1:55 am - Monday May 27, 2019

Taxation

Customs Duties (Import Duty and Export Tax)

Customs Duties (Import Duty and Export Tax)

Customs Duty is a type of indirect tax levied on goods imported into India as well as on goods exported from India. Taxable event is import into or export from India. Import of goods means bringing into India of goods from a place outside India. India includes the territorial waters of India which extend upto 12 nautical miles into the sea to the coast of India. Export of goods means taking goods out of India to a place outside India.

In India, the basic law for levy and collection of customs duty is Customs Act, 1962. It provides for levy and collection of duty on imports and exports, import/export procedures, prohibitions on importation and exportation of goods, penalties, offences,etc.

The Constitutional provisions have given to Union the right to legislate and collect duties on imports and exports. The Central Board of Excise & Customs (CBEC) is the apex body for customs matters. Central Board of Excise and Customs (CBEC) is a part of the Department of Revenue under the Ministry of Finance, Government of India. It deals with the task of formulation of policy concerning levy and collection of customs duties, prevention of smuggling and evasion of duties and all administrative matters relating to customs formations. The Board discharges the various tasks assigned to it, with the help of its field organizations namely the Customs, Customs (preventive) and Central Excise zones, Commissionerate of Customs, Customs (preventive), Central Revenues Control Laboratory and Directorates. It also ensures that taxes on foreign and inland travel are administered as per law and the collection agencies deposit the taxes collected to the public exchequer promptly.

 

Types of Customs Duties

Export duties are levied occasionally to mop up excess profitability in international prices of goods in respect of which domestic prices may be low at the given time. But the sweep of import duties is quite wide. Import duties are generally of the following types :

Basic Duty : it may be at the standard rate or, in the case of import from some other countries, at the preferential rate.

Additional customs duty : equal to central excise duty leviable on like goods produced or manufactured in India. Additional duty is commonly referred to as Countervailing duty or C.V.D. It is payable only if the imported article is such as, if produced in India, its process of production would amount to 'manufacture' as per the definition in Central Excise Act,1944. Exemption from excise duty has the effect of exempting additional duty of customs.

Additional duty is calculated on a value base of aggregate of value of the goods including landing charges and basic customs duty. Other duties like anti-dumping duty, safeguard duty etc are not taken into account. In case of goods covered by provisions of the Standards of Weights and Measures Act,1976, the value base would be the retail sale price declared on the package of the goods less the rebate as notified under the Central Excise Act,1944 for such goods.

True Countervailing duty or additional duty of customs : is levied to offset the disadvantage to like Indian goods due to high excise duty on their inputs. It is levied to provide a level playing field to indigenous goods which have to bear various internal taxes. Value base for this additional duty would be as in the case of C.V.D, under Customs Tariff Act,1975 minus the retail sale price provision. This additional duty will not be included in the assessable value for levy of education cess on imported goods. Manufacturers will be able to take credit of this additional duty for payment of excise duty on their finished products.

Anti-dumping Duty/ Safeguard Duty : for import of specified goods with a view to protecting domestic industry from unfair injury. It would not apply to goods imported by a 100% EOU (Export Oriented Units) and units in FTZ (Free Trade Zones) and SEZ (Special Economic Zones). On export of goods, anti-dumping duty is rebatable only by way of a special brand rate of drawback. Safeguard duties do not require the finding of unfair trade practice such as dumping or subsidy on the part of exporting countries but they must not discriminate between imports from different countries. Safeguard action is resorted to only if it has been established that a sudden increase in imports has caused or threatens to cause serious injury to the domestic industry.

Education cess : at the prescribed rate is levied as a percentage of aggregate duties of customs. If goods are fully exempted from duty or are chargeable to nill duty or are cleared without payment of duty under prescribed procedure such as clearance under bond, no cess would be levied.

 

Export Procedures

For clearance of export goods, the exporter or his agents have to undertake the following formalities :

Registration
  • The exporters have to obtain PAN based Business Identification Number(BIN) from the Directorate General of Foreign Trade prior to filing of shipping bill for clearance of export goods.

  • The exporters are also required to register authorised foreign exchange dealer code (through which export proceeds are expected to be realised) and open a current account in the designated bank for credit of any drawback incentive.

  • Whenever a new Airline, Shipping Line, Steamer Agent, port or airport comes into operation, they are required to be registered into the Customs System.

  • The exporters intending to export under the export promotion scheme need to get their licences/DEEC book etc, registered at the Customs Station.

Processing of Shipping Bill

In case of export by sea or air, the exporter must submit the 'Shipping Bill', and in case of export by road he must submit 'Bill of Export' in the prescribed form containing the prescribed details such as the name of the exporter, consignee, invoice number, details of packing, description of goods, quantity, FOB value, etc. Along with the Shipping Bill, other documents such as copy of packing list, invoices, export contract, letter of credit, etc. are also to be submitted.

There are 5 types of shipping bills :

  • Shipping Bill for export of duty free goods. This shipping bill is white colored.

  • Shipping bill for export of goods under claim for duty drawback. This shipping bill is green colored.

  • Shipping bill for export of duty free goods ex-bond i.e. from bonded warehouse. This shipping bill is pink colored.

  • Shipping Bill for export of dutiable goods. This shipping bill is yellow colored.

  • Shipping bill for export under DEPB scheme. This shipping bill is blue in colour.

The Bills of Export are :
  • Bill of export for goods under claim for duty drawback

  • Bill of export for dutiable goods

  • Bill of export for duty free goods

  • Bill of export for duty free goods ex-bond

Let Export Order

After the receipt of the goods in the dock, the exporter may contact the Customs Officer designated for the purpose and present the checklist with the endorsement of Port Authority and other declarations along with all original documents. Customs Officer may verify the quantity of the goods actually received and thereafter mark the Electronic Shipping Bill and also hand over all original documents to the Dock Appraiser, who may assign a customs officer for the examination of the goods. If the Dock Appraiser is satisfied that the particulars entered in the system conform to the description given in the original documents, he may proceed to allow "let export" for the shipment.

 

Classification of Goods and the Rates of Customs Duty

All goods must be classified into groups and sub-groups in order to levy the customs duty. The Customs Tariff Act 1975, gives the classification of goods and accordingly specifies the rate of duty. The act contains two schedules :

  • Schedule 1 classifies the goods for import and prescribes the rate of import duties. It specifies the various categories of import items in a systematic and in accordance with an international scheme of classification of internationally traded goods - termed as 'harmonized system of commodity classification'.

  • Schedule 2 classifies the goods for export and prescribes the rate of export duties.

In addition, the Customs Tariff Act makes provisions for duties like additional duty(CVD), preferential duty, anti-dumping duty, protective duties,etc.

The duties are levied both on specific and ad-valorem basis, while there are few cases where at times specific-cum-ad valorem duties are also collected on imported items. Where ad-valorem duties (i.e. duties with reference to value) are collected, which are the predominant mode of levy, the value of the goods has to be determined for customs duty purposes as per provisions laid down under the Customs Act and the Customs Valuation (determination of prices of imports goods) Rules, 1988 issued thereunder. These provisions are essentially adoption of GATT based valuation system and followed internationally (now termed WTO Valuation Agreement). The importer as well as the assessing officer has to carefully study and apply these provisions so that the duties as due after proper valuation as per law get discharged before the goods get out of customs control.

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Import Procedures

For clearance of import goods, the importer or his agents have to undertake the following formalities :

Bill of Entry

It is a document certifying that the goods of specified description and value are entering into the country from abroad.

If the goods are cleared through the (Electronic Data Interchange) EDI system no formal Bill of Entry is filed as it is generated in the computer system, but the importer is required to file a cargo declaration having prescribed particulars required for processing of the entry for customs clearance.

The Bill of entry, where filed, is to be submitted in a set, different copies meant for different purposes and also given different colour scheme.Bill of Entry are of three types :

  • Bill of Entry for home consumption : is to be submitted when the imported goods are to be cleared on payment of full duty for consumption of the goods in India. It is white colored.

  • Bill of Entry for Warehouses : is to be submitted when the imported goods are not required immediately by the importer but here they are to be stored in a warehouse without payment of duty under a bond and cleared later when required on payment of duty.

  • Bill of Entry for Ex-Bond Clearance : is used for clearing goods from the warehouse on payment of duty. The goods are classified and valued at the time of clearance from the Customs Port. Value and classification are not determined on such Bill of Entry.

    In the non-EDI system along with the bill of entry filed by the importer or his representative the following documents are also generally required :

    • Signed invoice
    • Packing list
    • Bill of Lading or Delivery Order/Airway Bill
    • GATT declaration form duly filled in
    • Importers declaration
    • License wherever necessary
    • Letter of Credit/Bank Draft/wherever necessary
    • Insurance document
    • Import license
    • Industrial License, if required
    • Test report in case of chemicals
    • Adhoc exemption order
    • DEEC Book/DEPB in original
    • Catalogue, technical write up, literature in case of machineries, spares or chemicals as may be applicable
    • Separately split up value of spares, components machineries
    • Certificate of Origin, if preferential rate of duty is claimed
    • No Commission declaration

Green Channel facility

Some major importers have been given the green channel clearance facility. It means clearance of goods is done without routine examination of the goods. They have to make a declaration in the declaration form at the time of filing of bill of entry. The appraisement is done as per normal procedure except that there would be no physical examination of the goods. Only marks and number are to be checked in such cases. However, in rare cases, if there are specific doubts regarding description or quantity of the goods, physical examination may be ordered.

 

Valuation

When customs duties are levied at ad-valorem rates, i.e. depending upon its value, it becomes essential to lay down the broad guidelines for such valuation to avoid arbitrariness and to ensure that there is uniformity in approach at different customs formations. The Customs Act,1962 lays down the basis for valuation of import & export goods in the country.

Provisions for Customs Valuation :

  • Tariff value : The Central Government has been empowered to fix values for any product which are called Tariff Values. If tariff values are fixed for any goods, ad valorem duties are to be calculated with reference to such tariff values. The tariff values may be fixed for any class of imported or export goods having regard to the trend of value of such or like goods and the same has to be notified in the official gazette.

  • When no tariff values are fixed :

    • In case of exported goods, provisions of sub-section(1) of Section 14 provide a complete code of valuation. For valuation of Export goods the criteria specified in the section is fully applicable and normally "FOB" i.e. Free on Board value is considered after excluding cost of international insurance and freight. According to the section, the value of the good shall be deemed to be :

      • Price at which such or like goods are ordinarily sold or offered for sale.

      • Price for delivery at the time of importation and exportation. The price at the time and place of importation must be considered for determining the customs value. All expenses upto the destination of goods including freight, transit insurance, unloading and handling charges are to be considered.

      • Price should be in the course of international trade.

      • Seller and buyer should have no interest in the business of each other.

      • Price should be the sole consideration for sale or offer for sale.

      • Rate of exchange as on the date of presentation of bill of entry as fixed by the Central Government must be considered. Foreign Exchange rate as applicable at the time of presentation of the bill of entry as prescribed by the central government must be considered. This rate may or may not be the market rate prevailing on that date. The relevant date for determining foreign exchange rate is the date of presentation bill of entry.

  • In case of imported goods , the valuation is done according to the Customs Valuation (Determination of Price of Imported Goods) Rules, 1988. The Customs Valuation rules, follow the WTO Customs Valuation Agreement. According to the rules, the value of imported goods shall be the "transaction value" i.e. the price actually paid or payable for the goods when they are sold for export to India, after adjustment by valuation factors and subjected to :

    • Compliance with valuation conditions

    • Customs authorities being satisfied with the truth and accuracy of the declared value

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Valuation Factors

The Valuation Factors are the various elements which must be taken into account by :

(i) addition (Dutiable factors) to the extent these are shown to be not already included in the price actually paid or payable or

(ii) deduction (Non-dutiable factors) from the total price incurred in determining the Customs Value, for assessment purposes.

Dutiable Factors

  • Commissions and brokerage, except buying commissions

  • The cost of containers which are treated as being one for Customs purposes with the goods in question

  • The cost of packing whether for labour or materials

  • The value, apportioned as appropriate, of the following goods and services where supplied directly or indirectly by the buyer free of charge or at reduced cost for use in connection with the production and sale for export of the imported goods, to the extent that such value has not been included in the price actually paid or payable :

    • Material, components, parts and similar items incorporated in the imported goods

    • Tools, dies, moulds and similar items used in the production of the imported goods

    • Materials consumed in the imported goods

    • Engineering, developing, artwork, design work, and plans and sketches undertaken elsewhere than in the importing country and necessary for the production of imported goods

  • Royalties and license fees related to goods being valued that the buyer must pay either directly or indirectly, as a condition of sale of the goods being valued, to the extent that such royalties and fees are not included in the price actually paid or payable

  • The value of any part of the proceeds of any subsequent resale, disposal or use of the goods that accrues directly or indirectly to the seller

  • Advance payments

  • Freight charges up to the place of importation

  • Loading, unloading and handling charges associated with transporting the goods

  • Insurance

Non-dutiable Factors

The following charges, provided they are separately declared in the commercial invoice :

  • Interest charges for deferred payment

  • Post-importation charges (e.g. inland transportation charges, installation or erection charges, etc.)

  • Duties and taxes payable in the importing country

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Cases where Transaction Value may be Rejected

The transaction value may not be accepted for customs valuation in the following category of cases :

  • If there are restrictions on use or disposition of the goods by the buyer. However, the transaction value will not be rejected if restrictions :

    • Are imposed by law or public authorities in India

    • Limit geographical area of resale

    • Do not affect the value of the goods substantially

  • If the sale or price is subject to a condition or consideration for which a value cannot be determined. However, conditions or considerations relating to production or marketing of the goods shall not result in rejection.

  • If part of the proceeds of the subsequent resale, disposal or use of the goods accrues to the seller, unless an adjustment can be made as per valuation factors.

  • If buyer and seller are related,unless it is established by the importer that :

    • The relationship has not influenced the price

    • The importer demonstrates that the price closely approximates one of the test values

 

Cases where Valuation Conditions are not Fulfilled

If objective and quantifiable data does not exist with regard to the valuation factors, if the valuation conditions are not fulfilled, or if customs authorities have doubts concerning the truth or accuracy of the declared value in terms of the Customs Valuation Rules, the valuation has to be carried out by another method in the following hierarchical order :

  • Comparative Value Method - Comparison with Transaction Value of Identical goods.

  • Comparative Value Method - Comparison with Transaction Value of Similar goods.

  • Deductive Value Method - Based on sale price in the importing country.

  • Computed Value Method - Based on cost of materials, fabrication and profit in the country of production.

  • Fallback Method - Based on previous methods with greater flexibilit.

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Other Categories

Taxation
Taxation of Individuals
Who is liable to pay income tax
Sources of Income
Income from Salaries
Income from Capital Gains
Income from House property
Income from Profits & gains of business or profession
Income from other sources
Taxation of Partnerships
Customs Duties (Import Duty and Export Tax)
Wealth Tax
Taxation of Corporates
Taxation of Agents
Excise Duty
Permanent Account Number (PAN)
Taxation of other forms of business entities
Taxation of Trusts
Taxation of Small Scale Industries
Joint Venture Companies
Cooperative Societies
Taxation of Representative offices
Service Tax
TDS,TCS,TAN
Value Added Tax (VAT)


Introduction

India has a well developed tax structure. The power to levy taxes and duties is distributed among the three
tiers of Government, in accordance with the provisions of the Indian Constitution. The main taxes/duties that
the Union Government is empowered to levy are:- Income Tax (except tax on agricultural income,
which the State Governments can levy), Customs duties, Central Excise and Sales Tax and Service Tax. The principal taxes levied by the State Governments are:- Sales Tax (tax on intra-State sale of goods), Stamp Duty (duty on transfer of property), State Excise (duty on manufacture of alcohol), Land Revenue (levy on land used for agricultural/non-agricultural purposes), Duty on Entertainment and Tax on Professions & Callings. The Local Bodies are empowered to levy tax on properties (buildings, etc.), Octroi (tax on entry of goods for use/consumption within areas of the Local Bodies), Tax on Markets and Tax/User Charges for utilities like water supply, drainage, etc.

In the wake of economic reforms, the tax system in India has under gone a radical change, in line with the
liberal policy. Some of the changes include:- rationalization of tax structure; progressive reduction in peak
rates of customs duty; reduction in corporate tax rate; customs duties to be aligned with ASEAN levels;
introduction of value added tax; widening of the tax base; tax laws have been simplified to ensure better compliance. Tax policy in India provides tax holidays in the form of concessions for various types of investments. These include incentives to priority sectors and to industries located in special area/ regions. Tax incentives are available also for those engaged in development of infrastructure.