Customs duty is the buzzword whenever we discuss imports. Levy of customs duty has been the key for the government to protect the domestic industry while also reducing India’s dependency on imports. Understanding the calculation of customs duty on imported goods becomes equally important for the importers for informed decision-making. It directly impacts the cost of purchasing and can have a significant impact on your profitability. But how is customs duty calculated? Let’s find out!

Calculation of Customs Duty in India

Customs duty is calculated on the assessable value of the goods imported. However, duties on the import of goods are not restricted to just customs duty. It also includes the levy of countervailing duties, social welfare surcharge, other protective duties, etc. Here’s a detailed analysis of the customs duty:

Sr. No.	Particulars	Amount	Total Duty Payable
I	Assessable Value of the Goods	XXX
II	Add: Basic Customs Duty on Assessable Value (on I)	XXX	XXX
III	Add: Countervailing Duty on (I+II)	XXX	XXX
IV	Sub Total	XXX
V	Add: Social Welfare Surcharge on (IV)	XXX	XXX
VI	Add: Safeguard Duty on (I)	XXX	XXX
VII	Add: Protective Duty on (I)	XXX	XXX
VIII	Add: Anti Dumping Duty on (I)	XXX	XXX
IX	Sub Total	XXX
X	Add: IGST on (IX)	XXX	XXX
XI	Add: Compensation Cess on (IX)	XXX	XXX
XII	Total Customs Duty Payable on (XII)	XXX	XXX

One of the significant aspects of calculating the customs duty as above is determining the assessable value for your imported goods. Reference needs to be drawn from Section 14 of the Customs Act, 1962, and Customs Valuation (Determination of Value of Imported Goods) Rules, 2007 in order to determine the right assessable value. 

Valuation of Imported Goods Under Customs – Customs Valuation Rules

As per Section 14 of the Customs Act, 1962, the value of imported or exported goods shall be the transaction value. In the case of imported goods, the transaction value shall be:

• The price actually paid or payable when goods are sold for export to India
• For delivery at the place and time of importation
• Where the buyer and seller of the goods are not related and
• Price is the sole consideration for the sale.

Further, the transaction value shall also include any amount paid or payable for availing any of the following services:

1. Engineering
2. Brokerage and commissions
3. Royalty
4. License fees
5. Insurance
6. Loading
7. Cost of transportation to the place of importation
8. Handling charges
9. Unloading etc.

However, if the transaction value cannot be accepted as the assessable value because of non-fulfillment of the above conditions, then it shall be determined as per Rules 4 to 9 sequentially of the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007. Let’s decode these rules to understand the valuation of goods under customs.

Rule 4 – Transaction Value of the Identical Goods

Identical goods have been defined under Rule 2 of the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007. In simple terms, it refers to imported goods that are the same in all respects except for minor differences in appearance that do not affect the value of these goods. These are produced in the same country in which the goods being imported are produced. Further, these can be produced by the same person or different persons.

Here, the value of imported goods should be the transaction value of identical goods that are exported to India at or about the same time at which the relevant goods are imported. It should be ensured that the identical goods are substantially of the same quantity as the relevant imported goods. In case of any differences, adjustments should be made to increase or decrease the value.

Rule 5 – Transaction Value of Similar Goods

Like identical goods, similar goods are also defined under Rule 2. It means imported goods that are not alike in all respects but have like component materials and characteristics that allow them to perform the same functions. They are commercially interchangeable with the goods being valued and are produced in the same country in which the goods being valued are produced. Also, they can be produced by the same person or different persons.

In case identical goods are not available, then the value of imported goods should be the transaction value of similar goods that are exported to India at or about the same time at which the relevant goods are imported.

Rule 7 – Deductive Value

Another method of valuation under customs is deductive value. If the imported goods, identical goods, or similar goods are sold in India at the same time at which the declaration for the determination of the value is presented, then the value of the imported goods being valued should be based on the unit price of the identical or similar goods being sold in the greatest aggregate quantity to unrelated sellers in India after deducting the following:

1. Commissions paid or agreed to be paid or any additions made for profits or general expenses incurred in relation to the sales in India 
2. Costs of transportation and insurance that are incurred within India
3. Customs duty and other taxes payable in India due to the importation or sale of such goods

In case neither the imported goods, identical goods, or similar goods are sold at the same time as the relevant imported goods, then the transaction value shall be based on the unit price at which the imported, identical or similar goods are sold in India at the earliest date after importation. But such a date should be before the expiry of 90 days after the importation. 

If these goods are not sold in the same condition, then the transaction value shall be based on the unit price of the goods after being processed and sold in the greatest aggregate quantity to unrelated buyers. In such cases, the deductions relating to further processing should be adjusted.

Rule 8 – Computed Value

Here, the value of the imported goods should be the computed value that shall consist of the following:

• The cost of fabrication, material, and other processing costs incurred for producing the imported goods
• The amount for profit and general expenses that usually form part of the sale of goods of the same class or kind as the goods being valued that is made by the producers in the country of exportation for exports to India
• The cost of all the other expenses as per Rule 10(2) of these rules.

Rule 8 can be applied before Rule 7 in case of the importer’s request and after the approval of the proper officer. 

Rule 9 – Residual Method

In case the valuation of goods under customs cannot be determined as per any of the above methods, then the value shall be determined using reasonable means that are consistent with the principles and general provisions of these rules and based on the data available in India. 

In a Nutshell

Above were the detailed rules that play an important role in determining the assessable value and consequential customs duty. Determination of the accurate assessable value is important because it directly impacts the calculation of customs duty on the import of goods payable by the importer as well as his profitability. In case you are an importer and need assistance in determining the valuation and customs duty on your imports, feel free to contact the ASC Group.

Also Read - Deemed Exports Under Foreign Trade Policy