Indian Customs Tariff Classification

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Indian Customs Tariff Classification

As discussed in the previous chapter, custom duties or tariff are the major sources of the government’s revenue. At present, custom duties constitute almost 30% of the total tax revenue of the Indian government.

Apart from this, custom duties are levied by the government to:

  • Put restrictions on imports in order to conserve foreign exchange

  • Shield Indian industries from undue foreign competition

  • Regulate imports and exports in accordance with the policy objectives of the government

  • Comply with different laws related to foreign exchange, such as Foreign Trade Act and Foreign Exchange Regulations Act

Types of Customs Duties Levied by the Government

Following are different types of customs duties levied by the government:

  • Specific duties: These are imposed on every single unit of a commodity imported or exported. For example, ` 1000 for each LCD TV imported.

  • Ad valorem duties: These duties are imposed on the total value of the goods imported or exported. For example, 20% of the Freighton-Board (FOB) value of pig iron. In case ad valorem duties are imposed, the physical units of commodities are not taken into account.

  • Compound duties: As the name suggests, it is a combination of the first two types of duties. Therefore, in case of compound duties, both the quantity and the value of the commodity are taken into account. For example, 5% of FOB and 25 paise per unit of certain good imported.

Import and export goods are classified under different heads to determine the rate of duties to be levied on goods. The classification of goods depends on the EXIM policy of the government. All customs tariff related matters are addressed in the Customs Tariff Act, 1975. The principles of classification of goods are also mentioned in the Act.

In India, certain international norms on the classification and codification of goods are also followed. Now, let us first study about the international system of codifying goods before studying the principles of classification and the customs duties of different types of goods.

IPAMA Seeks 10% Hike in Anti-Dumping Duty on Chinese Machinery

Indian domestic manufacturers in the printing, packaging, and the graphics industry face several challenges due to the unrestricted import of cheap and second hand printing and packaging machineries from China. Recently (as on February, 2015), the Indian Printing Packing and Allied Machinery Manufacturers Association (IPAMA), the apex body of the industry, called for further restrictions on such import in order to gain a level playing field.

IPAMA emphasised that the central government as well as the printing, packaging and the graphics industry is facing losses because of the import of the low quality machines from the neighbouring country. Therefore, IPAMA demanded for a further increase in the anti-dumping duty. Currently, India levies 27.36% anti-dumping duty on the import of second hand printing and packaging machineries from China. IPAMA has sought a 10% increase in the duty.

According to C P Paul, General Secretary, IPAMA,the government must further raise the an ti-dumping duty by 10 per cent on import of second hand printing and packaging machines from China. Import of second hand machineries, which are more than ten years old, is causing huge loss to the government”. He also added, “The government must allow duty-free import of unavailable technology into the country for modernisation of the printing and packaging industry”.

Harmonized System of Nomenclature

In international trade, goods are identified through specific identification codes. There is an international convention of providing identification codes to import and export goods, named Harmonized System or HS. This international product nomenclature system was developed by the World Customs Organisation (WCO). The HSincludes around 5,000 commodity groups. Under this system, a six-digit number, arranged in a logical structure, is assigned to identify a commodity group.

For example, the code 110100 stands for Wheat Flour and Meslin Flour. The coding process is governed by The International Convention on the Harmonized Commodity Description and Coding System. At present, HS is used by more than 200 countries as a basis for determining customs duties. In addition, various authorities use US codes to collect data on international trade statistics.

Moreover, more than 90% merchandise in international trade is identified in terms of the HS. Therefore, HS has major contribution in standardising the customs and trade procedures all over the world, thereby reducing the costs in import and export. Various government authorities, international organisations, and private sector corporations use HS for various purposes including calculation of international taxes, formulation of trade policies, monitoring of the movement of various controlled goods, determination of the country of origin, calculation of freight tariffs, monitoring of prices, control of quota, compilation of national accounts, and so on.

World Customs Organization (WCO) is the sole authority responsible for maintaining and updating HS. It is also responsible for ensuring that HS is uniformly interpreted by the users. In addition, WCO updates the HS database to account for technological developments and changing trade patterns. In WCO, important decisions are taken by the Harmonized System Committee, which evaluates policy decisions, takes appropriate calls on the matter of classification of trade goods,and serves as an intermediary in case there are disputes.

Principles of Classification

According to the Customs Tariff Act, 1975, classification of goods shall be governed by the following principles:

  • The titles of Sections, Chapters and sub-chapters are provided for ease of reference only; for legal purposes, classification shall be determined according to the terms of the headings and any relative Section or Chapter Notes and, provided such headings or Notes do not otherwise require, according to the following provisions:

  • (a) Any reference in a heading to an article shall be taken to include a reference to that article incomplete or unfinished, provided that, as presented, the incomplete or unfinished articles has the essential character of the complete or finished article. It shall also be taken to include a reference to that article complete or finished (or falling to be classified as complete or finished by virtue of this rule), presented unassembled or disassembled.

    (b) Any reference in a heading to a material or substance shall be taken to include a reference to mixtures or combinations of that material or substance with other materials or substances. Any reference to goods of a given material or substance shall be taken to include a reference to goods consisting wholly or partly of such material or substance. The classification of goods consisting of more than one material or substance shall be according to the principles of rule 3.

  • When by application of rule 2(b) or for any other reason, goods are, prima facie, classifiable under two or more headings, classification shall be affected as follows:

    • (a) The heading which provides the most specific description shall be preferred to headings providing a more general description. However, when two or more headings each refer to part only of the materials or substances contained in mixed or composite goods or to part only of the items in a set put up for retail sale, those headings are to be regarded as equally specific in relation to those goods, even if one of them gives a more complete or precise description of the goods.

    • (b) Mixtures, composite goods consisting of different materials or made up of different components, and goods put up in sets for retail sale, which cannot be classified by reference to (a), shall be classified as if they consisted of the material or component which gives them their essential character, in so far as this criterion is applicable.

    • (c)When goods cannot be classified by reference to (a) or (b), they shall be classified under the heading which occurs last in numerical order among those which equally merit consideration.

  • Goods which cannot be classified in accordance with the above rules shall be classified under the heading appropriate to the goods to which they are most akin.

  • In addition to the foregoing provisions, the following rules shall apply in respect of the goods referred to therein:

    • (a) Camera cases, musical instrument cases, gun cases, drawing instrument cases, necklace cases and similar containers, specially shaped or fitted to contain a specific article or set of articles, suitable for long-term use and presented with the articles for which they are intended, shall be classified with such articles when of a kind normally sold therewith. This rule does not, however, apply to containers which give the whole its essential character;

    • (b) Subject to the provisions of (a) above, packing materials and packing containers presented with the goods therein shall be classified with the goods if they are of a kind normally used for packing such goods. However, these provisions do not apply when such packing materials or packing containers are clearly suitable for repetitive use.

  • For legal purposes, the classification of goods in the sub-headings of a heading shall be determined according to the terms of those sub headings and any related sub headings Notes and, mutatis mutandis, to the above rules, on the understanding that only sub-headings at the same level are comparable. For the purposes of this rule the relative Section and Chapter Notes also apply, unless the context otherwise requires.

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