Finmin should remove irritants in in-bond manufacture scheme

The Finance Ministry has notified new regulations easing the disciplines for manufacture of sensitive goods like articles of gold, silver, and other precious metals in bonded warehouses. With few more changes, in-bond manufacture can become the favoured option for the exporters.

The scheme of bonded warehouses to enable deferment of duties is not new. Even the Sea Customs Act, 1878, contained Chapter XI allowing deposit of imported goods in bonded warehouse without payment of duties till their clearance for exports or home consumption later. Sections 57 to 73A of the present Customs Act, 1962 contains similar provisions. Section 65 of the Act allows in-bond manufacture and the procedures and disciplines were notified through Manufacture and Other Operations in Warehouse Regulations, 1966 (MOOWR). This regulation was made applicable to Export-oriented Units (EOUS) also in 1983. A key feature of the regulation was the physical control by the Customs. This requirement was removed for EOUS in 1996.

In 2016, the EOUS were taken out of MOOWR. New licensing regulations were notified for public-, private-, and special-bonded warehouses for sensitive goods and certain specified purposes. New norms for custody and handling of goods in such warehouses and movement of goods from one warehouse to another were put in place. These removed physical control, except for sensitive items and certain specified purposes.

In 2019, the Finance Ministry replaced the MOOWR

1966 with MOOWR

2019 dramatically simplifying the procedures for in-bond manufacture of goods, except sensitive items.

This new norm envisages duty-free import of capital goods and inputs necessary for in-bond manufacture goods. It allows goods manufactured in-bond to be sold in domestic market upon payment of duty (without interest) on inputs. This change has generated a lot of interest, as there is no need for advance authorisations or Export Promotion Capital Goods authorisations and also there is no limit to net foreign exchange earnings or minimum value addition for in-bond manufacture. All goods except those prohibited in the Foreign Trade Policy can be imported in the bonded warehouses.

Last week, the Finance Ministry notified the Manufacture and Other Operations in Special Warehouse Regulations, 2020 (MOOSWR) simplifying the procedures for in-bond manufacture of sensitive items. The Central Board of Indirect Taxes and Customs issued a circular clarifying many issues and prescribing simpler forms. For manufacturers getting license to operate under the new regulation, physical control by the Customs for sensitive items will apply for receipt, despatch and storage of goods in the strong room. The operations in the licensed area, other than the strong room, will be free of physical control.

Some issues regarding the in-bond manufacture provisions include the requirement of triple duty bond, absence of deemed export benefits for procurement from domestic sources and clear procedures for sending duty free inputs for job-work, requirement of duty payment on inbond value when capital goods used in the bonded warehouse are sold in domestic tariff area, inadequate clarity on bond-to-bond transfer of manufactured goods, warehousing periods for goods used for manufacture and goods not so used. Hopefully, these issues will get due attention.

The ministry deserves appreciation for trusting the manufacturers but for the scheme of in-bond manufacture to become popular the irritants must be removed.

The finance ministry deserves appreciation for trusting manufacturers. But there are still some issues regarding the in-bond manufacture provisions, which need due attention