Free Trade Warehousing Zones (FTWZ) and Manufacturing and Other Operations in Warehouse Regulations (MOOWR) are critical components of India’s trade and warehousing landscape. FTWZ allows importers and exporters to store goods duty-free until they are re-exported or brought into India’s domestic territory.
Manufacturing and Other Operations in Warehouse Regulations (MOOWR) on the other hand is a scheme of CBIC under which duties are deferred (not exempted) till the time goods are stored in these warehouses. The duty becomes payable on input or finished products once they are released into the domestic market and stands remitted in case of their direct export from such warehouses. This article delves into whether customs duty is payable when transferring goods from FTWZ to MOOWR, backed by relevant advance rulings.
To understand if a transfer from/to FTWZ and MOOWR will attract custom or other duties or not, following are the relevant advance rulings:
AAR 2023 – Shri R.Gopalsamy, I.R.S. [1]
It has emphasized on Bonded warehouses and FTWZ being completely separate entities. Even though FTWZ also involves customs officers that function while keeping the Customs act in mind. Still bonded warehouse falls under Customs Act and FTWZ falls under SEZ act, and it cannot be considered under the definition of ‘warehouses’ for the purposes of schedule III of CGST act. This means that transfer of goods from one warehouse to another under section 67 of Customs act, shall not include FTWZ. Therefore, in the instant issue, it must then be accounted as clearance from FTWZ and again issuing Bill of Entry (BOE) to keep it in MOOWR.
AAR 2018 – M/s. Sadesa Commercial Offshore De Macau Limited [2]
In this case it has been held that transfer of goods from FTWZ to DTA (Domestic Tariff Area) amounts to ‘supply’ as they are two separate entities (even though there is no transfer of title).
Therefore, this transfer will attract Customs Duty (Basic Customs Duty + IGST) at the time of removal from FTWZ.
Keeping in mind the above clear distinction between bonded warehouse and FTWZ, in this case it was stated: “and no interest will be charged as in case of bonded warehouse” (Para 4.1). This shall suggest that in the case of transfer of goods from FTWZ to Bonded Warehouses, Customs Duty (BCD + IGST) + Interest will be charged at the time of clearance from FTWZ.
Lastly, w.r.t to payment IGST at the time of clearance from FTWZ, it was also held that in addition to what is already being paid under Customs Duty, no additional IGST needs to be paid.
CAAR 2023 – Baker Hughes Singapore [3]
With regards to the argument being raised that transfer from/to FTWZ and DTA should amount to re-import and hence should be exempted from payment of any Customs Duty. It was held that FTWZ should strictly be governed under the SEZ act, and under this such transfer shall not mean re-import. Hence, concluded that the applicant is liable for customs duty on transfer to/from FTWZ and DTA.
Therefore, any to/from transfer of goods between FTWZ and MOOWR shall amount to customs duty (in addition to any other applicable charges).
Conclusion
The analysis of rulings and regulatory frameworks indicates that transferring goods from FTWZ to MOOWR does attract Customs Duty. The separation of FTWZ under the SEZ Act and MOOWR under the Customs Act means that such transfers are subject to customs regulations applicable to clearances from FTWZ. Therefore, businesses engaging in these transfers should prepare for the associated customs costs, ensuring compliance with the relevant duties and taxes. This nuanced understanding is crucial for effective financial and logistical planning in international trade operations within India.
[1] https://taxguru.in/goods-and-service-tax/title-transfers-ftwz-cgst-act-relevance-igst-circular-no-3-1-2018.html
[2] https://taxguru.in/goods-and-service-tax/foreign-supplier-exporting-goods-ftwz-subsequently-sold-indian-customers-need-not-register-gst.html
[3] https://taxguru.in/custom-duty/caar-explains-custom-duty-exemption-good-exported-subsequently-re-imported.html
Author Bio
