Customs Duty is a tax imposed by the Government of India on

imports and exports of goods. It is regulated under the

Customs Act, 1962, and administered by the Central Board of
Indirect Taxes and Customs (CBIC).

1. The Historical Context of the Customs Act, 1962:-

The Customs Act of 1962 stands as a cornerstone in India's legislative

framework, governing the regulation of imports, exports, and the
imposition of customs duties. To appreciate its significance, it's essential to
delve into its historical context, tracing the evolution of customs laws in
India.

 Pre-Independence Era: Foundations of Customs

Regulation:
The concept of customs duties in India dates back to ancient times, where
rulers imposed levies on goods entering their territories. During the British
colonial period, customs duties became a structured mechanism to
regulate trade and generate revenue for the empire. The first modern
customs law, the Indian Tariff Act of 1834, was introduced by the British to
formalize the collection of duties and control trade flows. This act laid the
groundwork for subsequent customs regulations, establishing a system that
primarily served colonial economic interests.

 Post-Independence Developments: Need for a

Comprehensive Framework:
After gaining independence in 1947, India inherited a fragmented and
outdated customs system. Recognizing the need for a cohesive legal
structure to manage the nation's trade effectively, the government sought
to consolidate and modernize customs laws. This led to the enactment of
 the Customs Act in 1962, aiming to streamline customs procedures,
enhance revenue collection, and protect domestic industries.
 Evolution and Modernization: Adapting to Global Trade:
Over the decades, the Customs Act has undergone several amendments to
align with global trade practices and technological advancements. Notable
developments include:
 Introduction of the Customs Tariff Act, 1975: Providing detailed
classifications and duty rates for various goods.
 Implementation of Electronic Data Interchange (EDI): Facilitating
faster and more transparent customs procedures.
 Alignment with International Conventions: Incorporating provisions
from agreements like the World Trade Organization (WTO) to promote fair
trade.
These enhancements have positioned India to better manage its international
trade obligations and foster economic growth.

2. Objectives of Customs Act, 1962:

The Customs Act, 1962, is a pivotal legislation in India that

governs the import and export of goods, the levy and collection of
customs duties, and the enforcement of related laws. Its primary
purpose is to regulate international trade, safeguard national
interests, and generate revenue for the government.

 Key Objectives of the Customs Act, 1962:

 Revenue Generation: The Act facilitates the collection of

customs duties on imported and exported goods, contributing
significantly to the national exchequer.
 Regulation of Imports and Exports: It provides a legal
framework to monitor and control the movement of goods across
 India's borders, ensuring compliance with trade policies and
agreements.
 Protection of Domestic Industries: By imposing duties on
certain imports, the Act aims to protect local industries from
unfair competition and dumping practices.
 Prevention of Smuggling: The Act empowers customs
authorities to prevent and penalize smuggling activities, thereby
protecting the economy and society from illegal trade.
 Enforcement of Prohibitions and Restrictions: It enforces
various prohibitions and restrictions on the import and export of
goods, aligning with national security, public health, and
environmental considerations.
 Facilitation of Trade: The Act includes provisions to simplify
and expedite customs procedures, promoting ease of doing
business and facilitating legitimate trade.
 Implementation of International Agreements: It ensures
compliance with international conventions and agreements
related to customs and trade, such as the World Trade
Organization (WTO) guidelines.

3. Categories of Custom Duty:

Under the Customs Act, 1962, India imposes various types of

customs duties on the import and export of goods. Here's an
overview of the primary types of customs duties:

I. Basic Customs Duty (BCD):

 Definition: Levied under Section 12 of the Customs Act, 1962, and
specified in the First Schedule of the Customs Tariff Act, 1975.
  Purpose: Applied to all imported goods to protect domestic
industries and generate revenue.
 Calculation: Typically calculated as a percentage of the assessable
value of goods.

II. Countervailing Duty (CVD)

 Definition: Levied under Section 9 of the Customs Tariff Act,
1975.
 Purpose: Imposed to counteract subsidies provided by
exporting countries to their exporters, ensuring fair
competition.
 Calculation: Based on the subsidy amount conferred on the
exported goods.

III. Anti-Dumping Duty

 Definition: Levied under Section 9A of the Customs Tariff Act,
1975.
 Purpose: Imposed when goods are exported to India at prices
lower than their normal value, causing injury to domestic
industries.
 Calculation: Determined based on the margin of dumping, i.e.,
the difference between the export price and the normal value.

IV. Safeguard Duty:

 Definition: Levied under Section 8B of the Customs Tariff Act,
1975.
 Purpose: Imposed to protect domestic industries from a sudden
surge in imports that cause or threaten to cause serious injury.
 Calculation: Applied as a percentage of the value of imported
goods, typically for a limited period.
 V. Protective Duty:
 Definition: Imposed under Section 6 of the Customs Tariff Act,
1975.
 Purpose: Levied to protect domestic industries from imports that
may harm their growth.
 Calculation: Rates are recommended by the Tariff Commission
and notified by the government.

VI. Integrated Goods and Services Tax (IGST):

 Definition: Levied under the IGST Act, 2017, on imported goods.
 Purpose: Ensures that imports are taxed similarly to domestic
supplies under the GST regime.
Calculation: Applied on the value of imported goods plus any
customs duties.

VII. Social Welfare Surcharge (SWS):

 Definition: Introduced in the 2018 Union Budget, replacing earlier
cesses.
 Purpose: Aims to fund social welfare schemes of the government.
 Calculation: Charged at 10% on the aggregate of customs duties
(excluding IGST).

VIII. Agriculture Infrastructure and Development Cess (AIDC):

 Definition: Introduced in the 2021 Union Budget.
 Purpose: Levied to finance agriculture infrastructure and
development.
 Calculation: Applied on specific imported goods, with rates
varying based on the product.

Note: The applicability and rates of these duties can vary based on
government policies, international agreements, and specific product
categories. It's essential to consult the latest notifications and the
Customs Tariff Act for current rates and provisions.

4. Compliance in Custom Act:-

Compliance with the Customs Act, 1962, is essential for importers
and exporters operating in India. The Act outlines a structured
procedure to ensure lawful import and export of goods, safeguard
revenue, and facilitate legitimate trade. Below is an overview of
the key compliance steps:

I. Obtain Importer Exporter Code (IEC)

 Prior to engaging in import or export activities, businesses must
obtain an IEC from the Directorate General of Foreign Trade
(DGFT).
 The IEC is a 10-digit code required for customs clearance and
international financial transactions.

II. Classification and Licensing

 Determine the correct classification of goods using the Indian
Trade Classification (Harmonized System) [ITC (HS)] codes.
 Identify if the goods are restricted, prohibited, or require
special licenses under Section 11 of the Customs Act, 1962, and
the Foreign Trade Policy.

III. Filing Import/Export Declarations

 Importers: Submit a Bill of Entry electronically before the
arrival of goods, as mandated by Section 46 of the Customs
Act.
 Exporters: File a Shipping Bill for export clearance.
  These documents must include accurate details about the
goods, value, and applicable duties.

IV. Submission of Supporting Documents

 Provide necessary documents such as invoices, packing lists,
bills of lading, insurance certificates, and licenses.
 Ensure all documents are authentic and comply with the
prescribed format.

V. Assessment and Examination:

 Customs authorities assess the declared value and classification
of goods to determine applicable duties.
 Goods may be subjected to physical examination or inspection
based on risk assessment criteria.

VI. Payment of Duties and Taxes:

 Pay the assessed Basic Customs Duty (BCD), Integrated Goods
and Services Tax (IGST), Social Welfare Surcharge (SWS), and
any other applicable cesses.
 Payment must be made electronically through the customs
portal.

VII. Clearance and Release of Goods:

 Upon satisfactory assessment and payment, customs issues an
"Out of Charge" order for imports or a "Let Export Order" for
exports.
 Goods can then be cleared from the customs area.

VIII. Post-Clearance Audit (PCA):

 Customs may conduct audits after clearance to verify the
accuracy of declarations and compliance with regulations.
  The Customs Audit Regulations, 2018, provide the framework
for such audits, focusing on risk-based selection of cases.

IX. Record-Keeping:
 Maintain all relevant records, including declarations, invoices,
and correspondence, for a minimum of five years.
 These records should be readily available for inspection by
customs authorities.

X. Settlement of Disputes:
 In case of disputes or non-compliance, parties can approach
the Customs, Excise, and Service Tax Appellate Tribunal
(CESTAT) for resolution.
 Alternatively, the Settlement Commission provides a
mechanism for voluntary disclosure and settlement of cases
before adjudication.

5. Custom Clearance Process:

This process ensures compliance with legal requirements,
facilitates trade, and safeguards national interests. Here's a
detailed overview of the procedures involved:

 Import Customs Clearance Process:

I. Arrival of Goods & Import General Manifest (IGM) Filing:

Upon arrival at an Indian port or airport, the carrier (ship or
airline) files an IGM with customs authorities, detailing the cargo.
 II. Cargo Arrival Notice (CAN):
The carrier issues a CAN to the consignee or their customs broker,
notifying them of the cargo's arrival.

III. Filing of Bill of Entry (BoE):

The importer or their customs broker files a BoE electronically via
the ICEGATE portal, declaring details of the imported goods.

IV. Submission of Supporting Documents:

Documents such as the commercial invoice, packing list, bill of
lading/airway bill, certificate of origin, insurance certificate, and
any required licenses or permits are submitted.

V. Assessment & Duty Calculation:

Customs authorities assess the declared goods, determine their
classification and value, and calculate applicable duties and taxes,
including Basic Customs Duty, IGST, and other levies.

VI. Customs Examination:

Based on risk assessment, customs may inspect the goods
physically to verify the declaration's accuracy.

VII. Payment of Duties:

The importer pays the assessed duties and taxes through
designated payment methods.

VIII. Release Order (Out of Charge):

After verifying payment and compliance, customs issues an 'Out
of Charge' order, allowing the goods to be cleared from the port.

 Export Customs Clearance Process:

 I. Preparation of Shipping Bill:
The exporter or their customs broker prepares a shipping bill, the
primary document for export customs clearance, filed
electronically via ICEGATE.
II. Submission of Supporting Documents:
Documents such as the commercial invoice, packing list, bill of
lading/airway bill, certificate of origin, and any required licenses
or permits are submitted.

III. Assessment & Examination:

Customs assesses the shipping bill and may inspect the goods to
ensure compliance with export regulations.

IV. Let Export Order (LEO):

Upon satisfactory assessment, customs issues an LEO, authorizing
the goods for export.

V. Loading & Departure:

The goods are loaded onto the vessel or aircraft, and the carrier
files the Export General Manifest (EGM) with customs

 Key Documents in Customs Clearance:

 Commercial Invoice: Details the transaction between exporter

and importer.
 Packing List: Provides information on the packaging and
contents.
 Bill of Lading/Airway Bill: Serves as a receipt and contract for
transportation.
  Certificate of Origin: Certifies the country of origin of the
goods.
 Insurance Certificate: Proof of insurance coverage for the
goods.
 Import/Export Licenses: Required for restricted goods.
 Technical Literature: For machinery or specialized equipment.
 Product Testing Certificates: For items requiring compliance
with standards.

Understanding and adhering to these procedures ensures smooth

customs clearance, compliance with legal requirements, and efficient
international trade operations.

6. How to Calculate custom Duty?

Under the Customs Act, 1962, customs duty in India is calculated
based on the assessable value of imported goods. This value is
determined by adding the Cost, Insurance, and Freight (CIF) of the
goods, along with landing charges (typically 1% of the CIF value).

 Steps to Calculate Custom Duty:

I. Determine the Assessable Value (AV):

Formula: AV = CIF Value + Landing Charges (1% of CIF)

II. Calculate Basic Customs Duty (BCD):

Formula: BCD = AV × Applicable BCD Rate
III. Calculate Social Welfare Surcharge (SWS):
Formula: SWS = BCD × 10%

IV. Calculate Integrated Goods and Services Tax (IGST):

Formula: IGST = (AV + BCD + SWS) × IGST Rate.

V. Add Other Applicable Duties:

Include any Anti-Dumping Duty, Safeguard Duty, or Agriculture
Infrastructure Development Cess (AIDC), if applicable.
VI. Compute Total Customs Duty:
Formula: Total Duty = BCD + SWS + IGST + Other Duties

 Tools for Calculation:

For ease of calculation, you can use online customs duty
calculators:
 EximGuru Import Duty Calculator
 Indian Customs Info Duty Calculator
 Wise Import Duty Calculator

These tools allow you to input product details, CIF value, and applicable
rates to compute the total customs duty.

7. Recent Trends in Custom’s:-

 Promotion of Domestic Manufacturing:
 Electric Vehicle (EV) Incentives: India has introduced a new
EV scheme allowing companies that invest at least $486
million in local EV production to import a limited number of
electric cars at a reduced import duty of 15%, down from
the standard 70%.
  Mobile and Electronics Sector: To encourage local value
addition, the basic customs duty (BCD) on mobile phones,
printed circuit board assemblies (PCBAs), and chargers has
been reduced to 15%.
 Critical Minerals: Customs duties have been fully exempted
on 25 critical minerals essential for sectors like electronics
and renewable energy, with BCD reductions on two others
to support processing and refining activities.

 Duty Reductions to Curb Inflation:

 Edible Oils: The BCD on crude palm oil, soybean oil, and
sunflower oil has been halved from 20% to 10% for one year
to alleviate food inflation and support domestic refiners
 Gold and Silver: Customs duties on gold and silver imports
have been reduced from 15% to 6%, aiming to boost legal
imports and reduce smuggling.

 Protective Measures for Domestic Industries:

 Steel Industry: The government is considering doubling the
safeguard duty on steel imports from 12% to 24% to protect
domestic manufacturers from a surge in cheaper imports,
particularly from China. THE TIMES OF INDIA.

 International Trade Agreements and Adjustments:

 India-UK Free Trade Agreement (FTA): The FTA includes duty
cuts on luxury British automobile imports and provisions to
facilitate the movement of professionals, such as yoga instructors,
between the two countries. The Economic Times.
 India-US Trade Negotiations: India is offering significant tariff
reductions on various goods to the US while maintaining high
 tariffs on sensitive agricultural products like rice and dairy to
protect domestic interests.

 Structural Reforms and Simplification:

 Customs Duty Rationalization: The Union Budget 2024-25
proposes a comprehensive review of the customs duty rate
structure to simplify taxation, remove duty inversions, and
reduce disputes.
 Export Incentives: The Remission of Duties and Taxes on
Exported Products (RoDTEP) scheme has been reinstated to
reimburse exporters for embedded taxes, enhancing export
competitiveness.
These trends indicate a concerted effort by the Indian government to
fine-tune customs duties in alignment with economic objectives,
including boosting domestic production, managing inflation, and
engaging in strategic international trade partnerships.