Automation of Refund Application and Processing in Customs: A New Milestone in Trade Facilitation !

Background

The Indian Customs system has been undergoing continuous transformation to enhance ease of doing business and facilitate smoother trade across borders. In line with the government’s vision to digitize all remaining Customs processes by mid-2026, the Central Board of Indirect Taxes & Customs (CBIC) has now introduced an automated system for processing refund applications. This initiative, detailed in Circular No. 05/2025-Customs, aims to reduce delays, minimize manual intervention, and ensure transparency in the refund process.

Refund claims under Customs are currently processed manually, leading to inefficiencies such as prolonged processing times, excessive paperwork, and lack of real-time status updates. The automation of refund claims under Section 27 of the Customs Act, 1962, and other applicable provisions represents a significant step toward modernization and efficiency in trade facilitation.

The Current Process and Challenges

Under the existing framework, refund applications are submitted manually as per the Customs Refunds Application (Form) Regulations, 1995. The CBIC has previously provided procedural guidelines under Circular No. 24/2007-Cus and Circular No. 22/2008-Cus, outlining steps including:

• Submission of refund applications
• Acknowledgment and scrutiny of claims
• Issuance of deficiency memos (if applicable)
• Review of unjust enrichment principles
• Pre-audit and post-audit mechanisms

The manual process involves significant human intervention, requiring importers/exporters to visit customs offices, submit physical documents, and follow up on the status of their claims. Additionally, concurrent audit mechanisms, including pre-audit for refunds exceeding Rs. 5 lakh and post-audit for refunds below this threshold, further delay processing.

The New Automated Refund System

The newly implemented system introduces an online, automated platform for processing refund applications via the ICEGATE portal. Key features of the new system include:

1. Electronic Submission: Refund applications can now be filed online via ICEGATE, eliminating paperwork. Applicants must upload supporting documents, including the unjust enrichment certificate.
2. Integration with Reassessment Process: If a reassessment of the Bill of Entry is required, applicants can request it via ICEGATE. Once completed, a pre-filled refund application will be made available for submission.
3. Bank Account Verification: The refund amount will be credited to the applicant’s bank account registered in the Customs Automated System. Applicants can update their bank details before filing claims.
4. Unique Application Reference Number (ARN): Upon successful submission, applicants will receive an ARN, allowing them to track their refund status in real time.
5. Deficiency Memo and Acknowledgment: Proper officers will scrutinize refund applications and communicate deficiencies within 10 days of ARN issuance. Applicants can rectify deficiencies electronically.
6. Automated Order Processing: Orders regarding sanction or rejection of refunds, including show-cause notices and speaking orders, will be issued electronically, ensuring faster decision-making.
7. Elimination of Concurrent Audit: The pre-audit requirement for refunds exceeding Rs. 5 lakh has been removed. Instead, all refund applications will be subjected to post-audit, with the selection process determined by the DG-Audit.
8. Electronic Disbursal of Refunds: Approved refunds will be electronically credited through the Public Financial Management System (PFMS), enhancing efficiency and reducing processing time.
9. Enhanced Transparency and Monitoring: Real-time tracking of refund applications will be available on ICEGATE. Customs officers will also have access to Management Information System (MIS) reports for improved oversight and timely resolution of pending cases.

Implementation and Transition

To ensure a smooth transition, the CBIC has provided a phased implementation approach:

• Until March 31, 2025, applicants may file refund applications manually or electronically.
• Post April 1, 2025, manual refund applications will not be accepted unless permitted by the Principal Commissioner/Commissioner of Customs in exceptional cases.
• Field officers have been directed to assist stakeholders in adopting the new system, and Trade Notices/Public Notices will be issued for wider awareness.

Conclusion

The automation of the refund process marks a crucial step towards improving efficiency, reducing trade costs, and enhancing transparency in customs operations. This reform aligns with India's broader objective of digitizing customs procedures and ensuring seamless trade facilitation. By leveraging technology, the new system will not only to expedite refunds but also foster trust among traders, reduce compliance burdens, and contribute to India’s goal of improving its global trade ranking. It is important that respective customs formations also issues corresponding public notices for implementation of refund module as envisaged in the circular. Further, similar mechanism to be developed for refund of Revenue deposit paid by the importers during pending SVB process which will result in reduction in time and the transaction costs.?

Thank You.

CA Manoj Malpani