For a change, a useful and needed circular
The Central Board of Indirect Taxes and Customs (CBIC) has issued a very useful circular, 38/2018- Customs, dated October 18. It is on procedure in cases of manufacturing or other operations undertaken at bonded warehouses under Section 65 of the Customs Act.
The provisions regarding private bonded warehousing and in-bond manufacture have been in the statute for a long while. The Board’s predecessor had notified the ‘Manufacture and Other Operations in Warehouse Regulations, 1966’ and ‘Warehouse (Custody and Handling of Goods) Regulations, 2016’. However, only a few parties, other than export-oriented units (EOUs), preferred to take up manufacture in-bond, due to lack of clarity on various points. Most EOUs, however, were necessarily required to function as private bonded warehouses — a requirement that was withdrawn two years earlier.
The latest circular prescribes a combined application for licensing a private bonded warehouse under section 58 and permission for manufacturing and other operations under section 65 of the Customs Act.
Also, format of the bond to be executed under Section 59(2) by a unit operating under section 65 and the format in which the records for receipt, processing and removal of goods are to be maintained.
These prescriptions alone remove a lot of uncertainties and discretion in the hands of jurisdictional officials, bring uniformity and help in ease of doing business.
The circular makes clear that units operating under section 65, read with section 58, must declare such a warehouse as the principal or additional place of business under the Goods and Services Tax (GST) laws.
They are entitled to import capital goods, inputs, etc, without payment of customs duty. And, to re-export or clear these in the domestic market, on payment of duty and interest at applicable rates. They may procure goods and services from the domestic market on payment of GST. Goods manufactured in the bonded warehouse may be exported.
The best part is the clarity the circular brings on clearance of goods manufactured at the bonded warehouse in the domestic market. It says such goods may be supplied from the warehouse under GST invoice cover on payment of appropriate GST and compensation cess, if any. Regarding duties on the imported goods contained in the resultant product, it says this shall be paid at the time of supply of the said product from the warehouse. For which, the licensee will have to file an ex-bond bill of entry; such transactions are to be reflected in the accounts, in the manner prescribed.
For waste or refuse arising out of manufacture and other operations in relation to the resultant products cleared for home consumption, the import duty on quantity of the warehoused goods contained in such waste or refuse shall be paid through a challan.
The CBIC deserves appreciation for these clarifications. This will also help the authorities exercise due-diligence while granting approval for manufacturing in-bond.
It is now worthwhile for many parties to consider the latter, without the net foreign exchange earning condition that working as an EOU entails. CBIC should now reconsider the stipulation of a triple duty bond and give instructions for sub-contracting by such units.