Finance Bill, 2026 And The Customs Act, 1962: What Changes, Why It Matters

Contours of the Proposed Amendments in the Customs Act, 1962

The Finance Bill, 2026, proposes a series of targeted amendments to the Customs Act, 1962, reflecting the Legislature's continuing effort to recalibrate customs law in response to evolving trade practices, sector-specific operational realities, and administrative experience gained over the years. Rather than introducing sweeping structural changes, the proposed amendments focus on addressing identified ambiguities, strengthening recovery mechanisms, extending jurisdiction in carefully defined circumstances, and simplifying procedural requirements in select areas. This article examines amendments proposed in the Finance Bill, 2026, to the Customs Act, 1962, which are intended to take effect upon Presidential assent, and analyses their statutory context, scope, and practical implications. The President of India's ascent to the Finance Bill, 2026, is expected to be granted in the last week of March 2026, in line with the track record of the last couple of years.

1. Extension of the jurisdiction of the Customs Act, 1962, for fishing and finishing related activities -Clause 129 of the Finance Bill, 2026

Section 1 of the Customs Act, 1962, deals with the short title, extent, and commencement of the Act. Sub-section (2), prior to amendment, reads as under:

"(2) It extends to the whole of India and, save as otherwise provided in this Act, it applies also to any offence or contravention thereunder committed outside India by any person."

Clause 129 of the Finance Bill, 2026 proposes to amend Section 1(2) by inserting, after the words "whole of India", the words ", fishing and fishing-related activities by Indian-flagged fishing vessels beyond the territorial waters of India". After the proposed amendment, Section 1(2) would read as follows:

"(2) It extends to the whole of India, fishing and fishing-related activities by Indian-flagged fishing vessels beyond the territorial waters of India and, save as otherwise provided in this Act, it applies also to any offence or contravention thereunder committed outside India by any person."

Thus, the proposed amendment constitutes a specific and focused extension of the territorial application of the Customs Act, 1962. While the Act has always contained a general provision enabling its application to offences committed outside India, disputes have arisen in practice over the enforceability of customs provisions in relation to fishing operations conducted beyond territorial waters.

By expressly proposing to extend the Act to fishing and fishing-related activities undertaken by Indian-flagged fishing vessels beyond territorial waters, the legislature intends to remove any ambiguity regarding jurisdiction in such cases. However, the proposed extension is not blanket. It shall be confined both by activity (fishing and fishing-related activities) and by the identity of the vessel (Indian-flagged fishing vessels).  Further, the proposed amendment is particularly significant for duty-free fuel, consumables, stores, and equipment supplied to fishing vessels and seeks to address revenue risks arising from the diversion or misuse of such goods during offshore operations.

Illustratively, where an Indian-flagged fishing vessel operating beyond territorial waters diverts duty-free fuel or consumables for non-fishing purposes or transfers such goods to foreign vessels, customs authorities would be clearly empowered to initiate proceedings under the Customs Act, 1962, without facing jurisdictional objections, once the proposed amendment comes into effect.

Finally, this proposed amendment reflects the increasing emphasis on offshore regulatory oversight.

2. Insertion of the definition of the term "Indian-flagged fishing vessel" vide Section 2(28A)- Clause 130 of the Finance Bill, 2026

Clause 130 of the Finance Bill, 2026 proposes to insert a new clause (28A) in Section 2 of the Customs Act, 1962, defining the term "Indian-flagged fishing vessel" as under:

"(28A) 'Indian-flagged fishing vessel' means a vessel which is used or intended to be used for the purpose of fishing in the seas and entitled to fly the flag of India."

Consequently, the existing clause (28A) is proposed to be renumbered as clause (28B). Furthermore, the proposed definition is exhaustive, as it uses the term "means" rather than "includes" . Accordingly, for a vessel to qualify as an Indian-flagged fishing vessel, both the conditions specified in the definition must be satisfied cumulatively . First, the vessel must be used or intended to be used for fishing in the seas. Secondly, it must be entitled to fly the flag of India, a requirement that must be examined in accordance with the applicable maritime and shipping laws governing vessel registration and nationality.

The proposed definition is crucial to delineating the scope of the extended jurisdiction introduced in Section 1(2). By limiting applicability to vessels with a clear legal nexus to India, the legislature has ensured that the Customs Act is not inadvertently extended to foreign-flagged or chartered vessels solely because of commercial or operational connections with Indian entities. Thus, a foreign-registered vessel chartered by an Indian fishing company may be engaged in fishing operations. Nevertheless, where such a vessel is not entitled to fly the Indian flag, it would not fall within the scope of the proposed definition. As a result, it would also remain outside the ambit of the newly extended jurisdiction.

3. Penalty paid under Section 28(5) shall be deemed to be a charge for non-payment of duty - Clause 131 of the Finance Bill, 2026

Section 28 of the Customs Act, 1962, governs the recovery of duties not levied or paid, short-levied or short-paid, or erroneously refunded. Sub-section (5) of Section 28 provides a statutory mechanism for settling cases involving collusion, wilful misstatement, or suppression of facts. The provision reads as follows:

"(5) Where any duty has not been levied or paid or has been short-levied or short-paid or the interest has not been charged or has been part-paid or the duty or interest has been erroneously refunded by reason of collusion or any wilful mis-statement or suppression of facts, the person chargeable with duty or interest may pay the duty in full or in part, as may be accepted by him, and the interest payable thereon and a penalty equal to fifteen per cent. of the duty specified in the notice or the duty so accepted, within thirty days of the receipt of the notice."

Sub-section (6)(i) of Section 28, prior to the proposed amendment, provides that where duty, interest, and penalty are paid under sub-section (5), the proceedings shall be deemed to be conclusive as to the matters stated therein.

Clause 131 of the Finance Bill, 2026 proposes to amend Section 28(6)(i) by providing that, in addition to such conclusiveness, the penalty paid under sub-section (5), upon determination, shall also be deemed to be a charge for non-payment of duty .

By introducing this deeming fiction, the legislature proposes to alter the legal character of the penalty paid under the settlement mechanism. Under the existing provisions, once proceedings have attained finality, disputes can arise regarding the nature and recoverability of the penalty relative to the duty. The proposed amendment aligns the penalty with duty arrears, thereby strengthening the recovery framework and limiting the scope for technical objections based on the distinction between duty and penalty.

In practical terms, where an assessee settles a demand involving suppression by paying duty, interest, and reduced penalty under Section 28(5), the penalty amount would stand on the same statutory footing as duty for purposes of recovery, enforcement, and treatment as government dues.

4. Extension of the Maximum Validity Period of Advance Ruling from Three Years to Five Years - Clause 132 of the Finance Bill, 2026

Section 28J of the Customs Act, 1962, deals with the applicability and period of validity of an advance ruling pronounced by the Authority for Advance Rulings. Sub-section (2) presently provides that an advance ruling shall remain valid for a period of three years or till there is a change in law or facts on the basis of which the ruling has been pronounced, whichever is earlier. The existing provision, along with its proviso inserted by the Finance Act, 2022, reads as follows:

The advance ruling referred to in sub-section (1) shall remain valid for three years or till there is a change in law or facts on the basis of which the advance ruling has been pronounced, whichever is earlier:

Provided that in respect of any advance ruling in force on the date on which the Finance Bill, 2022 receives the assent of the President, the said period of three years shall be reckoned from the date on which the said Finance Bill receives the assent of the President.

Thus, under the existing statutory framework, the maximum validity of an advance ruling is restricted to three years, subject to earlier cessation in the event of any change in law or material facts. Clause 132 of the Finance Bill, 2026, proposes extending the maximum validity period from three years to five years. The amended provision reads as follows:

The advance ruling referred to in sub-section (1) shall remain valid for five years or till there is a change in law or facts on the basis of which the advance ruling has been pronounced, whichever is earlier:

Provided that in respect of any advance ruling in force on the date on which the Finance Bill, 2026 receives the assent of the President, the Authority shall, upon a request by the applicant, extend the validity for five years from the date of the ruling.

Further, since the proviso inserted by the Finance Act, 2022, is specifically designed for a three-year validity period, it is proposed to be substituted to align with the revised five-year framework. The substituted proviso ensures that advance rulings already in force on the date of Presidential assent to the Finance Bill, 2026, are also eligible for the extended validity period, subject to a request being made by the applicant. Therefore, the applicant's request is a precondition for extending the validity of the advance ruling from three years to five years. Conversely, in those cases, where no request is received from the applicant for extending the validity of the advance ruling, the same shall remain valid for a maximum of three years only.  

Once so extended, such an advance ruling shall remain valid for five years from the original date of the ruling, unless it becomes inapplicable earlier due to a change in law or facts. The application of the substituted proviso may be illustrated as under:

Hence, the proposed amendment, introduced by Clause 132, strengthens the advance ruling mechanism by enhancing certainty and reducing the need for repetitive applications, while retaining the safeguard that such rulings cease to apply upon any change in law or factual matrix.

5. Special provision for fishing and fishing-related activities- Insertion of Section 56A- Clause 133 of the Finance Bill, 2026

Proposed Section 56A reads as follows:

56A. (1) Notwithstanding anything contained in this Act or in any other law for the time being in force, fish harvested by an Indian-flagged fishing vessel beyond territorial waters of India, ––

 (a) may be brought into India free of duty;

 (b) that has landed at foreign port may be treated as export of goods, in such manner and subject to such conditions as may be provided by rules.

 (2) The Board may make regulations providing for the form and manner of making an entry in respect of fish harvested including its declaration, custody, examination, assessment of duty, clearance, transit or transhipment.

A careful reading of Section 56A (1) reveals that the provision has been consciously framed with an overriding effect over the Customs Act, 1962, as well as any other law for the time being in force. The use of the non-obstante clause makes it clear that the Legislature intended this provision to operate as a self-contained code for fishing and fishing-related activities carried out by Indian-flagged vessels beyond territorial waters, notwithstanding the general import, export or charging provisions of the Act. This legislative choice is significant against the backdrop of the proposed amendment to Section 1(2) of the Customs Act, 1962, which seeks to extend the Act's jurisdiction beyond India's territorial waters, specifically for fishing and fishing-related activities. Once such jurisdiction is extended, fish harvested beyond territorial waters could otherwise have been exposed to unintended customs consequences in the absence of a tailored statutory carve-out.

Viewed in a broader context, the proposed insertion of Section 56A appears aligned with India's evolving maritime and deep-sea fishing policy framework, which seeks to promote regulated offshore fishing activities by Indian-flagged vessels while ensuring appropriate customs oversight and revenue safeguards.

Section 56A (1) grants two alternative statutory treatment s to fish harvested by Indian-flagged fishing vessels beyond territorial waters. First, clause (a) permits such fish to be brought into India free of duty . This represents a clear departure from the general customs framework, under which goods brought into India are ordinarily liable to customs duty unless exempted. The provision ensures that Indian fishing operators are not subjected to a fiscal burden merely because the harvesting activity occurs beyond territorial waters, particularly when such activity has been brought within customs jurisdiction by legislative expansion.

Secondly, clause (b) recognises the commercial reality that fish harvested in deep-sea operations may be landed directly at a foreign port. In such cases, the provision treats the landing as an export of goods, subject to the manner and conditions prescribed by the rules. This deeming fiction is of considerable importance, as it facilitates export treatment even though the goods are harvested beyond territorial waters, thereby aligning the customs law framework with the operational realities of Indian deep-sea fishing activities.

Sub-section (2) of the proposed Section 56A complements the substantive relief provided under sub-section (1) by empowering the Board to make regulations prescribing the procedural framework for dealing with such fish. The scope of this regulatory power is deliberately broad and covers the form and manner of entry, declaration requirements, custody, examination, assessment, clearance, and issues relating to transit or transhipment. This indicates that, while the Legislature proposes to grant substantive relief and recognition to fishing activities beyond territorial waters, the provision's operationalisation is intended to be governed by a specialised regulatory mechanism to ensure adequate control, traceability, and compliance without diluting the benefits conferred by the section.

Overall, the proposed insertion of Section 56A is a sector-specific, facilitative amendment that harmonises the extension of customs jurisdiction beyond territorial waters with the unique commercial and operational realities of Indian fishing and fishing-related activities. By combining an overriding statutory provision, duty-free treatment for domestic landing, export recognition for foreign landing, and delegated regulatory flexibility, Clause 133 introduces a calibrated and forward-looking framework within the Customs Act, 1962.

6. No prior permission of the proper officer for removal of warehoused goods from one custom bonded warehouse to another- Proposed substitution of Section 67- Clause 134 of the Finance Bill, 2026

Section 67 of the Customs Act, 1962, governs the removal of warehoused goods from one customs bonded warehouse to another. Under the existing provision, such inter-warehouse movement is permitted only with the prior permission of the proper officer , and subject to such conditions as may be prescribed to ensure the due arrival of the goods at the destination warehouse. The existing Section 67 reads as follows:

The owner of any warehoused goods may, with the permission of the proper officer, remove them from one warehouse to another, subject to such conditions as may be prescribed for the due arrival of the warehoused goods at the warehouse to which removal is permitted.

Clause 134 of the Finance Bill, 2026, proposes to substitute Section 67 in its entirety . The substituted provision reads as follows:

67. The owner of any warehoused goods may remove them from one warehouse to another, subject to such conditions as may be prescribed.

A careful comparison of the existing and substituted provisions reveals a clear and deliberate legislative shift . The requirement of obtaining prior permission of the proper officer for the removal of warehoused goods from one warehouse to another has been expressly dispensed with . Under the proposed framework, the owner of the warehoused goods is statutorily permitted to effect such removal, subject only to compliance with the conditions prescribed under the rules, without approaching the proper officer for case-specific approval.

This amendment reflects a broader policy intent to simplify procedures and facilitate trade in customs administration. The earlier requirement of prior permission, though regulatory in nature, often led to administrative delays, especially when warehoused goods were frequently moved between warehouses for commercial reasons such as consolidation, deconsolidation, logistics optimisation, or a change in storage arrangements. By proposing to remove the permission requirement, the Legislature has sought to replace transaction-specific discretion with a rule-based compliance mechanism , thereby reducing interface with the department without diluting regulatory control.

It is important to note that the amendment does not grant an unencumbered right of movement. The removal of warehoused goods remains subject to conditions as may be prescribed, which typically include safeguards relating to documentation, tracking of goods, execution of bonds, maintenance of records, and ensuring the due arrival of goods at the destination warehouse. Thus, while the procedural gatekeeping function of prior permission has been removed, the substantive obligation to ensure accountability and traceability of warehoused goods remains intact through the prescribed conditions.

The practical impact of the substituted Section 67 can be illustrated as follows:

Illustration: Aayra Limited is an importer and warehouses electronic components in a customs-bonded warehouse in Mumbai. Due to operational requirements and proximity to the manufacturing unit, Aayra Limited decides to transfer the goods to another customs-bonded warehouse in Pune. Under the existing Section 67, Aayra Limited would be required to apply for and obtain prior permission from the proper officer before effecting such removal.  However, under the proposed substituted Section 67, Aayra Limited may directly remove the warehoused goods from the Mumbai warehouse to the Pune warehouse, provided the prescribed conditions relating to documentation, transit, and due arrival are complied with, without seeking prior approval from the proper officer.

The proposed amendment thus aligns the law with a trust-based, technology-driven compliance environment, in which routine, low-risk movements are regulated under standardised conditions rather than individual permissions. This approach is consistent with other contemporary reforms under the Customs Act aimed at reducing dwell time, minimising procedural friction, and facilitating ease of doing business.

In essence, Clause 134 marks a shift from permission-based control to condition-based regulation for inter-warehouse movement of goods. The proposed substitution of Section 67 simplifies the statutory process while preserving the necessary safeguards, thereby balancing administrative efficiency with revenue protection.

7. Board Empowered to Make Regulations for the Custody of Goods Imported or to be Exported by Post or Courier - Proposed Amendment to Section 84(b) - Clause 135 of the Finance Bill, 2026

Chapter XI of the Customs Act, 1962, contains special provisions relating to baggage, goods imported or exported by post, and stores. Section 84, falling under this Chapter, empowers the Central Board of Indirect Taxes and Customs to frame regulations governing various procedural aspects of goods imported or to be exported by post or courier, recognising that such modes of cross-border movement operate under logistical and operational constraints distinct from conventional cargo. Under the existing legal framework, Section 84(b) authorises the Board to make regulations providing for the examination, assessment to duty, and clearance of such goods. However, the provision does not expressly address the custody of goods imported or to be exported by post or courier, even though, in practice, such goods often remain in the custody of postal authorities, authorised couriers, or designated custodians at various stages prior to clearance or export.

Clause 135 of the Finance Bill, 2026, seeks to address this gap by proposing to amend Section 84(b) so as to explicitly empower the Board to make regulations governing the custody of goods imported or to be exported by post or courier, in addition to their examination, assessment, and clearance. The amended provision reads as under:

"The Board may make regulations providing for—

(a) … 
(b) the custody, examination, assessment to duty, and clearance of goods imported or to be exported by post or courier."

The inclusion of the expression "custody" in Section 84(b) is of considerable significance. It reflects legislative intent to extend the regulatory framework beyond assessment and clearance to cover the period during which such goods remain under physical control prior to clearance or export. With the rapid growth of e-commerce shipments, express parcels, and courier consignments, goods frequently pass through multiple facilities, including customs mail offices, courier terminals, and authorised handling centres, where issues related to safe custody, security, accountability, and liability may arise. By expressly enabling the Board to regulate custody, the proposed amendment provides a clear statutory basis for prescribing responsibilities, safeguards, and control mechanisms for goods handled through postal or courier channels.

The practical relevance of the proposed amendment may be illustrated by a case in which a high-value consignment imported via an international courier is held at a designated courier terminal pending customs examination and assessment. Pursuant to the amended Section 84(b), the Board may prescribe regulations governing the custody of such goods during this interim period, including conditions of storage, security standards, responsibility of the authorised courier, and liability in the event of loss or damage. Such custody-related regulations would operate in tandem with existing provisions on examination, assessment, and clearance, thereby ensuring a complete and more coherent regulatory framework.

In essence, Clause 135 proposes to strengthen the statutory foundation for regulating the end-to-end handling of goods imported or exported by post or courier. By expressly bringing custody within the ambit of Section 84(b), the proposed amendment facilitates a more comprehensive, transparent, and accountable regime, aligned with contemporary trade practices and the increasing reliance on postal and courier modes for cross-border movement of goods.

Concluding Comments

The amendments proposed in the Finance Bill, 2026, to the Customs Act, 1962, reflect a calibrated legislative approach that seeks to strengthen regulatory oversight, plug revenue leakages, and simplify procedural requirements in identified areas. While certain amendments, such as the extension of jurisdiction beyond territorial waters and the insertion of special provisions for fishing activities, address sector-specific enforcement challenges, others focus on enhancing certainty, finality, and ease of compliance by rationalising procedures and delegating regulatory powers. Taken together, these amendments indicate a clear policy shift towards targeted intervention rather than wholesale expansion of control, with an emphasis on rule-based administration, trade facilitation, and legal clarity. The practical impact of these provisions, however, will depend significantly on how the delegated rules and regulations are framed and implemented after enactment.