Over Rs 1.52 lakh cr locked in Customs disputes; govt may look at amnesty scheme in FY27 Budget

The news about the Indian government considering an amnesty scheme in the FY27 Budget to resolve over Rs 1.52 lakh crore locked in customs duty disputes is a significant development for India's economic landscape and tax administration. This move, suggested by Price Waterhouse & Co, not only aims to unlock substantial revenue but also addresses long-standing issues within the customs regime, including duty rationalization and inverted duty structures.

**Background Context: Why So Many Disputes?**

Customs duty is a tax levied on goods imported into India and, in some cases, on exports. It is governed primarily by the Customs Act, 1962. Over the years, customs law has become increasingly complex due to frequent amendments, numerous exemption notifications, and varying interpretations of classification and valuation rules. This complexity often leads to disputes between importers/exporters and customs authorities. Common reasons for litigation include: misclassification of goods (leading to incorrect duty rates), disputes over valuation (especially for related party transactions), alleged misuse of export promotion schemes, interpretation of exemption notifications, and procedural non-compliance. These disputes often get stuck in various appellate forums, from the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) to High Courts and the Supreme Court, leading to a massive backlog and blocking significant government revenue. The sheer volume of Rs 1.52 lakh crore indicates a systemic challenge that needs a comprehensive solution.

**What Happened and Key Stakeholders Involved**

Price Waterhouse & Co (PwC), a prominent advisory firm, has recommended the government consider an amnesty scheme in the Financial Year 2026-27 Budget. An amnesty scheme typically allows taxpayers to settle their disputes by paying a portion of the disputed amount, often waiving penalties and interest, in exchange for withdrawing legal challenges. The primary stakeholders are: the **Government of India** (specifically the Ministry of Finance and its Central Board of Indirect Taxes and Customs - CBIC), which will formulate and implement the scheme; **Businesses** (importers, exporters, manufacturers) who are currently embroiled in these customs disputes and stand to benefit from a swift resolution; and **Advisory Firms** like PwC, which analyze the economic landscape and provide policy recommendations. The **Judicial System** is also a key stakeholder, as a successful amnesty scheme would significantly reduce the burden on appellate tribunals and courts.

**Why This Matters for India: Economic and Governance Impact**

This initiative holds immense significance for India. Economically, unlocking Rs 1.52 lakh crore would provide a much-needed boost to government revenue, which can be utilized for infrastructure development, social welfare schemes, or fiscal consolidation. It also contributes to the **'Ease of Doing Business'** environment by reducing litigation, providing certainty to businesses, and improving investor confidence. A simplified and predictable tax regime is crucial for attracting foreign direct investment (FDI) and encouraging domestic manufacturing under the **'Make in India'** initiative.

The proposal also includes rationalizing customs duty slabs to 5-6 and reducing duties on raw materials to address **inverted duty structures**. An inverted duty structure occurs when the import duty on finished goods is lower than the import duty on raw materials or intermediate goods required to produce those finished goods domestically. This makes domestic manufacturing uncompetitive, as local producers end up paying more for inputs than what their imported finished product competitors pay. Addressing this is vital for protecting and promoting domestic industries, aligning with India's broader industrial policy goals.

**Constitutional and Legal Context**

Taxation in India operates under **Article 265 of the Constitution**, which states, "No tax shall be levied or collected except by authority of law." This means all taxes, including customs duties, must be backed by specific legislation passed by Parliament. Customs duties fall under the **Union List (Entry 83)** of the Seventh Schedule, granting the Parliament exclusive power to legislate on them. The **Customs Act, 1962**, is the foundational law governing the levy and collection of customs duties, import/export procedures, valuation, and penalties. Any amnesty scheme or changes to duty structures would be implemented through amendments to this Act or via notifications issued under its provisions, typically announced during the annual Union Budget. Past schemes like the 'Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019' for pre-GST indirect tax disputes and 'Vivad se Vishwas Scheme' for direct tax disputes demonstrate the government's approach to resolving legacy litigations.

**Future Implications**

If implemented effectively, the amnesty scheme could significantly declog the legal system and improve India's tax-to-GDP ratio. However, the success will depend on the attractiveness of the terms offered to businesses. Too stringent, and few might opt-in; too lenient, and it might set a precedent for future non-compliance in hopes of another amnesty. The rationalization of duty slabs and addressing inverted duty structures will have long-term positive implications for domestic manufacturing and India's competitiveness in global trade. This move signifies a broader shift towards a more taxpayer-friendly and efficient tax administration, crucial for India's aspirations to become a major global economic power. It also highlights the government's commitment to continuous reform in its fiscal and trade policies, adapting to global economic realities and the needs of domestic industry, especially in the context of increasing Free Trade Agreements (FTAs) that can sometimes inadvertently create inverted duty structures.