Trade Facilitation and Ease of doing business has been a mantra that has been intoned by this Government time and again to propel India into an era of Atmanirbharta. To this effect, many best practices and standards have been introduced for two decades to accelerate growth. One such move in this Union Budget 2025 has been to weed out some deep-rooted issues in the Customs law processes, that have afflicted the trade for more than half a century now.
The Finance Bill, 2025 has proposed to amend the existing provisions relating to provisional assessment [section 18] to announce definitive timelines to finalize these assessments and introduce a voluntary mechanism [section 18A] allowing revision of self-assessment under the Customs Act, 1962. The proposal of setting a timeline for the finalization of provisional assessments is directed to bring about certainty and set an endpoint to conclude assessments by the Customs authorities. Similarly, the amendment introducing the voluntary revision facility aims at allowing the importers/exporters to make corrections in the Bills of Entry / Shipping Bill without resorting to challenging the assessment in every situation where an amendment is required, albeit within a defined timeline. The impact of the proposed amendments and some of its nuances have been discussed below.
A two-year timeline for finalisation of provisional assessment [Section 18]
The word "provisional" literally translates into "for the time being", thereby inferring to its transient nature. However, the irresoluteness of the Customs authorities in handling many cases, has given this process an eternal life of its own. Currently, section 18 of the Customs Act, 1962 permits provisional assessments largely in special circumstances where an importer or exporter is unable to make a self-assessment at the time of import, or when documents or information are pending to enable the Customs authorities to conclude the assessment. In these cases, the proper officer can assess the duty provisionally, on the condition that the importer or exporter will provide security for any shortfall between the provisional and final assessments.
Historically, Instruction No. 382/15/98–CX, dated 19.03.1998 read with paragraphs 2 and 3 of Chapter 7 of the CBIC's Instruction Manual specifically provided that all cases of provisional assessment must be finalized within a period of 6 months, with further provision for extension in special circumstances only. Subsequently, after the notification of the Customs (Finalization of Provisional Assessment) Regulations, 2018 ("the Regulations") it was specifically stipulated that provisional assessments must be finalized within two months of receiving necessary documents, with a possible extension of up to three months. In practice, however, these timelines were often not adhered to by the customs officials due to the subjectivity of the process and unreserved discretion available to the proper officers to demand documents and information required to close the assessments. As a result, the provisions relating to providing security [in some cases as high as 100% of the differential duty payable] either in cash or by way of bank guarantees, superfluously increased the financial burden on the importers for extended periods and subjected them to financial risks associated with unresolved assessments and uncertainty regarding the final assessment or the actual amount of duty payable.
The Comptroller and Auditor General of India's (CAG) reports have also repeatedly highlighted that prolonged delays in provisional assessments have historically resulted in deferment of revenue collection. Hence, the delay and laches of the Department not only plague the importers but ultimately come back to haunt the exchequer, as collecting these duties after such a prolonged period is as easy as herding cats. The prolongation of this process has meant that the importers were vulnerable to duty demands for the entire unfinalized period without any provision for limitation kicking in, as the provisions for normal or the extended period of limitation under Customs are triggered only once the assessment is finalized and duties paid [under / not paid].
The Bombay High Court in Calpro Specialities Pvt. Ltd. vs Union of India1 has specifically observed that the Department's internal processes are required to be concluded as expeditiously as possible and could not take indefinite time and the assessing officer ought to have issued specific communication calling the importer to submit any documents/compliances that are required. In the absence of any action/communication, not finalizing provisional assessments, was arbitrary and shall be tantamount to abdication of duties by departmental officers. Likewise, in Union of India & Ors vs. Bihar Foundry & Castings Ltd.2, the Apex Court dismissed the petition filed by the Revenue against the Jharkhand HC order3 that ruled that delay in finalization of provisional assessment for tax periods prior to the issuance of the Regulations shall be barred by a limitation period of 6 months as per Para 3 of Chapter 7 of the CBIC's Instruction Manual (referred above), and which in the said instance was done after 6 to 9 years.
However, to date, there was no specific substantive provision in the law that provided a timeline to close the provisional assessments, and as a consequence, this process has been subjected to considerable delays, especially in complex cases involving valuation and classification disputes. To this end, the amendment proposes a new sub-section (1B) to section 18 of the Customs Act, 1962, which mandates that the provisional assessments must be finalized within two years from the initiation (i.e. filing of a provisional Bill of entry for clearance of goods), and further provides that this two-year period can be extended by the Principal Commissioner or Commissioner of Customs by an additional one year, provided there is sufficient cause, which must be recorded in writing. As for the pending provisional assessments, the amendment provides that the two-year limitation period shall commence from the date the Finance Bill, 2025 receives assent, ensuring that long-standing pending cases that have remained pending for an unreasonable amount of time and waiting for years for their final assessment are also subject to this new framework.
The said amendment is an effort to remove existing bottlenecks in the process and expedite the finalization of pending case. Further, there are many judicial precedents that have held that the Customs authorities cannot issue a show cause notice to collect alleged shortfall fall in Customs duties if assessments are provisional and not finalised. By enforcing a time-bound framework, the government will be in a better position to recover dues promptly. From an importer's perspective, the most immediate benefit is certainty on their assessment and ability to claim refunds that are due on finalisation and closure of their bond / bank guarantee in a timely manner.
Section 18(1C) carves out specific exclusions to the proposed timeline of two years. These include cases where assessment is pending for want of information sought from foreign tax jurisdictions (such as retroactive verification of Country of Origin for eligibility under FTAs), similar issue / cases that are sub judice before an appellate authority or where a stay has been given by an appellate body or cases where the Board has directed that the assessment be kept pending (such as in case of an industry issues) and where the importer or exporter has a pending application before the Settlement Commission or Interim Board.
While the amendments are largely beneficial, there are several challenges and considerations that need to be addressed. One key issue is the implementation of the time limit in cases where complex issues, such as valuation disputes, are pending before the SVB or other specialized authorities. In these cases, the customs authorities may not have complete control over the timeline, as the final assessment may depend on external investigations or determinations from other agencies. Similarly, with the introduction of CAROTAR Rules, many importers are facing an issue with respect to provisional assessments not getting finalised for a considerable amount of time due to retroactive checks from foreign jurisdictions resulting into substantial blockage of working capital by way of furnishing of bank guarantee.
Further, exclusion of sub-judice cases creates an interpretation issue on whether the Customs authorities cannot finalise the provisional assessment if an appeal is filed or does it mean that it is within their discretion to decide whether they can finalise the assessments. Another issue to be considered is that the Customs Authorities have the power to issue a notice u/s. 28 within two years of finalisation of the bills of entry. Further, an additional three years are available if fraud / suppression is alleged (extended period of limitation), taking the total timeline for demanding duty to 7 years. Would it not be prudent to carve out cases from the extended period of limitation where assessments have already undergone a detailed examination (say under SVB, valuation is scrutinized thoroughly)?
While these exclusions may be necessary in certain situations say where the Board has issued instructions or where a stay is granted, the rest could potentially undermine the effectiveness of the amendment and create further hitches, particularly in cases where the reasons for delay are not clearly communicated or justified. It is therefore crucial to maintain clear and transparent communication with the customs authorities regarding the timely submission of requested information or obtain reasons for any delays from them and the steps being taken to resolve the issues. Also, clear guidelines will be needed to address how these carved out cases will be handled so that their finalisation is not prolonged.
In conclusion, while the amendment is a positive step forward in addressing the issue of delay in the finalisation of provisional assessment, it needs to be implemented in the right spirit. It is hoped that the provision is not used as a tool by the customs authorities to create ad-hoc demands of customs duty in the garb of timeline, specifically where the delay in finalisation/conclusion of proceedings is entirely attributable to them and is not a fault of the importer.
Voluntary revision of entry post clearance [Section 18A read with section 27, 28]
Section 18A has been proposed to introduce a new mechanism for voluntary revision of Bill of entry/Shipping bill filed by an importer/exporter after clearance under the self-assessment framework and therefore make suo-moto payment of additional duties (with interest) or claim refunds arising from such revisions. Interestingly, the revision mechanism does not mandate payment of any penalties and may be subject to routine verification by the proper officer on a risk assessment basis only. Corresponding amendments have also been proposed to provisions relating to refunds and adjudication to recognize payments made or refund claims arising from such revisions.
The said facility is being introduced regardless of and in addition to amendment of a Bill of Entry or Shipping Bill permissible under Section 149 of the Customs Act, 1962. The amendment process under section 149 involves submission of evidence to prove that the documents that were relevant to the amendment of the Bill of Entry or Shipping Bill were in existence at the time when the goods were cleared, deposited, or exported. Even where the importer/exporters can produce such documents, the process has mostly been largely ineffective and cumbersome as the Customs authorities always show a marked aversion to allowing amendments on the premise that such changes can only be achieved through a re-assessment within a defined time frame, leading to unnecessary litigation. This situation persists despite judicial precedents from various High Courts4 stating that the amendment facility under section 149 of the Customs Act, is an alternate to re-assessment and there are no strictures on time placed by law for an amendment process.
While the introduction of Section 18A does not fully resolve the issue, it will facilitate the importers/exporters with an opportunity to remedy any inadvertent errors and make rectifications upfront within a specified timeframe without any dispute or production of documentary evidence. Also, the importers can make additional tax payments and be eligible to take the credit of IGST paid on imports for such additional payments. In addition, there will be no penalty to be paid on such additional duty payment.
The extent of permissible amendments is to be seen. For example, it needs to be seen whether this facility will also enable the exporters to add missed out export license details (e.g. Advance Authorisation number etc.) or is it limited to only certain specified fields. The time frame for which such revision is yet to be notified.
There are certain carveouts here as well which are logical considering that the focus is to address voluntary revision. Consequently, the revision facility shall not be available for imports against which audits or investigations have already been initiated, or for refund cases where duties have been re-assessed under section 17, 18 or 84 [courier / post cases] by the proper officer.
Consequential amendment has been made to the provisions of section 27 and 28 to provide for the timeline to issue SCN where a revision has been carried out u/s. 18A. The relevant date to determine the limitation period for issuance of SCN in case of short payment of tax despite the voluntary revision is proposed to be the date of payment of additional duty or interest [Explanation 1(ba) to Section 28]. Likewise, to benefit the taxpayer, the period of limitation in case of a claim of refund by virtue of an revision pursuant to section 18A or section 149 of the Customs Act shall be one year from the date of payment of such duty or interest [Explanation 2 to Section 27]. In ITC Ltd. v. Commissioner of Central Excise, Kolkata-IV [2019 (368) E.L.T. 216 (S.C.)] the Supreme Court held that refund claims on account of errors / revisions in self-assessment shall not be maintainable without the importer having filed a separate appeal challenging the order of assessment [i.e., the bill of entry]. The said process of revision will thus, enable the importers to overcome this additional legal requirement of first challenging the assessment.
To sum up, the amendments to section 18 and section 18A of the Customs Act as proposed by the Finance Bill, 2025 is a right step in the direction of ease of doing business and if implemented appropriately will benefit both the Customs Authorities and the importers / exporters by way of expedited closure of provisional assessments, bringing about certainty and conclusion in assessments, enabling the importer to rectify inadvertent errors while filing Bill of entry/ Shipping Bills without any penal implications albeit within a defined time-frame thereby obviating the need to resort to Section 149 in every situation. As with every other provision, implementation in the right spirit is the key.
Footnotes
1. 2024 (389) E.L.T. 634 (Bom.) [17.04.2024]
2. Order under SLP No. 55454/2024 [10.01.2025]
3. 2024 (3) TMI 371 [04.03.2022]
4. Sony India Pvt. Ltd. vs. Union of India [2022 (379) E.L.T. 588 (Tel. HC)] and Colossustex Pvt. Ltd. vs. Union of India [2024 (387) E.L.T. 277 (Bom. HC)]
Originally published by Taxsutra.
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