Customs circular on applicability of IGST/ GST on goods transferred / sold while being deposited in a warehouse

This is to update you on the circular issued by CBEC Circular No. 46/2017-Customs dated 24^th November 2017 (‘Circular), which is with regards to the applicability of IGST/ GST on goods transferred / sold while being deposited in in customs bonded warehouse.   

As per this Customs Circular (copy of the circular attached for your reference) :

Levy of customs duty on clearance of goods warehoused in a bonded warehouse

·        On import of goods, the  importer is liable to pay BCD and IGST on customs clearance.  However, the payment of the same is deferred in cases where the goods are deposited into a customs bonded warehouse (by filing an ‘into bond Bill of Entry’) until such goods are ex-bonded.

·        The warehoused goods may be cleared upon filing ‘BOE for home consumption’ / ‘Ex-bond BOE’. In either case, the importer is required to pay BCD and IGST on the imported value, on the rates/duties as applicable on the date of filing the aforementioned BOE.

·        Further, any additional cost incurred after import of goods such as: port charges, demurrage charges, transportation charges, warehouse rental charges cannot be included to the import value for the purpose of computing BCD and IGST at the stage of clearance for customs duty payment.

EY Comments

The above scenario shall apply in situation  where the importer files a bill of entry for warehousing for temporarily warehousing the goods in a customs bonded warehouse and thereafter clears the goods by filing a bill of entry for home consumption / re-warehousing in the case of STPI purchases.   In this situation where the goods are cleared against STPI icence/ approval, BCD and IGST should not apply by virtue of the exemption under Customs Notification 52/ 2003 until March 31, 2018

Levy of IGST on sale by importer of goods bonded in the warehouse

·        As per this Circular, sub - section (5) of section 59 provides that the importer has the liberty to transfer the ownership of imported goods to another person while the goods remain deposited in the warehouse. However, the sale / transfer of the warehoused goods between the importer and any other person may be at a price higher than the assessable value of such goods. (i.e the value higher than the import value). Such a transaction squarely falls within the definition of “supply” as per section 7 of the Central Goods and Services Tax Act, 2017 (‘CGST Act’) and shall be taxable in terms of section 9 of the CGST Act read with section 20 of the Integrated Goods and Services Tax Act, 2017 (‘IGST Act’) .

·        Further, 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.

·        This IGST shall be payable over and above the BCD + IGST payable at the stage of filing of bill of entry for clearance of goods by the purchaser of the goods.

To illustrate the above with an example:

A imports goods on 2^nd July 2017 and deposits the goods in the bonded warehouse to defer duty, by filing ‘into bond BOE’. Duties and taxes deferred are INR 23.2

Value of goods: 100

Say BCD @ 10% - 10% of 100 = 10

Say IGST @ 12% - 12% of (100+10) = 13.2

Total duty and taxes deferred = 10 + 13.2  = 23.2

A sells the goods to B from bonded warehouse on 21^st July 2017 for INR 300 (higher value) and charges IGST @ 12%  (on account of inter-state supply) = INR 36 (Payment of IGST INR 36 and filing of return of the same should be done by 20^th August 2017)

B files Ex-bond BOE on 25^th September 2017 and pays INR 23.2 (deferred duty) in addition to IGST INR 36 (transfer of ownership/tittle to B on sale from bonded warehouse, hence goods to be cleared by B by filing Ex-bond BOE and upon payment of BCD and IGST on import value).

Hence, the total taxes /duties paid under this transaction, under this arrangement is = 23.2 + 36 = INR 59.2.        

TBM comments on in-bond sale implications :

·        This Circular confirms the potential dual GST levy on in-bond sales discussed by us earlier – (i) at the stage of bill of entry filing by purchaser and (ii) on in-bond sale by seller of goods

·        For new campus as well as old campus STPI procurement, the first type of IGST against bill of entry filing should be exempted until 31 March  2018 on account of the restoration  of exemption under Customs Notification 52/ 2003.  Vendors may however seek to charge IGST on their in-bond-sale relying on this Circular.   These  being goods not manufactured domestically, whether upfront exemption/ refund to vendor shall be allowed is moot

·        As regards non STPI procurements, in-bond procurements shall attract a dual GST levy in terms of the illustration in the Circular.  While the legality of such a dual levy could be challenged in courts, till such time the same is set aside, it shall be enforced at the ground level.

Trust this clarifies. Should you have any query / concern, kindly feel free to revert.