Evaluating India's Customs Authority for Advance Rulings (CAAR) and charting a path for reform

by Vijay Singh Chauhan, Prashant Narang, and Monika Yadav.

Advance rulings are critical for trade facilitation - they offer clarity on tariff classifications, customs duties, and valuation, enabling importers and exporters to navigate complex regulatory environments with confidence.

India's journey with advance rulings began in 1999 with the establishment of the Authority for Advance Rulings (AAR), which handled both direct and indirect tax matters. However, the AAR faced severe criticism for its procedural inefficiencies and delays. As one senior customs consultant quoted in the paper noted, "We had cases pending for 4-5 years, forcing many businesses to abandon their plans entirely." The centralised structure, with its single Delhi office, created substantial logistical challenges for businesses across India.

In response to these shortcomings, the Customs Authority for Advance Rulings (CAAR) was introduced in 2018 under Chapter VB of the Customs Act, transforming India's framework from a judicial model to a quasi-judicial one led by senior customs officers. This reform aimed to leverage domain-specific expertise and decentralise operations with benches in Delhi and Mumbai.

However, has CAAR succeeded in delivering timely and consistent rulings, and how does its performance measure up against international benchmarks?

In our recent paper, “Decoding CAAR: Insights, Challenges, and Pathways for Reforms”, we critically assess CAAR's performance between January 2021 and August 2024. Our mixed-methods analysis combining stakeholder interviews with quantitative evaluation of 414 advance rulings uncovers systemic inefficiencies impeding CAAR's effectiveness, notably delays beyond the statutory 90-day timeframe and inconsistencies from limited nationwide applicability.

Despite improvements over its predecessor (AAR), CAAR remains burdened by procedural bottlenecks - chiefly, dependence on port commissioners for technical inputs, uneven workload distribution, and outdated manual processes. Drawing comparisons with jurisdictions like the U.S., Canada, and Australia, we propose actionable reforms: establishing dedicated in-house technical expertise, adopting AI-driven case management systems, and ensuring the nationwide and indefinite applicability of rulings.

By identifying critical gaps and presenting pathways for reform, our research seeks to align CAAR with global standards -essential for strengthening India's role as a reliable global trade partner.

Measuring CAAR's performance: The 90-Day challenge

A central finding of the research is that CAAR struggles to meet its statutory obligation to issue rulings within 90 days. The analysis of rulings issued between January 2021 and August 2024 reveals that only 46.2% of decisions were delivered within this mandated timeframe. This compliance rate varies dramatically among officers, with one achieving 86.1% compliance while another managed just 2.2%.

The primary bottleneck identified is CAAR's dependence on port commissioners for technical inputs. Although regulations allow commissioners just two weeks to provide comments, these responses are often delayed, extending the ruling process by months. As one CAAR presiding officer acknowledged in an interview, delays frequently occur when "comments from jurisdictional commissioners are not received on time," leaving officers with "no option but to delay further".

Some CAAR officers have developed informal practices to mitigate these delays, including sending reminders, making personal phone calls, and issuing demi-official letters. However, these efforts reflect systemic inefficiencies rather than sustainable solutions. The research also highlights the CAAR's reluctance to issue ex parte rulings (without port commissioner input), despite having the authority to do so under Regulation 8(8) of the CAAR Regulations, 2021.

Port-specific applicability: A self-imposed limitation

Another significant limitation is the port-specific applicability of rulings. Unlike systems in the United States, Canada, and Australia- where advance rulings apply nationwide - CAAR rulings are binding only at the specific port where they're issued. This creates inconsistent enforcement across India's customs jurisdictions, forcing businesses that import through multiple ports to seek separate rulings for identical goods.

One respondent articulated this frustration: "Rulings should be consistent across all ports. My classification should not fall under X at one port and Y at another". This limitation not only increases administrative burdens but also undermines the predictability that advance rulings are designed to provide.

The temporal restriction of rulings to a three-year validity period further compounds these challenges. Globally, countries adopt more flexible approaches - Australia's rulings remain valid for five years, while those in Canada and the U.S. have indefinite validity unless there are changes in law or circumstances. As one participant noted, "Unless there is a change in the product or technology, limiting advance rulings to three years seems unnecessary".

Workload imbalance: The Mumbai-Delhi divide

The research reveals significant disparities in workload distribution between CAAR's two benches. The Mumbai bench handles substantially more cases (256) than Delhi (158), with Maharashtra alone accounting for approximately 37.11% of Mumbai's workload. This concentration of cases in Mumbai is followed by Tamil Nadu (31 rulings, 12.11%) and Karnataka (27 rulings, 10.55%), with these three states collectively accounting for about 59.77% of Mumbai's workload.

In contrast, Delhi's jurisdiction shows a different distribution pattern, with Delhi (NCT) itself accounting for 54 rulings (34.18%), followed by Haryana (23 rulings, 14.56%) and Uttar Pradesh (9 rulings, 5.70%). These regions together contribute approximately 54.43% of Delhi's total caseload. The Mumbai bench also faces the additional challenge of 75 orders lacking specified applicant addresses, which further complicates case management.

While both benches experience procedural bottlenecks - such as delays in receiving feedback from jurisdictional commissioners - the Mumbai bench appears disproportionately burdened, given its coverage of the economically significant regions of Western and Southern India. The paper acknowledges this workload imbalance but, rather than recommending additional benches, focuses on process-oriented solutions discussed below.

A path forward: Recommendations for reform

The paper proposes several actionable reforms to enhance CAAR's efficiency and alignment with global best practices:

1. Transition to a Technical Unit Model - Establish in-house technical expertise through dedicated classification specialists and valuation analysts, modeled after systems in Australia, Canada, and the U.S. Pilot at one bench first, with performance measured through turnaround times and stakeholder feedback.
2. Digital Process Optimisation - Implement AI-driven case management using Large Language Models (LLMs) to auto-generate case briefs and identify classification issues. Develop long-term AI solutions integrating HS codes, trade agreements, and global tariff jurisprudence.
3. Nationwide Applicability of Rulings - Amend Section 28J(1)(c) of Customs Act to mandate uniform enforcement across all Indian ports, eliminating jurisdiction-specific inconsistencies.
4. Extending Ruling Validity - Introduce auto-renewal mechanism maintaining rulings' validity unless material facts or trade laws change, reducing business compliance burdens.
5. Enhanced Transparency and Accountability - Create real-time performance dashboard tracking case disposal rates, 90-day compliance, appeal rates, and ruling consistency while maintaining necessary confidentiality.

Implications for India's trade ecosystem

The study's findings have significant implications for India's position in global trade networks. While CAAR represents progress compared to its predecessor, systemic inefficiencies continue to hinder its full potential. Addressing these challenges is crucial not only for domestic traders but also for strengthening India's reputation as a reliable trade partner internationally.

The research highlights an encouraging statistic: more than two-thirds of CAAR rulings align with the applicant's proposed position. This suggests that when the system functions effectively, it provides valuable certainty to businesses. However, the procedural bottlenecks identified in the study prevent this benefit from being fully realised.

As global trade regulations evolve and become increasingly complex, ensuring that CAAR remains agile and responsive is critical to sustaining India's economic growth. The reforms proposed in this paper offer a roadmap for enhancing the efficiency and relevance of advance rulings within India's broader trade facilitation framework.

Conclusion

This process audit of India's Customs Authority for Advance Rulings (CAAR) provides a rigorous assessment of its strengths and limitations. The study effectively documents progress since transitioning from AAR while identifying persistent operational inefficiencies, particularly the 90-day timeline compliance challenge, port-specific applicability constraints, and the technical expertise gap compared to global benchmarks.

For policymakers and trade stakeholders, this research offers a clear roadmap to transform CAAR. The evidence-based recommendations target critical friction points in CAAR's workflow: establishing in-house technical expertise to reduce dependence on port commissioners, implementing AI-driven case management, expanding nationwide ruling applicability, and extending validity periods. These practical reforms align with international best practices observed in jurisdictions like the United States, Canada, and Australia.

Here is the link to the paper.

Vijay Singh Chauhan is a Executive Director at Deloitte Touche Tohmatsu India LLP, Prashant Narang and Monika Yadav are researchers at the TrustBridge Rule of Law Foundation.