AUGUST 29, 2017

By Ashwani Kumar, Consultant

THE custodians appointed under Section 45 of the Customs Act, 1962 are responsible for the safe custody of all imported goods arriving into the notified areas until they are cleared for home consumption. Section 48 bestows the responsibility on the custodian to dispose of all goods which are not cleared within 30 days of arrival after giving notice to the importer and with the permission of the proper officer of customs. The uncleared / unclaimed / abandoned goods are disposed of as per the procedure laid down in CBEC Circular 50/2005–Cus. dated 1.12.2005.

The goods sold in auction are on AS IS WHERE IS BASIS and subject to such other Terms & Conditions. The Customs Circular referred to, provides that for each consignment sold, the custodian will file a consolidated Bill of Entry, buyer-wise,for assessment of the effective rate of duty and pay Customs duty which shall be determined by backward calculation considering the sale proceeds of unclaimed / uncleared goods as cum-duty price. (Refer to CBEC Circular 71/2001-Cus. dated 28.11.2001)

The goods imported into India have remained uncleared / unclaimed because the consignee has not come forward to clear the goods or has abandoned the goods. The Customs Act recognizes the custodian. The overseas supplier is replaced by the custodian who is authorised by the Customs Department to sell the goods. The bidder/buyer steps into the shoes of the importer.

Thus the custodian collects the bid amount / sale proceeds from the bidder / buyer and files the BOE and pays the applicable duty. It may be mentioned that the bid amount is cum-duty price. In other words the bid is inclusive of the duty factor. The Customs duty goes to the exchequer and the balance money from the sale proceeds goes into the custodian's kitty to meet his expenses of sale, warehouse charges, etc. (Refer to Section 150 of the Customs Act)

Prior to introduction of GST:

Duty structure in most of the uncleared imported goods sold was: BCD 10%, CVD 12.5%, Edu, Cess 3% and SAD 4% The custodian at the time of supply of auctioned goods was also collecting VAT applicable (13.5% in most cases) from the bidder / buyer which was eventually deposited with the State Sales Tax authorities by the custodian. The Tax Invoice issued by the custodian to the buyer of the auctioned goods reflected the description, quantity, sale value(Bid value) for the consignment sold, VAT amount and total thereof.

Scenario Post roll out of GST:

Duty structure in most of the cases: 1. BCD 10%, Edu.Cess 3% and IGST 28% / 18%.

Legal aspect: IGST Law in Section 7(2) prescribes that supply of goods imported into the territory of India before it crosses the customs frontiers of India shall be treated as supply of goods in the course of inter-State trade or commerce. Thus IGST on imported goods would be charged at the time of charging Customs duty

As per Section 2(105) of the GST Act, 2017 "supplier"' in relation to any goods or services or both, shall mean the person supplying the said goods or services or both and shall include an agent acting as such on behalf of such supplier in relation to the goods or services or both supplied;

As per Section 2(93) of the GST Act, 2017, "recipient" of supply of goods or services or both, means (a)where a consideration is payable for the supply of goods or services or both, the person who is liable to pay that consideration;

As per Section 64 of the Sale of Goods Act, 1930, when goods are put to sale in auction, the sale is complete on acceptance of bid. Once Customs duty paid and the BOE given ‘Out of Charge', the property in the goods is transferred from the seller / "supplier" (custodian) to the "recipient" / buyer. Thus, the transaction gets completed on sale of Customs uncleared goods by the Custodian to the bidder / buyer for a consideration.

According to one school of thought, in the GST regime,the custodian is supposed to collect applicable CGST & SGST or IGST,as the case may be, from the bidder /buyer in addition to the bid amount / sale value of the goods at the time of giving delivery of the goods. However, it appears that this arrangement tantamount to two transactions. The buyer having paid the bid price of the goods which is inclusive of the Customs duty and IGST, collecting GST once again before giving him the delivery of goods from the Customs notified area,amounts to double taxation of GST on the same goods before the goods cross the Customs barrier.

CBEC is, therefore, requested to issue clarification whether it is legally correct for the custodian to collect CGST + SGST/IGST on the sale value of the auctioned goods from the buyer at the time of delivery of goods since IGST has been levied and collected when the custodian filed the Uncleared Bill of Entry before the Customs authorities for customs clearance purposes soon after the approval of bids by Customs.

Moreover, whether the buyer of uncleared / unclaimed imported goods can claim ITC in respect of the GST/IGST paid upon sale as well as the IGST paid with BCD at the time of Customs clearance.

TIOL Netizens may also like to throw some light on the issue.

(The views expressed are strictly personal)