Mr. Rohit Arora,
Associate, RSA Legal Solutions
Goods imported into India are cleared for home consumption by payment of custom duty under Section 12 of the Customs Act, 1962 (hereinafter referred to as “the Act”) on the value determined under Section 14 of the Act.
However, there might also be a situation wherein the importer due to some reason,such as no suitable price of the product in the market, low demand etc. may not want to clear the imported goods for home consumption immediately and may prefer to keep the imported goods in custom bonded warehouses. Section 59 of the Act provides for keeping the imported goods in the custom bonded warehouses by exceuting a bond. Once the bond is executed, the payment of duty is deferred.
Under Section 59(5) of the Act, the importer is permitted to transfer/sell goods to another person, while the goods are still in warehouse. The CBEC issued Circular No. 46/2017- Customs dated 24.11.2017 (revised on 6.12.2017), which with the help of three illustrations has clarified, that IGST under Section 5 of the IGST Act shall be charged on such transactions at the time of sale, alongwith the Custom duties charged under the section 12 of the Act. Thus, IGST on the supply of goods alongwiith Basic Custom Duty and IGST on the clearence of goods for home consumption to the buyer shall be charged on the goods. This circular, however, instead of clarifying the issue has made it more complicated and confusing.
Therefore, the issue which arises post the clarification released by the CBEC is whether IGST should be charged on the sale of goods which are still in the custom warehouse?
Further, Section 7(2) of IGST Act provides that the supply of goods imported into the territory of India, till they cross the customs frontiers of India, shall be treated as supply of goods in the course of inter-State trade or commerce. Under Section 2 of the Act, warehouse is covered under the definition of Custom area. Therefore, the goods which are in the warehouse shall be treated as they are to be treated under the custom area, and thus will come under the purview of the definition of customs frontiers of India under the IGST Act.
It may further be noted that according to Section 5 of the IGST Act, it is the act of bringing into India, i.e., the import of goods that is taxable. The decision of Supreme Court in the case of Garden Silk Mills Ltd. &Anr. v. Union of India and Ors . reported in [2002-TIOL-19-SC-CUS-LB] is relevant in this regard. In this case it was held that the import of goods into India commences when the goods cross the territorial waters and the taxable event is when the goods reach the customs barriers and the bill of entry for home consumption is filed.
When the transfer of goods lying in the customs bonded warehouse, takes place from the seller to the buyer prior to the goods crossing the customs frontier of India, it shall not be taxable under the IGST Act.
Thus, there is a possible view that the sale/purchase transactions entered into prior to import of goods will not be taxable since IGST will be levied at the time of import of goods into India.
In furtherance of the aforesaid issue, BUDGET 2018 has proposed to amend Section 3 of the Customs Tariff Act to provide for value of goods when they are sold from the warehouse before clearance for home consumption(bonded warehouse sale) for calculation of Integrated Tax and GST Compensation Cess. It provides that the value of goods sold from warehouse shall be higher of transaction value (actual amount paid or payable as consideration for sale of goods) or the value determined under the Customs Tariff Act (Assessable value under Customs + BCD). Furthermore, it provides that where such bonded warehouse sale takes place more than once, transaction value of the last of such transaction shall be considered.
Section 14 of the Customs Act, determined the value of the goods at the time of import, i.e. at the time of filing of the into-bond Bill of Entry, for the purposes of charging customs duty, Intergrated Tax and Compensation Cess. Any costs which was incurred after the import of goods, or any margin on sale of bonded warehouse goods could not be added to the value of the goods, for the purpose of levy of duties of customs at the stage of ex-bonding.
After the proposed amendment, BCD was continued to be levied on the same value under Section 14 of the Customs Act. However, Integrated Tax and Compensation Cess will be charged on this value with the addition of any margin earned on bonded warehouse sale.
Therefore, in the light of the proposed amendment, the Government needs to revisit the view taken earlier in the circular to clarify for the benefit of the Industry whether IGST shall be paid only once upon import instead of twice, one on transfer of bonded warehoused goods and other upon import of goods after filing ex-bond bill of entry.
The Importer deposits goods in Customs Bonded warehouse in order to defer the duty only. Therefore, in such a case of warehoused goods being sold, the importer should not be asked to pay any duty at this point of time of warehousing. The time of supply for this supply should only be at the time when he clears the goods from Customs Bonded warehouse.
Compiled by GSTstreet for #GSTManthan