FEBRUARY 10, 2025

By Rajat Chhabra, Partner, Chirayu Panarkar, Manager and Kirti Motichand Bargaiya, Executive, Taxcraft Advisors LLP

THE Union Budget 2025 is a game-changer for businesses, and India's trade ecosystem, as Hon'ble Finance Minister Smt. Nirmala Sitharaman set the stage for a new era of streamlined processes, reduced compliance burdens, and accelerated economic growth. The Budget, which was presented on February 1, 2025, showcases a series of revolutionary reforms aimed at bolstering domestic manufacturing, fostering export growth, and enhancing the overall trade efficiency. Among the most transformative proposals under the Customs Act, 1962 ('Customs Act'), are the Provisional Assessment of Duty, Voluntary Revision of Entries, IGCR Rule Amendments, and an overhaul of the Overall Duty Structure. These moves promise to unlock fresh avenues for businesses while ensuring transparency and ease of doing business.

The Hon'ble Finance Minister herself stated on the floor of the House that, "The reforms introduced will simplify our tariff structure, promote 'Make in India,' and position India as a hub of manufacturing excellence." This piece attempts to dive deeper into these critical amendments and explore how these are likely to reshape India's trade landscape:

1. Provisional Assessment of Duty: Clear Guidelines, Less Uncertainty

The Provisional Assessment of Duty has long been a source of ambiguity, with no clear time frame for finalizing assessments, often leaving businesses in limbo. The Budget 2025 introduces a clear roadmap for provisional assessments under Section 18 of the Customs Act, bringing much-needed clarity.

Key Features of the Provisional Assessment Amendments:

- Clear Time Limit: The duty provisionally assessed must be finalized within two years, bringing certainty to businesses and reducing unnecessary delays.

- Extensions for Valid Reasons: The Principal Commissioner or Commissioner of Customs can grant a one-year extension based on valid causes. This flexibility helps businesses navigate through unforeseen delays.

- Reasonable Delays: The amendments also define scenarios where delays are acceptable, be it awaiting information from foreign authorities or pending legal proceedings. It's a balanced approach, ensuring fairness for all parties involved.

2. Voluntary Revision of Entries: Empowering Businesses to Correct Mistakes

A refreshing change in Budget 2025 is the introduction of Voluntary Revision of Entries under Section 18A of the Customs Act. This new provision allows businesses to amend previously made entries post-clearance, fostering greater self-regulation and voluntary compliance.

Key Features of Voluntary Revision:

- Empowering Self-Correction: After clearance, importers and exporters can now revise their customs entries and self-assess the duty payable. The revisions must adhere to prescribed timelines and formats.

- Duty Implications: If the revision results in underpaid duty, the business can voluntarily pay the difference, along with interest. For excess duty paid, the revised entry will be treated as a claim for refund, making the process more flexible and fairer.

- Verification by Customs Authorities: The customs authorities may verify revised entries through risk evaluation, ensuring compliance while minimizing disruptions to businesses.

3. IGCR Rules: Flexibility and Support for Key Sectors

For industries benefiting from concessional duty rates, the Customs (Import of Goods at Concessional Rate of Duty or For Specific End-Use) Rules, 2022 have undergone significant amendments, provided much-needed flexibility and reduced the compliance burden.

Key Amendments to IGCR Rules:

- End-Use Fulfilment Period Extended: The period for fulfilling end-use conditions has been extended from 6 months to 1 year, giving businesses the time they need to fulfil requirements without the pressure of tight deadlines.

- Quarterly Reporting: Instead of submitting monthly statements, businesses now need to submit quarterly statements, simplifying the compliance process.

- Seed Import Exemption for Lab-Grown Diamonds: The duty exemption on the import of seeds for rough lab-grown diamond manufacturing has been removed, providing an added advantage to the burgeoning diamond industry.

"These amendments provide the much-needed operational flexibility for sectors like lab-grown diamonds, EV manufacturing, and others, allowing them to plan more efficiently and respond to market dynamics," said Hon'ble FM, Sitharaman.

4. Overall Duty Structure: Simplification, Relief, and Sectoral Support

In a decisive move to rationalize the customs duty structure, the Union Budget 2025 proposes to simplify the customs tariff structure, aiming to reduce the number of customs tariff rates and streamline procedures.

Key Changes in the Duty Structure:

- Removal of Seven Tariff Rates: The Budget proposes to remove seven additional customs tariff rates for industrial goods, leaving just eight tariff rates, including the zero rate. This marks a significant step toward simplifying India's tariff system and making it more business friendly.

- Social Welfare Surcharge Exemption: By removing the Social Welfare Surcharge on 82 tariff lines subject to a cess, the Budget reduces unnecessary layers of duty, providing clarity and ease for businesses.

Relief for Critical Sectors:

- Life-Saving Medicines: A huge relief for patients, the Budget proposes to fully exempt 36 life-saving medicines for cancer, rare diseases, and chronic conditions from Basic Customs Duty ('BCD'), ensuring affordable healthcare access.

- Boost for E-Mobility and Battery Manufacturing: To bolster Electric Vehicle ('EV') manufacturing, 35 additional capital goods for EV battery production are exempt from BCD, a strategic move toward driving sustainable growth in the e-mobility sector.

- Critical Minerals and Manufacturing Inputs: The Budget also proposes BCD exemptions for vital minerals like cobalt and lithium-ion battery scrap, securing resources for domestic manufacturing and creating job opportunities in emerging sectors.

Concluding Remarks

With these forward-thinking amendments the Union Budget 2025 indeed promises a new era of trade efficiency, transparency, and growth. From the Provisional Assessment of Duty to the Voluntary Revision of Entries and IGCR Rule Amendments - the Budget is a robust framework that not only simplifies customs procedures but also empowers businesses to correct mistakes, manage risks, and enhance compliance leading to an environment of mutual trust and co-operation. With a renewed focus on rationalizing tariffs, promoting domestic manufacturing, and boosting exports, Union Budget 2025 signals a bold step toward making India a global manufacturing/trade powerhouse.

Having said the above, presently on ground zero, importers/exporters are facing a lot of challenges qua provisional assessment as well as amendment of shipping bills/bills of entry inasmuch as there are recurring delays and failure to follow the intent and spirit of the law as intended by the legislature. Therefore, while said reforms seem well-structured and promising on paper; intent will only come to fruition if these are effectively implemented at the field level by officers, ensuring co-operation and smooth execution across all levels. Thus, in essence, the real victory for all stakeholders shall lie in effective implementation of the proposed changes at the grassroot level!

[The views expressed are strictly personal.]