BUDGET PROPOSALS FOR CUSTOMS AND CENTRAL EXCISE AIM TO FURTHER SIMPLIFY TARIFF STRUCTURE, SUPPORT DOMESTIC MANUFACTURING: UNION FINANCE MINISTER

1. At a Glance

• Union Budget 2026-27 (presented 1 Feb 2026 by FM Nirmala Sitharaman) sets the direction of Customs and Central Excise policy: simplify tariff, support domestic manufacturing, promote export competitiveness, correct inverted duty [S1][S2].
• Builds on the 2025-26 exercise of pruning customs tariff slabs and weeding out long-continuing exemptions [S1][S3].
• Relevant for UPSC GS-III (Indian Economy, Industrial Policy, Trade) and Prelims Economy/Schemes.

2. Why in the News

• 1 Feb 2026 — Budget 2026-27 announced fresh BCD exemptions for energy transition, civil & defence aviation MRO, electronics, shipbuilding, plus a special SEZ-to-DTA concessional clearance window [S1][S2].
• Follow-up notifications — CBIC Notification No. 11/2026-Customs dated 31 Mar 2026 operationalising SEZ→DTA concessional sales [S2]; and deferred customs duty payment facility for Eligible Manufacturer Importers [S1].

3. Background & Evolution

• Customs Act, 1962 & Customs Tariff Act, 1975 are the statutory base for BCD; Central Excise Act, 1944 survives only for petroleum and tobacco post-GST (2017).
• Budget 2024-25: comprehensive review of customs duty rate structure announced [S1].
• Budget 2025-26: removed 7 customs tariff rates for industrial goods, leaving only 8 rates including 'zero' [S3].
• Budget 2026-27: continues weeding out exemptions and incorporates effective rates from notifications into the tariff schedule itself [S1].

4. Core Static Facts

• Implementing body: Ministry of Finance — Department of Revenue — CBIC (Central Board of Indirect Taxes and Customs) [S2].
• Enabling provision: Section 25(1), Customs Act, 1962 used for exemption notifications [S2].
• SEZ → DTA concessional sales: limit of 30% of the highest annual FOB export value achieved in any of the three immediately preceding financial years [S2].
• Beneficiary base: approximately 1,200 SEZ manufacturing units [S2].
• Shipbuilding: BCD exemption on raw materials, components, consumables, parts extended for 10 more years [S1].
• Lithium-Ion: capital-goods BCD exemption extended from EV battery cells to Battery Energy Storage Systems (BESS) cells [S1].
• Solar glass: BCD exempted on sodium antimonate [S1].
• Aviation: BCD exempted on parts/components for civilian, training and other aircraft and on raw materials for MRO in defence [S1].
• Consumer electronics: BCD exempted on specified parts of microwave ovens [S1].

5. Multi-Dimensional Analysis

Economic - Inverted duty correction lowers cost of intermediates, aids Make in India value addition [S1]. - SEZ DTA clearance window cushions units hit by global trade disruptions, improves capacity utilisation [S2].

Strategic / Geopolitical - BCD relief on critical minerals processing and BESS supports energy security and net-zero pathway [S1]. - Civil + Defence aviation MRO push reduces dependence on foreign MRO hubs (Singapore, UAE) [S1].

Administrative / Tax Governance - Incorporation of effective rates from notifications into the tariff schedule reduces litigation and classification disputes [S1]. - Deferred customs duty payment for Eligible Manufacturer Importers eases working capital [S1].

Legal / Constitutional - Customs duty is a Union subject (Union List Entry 83); levied under Art. 265 only by authority of law; exemptions via Sec. 25 Customs Act [S2].

6. Recent Developments (last 12-18 months)

• 1 Feb 2026 — Budget 2026-27 customs/excise proposals announced [S1].
• 31 Mar 2026 — Notification 11/2026-Customs notifying SEZ→DTA concessional rates [S2].
• 2026 — CBIC introduces deferred Customs Duty payment facility for Eligible Manufacturer Importers [S1].
• 2025-26 Budget — Slashed customs slabs to 8 rates [S3].

7. Prelims Hooks

• Customs duty levied under Customs Act, 1962; rates in Customs Tariff Act, 1975 [S2].
• Apex body administering customs: CBIC under Department of Revenue, Ministry of Finance [S2].
• Budget 2025-26 retained only 8 customs tariff rates (including zero) for industrial goods [S3].
• SEZ→DTA concessional clearance capped at 30% of highest FOB export value of last 3 FYs [S2].
• SEZ DTA notification: No. 11/2026-Customs, 31 March 2026, under Sec 25(1) Customs Act [S2].
• About 1,200 SEZ units eligible [S2].
• Shipbuilding BCD exemption extended by 10 years in Budget 2026-27 [S1].
• BCD exemption on capital goods extended to BESS Li-ion cell manufacturing [S1].
• BCD exempted on sodium antimonate for solar glass [S1].
• Civil aviation + defence MRO raw-material BCD exemption proposed in Budget 2026-27 [S1].
• Post-GST (1 July 2017), central excise survives essentially on petroleum products and tobacco [S1].
• Customs duty falls in Union List Entry 83 of Seventh Schedule [S2].

8. Mains Relevance

• GS-III: Indian Economy — Government Budgeting; Effects of liberalisation on the economy; Industrial Policy; Infrastructure.
• Possible question stems: 1. "Tariff simplification and correction of inverted duty structures are critical to making 'Make in India' globally competitive. Discuss in light of Budget 2026-27 customs proposals." 2. "Examine how Budget 2026-27 customs measures support India's energy transition and aviation MRO ecosystem." 3. "SEZs were designed as export enclaves. Critically evaluate the rationale of permitting concessional DTA sales by SEZ units."

9. Related Topics to Study Next

• SEZ Act, 2005 & proposed DESH Bill — institutional framework for SEZs.
• PLI Schemes — complementary push for domestic manufacturing.
• Inverted Duty Structure under GST & Customs — twin concept.
• National Critical Minerals Mission (2025) — links to BCD on critical minerals.
• Civil Aviation MRO Policy 2021 — ties to aviation BCD relief.
• Maritime India Vision 2030 / Shipbuilding Financial Assistance Policy — ties to shipbuilding exemption.
• Customs Tariff Act, 1975 & HSN classification — statutory base.
• Foreign Trade Policy 2023 — export competitiveness angle.

10. Common Errors / Trap Areas

• Confusing CBIC (indirect taxes) with CBDT (direct taxes); customs falls under CBIC.
• Assuming Central Excise was fully abolished by GST — it still applies to petroleum and tobacco.
• Mixing Budget years — the 7-rate cut was Budget 2025-26, not 2026-27 [S3].
• The SEZ→DTA cap is 30% of highest FOB exports of preceding 3 FYs, not 30% of current year turnover [S2].
• Shipbuilding BCD exemption is extended for 10 years, not granted afresh [S1].

11. Sources

• [S1] BUDGET PROPOSALS FOR CUSTOMS AND CENTRAL EXCISE… — https://www.pib.gov.in/PressReleasePage.aspx?PRID=2221446 — (tier 1)
• [S2] CBIC introduces one-time relief measure for SEZs to sell to DTA at concessional customs duty rates (Budget 2026-27) — https://www.pib.gov.in/PressReleasePage.aspx?PRID=2247628 — (tier 1)
• [S3] UNION BUDGET 2025-26 PROPOSES TO REMOVE SEVEN CUSTOMS TARIFF RATES FOR INDUSTRIAL GOODS — https://www.pib.gov.in/PressReleasePage.aspx?PRID=2098364 — (tier 1)