Budget 2024 Expectations: Indirect Tax - Customs

Mahesh Jaising, Partner, Deloitte India

Current environment

• The government shall present the budget in July 2024. They aim to focus on strengthening the Make in India initiative, creating job opportunities and implementing measures for a strong and stable economy.
• The budget has consistently focused on promoting domestic manufacturing, employing measures such as expanding Phased Manufacturing plans. The government has increased the import duties on finished goods and plans to reduce import duties on the parts used to manufacture finished goods.
• In addition, the government is implementing non-tariff measures, such as licensing requirements and mandatory compliances to meet Indian standards and curb imports of non-essential goods available domestically.
• Further, the Central Board of Indirect Taxes (CBIC) has implemented measures to digitise compliances. These measures include faceless assessment and electronic credit ledger for duty payment under Customs to promote ease of doing business.

Expectations

Expectation #1 Amnesty scheme for Customs

• The Government should end long-drawn disputes, clear up the burdened judicial pipeline and upgrade the law to keep up with the time, technology and international best practices.
• Under India’s indirect tax regime, several litigation matters are pending at different forums involving crores of duty.
• An amnesty scheme, along the lines of Sabka Vishwas or similar schemes, will be a welcome decision. It shall help end long-drawn litigation under Customs. The industry has been waiting for such a scheme for many years to address pending litigation matters under Customs. This will help people, especially small businesses, resolve their past disputes and move ahead with a clean slate.

Expectation #2 Digitalisation of the Customs litigation process

• At present, the adjudication and litigation process under Customs requires physical submissions. This approach involves physical submissions of replies to Show Cause Notices (SCNs) and appeals before the customs authorities. The documents also require physical signing by the authorised signatories.
• The requirement of physical submission of documents is quite an arduous task and against the government’s initiative to make tax digital.
• Relevant provisions should be introduced in the Customs law to file letters, appeals and other correspondence with the authorities digitally in line with the GST law.

Expectation #3 Continued exemption of IGST and compensation cess under the MOOWR scheme

• Manufacturing in Customs Bonded Warehouse, i.e., the MOOWR scheme, is one of the most promising schemes launched by the government. This has provided the impetus to domestic manufacturing. The scheme provides exemption/deferment of duty applicable on capital goods and inputs at the time of import.
• However, the Finance Act 2023 made a crucial amendment to the MOOWR scheme by inserting a new Section, i.e., Section 65A, in the Customs Act, 1962. According to Section 65A, goods can be imported under the MOOWR scheme on the condition of payment of applicable IGST and compensation cess at the time of import. Although IGST and compensation cess are creditable, upfront payment of IGST affects the company’s working capital.
• While the section has not been notified yet, the Government should keep implementing the said section in abeyance, as that will hurt the Government’s vision of Make in India. This will also make India a major player in the Global Supply Chain.

Expectation #4 Time-bound SVB Investigations

• Due to cumbersome and time-consuming SVB investigations in case of related party imports, there is a huge pendency of cases with the SVB cell.
• Pending the SVB proceedings, all import assessments are mandatorily kept provisional. The long-drawn process leads to greater uncertainty regarding the potential financial liability, which may arise due to a different valuation suggested by the customs authorities.
• A scheme needs to be introduced to liquidate all long-pending SVB investigations within a specified period, as may be announced.
• Simultaneously, the SVB Circular could be amended to state that in case investigations are not completed within one year, such provisional assessments would be deemed finalised.