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Overview of Customs Duty

Overview of Customs Duty

Customs Duty is imposed under the Indian customs Act 1962 by the Constitution of India under the Article 265, which states that “no tax shall be levied or collected except by authority of law. So, the Indian customs Act was introduced that allow the Central Government to collect the taxes under the name of Custom Duty.

Custom Duties are usually levied with advalorem rates and their base is determined by the domestic value the imported goods calculated at the official exchange rate. Similarly, export duties are imposed on export values expressed in domestic currency.

Export duties are levied occasionally to clear up excess profitability in international price of goods in respect of which domestic prices may be low at given time. But the concept of import duty is wide and almost universal, except for a few goods like food grains, fertilizer, life saving drugs and equipment etc.

The Indian Customs Duties are major source of revenue for the Union Government and constitute around 30% of its  tax revenues. Together with Central Excise Duty, the contribution amount to nearly three-fourth of total tax revenue of the Union Government.

Custom duty not only raises money for the Central Government but also helps the government to prevent the illegal imports and illegal exports of goods from India. The Central government has emergency powers to increase import or export duties whenever necessary after a notification in the session of Parliament.

Governing Body

As per Section 12 of the India Customs Act, Customs Duty is imposed on Goods, belonging to Government as well as goods not belonging to Government. Section 2(22), gives inclusive definition of ‘goods’ as – ‘Goods’ includes:


As per Section 12 of the India Customs Act, Custom Duty is imposed on Goods, belonging to Government as well as goods not belonging to Government. Section 2(22), gives inclusive definition of ‘goods’ as – ‘Goods’ includes:

  • Vessels, aircraft and vehicles
  • Stores
  • Baggage
  • Currency and negotiable instruments and
  • Any other kind of movable property.

Objectives of Custom Duties

The customs duty is levied, primarily, for the following purpose:

  • Restricting Imports for conserving foreign exchange.
  • Protecting Indian Industry from undue competition.
  • Prohibiting imports and exports of goods for achieving the policy objectives of the Government.
  • Regulating export.
  • Co-coordinating legal provisions with other laws dealing with foreign exchange such as Foreign Trade Act Foreign exchange regulation act, Conservation of Foreign Exchange and prevention of smuggling Act, etc.

Mode of Levy of Customs Duty

Basically there are three modes of imposing Customs Duty:

  1. Specific Duties: – Specific custom duty is a duty imposed on each and every unit of a commodity imported or exported. For example, Rs.5 on each meter of cloth imported or Rs.500 on each T.V. set imported. In this case, the value of commodity is not taken into consideration.
  2. Advalorem Duties: Advalorem custom duty is a duty imposed on the total value of a commodity imported or exported. For example, 5% of F.O.B. value of cloth imported or 10% of C.LF. value of T.V. sets imported. In case of Advalorem custom duty, the physical units of commodity are not taken into consideration.
  3. Compound Duties: – Compound custom duty is the combination of specific and advalorem custom duties. In this case, the quantities as well as the value of the commodity are taken into consideration while computing tariff. For example, 5% of F.O.B. value plus, 50 paisa per meter of cloth imported.

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