CLASSIFICATION &

TYPES OF CUSTOMS
DUTIES

P R E S E N TAT I O N BY:
VISHAL SOMAI
S r. f a c u l t y O f D i re c t & I n d i r e c t t a x
The provisions relating to classification are discussed as under –

(1)Classification: Classification of goods consists of determining the

headings or sub-headings of the Customs Tariff under which the said
goods are covered.

(2)Need for classification:

(a) Determination of rate of duty: The rate of duty is determinable on the

basis of classification of goods.

(b)Determination of eligibility of exemption : The classification of goods is

also required to be decided for the purpose of determining eligibility to
exemptions, most of which are with reference to the Tariff headings or sub
headings.

(3)Relevant time for classification: Classification is done at the time of

importation or exportation of goods.
The Customs Tariff Act, 1975 provides the classification of the goods and
rates of duties of customs. It comprises of two schedules :-

(1)First Schedule : In this schedule goods chargeable with import duty

are listed. It is also known as 'Import Tariff' which comprises of 98
chapters grouped under 21 sections.

(i) Sections: A group of Chapters representing a particular class of goods.

(ii) Chapters: Each section is divided into various chapters and sub-
chapters. Each chapter contains goods of one class.
(iii)Chapter notes: They are mentioned at the beginning of each chapter.
These notes are part of the statute and hence have the legal authority
in determining the classification of goods.
(iv)Heading: Each chapter and sub-chapter is further divided into various
headings.
(v) Sub-heading: Each heading is further divided into various sub-
headings.

(2)Second Schedule: In this schedule goods chargeable with export duty

are listed. It is also known as 'Export Tariff'.
(3)Column Headings: The five column headings as prescribed in
schedules to Customs Tariff Act, 1975 are as under,-
ColumnNo. Particulars

1. Tariff Item

2. Description of the Goods

3. Unit

4. Standard Rate of duty

5. Preferential Rate of duty

4. Rate of custom duty :The basic customs duty are 5% 7.5% and
10%. Highest rate of basic custom duty is 10% for non-agricultural items, with
some exceptions.
On baggage, the general rate of duty is 35% and no additional duty of custom
is leviable on baggage.

5. Social welfare surcharge on imports [with effect from 2 February

2018] A social welfare surcharge has been imposed on imported goods at
10% of total customs duty (excluding certain duties) with effect from 2
February 2018.

Hence, effective rate of BCD = 10% General rate of basic custom duty
(BCD) + SWS @ 10% of BCD = 11%
Mode of calculation of Additional duty of customs u/s 3(1) & 3(5) : The
additional duty of customs under section 3(1) and 3(5) of the Custom Tariff
Act on any imported article shall be calculated as follows -
Assessable value u/s 14(1) or Tariff Value u/s 14(2) of Customs Act [A] XX
Add: Basic duty of customs u/s 12 on (A) above and other duties [B] XX
(See Note)
Value for the purposes of levy of additional duty of customs u/s [C] XX
3(1) [A + B]
Add: Additional duty of customs u/s 3(1) = Excise Duty leviable in [D] XX
India computed on (C) above
Add: SWS @ 10% on [{(B)+(D)}] [E] XX
Value for the purposes of levy of additional duty of customs u/s [F] XX
3(5) [C + D + E]
Add: Additional duty of customs u/ s 3(5) computed on (F) above [G] XX
Total cost of imported goods [F + G] [H] XX
Total Customs Duty payable = [H - A], or [B + D + E + G] XX
Note : Non Inclusion of duties: In computation of value for levy of additional
duty of customs, the following duties shall not be included,-
(a) Additional duty of customs referred to in Section 3(1), (3), (5), (7)
and (9) of the CTA, 1975;
(b) The safeguard duty referred to in Sections 8B and 8C of the CTA,
1975;
(c) The countervailing duty referred to in Section 9 of the CTA, 1975;
and
(d) The anti-dumping duty referred to in Section 9A of the CTA, 1975.

Note : Due to introduction of GST, the applicability of additional duty of

customs is very limited. GST is levied on all supplies of goods and/ or services
except supply of alcoholic liquor for human consumption. Further, GST on the
supply of petroleum crude, high speed diesel, motor spirit (commonly known
as petrol), natural gas and aviation turbine fuel shall be levied with effect from
such date as may be notified by the Government on the recommendations of
the Council. Thus, additional duty of customs will be levied only on the few
products not leviable to GST.
Integrated tax [Section 3(7) of the Customs Tariff Act]: Any article which is
imported into India shall, in addition, be liable to integrated tax at such
rate, not exceeding 40% as is leviable u/s 5 of the Integrated Goods and
Services Tax Act, 2017 on a like article on its supply in India, on the value
of the imported article as determined u/s 3(8).

GST Compensation Cess [Section 3(9) of the Customs Tariff Act] : Any
article which is imported into India shall, in addition, be liable to the
goods and services tax compensation cess at such rate, as is leviable
under section 8 of the Goods and Services Tax (Compensation to States)
Cess Act, 2017 on a like article on its supply in India, on the value of the
imported article as determined under Section 3(10).
Mode of calculation of Integrated Tax u/s 3(7) & GST Compensation Cess
3(9) [Section 3(8) & 3(10) of the Customs Tariff Act] : The Integrated tax
under section 3(7) and GST Compensation Cess under Section 3(9) of the
Custom Tariff Act on any imported article shall be calculated as follows -
Assessable value u/ s 14(1) or Tariff Value u/ s 14(2) of Customs Act [A] xxx
Add: Basic duty of customs u/ s 12 on (A) above and any sum chargeable on [B]
that article under any law for the time being in force as an addition to, and in
the same manner as, a duty of customs
SWS @ 10% on [{(B)+(D)}] [C] xxx
Value for the purposes of levy of Integrated Tax u/s 3(7) and GST [D] xxx
Compensation Cess u/s 3(9) [A + B + C + D]

Add: Integrated Tax (IT) u/s 3(7) = Applicable Rate of IT computed on (D) xxx
above

(Integrated tax will be exclusive of SWS on Integrated tax have been exempted [E]
vide Notf. Nos. 13/2018-Cus., dated 02-02-2018)

Add: GST Compensation Cess u/s 3(9) = Applicable Rate of GST [F]
Compensation Cess computed on (D) above

(GST Compensation Cess will be exclusive of SWS, as SWS on GST

Compensation Cess have been exempted vide Notf. Nos. 13/2018-Cus., dated
02-02-2018)
Total cost of imported goods [E + F + G] [G] xxx
Total Customs Duty payable = [G- A], or [B + C + E + F] xxx
Note: Non Inclusion of duties : In computation of value for levy Integrated Tax
and GST Compensation Cess, the following duties shall not be included,-
(a) Integrated tax referred to in Section 3(7) the CTA, 1975;
(b) GST compensation cess referred to in Sections 3(9) of the CTA, 1975.

Case Study:
Colgate The two Acts i.e. the Customs Act, 1962 and the Customs Tariff Act,
Palmolive 1975 are independent statutes and the incidence of duty in both the
(India) Ltd. v. CC Acts are independent to each other and one duty can be levied without
[2016] 339 ELT the other.
161 (SC) There is a distinction between the Basic Customs duty, Additional duty
equal to Excise duty and Special Additional duty which has reference
to sales tax, local tax, and other charges leviable on articles of sale and
purchase in India.
Therefore, exemption from Basic customs duty will not imply
exemption from other duties under the Customs Tariff Act unless
specified.
Ahujasons The purpose of levy of additional duty (countervailing duty) under
Shawl Wale (P) Section 3 of Customs Tariff Act, 1975 is to protect the domestic market
Ltd. v. CC [2015] from unhealthy competition.
319 ELT 576 Hence, once there is no excise duty on unbranded shawls/scarves
(SC) produced domestically, the question of levying additional duty in the
form of giving such a protection does not arise at all.
The Customs Tariff has a set of six rules for Interpretation of the tariff
schedule and two general explanatory notes. They help in appropriate
classification of goods.

Purpose of Interpretation Rules of Tariff: The purpose of interpretation Rules

of Tariff is –

 to give clear direction as to how the nomenclature in the Schedule is to be

interpreted; and
 to give statutory force to the Interpretation Rules and the general
explanatory notes. The Interpretation Rules are integral part of the
schedule.
 However, chapter note 2 to chapter 84 inter alia provides that Heading
No. 8422 does not cover office machinery of Heading No. 8472.

Therefore, the product in question will be classified under 8472 30 00.

 Protective Duty
The provisions relating to levy of protective duties are as under –

(1)Power of Central Government to levy protective duties in certain

cases [Section 6] :

According to Section 6 of the Customs Tariff Act, 1975, the Central

Government on the recommendation of the Tariff Commission of India
levy protective duty for protection of interest of domestic industry
established in India. To impose Protective duty, the Central Government has
to introduce a Bill and get it passed in the Parliament. Such duty is deemed to
have been specified in the First Schedule as the duty leviable in respect of
such goods. Protective duty is characterised in column 5 of tariff schedule as
protective.
(2)Duration of protective duties and power of Central Government to
alter them [Section 7]:

The duty shall have effect only up to and inclusive of the date, if any, specified
in First Schedule. The Central Government has the powers to reduce or
increase such duty where it deems fit by a notification in the Official Gazette
and get the approval of the same in the Parliament.
The aforesaid points have been discussed below –

(i) Emergency power of Central Government to increase or levy export

duties [Section 8]: Where the Central Government is satisfied that in
respect of any article, whether included in Second Schedule or not, -

 The export duty leviable thereon should be increased or an export duty

should be levied, and

 Circumstances exist which render it necessary to take immediate action,

then, the Central Government may, by notification in Official Gazette, direct

an amendment of the Second Schedule so as to provide for increase or levy
of export duty on that article.
(ii) Emergency power of Central Government to increase import duties
[Section 8A] : Where in respect of any article included in the First
Schedule, the Central Government is satisfied that –

 The import duty leviable thereon under section 12 of the Customs Act,
1962 should be increased; and

 Circumstances exist which render it necessary to take immediate action,

it may, by notification in the Official Gazette, direct an amendment of the

First Schedule so as to provide for an increase in the import duty leviable on
such article to such extent as it thinks necessary.

However, the Central Government shall not issue any notification for
substituting the rate of import duty in respect of any article as specified by
an earlier notification, unless such earlier notification has been approved
with or without modifications.
 Safeguard Duty
Power of Central Government to impose safeguard duty [Section 8B] :
Where increased imports have caused or threaten to cause serious injury to
domestic industry then the Central Government on recommendation of
Safeguard authority, levy safeguard duty on such imports into India. The
safeguard duty on imported goods is leviable under Section 8B of the
Customs Tariff Act, 1975 read with the Customs Tariff (Identification and
Assessment of Safeguard Duty) Rules, 1997.

(1)Imposition of Safeguard duty : Safeguard duty can be imposed if the

Central Government on enquiry finds that the imports in increased
quantity –
(a) have caused serious injury to domestic industry or,
(b) is threatening to cause serious injury to domestic industry. It can be
imposed irrespective of origin of imported goods.

"Serious injury" means an injury causing significant overall impairment in

the position of a domestic industry.
"Threat of serious injury" means a clear and imminent danger of serious
injury.
(2)Safeguard duty cannot be imposed on articles originating from
developing countries : In case of articles originating from a developing
country (i.e. a country notified by the Government of India for purpose of
levy of such duty), this duty cannot be imposed under following
circumstances –

(i) If the imports of such article from that developing country does not
exceed three percent of the total imports of that article into India.

(ii) Where the article is originating from more than one developing countries
(each with less than three percent import share), then the aggregate of
imports from all such countries taken together does not exceed 9% of
the total imports of that article into India.
(3)Imposition of Provisional Safeguard Duty : Section 8B(2) enables the
Central Government to impose a provisional safeguard duty in
appropriate cases, pending the determination of the issues as to whether
the import of the concerned article to India would cause or threaten to
cause serious injury to the domestic industry. The duty so collected, shall
be refunded if, on a final determination, the Central Government is of the
opinion that neither any injury has been caused to the domestic industry,
nor there is any such threat to cause serious injury.

The Provisional safeguard duty cannot remain in force for more than 200
days from the date when it was first imposed.
(4)Period of imposition: The safeguard duty shall, unless it is revoked
earlier, be in force till the expiry of 4 years from the date of its imposition.
However, the Central Government can extend the period of imposition but
total period of imposition cannot be beyond 10 years from the date of its
imposition.

(5)Non Imposition of safeguard duty : The safeguard duty shall not apply
to articles imported by a 100% export-oriented - undertaking or a unit in
a special economic zone unless, —

(a) specifically made applicable in such notifications or such impositions, as

the case may be; or
(b) the article imported is either cleared as such into the domestic tariff area
or used in the manufacture of any goods that are cleared into the
domestic tariff area and in such cases safeguard duty shall be levied on
that portion of the article so clearedljr so used as was leviable when it
was imported into India.
(6)Applicability of provisions of Customs Act, 1962 : The provisions of
Customs Act, 1962 and the rules and regulations made thereunder,
including those relating to the date for determination of rate of duty,
assessment, non-levy, short levy, refunds, interest, appeals, offences and
penalties shall, as far as may be, apply to the duty chargeable under this
section as they apply in relation to duties leviable under that Act.
Countervailing duty on subsidized articles [Section 9] : Section 9 of the
Customs Tariff Act, 1975 provides for levy of countervailing duty on
subsidized article. The relevant provisions are as under –

(1)Imposition of Countervailing duty : In case any foreign country or

territory gives any subsidy, directly or indirectly, upon the manufacture
or production, transportation or exportation of such article into India,
then the Central Government on recommendation of anti subsidy
authority levy countervailing duty not exceeding the amount of such
subsidy. This duty is also known as anti-subsidy duty.

(2)No Countervailing duty to be imposed in certain cases : The

countervailing duty shall not be levied unless it is determined that –

(a) the subsidy relates to export performance;

(b) the subsidy relates to the use of domestic goods over imported goods in
the export article; or
(c) the subsidy has been conferred on a limited number of persons engaged
in the manufacture, production or export of articles.
(3)Imposition of Provisional Countervailing duty : The Central
Government, pending the determination of the amount of subsidy, may
impose a provisional countervailing duty not exceeding the amount of
such subsidy as provisionally estimated by it. If the provisional
countervailing duty exceeds the subsidy as so determined, then the
Central Government shall –

(i) reduce such countervailing duty as soon as may be; and

(ii) refund the countervailing duty collected in excess of such reduced
countervailing duty.

(4)Retrospective levy of Countervailing duty : The Central Government

has powers to levy countervailing duty retrospectively if massive imports
in a relatively short period have caused injury to the domestic industry.
Such duty can be imposed retrospectively from a date prior to the date of
imposition of provisional countervailing duty but not beyond ninety days
from the date of such notification of provisional duty.
 Duration of levy - 5 years : The countervailing duty imposed under this
section shall, unless revoked earlier, cease to have effect on the expiry of 5
years from the date of such imposition.

The Central Government may extend the period of such imposition for a
further period of 5 years, if, in a review, it is of the opinion that the cessation
of such duty is likely to lead to continuation or recurrence of subsidization
and injury and in that case, such further period shall commence from the
date of order of such extension.

Where a review initiated before the expiry of the aforesaid period of five
years has not come to a conclusion before such expiry, the countervailing
duty may continue to remain in force pending the outcome of such a review
for a further period not exceeding 1 year.

(6)Provisions of Customs Act, 1962 to apply : The provisions of Customs

Act, 1962 and the rules and regulations made thereunder, including those
relating to the date for determination of rate of duty, assessment, non-
levy, short levy, refunds, interest, appeals, offences and penalties shall, as
far as may be, apply to the duty chargeable under this section as they
apply in relation to duties leviable under that Act.
Anit-dumping duty on dumped articles [Section 9A] : The word
"dumping" means bringing into a place much more than what is normally
necessary. It also normally implies that the goods are of sub-standard
quality. Similarly the price at which goods are imported may not be the
correct price. This naturally has an adverse effect on the indigenous industry.
The provisions relating to levy of anti dumping duty are governed under
Section 9A of the Customs Tariff Act, 1975 .

(1) Power to levy Anti Dumping Duty : The Central Government has
the power to levy anti-dumping duty on dumped articles.
Meaning of Margin of Dumping : Margin of Dumping in relation to an
article, means the difference between its export price and its normal value.
However, the amount of anti dumping duty cannot exceed the margin of
dumping. Normal Value, in relation to the article, means, -
(i) Comparable domestic price of the like article, in the ordinary
course of trade when destined for consumption in exporting country, as
determined in accordance with rules made in this behalf.
(ii) In circumstances where there are no sales of the like article in the
domestic market of exporting country or the sales are under
circumstances which do not permit a proper comparison, the normal
value shall be either –
(a) comparable representative price of the like article from the exporting
country/territory to an appropriate third country as determined in
accordance with rules made in this behalf; or
(b) cost of production of the said article in the country of origin along with
reasonable addition for administrative, selling and general costs, and for
profits, as determined in accordance with the rules. However, in case of
import of article from a country other than country of origin, the normal
value shall be determined with reference to its price in country of origin.

Export Price of the article is the price of the article exported from the
exporting country. In case where there is no export price or export price is
unreliable, then the export price is determined as follows -
(a) The price at which the imported article is first sold to an independent
buyer; and
(b) In case there is no independent buyer or such articles are not resold in
the condition in which it was imported, then, the price is determined in
accordance with the rules made in this behalf.
Margin of Dumping to be determined as per records maintained by
exported producer: The margin of dumping in relation to an article,
exported by an exporter or producer, under inquiry under this section, shall
be determined on the basis of records concerning normal value and export
price maintained, and information provided, by such exporter or producer.
However, where an exporter or producer fails to provide such records or
information, the margin of dumping for such exporter or producer shall be
determined on the basis of facts available.

(2) Anti-dumping duty to be extended on articles imported by

altering form/description: Where the Central Government, on such inquiry
as it may consider necessary, is of the opinion that circumvention of anti-
dumping duty has taken place,-
(a) either by altering the description or name or composition of the
article subject to such anti-dumping duty; or
(b) by import of such article in an unassembled or disassembled form;
or
(c) by changing the country of its origin or export; or
(d) in any other manner,
whereby the anti-dumping duty so imposed is rendered ineffective, it may
extend the anti-dumping duty to such article or an article originating in or
exported from such country, as the case may be.
(3)Non Imposition of anti dumping duty: Unless specifically provided,
anti dumping duty shall not be imposed on goods imported by a –
 100% EOU or
 unit located in Free Trade Zone/Special Economic Zone.

(4)Anti dumping duty leviable on goods imported by EOU and cleared

to DTA: If the article imported by a 100% EOU is-

 either cleared as such into the domestic tariff area; or-

 used in the manufacture of any goods that are cleared into the domestic
tariff area,
then, in such cases, anti-dumping duty shall be levied on that portion of the
article so cleared or so used as was leviable when it was imported into India.

(5)Other points similar to Section 9 : The other provisions relating to this

duty are same as that of countervailing duty on subsided article.
(2)Rules : For this purpose refund of Anti-Dumping Duty (Paid in Excess of
Actual Margin of Dumping) Rules, 2012 have been framed and relevant
provisions Eire as under –

(a) Filing of Application and time limit: An application or refund is to be

made to Assistant Commissioner/Deputy Commissioner of Customs at the
port of importation in prescribed form within 3 months from date of
publication of notification issued by Central Government reducing the
anti-dumping duty. In case where such duty becomes refundable as a
consequence of judgment, decree, order or direction of the Court,
Appellate Tribunal or Authority, the application is to be filed within 3
months from the date of such judgment, decree, order or direction.
(b)Deficiency in application filed by importer : In case of any deficiency in
the application filed by importer, the same shall be returned to him within
one month stating the deficiencies. The importer may re-submit the
application after removing the deficiencies within one month of receipt of
deficiency memo.

(c) Refund of Claim to be made within 90 days : If the Assistant

Commissioner/Deputy Commissioner is satisfied that the duty is to be
refunded, in whole or in part, he may make an order accordingly and the
amount so determined shall be refunded to the importer within 90 days
of the receipt of the application (or application resubmitted after
rectification of deficiency), subject to doctrine of unjust enrichment.