Customs (Verification of Identity and Compliance) Regulations, 2021: A Legal Analysis

Introduction

The customs regulatory framework in India has undergone significant transformation with the introduction of the Customs (Verification of Identity and Compliance) Regulations, 2021 [1]. These regulations, notified by the Central Board of Indirect Taxes and Customs (CBIC) on April 5, 2021, through Notification No. 41/2021-Customs (N.T.), represent a paradigmatic shift towards enhanced verification mechanisms within India’s customs administration. The regulations derive their legal authority from Section 99B of the Customs Act, 1962, which was inserted through the Finance (No. 2) Act, 2019, empowering customs authorities to undertake identity verification processes for protecting revenue interests and preventing smuggling activities [2].

The customs area, as defined under the Customs Act, 1962, encompasses the geographical jurisdiction of a customs station and includes warehouses and areas where imported or export goods are ordinarily kept before clearance by customs authorities. Within this framework, the 2021 regulations establish a structured approach to identity verification that fundamentally alters the relationship between customs authorities and trade participants. The regulations reflect the government’s commitment to digitalisation and transparency while maintaining stringent oversight mechanisms to safeguard national revenue interests.

Legal Framework and Statutory Provisions

Section 99B of the Customs Act, 1962

The legal foundation for these regulations rests upon Section 99B of the Customs Act, 1962, titled “Verification of identity and compliance thereof” [3]. This provision, introduced through legislative amendment in 2019, grants customs authorities expansive powers to verify the identity of persons engaged in import or export activities. The section operates on the principle of protecting revenue interests and preventing smuggling, establishing a legal framework that balances trade facilitation with security concerns.

Section 99B empowers the proper officer of customs to carry out verification of any person to ascertain compliance with provisions of the Customs Act or any other applicable law. The verification process encompasses identity authentication through Aadhaar or alternative viable means of identification. The section specifically enumerates circumstances under which benefits may be suspended or denied to persons who fail to comply with verification requirements.

Regulatory Structure Under the 2021 Regulations

The Customs (Verification of Identity and Compliance) Regulations, 2021, comprise eleven substantive regulations that establish a detailed procedural framework. Regulation 1 provides for the short title and commencement, while Regulation 2 sets forth definitions that clarify the scope and application of these provisions. The regulations define “Act” as the Customs Act, 1962, “Commissioner of Customs” based on jurisdictional criteria, and establish the concept of “principal place of business” referenced to the Importer Exporter Code issued by the Directorate General of Foreign Trade.

The definitional framework creates legal certainty by establishing clear parameters for jurisdictional determination. For importers and exporters, the relevant Commissioner of Customs is determined by the customs station where such persons engage in import or export activity. For customs brokers, jurisdiction is determined according to the Customs Brokers Licensing Regulations, 2018, ensuring consistency with existing regulatory frameworks.

Scope of Application and Exemptions

Persons Subject to Verification Requirements

The regulations establish two distinct categories of persons subject to verification requirements. The first category encompasses importers, exporters, and customs brokers who are newly engaging in import or export activity after the commencement of these regulations. This prospective application ensures that all new entrants to international trade are subject to enhanced verification protocols from the outset of their commercial activities.

The second category includes persons selected by the Commissioner of Customs who may have previously engaged in import or export activities or availed benefits specified in Section 99B(3) of the Act. This retrospective application empowers customs authorities to review existing trade participants, ensuring that the verification net captures both historical and contemporary commercial actors. The selection process grants discretionary authority to the Commissioner of Customs, subject to procedural safeguards established within the regulatory framework.

Statutory Exemptions

The regulations explicitly exclude the Central Government, State Governments, and Public Sector Undertakings from their purview [4]. This exemption reflects the sovereign immunity doctrine and recognises the distinct legal status of governmental entities within the customs framework. However, this exclusion has generated scholarly debate regarding its consistency with principles of regulatory uniformity and the potential for creating differential treatment frameworks within the trade ecosystem.

The exemption of public sector undertakings, while administratively convenient, raises questions about the comprehensive nature of the verification regime. Public sector entities engaged in international trade handle substantial commercial volumes, and their exclusion from verification requirements may create regulatory gaps that could potentially be exploited by entities seeking to circumvent verification obligations through structural arrangements.

Verification Procedures and Documentation Requirements

Mandatory Documentation Framework

The regulations establish a detailed documentation framework that persons selected for verification must satisfy within prescribed timeframes. Regulation 4 mandates the submission of specific documents on the Common Portal within fifteen days of receiving intimation of selection. The documentation requirements vary based on the legal structure of the entity undergoing verification.

For entities other than individuals, the regulations require documents of incorporation, which vary according to organisational structure. Limited Liability Partnerships must provide Certification of Registration issued by the Registrar and the LLP Agreement. Companies must furnish Certificate of Registration issued by the Registrar along with the Memorandum of Association and Articles of Association. Trusts and foundations must provide Certificate of Registration and their governing documents, while other entities must submit documents evidencing their constitution.

Additional mandatory requirements include documents evidencing appointment of authorised signatories, Permanent Account Number (PAN), GST Identification Number (GSTIN), and financial standing documentation such as bank statements and Income Tax Returns. This documentation framework creates a paper trail that enables customs authorities to assess the financial credibility and operational legitimacy of trade participants.

Identity Authentication Mechanisms

Following document submission, the regulations mandate that specified individuals undergo identity authentication processes on the Common Portal. These individuals include managing directors, kartas, whole-time directors, partners, members of managing committees, board of trustees, authorised representatives, and authorised signatories. The authentication process comprises two components: Aadhaar authentication and Permanent Account Number verification.

The regulations provide alternative authentication mechanisms where Aadhaar authentication cannot be completed due to non-assignment or technical reasons [5]. In such cases, persons may furnish notarised copies of valid passports or electoral photo identity cards within an extended period of five days. However, where alternative authentication is utilised, physical verification of the business address becomes mandatory, ensuring that relaxation of one verification component is compensated by enhanced scrutiny through alternative means.

Physical Verification Requirements

The regulations mandate physical verification of the principal place of business within forty-five days from document submission. The proper officer or an authorised officer must undertake this verification, which includes assessment of the person’s financial standing. However, the regulations provide flexibility by permitting the proper officer to substitute physical verification with document verification, subject to approval from an officer not below the rank of Joint or Additional Commissioner of Customs.

This discretionary power enables customs authorities to adopt risk-based approaches to verification while maintaining oversight through hierarchical approval mechanisms. The requirement for senior officer approval ensures that decisions to waive physical verification are subject to appropriate administrative review, balancing operational efficiency with verification integrity.

Verification Outcomes and Enforcement Mechanisms

Determination of Verification Results

The regulations establish a structured timeline for verification completion and outcome determination. The proper officer must prepare a verification report within thirty days of document submission, extendable to sixty days where physical verification is required. The Commissioner of Customs must determine the verification outcome within fifteen days of receiving the proper officer’s report, with communication to the person concerned within seven days of determination.

Verification success is determined by whether identity is established based on submitted documents and physical verification. Conversely, verification failure occurs when identity cannot be established through these means or when persons fail to comply with regulatory requirements. This binary outcome structure provides clarity for both customs authorities and trade participants regarding the consequences of the verification process.

Suspension and Denial of Benefits

The regulations empower the Commissioner of Customs to suspend benefits in cases of non-compliance or submission of incorrect information [6]. Suspendable benefits include clearance of goods, sanction of refunds, drawback benefits, duty exemptions, and other monetary or non-monetary benefits arising from import or export activities. The suspension power operates as an interim measure pending compliance with verification requirements or correction of submitted information.

Where authentication fails under Section 99B(1), the Commissioner may deny benefits entirely through formal orders issued under Section 99B(3). However, such denial orders cannot be issued without providing affected persons with opportunities to be heard, following procedures prescribed under Section 122A of the Customs Act. This procedural safeguard ensures compliance with principles of natural justice and administrative fairness.

Penalty Provisions

Regulation 11 empowers the Commissioner of Customs to impose penalties not exceeding fifty thousand rupees for contraventions of these regulations [7]. The penalty provision serves both punitive and deterrent functions, encouraging compliance while providing proportionate sanctions for violations. The prescribed maximum penalty amount reflects a balanced approach that maintains enforceability without creating disproportionate financial burdens on trade participants.

Appellate Mechanisms and Legal Remedies

Appeal Rights Under Section 129A

The regulations provide statutory appeal rights for persons aggrieved by orders passed under Regulations 7 or 9. Appeals may be preferred under Section 129A of the Customs Act to the Customs, Central Excise and Service Tax Appellate Tribunal (CESTAT) [8]. This appellate mechanism ensures that verification decisions are subject to independent judicial review, maintaining checks and balances within the customs adjudication system.

The availability of appellate remedies addresses concerns about potential administrative overreach while ensuring that verification decisions can be challenged through established legal processes. CESTAT’s expertise in customs matters ensures that appeals are adjudicated by tribunals with specialised knowledge of trade regulations and customs law principles.

Restoration of Benefits

The regulations provide for restoration of suspended benefits when persons comply with verification requirements or furnish correct documentation. This restorative approach ensures that compliance-minded entities can resume normal commercial operations upon satisfying verification obligations. The restoration mechanism incentivises voluntary compliance while minimising commercial disruption for entities that address verification deficiencies promptly.

Case Law and Judicial Interpretation

While the 2021 regulations are relatively recent, the underlying principles of identity verification in customs law have been subject to judicial scrutiny in various contexts. Courts have consistently upheld the authority of customs officials to verify the identity and credentials of persons engaged in international trade, recognising such powers as essential for revenue protection and smuggling prevention.

The Supreme Court’s approach to customs verification has emphasised the balance between trade facilitation and regulatory oversight. In customs adjudication matters, courts have recognised that verification requirements serve legitimate governmental interests while cautioning against arbitrary or discriminatory application of such powers. The availability of appellate remedies through CESTAT ensures that verification decisions remain subject to judicial oversight.

Regulatory Impact and Compliance Considerations

Impact on Trade Facilitation

The verification regulations represent a significant shift towards digitalised customs processes while maintaining traditional verification principles. The emphasis on Common Portal submissions aligns with the government’s Digital India initiative and customs modernisation efforts. However, the regulations may create initial compliance burdens for trade participants who must adapt to enhanced documentation and verification requirements.

The fifteen-day timeline for document submission, while providing reasonable opportunity for compliance, may pose challenges for entities with complex corporate structures or those requiring extensive documentation compilation. The extension to thirty days for newly engaging entities provides some relief, recognising the practical challenges associated with compliance in dynamic commercial environments.

Compliance Framework for Trade Participants

Trade participants must establish robust compliance frameworks to satisfy verification requirements effectively. This includes maintaining updated documentation portfolios, ensuring authorised signatory appointments are properly documented, and establishing procedures for Aadhaar authentication and PAN verification. Entities should also prepare for potential physical verification by ensuring their principal places of business are maintained in accordance with regulatory standards.

The financial standing documentation requirements necessitate maintenance of current financial records and tax compliance. Entities should ensure that bank statements and Income Tax Returns accurately reflect their commercial activities and financial position, as these documents form critical components of the verification assessment.

Future Outlook and Regulatory Evolution

Integration with Customs Modernisation Initiatives

The verification regulations represent one component of broader customs modernisation efforts that emphasise technological integration and risk-based compliance approaches. Future developments may include enhanced digital authentication mechanisms, artificial intelligence-supported verification processes, and integration with other government databases for cross-verification purposes.

The emphasis on the Common Portal suggests that customs authorities are moving towards unified digital platforms for trade-related processes. This digitalisation trend may eventually encompass all customs procedures, creating seamless electronic interfaces between trade participants and customs authorities while maintaining robust verification protocols.

International Best Practices and Harmonisation

India’s approach to customs verification reflects international trends towards enhanced trade security and anti-money laundering measures. The regulations align with World Customs Organization guidelines on customs verification while maintaining consistency with India’s specific legal and administrative frameworks. Future regulatory evolution may incorporate additional international best practices, particularly in areas of digital identity verification and cross-border information sharing.

Conclusion

The Customs (Verification of Identity and Compliance) Regulations, 2021, establish a detailed framework for identity verification within India’s customs administration. These regulations balance legitimate governmental interests in revenue protection and smuggling prevention with trade facilitation objectives and procedural fairness principles. The regulatory structure provides clear procedures, reasonable timeframes, and appropriate appellate mechanisms while empowering customs authorities with necessary verification tools.

The regulations represent a significant advancement in customs administration modernisation, emphasising digital processes while maintaining traditional verification principles. Their successful implementation will depend upon consistent application by customs authorities, adequate technological infrastructure, and cooperation from trade participants in meeting compliance obligations.

While these regulations create enhanced compliance requirements for trade participants, they also provide greater certainty regarding verification procedures and outcomes. The structured approach to verification, combined with clear appellate mechanisms, ensures that the regulatory framework operates within established legal principles while serving its intended objectives of protecting revenue interests and preventing customs violations.

The regulations mark an important milestone in India’s customs law evolution, demonstrating the government’s commitment to modernising trade administration while maintaining robust regulatory oversight. As trade volumes continue to grow and commercial structures become increasingly complex, these verification mechanisms will play crucial roles in ensuring the integrity and effectiveness of India’s customs system.

References

[1] Central Board of Indirect Taxes and Customs, Notification No. 41/2021-Customs (N.T.), dated April 5, 2021. Available at: https://worldtradescanner.com/41-Cus-NT-05.04.2021.htm 

[2] Finance (No. 2) Act, 2019, Section 70, inserting Section 99B in the Customs Act, 1962. Available at: https://taxguru.in/custom-duty/budget-2019-13-amendments-customs-act-1962.html 

[3] The Customs Act, 1962 (52 of 1962), Section 99B – Verification of identity and compliance thereof. Available at: https://www.taxmanagementindia.com/visitor/detail_act.asp?ID=37323 

[4] Customs (Verification of Identity and Compliance) Regulations, 2021, Regulation 3(2). Available at: https://taxguru.in/custom-duty/customs-verification-identity-compliance-regulations-2021.html 

[5] Customs (Verification of Identity and Compliance) Regulations, 2021, Regulation 4(2). Available at: https://www.taxmann.com/post/blog/verification-regulations-issued-for-importers-exporters-custom-brokers 

[6] Customs (Verification of Identity and Compliance) Regulations, 2021, Regulation 7. Available at: https://sabkagst.com/customs-regulations-for-verification-of-identity/ 

[7] Customs (Verification of Identity and Compliance) Regulations, 2021, Regulation 11. Available at: https://indiashippingnews.com/regulations-tightened-for-identity-verification-of-exporters-importers-chas/ 

[8] Customs (Verification of Identity and Compliance) Regulations, 2021, Regulation 10. Available at: https://facelesscompliance.com/21707/identity-verification-of-importers-and-exporters-on-customs-portal 

[9] The Customs Act, 1962, Section 129A – Appeals to Appellate Tribunal. Available at: https://www.teamleaseregtech.com/updates/article/13204/customs-verification-of-identity-and-compliance-regulations-2021/ 

Authroized and Published by Vishal Davda