In the current tax environment, it is not uncommon for assessments to remain provisional for very long periods, sometimes even spanning several years. These delays not only stifle the growth of businesses but also strain their financial resources. Businesses face mounting costs, with execution of bank guarantees/bonds, payments of higher duties on continuing provisional assessments and delay in clearance of imported goods. The framework governing these assessments has evolved over the years but often fell short in practice, especially when it comes to finalisation in a time bound manner.
The problem has been especially acute when it comes to finalisation of assessments post determination of values by Special Valuation Branch (SVB). Currently, Circular No. 05/2016-Customs dated 9 February 2016 governs the procedure for SVB proceedings and requires the assessments to be kept provisional pending investigation by the SVB. The Circular stipulates a timeframe of 60 days for the importers/exporters to submit the relevant information. Thereafter, a period of two months (further extendable by two more months) is provided for completion of investigations from the date of receipt of information. However, this period can be extended further at the discretion of Chief Commissioner.
Similar to the SVB proceedings, long delays have also been seen in cases of finalisation of provisional assessments for grant of Project Import benefits. While Circular 22/2011-Customs dated 4 May 2011 provides that finalization of assessments under Project Imports should be completed within a period of 60 days from the date of submission of documents by the importer, however this period is also extendable by the jurisdictional Commissioner of Customs.
The consequence is that sometimes the assessments are kept provisional and pending for years all together. In fact, even after the enforcement of the Customs (Finalisation of Provisional Assessment) Regulations, 2018, assessments are rarely finalised in a time bound manner.
Recognizing these issues, the recent amendment proposed in Section 18 of the Customs Act, 1962 via the Finance Bill, 2025 is a promising development and a welcome change.
Key changes proposed to Section 18 of Customs Act, 1962
The proposed sub-section (1B) to Section 18 of the Customs Act, 1962 aims to provide a definite time limit of two years, extendable by one year (at the discretion of the Principal Commissioner/Commissioner of Customs) for finalization of provisional assessments. The Section provides that the proper officer shall finalize the assessment within two years from the date of such provisional assessment. For cases that are currently pending, the time limit is proposed to be calculated from the date of assent of the Finance Bill, 2025. The application of this proposed amendment to pending assessments will ensure that existing cases are also governed by the new timelines, promoting efficiency in the resolution of outstanding assessments.
Sub-section (1C) is also aimed at outlining specific reasons on which the two-year time limit for finalizing provisional assessments may be suspended. These include cases (a) where information is sought from an authority outside India through legal processes; (b) where assessments have been kept on hold for want of decision from the higher courts or an Appellant Tribunal; (c) where an interim order of stay has been issued by the Appellate Tribunal or higher courts; (d) where the Board has issued a specified direction or order to keep a matter pending; or (e) where an importer or exporter has an application pending before the Settlement Commission or the Interim Board.
In such cases, it is mandatory for the proper officer to inform the concerned importer/exporter about the reasons for non-finalisation of provisional assessments. It is proposed that the two-year time limit will commence from the date when the reason for delay ceases to exist and not from the date of provisional assessment/the date of assent of Finance Bill, 2025. This flexibility is perhaps intended to accommodate exceptional circumstances that may prevent timely assessments, thereby ensuring that legitimate trade activities are not unduly hindered.
Concern that remains unresolved
While the proposed amendment to Section 18 of the Customs Act, 1962 provides much-needed certainty and transparency to importers/exporters, there is one significant concern that remains unresolved.
There is lack of clarity on the consequences if assessments are not finalized within the proposed timeframe. While the use of word ‘shall’ does indicate a mandatory requirement to finalise assessments within the prescribed timeframe, however the answer to this question may not be as simple as it seems. In the past, the courts have held that it is necessary to analyse the legislative purpose of a provision and potential consequences of non-compliance.[1] It has been held that ‘shall’ can be interpreted both literally (implying a mandatory requirement), or more liberally (indicating a directory nature) depending on the legislative intent and context.[2]
In this background, it is worth considering whether it would have been prudent to include the consequences of failing to finalize assessments within the prescribed time limit. For instance, deeming an importer’s/exporter’s assessment as accepted once the timeframe is exhausted, or ensuring that subsequent imports after such cut-off date are finally assessed. This would have provided a foolproof mechanism to implement the provision in its true letter and spirit.
Conclusion
In our opinion, the proposed amendment is a welcome change from its earlier version and will provide much-needed relief to those cases which have been pending for several years. The amendment reflects a broader trend of India’s fiscal policy aimed at enhancing trade facilitation, modernizing India’s Customs framework, and restoring faith of the public in the system.
While on a broader level, the change appears promising allowing businesses to focus on innovation and expansion, however on a deeper analysis, it does pose various questions on what the future holds. As the businesses prepare to adapt to this new framework, clarity and guidance from the Custom authorities and Courts will be crucial in ensuring a smooth transition into this new era of provisional assessments.
[The authors are Partner, Principal Associate and Associate, respectively, in Customs practice at Lakshmikumaran & Sridharan Attorneys, New Delhi]
[1] Sharif-Ud-Din v. Abdul Gani Lone, AIR 1980 SC 303.
[2] Raza Buland Sugar Co. Ltd. v. The Municipal Board, AIR 1965 SC 895; Principal Commissioner of Customs, Mumbai v. Unison Clearing Pvt. Ltd., 2018 (361) E.L.T. 321 (Bom.).
