FEBRUARY 05, 2018

By G Mohana Rao, Assistant Commissioner (Retd.)

THE following two earlier articles penned by me on the above subject refers –

GST on supply of goods while same are in Customs Bonded Warehouse - Part I

GST on supply of goods while same are in Customs Bonded Warehouse - Part II

There are numerous articles written on the subject by many others as well. It was felt that the issue could not be resolved simply by resorting to circulars. Now, the government has rightly proposed change in the Customs Tariff Act, 1975 through the Finance Bill presented on 1 st February 2018. Section 3 of the Customs Tariff Act, 1975 is proposed to be amended by way of insertion of two sub-sections 8A and 10A so as to provide for value of goods when they are sold within the warehousing period for calculation of Integrated tax and Compensation Cess respectively. This is expected to pave way for the solution of the problem. The new subsection could provide for different values for payment of Integrated tax and Compensation Cess when the warehoused goods are sold. The proposed sub-section 8A to Section 3 is reproduced below:

'(8A) Where the goods deposited in a warehouse under the provisions of the Customs Act, 1962 are sold to any person before clearance for home consumption or export under the said Act, the value of such goods for the purpose of calculating the integrated tax under sub-section (7) shall be, -

(a) where the whole of the goods are sold, the value determined under sub-section (8) or the transaction value of such goods, whichever is higher; or

(b) where any part of the goods is sold, the proportionate value of such goods as determined under sub-section (8) or the transaction value of such goods, whichever is higher:

Provided that where the whole of the warehoused goods or any part thereof are sold more than once before such clearance for home consumption or export, the transaction value of the last such transaction shall be the transaction value for the purposes of clause (a) or clause (b):

Provided further that in respect of warehoused goods which remain unsold, the value or the proportionate value, as the case may be, of such goods shall be determined in accordance with the provisions of sub-section (8).

Explanation. –– For the purposes of this sub-section, the expression "transaction value", in relation to warehoused goods, means the amount paid or payable as consideration for the sale of such goods.';

Sub-section 10A is basically a reproduction of sub-section 8A above inserted for the purpose of determining value for calculating Compensation Cess.

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.

The importer, on clearing the goods from Customs Bonded warehouse will have to pay the requisite Customs duty, Integrated tax and compensation Cess. No GST need to be paid on the sale while the goods are in customs bonded warehouse. In this way, the government will not lose the revenue on the difference value received by the importer and the buyer will also not be paying double tax of IGST. The probabilities of ITC shopping by shifting ITC without economic value shifting to buyer also get diminished.

The circular No. 46/2017-Customs dated 24th November 2017 (amended on 6th December, 2017) will need to be suitably amended or rescinded.

I hope this step of solving the issue by way of amending the Customs Tariff Act, 1975 is a step in the right direction and may set the issue to rest.

(The author is Managing Partner, Elysian Tax Advisors, Mumbai and the views expressed are strictly personal.)