India's customs administration has undergone significant transformation over the years, marked by tariff rationalization, digitization initiatives, and simplified procedures designed to bolster domestic industry. While industry stakeholders continue to advocate for high tariff rates and duty rationalization, the forthcoming phase of reform demands a structured approach centered on simplifying regulatory provisions, procedural laws, and harnessing technology to facilitate ease of doing business. In this context, the upcoming budget is anticipated to prioritize reforms aimed at easing compliance, accelerating system modernization, and streamlining procedures.
The Next Phase of Customs Reform: Prioritizing Speed and Certainty
The evolution of customs reform is likely to be driven by faster processes and time-bound resolutions, as delays, uncertainties, and administrative costs often outweigh the impact of duties. Special Valuation Branch (SVB) investigations and provisional assessments have emerged as persistent challenges, leading to prolonged uncertainty for businesses. Despite existing measures for time-bound resolutions, a robust framework is essential to ensure effectiveness, as detailed below.
SVB Investigations: The Urgent Need for Time-Bound Closures
The Special Valuation Branch (SVB) investigations mechanism currently lacks a prescribed time limit for completion, resulting in extended uncertainty for enterprises. In numerous instances, investigations have remained pending for several years, sometimes exceeding a decade. This situation exacerbates compliance burdens and hardships for businesses, including continuous process monitoring, repeated data submissions, and uncertainty regarding potential incremental duty liabilities that cannot be passed on to customers.
Additionally, it escalates compliance costs. It is anticipated that the government will introduce appropriate provisions in the budget to mandate time-bound closures for SVB investigations. This expected move would provide certainty and mitigate the risk of customs duties becoming non-transferable costs for businesses.
Recent discussions have also revolved around revamping the SVB process and implementing post-clearance audits to validate related-party customs valuations. It is crucial that issues plaguing the current system do not persist in any new procedures introduced.
Provisional Assessments: Calling for Structural Reforms
Budget 2025 took a positive step by introducing a two-year period for finalizing provisional assessments. While this provision aligns with the right intent, a framework outlining tangible action points for both importers and customs officers is necessary to operationalize this two-year timeframe effectively. The statute should also incorporate a time-bound agreement in the form of a provisional assessment order, delineating the responsibilities of importers and customs officers to facilitate finalization.
For example, in cases of classification disputes leading to provisional assessments, importers could be directed to obtain advance rulings within a specified period for assessment closure. Similarly, for valuation issues, customs officers should be entrusted with time-bound closures. Currently, the limitation period for issuing assessment notices is calculated from the date of finalized assessment rather than the date of filing the bill of entry. Since provisional assessments often remain pending for years, the actual period covered in potential litigation extends well beyond the statutory five-year limit.
This creates multiple challenges for industry, including the risk of prolonged litigation, the requirement to maintain records for extended periods, and recurring provisions in financial accounts for potential duty liabilities. To ensure certainty and ease of doing business, the limitation period should be counted from the date of filing the bill of entry. This adjustment would instill confidence in industry, reduce retrospective duty and interest demands, and free up administrative time currently entangled in dispute resolution.
Digitalization as the Cornerstone of Compliance Reform
While digital systems are in use, there remains a need to deeply integrate these systems and eliminate manual interventions to reduce operational delays that hinder business efficiency. Digital transformation continues to be central to the customs reform agenda. Although the government has successfully digitalized systems, the existence of disparate platforms with limited interaction has caused significant procedural issues and duplication of efforts for businesses.
The budget is expected to reinforce a unified customs system to further streamline paperless data submission, ease clearance processes, and reduce dwell times.
Conclusion: Shifting the Narrative from Rates to Reliability
India's customs reform journey is transitioning into a phase where regulatory stability, procedural simplicity, and digital reliability will outweigh marginal tariff adjustments. A customs framework that is more predictable, transparent, and technology-enabled will enhance India's trade facilitation standards and support broader objectives of economic growth and global integration.
Krishan Arora is Partner & Leader, Indirect Tax, India Investment Advisory - Grant Thornton Bharat. With inputs from Ravi Jain, Director, India Investment Advisory - Grant Thornton Bharat.
