Applicability of IGST / GST on goods transferred / sold while being deposited in a warehouse- Double taxation on in-bond transfer under customs warehouse – Birth of a new Controversy
The CBEC vide Circular No. 46/2017-Cus dated 24.11.2017 has clarified that the sale / transfer of goods lying in a Customs Bonded Warehouse (in-bond transfer) would attract (i) the integrated goods and services tax (IGST) at the time of transfer; and (ii) customs duty comprising of BCD and IGST at the time of removal of such goods from the warehouse. This mean imported goods procured under in-bond transfer would be subjected to double taxation, first under IGST Act and thereafter, under the Customs Act.
The Latest Circular issued by The Central Board of Excise and Customs (CBEC) vide Circular No. 46/2017-Customs Dated 24.11.2017 has given birth to a new controversy regarding double Taxation of goods transferred / sold while being deposited in a warehouse. The language of Circular is explicit and does not require any clarification because the circular itself is a clarificatory circular.
Ch IX of the Customs Act provides for deposit of goods into a customs bonded warehouse licensed under section 57 or 58 or 58A without payment of duty and the procedures to be followed with respect to the warehoused goods. Sub-section (5) of section 59 provides that the importer is at liberty to transfer the ownership of such goods to another person while the goods remain deposited in the warehouse.
It is to be noted that the value of imported goods, for purposes of charging customs duty, is determined as per section 14 of the Customs Act, 1962 at the time of import i.e. at the time of filing of the into-bond Bill of Entry. Any costs incurred after the import of goods, such as, port charges / port demurrage charges or costs for customs clearing or transporting the goods from the port to the customs bonded warehouse or costs of storage at the customs bonded warehouse, cannot be added to the value of the goods, for the purpose of levy of duties of customs at the stage of ex-bonding. Further, clause (b) of sub-section (1) of Section 15 of the Customs Act provides that the rate of duty or tariff valuation for an ex-bond Bill of Entry shall be the date on which it is filed. There is no provision to vary the assessable value of the goods at the ex-bond stage unless they are such goods on which tariff valuation applies.
Therefore, duties of customs (BCD + IGST) shall be paid on the imported goods at the stage of ex-bonding on the value determined under section 14 of the Customs Act.
However, the transaction of sale / transfer etc. of the warehoused goods between the importer and any other person may be at a price higher than the assessable value of such goods. Such a transaction squarely falls within the definition of “supply” as per section 7 of the CGST Act, 2017 and shall be taxable in terms of section 9 of the CGST Act read with section 20 of the IGST Act, 2017.
It may be noted that as per sub-section (2) of section 7 of the IGST Act, any supply of imported goods which takes place before they cross the customs frontiers of India, shall be treated as an inter-State supply. Thus, such a transaction of sale/transfer will be subject to IGST under the IGST Act. The value of such supply shall be determined in terms of section 15 of the CGST Act read with section 20 of the IGST Act and the rules made there under, without prejudice to the fact that customs duty (which includes BCD and applicable IGST payable under the Customs Tariff Act) will be levied and collected at the ex-bond stage.
Thus, in respect of goods stored in a customs bonded warehouse, there is a possibility that certain cases may involve an additional taxable event, if a transfer of ownership of warehoused goods takes place between the importer and another person, before clearance of the goods, whether for home consumption or for export.
In other words, when goods remain deposited in a customs bonded warehouse and are transferred by the importer to another person, the transaction will be subject to payment of IGST at the value determined as per section 20 of the IGST Act read with section 15 of the CGST Act, 2017 and the rules made there under and the tax liability shall be reckoned as per section 9 of the CGST Act, 2017.
However, it may be noted that so long as such goods remain deposited in the warehouse the customs duty to be collected shall remain deferred. Further, it is only when such goods are ex-bonded under section 68, shall the deferred duty be collected, at the value as had been determined under section 14 of the Customs Act, 1962 in addition to IGST leviable, as indicated above.
In simple terms, imported goods procured under in-bond transfer would be subjected to double taxation, first under IGST Act and thereafter, under the Customs Act.The intent of Circular 46/2017 is completely contrary to what the CBEC has clarified on taxability of high sea sale transactions in the recent past through CBEC Circular No. 33/2017 dated 1.08.2017 the intent of which is set out below:
In this scenario the importer making in-bond transfer would not be eligible to claim any input tax credit as IGST paid on the ex-bond bill of entry would be filed by the customer. Importers making in-bond transfer of bonded goods are now burdened with additional IGST liability, and tax authorities will proceed to recover the same from the importer if not already paid on in-bond transfer of goods made on or after 1.07.2017.