About Customs Bonded Warehouse:

Customs warehousing is a procedure under which imported goods are stored under customs control in designated place without payment of import duties. The provisions related to warehousing are under Chapter IX of the Customs Act,1962. Apart from the specific provisions, certain regulations like Manufacture and Other Operations in Warehouse Regulations, 2019 (MOOWR 2019), Warehouse (Custody and Handling of Goods) Regulations, 2016 and the Warehoused Goods (Removal) Regulations, 2016, have also been framed.

Warehouses are facilities setup to avail the benefit of customs duty deferment. Imported goods can be stored in a warehouse without payment of duty and the applicable duty is required to be paid only at the stage of their clearance from the warehouse.

There are three types of warehousing envisaged under Chapter IX of the Customs Act,1962;

  • Public warehouses
  • Private warehouses
  • Special warehouses

In this article the author will attempt to explain the procedure relating to Manufacture and Other Operations in a private warehouse.

Important Definitions:

As per Section 2 of Private Warehouse Licensing Regulations,2016

  • “applicant” means a person who applies for a licence for a private warehouse under section 58 of the Customs Act,1962
  • “private warehouse” means a site or building that is licensed as such by the Principal Commissioner of Customs or Commissioner of Customs, as the case may be, under section 58 of the Customs Act,1962 wherein dutiable goods imported by or on behalf of the licensee may be deposited;

As per Section 2 of the Customs Act,1962

43. “warehouse” means a public warehouse licensed under section 57 or a private warehouse licensed under section 58 or a special warehouse licensed under section 58A

44. “warehoused goods” means goods deposited in a warehouse;

Who can apply for carrying out operations in Private Bonded Warehouse:

Any applicant desirous of manufacturing or carrying out other operations in a bonded warehouse should get permission under section 65 of the Customs Act,1962 i.e., Manufacture and other operations in relation to goods in a warehouse and also should have premises licensed as a private bonded warehouse under section 58 of the Customs Act,1962.

Licensing of private bonded warehouse:

Upon an application being made to license a private warehouse, the Principal Commissioner of Customs or Commissioner of Customs, as the case may be, may issue a licence to the applicant who, –

1. Is a citizen of India or is an entity incorporated or registered under any law for the time being in force;

2. Submits an undertaking to comply with such terms and conditions as may be specified by the Principal Commissioner of Customs or Commissioner of Customs, as the case may be;

3. Furnishes a solvency certificate from a scheduled bank for an amount to be specified by the Principal Commissioner of Customs or Commissioner of Customs, as the case may be:

Provided that the condition of furnishing a solvency certificate shall not be applicable to an undertaking of the Central Government or State Government or Union territory.

The Principal Commissioner of Customs or the Commissioner of Customs, as the case may be, shall not issue a licence to an applicant if, –

1. He has been declared an insolvent or bankrupt by a Court or Tribunal;

2. He has been convicted for an offence under any law for the time being in force;

3. He has been penalised for an offence under the Customs Act, the Central Excise Act, 1944 (1 of 1944) or Chapter V of the Finance Act, 1994 (32 of 1994);

4. He is of unsound mind and stands so declared by a competent Court; or

5. The Principal Commissioner of Customs or the Commissioner of Customs, as the case may be, is satisfied that-

6. The site or building of the proposed private warehouse is not suitable for secure storage of dutiable goods;

7. The site or building of the proposed private warehouse is not suitable for general supervision by officers of customs;

8. Bankruptcy proceedings are pending against the applicant; or

9. Criminal proceedings are pending against the applicant and the offences involved are of such nature that he is not a fit person for grant of licence.

Conditions to be fulfilled by applicant for obtaining License:

Where, after inspection of the premises, evaluation of compliance and conducting such enquiries as may be necessary, the Principal Commissioner of Customs or Commissioner of Customs, as the case may be, is satisfied that licence may be granted, he shall require the applicant to,-

1. Provide an all risk insurance policy, that includes natural calamities, riots, fire, theft, skillful pilferage and commercial crime, in favour of the President of India, for a sum equivalent to the amount of duty involved on the dutiable goods proposed to be stored in the private warehouse at any point of time;

2. Provide an undertaking binding himself to pay any duties, interest, fine and penalties payable in respect of warehoused goods under sub-section (3) of section 73A or under the Warehouse (Custody and Handling of Goods) Regulations, 2016;

3. Provide an undertaking indemnifying the Principal Commissioner of Customs or Commissioner of Customs, as the case may be, from any liability arising on account of loss suffered in respect of warehoused goods due to accident, damage, deterioration, destruction or any other unnatural cause during their receipt, delivery, storage, despatch or handling; and

4. Appoint a person who has sufficient experience in warehousing operations and customs procedures as warehouse keeper

Appointment of Warehouse Keeper:

  • A person who has been granted permission shall appoint a warehouse keeper who has sufficient experience in warehousing operations and customs procedures to discharge functions on his behalf.
  • The warehouse keeper shall obtain a digital signature from authorities licensed by the Controller of Certifying Authorities for filing electronic documents required under the Act or the rules and regulations made thereunder.

Procedure for obtaining license:

  • For the sake of uniformity, ease of doing business and exercising due diligence in grant of permission under section 65 of the Customs Act i.e Manufacture and other operations in relation to goods in a warehouse, the form of application to be filed by an applicant before the jurisdictional Principal Commissioner / Commissioner of Customs is prescribed in Annexure A of Circular No. 34/2019-Customs dt 01/10/2019.
  • The form of application has been so designed that the process for seeking grant of license as a private bonded warehouse as well as permission to carry out manufacturing or other operations stands integrated into a single form.
  • 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.
  • The licensees manufacturing or carrying out other operations in a bonded warehouse shall be required to maintain records as per the form prescribed in Annexure B of Circular No. 34/2019-Customs dt 01/10/2019.
  • Regulation 4 of the MOOWR, 2019, provides that the applicant under section 65 shall undertake to execute a bond in such format as specified. Further, Section 59 of the Customs Act requires the owner of the warehoused goods to execute a triple duty bond for the warehoused goods.
  • The bond prescribed under Annexure C of Circular No. 34/2019-Customs dt 01/10/2019 serves the requirements of both MOOWR, 2019 and Section 59 of the Customs Act.
  • As per Regulation 4 of MOOWR,2019, an applicant should inform the input-output norms, wherever considered necessary for raw materials and the final products and to inform the revised input-output norms in case of change therein. Hence the licensee is not required to adhere to the SION norms.

Maintenance of records in relation to warehoused goods:

  • A licensee shall, –

1. maintain detailed records of the receipt, handling, storing, and removal of any goods into or from the warehouse, as the case may be, and produce the same to the bond officer, as and when required;

2. keep a record of each activity, operation or action taken in relation to the warehoused goods;

  • keep a record of drawal of samples from the warehoused goods under the Act or any other law for the time being in force; and

59. keep copies of the bills of entry, transport documents, Forms for transfer of goods from a warehouse, shipping bills or bills of export or any other documents evidencing the receipt or removal of goods into or from the warehouse and copies of the bonds executed under section 59.

  • The records and accounts required to be maintained under sub- regulation (1) shall be kept updated and accurate and preserved for a minimum period of five years from the date of removal of goods from the warehouse and shall be made available for inspection by the bond officer or any other officer authorised under the Act.
  • A licensee shall also preserve updated digital copies of the records specified under sub-regulation (1) at a place other than the warehouse to prevent loss of records due to natural calamities, fire, theft, skilful pilferage or computer malfunction.
  • A licensee shall file with the bond officer a monthly return of the receipt, storage, operations and removal of the goods in the warehouse, within ten days after the close of the month to which such return relates.

Validity of License:

Any licence granted under Private Warehouse Licensing Regulations, 2016 shall remain valid until and unless it is cancelled.

Surrender of License:

A licensee may surrender the licence granted to him by making a request in writing to the Principal Commissioner of Customs or Commissioner of Customs, as the case may be.

On receipt of the request, the Principal Commissioner of Customs or Commissioner of Customs, as the case may be, may cancel the licence if, –

1. The licensee has paid all monies due to the Central Government under the provisions of the Act, rules or regulations made thereunder;

2. No warehoused goods remain deposited in the private warehouse or are deposited in the private warehouse from the date of request of cancellation; and

3. No proceedings are pending against the licensee under the Act or the rules and regulations made thereunder.

Impact on supply from Bonded Warehouse:

1. If the resultant product manufactured or worked upon in bonded warehouse are exported, import duty shall not be required to be paid and it is also considered as export under GST (subject to satisfaction of other conditions stipulated under IGST Act,2017).

2. If the resultant product manufactured or worked upon in bonded warehouse are cleared for home consumption, such transactions squarely falls within the ambit of “Supply” under Section 7 of the CGST Act,2017. Import duty shall be required to be paid at the time of supply of the resultant product and the licensee shall have to file an ex-bond Bill of Entry for a value of warehoused goods contained in so much of the resultant product and such transactions shall be duly reflected in the accounts prescribed under Annexure B of Circular No. 34/2019-Customs dt 01/10/2019.

3. The waste generated during the manufacture of the resultant product may be cleared for home consumption after paying import duty on the quantity of the warehoused goods contained in so much of the waste or refuse as has arisen from the operations carried on in relation to the goods cleared for home consumption.

4. Even if the waste generated during the manufacture of the resultant products are destroyed, import duty shall be remitted on the quantity of the warehoused goods contained in so much of the waste or refuse as has arisen from the operations carried on.

Other General Points:

1. Customs Bonded Warehouse are entitled to import Capital goods, machinery, inputs etc.

2. As per MOOWR, 2019, the applicant shall also inform the input-output norms, wherever considered necessary, for raw materials and final products and shall also inform the revised input-output norms in case of change therein.

3. With regard to the domestic procurements, applicable rate of taxes shall be payable and exemptions, if any, can also be availed.

4. Such units can also import goods and clear them as such, for home consumption without being put to manufacture on payment of import duties along with the applicable interest.

5. Import of goods that are exempt or chargeable to nil rate of duty, may be brought into the warehouse and such goods shall not be considered as warehoused goods as per the Act.

6. The owner of any warehoused goods may remove goods from one warehouse to another, after obtaining permission from the proper officer.

7. Prior permission of the proper officer is not an essential condition for removal of the warehoused goods (as part of the resultant goods).

8. The licensees who wish to avail self-sealing facility for exports can avail the facility made available under circular 26/2017 customs dated 01.07.2017 and its linked circulars

Pros & Cons of the Scheme:

Pros

1. Increase in working capital as the duty is required to be paid only at the time of removal for home consumption.

2. The process of obtaining licences have been simplified.

3. One-time license, as there is no limited validity period for the licence.

4. There are no export obligations required to be met.

5. Not required to adhere to SION norms.

Cons

1. Additional infrastructural cost required to set-up the warehouse.

2. Strict procedures to be followed in case of movement of goods.

3. Maintenance of records would be a tedious task.

Comparison Between Various Schemes

Parameters Bonded Warehouse Advance Authorization EPCG
Exemption from Payment of Customs Duty No Exemption-Duty payment is deferred Yes, on Inputs Yes, on Capital goods
Exemption from IGST and Cess No Exemption-Duty payment is deferred Yes, on Inputs Yes, on Capital goods
Eligible Applicant Any applicant who satisfies the conditions mentioned above Manufacturer exporters (ME), Merchant exporters tied with ME Manufacturer exporters (ME), Merchant exporters tied with ME and Service providers
Mandatory Export Obligation No EO Minimum 15% value addition required Yes
Domestic procurement permissible Yes Yes Yes
Need for import license No, only approval needs to be obtained for the first time Yes Yes
Validity of License Not Applicable 12 months 24 months
Periodicity of License Once license obtained will be valid till surrender For every import, on certain conditions can be obtained for annual requirements For every Import
Adherence to SION norms Norms decided by the Company Yes 6 times duty saved on CG
Applicability of actual user condition Not Applicable Yes Yes
Admissibility of Drawback Not Available Available on duty paid inputs Available
License redemption compliance Not Applicable Required Required

Conclusion:

As the department has simplified the various provisions in respect of warehousing, it will induce the manufacturer to go for the warehousing facility. Further, WTO had recommended withdrawing the key export subsidy scheme of India like MEIS, Export oriented units scheme and sector specific schemes, including Electronics Hardware Technology Parks Scheme and Bio-Technology Parks Scheme, Export Promotion Capital Goods Scheme and Duty-Free Imports for Exporters Scheme as it had violated the provisions of trade body’s norms. Hence considering the uncertainties involved in these schemes, we would not be surprised if more manufactures opt for warehousing facilities instead of other schemes.

Special thanks to BSV Murthy sir for vetting and providing valuable suggestions on the same.

Author Bio

Name: Pradeep
Qualification: CA in Practice
Company: Hiregange & Associates
Location: Chennai, Tamil Nadu, IN
Member Since: 15 Apr 2020 | Total Posts: 1

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