Customs Duty: An Outline
Customs law is the smallest topic in Paper 7 and is examined "in outline" rather than in the depth Direct Tax and GST receive — the expectation is that a candidate can state the basic charge, valuation method and duty structure, not compute a full customs bill of entry from scratch.
1. The basic charge and Assessable Value
Customs duty is levied under the Customs Act, 1962 on goods imported into, or exported from, India, and for imported goods it is charged not on the plain invoice price but on the Assessable Value (also called transaction value), which is built up using the internationally standard CIF basis:
The reasoning behind including freight and insurance is straightforward: customs duty is meant to tax the full landed cost of bringing goods into the country, not merely the price the foreign seller charged, so the transport and insurance cost genuinely incurred in getting the goods to Indian territory is treated as part of what is being taxed.
2. Types of customs duty
Several distinct duties can apply to the same imported consignment, and a full customs bill is usually a stack of two or more of them rather than a single flat rate.
| Duty | What it targets |
|---|---|
| Basic Customs Duty (BCD) | The primary duty, charged as a percentage of Assessable Value |
| Social Welfare Surcharge | A surcharge computed on the BCD amount, funding social welfare schemes |
| Integrated GST (IGST) on imports | GST-equivalent duty on imports, charged on Assessable Value plus BCD, mirroring the GST that would apply if the goods were bought domestically |
| Anti-dumping duty | Charged when goods are imported at a price below their normal value, to protect domestic industry from unfairly cheap foreign competition |
| Safeguard duty | Charged when a sudden surge in imports (even at a fair price) threatens serious injury to domestic industry |
Anti-dumping and safeguard duties are distinguished by what triggers them: anti-dumping responds to unfairly low pricing by a foreign exporter, while safeguard duty responds purely to a sudden quantity surge, regardless of whether the price itself was fair — a distinction the syllabus tests as a definitional point.
3. Import and export procedures, and duty drawback (brief)
An importer files a Bill of Entry declaring the goods, their classification and their claimed value, which Customs may verify or reassess before allowing clearance; an exporter similarly files a Shipping Bill.
Duty drawback is a refund of customs duty already paid on imported inputs, granted when those inputs are used to manufacture goods that are then exported — the underlying policy goal is that Indian exports should not carry the hidden cost of customs duty paid on their imported components, since that would make them less competitive internationally purely due to a domestic tax cost.
Worked Examples
Example 1. Goods are imported with an invoice (FOB) price of ₹5,00,000. Freight to the Indian port is ₹40,000 and insurance is ₹10,000. Compute the Assessable Value.
Assessable Value = ₹5,00,000 + ₹40,000 + ₹10,000 = ₹5,50,000.
Example 2. Using the Assessable Value from Example 1, if Basic Customs Duty is 10%, compute the BCD amount.
BCD = 10% × ₹5,50,000 = ₹55,000.
Example 3. A foreign manufacturer exports a product to India at a price well below what it charges in its home market, causing serious harm to Indian producers of the same product. Which duty is designed to address this specific situation?
Anti-dumping duty.
Example 4. Indian producers of a good are not facing unfair foreign pricing, but a sudden, sharp surge in the quantity of a fairly-priced import is threatening serious injury to the domestic industry. Which duty applies here instead of anti-dumping duty?
Safeguard duty — since the trigger here is a quantity surge, not unfair pricing.
Example 5. An Indian manufacturer imports a component, pays customs duty on it, uses it to manufacture a finished good, and exports that finished good. What mechanism allows the manufacturer to recover the customs duty paid on the imported component?
Duty drawback.
Example 6. State the document an importer files to declare imported goods to Customs, and the equivalent document an exporter files.
Importer: Bill of Entry. Exporter: Shipping Bill.
Example 7. Explain why customs duty is levied on the CIF-based Assessable Value rather than simply on the foreign seller's invoice price.
Customs duty is intended to tax the full landed cost of bringing goods into Indian territory, not merely the price charged by the foreign seller. Freight and insurance are genuine costs incurred to physically bring the goods to India, so including them in the Assessable Value ensures the duty reflects the complete cost of importation rather than understating it by ignoring the transport and insurance component.
Summary
Customs duty is charged on imported (and certain exported) goods under the Customs Act, 1962, using a CIF-based Assessable Value that adds freight and insurance to the cost of goods, so the duty reflects the full landed cost of importation rather than the invoice price alone.
A single import can attract a stack of duties — Basic Customs Duty, a Social Welfare Surcharge on the BCD, IGST on imports, and situationally anti-dumping duty (for unfairly low-priced imports) or safeguard duty (for a sudden quantity surge, regardless of price fairness).
Import and export are formally declared through a Bill of Entry and a Shipping Bill respectively, and duty drawback refunds customs duty paid on imported inputs used to manufacture goods that are subsequently exported, keeping Indian exports free of embedded domestic customs cost.
