05 February 2020

Budget 2020 – Changes in Customs law including rate of duty

India’s Finance Minister presented the Union Budget for the year 2020-21 in the Lok Sabha (lower house of the Indian Parliament) on 1st of February, 2020. While a new levy (Health Cess) has been imposed and Customs duty has been increased on import of many products, the Finance Bill, 2020 also proposes many changes in the Customs law and procedures, including administration of Rules of Origin under Trade Agreements.

Trade agreements – Administration of Rules of Origin:

A new Chapter VAA has been proposed in the Customs Act, 1962 to provide for enabling provision for administering the preferential tariff treatment regime under various trade agreements, including FTAs, etc. The new proposed Section 28DA, which will come into effect once the Finance Bill is passed by both the Houses of the Parliament and is assented by the President, provides for a procedure to be followed by the importer while claiming any preferential rate of duty in terms of any trade agreement which India has signed with any other country.

It may be noted that according to the proposals, the request for verification may be sent within five years from the date of claim of preferential tariff treatment, unless specified otherwise in the trade agreement, and the preferential tariff treatment to the goods can also be temporarily suspended pending the verification. This provision also lists the circumstances under which the claim for preferential tariff treatment may be rejected by the Customs authorities even without verification.

Further, according to an amendments proposed in Section 111 of the Customs Act, relating to confiscation of goods, the goods imported under claim of preferential tariff treatment and found to contravene the provisions of the new Chapter VAA or the Rules, will also be liable to confiscation.

“Trade Agreement” has been defined as an agreement for trade in goods between the Government of India and the Government of a foreign country or territory or economic union.


Health Cess:

A new levy by the name “Health Cess” @ 5% has been imposed on certain medical devices. The Cess has been imposed on certain goods falling under Headings 9018 to 9022 of the Customs Tariff Act, 1975, on ad valorem basis, i.e. on the value of the imported goods. According to the provisions enshrined under Clause 139 of the Finance Bill, 2020 read with the declaration made under the Provisional Collection of Taxes Act, 1931, this levy is effective from 2-2-2020 and shall be in addition to any other duties of customs chargeable on such goods under the Customs Act or any other law for the time being in force.

Further, as per notifications issued by the Ministry of Finance, exemption has been provided to all goods falling under Heading 9022, other than those for medical, surgical, dental or veterinary uses. It may be noted that certain goods which are exempted from the Basic Customs Duty would also be exempted from the Health Cess. The exemption includes goods exempted under various specified FTA’s. It may be noted that according to the TRU letter and the Memorandum explaining the Budget provisions, export promotion scrips cannot be used for payment of said Cess.


Import prohibition:

Central Government is at present empowered to prohibit import or export of gold or silver in order to prevent injury to the economy of the country by the uncontrolled import or export of such goods. Now this provision [Section 11(2)(f) of the Customs Act, 1962] has been proposed to be amended to include “any other goods” as well. Accordingly, the Central Government will now be empowered, after the Bill receives the Presidential assent, to prohibit import or export of “any other goods” also, in order to prevent injury to the economy of the country.


Revision in rate of Customs Duty:

Rates of Basic Customs Duty have been increased on many products relating to Agriculture and Food Industry covered under Chapters 04, 10, 12, 17, 18, 19 and 23, Electronics Industry products covered under Chapters 84, 85 and 94, and Copper and articles thereof used in manufacturing of specified electronic items.
Further, rate of BCD has also been increased on many products under category of general machinery or appliances falling under Chapter 84 of the Customs Tariff Act, and certain products of the Information Technology Industry covered under Chapter 85. Rate of BCD has also been increased on footwear including parts of footwear covered under Chapter 64, certain household items falling under Chapters 69, 70, 83, and on certain furniture items and toys falling respectively under Chapter 94 and 95 of the Customs Tariff.

t may be noted that rate of Customs duty has however been decreased on certain fuels, chemicals and plastics and on certain goods of the paper industry (including on newsprint).

Further, in respect of Social Welfare Surcharge (SWS), it may be noted that all products of Chapter 84, 85 and 90 will now attract SWS. Exemptions earlier available to certain goods of these Chapters have been withdrawn. However, all commercial vehicles (including electric vehicles), falling under Heading 8702 and 8704, if imported as completely built units (CBUs) would be exempted from such surcharge with effect from 1-4-2020.




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