Budget expectations 2025: Tax, Indirect tax - Customs

Mahesh Jaising, Partner, Deloitte India

Current environment

• The government will present the Union Budget for the financial year 2025–26 in February 2025. The Budget is expected to strengthen India's manufacturing base, promote exports and simplify trade-related processes to boost global competitiveness.

• The government aims to create a balanced approach encouraging domestic industries to promote the “Make in India” initiative while facilitating seamless integration with global value chains. This is to attract large global players to set up bases in India in response to emerging geopolitical realities.

• In line with the “Make in India” and “Aatmanirbhar Bharat” initiatives, there has been a significant focus on restructuring the tariff structure regarding import duties on raw materials, inputs and capital goods required for domestic manufacturing. The government has also increased duties on certain items, recognising the potential of tariffs to meet different national economic objectives.

• To promote sustainability and mitigate climate change, the government has been focusing on reducing duties on renewable energy equipment, electric vehicle components and green technologies. These measures align with India’s commitments to reducing carbon emissions and fostering a greener economy.

• Additionally, the government is taking non-tariff measures, such as licensing requirements and mandatory compliances, to improve the quality and compliance standards, which are often viewed as barriers to international trade.

• Furthermore, the Central Board of Indirect Taxes (CBIC) has been taking measures to digitise compliance, such as faceless assessment and electronic credit ledger for duty payment under customs, to promote ease of doing business. These initiatives will streamline cargo clearance processes and improve trade facilitation.

Expectations

Expectation #1:  Amnesty scheme for customs

• The government should end long-drawn litigation to resolve long-standing disputes, alleviate the burdened judicial pipeline and upgrade the law to keep pace with technological advancements and international best practices.

• Under India’s indirect tax regime, several litigation matters are pending at different forums involving duties worth crores.

• An amnesty scheme, along the lines of Sab ka Vishwas, will be a welcome decision. The industry has been waiting for such a scheme for years to address pending litigation matters under customs. This will help especially help small businesses avoid past disputes and move ahead with a clean slate.

Expectation #2: Reduction of procedural compliances to avail Free Trade Agreement (FTA) benefits under CAROTAR

• The introduction of Section 28DA of the Customs Act, 1962, along with the Customs (Administration of Rules of Origin under Trade Agreements) Rules, 2020, has resulted in cumbersome and lengthy procedural requirements for importers, which have imposed additional obligations on them.

• The verification process, as required, should be completed within the stipulated time, per CAROTAR. However, there is no adherence to such timelines, and Bank Guarantee (BG) or PD bonds are demanded for all subsequent shipments until the first shipment is verified.

• With the use of the term “reasonable care,” the onus of accuracy and truthfulness of information has been shifted to the importer. The importer has no visibility of the exporter’s Regional Value Content (RVC) and the supplier will not be willing to share information on its costs or transactions due to confidentiality terms. Hence, verification is impossible for importers.

• A suitable instruction to field officers should be provided to ensure strict adherence to specified timelines for the verification process, and the importer should not wait beyond such timelines.

• BG should only be asked about specific vendor shipments where a retroactive check has not been applied, rather than all subsequent shipments from that vendor, to reduce hardship. Instead of BG, the customs authorities should ask for only bonds, and accordingly, Section 28DA and Rules may be amended to that effect.

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

• Manufacturing in Customs Bonded Warehouse, or the MOOWR scheme, is one of the most promising schemes of the government. It has provided impetus to domestic manufacturing and offers 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, provided that the applicable IGST and compensation cess are paid at the time of import. While IGST and compensation cess are creditable, upfront payment of IGST affects the company’s working capital.

• While Section 65A has not been notified yet, the government should keep implementing the said section in abeyance as it will affect the “Make in India” initiative. This will also make India a major player in the global supply chain.

Expectation #4: In case of an inter-unit MooWR to MooWR transfer of goods/resultant products, enabling provisions to be created for disclosing only the deferred duty amount on the imported goods without disclosing per unit price/assessable value of the imported goods.

• The CBIC has issued guidelines for transferring goods between MooWR units. Licensees of both the dispatching and receiving warehouses must accurately record the goods transferred, including the dutiable items and the corresponding duty amount. This is important to ensure that the duty liability is maintained until the goods are cleared for home consumption.

• Thus, the recent guidelines enable MOOWR to MOOWR transfer manufactured/resultant goods in a manufacturing value chain involving multiple MOOWR entities. However, maintaining price confidentiality between the importing MooWR unit and other MooWR units involved in the supply chain is equally important.

• The current provisions mandate that when goods are transferred from one MooWR unit to another, the initial import value (at the time of deposit into the first MooWR unit) is declared, which will lead to the disclosure of the price-sensitive information to the receiving MooWR unit. Disclosure of price to competitors/other MooWR units will not be conducive to business.

• Hence, enabling provisions may be necessitated through amendments in the Customs Act, along with relevant notifications, circulars, instructions and subsequent forms, for "only disclosure of deferred duty amount" instead of the value of imported goods present in the resultant/manufactured product.

• From a procedural aspect, it is suggested that the duty forgone amount may be disclosed at each inter-unit MooWR to MooWR transfer of resultant products. The said amount may be paid by the MooWR unit, which finally clears the resultant goods into the domestic market.

Expectation #5: Time-bound SVB investigations

• Due to cumbersome and time-consuming SVB investigations in related party transactions, there is a huge pendency of cases with SVB cells.

• Meanwhile, all import assessments are mandatorily kept provisional, which leads to much uncertainty regarding the financial liability on account of customs duties for the trade. This results in lost revenue for the government and an undue burden on businesses.

• A scheme must be introduced to liquidate all long-pending SVB investigations (titled “AAP PAR VISHWAS”) within a specified period.

• Simultaneously, the SVB Circular could be amended to prescribe that in case investigations are not completed within two years (maximum permissible for completion of first-level adjudication), such provisional assessments would be deemed to be finalised.

Expectation #6: Extending the scope of advance rulings

• The revamped Customs Advance Rulings mechanism through Chapter VB of the Customs Act has witnessed trade resorting to advanced rulings regarding various issues relating to classification, valuation and effective duty implications to obtain certainty, provided in Section 28H (2).

• Non-tariff measures cause great uncertainty, as their notification templates, language, etc., are not aligned with the WCO’s Harmonised System of Nomenclature.

• It is recommended that the scope of advance rulings may be expanded through an issue of a notification in the exercise of powers vested by section 28H(2)(f) to empower the Customs Advance Rulings Authority to pronounce rulings on the applicability of specific non-tariff measure on a particular importer/exporter upon seeking written opinion of the concerned departmental authority.

• This expansion of scope may be undertaken gradually, beginning with agencies already on board the Customs SWIFT—single-window platform.