Customs dispute resolution on cards: Budget 2026-27 may waive interest and penalties

Customs arrears continue to represent a substantial portion of indirect tax pendency.

• Government plans Customs amnesty scheme to resolve legacy dispute backlog
• Scheme may settle cases by paying principal duty, waiving interest, penalties
• Move aims to free up business capital and speed up government revenue recovery

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The government is expected to introduce a Customs amnesty scheme in the Union Budget 2026-27 aimed at resolving a backlog of legacy disputes, reports Business Standard. The proposed initiative is likely to focus on long-standing Customs cases pending at different levels, including tribunals and courts, while excluding matters related to gold, wilful default, narcotics, and smuggling.

Under the scheme, eligible taxpayers may have the opportunity to settle disputes by paying only the principal Customs duty, with the possibility of waiving interest and penalties, according to sources cited by Business Standard. The move is anticipated to free up capital for businesses while enabling quicker recovery of dues by the government.

Customs arrears continue to represent a substantial portion of indirect tax pendency. As of December 2024, a total of 72,592 Customs cases with recoverable arrears were pending, amounting to Rs 24,016.20 crore, notes the ninth report of the Standing Committee on Finance (2024-25), Eighteenth Lok Sabha, on Demands for Grants (2025-26), cited by Business Standard.

Experts point out that many disputes arise from genuine errors, such as classification issues, where importers have already corrected HSN codes and duty rates after receiving show-cause notices or orders, but continue to contest past periods due to heavy interest and penalty burdens. Jalan, speaking to Business Standard, said taxpayers often cite "genuine error" in these situations.

Abhishek Jain, partner and national head of indirect tax at KPMG, told Business Standard that a well-structured amnesty scheme could substantially "reduce the burden on courts and tribunals, unlock blocked revenue, and provide certainty to businesses." He added that if settlement terms are reasonable and eligibility clear, the scheme could serve as a powerful tool for dispute resolution and improving ease of doing business.

Abhishek A Rastogi, founder of Rastogi Chambers, highlighted to Business Standard that resolving such cases through a targeted amnesty would release significant working capital for businesses, especially micro, small, and medium enterprises, while enabling faster revenue recovery for the government. He described it as a "win-win step that reduces litigation fatigue and helps restore trust in the system."

The Prime Minister, in line with the reforms, emphasised that these measures are designed with empathy, taking into account the realities of small businesses, young professionals, farmers, workers, and the middle class. Speaking to Business Standard, he said the reforms were shaped by consultation, guided by data, and anchored in India's constitutional values, reinforcing the shift from a control-based economy to one built on trust with the citizen at its core.