CBEC Circular 46/2017-Cus - certainly not innocuous!
NOVEMBER 28, 2017
By K Srinivasan, IRS
CHAPTER 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.
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.
Clause (b) of sub-section (1) of Section 15 of the Customs Act provides that the rate of duty 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.
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.
The point for discussion here is whether the goods while still under Import into the territory of India but before entering the customs frontier would be chargeable to IGST separately under Section 5 of the Integrated Goods and Services Tax Act, 2017 or instead at the time of Customs clearance under sub-section (7) of section 3 of Customs Tariff Act, 1975.
In this connection, the Author requests the readers to refer to his recent article on TIOL – High Sea Sales-A detailed analysis carried on 17 November 2017 to have a complete understanding of the Laws and Procedures surrounding Imports and their various levies of BCD, CESS and IGST.
Be that as it may, all inter-state transactions are subject to IGST. Imported goods while still being under import or after import is akin to inter-state transactions and there could be no dispute on that it attracts IGST.
It is a common trade practice whereby the original importer sells the goods to a third person -
a) While the goods are still under Import meaning before the goods enter the customs frontier but after it has entered into the territory of India or
b) After it is entered into bond.
It has been amply clarified post GST by Customs Circulars No. 33/2017 dt 1/8/2017 and No. 46/2017 dt 24/11/2017 that each of the above transactions would attract IGST.
As rightly envisioned in the provisions of sub section (12) of section 3 of Customs Tariff Act, 1975read with Section 14 and 15(1)(b) of the Customs Act,1962, in respect of imported goods, all duties, taxes, cessess etc. shall be collected at the time of importation i.e. when the import declarations are filed before the customs authorities for the customs clearance purposes.
In the former case, the importer (last buyer in the chain) would be required to furnish the entire chain of documents, such as original Invoice, high-seas-sales-contract, details of service charges/commission paid etc. to establish a link between the first contracted price of the goods and the last transaction.
In this case, the Customs declarations i.e. Bill of Entry etc. is filed by the person who buys the goods from the original importer during the said sale.
CBEC has issued various instructions regarding such sales while goods still under Import, appropriating the contract price paid by the last high sea sales buyer into the Customs valuation vide Circulars No. 32/2004-Cus., dated 11-5-2004 and now Circular No 33/2017 dated 01-08-2017.
However, in the case of the latter i.e. the transaction of sale or transfer etc. of the warehoused goods between the importer and any other person is naturally expected to be at a price higher than the assessable value of such goods.
Such a transaction squarely falls within the definition of supply of goods imported as per section 7(2) of the IGST Act in accordance with Section 20 of the said Act.
It may be noted that as per the above 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 and as well as after they enter the customs frontier for clearance, shall be treated as an inter-State supply.
But the point of discussion here is not about the correctness of the levy of IGST but about the time of levy and collection of taxes in each of the above cases mentioned above namely (a) and (b).
In both cases, the IGST Act as of now stands highly interconnected with Section 3(7) of the Customs Tariff Act 1975 read with Sections 12, 14 and 15(1) of the Customs ACT and the surrounding procedures and regulations of customs.
Accordingly, it hinges on those customs provisions for the purpose of determination of the time and place of levy and collection of IGST.
These must be levied and collected 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.
As rightly pointed out in the recent Circular, so long as such goods remain deposited in the warehouse the customs duty to be collected shall remain deferred and as also the IGST in the view of the Author.
Further, it is only when such goods are ex-bonded under section 68, shall all the duties and cesses, including IGST, deferred shall be collected, at the time, place and value as had been determined under the Customs Laws.
In conclusion, the clarification given under Circular 46/2017 dt 24-11-2017 is based on a misplaced understanding of the point of Law that -
+ 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 separately 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 thereunder and the tax liability shall be reckoned as per section 9 of the CGST Act, 2017.
The above view clearly runs counter to the proviso to Section 5 of the IGST Act which is perhaps overlooked while issuing the Circular.
It must be noticed that Section 20 of the IGST Act, subject to the provisions of the said IGST Act and the rules made thereunder, looks up to the provisions of Central Goods and Services Tax Act relating to time and value of supply including the scope and levy of supply.
And the provisions of the said CGST Act shall, mutatis mutandis , apply to the IGST Act, insofar as, may be, in relation to integrated tax as they apply in relation to central tax as if they are enacted under this Act:
Chapter III of IGST Act dealing with levy and collection of tax under Section 5 of that Act states as follows;
(1) Subject to the provisions of sub-section (2), there shall be levied a tax called the integrated goods and services tax on all inter-State supplies of goods or services or both,…
(2) Provided that the integrated tax on goods imported into India shall be levied and collected in accordance with the provisions of section 3 of the Customs Tariff Act, 1975 on the value as determined under the said Act at the point when duties of customs are levied on the said goods under section 12 of the Customs Act, 1962.
In the light of the above, it would look that the Circular No, 46/2017 is likely to make the IGST Law a truncated one without the support of the operative portions of the Customs Act and the regulations by the suggestions it carries vide Para5.1 and the illustration in Box“C” of the Annexure to the said Circular.
As the issue has wide reaching implications to cover even goods already in stock at duty free shops and ship stores and such other places which are customs areas under the ambit of inter-state supply independent of the existing Customs Law and practice and force levy and collection of IGST separately, as import might appear to have taken place already in respect of those goods, as per the Circular.
TIOL has been in the forefront of pointing out the ‘not-so-innocuous' nature of the subject Circular 46/2017-Cus as can be seen from the flood of incisive articles that have adorned its home page since yesterday and I too have made an earnest attempt by penning this piece.
A quick relook and confirmation of the correct legal position of Law by the Government would be the most urgent need of the hour, in the Author's humble view.
(The author is Assistant Commissioner, GST, Chennai and the views expressed are strictly personal.)
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