F. No: 473/03/2020-LC
Government of India
Ministry of Finance
Department of Revenue
Central Board of Indirect Taxes & Customs
North Block, New Delhi
Dated 17th August, 2020
All Principal Chief Commissioners/Chief Commissioners of Customs Principal Directors General/Directors General of Customs Principal Commissioners/Commissioner of Customs
Subject: Procedure to be followed in cases of manufacturing or other operations undertaken in special warehouses under section 65 of the Customs Act-reg.
Manufacture and Other Operations in Special Warehouse Regulations, 2020 (hereinafter referred to as the MOOSWR, 2020) have been issued vide Notification No. 75/2020-Customs (N.T.) dated 17th August, 2020. These regulations allow manufacturing and other operations in a special warehouse licensed under section 5 8A of the Customs Act, 1962, with regard to warehoused goods specified in clause (1) of Notification No. 66/2016-Customs (N.T) dated 14th May, 2016 (herein after referred to as, “specified goods”).
2. MOOSWR, 2020 and this Circular cover the procedures and documentation for a section 58A warehouse, operating under Section 65 of the Act, in a comprehensive manner including application for seeking permission under section 65, provision of execution of the bond and security by the licensee, receipt, storage and removal of goods, maintenance of accounts, conduct of audit etc.
3. Further, the Special Warehouse (Custody and Handling of goods) Regulations, 2016, which were hitherto governing the procedure for custody and handling of goods deposited in and removed from a Special Warehouse have been amended, vide Notification No.77/2020- Customs (N.T) dated 17th August, 2020, to exclude their application for such warehouses operating under section 65. The said regulations will continue to be applicable for special warehouses, not operating under Section 65.
4. An applicant desirous of manufacturing or carrying out other operations on specified goods in a bonded warehouse under section 65, must have the premises licensed as a special warehouse under section 58A of the Customs Act. The applicants can seek a license under section 58A and permission to operate under section 65 synchronously, or request for permission under section 65, if they already have a warehouse licensed under section 58A.
5. For the sake of uniformity, ease of doing business and exercising due diligence in grant of permission under section 65, the form of application to be filed by an applicant before the jurisdictional Principal Commissioner / Commissioner of Customs is prescribed as in Annexure A. The form of application has been so designed that the process for seeking grant of license as a Special Warehouse as well as permission to carry out manufacturing or other operations stands integrated into a single form. The declaration to be made to satisfy regulation 5 of Special Warehouse Licensing Regulations, 2016, and the undertaking to be made by the applicant as per regulation 4 of MOOSWR, 2020, is included in the application format (Part II). The warehouse in which section 65 permission is granted shall also be declared by the licensee as the principal/additional place of business for the purposes of GST.
6. It has also been decided that the licensees manufacturing or carrying out other operations in a bonded warehouse shall be required to maintain records as per the form prescribed under this circular (Annexure B). Regulation 4 of the MOOSWR, 2020, provides that the applicant under section 65 shall undertake to execute a bond in such format as Further, Section 59 of the Customs Act requires the importer of the warehoused goods to furnish security and execute a triple duty bond for the warehoused goods. Thus, the bond prescribed under this Circular as per Annexure C serves the requirements of both MOOSWR, 2020 and Section 59 of the Customs Act. Additionally, the licensee will furnish security by way of a bank guarantee equivalent to the duty involved on the warehoused goods.
7. To the extent that the resultant product manufactured or worked upon in a bonded warehouse is exported, the licensee shall have to file a shipping bill and pay any amounts A GST invoice shall also be issued for such removal. In such a case, no duty is required to be paid in respect of the imported goods contained in the resultant product as per the provisions of section 69 of the Act.
8. To the extent that the resultant product (whether emerging out of manufacturing or other operations in the warehouse) is cleared for domestic consumption, such a transaction squarely falls within the ambit of “supply” under Section 7 of the Central Goods and Service Tax Act, 2017 (hereinafter referred to as the “CGST Act”). It would therefore be taxable in terms of section 9 of the CGST Act, 2017 or section 5 of the Integrated Goods and Services Tax Act, 2017 depending upon the supply being intra-state or inter-state. The resultant product will thus be supplied from the warehouse to the domestic tariff area under the cover of GST invoice on the payment of appropriate GST and compensation cess, if any. As regards import duties payable on the imported goods contained in so much of the resultant products are concerned, same shall be paid at the time of supply of the resultant product from the warehouse for which the licensee shall have to file an ex-bond Bill of Entry and such transactions shall be duly reflected in the accounts prescribed under Annexure B. As per MOOSWR, 2020, the applicant shall also inform the input-output norms for raw materials and final products and shall also inform the revised input-output norms in case of change therein.
8.1 The proper officer should ensure that the goods so cleared are result of manufacturing or other operations. In case the licensee is unable to carry out any manufacturing or other operations on warehoused goods, then the goods may be cleared as such, either for home consumption after the payment of applicable import duties along with the interest accrued upon such goods in terms of Section 61 (2) of the Customs Act, 1962 or may be exported. In such case the provisions of clause (b) of Section 61(1) shall not be applicable.
9. The waste generated during the course of manufacture or other operations of the resultant product may be cleared for home consumption as per clause (b) to sub-section (2) of section 65 of the Customs Act on payment of applicable duties of customs and GST.
10. Where the resultant product is exported, and duty on the waste or refuse is paid as per proviso to clause (a) to sub-section (2) of section 65, the same shall be deposited manually through a Challan. The records maintained as per Annexure-B would be sufficient for accountal of such goods.
11. As per Regulation 3 (2) (e) (i) of the Special Warehouse Licensing Regulations, 2016, the Principal Commissioner or Commissioner has to be satisfied that the site or building of the proposed special warehouse is suitable for secure storage of dutiable goods. Regulation 8 of MOOS WR 2020, requires the licensee to provide such facilities, equipment and personnel as are sufficient to control access to the warehouse, provide secure storage of the goods and ensure compliance to the regulations. Considering the nature of goods to be warehoused in a special warehouse, the Principal Commissioner or Commissioner has to ensure that the structure is fully closed from all sides, gate(s) with access control and personnel to safeguard the premises. It is also to be ensured that there is/are CCTV cameras at the gate(s) and there is a provision of accessing the same by customs officers. The Principal Commissioner/Commissioners should take into consideration the facilities, equipment and personnel put in place for secure storage of goods, while considering grant of license. Further, office space for bond officer and sufficient space for customs officer for carrying out examination at the time of arrival or removal of goods have to be provided.
12. As per Regulation 4(2)(i) of MOOWSR 2020, a licensee is required to maintain accounts of receipt and removal of goods in digital form in such format as may be specified and furnish the same to the bond officer on monthly basis digitally. This information shall be communicated from the registered email address of a licensee to the designation based official email id accessed by the bond officer. Appointment of any new warehouse keeper should also be intimated along with the monthly returns. Jurisdictional Commissionerate should ensure that such emails are functional and details of same are communicated at the time of issuance of license and also published through public notice.
13. As per Regulation 18(3), the records should be maintained electronically using software which has inter alia features of audit trail and with each event being recorded with time stamp. The licensee is also required to provide details of such software while applying in terms of MOOSWR 2020. At the time of inspection, the proper officer should, through a demonstration, check and ensure that the software meets the requirements of Regulation 18(3). In case licensee wishes to use any other software after issuance of license, bond officer should be informed in advance along with similar demonstration. Proper officer should record the observations and confirm that the new software meets the requirements of Regulation 18(3).
14. Section 58A provides that the proper officer shall cause a warehouse licensed under section 58A to be locked and no person shall enter the warehouse except in his presence. It is clarified that this requirement shall be applicable for the strong-room where specified goods are warehoused, in terms of regulation 9 of MOOSWR, 2020. This will not apply to the remaining licensed premises. MOOSWR, 2020, shall be chargeable on cost recovery or overtime basis, in terms of regulation 4(2)(vi). The licensee shall have to indicate the frequency with which the warehouse has to be operated per day / per week and the expected business hours of such operation, requiring supervision/presence of the bond officer in terms of MOOSWR, 2020.
15.1 The Principal Commissioner / Commissioner shall evaluate the projected requirement and also consider the distance of the warehouse from the customs office to determine which of the modes of recovery of costs needs to be applied and the amount to be paid by the licensee.
16. Clarification required, if any, may be sought from the Board
17. Hindi version follows.
(Dr. Swati Bhanwala)
OSD (Land Custom)