Countervailing duty is an import duty imposed on imported goods because to neutralise some of the benefits enjoyed by the imported goods (from governments of the exporter). There are two types of countervailing duty.
Counter vailing duty to countervail export subsidies: First is the countervailing duty to countervail an export subsidy given by foreign country governments to their exporters. For example, export subsidies given by the Chinese government will make the Chinese products low priced in the Indian market. This will be a disadvantage for the competing Indian products. To overcome this situation, government of India can impose a countervailing duty on Chinese imports.
Countervailing duty to neutralise excise duty exemption: Second is the countervailing duty imposed on the imported product to neutralise the excise duty exemption enjoyed by the imported product. In this case, most of the imported products are exempted from excise duties (tax on production) in the producing countries. This exemption is given by governments there to provide a low price (as tax is exempt) advantage to exporters. On the other hand, their competitors in India as local producers should pay excise duty in India. To balance this situation, the government of India can impose an additional duty of customs (or countervailing duty) on imports.
