In re United Spirits Limited (CAAR Delhi)
On the questions on which the advance ruling is required, whether the following expenses are includible in assessable value as per provisions of the Customs Act and Rules thereunder, for payment of duty during clearance to DTA from FTWZ:
(i) Loading, unloading and handling charges incurred at load port located outside India and transportation charges for bring goods upto the discharge port in India.
(ii) Loading, unloading and handling charges incurred at the seaport / airport in India where goods are unloaded and transportation charges incurred for moving the goods from the seaport / airport to the FTWZ.
(iii) Charges incurred at FTWZ (including rent, unloading, loading charges, etc.).
The nature of activity proposed to be undertaken by the applicant as per SI. No.6 of CAAR-1 is that applicant will store the goods in the FTWZ after importation and will subsequently clear them to DTA as and when required. In this regard it is pertinent to mention that as per Rule 47(4) of SEZ Rules 2006, the valuation and assessment of the goods cleared into Domestic Tariff Area (DTA) shall be made in accordance with Customs Act and Rules made thereunder. Thus, the questions above needs to be scrutinized in accordance with Section 14 of Customs Act 1962 read with Customs Valuation (determination of Value of Imported Goods) Rules 2007.
A. With respect to Question No. (i), kind attention is invited to Customs Valuation (determination of Value of Imported Goods) Rules 2007 (CVR 2007):
(i) As per Rule 3 of CVR 2007, the value of the imported goods shall be transaction value adjusted in accordance with provisions of Rule 10.
(ii) Rule 10(2) of CVR 2007 is produced as follows:
The value of the imported goods shall be the value of such goods and shall include-
(a) The cost of transport, loading, unloading and handling charges associated with delivery of the imported goods to the place of importation.
(iii) In light of Supreme Court judgment, whereby the Hon ‘ble Supreme Court had ruled in the case of M/s. Wipro Ltd v. Assistant Collector of Customs – 2015 (319) E.L.T. 177 (S.C.), dated 16-4-2015 that the landing charges to be added to the value of goods, should be based on actual charges incurred, and not a notional charge of 1% as has been provided in the Rules, CVR 2007 were amended vide Notification No.91/2017 (NT) dated 26.09.2017 and CBIC issued Circular No. 39/2017-Customs dated 26.09.2017.
(iv) As per Circular No. 39/2017-Customs dated 26.09.2017, ‘Place of Importation’ has been defined as follows: “Place of Importation” means the customs station where the goods are brought for being cleared for home consumption or for being removed for deposit in a warehouse.
(v) As per 4.1 of this Circular, the loading, unloading and handling charges associated with the delivery of the imported goods at the place of importation, shall no longer be added to the CIF value of goods.
(vi) Para 4.2 of this circular is as follows:
The phrase “loading, unloading and handling charges” appearing in the amended Rule 10 (2) (a) is to be understood in context of the Article 8(2) of the WTO Agreement which read as “the cost of transport of the imported goods to the port or place of importation”. Thus, only charges incurred for delivery of goods “to” the place of importation (such as the loading and handling charges incurred at the loading port) shall now be includible In the transaction value,
B. With respect to Question No. (ii), kind attention is invited to Proviso 6 to Rule 10(2) of Customs Valuation (determination of Value of Imported Goods) Rules 2007:
(i) Proviso 6 to Ru lc 10(2) of CVR 2007 is produced as follows:
The value of the imported goods shall be the value of such goods and shall include-
(a) The cost of transport, loading, unloading and handling charges associated with delivery of the imported goods to the Place of importation.
Provided that in the case of goods imported by sea or air and transhipped to another customs station in India, the cost of insurance, transport, loading, unloading, handling charges associated with such transhipment shall be excluded.
(b) Para 6 of CBIC Circular No.39/2017 dated 26.09.2017 is produced as follows:
In the erstwhile 4th Proviso to Rule 10(2), while the transhipment charges with respect to a container being moved from port to an ICD and CFS were excluded from the transaction value of the goods, there was no mention of a similar treatment to transhipment of goods by sea or air. Now, by virtue of the 6th Proviso to Rule 10(2), costs related to transhipment of goods (from ports to ICDs; port to port, port to CFS, Airport to Airport etc.) within India will be excluded, providing uniform treatment to different modes of transhipment.
C. With respect to Question No. (iii), Para 4.2 of this Circular is as follows:
The phrase “loading, unloading and handling charges” appearing in the amended Rule 10(2) (a) is to be understood in context of the Article 8(2) of the WTO Agreement which reads as “the cost of transport of the imported goods to the port or place of importation”. Thus, only charges incurred for delivery of goods “to” the place of importation (such as the loading and handling charges incurred at the loading port) shall now be includible in the transaction value.
In view of the above, it is submitted that the 3 questions on which Advance Ruling is sought by M/s United Spirits Ltd. are well addressed vide CVR 2007 and CBIC Circular No.39/2017 dated 26.09.2017.
On the basis of aforesaid, CAAR fully accord with the views of the field Commissionerate made in this regard as elaborated in the aforesaid paras.
FULL TEXT OF ORDER OF CUSTOMS AUTHORITY FOR ADVANCE RULINGS, DELHI
M/s. United Spirits Limited (having IEC No. 0703010361 and hereinafter referred to as ‘the applicant’, in short) filed an application (CAAR-1) for advance ruling before the Customs Authority for Advance Rulings, New Delhi (CAAR in short). The Applicant is part of the Diageo group which is the world’s leading spirits manufacturer. The said application was received in the secretariat of the CAAR, New Delhi on 11.05.2023 along with their enclosures in terms of Section 28H ( I ) of the Customs Act, 1962 (hereinafter referred to as the ‘Act’ also). The Applicant has 2 existing import streams: (i) Import of bulk scotch / spirit concentrate which is used in manufacture of bottled-in-India alcoholic beverages (1311′) and Indian Manufactured Foreign Liquor (IMFL), and (ii) Import of bottled-in-origin finished products (`B10′). The present Application relates to proposed modifications to import pattern of bulk scotch / spirit concentrate (‘bulk concentrate’) having HSN code 2208 3093, referred at (i) above.
2. The Company currently imports bulk concentrate for whisky, etc. from its related supplier namely Diageo Brands B.V., Netherlands. Upon unloading of the goods at port / airport in India, the containers of bulk concentrate are transferred to designated Container Freight Station (CFS) for inspection. The Company files Bill of Entry l’or Warehousing and goods are warehoused at a customs bonded warehouse located near the port. Subsequently, as and when required, the goods are cleared for home consumption from the bonded Warehouse upon payment of Customs duty and transferred to manufacturing units.
2.1 The bulk concentrate is used as a raw material for manufacturing of alcoholic beverages at manufacturing units across India.
2.2 Currently, the Company pays duty on CIF price of bulk including the loading, unloading and handling charges incurred at load port and transportation charges up to customs port in India. The loading, unloading and handling charges incurred at discharge port in India are not included in the value declared in bill of Entry for warehousing, as per provisions of Rule 10(2) of the Customs Valuation (Determination of Price of Imported Goods) Rules, 2007 (`the CVR, 2007′) r/w Circular No. 39/2017 dated 26.09.2017. While clearing the goods for home consumption, duty is paid on the value as assessed in the Bill of Entry for warehousing.
2.3 Proposed import pattern: The Applicant, for commercial reasons, is required to import the bulk concentrates in larger quantities whereas the requirement for production is on a piecemeal basis.
2.3.1 Given this and to ensure that domestic manufacturing is more sustainable, the Applicant is contemplating to import bulk in a commercially feasible order quantity and store it in a Free Trade Warehousing Zone (`FTWZ’) in India. The FTWZ have requisite world-class infrastructure and would enable to store large quantities. From FTWZ, as and when required the goods will be cleared into Domestic Tariff Area (`DTA’) upon payment of applicable Customs duty.
2.3.2 The applicant intends to warehouse the bulk concentrate at large storage tanks located in FTWZ. The containers of bulk concentrates will be unloaded in such large storage tanks in FTWZ for warehousing only. There would be no processing and manufacturing activity and the bulk concentrate will thereafter be cleared for home consumption. Thus, the change is that bulk concentrate will be warehoused at storage tanks at FTWZ (instead of warehousing in Customs Bonded Warehouse at present). Subsequently, considering the requirement, the bulk concentrates would be unloaded from the large storage tanks and loaded in small containers for clearance into DTA.
2.3.3 Benefits of FTWZ: The FTWZs were introduced in India with a view to facilitate foreign trade and replicate the success of such zones in other jurisdictions. The intention is that instead of using warehousing facilities in other jurisdictions, companies should use FTWZs in India. In terms of Section 2(n) of the Special Economic Zones Act, 2005 (`the SEZ Act’), FTWZ units are SEZ units wherein trading, warehousing and other related activities are carried on. The FTWZs inter-alia provide a host of facilities and world-class infrastructure such as temperature controlled area, state of art container and cargo yards, warehousing infrastructure, etc. These facilities will help the Applicant to increase operational efficiencies and ensure proper storage of raw material before its use.
2.3.4 The Applicant will follow the below mentioned procedure under the applicable legal provisions for proposed import pattern:
