Budget 2026: Customs Amnesty will Allow a Clean-Slate Reset 

Union Budget: Customs litigation has become one of the most silent yet expensive drags on India’s trade system. Thousands of disputes on valuation, classification, exemptions, and now on origin of goods remain stuck in adjudication and appellate forums for years, sometimes decades. This unresolved litigation is not merely a number on paper; in reality, it represents capital frozen, with a snowballing impact on the economy. These disputes bring unpredictability and chaos for global supply chains already operating on razor-thin margins and strict timelines.

Despite this growing backlog, customs has remained outside India’s amnesty playbook. This is striking, especially when excise, service tax, VAT, and income tax disputes have all benefited from well-designed settlement schemes that brought closure and restored trust. India’s tax amnesty schemes have been well-intentioned and have helped reduce litigation, particularly under the erstwhile excise and service tax regimes. Past initiatives under the excise, service tax, and VAT frameworks demonstrated that when legacy disputes are decisively resolved, the benefits extend well beyond immediate revenue collection. They restore certainty, unlock working capital, and allow both taxpayers and the administration to redirect attention towards future compliance rather than past disagreements. Budget 2026 therefore presents a perfect policy moment to clear the backlog and rebuild investor confidence through a customs amnesty scheme, which is now widely anticipated.

Learning from Sabka Vishwas and Vivad se Vishwas

The long-term success of any amnesty scheme depends on its effectiveness in reducing case pendency while simultaneously retaining serious tax fraud cases outside its scope. Earlier amnesty schemes adopted a simple approach, covering all disputes pending at the adjudication or appellate stage as of a cut-off date. As a result, both interpretational issues and procedural defaults were included. Similar amnesty schemes were also offered by various State Governments for Value Added Tax (VAT) levies.

Under the erstwhile excise and service tax amnesty scheme, the Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019, approximately 1.8–1.9 lakh legacy cases were resolved, clearing nearly 75–80% of the pre-GST dispute backlog. Similarly, the Vivad se Vishwas (VsV) scheme under direct taxes focused on resolving core tax disputes. This scheme was equally extensive, carving out only limited exceptions for search cases, undisclosed foreign assets, and serious prosecution matters, including offences under the Prevention of Corruption Act, 2002, and the Narcotic Drugs and Psychotropic Substances Act, 1985. Both schemes treated exclusions as the exception, not the rule, and framed amnesty as a closure mechanism rather than a concession. They signalled to taxpayers that interpretational disputes could be resolved, while cases involving tax evasion would remain outside the fold.

Despite being a major contributor to indirect tax litigation, customs has largely remained outside comprehensive amnesty schemes. One reason is the perceived revenue sensitivity of customs duties, which are collected at the border and closely linked to trade policy and domestic industry protection. Another factor is the regulatory overlay in areas such as SCOMET (Special Chemicals, Organisms, Materials, Equipment and Technologies), export controls and licensing, which are often viewed through a security or enforcement lens. Such cases frequently have spillover implications under other enforcement laws, including the Foreign Exchange Management Act, 1999, and economic offences legislation. In addition, customs law often overlaps with complex criminal statutes and socio-legal issues such as gold smuggling and drug trafficking. This caution has led customs to be treated as structurally unsuitable for amnesty, despite the economic costs of prolonged litigation.

Reimagining Customs Amnesty

A customs amnesty scheme need not compromise border enforcement if exceptions are intelligently designed. Similar to the VsV scheme under income tax, eligibility can be extended to bona fide valuation and classification disputes arising from interpretational differences. The Government may exclude cases of blatant evasion such as smuggling, forged invoices, or contraband goods. SCOMET-related disputes involving licensing or technical classification could be included, while cases involving diversion, prohibited goods, or national security violations may be excluded. Clear carve-outs for cases involving prosecution would preserve enforcement integrity while allowing genuine disputes to be closed. Another policy choice could be to permit settlement of milder offences, such as deliberate undervaluation, at a higher settlement cost.

One of the biggest risks of any amnesty is repetition—resolving yesterday’s disputes while sowing the seeds for tomorrow’s. It is therefore imperative that any amnesty scheme be paired with structural reforms that reduce dispute creation. In customs, several reforms are long overdue, including rationalisation of duty structures and exemptions to reduce classification arbitrage. The dispute resolution architecture also needs systemic reform. Customs valuation rules must be better aligned with transfer pricing principles and global benchmarks. Both the advance ruling mechanism and the appellate framework require greater speed, independence and efficiency. Without these reforms, amnesty risks becoming a recurring necessity rather than a one-time reset.

A common concern with amnesty schemes is perceived unfairness to honest taxpayers. However, this can be addressed through clear exclusions for fraud, benami arrangements, smuggling and criminal prosecution. Further, the scheme should be explicitly positioned as a one-time measure linked to systemic reform, not a recurring feature. Transparency around aggregate outcomes and a clearly articulated post-amnesty enforcement roadmap would reassure compliant taxpayers that honesty is not being penalised.

Amnesty as Economic Policy

A reimagined customs amnesty in Budget 2026 can be far more than a revenue collection tool. By learning from Sabka Vishwas and Vivad se Vishwas, intelligently designing exclusions, and finally bringing customs—particularly valuation and SCOMET-related disputes—within its ambit, the Government can decisively reduce legacy friction in India’s tax system. Done right, amnesty would signal a shift from dispute management to dispute prevention, strengthening trust, certainty and competitiveness—the true foundations of sustainable compliance and long-term growth. In an era marked by tariff wars, speed, certainty and predictability will define the trade competitiveness of any country. In this new reality, continuing to defer a customs amnesty is no longer a neutral choice; it is an economic cost.

Mukesh Butani is the Managing Partner at BMR Legal Advocates, while Shankey Agrawal is a Partner at BMR

(Additonal inputs from Harsh Shukla, Counsel, and Nitin Dhatarwal, Associate, at BMR Legal Advocates.)