CUSTOMS DUTY

Two Mark Question & Answer Six Mark Question

& Answer Twelve Mark Question & Answer

Syllabus:
Introduction to customs duty – Customs Procedures – levy and collection of
customs duty exemptions from customs duties – goods included under customs
duty ACT - Methods of Valuation of Customs Duty [including anti-dumping and
safe guard duty] –Problems.

Introduction to customs Act

Definition of Customs:
Customs duty is a type of indirect tax levied on goods imported into India or
exported out of India.

Basis of determining duty:

 Ad Valorem Duty -When the duty is determined on the basis of the value of
the goods it is referred to as ‘Ad Valorem Duty’.
 Specific Duty-When the duty is determined on the basis of the
measurement of goods, it is called Specific Duty.

Main features of customs duty:

 Levied on goods imported-Customs duty levied on import of goods.

 It is an indirect tax-imposed by the central govt. on import

 Customs duties are not levied on life-saving drugs, fertilizers and food grains
 Goods under Customs Act:
includes

 Vessels and aircrafts

 Stores
 Baggage
 Currency and negotiable instrument sand
 Any other type of movable property

 Sources of customs law:

The study of Indian custom law is a combination of Basic Customs Act of
1962 and Customs Tariff Act of 1975, Notifications, circulars, trade notice
and case laws

 BasicCustomsActof1962:
Contains the provisions covering import and export duty imposed on import
and export of the different categories of goods, vessels, aircrafts, passenger
etc.

CustomsTariffActof1975:

Containstheprovisionsrelatingtovarioustypesofcustomdutiespayableand gives
the classification of imported and export goods for e.g. insurance, fright
charges etc. it different from one country to another country.
 Exportmanifestregulations,1976:
Contains the provisions relating to a general declaration, a passenger
manifest, a cargo manifest and a list of private property in the possession of
the Captain of the aircraft and other members of the crew.
 Customsvaluationsrulesof2007:
Contain provisions relating to determination of Value of Export Goods
 Baggagerulesof,1998:
Luggage of the passengers and it contains provisions relating to
dutiable goods imported by a passenger or a member of crew in his
baggage. Excluding jewellery, required for satisfying daily necessities
of life
 Goods and Services Tax:
Integrated Goods and Services Tax (IGST) Act is the source for deciding the
levy of Integrated Tax

Objectives of levying custom duty:

 Restricting Imports for conserving foreign exchange
 Raising revenue for Central Government
 Regulate imports and exports
 Protect Indian industries from dumping
 Prevention of Smuggling.
 International passenger processing

Types of custom duty:

1. Basic Customs Duty(BCD):

This is levied on imported items that are part of Section 12of the Customs
Act, 1962. The tax rate is levied as per First Schedule to Customs Tariff
Act,1975.BasicCustomsDutyiscalculatedon Assessable Value’ of goods
imported or exported.

2. Integrated Goods and Service Tax(IGST):

IGST is one form of GST which has subsumed various custom duties
including countervailing Duty (CVD), additional custom duty (ACD) and
Special Additional Duty (SAD) w.e.f. 01. 07. 2017. IGST is imposed
on/levied on goods imported into India from other country being a deemed
interstate supplies. The rateofIGSTshouldnotbemorethan40%onvalueof
imported goods determined u/s 3(8) of Custom Tariff.

3. Protective Duty:
This is levied for the purpose of protecting indigenous businesses and
domestic products against overseas imports. The rate is decided by the
Tariff Commissioner.

4. Anti-dumping Duty:
This is levied if a particular good is being imported is below fair market
price.

5. Safeguard Duty:
 This is levied by the customs authorities if they feel that the export sofa
particular good can damage the economy of the country.

6. Countervailing duty on subsidized goods(CVD):

Is an additional import duty imposed on imported products (by the importing
country) when such products enjoy benefits like export subsidies and tax
concessions in the country of their origin (i.e., where it is produced and
exported).
7. Special Additional Duties of Customs(SAD)-SAD:
Is levied due to the reason that imports are cheap compared to price charged
by local manufacturer. Thus to ensure both the imports and local prices are
equal special additional duty is levied.
Treatment of imports:
GST is applicable on all imports into India in the form of levy of IGST. IGST
is levied on Value of the imported goods+ Basics Customs Duty + Social
Welfare Surcharge =Value based on which IGST is calculated.

 Basis of different methods of valuation for customs. The Valuation Rules,

1988 based on WTO valuation Agreement, consists of rules providing six
methods of valuation. These methods are explained as follows:
What is transaction Value-Transaction Value of imported goods shall be the
price actually paid or payable for goods when sold for exports to India,
adjusted in accordance with provisions of rule9.
 Transaction value of imported goods: the price actually paid or payable for
the goods when imported to India, adjusted in accordance with provision of
rule 9. As per rule 9, various additions like cost of containers, cost of packing,
cost of materials, components etc. or services supplied by buyer; royalties
payable etc. are includible, if these do not already form part of transaction
value.
 Transaction value of identical goods: ‘Identical goods’ (similar goods) are
defined under rule 2(1)(C) as those goods which fulfill all the following
conditions:
 Goods should be same in all aspects except minor appearance
 Goods should have been produced in the same country.
 They should be produced by same manufacturer.

Rule 5 of Customs Valuation Rules provide that if valuation on the basis of

 ‘transaction value’ is not possible, the ‘Assessable Value’ will be decided on
basis of transaction value of identical goods imported to India.
 Transaction of similar goods: If first and second method of valuation of
transaction cannot be used, rule 6 provide for valuation on the basis of
‘Transaction Value of similar goods
 Deductive Value: Rule 7 of Customs Valuation Rules says that’. This
method should be applied if transaction value of identical goods or
similar goods is not available; but products are imported to India.
Assessable value is calculated by reducing post importation costs and
expenses, from this selling price. This is called deductive value.
(deduction means arrive at by inference by making suitable additions,
subtractions from a known price to arrive at required Customs Value’)
 Computed Value for Customs: If valuation is not possible by deductive
method,rule7A provides that if the importer requests the customs officer
to approves, this method’.

In this method ,value is the sum of

(a) Cost of value of materials and fabrication or other processing
employed in producing the imported goods.
(b) an amount for profit and general expenses equal to that usually
reflected in sales of goods of the same class or kind,
(c) Thecostorvalueofallotherexpenseunderrule9(2)i.e. transport,
insurance, loading, unloading and handling charges.

 Residual method: It is also often termed as fall back method. This

method is used in case where ‘Assessable value’ cannot be determined by
any of the preceding methods. While deciding assessable value under this
method, rules provides that valuation should be on the basis of data
available in India.
Computation of Transaction value:
Amount is Rs.
Particulars
In case of Imported Goods
 The price actually paid or payable for the goods or
 when sold for export to India or
 for delivery at the time and place of importation or
 where the buyer and seller of the goods are not related and price is
the sole consideration for the sale
(any one no men cloture may be used)
Add: The following items it already not included
 Commission and brokerage ,except buying Commission.
 Cost of container ,Cost of packing whether labor or materials.
 Materials, components, tools, dies, moulds, and consumables used
in production of imported goods, supplied by buyer directly or
indirectly, free of charge or at reduced cost.
 Engineering, development, art work, design work, plans and
sketches undertaken elsewhere than in India and necessary for
production of imported goods.
 Royalties and license fees relating to imported goods that buyer is
required to
 Pay, directly or indirectly, as a condition of sale of goods being
valued.
  Value of proceeds of subsequent resale, disposal or use of goods
that accrues directly or indirectly to seller (i.e. to foreign exporter).
 All other payments made as condition of sale of goods being
valued made directly or to third party to satisfy obligation of seller.
 Cost of transport up to place of importation.
 Actual cost of loading, unloading and handling charges associated
with delivery of imported goods at place of importation [These are
termed as landing charges and are to be taken as1%].
 Cost of insurance
Less) Exclusion from the transaction the following items must be
deducted in case they are included in the ‘price
 Charges for construction, erection, assembly, maintenance or
technical assistance under taken after importation of plant,
machinery or equipment
 Cost of transport after importation
 Duties and taxes in India
 Other payments from buyer to seller that do not relate to imported
goods are not part of the customs value.
 Demurrage charges payable to port trust authorities for delay in
clearing
goods are not to be added
After all the above inclusions and exclusions, the ‘Transaction Value’ is
referred to as ‘FOB Value’– i.e., ‘Free-on-Board’ Value

 Anti-Dumping:
Dumping means export of goods by exporters of one country/ territory to the market
of another country/territory at a price lower than the price prevailing in the country
of export and difference in such price is called margin of dumping.
 Baggage:
The term Baggage means luggage of the passenger if they travel by Air or sea fromone
country to another country.
Or
Baggage means all dutiable goods imported by a passenger or a member of a crew in
his baggage.

 Social welfare surcharge(SWS):

Social welfare surcharge introduced in the budget 2018 is levied in place of
educational Cess. The rate is 10% of the value of goods. GST is applicable on all
importsintoIndiaintheformoflevyofIGST.IGSTisleviedonthevalueofimported goods +
any customs duty chargeable on the goods. P.T.O
  Computation of Assessable Value
Particulars Amount
in Rs.
Ex-Factory price/Ex-godown price/cost of the product xxxx
Add:Transportexpensesincurreduptocustomstationinexportingcountry xxxx
Free along sides hip value(FAS value) xxxx
Add: Loading charges(Loading goods from custom station into ship in
foreign country) xxxx
Free on Board as per in voice(FOB)(transaction value) xxxx
Add: Expenses incurred in exporting country by importer.
(dismantling charges, repairs/ renovation/reconditioning charges,
Certification charges, design development charges, capital goods sent
from India ,Materials/spare parts sent from India, job/art work, selling
agent commission(buying agent commission to be ignored), royalty/
technical knowhow / trade mark /copy right expenses) xxx
Free on Board for customs valuation(FOB) xxxx
Add:1.Freight
(Ifnodetailsgiven20%ofFOB/incaseofAir:Max.20%ofFOB) (Actual
freight expenses, barging/ lightering charges/ Unloading charges / xxxx
ship demurrage charges)
2. Insurance charges(ifnodetailsgiven:1.125%ofFOB) xxx
3. Actual Handling charges(1%ofCIFisremoved) xxx
(unloading charges, internal transport up to storage within the port
(port demurrage charges paid by the importer should be ignored),
storage charges)
CIF/AV/CUSTOMSVALUE XXX

Note;Landingchargesarenotincludiblew.e.f.26.09.2017.
Computation of customs Duty:
Amount Total customs
Particulars in Rs duty
Assessable Value xxx
Add: Basic customs duty(BCD)(AVXBCD%) xxxx xxxx
Total A xxxx
Add: Countervailing duty(CVD)(Total AXCVD%) xxxx xxxx
Total B
xxxx
Add: Social welfare surcharge(BCD+CVDX10%) xxxx
xxxx
Total C xxxx
xxxx xxxx
Add: IGST(Total CXIGST %)
Add: GST compensation Cess
xxxx xxxx
(Total CXGST compensation cess %)

Total Customs Duty Rounded To xxx xxxx

PROBLEMNO:01

Fromthefollowingparticularsdeterminetheassessablevalueoftheimported equipment,
(Assumed that goods are imported on 29.02.2022)
1. FOB cost of equipment(Japanese Yen)–5,00,000Yen
2. FreightchargesinJapaneseYen–50,000Yen
3. ChargesfordevelopmentconnectedtoequipmentpaidinIndia–1,60,000
4. InsurancechargespaidinIndiafortransportationfromJapan45,000
5. CommissionpayabletoagentinIndia-35,000
6. Exchange rate as per RBI is 1 Yen= ` 0.45. Exchange rate as per CBE&C is 1
Yen= 0.50

PROBLEMNO:02

Animporterimportssomegoods@10,000US$onCIFbasis,on02.01.2022. Following dollar

rate are available on the date of Presentation of bill of entry.
1. RBIfloorrate:59.37
2. InterbankclosingrateRs.59.38
3. RatenotifiedbyCBE&Cundersection14(13)(a)(1)ofcustomsactRs.59.55
4. RateatwhichbankhasrealizedthepaymentfromRs.59.58 Find
the assessable value for customs purpose.
PROBLEMNO:03

A consignment is imported by air on 2022. CIF price is 1,000 US$. Freight is 320
US$. Insurance cost was US$ $ 35. Exchange rates as follows RBI floor rate: Rs.
59.37, Interbank closing rate Rs. 59, 38 Rate notified by CBE&C under section
14(13)(a)(1) of customs act Rs.59.55, Rate at which bank has realized the payment
Rs.59.58. find the value for customs purposes.

SOLUTION:
Note:1.Ifgoodsareimportedbyair,freightisrestrictedto20%ofFOBvalueor amount of
our freight available, and whichever is less.
Note:2.CIFincludesfreightandinsurance,ifwedeductFreightandinsuranceweget FOB (Free
On Board).
Note; always take rate notified by CBE &C for calculations
PROBLEMNO:04

Compute the assessable value for purposes of determination of custom duty from the
following data:
1. Machinery imported from USA by air(FOB price)US$4,000
2. AccessoriescompulsorilysuppliedalongwiththemachineryUs$1,000
3. AirfreightUs$1,200
4. Insurance charges actual not available.
5. Localagent`scommissiontobepaidinIndiancurrencyRs.9,300
6. TransportationfromIndianairporttofactoryRs.4,000
7. ExchangerateUS$1=Rs.60asperRatenotifiedbyCBE&C
Provide explanation where ever necessary.

PROBLEMNO:05

Fromthefollowingparticularsdeterminetheassessablevalueoftheimported equipment,
(Assumed that goods are imported on 29.02.2022)
1. FOB cost of equipment(Japanese Yen)–2,00,000Yen
2. FreightchargesinJapaneseYen–20,000Yen
3. ChargesfordevelopmentconnectedtoequipmentpaidinIndia–,60,000
4. InsurancechargespaidinIndiafortransportationfromJapan15,000
5. CommissionpayabletoagentinIndia-15,000
6. Exchange rate as per RBI is 1 Yen= ` 0.45. Exchange rate as per CBE&C is 1
Yen= 0.60.
PROBLEMNO: 06
Calculation of customs duty payable is as follows, if assessable value Rs.50,000 BCD
15% and IGST rate taken as18%.

PROBLEMNO:07(2021)

A Machineryisimportedbyairin2022.CIFofthemachineryis3,000 UK pound. Freight is

1,200 UK pound, Insurance cost 200UK pound. Applicable rate of BCD is 10%, SWS
is 10% on BCD and IGST is 18%. Exchange rate per UK pound is as follows:
RBI floor rate=Rs.102.55
Inter –bank closing rate = Rs.102.80
Rate notified by CBE&C=Rs.103.50
Rate at which bank realized the payment = Rs.103.75
Compute the customs value and customs duty payable.

PROBLEMNO:08(2020)
Maruthi industries imported a machine for 10,000 US$ from USA. Form the following
information calculates assessable value and customs duty payable.

1. Packingcharges240US$

2. Designanddevelopmentcharges600US$

3. Insurance100US$

4. Freightchargesthroughair320US$

5. Commissionpaidtoabrokerwhoarrangedthetransaction200US$

6. Exchange rates pacified by board one dollar Rs.70

7. Basiccustomsduty10%

8. IGST@18%

9. Socialwelfarecessapplicableat10%onBCD.
PROBLEMNO:09(2019)
From the following information, compute the assessable value:
1. ValueofmachineinUKpounds32,000,FOB
2. Engineeringanddesignchargespaid-UKpounds12,000
3. Freight paid(Air)–UKpounds6,000

4. Insurance–Not known
5. Commissionpayabletolocalagent@2%ofFOBinIndianRupees.
6. TheexchangerateannouncedbytheCBE&CisRs.68perUKpound
Note; always take rate notified by CBE & C for calculations

PROBLEMNO:10(2019)
Mr. Bharath imports by air from USA a machine along with relevant accessories
and spares for the value US$ 1,20,000 FOB. The other details are as follows:
1. CommissiontolocalagentinIndiaRs.27,000
2. FreightandinsurancefromairporttofactorygodownRs.30,000
3. FreightUS$36,000(US to India)
4. Goods are insured, premium amount is not shown in invoice and not available
5. AttherequestofMr.BharathUS$6,000hasbeenincurredasexpensesfor improving
the design of the Machine, but the same not reflected in the invoice.
6. Basiccustomdutyis15%socialwelfaresurchargeis10%andIGST-18%
7. Exchange rate considered US$=Rs.72
Compute:
a. Assessable value
b. Total customs duty payable.
Note; always take rate notified by CBE &C for calculations

PROBLEMNO:11(2018)
A consignment is imported by Air. CIF price is 2,500 US$. Air freight is 600 US$
and insurance cost is 75US$. Exchange rate announced by CBE&C as per customs
notification is 1 US$= Rs.65. Basic customs duty payable is 10%.Social welfare
surcharge is 10% applicable. IGST at the rate of 18%. Find the value for customs
purpose and total customs duty payable.
 PROBLEMNO:12
Computetheassessablevalueandcustomdutypayablefromthefollowinginformation:
1. FOBvalueofmachine8,000UKpounds
2. Freight paid(air)2,500UKpounds
3. DesignanddevelopmentchargespaidinUK-500UKpounds
4. Commissionpayabletolocalagent@2%ofFOBinIndianrupee
5. Dateofbillofentry24-10-2022(rateBCD15%exchangerateasnotifiedby CBE&C
Rs.68 Per UK Pound)
6. Date of entry inward24-10-2022(rate BCD15% exchange rate as notified by
CBE&C Rs.70 Per UK Pound)
7. Insurance charges actually paid but details not available.

PROBLEMNO:13
ABCLtd.ImportedgoodsfromUSAatacostofUS$19,000FOB, the other details are
as follows:
1. Transitinsurance1,900$
2. CommissiontolocalagentRs.5,800
3. Seafreightcharges5,800$
4. Packingcharges4,300$
5. Designanddevelopmentchargesof5,000$werepaidtoconsultancyfirmin USA.
6. RateofexchangenotifiedbyCBECRs.58=1$

PROBLEMNO:14
UditaLtd.,anactualuserimportscertaingoodsfromUSA,atchennailport,atcost of
$1,00,000FOB.Theotherdetailsareasfollows:
1. Packing charges:$22,000
2. Sea freight to Indian port:$28,000
3. Transit insurance:$10,000
4. DesignanddevelopmentchargespaidtoaconsultantinUSAbyimporter:$9,000
5. SellingcommissiontobepaidbytheIndianimporter:Rs.5,000
6. RateofexchangeannouncedbyRBIRs.60=1$
7. RateofexchangenotifiedbytheCBE&C:Rs.59.5-per1$.Rateofbasiccustoms duty:
15% , SWS 10% and IGST 18%.
Compute the assessable value of the imported goods and basic customs duty
payable.
PROBLEMNO:15(2021)

Ashirvada India Ltd., Imported a machinery by air from Switzerland. Bill of entry is
presented on 25-03-2022: However, entry inward is granted on 10-04-2022.
The importer has furnished the following details:
CIFofthemachine50,000SwissFranc
Air freight 5,000 Swiss Franc
Insurance charges 2,500 Swiss Franc
Designandengineeringcharges2,000SwissFranc
Special packing charges1,000 Swiss Franc
Commission paid to local agent Rs.25,000
TransportcostfromIndianairporttofactoryRs.10,000 Basic
customs duty 10%
SWSpayable10%onBCD IGST
payable 18%
Exchange rate: Swiss Franc to Indian Rupees Announced:
On25-03-2022 on10-04-2022
By RBI Rs.82.20 Rs.82.10
By CBE&C Rs.82.25 Rs.82.35
Compute the assessable value and customs duty payable.

PROBLEMNO:16(2022)
ABC Ltd. imported goods from USA which is valued in Indian Currency Amounting
to Rs.8, 40,250.
Compute the customs duty from the following:
BCD-@10%,socialwelfarecess@10%,IGST@18%.

PROBLEMNO:17(2022)
M/s Raju industry has imported a machine from Japan at an FOB cost of Rs.1,80,000
yen. The other expenses incurred are as follows:
1. FreightfromJapantoIndiaport,18,000yen
2. InsurancepaidtoinsurerinIndiaRs10,000.
3. DesignchargespaidtoconsultancyfirminJapan20,000 Yen.
4. TransactioncostfromIndiaPorttothefactoryRs.20,000
5. Company spent Rs.40,000 in India for development work connected with the
machine.
6. ThecommissionpayabletotheagentinIndiawas5%ofFOBprice.
7. Exchange rate as per Central Govt. is 1Yen = Rs.0.62. However exchange rate
 prevailing in the market was 1Yen = Rs.0.60
8. BCDis15%.
9. Socialwelfarecessat10%on BCD.
10. IGST18%.
11. Calculate assessable value of machine and total customers duty payable.

*Two Marks Question and Answers

1. Define custom sport.(2021,2020)

Customs port means any port appointed under clause (a) of section 7 to be a
customs port and includes a place appointed under the same section to be an
inland container depot.
2. Expand the terms CBE & C, NCCD and BCD(2019)(2018)
CBE&C: Central Board of exchange and control.
NCCD: National calamity contingent duty.
BCD: Basic customs duty
3. What is custom duty?(2021,2019)
Custom duty is the duty levied on imported and exported goods from and India
through air, sea or land.
4. What is assurable value in customs?(2018)
Assessable value is a value which includes FOB+ Insurance + Freight+ design
development charges + packing charges +commission.
5. What is customs area?(2022)
The area of a customs station and includes any are a imported, or exported goods
are ordinarily kept by customs area.
6. What are the methods of valuation under customs?(5Marks)(2022)
1. Transaction value of imported goods.
2. Transaction value of identical goods.
3. Transaction value of similar goods.
4. Deductive value which is based on identical or similar imported goods sold
in India.
5. Computed value which is based on cost of manufacture of goods profit.
6. Residual methods based on reasonable means and data available.