From serious customs offences to alleged misstatements: Expanding grounds for denial of AEO status beyond the Board’s guidelines

The Customs administrations worldwide face the dual responsibility of preventing unlawful trade while facilitating legitimate trade. To strengthen supply chain security and facilitate international trade, the World Customs Organization (WCO) adopted the SAFE Framework of Standards in 2005. In furtherance of this objective, several countries have implemented trusted trader programmes, such as the Customs Trade Partnership Against Terrorism (C-TPAT) in the United States, the Partners in Protection (PIP) Programme in Canada, the Authorized Economic Operator (AEO) Programme in India, etc. These programmes, though operating under different names, pursue a common objective of promoting secure supply chains by granting compliant businesses trade facilitation benefits such as faster clearances, reduced inspections, and smoother movement of goods across borders.

In line with this global initiative, India introduced a trusted trader programme called the Accredited Client Programme (ACP) in 2005. Later, vide Circular No. 33/2016-Customs dated 22.07.2016 (for brevity, AEO Circular’), the ACP was subsumed into the Authorized Economic Operator (AEO) Programme, which now serves as India's primary trusted trader framework, recognising compliant businesses as secure and reliable participants in the international supply chain.

Under the erstwhile ACP framework, ACP status could be revoked when a case is booked inter alia involving mis-declaration / mis-statement / collusion / wilful suppression / fraudulent intent / clandestine / unauthorised removal of excisable / import / export goods warranting confiscation of said goods. These allegations broadly correspond to the circumstances contemplated under Section 28(4) of the Customs Act, 1962 (for brevity, Customs Act’).

Similar concerns have reportedly arisen in the context of GST proceedings, where notices issued under Section 74(1) of the Central Goods and Services Tax Act, 2017 (for brevity, ‘CGST Act’) are sometimes taken into consideration while examining the grant, renewal, or continuation of AEO status.

However, the AEO Circular envisages revocation of AEO status inter alia in cases involving offences such as fraud, forgery, outright smuggling, or clandestine removal of excisable goods. The AEO framework does not provide for revocation of AEO status upon issuance of a notice having allegation of mis-declaration/ mis-statement/collusion/ wilful suppression under Section 28(4) of the Customs Act or Section 74(1) of the CGST Act. Therefore, while ACP status could be revoked on grounds broadly corresponding to those covered under Section 28(4) of the Customs Act or Section 74(1) of the CGST Act, the AEO framework under AEO Circular does not provide for revocation on such grounds.

Despite the shift in policy brought about by AEO Circular, instances have emerged where Customs authorities continue to initiate revocation of AEO status merely because a notice has been issued under Section 28(4) of the Customs Act or Section 74(1) of the CGST Act.

Such action appears to stem from principles that existed under the ACP regime rather than criteria prescribed under the AEO programme. Although the ACP scheme has been abolished and replaced by the AEO Programme, the broader ACP conditions continue to be applied in certain cases while determining the issuance or continuation of AEO status.

This approach creates significant concerns because a significant number of customs disputes involve matters such as classification, valuation, exemption claims, or interpretation of legal provisions. In many such cases, allegations under Section 28(4) are frequently invoked in such disputes even though the matter may ultimately involve a bona fide difference in interpretation rather than any established act of fraud. If the mere issuance of a notice results in the revocation of AEO status, then such practice may undermine the government's objective of expanding the AEO program. Such an interpretation not only expands the grounds of revocation beyond those contemplated under AEO Circular but also risks defeating the purpose of the AEO Programme.

The Budget 2026 aimed to make AEO status even more lucrative by amending the Deferred Payment of Import Duty Rules, 2016 to extend the duty deferral cycle from 15 days to 30 days. The amendments also extend similar duty deferral benefits to eligible manufacturer-importers to encourage them to obtain AEO status. These measures clearly demonstrate the Government's intent to incentivize AEO certification and expand the trusted trader ecosystem.

Accordingly, any practice of revoking AEO status merely on the basis of issuance of a notice under Section 28(4) or Section 74(1) of the CGST Act would run contrary to the broader policy objective of encouraging greater industry participation in the AEO Programme and strengthening India's position as a secure and trade-friendly jurisdiction.

While stringent action is justified in cases involving established fraud, forgery, smuggling, or other serious offences, revocation of AEO status on the basis of issuance of a notice under Section 28(4) or Section 74(1) of the CGST Act appears inconsistent with AEO Circular.

The absence of a clear and uniform approach may result in uncertainty, inconsistent practices across field formations, and burden the industries and judiciaries with avoidable litigations. Therefore, as an ease of doing business measure, the CBIC may issue an instruction clarifying that the AEO status shall not be revoked because a notice has been issued under Section 28(4) or Section 74(1) of the CGST Act, unless the case involves the specific offences contemplated under AEO Circular. Such clarification would promote uniform implementation, strengthen industry confidence in the AEO Programme, and further the government's ease of doing business and trade facilitation objectives.

About the authors: Rachit Jain is an Executive Partner, Kalirajan D is an Associate Partner and Saumya Raj is an Associate at Lakshmikumaran & Sridharan Attorneys.

Views expressed in the article are strictly personal.

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