Budget 2026: Industry Highlights Customs Litigation and Compliance Challenges as Major Concerns
As the Indian government prepares for the Union Budget 2026-27, industry leaders and tax experts are raising alarms about escalating customs litigation, inconsistent trade facilitation, and significant gaps in digitalization. In a pre-Budget memorandum, the Federation of Indian Chambers of Commerce and Industry (FICCI) has proposed a series of indirect tax reforms aimed at minimizing disputes and enhancing the certainty of customs administration. Experts warn that without these crucial reforms, India’s manufacturing and export potential could be severely hampered.
Strengthening the Customs Authority for Advance Rulings
A primary concern highlighted by FICCI is the need to bolster the Customs Authority for Advance Rulings (CAAR). This body has become essential for ensuring trade certainty since its overhaul in 2018. Currently, CAAR benches operate only in Delhi and Mumbai, despite a significant volume of trade passing through southern and eastern ports like Chennai, Hyderabad, and Kolkata. FICCI has urged the government to establish additional CAAR offices in these regions to alleviate litigation and compliance costs for businesses located far from existing facilities. Furthermore, the organization has proposed extending the validity of advance rulings, which are currently limited to three years, on a self-declaration basis when there are no changes in law or facts. This would help avoid repetitive filings and streamline the process for businesses.
Tax experts, including Mahesh Jaising from Deloitte India, have emphasized the need for CAAR to expand its scope. They argue that non-tariff measures often introduce uncertainty due to their ambiguous language, which does not align with global standards. Jaising recommends empowering CAAR to make rulings on the applicability of specific non-tariff measures for individual importers and exporters, following consultations with relevant departmental authorities. He also advocates for increasing the number of CAAR benches to enhance the speed and predictability of rulings.
Reforming the Authorised Economic Operator Framework
FICCI has also pointed out significant structural gaps within the Authorised Economic Operator (AEO) framework, particularly affecting newly incorporated entities within established corporate groups. Current regulations require applicants to demonstrate a three-year operational and financial track record, which new subsidiaries or restructured entities often cannot meet, even if their parent company is AEO-certified. To address this issue, FICCI recommends allowing new companies within AEO-accredited groups to apply for certification, contingent upon standard checks. Additionally, it suggests maintaining AEO status during mergers involving entities that already hold AEO Tier-2 status, simplifying the process through a notification rather than a new application.
Mahesh Jaising has called for a comprehensive reset of the AEO program, which is nearing its tenth anniversary. He argues that delays and inconsistent interpretations have undermined the scheme’s primary goal of facilitating trade. Proposed improvements include establishing strict timelines for processing applications, offering provisional approvals when delays are caused by the department, and providing clearer guidance on how past litigation impacts eligibility. Expanding AEO benefits to exporters and integrating them with mutual recognition agreements under free trade agreements are also part of the suggested reforms.
Enhancing Operational Efficiency for Importers and Exporters
FICCI has raised concerns about the fragmented communication within customs administration, which currently results in trade notices being issued independently by various customs commissionerates. This situation forces businesses to navigate multiple websites or make physical visits to customs houses. To remedy this, FICCI proposes the creation of a centralized, real-time digital repository for all trade notices, accessible to importers and exporters across the country. Such a database would enhance transparency, ensure uniform assessment practices at different ports, and reduce unnecessary procedural friction.
Despite the government’s push for digitalization under the Digital India initiative, customs adjudication and litigation processes remain largely paper-based. Businesses are still required to submit physical replies to show cause notices and appeals, which hampers efficiency. Jaising has suggested enabling provisions in the Customs Act for fully digital filing of appeals and submissions, aligning the process with the GST framework. This change would alleviate compliance burdens and expedite dispute resolution.
Operationalizing Section 11(3) for Streamlined Compliance
Another significant challenge for trade is the proliferation of non-tariff regulations issued by various ministries and regulators, often lacking a unified compliance interface. Section 11(3) of the Customs Act, introduced in 2018, was designed to address this issue by ensuring that import-export restrictions under other laws become operational only when notified under the Customs Act. However, experts believe this provision remains underutilized. Jaising has recommended issuing a comprehensive notification under Section 11(3) to consolidate all cross-regulatory obligations through a single customs-linked database. This approach could significantly reduce interpretational disputes for both traders and customs officials, moving India closer to a genuine single-window customs regime.
Observer Voice is the one stop site for National, International news, Sports, Editor’s Choice, Art/culture contents, Quotes and much more. We also cover historical contents. Historical contents includes World History, Indian History, and what happened today. The website also covers Entertainment across the India and World.
