Difference Between Excise Duty and Custom Duty

Introduction

Duty is a type of tax levied on a product. The government of every country impose such duties as a technique of collecting revenue that is applied for the benefit of the country along with its social programmes. It is through the collection of these taxes that the government can carry out the smooth functioning of the country.

The duties that are imposed on manufactured items are not a kind of direct tax. Rather they are referred to as indirect taxes. They are also known as tax charges on commodities that are both manufactured and imported from some other country. Every country has its different types of customs and excise tax guidelines and restrictions. The taxes collected vary from one country to another. Excise duty refers to the charge placed on items made within the state. The customs duty, on the other hand, is the tax placed on products imported from another country.

Excise Duty vs Customs Duty

The central difference between excise duty and customs duty is that the government levies an excise tax on commodities and products made in the country while customs tax is imposed on items imported from other countries. They are both indirect taxes. Though these types of taxes have several similarities like refund, settlement, expropriation, administrative functions, and market values, however, some minute differences exist between the two. Some of the differences between excise duty and customs duty are explained in the paragraphs that follow.

Differences Between Excise Duty and Customs Duty in Tabular Form

Parameters of Comparison	Excise Duty	Customs Duty
Meaning	The duty that is levied for goods manufactured inside the state can be called excise duty.	The duty that is levied on goods imported from a foreign country is the customs duty.
Imposition of Tax	These taxes are imposed on domestically produced goods.	These taxes are imposed on the goods which are produced outside the domestic territory.
Paid By	The excise duty should be paid by the manufacturer within the country.	The customs duty is to be paid by the manufacturer of the foreign goods that are imported from other countries.
Applicability	Excise duty is no longer applicable upon goods since it has been replaced by GST.	Customs duty is still applicable on various goods.
Acts and Provisions	According to the Central Excise Act of 1944 and the Central Excise Tariff Act of 1985, every producer in the nation is required to pay Excise duty. The majority of items are subject to a 16% excise charge, while some are subject to more.	The Customs Act of 1962 governs customs duties in India. This tax is levied on items imported and exported into the nation. This is a critical obligation since it prevents unlawful import and export of products.
Factors Affecting Tax Computation	Volume, monetary worth, and quantity of items affect the computation of tax.	The computation of tax is affected according to the items' assessable worth.
Calculation	Excise duty is valued ad valorem, which implies that the duty is computed based on the number or volume of commodities.	Customs duty, on the other hand, is determined by its assessable value. It is valued by the quantifiable value.

What is Excise Duty?

The tax imposed on domestically produced items is known as excise duty. It is imposed along with the sales tax and VAT. It is the owner or the manager of the company who is responsible for paying the excise tax to the government according to the amount manufactured. It is a type of indirect tax that is often collected from customers by a store or an intermediary and then paid to the government. Excise duty is calculated, taking into account the number of goods or the volume of the goods.

Although this tax is due on products manufactured, it is generally imposed, when the goods are removed from the site of the manufacturing or the warehouse for sale. Since the excise duty is imposed on manufacturing such items, there is no obligation for the commodities to be sold. Excise duty is collected by the Central Board of Excise and Customs (CBEC). The excise duty becomes payable once the manufactured items are taken away from the production houses and are ready for sale. Even if the selling does not occur, the excise tax is incorporated for payment since it falls in the category of manufactured products.

Excise duty is valued ad valorem, which means that, the duty is calculated, taking into account the number of goods or the volume of the goods. The legal framework of the excise duty, is controlled by the two acts of the government. They are:

• Central Excise Act, 1944
• Central Excise Tariff Act, 1985

Types of Excise Duty

There are three types of excise duty in India. They are as follows:

1. Basic Excise Duty: Basic excise duty is also known as the Central Value Added Tax (CENVAT). This excise tax is levied on items listed in the first schedule of the Central Excise Tariff Act of 1985. This charge was imposed following Section 3 (1) (a) of the Central Excise Act of 1944. Except for salt, this charge is extended to all items.
2. Special Excise Duty: This type of duty is imposed on certain items listed in the Second Schedule to the Central Excise Tariff Act of 1985.
3. Additional Excise Duty: This levy is collected on particular commodities and is imposed by the national and state governments in place of sales tax. The additional excise tax was collected on commodities of special significance under the Additional Excise Duty (Goods of Special Importance) Act of 1957. The Additional Duties of Excise (Textiles and Textile Articles) Act of 1978 contains comparable provisions.

What is Customs Duty?

Customs duty is a form of duty or tax which is imposed on items that are imported from foreign countries, i.e. imported commodities from foreign countries are subjected to customs duties. Nations all over the globe pay customs taxes on items imported and exported to generate money or protect native institutions from predatory or efficient rivals from other countries. Customs taxes are levied by specific agencies and committees established by local governments to safeguard local industries, economies, and companies.

The highest form of customs duties is imposed on alcohols and sedatives like liquor, tobacco etc. The Customs Act of 1962 defines customs duty in India. This Act allows the government to impose a tax on exports and imports, restrict the export and import of products, processes for importing/exporting and violations, penalties and so forth. The Central Board of Excise and Customs is in charge of all import duties (CBEC). The CBEC, in turn, is a section of the Ministry of Finance's Department of Revenue which develops strategies for import duty gathering or imposition, customs duty evasion, smuggling control, and administrative judgments concerning customs formations.

Types of Custom Duty

The different types of customs duties are as follows:

1. Basic Customs Duty: Basic customs duty is levied on imported commodities that fall under Section 12 of the Customs Act of 1962. These charges, are imposed at the rates indicated in the First Schedule to the Customs Tariff Legislation of 1975, following Section 2 of the Act. Depending on the nature of import, the charged rates may be standard or advantageous. The tax may either be fixed on an ad -valorem basis or a specific rate basis. The tax may also be a percentage of the value of the goods or at a specific rate.
2. Additional Customs Duty: This duty is paid on imports under Section 3 of the Customs Tariff Act of 1975. It is the same as the Central Excise Duty charged on identical commodities manufactured in India. This tax is established on the grounds of the whole worth of the goods, including landed expenses. It is also called Countervailing Duty (CVD). It is imposed at the same rate at which excise duty applies to similar products manufactured in India. Also, this CVD has pertained to the Assessable Value, which is obtained after adding Basic Custom Duty to the transaction value.
3. Safeguard Duty: To ensure that no harm is done to India's domestic industry, a safeguarding responsibility is imposed to protect the interests of our local production. It is based on the losses sustained by our regional economies.
4. Protective Duty: the protective duty is a type of tax that may be levied to protect the local manufacturing companies at the rate that is recommended by the Tariff Commissioner.
5. Anti-Dumping Duty: There are nations that export items to India at a lesser price than they must trade in their own country. This is analogous to dumping commodities in our country. Anti-dumping duties are put on such items to protect our domestic industry.
6. Countervailing Duty on Subsidized Articles: this type of duty is imposed on articles that are imported into India with incentives from another country. The quantity of counterbalancing duty cannot be greater than the amount of rebate compensated. It will be in effect for five years from the date of implementation and can be extended for another five years. However, now it has been overtaken by GST.
7. Education Cess: With effect from 9-7-2004, a 2% education tax has been imposed on imported products under Section 91 of the Finance Act 2004. Furthermore, an extra 1% of the total customs charge has been imposed on imports under Section 136 of the Finance Act of 2007.

Differences Between Excise Duty and Customs Duty in Points

• Excise duty is imposed on the items made inside the borders of a state or nation. Customs duty, on the other hand, is imposed on products imported from other countries or international regions.
• Starting from July 1, 2017, excise duty was absorbed into GST, which means that items subjected to GST, are no longer subjected to excise duty. As a result, today's excise duty solely applies to gasoline and alcoholic beverages for human consumption. Customs Duty, on the other hand, is not incorporated under GST, which means that even after the implementation of GST, customs duty, would be imposed on exports and imports.
• The manufacturer of the item or the product, is responsible for paying the excise duty. On the other hand, customs duties are generally paid by the organization or the company that buys or imports the product from any other foreign organization or company.
• The customs duty is not deductible as an input tax credit. In most cases, excise duty can be called an input tax credit.
• Every producer in the country is obligated to pay Excise duty under the Central Excise Act of 1944 and the Central Excise Tariff Act of 1985. The majority of products are subject to a 16 per cent excise tax, with some subject to a higher rate. On the other hand, custom duties are governed by the Customs Act of 1962. These types of taxes are imposed on the goods imported and exported into the country. This is a huge responsibility since it prohibits illegal goods exports and imports.
• Along with VAT and sales tax, excise duty is charged. When it comes to the price of products, excise duty accounts for most of it. The tax is computed based on the number of products or the number of goods. Any commodity, on the other hand, is evaluated by its measurable worth. Each object has a rating or a tag, which is a 4 or a 10 digit number.

Conclusion

Thus, we can see from the above discussion that the rules and regulations of every country vary in their way of collecting excise and customs duties. They differ from one place to another. They are also seen to be imposed on all commodities circulating domestically or internationally. The taxes imposed upon different products are not direct. They are an indirect form of taxes, which are inflicted upon manufactured goods and products. This method of levying charges is a process of raising revenue that is very beneficial to the nation's economic growth and social activities. One of the most important sources of income for the government is the collection of tariffs and taxes. Hence, this practice of collecting taxes is critical for the proper operation of the country.

References

• https://www.quora.com/What-is-the-difference-between-customs-and-excise-duty
• https://www.paisabazaar.com/tax/excise-duty/
• https://www.bankbazaar.com/tax/custom-duty.html