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Customs Law: Levy, Valuation and Exemptions for CA Final

Updated 5 October 2026 · Fact-checked

Customs duty is charged under the Customs Act, 1962 on goods imported into or exported from India, at rates in the Customs Tariff. To solve a problem, find the assessable value under the Valuation Rules, 2007 (transaction value plus additions), then apply BCD, surcharge and IGST in the correct order, and check exemptions.

Understand Customs Law: Levy, Valuation and Exemptions

Customs duty is a tax on the movement of goods across India's border. The charging provision is Section 12 of the Customs Act, 1962. Duty is levied on goods imported into or exported from India at the rates in the Customs Tariff Act, 1975. Rates depend on the classification of the goods in the tariff.

There are several duties. Basic customs duty (BCD) is the main duty. IGST is levied on imports under the Customs Tariff Act on the value plus customs duties, and it works like IGST on an inter-State supply. Safeguard duty protects domestic industry from a sudden surge of imports. Anti-dumping duty counters imports priced below normal value. Countervailing duty offsets subsidies given by the exporting country. A surcharge such as the Social Welfare Surcharge may also apply, usually as a percentage of BCD.

The duty base is the assessable value. Section 14 says the value is the transaction value, meaning the price actually paid or payable for the goods, when buyer and seller are not influenced by their relationship and the price is the sole consideration. The Customs Valuation (Determination of Value of Imported Goods) Rules, 2007 add costs such as freight, insurance, royalty and assists. If the transaction value is rejected, you move through the fallback methods in order.

The rate that applies depends on timing. For imports it is generally the rate in force on the date the bill of entry is presented. For goods cleared from a warehouse it is the rate on the date of actual removal. For exports it is the rate on the date the officer permits clearance and loading. Exchange rate follows the same logic, using the rate notified by CBIC.

Relief comes in two forms. Exemptions under Section 25 let the Government reduce or remove duty by notification, absolutely or on conditions. Duty drawback refunds duty: Section 74 covers re-export of imported goods, and Section 75 covers duty on inputs used in goods that are exported. Warehousing lets you import goods and defer duty until they are removed for home consumption.

Key rules to remember

Assessable value (imports): Assessable value = Transaction value + Rule 10 additions (CIF basis); Start from the price paid or payable, then add the costs that Rule 10 requires and that are not already in the price.
CIF value: CIF = FOB + freight + insurance; If insurance is not ascertainable, it is taken as 1.125% of FOB. For air freight, the cost is capped at 20% of FOB.
Landing charges: Landing charges = 1% of CIF; Added to arrive at the assessable value, unless the question gives actual figures or says otherwise.
Order of duty computation: BCD = AV × rate; Surcharge = BCD × rate; IGST = (AV + BCD + Surcharge) × IGST rate; IGST is on the value including customs duties. Safeguard, anti-dumping and countervailing duties, if applicable, go into the IGST base as given in the question.
Fallback valuation order: Rule 3 transaction value → Rule 4 identical goods → Rule 5 similar goods → Rule 7 deductive → Rule 8 computed → Rule 9 residual; The importer may ask that Rule 8 be applied before Rule 7. Rule 9 uses reasonable means consistent with the other rules.
Rate and date rule: Imports: date of bill of entry presentation. Warehoused goods: date of removal. Exports: date of order permitting clearance and loading; The rate in force on the relevant date applies, not the date of arrival of the ship.

How to solve Customs Law: Levy, Valuation and Exemptions questions

Use this order for any customs levy, valuation or relief question, whether it is a case MCQ or a written problem.

1Identify the event: import, export, warehousing, re-export or transit. This decides which provision and which date apply.
2Fix the relevant date for rate and exchange rate. Note any change in rates between arrival and filing.
3Test the transaction value: is the price the sole consideration, and are buyer and seller related or is the price influenced? Relationship alone does not reject the value.
4Add Rule 10 items to the price: commission other than buying commission, packing, assists, royalty or licence fee related to the goods and a condition of sale, freight, insurance and landing charges. Leave out post-importation costs and buying commission.
5Compute the duties in order: BCD, surcharge, any trade-remedy duty given, then IGST on the cumulative base.
6Check for an exemption notification, concessional rate or drawback. Apply conditions exactly as stated in the facts.
7Write the answer in provision, facts and conclusion form, with working shown and the rates stated as assumptions if not given.

Quickest way: Build-up table for the duty computation

When to use it: Use for numerical questions where figures and rates are given and you must reach total duty payable quickly.

Write FOB, then add freight and insurance to get CIF in one line.
Add landing charges at 1% of CIF and any other Rule 10 items to get AV.
Compute BCD, then surcharge on BCD, and add them to AV.
Compute IGST on the new total.
Add BCD, surcharge and IGST for total duty. State any rate you assumed.

Common mistakes in Customs Law: Levy, Valuation and Exemptions

Charging IGST on assessable value alone.
Students treat IGST like domestic GST on the invoice value.
Fix: Add BCD and surcharge to the assessable value first, then apply the IGST rate.
Adding buying commission to the value.
All commissions look alike.
Fix: Buying commission is excluded. Commission to the seller's agent is added. Check whom the agent works for.
Using the arrival date or invoice date for the rate.
Students assume the rate at time of shipment applies.
Fix: For imports use the date the bill of entry is presented. For warehoused goods use the removal date. For exports use the clearance order date.
Rejecting transaction value merely because buyer and seller are related.
Relationship sounds like a red flag.
Fix: The value stands if the relationship did not influence the price. Reject only when it did, or when other conditions fail.
Applying Rules 4 to 9 in the wrong order.
Students pick the easiest method.
Fix: Follow the sequence. Each rule applies only when the previous one cannot. The only flexibility is the importer's option to reverse Rules 7 and 8.
Mixing up drawback with exemption.
Both reduce the duty burden.
Fix: Exemption stops the duty from arising by notification. Drawback refunds duty already paid or borne on inputs or re-exported goods.

Worked examples

Example 1

Alpha Ltd imports machinery. FOB value is ₹10,00,000. Sea freight is ₹1,00,000 and insurance actually paid is ₹10,000. Buying commission of ₹15,000 was paid separately to its own agent. Assume landing charges at 1% of CIF, BCD at 10%, Social Welfare Surcharge at 10% of BCD and IGST at 18% (rates assumed for illustration). Compute the total customs duty payable.

Show the solution

CIF = 10,00,000 + 1,00,000 + 10,000 = ₹11,10,000.
Buying commission of ₹15,000 is excluded from the value.
Landing charges = 1% × 11,10,000 = ₹11,100.
Assessable value = 11,10,000 + 11,100 = ₹11,21,100.
BCD = 10% × 11,21,100 = ₹1,12,110.
Surcharge = 10% × 1,12,110 = ₹11,211.
IGST base = 11,21,100 + 1,12,110 + 11,211 = ₹12,44,421.
IGST = 18% × 12,44,421 = ₹2,23,995.78.
Total duty = 1,12,110 + 11,211 + 2,23,995.78 = ₹3,47,316.78.

Answer: Assessable value is ₹11,21,100 and total customs duty payable is ₹3,47,316.78, of which IGST is ₹2,23,995.78.

Example 2

Beta Ltd imports 1,000 units from its related foreign parent at ₹300 per unit. The proper officer finds the relationship influenced the price. Identical goods of the same country of origin, imported at about the same time, at the same commercial level and in similar quantity, were sold to an unrelated Indian buyer at ₹400 per unit. Determine the value of the consignment.

Show the solution

Rule 3 transaction value is rejected because the relationship influenced the price.
Move to Rule 4, which uses the transaction value of identical goods imported at or about the same time.
The conditions of commercial level and quantity match, so no adjustment is needed.
Value per unit = ₹400.
Value of the consignment = 1,000 × 400 = ₹4,00,000.

Answer: The value is ₹4,00,000 under Rule 4 (identical goods). Rule 5 and later methods are not needed because Rule 4 can be applied.

Exam tips

Case MCQs often hide the trap in a date or a cost item. Read the facts for commission type, royalty conditions and the date of bill of entry before computing.
In written answers, name the rule and give a short reason for each addition or exclusion. Marks follow the reasoning.
When rates are not given, state your assumed rates clearly and show the order BCD, surcharge, IGST.
Learn the fallback order of valuation rules as a chain and write why each earlier method failed.
For drawback and exemption questions, apply the conditions in the facts exactly. Do not assume a relief applies just because the topic is mentioned.

Practice questions from Indirect Tax Laws

Customs Law: Levy, Valuation and Exemptions in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

CMA IntermediateIntroduction and Basic Concepts of Customs Law

Customs Law: Levy, Valuation and Exemptions: frequently asked questions

What are the types of customs duty in India?

The main ones are basic customs duty, IGST on imports, and a surcharge such as the Social Welfare Surcharge. Trade-remedy duties are safeguard duty, anti-dumping duty and countervailing duty. Which of these applies depends on the goods and the notifications in force.

What is the order of customs valuation methods?

Start with transaction value under Rule 3. If it cannot be used, go to identical goods, similar goods, deductive value, computed value and finally the residual method. The importer can ask that the computed method be applied before the deductive method.

What is the difference between exemption and duty drawback?

An exemption is a notification-based relief that reduces or removes the duty so it is not paid at all. Drawback is a refund of duty already paid, on re-export of imported goods or on inputs used in exported goods.

Why is IGST on imports calculated after BCD?

IGST on imports is levied on the value of the goods plus the customs duties. So you add BCD and surcharge to the assessable value first, and then apply the IGST rate on that total.