{"id":367816,"date":"2025-11-26T17:30:25","date_gmt":"2025-11-26T12:00:25","guid":{"rendered":"https:\/\/www.scconline.com\/blog\/?p=367816"},"modified":"2025-11-26T18:16:43","modified_gmt":"2025-11-26T12:46:43","slug":"beneficial-ownership-the-new-anti-evasion-test-in-indian-customs-law","status":"publish","type":"post","link":"https:\/\/www.scconline.com\/blog\/post\/2025\/11\/26\/beneficial-ownership-the-new-anti-evasion-test-in-indian-customs-law\/","title":{"rendered":"Beneficial Ownership: The New Anti-Evasion Test in Indian Customs Law"},"content":{"rendered":"
\n

Setting the context<\/h2>\n

That the real owner can be different from the legal owner has long been recognised in the fiscal paradigm, both in India and abroad. The concept of “beneficial owner” exists, both in the incumbent domestic income tax law1<\/sup><\/a> as also in the internationally followed Model Double Taxation Conventions2<\/sup><\/a>, giving credence to the existence of corporate structures which de-hyphenate legal ownership from real ownership.<\/p>\n

The concept of beneficial ownership, however, is generally employed as a safeguard against avoidance or abuse of law on account of the pragmatic distinction between and legal and real ownership. To illustrate, the Foreign Trade Policy issued by the Government of India distinguishes between “eligible investors” on the basis of beneficial owners of investments,3<\/sup><\/a> the Companies Act, 2013<\/a> distinctively recognises “significant beneficial owners” and requires their separate registration,4<\/sup><\/a> etc.<\/p>\n

In fact, the Parliament of India enacted the Prohibition of Benami Property Transactions Act as early as in 1988 to engraft the concept of “benami” transactions, i.e. those property transactions where the consideration flows from a third party or where the property is “held for the immediate or future benefit, direct or indirect” of a third party,5<\/sup><\/a> thereby statutorily recognising and proscribing a facet of beneficial owner concept decades ago.<\/p>\n

Positioning beneficial ownership in Indian Customs law framework<\/h2>\n

The concept of beneficial ownership has been extended in the Indian Customs law framework a few years ago. Formally amending the law to instil the concept, a beneficial owner is statutorily defined to mean “any person on whose behalf the goods are being imported or exported or who exercises effective control over the goods being imported or exported”.6<\/sup><\/a> There are two limbs to this definition; it covers (a<\/span>) any person on whose behalf the goods are being imported or exported; and (b<\/span>) any person who exercises effective control over the goods being imported or exported. Thus, in the context of customs law framework, which is concerned with the import or export of goods from India, a person can be beneficial owner without being the owner of the goods, inter alia, if such person exerts effective control over the goods being imported or exported. Thus, the customs law definition encompasses a wide coverage of beneficial ownership.<\/p>\n

In the statutory scheme, it is not enough to appreciate the definition of beneficial owner alone, but it is also crucial to note the positioning of beneficial ownership engrafted in the law. Traditionally, the onus of compliance with the customs law exclusive rests upon the importer or the exporter of goods, as the case may be. This is largely because the customs law obliges the importer\/exporter to “self-assess” the consequences of import and export and carry out the assessment of duty;7<\/sup><\/a> the range of obligations attended to assessment are very widely worded.8<\/sup><\/a> The customs law has expanded the scope of “importer”9<\/sup><\/a> and “exporter”10<\/sup><\/a> to include a beneficial owner. Thus, it is immaterial whether a person is formally recognised as an importer; in view of the beneficial ownership test, a person who exercises effective control over the goods being imported or exported can also be held liable for customs consequences.<\/p>\n

Judicial appreciation of beneficial ownership test in customs law framework<\/h2>\n

It has only been a few years since the amendment of the customs law instilling the beneficial ownership test therein. Yet, some of its triggers and consequences have resulted into disputes which have called for judicial scrutiny. The resultant jurisprudence so far is not significant, yet consequentially reflects the direction of future disputes arising from application of the beneficial ownership test. Certain propositions which emerge are as follows:<\/p>\n

1. The concept of beneficial owner, having been introduced in the customs law by way of a statutory amendment, is prospective in application and does not apply to imports and exports made prior to its enactment.11<\/sup><\/a><\/p>\n

2. The beneficial owner concept cannot be applied to hold a director as the importer when the company claims to be the importer.12<\/sup><\/a><\/p>\n

3. The Customs Department cannot hold a person liable as beneficial owner on account of its inability to trace out and locate the importer in whose name the Bill of Entry was filed.13<\/sup><\/a><\/p>\n

4. Beneficial ownership concept in customs law is limited only qua importer\/exporter; it does not displace legal ownership and thus, does not entitle a beneficial owner to claim rights available only to legal owners.14<\/sup><\/a><\/span><\/p>\n

In fairness, the detailed application of the beneficial owner concept had not obtained an exhaustive examination so far. However, in a recent decision in Xiaomi Technology India (P) Ltd.<\/span> v. Commr. of Customs<\/span><\/a>15<\/sup><\/a>, the Customs Tribunal had an occasion to appreciate the beneficial ownership test to extrapolate its conceptual foundations in detail. In this case, certain components were imported into India by third-party contract manufacturers (CMs) who in turn manufactured complete mobile phones made and sold them to Xiaomi India. It was alleged by the Customs Authorities that Xiaomi India should be considered as importer of components instead of the CMs; as a consequence, the customs valuation of the imported components would not be based upon the price paid by the CMs alone and instead the payments made by Xiaomi India would be included for customs valuation of the imported goods. In particular, decision of the Customs Tribunal notes that the Customs Department alleged “that the restrictive conditions of the agreements meant that although the possession of the imported goods were with the CMs, the constructive possession, ownership and control of the parts and components remain with Xiaomi through its holding company\/subsidiaries\/affiliates and mainly through Xiaomi India.”<\/span><\/span><\/span> These allegations were resisted by Xiaomi India which inter alia contended that given the factual paradigm it could not be considered as the beneficial owner of the imported goods.<\/span><\/p>\n

In addressing these contentions, the Customs Tribunal extensively examined the role and consequences of the beneficial owner concept in the Indian Customs law framework. For the ease of appreciation, the relevant portion of the Customs Tribunal’s decision have been presented in the following terms:<\/p>\n

(i<\/span>) The Customs Tribunal traced the history of beneficial ownership concept to “United Kingdom, nearly 1000 years ago when trusts were established for soldiers’ families during religious wars.” Referring to the extensive adoption of this concept in international tax treaties, the Tribunal noted its current status; “the concept of beneficial ownership, though with some variations, is used in three main areas: anti-money laundering rules, tax transparency instruments and tax treaties”.16<\/sup><\/a><\/span><\/span><\/span><\/p>\n

(ii<\/span>) Qua the Indian domestic law framework, the Customs Tribunal attributed the underlying cause for the adoption of the beneficial ownership concept as being based upon a perception that it “would allow for fair taxation and enforcement of the law at the hands of the beneficial owner who is the person who ultimately owns, controls or benefits from goods or property”.17<\/sup><\/a><\/span><\/span><\/span><\/p>\n

(iii<\/span>) Expounding on the statutory definition of beneficial owner under the Customs law, the Customs Tribunal linked the adoption of the concept as a means to the address the “modern phenomena of multinational groups with new and sophisticated corporate structures for execution and delivery of complex commercial transactions, (which) needs to be viewed with a modern approach keeping in view the mischief and its solution in law”.18<\/sup><\/a><\/span><\/span><\/span><\/span><\/p>\n

(iv<\/span>) On facts, the Customs Tribunal concluded that the CMs had limited their liability by way of “ring fencing” clauses of their respective agreements which “goes to show the understanding of the parties on subsequent government action on taxes, interest, penalties, etc. on the CMs which shifts the burden of reimbursement to Xiaomi India. Hence the parties too agree that the final resting place of these charges will be Xiaomi India, the beneficial owner”.19<\/sup><\/a><\/span><\/span><\/span><\/span><\/p>\n

(v<\/span>) The Customs Tribunal also invoked the law of evidence20<\/sup><\/a> to fix upon the CMs the responsibility to demonstrate “that both the legal ownership and the beneficial ownership vests with the CMs at the time of import”, having highlighted that on facts “substantial control is with Xiaomi India who is the dominant party in the agreement and there is no such right of effective possession and control that comes to vest with the CMs”.21<\/sup><\/a><\/span><\/span><\/span><\/span><\/p>\n

For these key reasons, the Customs Tribunal concluded that Xiaomi India was the “beneficial owner” of the goods imported by the CMs. Thus, the Royalties and License fees paid by Xiaomi India to foreign suppliers was included by the Customs Tribunal in the value of the goods imported by the CMs.<\/p>\n

Conclusion<\/h2>\n

The decision of the Customs Tribunal in Xiaomi case<\/span><\/span> virtually marks the first wave of success to the Customs Authorities at the stage of the Tribunal in their efforts to apply the beneficial owner concept seeking to unearth the persons who actually determine the import or export of goods. It is possible that the parties may challenge the decision in further appeal. However, irrespective of the outcome in further appeal, given the extensive bearing of the concept qua the modern age supply chain structures, the recurrent application of the statutory sanction to beneficial owner can only be vividly anticipated. Thus, it is clear that since its adoption in the year 2017, the beneficial ownership test has matured to evolve as the new anti-evasion test in Indian customs law space. The parties are advised to tread the path with caution.<\/span><\/p>\n<\/div>\n\n

*Advocate, Supreme Court of India; LLM, London School of Economics; BBA, LLB (Hons.) (Double Gold Medalist), National Law University, Jodhpur. Author can be reached at: mailtotarunjain@gmail.com<\/a>.<\/span><\/strong><\/p>\n

1.<\/a> For example, in the Income-tax Act, 1961<\/a>, see<\/span>, S. 2(22)(e<\/span>)<\/a> (qua deemed dividend), S. 45(2-A)<\/a> (qua beneficial interest in securities), S. 94-A<\/a> (qua notified non-cooperative jurisdictions), etc. Similar provisions exist in the Income-tax Act, 2025<\/a>, which shall replace the Income-tax Act, 1961<\/a>. It is interesting to note that Income-tax Act, 1961<\/a>, S. 139<\/a> defines a “beneficial owner” to mean that “in respect of an asset (it) means an individual who has provided, directly or indirectly, consideration for the asset for the immediate or future benefit, direct or indirect, of himself or any other person”. Income-tax Act, 2025<\/a>, S. 263(9)(a<\/span>)<\/a> provides similarly.<\/p>\n

2.<\/a> For illustration, see<\/span>, OECD Model Tax Convention on Income and on Capital, 2017, Arts. 10, 11 and 12 which specifically refer to “beneficial owner” to provide exceptions from the standard applications of the Convention. The United Nations Model Tax Convention, 2025 provides similarly.<\/p>\n

3.<\/a> Ministry of Commerce and Industry, Government of India, Department for Promotion of Industry and Internal Trade, Consolidated FDI Policy, Ch. 3 (effective from 15-10-2020).<\/p>\n

4.<\/a> Companies Act, 2013<\/a>, S. 90<\/a>.<\/p>\n

5.<\/a> Prohibition of Benami Property Transactions Act, 1988<\/a>, S. 2(9)<\/a>.<\/p>\n

6.<\/a> Customs Act, 1962<\/a>, S. 2(3-A)<\/a> inserted by Finance Act, 2017<\/a>.<\/p>\n

7.<\/a> Customs Act, 1962<\/a>, S. 17<\/a>.<\/p>\n

8.<\/a> Customs Act, 1962<\/a>, S. 2(2)<\/a> defines the scope of “assessment” to mean “determination of the dutiability of any goods and the amount of duty, tax, cess or any other sum so payable, if any, under this Act or under the Customs Tariff Act, 1975<\/a> or under any other law for the time being in force” and extends the determination to necessarily examine and concluded upon the: (a<\/span>) tariff classification of goods; (b<\/span>) value of goods; (c<\/span>) exemption or concession of duty, tax, cess or any other sum; (d<\/span>) the quantity, weight, volume, measurement or other specifics of goods; and (e<\/span>) origin of goods; etc.<\/p>\n

9.<\/a> “Importer” is defined in Customs Act, 1962<\/a>, S. 2(26)<\/a> and includes a beneficial owner.<\/p>\n

10.<\/a> “Exporter” is defined in Customs Act, 1962<\/a>, S. 2(20)<\/a> and includes a beneficial owner.<\/p>\n

11.<\/a> Commr. of Customs<\/span> v. Maharashtra Eastern Grid Power Transmission Co. Ltd.<\/span>, 2022 SCC OnLine CESTAT 3116<\/a>.<\/p>\n

12.<\/a> Pawan Munjal<\/span> v. Commr. of Customs<\/span>, 2022 SCC OnLine CESTAT 816<\/a> which was approved in Commr. of Customs<\/span> v. Pawan Kant<\/span>, 2023 SCC OnLine Del 8825<\/a>, appeal against which was dismissed by the Supreme Court in Commr. of Customs<\/span> v. Pawan Kant<\/span>, <\/a>2024 SCC OnLine SC 4005.<\/a><\/p>\n

13.<\/a> C. Solomon Selvaraj<\/span> v. Commr. of Customs<\/span>, <\/a>(2024) 135 GSTR 101 : 2023 SCC OnLine Mad 8121.<\/a><\/p>\n

14.<\/a> Commr. of Customs v. Dinesh Bhabootmal Salecha<\/span><\/a>, 2022 SCC OnLine Bom 1808<\/a>. The appeal against this decision was dismissed by the Supreme Court in Dinesh Bhabootmal Salecha<\/span> v. Commr. of Customs<\/span>, 2023 SCC OnLine SC 1427.<\/p>\n

15.<\/a> 2025 SCC OnLine CESTAT 3837<\/a>.<\/p>\n

16.<\/a> Xiaomi case, 2025 SCC OnLine CESTAT 3837<\/a>, Para 10.<\/p>\n

17.<\/a> Xiaomi case, 2025 SCC OnLine CESTAT 3837<\/a>, Para 11.<\/p>\n

18.<\/a> Xiaomi case, 2025 SCC OnLine CESTAT 3837<\/a>, Para 17.5, relying upon , (2024) 4 SCC 1<\/a> : (2024) 2 SCC (Civ) 1 : (2024) 251 Comp Cas 680. SAP India (P) Ltd.<\/span>, (2024) 4 SCC 1<\/a> : (2024) 2 SCC (Civ) 1 : (2024) 251 Comp Cas 680.<\/p>\n

19.<\/a> Xiaomi case, 2025 SCC OnLine CESTAT 3837<\/a>, Para 18.<\/p>\n

20.<\/a> Evidence Act, 1872<\/a>, S. 106<\/a>\/Sakshya Adhiniyam, 2023<\/a>, S. 109<\/a>, the Tribunal concluded that the facts which are in the special knowledge of the parties, if otherwise than that alleged by revenue, must be demonstrated by the parties.<\/p>\n

21.<\/a> Xiaomi case, 2025 SCC OnLine CESTAT 3837<\/a>, Para 19.<\/p>\n","protected":false},"excerpt":{"rendered":"

by Tarun Jain*<\/p>\n","protected":false},"author":67011,"featured_media":367832,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[20271,31771],"tags":[93396,93403,93398,93400,93399,93397,91326,93402,93401],"class_list":["post-367816","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-experts_corner","category-articles-by-tarun-jain-on-indirect-tax-issues","tag-beneficialownership","tag-corporateregulation","tag-customscompliance","tag-customsvaluation","tag-importexportindia","tag-indiancustomslaw","tag-legalanalysis","tag-taxlawindia","tag-xiaomicase"],"yoast_head":"\nBeneficial Ownership: The New Anti-Evasion Test in Indian Customs Law | SCC Times<\/title>\n<meta name=\"description\" content=\"That the real owner can be different from the legal owner has long been recognised in the fiscal paradigm, both in 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