST Compensation Tax is a tax that is levied on the goods and services in supply within India with the objective to compensate the states for the possible losses they have incurred owing to the introduction of GST in 2017.
As per the newly amended Section 3(9) of the CTA, this GST Compensation Tax would also be applicable on imported goods and at such rate at which the said tax is being charged on similar goods that are in intra-state or inter-state supply in India. This tax is in addition to the BCD, integrated tax, and the additional duties if imposed.
Additional duties of customs
With the introduction of IGST, additional duties of customs have been subsumed under it with the exception of certain articles on whose manufacture/produce within the country excise duties are still levied.
Section 3 of the Customs Tariff Act deals with the duties levied in addition to the Basic Customs Duty. Such duties known as Additional duties of customs or Countervailing Duties are discussed under this head.
- Additional Duty under Sub- Section 1
There are certain goods on whose production or manufacturing within the Country, the Government imposes excise duty. To prevent any exhibit of unfairness towards the domestic manufacturers or producers of domestic goods, Section 3(1) mandates the imposition of duty equal to excise duty on the imported goods of like nature. The sub-section further clarifies that in case the excise duty is not fixed but is levied at a certain percentage of the value of like good, the additional duty on the imported goods would also be levied in such a manner.
Further, the explanation attached to Section 3(1) states that in case a domestic article in the like of the imported article is not being manufactured or produced in India, a duty equivalent to the excise duty imposed on a domestic article of the class or description similar to that of the imported article would be levied on the latter.
After the introduction of GST in 2017, there are not many goods that are subjected to excise duty. Therefore, the additional duty under this Sub-section is not levied only in exceptional circumstances when the imported good in question has a like domestic good in the subjection of excise duty.
- Special Additional Duty/Counter-balance duty under Sub-Section 3
While there are many articles whose domestic production or manufacturing is not subjected to excise duty and consequently Sub-section (1) does not come into play in relation to imported articles of like nature, there is a possibility that the raw material or any other material used for the domestic production of the said article may have been subjected to excise duty. This would put the domestic producers at a disadvantageous position as they would be obliged to bear a cost that their international counterparts did not bear. To prevent the aforementioned and make the position of both the producers commensurate with each other, Section 3(3) comes in handy, though with a wider scope. As per this provision, irrespective of the fact whether an additional duty under Sub-section 1 has been levied or not, the Central Government has been vested with the power to apply its discretion and impose a counter-balance duty on the imported goods if the raw or other material used for the manufacture of a like domestic good had been subjected to excise duty.
- Special Additional Duty/ Counter-balance Duty under Sub-section 5
Besides the levy of excise duty, articles are also subjected to taxes in the nature of sales tax, value-added tax (these two now subsumed to make way for GST), local tax, or any other tax on their sale, purchase, or transportation within the country. In such a situation, the Central government has been empowered under section 3(5) to apply its discretion and levy this counter-balance duty on imported goods if alike domestic good had been subjected to the aforementioned tax. For such subjection, it is immaterial if the imported article has been subjected to Section 3(1) or for that matter Section 3(3) or not.
Section 6 and 7 of the CTA empower the Central Government to impose protective duties on certain imported goods if it deems such action fit for the protection of any domestic industry. The procedure for the imposition of such protective duty is comprehensive and could be understood through the following points-
- The Tariff Commission of India recommends and specifies the amount or rate of protective duty to be imposed on certain imported goods to the Central Government.
- Upon such recommendation, if the government is satisfied that the levying of such duty is necessary for the protection of any domestic industry, it must impose it via a notification in the official gazette. The amount of duty imposed must not exceed the recommendation given by the Commission.
- The government is obliged to present such notification in the form of a Bill before the Parliament within six months from the issuing of such notification.
- If the government fails to perform the aforementioned, or if the bill is not passed, the notified duty will lose validity.
- If the prevailing circumstances lead the government into believing that a protective duty is in excess of its objective or, is failing to achieve its objective, it could either lower or increase the amount of duty. For such an alteration to be effective, point iii) must be followed.
Under Section 8-B of the CTA, if certain imported goods are being supplied in the country in such huge quantities or under such conditions that they are causing or have the apprehension of causing serious injuries to any domestic industry, the Central Government can impose safeguard duties on such goods. However, before its imposition, an inquiry needs to be conducted with regards to the nature of the threat the imported goods possess. It is only when such inquiry confirms the threat of or the already incurring serious injury that the government levies a safeguard duty.
However, as per the provisions of Section 8-B (2), even before the final determination of the effect of certain imported goods on the domestic industry, the Central Government may impose a provisional safeguard duty, for a period not exceeding 200 days, on such goods based on a preliminary inquiry.
Notwithstanding the aforementioned, the following imported goods cannot be subjected to Safeguard Duty-
- Unless the quantity supplied to India crosses 3% of an article’s total import, such imported article, if originating from a developing nation, will be exempted from Standard Duty.
- Such imported articles will also be exempted that originate from more than one developing country, and the individual share of imports of each country is less than 3% with the aggregate being less than 9% of the total import.
- Those imported goods will be exempted that are imported by a 100% Export-Oriented undertaking (hereinafter referred to as EOU) or holdings in a Free Trade Zone or Special Economic Zone. However, the government may issue a notification specifically in the regard to the exclusion of certain goods from the exemption.
Countervailing duty on subsidized articles
There are certain goods that are granted subsidies to a certain extent by a country either upon their manufacture/production in the said country or on their export or sometimes even transportation. In such a scenario, to bring the domestic producers at par with the traders in subsidized imported goods, Section 9 of the CTA empowers the Central Government to impose a countervailing duty on the said goods by notifying the same in the official gazette. This section is applicable to goods that are not being directly imported from their country or place of manufacture/production, and also those that are not in the same condition in which they were exported from their place of manufacture or production. However, the section explicitly prohibits the imposition of such an amount that exceeds the subsidy and the duration that exceeds 5 years (however, it could be revoked before the expiry of the stated time limit).
While the final determination of the amount of countervailing duty is still under process, the Central government has the power to impose a duty on the basis of a provisional determination. However, such duty must not exceed the amount of subsidy.
This section also comes to rescue in cases when it is observed, and the government agrees, that the domestic industry has been inflicted with an injury difficult to overcome owing to the humungous import of subsidized articles in a short period. In the foregoing scenario, Sub-section 4 bestows upon the Government the power to provide for a retrospective imposition of the countervailing duty. However, keeping the fairness of the procedure in mind, the provision mandates that the retrospective application of the duty must not go beyond 90 days from the date of the issuance of notification.
Dumping of goods is one of the widely pervading issues in the trading world. When the exporter exports an article to any other country or territory at a price that is less than its normal value, then they are said to be engaging in the practice of dumping. To prevent such dumping of imported goods in India, Section 9A of the CTA imposes anti-dumping duties on the goods exported to India with the intention of dumping. However, the amount of duty levied must not exceed the margin of dumping i.e. Normal Value – Export Value and further, the time period for such levy must not exceed 5 years (however, it could be revoked before the expiry of the stated time limit).
There have been instances of traders engaging in such practices that warrant the escape of such goods from the imposition of anti-dumping duty. In such a scenario, under Section 9A (1A), if the government, upon undertaking an inquiry on the same, finds that such bypassing has taken place then it could bring even circumventing goods within the ambit of Section 9A (1).
While the determination of the amount of anti-dumping duty is still under process, the Central government has the power to impose a duty on the basis of a provisional estimate.
However, if after the determination, the final calculated amount is lower than the provisional estimate, the former will prevail and the excess money will be refunded.
Further, under Section 9A (3) the government has been empowered to provide for a retrospective imposition of the anti-dumping duty not exceeding 90 days from the date of the issuance of notification if it is observed, and the government through its enquiry agrees, that-
- The exporter of a good to India has been engaging in dumping for a long time and it caused harm or that importer would have known about the said practice or that it may cause harm to the domestic industry.
- The domestic industry has been inflicted with an injury difficult to overcome merely from the levying of prospective anti-dumping duty owing to the humungous dumping of articles in a short period.
Dumped goods imported by any 100% EOU will be exempted from the levying of anti-dumping duty, however, the government may exclude such goods qualifying for exemption as per the provisions laid down under Sub-Section 2A of Section 9 A of the CTA.
Further, as per Section 9B of the CTA, the imported goods, falling under the situations mentioned thereunder, can be saved from the subjection of the provisions given under Section 9 viz. countervailing duty on subsidized articles, and Section 9A viz. anti-dumping duty. For Example, an imported article cannot be made subject to both the aforementioned duties if the purpose is to compensate the domestic industry for the same situation of subsidization and dumping.
Social welfare surcharge on imported goods
Before 2nd February 2018, the goods imported to India were subjected to additional duty in the liking of Education cesses that were then utilised for the promotion of education in India. However, these cesses, with effect from the aforementioned date, have been subsumed to from the Social Welfare Surcharge (hereinafter referred to as SWS) which has a wider purpose of promoting not only education but also other welfare objectives like social security and health.
These are charged at the rate of 10% on the aggregate of duties, taxes or cess imposed on the goods under Section 12 of the Customs Act 1962.
The following duties are exempted from being subjected SWS-
- Safeguard duty under Section 8 B of the CTA
- Countervailing duty on subsidized goods under Section 9 of the CTA
- Anti-Dumping Duty under section 9A of the CTA
- SWS on imported goods itself
Exemption from customs duty
The Central Government has the authority to exempt certain goods or an entire description of goods from the levy of customs duty. The exemption can broadly be divided into two categories-
A general exemption is when the Central Government, through a notification in the official Gazette, exempts goods of a particular description from the whole or any part of customs duty imposed on it. This exemption could either be an outright exemption or be subjected to certain terms and conditions.
A special exemption is when the exemption is granted on a case-by-case basis in reference to a specified good/s owing to certain exceptional circumstances.
Associated Cement Companies Ltd. V/S Cc 2001(128) Elt 21 (Sc)
Goods, whether imported or the ones to be exported, are the subject matter of Customs law.
Section 2 Sub-section 22 of the Customs Act, 1962 defines goods as-
- Vessels, aircraft, and vehicles
- currency and negotiable instruments and;
- any other kind of movable property
The Petitioners, who aggrieved with the order of the Customs, Excise, and Gold (Control) Appellate Tribunal had approached the Supreme Court, were the importers of designs and drawings in the form of hard copies that were transported through courier or parcel system. In the instant case, the Assistant Commissioner of Customs, classifying them as imported goods, levied customs duty on these design and drawing papers.
The appellants argued that drawings and designs do not fall within the ambit of the definition of “goods” provided under Section 2(22) of the Customs Act and therefore the Assistant Commissioner of Customs did not have the authority to levy customs duty on their imported designs and drawings.
The Highest Court of the Land noted that while a design or a drawing in a digital format are intangible in nature and does not fall within the definition of goods, the instance they are converted or transformed into any tangible format in the form of paper or CDs or DVDs, they become movable goods and thus start falling within the definition given under Customs Act.
Therefore, the Apex Court held that the Assistant Commissioner of Customs had the authority under the Customs Act, 1962 to levy duties on the items imported by the petitioners.
Aidek Tourism Services Pvt. Ltd. V/S. Commissioner Of Customs 2015 (318) Elt 3 (Sc)
Section 3 (1) of the Customs Tariff Act, 1975 mandates for the subjection of imported goods to an additional duty equal to the excise duty levied under Central Excise Act, 1944 on the domestic goods of like nature. This is done to bring the domestic producers/ manufacturers at par with their foreign counterparts.
Question of law
Whether an imported good be exempted from an additional duty under Section 3(1) of the CTA if a good of like nature being produced/ manufactured in India has been exempted or is exempt from Excise duty?
The Supreme Court while hearing this appeal held that the language used in Section 3(1) of the CTA warrants for the imposition of such additional duty on the imported goods that is equivalent to the excise duty being levied on a like domestic good. Meaning thereby that if the excise duty has been reduced or exempted by notification, the additional duty on the imported good will have a direct impact of such modification in the excise duty. Therefore, the additional duty under Section 3(1) will be reduced, increased or be even made nil depending upon the change in the excise duty.
The Apex Court, thus, gave an affirmative answer to the aforementioned question of law.
Rishiroop Polymers Pvt. Ltd. V/S Designated Authority And Additional Secretary 2006 (196) Elt 385 (Sc)
Section 9A (5) of the CTA provides that the time-period for the imposition of an anti-dumping duty cannot exceed five years. However, the proviso to the said sub-section authorises the Central Government to extend the aforementioned time-period for another five years, if after conducting a review, it is of the notion that a lapse in the duty will lead to a relapse of the practice of dumping or the injury caused therefrom.
The appellant was an importer of rubber goods from Korea. Upon the complaint made by certain domestic industries that the import of the rubber goods from Korea is in the nature of dumping and is therefore seriously harming them, an enquiry was conducted by the Designated Authority which then recommended the Central Government to levy anti-dumping duty on the goods in question. After the passage of five years, upon a review enquiry, the Authority found that the cessation of anti-dumping duty may lead to a recurrence of the dumping or the damage caused to the domestic industry. The Central Government, working on the recommendation of the said authority, extended the period of duty imposition for another five years. The appellants challenged the same-
The Supreme Court, upholding the decision of the Designated Authority and the Tribunal that had upheld the decision of the former, stated that the primary objective for the setting up of a review enquiry is not to ascertain whether there was a need for the extension of the duty or not, rather it is to see if the non-extension of the duty would lead to the recurrence of dumping and cause serious injury to the domestic industry with a causal link present between the two.
Ours was a closed economy with a very restrictive set-up for a long time since independence. The leaders weighed different parameters viz. newly achieved independence, our history, and the exploitation we underwent at the hands of the British and decided to create an economic environment suitable for the budding of our domestic industries by, inter alia, blockading foreign competition. However, as the rapidly progressing world demanded a change in the economic policy, India marked its steps towards the path of Liberalisation, Privatisation, and Globalisation (LPG) in the sector of commerce. The aforementioned led to a massive inflow of foreign capital and articles in the Indian Market that was no longer closed for outsiders. Consequently, domestic industries that had hitherto been safeguarded from foreign competition were no longer as protected as before. However, the situation in India was still very different from other open economies in that it warranted protection to the indigenous industry to prevent the country from an economic crisis. Acknowledging the aforementioned concern, the Central Government introduced a series of legal provisions through amendments in the Customs Tariff Act, 1975. For example, Section 9A, providing a legal provision for the imposition of anti-dumping duties on imported goods being dumped into India, was inserted in the CTA.
Therefore, present India, though committed to LPG, lays emphasis on the protection of domestic producers/ manufacturers, from any injury that is caused or apprehended to be caused to them, through a set of legal provisions under Customs Laws. The levying of additional countervailing duties under Section 3, protective duties under Sections 6 and 7, safeguard duties under Section 8B, duties on subsidized goods under Section 9, anti-dumping duties under Section 9A, of the CTA on the imported goods bear testimony to the aforementioned. Customs laws, by means of different types of duties, attempt to place both the domestic and foreign producers/ manufacturers on an equal footing but with a slight bent towards the former which in my opinion is not arbitrary, rather reasonably justified.
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