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Tax Laws and Practice · Concept of Indirect Taxes at a Glance

Customs Duty and Other Indirect Levies at a Glance

Updated 11 October 2026 · Fact-checked

Customs duty is an indirect tax levied under the Customs Act, 1962 on goods imported into or exported from India. GST subsumed many indirect taxes, but customs duty, levies on alcohol for human consumption and certain petroleum products (crude, petrol, diesel, natural gas, ATF) remain outside it. To answer questions, state the levy, its law, and whether GST covers it.

Understand Customs Duty and Other Indirect Levies at a Glance

An indirect tax is collected from the seller or importer but borne by the final consumer through the price. Before GST, India had many such taxes imposed by the Centre and the States separately. GST brought most of them into one system.

Customs duty is a tax on goods crossing India's border. Duty on goods brought in is import duty. Duty on goods sent out is export duty. It is governed by the Customs Act, 1962, the Customs Tariff Act, 1975 and related rules. Customs duty is not subsumed in GST. On imports, however, IGST is also charged on top of customs duty, so an importer often pays both.

Customs law also has procedural relief for goods that only pass through India. Under section 54 of the Customs Act, 1962, goods imported into a customs station and intended for transhipment must be covered by a bill of transhipment presented to the proper officer. Goods mentioned in the arrival manifest, import manifest or import report as meant for transhipment to a place outside India may be allowed to be transhipped without payment of duty, subject to section 11. For transhipment within India, section 54(3) covers two cases. Under clause (a), the goods are meant for any major port, the customs airports at Mumbai, Calcutta, Delhi or Chennai, or any other customs port or airport the Board specifies by notification. Under clause (b), the goods are meant for any other customs station and the proper officer is satisfied that they are bona fide intended for transhipment to that station. In either case, the proper officer may allow duty-free transhipment on prescribed conditions for the due arrival of the goods at the destination station.

GST law also touches exports. Section 147 of the CGST Act lets the Government, on the Council's recommendation, notify certain supplies of goods as deemed exports. The goods do not leave India, payment is received in Indian rupees or convertible foreign exchange, and the goods must be manufactured in India.

Section 150 of the CGST Act adds a compliance angle. Many persons, such as taxable persons, banks, Registrars, stock exchanges and depositories, must furnish an information return in the prescribed form, time and manner. This helps tax authorities cross-check transactions.

Key rules to remember

Customs duty: what it taxes
Customs duty = tax on goods imported into or exported from India (Customs Act, 1962)
Import duty applies on entry; export duty applies on exit. It remains outside GST.
Transhipment without duty (section 54(2))
Goods shown in manifest or import report as for transhipment outside India → may be allowed without duty, subject to section 11
A bill of transhipment is presented to the proper officer. Under the proviso, a declaration is used for treaty or bilateral agreement cases.
Transhipment within India (section 54(3))
(a) Goods meant for a major port, the customs airports at Mumbai, Calcutta, Delhi or Chennai, or another port or airport notified by the Board; or (b) goods meant for any other customs station and the proper officer is satisfied they are bona fide intended for transhipment there → proper officer may allow without duty on prescribed conditions
The bona fide satisfaction test applies to clause (b). Conditions ensure due arrival of the goods at the destination station.
Deemed exports (section 147, CGST Act)
Notified supply of goods + goods do not leave India + payment in INR or convertible foreign exchange + goods manufactured in India
Notification is by the Government on the Council's recommendation. All conditions must be met.
Information return (section 150, CGST Act)
Specified person → furnishes return as prescribed; defect → 30 days to rectify; default → notice allows up to 90 days
If a defect is not rectified in time, the return is treated as not furnished.

How to solve Customs Duty and Other Indirect Levies at a Glance questions

Use this method for any question on customs duty or other indirect levies.

  1. 1Identify the nature of the levy: direct or indirect, and whether it is on import, export, or domestic supply.
  2. 2Name the governing law, such as the Customs Act, 1962 for customs duty or the CGST Act, 2017 for GST.
  3. 3State whether the levy is within GST or outside it, and mention that IGST is also levied on imports.
  4. 4Quote the specific provision, for example section 54 for transhipment, with its exact conditions.
  5. 5Apply the provision to the facts given, checking each condition one by one.
  6. 6Write a clear conclusion stating the tax consequence.

Quickest way: Three-line answer frame

When to use it: Use it for short-answer questions when time is limited.

  1. Line 1: define the levy and its law.
  2. Line 2: give the key rule or condition, with the section if sure.
  3. Line 3: conclude whether duty or tax applies, and whether GST covers it.

Common mistakes in Customs Duty and Other Indirect Levies at a Glance

  • Saying customs duty is subsumed in GST.

    Students remember that GST replaced many taxes and assume it replaced all.

    Fix: Remember that customs duty stays under the Customs Act, 1962. IGST is charged additionally on imports.

  • Treating all transhipment as automatically duty-free.

    Students read only the words 'without payment of duty'.

    Fix: Note the conditions: manifest or import report must mention transhipment, section 11 applies, and for transhipment within India the officer must allow it on prescribed conditions.

  • Confusing deemed exports with actual exports.

    The word 'export' suggests goods leave India.

    Fix: In deemed exports the goods do not leave India. They must be manufactured in India and notified by the Government.

  • Forgetting that deemed exports need a notification.

    Students assume any supply to an export-linked buyer qualifies.

    Fix: State that the Government notifies the supplies on the Council's recommendation.

  • Mixing up the 30-day and 90-day periods in section 150.

    Both periods relate to the same information return.

    Fix: 30 days is for rectifying a defect. Up to 90 days is the period in a notice for an information return not furnished on time.

Worked examples

Example 1

Goods are imported at a customs station and the import manifest shows them as meant for transhipment to a place outside India. Can they be transhipped without payment of duty? What must be presented?

Show the solution
  1. Provision: section 54 of the Customs Act, 1962 deals with transhipment of certain goods without payment of duty.
  2. Under section 54(1), a bill of transhipment must be presented to the proper officer in the prescribed form and manner. Where transhipment is under an international treaty or bilateral agreement, a declaration is presented instead.
  3. Under section 54(2), goods mentioned in the manifest or import report as for transhipment outside India may be allowed to be transhipped without duty, subject to section 11.
  4. Here the manifest mentions transhipment outside India, so the condition is met, subject to section 11.

Answer: Yes. The goods may be allowed to be transhipped without payment of duty, subject to section 11, on presenting a bill of transhipment (or a declaration in treaty cases) to the proper officer.

Example 2

A bank fails to file an information return required under section 150 of the CGST Act, 2017 within time. What can the authority do?

Show the solution
  1. Provision: section 150(1) lists banking companies among persons who must furnish an information return in the prescribed form, time and manner.
  2. Under section 150(3), if the person has not furnished it within time, the authority may serve a notice requiring it within a period not exceeding ninety days from service.
  3. The bank must then furnish the return within that period.
  4. If a return is filed but found defective, section 150(2) allows 30 days to rectify, failing which it is treated as not furnished.

Answer: The authority may serve a notice requiring the bank to furnish the return within a period not exceeding ninety days from service of the notice, and the bank must comply.

Exam tips

  • Write the Act and section in the first line of your answer; ICSI answers reward the provision before the analysis.
  • For transhipment questions, list the conditions as bullets so each can be checked against the facts.
  • Always add that IGST is levied on imports in addition to customs duty when comparing with GST.
  • Learn the difference between the 30-day and 90-day periods in section 150 and write them precisely.
  • End every answer with a one-line conclusion.

Practice questions from Concept of Indirect Taxes at a Glance

Customs Duty and Other Indirect Levies at a Glance in other exams

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

Customs Duty and Other Indirect Levies at a Glance: frequently asked questions

What is customs duty in simple words?

It is a tax on goods that enter or leave India. It is imposed under the Customs Act, 1962. Import duty applies to inward goods and export duty to outward goods.

Is customs duty covered under GST?

No. Customs duty remains a separate levy under the Customs Act, 1962. On imports, IGST is charged in addition to it.

What are deemed exports under GST?

Under section 147 of the CGST Act, the Government may notify certain supplies of goods as deemed exports on the Council's recommendation. The goods must not leave India, payment must be in rupees or convertible foreign exchange, and the goods must be manufactured in India.

What does section 54 of the Customs Act say about transhipment?

Section 54 deals with imported goods intended for transhipment. It permits duty-free transhipment only where its conditions are met. The goods must be mentioned in the manifest or import report as for transhipment, and transhipment outside India is subject to section 11. For places within India, the proper officer must allow it on the prescribed conditions.