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Dated: 13.03.2025

Impact of Amendments to Section 18 of the Customs Act, 1962 on Provisional Assessment under FTA and Special Valuation Branch (SVB)

The Finance Bill, 2025 (Bill No. 14 of 2025) introduces significant amendments to Section 18 of the Customs Act, 1962, by adding sub-sections 18(1B) and 18(1C). These amendments establish a specific timeline for the finalization of provisional assessments and define exceptions where the timeframe is not applicable. While these changes primarily impact the verification of goods’ origin under Foreign Trade Agreements (FTAs), they also have a substantial bearing on provisional assessment proceedings under the Special Valuation Branch (SVB).

The amendment in the Act shall come in force from 01.05.2025 as per Clause 98 of the Finance Bill, 2025.

Understanding Provisional Assessment Under Section 18

Section 18 of the Customs Act, 1962, governs provisional assessments, allowing importers and exporters to clear goods when certain information or documentation is pending. A provisional assessment is typically required in cases where the customs authorities need additional details before finalizing the duty liability. This includes:

• Verification of Certificates of Origin (COO) under FTAs
• Complex valuation issues, particularly in related-party transactions handled by the SVB

The newly introduced amendments seek to prevent indefinite delays in finalizing provisional assessments, ensuring faster dispute resolution and better predictability for importers.

Key Amendments to Section 18 and Their Implications

Introduction of Sub-Section 18(1B): Timeframe for Finalization

The new sub-section 18(1B) stipulates that a provisional assessment must be finalized within two years from the date of the initial provisional assessment. However, this period may be extended by one additional year if the Principal Commissioner or Commissioner of Customs determines that sufficient cause exists.

This amendment ensures that assessments do not remain pending indefinitely, providing clarity and certainty to importers. The introduction of a structured timeline benefits businesses engaged in international trade, particularly those involved in FTA transactions or complex valuation matters under SVB.

Introduction of Sub-Section 18(1C): Exceptions to the Timeframe

Sub-section 18(1C) defines specific situations where the two-year limit does not apply, and the period begins only when the issue delaying finalization ceases to exist. These exceptions include:

1. Requests for information from foreign authorities under a legal process
2. Pending appellate decisions in similar cases involving the same assessee
3. Interim stay orders issued by appellate authorities
4. Pending directions from the Central Board of Indirect Taxes and Customs (CBIC) in related cases
5. Cases where an assessee has applied to the Settlement Commission or Interim Board

For FTA-related verifications, the two-year period is paused if Indian customs authorities seek information from the exporting country’s authority regarding the validity of a Certificate of Origin (COO). This prevents importers from being penalized due to delays beyond their control.

Impact on Provisional Assessment under the Special Valuation Branch (SVB)

The Special Valuation Branch (SVB) of Indian Customs is responsible for investigating related-party transactions to ensure that declared import values are not influenced by relationships between buyers and sellers. SVB assessments often require extended verification processes, leading to delays in finalizing assessments.

Application of New Time Limits to SVB Cases

• Faster Resolution of Provisional Assessments: The new two-year timeline applies to SVB cases where the declared value of imports is under scrutiny.
• Impact on Related-Party Valuation Cases: If information needs to be sought from overseas authorities (such as a parent company or foreign customs administration), the timeframe is suspended under sub-section 18(1C)(a).
• Clarity for Importers: The amendments bring more certainty and predictability to businesses dealing with transfer pricing and related-party import valuations, reducing financial uncertainty due to prolonged assessments.

Linking FTA-Related Provisional Assessments with SVB

While FTA-related provisional assessments focus on verifying preferential tariff claims, SVB cases deal with valuation disputes. However, both processes involve:

1. Long verification periods
2. Requests for information from foreign entities
3. Delays caused by appeals and legal proceedings

By aligning the provisional assessment timelines under both scenarios, the amendments ensure that importers in both categories benefit from a streamlined process and avoid indefinite delays in duty finalization.

Conclusion: A Step Toward Efficient Customs Assessments

The amendments to Section 18 of the Customs Act, 1962, mark a significant improvement in India’s customs administration by:

• Establishing a clear timeline for finalizing provisional assessments
• Providing exceptions where delays are justified
• Ensuring smoother processing of FTA-origin verification and SVB-related valuation assessments

These changes enhance trade efficiency and reduce uncertainty for importers, making the customs assessment process more predictable and transparent.

Source: Finance Bill, 2025, Notfn. 81/2020-Customs & Circular 05/2016-Customs.

This Article is Authored by Shri Ravi Shekhar Jha, BALLB I LLM (Constitutional Law). He can be reached at his email ID intelconsul@gmail.com or at his Mobile No. +91-9999005379.

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