What Budget 2026 does for indirect tax litigation and compliance

The Finance Bill, 2026 introduces structural changes to the indirect tax landscape, specifically targeting the efficiency of the appellate process and expanding the territorial reach of customs enforcement.

These reforms aim to resolve long-standing bottlenecks in the Goods and Services Tax (GST) and Customs regimes.

Addressing operational gaps in GST appeals

The Bill addresses the operational vacuum in the GST appellate structure by providing a temporary legislative bridge.

Amendment to Section 101A of the CGST Act: This Section is amended to handle the current absence of a fully constituted National Appellate Authority for Advance Ruling.

It empowers the Central government, on the recommendations of the GST Council, to authorise an existing Authority or even a Tribunal to exercise the powers of the National Appellate Authority. This ensures that advance rulings do not remain in legal limbo while the formal national body is being established.

Expansion of Customs jurisdiction

A significant legal shift in the Bill is the extension of India’s Customs sovereignty beyond its traditional maritime boundaries for specific economic activities.

New Section 56A: The jurisdiction of the Customs Act is being extended beyond India's territorial waters to regulate fishing and related activities by Indian-flagged vessels.

This provision allows the government to set rules for bringing fish harvested in international waters into India duty-free or treating such catches as "exports" if landed at a foreign port.

This grants the Central Board of Indirect Taxes and Customs (CBIC) the power to create regulations for the declaration, custody and assessment of duty for these harvested goods.

Redefining penalty outcomes in Customs disputes

The Bill clarifies the legal status of penalties paid during the course of an investigation or dispute resolution.

Amendment to Section 28(6) of the Customs Act: This amendment changes how penalties paid under sub-section (5) are treated once a final determination is made.

It stipulates that any penalty paid under sub-section (5) during the determination process shall be deemed a charge for the non-payment of duty itself. This distinction is critical for accounting and further appellate stages, as it characterises the payment as a duty-related charge rather than a standalone punitive fine.

Lengthening the validity of advance rulings

The period of validity for an advance ruling is increased from three years to five years. By extending the life of these rulings, the Bill reduces the need for businesses to repeatedly re-apply for clarity on the same issues, thereby minimising potential litigation and administrative friction.

For rulings already in force when the Bill receives assent, the Authority is empowered to extend their validity for another five years upon request from the applicant.

The indirect tax reforms in the Finance Bill, 2026 establish a framework for administrative continuity and jurisdictional clarity. However, the Bill stops short of addressing broader structural demands. While increasing the validity of advance rulings to five years offers temporary certainty, the failure to fully operationalise a permanent National Appellate Authority for GST remains a missed opportunity to provide long-term stability.

Furthermore, while regulatory updates modernise oversight, the reforms lack a more aggressive push toward comprehensive mediation or settlement schemes that could decisively reduce the existing mountain of legacy indirect tax litigation.