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Indirect Tax: Expectations from Union Budget 2023

JANUARY 28, 2023

By Mr Rajat Chhabra, Ms Madhuri Kabra and Ms Gagandeep Kaur

WITH general elections due in mid of 2024 and State elections in 2023, the Hon'ble Finance Minister has a daunting task of announcing Budget 2023, the last of NDA's full scale Budget in the incumbent regime, which ought to appeal populist agenda without losing fiscal prudence.

With this onset of elections, the budget proposals are likely to:

1. Give impetus to economic reforms and infrastructure developments;

2. Encourage private sector investments and spur consumption;

3. Be liberal from taxation standpoint; and

4. Aim at augmenting non-tax revenue.

From an indirect tax standpoint, the budget is expected to focus on expediting the digital transformation in customs clearance,bringing certain clarifications from a GST/Customs perspective, and introducing amnesty scheme under Customs laws to resolve long standing litigation disputes. In this article, we delve into few significant indirect tax issues which, if addressed by the Union Budget 2023, would go a long way in reinforcing the existing relationship between the Government and the taxpayers.


Customs Law in India, comprising of the Customs Act, 1962, the Customs Tariff Act, 1975 and numerous rules/regulations formulated there-under, aims at administering importation of goods into India and exportation of goods out of India. Primary purpose of incentive schemes has always been to promote exports from India without making exporters feel burdened by heavy duties. Export schemes in India are consistent with the "Atmanirbhar-Bharat" and "Make in India" programmes, which are Government's flagship initiatives. The former supports self-sufficiency, while the latter promotes turning India into a big industrial nation. The international trade strategy, which is a system of rules and tactics for import and export of goods and services, lays great emphasis on these schemes.

In this regard, certain measures if proposed by the Government vide the forthcoming budget, could indeed benefit the businesses (and in-turn the overall economy) a great deal - couple of these may entail:

Amnesty Scheme

Introduction of an amnesty scheme qua customs matters vide the Union Budget, 2023 could prove to be a game changer both for the Government and the assessees. Due to high stakes involved in customs disputes, a customs amnesty scheme would help the assessee by lowering the quantum of litigation it faces, which would lower its contingent liabilities - and, in the parallel it would help the Government to augment its revenues.

The need for this scheme is not new and the Government has been receiving representations from trade bodies seeking to provide for settlement of Customs duty matters including matters relating to the non-fulfillment of obligation under the EPCG and Advance Authorization schemes. A few customs issues which could be covered within the ambit of said amnesty scheme inter-alia may pertain to:

Incorrect classification

These may involve situations where the Department questions the assessee's choice of HSN classification and corresponding customs duty rate and seeks to impose a higher customs duty rate by reclassifying the imported items under a different HSN.

Under Valuation

Related-party transactions wherein the Department alleges under valuation of goods due to imports being made by a related party and seeks to add specific charges to the value claimed by the assessee, such as marketing and advertisement expenses, etc.

Incorrect availment of exemptions

These may involve situations where the Department claims that an exemption including an exemption related to the use of preferential tariffs which was wrongly claimed.

For the scheme to be a success, two aspects are relevant. Firstly, the scheme should be lucrative enough for an assessee to apply for. Said criterion is generally satisfied in most amnesty schemes. Secondly, the implementation of the scheme especially by the field formation should further the intent of the scheme and not create unnecessary bottlenecks for an assessee say by rejecting an application on baseless grounds or seeking additional duty than what is otherwise required to be paid. If such principles are adhered to, the Customs amnesty scheme may prove to be an even greater success than its predecessors.

Manufacturing &Other Operations in Warehouse ('MOOWR')

MOOWR scheme, which was revamped by the Indian Government in 2019, replaced an older regime that had been in place for more than 50 years. MOOWR scheme not only extends the benefit by way of deferring the Customs duty but also provides operational flexibility to manufacturers without burdening them with time consuming compliances/procedural requirements.

Lack of understanding of technical and administrative issues is indeed preventing some of the businesses to choose the MOOWR scheme. In this regard, few expectations from the forthcoming budget have been identified as follows:

- Given that the Government may implement necessary changes to the scheme, business and industry may need to take this scheme's WTO compliance and tremendous advantages over other export-oriented institutions currently in place more seriously;

- Implementation of step towards merging the EOU and MOOWR scheme; and

- Clarification on non-availability of depreciation on used capital goods, when supplied to domestic market post usage (given that a similar facilitation has been accorded to in other parallel schemes).


The GST law was created to unify the numerous taxes now levied by the Centre and the States to serve as a framework for creating a national economic union. The most important aspect of the GST was its ability to reduce 'cascading' or simply speaking 'duality' of taxation.

Since implementation, this law has evolved remarkably, and it continues to grow and adapt at a rapid pace. As a matter of fact, law cannot be a 'constant ' in that it becomes  rigid  and  irrelevant. No doubt, despite years of legacy many laws around the world keep changing with the ever-evolving norms of morality, righteousness, and expectations of mankind. Every budget accordingly contains fresh promises to improve and simplify the GST reforms.

The introduction of Union Budget 2023 may broadly cover the following set of proposals:

Formation of Tribunals

An area that requires immediate attention is setting-up of Tribunals. Despite indispensable position of Tribunal in administering Justice in the Indirect tax space, its establishment has not seen light of the day in the GST regime. In absence of Tribunal, the High Court's Writ Jurisdiction continues to bear the additional burden. While tax disputes under GST law are on the rise given the ineffectiveness of adjudication system mired with bias towards revenue, delay in setting-up of Tribunals is only going to prove 'Justice delayed is Justice denied'.

In this backdrop, formation of GST Tribunals is a need of the hour as stakeholders are anticipating that Tribunals would be efficient in the disposal of disputes in timely manner. Given its significance, it is anticipated that some big-bang announcements ought to be made qua the said issue in the upcoming budget.

Ease of Compliance Burden

The compliance burden under GST has been a buzz word right from the word go. First for its ambitious GSTR 1 - GSTR 2 - GSTR 3 matching, later for its absolute failure and eventually for making a recipient responsible for supplier's compliances and withholding recipients' tax credit as a deterrent.

Governance is, in all fairness and beyond an iota of doubt, exchequers responsibility. While certain exceptions in the form of TDS, TCS and reverse charge are reasonable exceptions; however absolutely shifting this burden on a recipient is not only unreasonable but also showcases Governance deficit. The necessity to monitor sufficiency of supplier's compliances has turned the taxpayers into compliance BPOs themselves. In this backdrop, it is expected that some form of relaxation ought to be proposed in Union Budget 2023 (in the given context) to ease the compliance burden in the hands of the businesses.

It is imperative that the Government takes note of said concerns being faced by the industry and provides much needed clarity/relief so that the businesses may contribute to the overall well-being of the economy in a more concentrated, focused, and dedicated fashion.

[The authors are Partner, Associate and Executive respectively at Taxcraft Advisors LLP and the views expressed are strictly personal.]

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