By A Correspondent
New Delhi: In a quiet but significant policy reversal, India has withdrawn a contentious tax exemption for missile parts, just weeks after a rule change that had broadly freed such imports from customs duties.
The move comes as billionaire Gautam Adani’s defence arm faces a government investigation for allegedly evading USD 9 million in import taxes on short-range missile components.
A notification issued by the Ministry of Finance on Oct. 9, 2025, a “corrigendum” or correction to its September policy, deleted the word “missiles” from the list of defence imports eligible for duty-free entry.
The reversal effectively restores the earlier regime, which exempted only select components used in long-range missile systems, not all missile-related parts.
“The correction made to the notification takes us back to the earlier regime, where parts of small-range missiles were not specifically exempt from import duties,” Reuters quoted Grant Thornton Bharat partner Krishan Arora as saying.
“This was the first time the government had put a blanket exemption on all missile parts from customs duty, but that decision appears to have been reversed.”
The Oct. 9 correction was uploaded to a government website without public explanation. Neither the Finance Ministry nor the Central Board of Indirect Taxes and Customs (CBIC) responded to media queries about the sudden policy shift.
Why is the Adani Defence probe at the core of this policy reversal?
The timing of the reversal coincides with a high-profile investigation into Adani Defence Systems and Technologies, a unit of the Adani Group, which manufactures drones, small arms, and missile systems for India’s armed forces.
According to Reuters, India’s Directorate of Revenue Intelligence (DRI) began probing the company in March 2025 for allegedly evading INR 770 million (USD 9 million) in customs duties by misclassifying short-range missile parts as long-range components, categories that carry different tax liabilities.
Adani Defence reportedly imported these components from Russia, Canada, and Israel, as part of the conglomerate’s USD 70 million worth of defence imports since January 2024.
Government sources cited by Reuters said Adani executives had admitted to “misclassification” during questioning but did not elaborate on the extent of the error.
In its response, the Adani Group stated that the DRI had merely sought “clarifications” regarding its imports, which it said had been “provided with supporting documents.”
“The issue stands closed from our end,” an Adani spokesperson added, declining to confirm whether any payments were made to settle the matter.
However, under Indian customs law, companies found guilty of duty evasion can face 100% penalties, potentially raising Adani’s liability to USD 18 million.
What is the policy confusion and regulatory pressure?
The September policy change, announced weeks before the investigation became public, had sought to simplify import rules for India’s growing defence sector by offering tax exemptions on all missile components, regardless of range or type.
The policy was viewed as a boost to private defence manufacturers, including Adani Defence, which has been positioning itself as a key player in India’s ‘Make in India’ military production push.
Yet, the October correction effectively nullifies that broader exemption, creating uncertainty for defence suppliers.
“The government’s backtracking indicates caution in the wake of regulatory scrutiny,” said an industry executive familiar with the matter. “It may have realised that the September notification could inadvertently legitimise past tax irregularities.”
What is the broader context of Adani’s regulatory challenges?
The Adani Group has faced multiple investigations over the years, including allegations of over-invoicing coal imports and breaching securities norms, charges it has consistently denied. While India’s market regulator recently cleared the group of two stock manipulation cases, more than a dozen regulatory probes remain pending.
The defence investigation, however, adds a new dimension. It touches a strategically sensitive sector where national security, procurement policy, and industrial incentives intersect. The DRI case specifically involves non-explosive missile parts and launch accessories, not warheads or propulsion systems, according to officials.
Commercial records show Adani Defence imported USD 32 million worth of such parts from Russia since early 2024. One source told Reuters that the disputed imports related to short-range surface-to-air missile systems, which carry a 10% import duty and 18% local tax, the company allegedly avoided through misclassification.
Why is this government move a sensitive balancing act?
The government’s swift reversal underscores the delicate balance between promoting domestic defence manufacturing and maintaining fiscal discipline. While tax exemptions help boost local production, they also risk creating loopholes that can be exploited.
With India’s private defence industry expanding under initiatives like ‘Atmanirbhar Bharat’, the episode highlights the need for clearer policy frameworks to prevent ambiguity and ensure transparency in import classifications.
For now, the withdrawal of the missile parts exemption reasserts the government’s intent to tighten oversight, even as the Adani Group continues to face heightened scrutiny across multiple fronts.
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