Bonded warehouse sales - Has Circular 46/2017-Cus lost steam?
FEBRUARY 02, 2018
By Surbhi Premi
BUDGET 2018 has proposed to amend Section 3 of the Customs Tariff Act to provide for value of goods when they are sold from the warehouse before clearance for home consumption(bonded warehouse sale) for calculation of Integrated Tax and GST Compensation Cess.
It provides that the value of goods sold from warehouse shall be higher of transaction value (actual amount paid or payable as consideration for sale of goods) or the value determined under the Customs Tariff Act (Assessable value under Customs + BCD). Furthermore, it provides that where such bonded warehouse sale takes place more than once, transaction value of the last of such transaction shall be considered.
It may be noted that earlier, the value of imported goods, for purposes of charging customs duty, Integrated Tax and Compensation Cess, was determined as per Section 14 of the Customs Act 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, or any margin on sale of bonded warehouse goods cannot be added to the value of the goods, for the purpose of levy of duties of customs at the stage of ex-bonding.
After the proposed amendment, BCD shall continue to be charged on the same value under Section 14 of the Customs Act. However, Integrated Tax and Compensation Cess shall be charged on this value with the addition of any margin earned on bonded warehouse sale.
It may be noted that the CBEC vide Circular No. 46/2017-Customs, dated 24.11.2017 [Illustrative charts Substituted on 06.12.2017 vide F.No. 473/10/2017-LC] had clarified that 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" and shall be taxable as an inter-State supply under the IGST Act. The value of such supply shall be determined under the provisions of the CGST Act read with IGST Act. It appears that the circular intended to tax the margin. However, the circular did not clarify the reason behind treating the transaction as two taxable supplies.
The Circular clarified the same with the help of an example, say A imported goods of value of Rs. 10 and filed "into bond bill of entry". A makes in bond sale of the goods to B for Rs. 300. B files ex-bond bill of entry and clears the goods. Assuming that BCD is 10% and IGST is 12%, A will charge IGST of Rs. 36 from B. B will pay BCD of Rs. 10 and IGST of Rs. 13.2 making total duty payment to be Rs. 59.2 (Case I).
After this amendment, if one follows the circular, A will charge IGST of Rs. 36 from B. B will pay BCD of Rs. 10 and IGST of Rs. 36 making total duty payment to be Rs. 82 (Case II).
Had A cleared the goods (either vide bill of entry for home consumption or ex-bond bill of entry) and sold to B thereafter, total duty payment would have been Rs. 59.2.
The point that arises for our consideration is whether the intention is to treat the underlying transaction as one single import transaction wherein B would be importer and not as two transactions, one for import by B and other for domestic supply by A to B. If that be the case, B would pay BCD of Rs. 10 and IGST of Rs. 36 making total duty payment to be Rs. 46 (Case III).
Effectively post amendment, in Case II (following circular) and Case III (not following circular), the net revenue to the Government would be the same i.e. Rs. 46. Therefore, it appears that the intention of the Government is to do away with the effect of circular by taxing the margin.
It may be noted that Section 7(2) of IGST Act provides that supply of goods imported into the territory of India, till they cross the customs frontiers of India , shall be treated to be a supply of goods in the course of inter-State trade or commerce. Customs frontier of India is defined under the IGST Act to mean the limits of a customs area as defined in section 2 of the Customs Act. Warehouse is covered within the scope of "customs Area". Accordingly, in cases where goods are warehoused in a customs bonded warehouse, it can be said that such goods are within the customs area and thus, will come under the purview of definition of customs frontiers of India under the IGST Act.
It may further be noted that as per Section 5 of the IGST Act, it is the act of bringing into India, i.e., the import of goods into India that is taxable. Here, reference can be made to the decision of Supreme Court in the case of Garden Silk Mills Ltd. &Anr. v. Union of India and Ors . - 2002-TIOL-19-SC-CUS-LB wherein it was held that the import of goods into India commences when the goods cross the territorial waters but continues and is completed when the goods become part of the mass of goods within the country. The taxable event is reached at the time when the goods reach the customs barriers and the bill of entry for home consumption is filed.
When the transfer of goods lying in the customs bonded warehouse by the seller to the buyer takes place prior to the goods crosses the customs frontier of India. Thus, there is a possible view that the sale/purchase transactions entered into prior to import of goods will not be taxable since IGST will be levied at the time of import of goods into India.
Therefore, in the light of the proposed amendment, the Government needs to revisit the view earlier taken in the circular to clarify for the benefit of the Industry whether IGST shall be paid only once upon import instead of twice, one on transfer of bonded warehoused goods and other upon import of goods after filing ex-bond bill of entry.
(The author is Principal Associate , Lakshmikumaran & Sridharan, Gurgaon and the views expressed are strictly personal.)
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