FEBRUARY 19, 2018

By R K Singh, Member, CESTAT (Retd.)

1. THE purpose of penning this article is to demonstrate that :

(i) Customs circular no. 46/2017-Customs dated 24.11.2017 [amended on 06.12.2017] suffers from legal infirmity and internal contradictions;

(ii) There is no legal provision to levy CGST or IGST on transactions of sale/transfer of the warehoused goods continuing to remain warehoused.

2. Before proceeding further, paragraphs 4, 5 and 5.1 of the said circular are reproduced below:

"4. However, 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" as per section 7 of the Central Goods and Services Tax Act, 2017 (hereinafter referred to as, "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 (hereinafter referred to as, "IGST Act"). It may be noted that 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. The value of such supply shall be determined in terms of section 15 of the CGST Act read with section 20 of the IGST Act and the rules made thereunder, 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.

5. Thus, in respect of goods stored in a customs bonded warehouse, there is a possibility that certain cases may involve an additional taxable event, if a transfer of ownership of warehoused goods takes place between the importer and another person, before clearance of the goods, whether for home consumption or for export.

5.1 In other words, 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 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."

Internal contradictions

3. A careful perusal of the above-quoted paragraphs of the said circular shows that at one place in para 4, it is mentioned that transaction of sale/transfer etc of the warehoused goods between the importer and any other person shall be taxable in terms of section 9 of the CGST Act read with section 20 of the IGST act 2017. The same para 4 also mentions that such transaction of sale/transfer will be subject to IGST under the IGST Act. Similarly, in para 5.1 of the said circular, it is stated that when goods remain deposited in the custom bonded warehouse and are transferred by the importer to another person …….. and the tax liability shall be reckoned as per section 9 of the CGST Act 2017. The same para 5.1 also mentions that such transactions " will be subject to payment of IGST ……"

It is thus obvious that the said circular is rather messy and suffers from internal contradiction inasmuch as it (Circular) in the same breath at some places states that the transaction of sale/transfer etc of the warehoused goods shall be taxable in terms of section 9 of the CGST Act and at some other places it states that it will be subject to IGST.

No CGST can be charged on transaction of sale/transfer during the continuation of the goods in the Customs bonded warehouse

4. In terms of section 8 of the IGST Act, 'goods imported' into the territory of India till they cross the customs frontiers of India shall not be treated as intra- state supply. As the goods continuing to remain warehoused(or the goods lying in the port area awaiting Customs clearance) have been imported into India and have not crossed the customs frontiers of India, no CGST can be levied under the CGST Act on transactions of sales/transfer of such goods because CGST Act is applicable only for intra-state supplies.

No legal provision to charge IGST on transaction of sale/transfer of warehoused goods while they continue to remain in the warehouse

5. As regards the leviability of IGST on transaction of sale/transfer of warehoused goods while they continue to remain in the warehouse, (or of the goods lying the port area awaiting Customs clearance), it is pertinent to point out that in an article published under the title "No Legal Provision to Levy Integrated Tax on Imported Goods : Unbelievable But True" on 7-2-2018 in the guest column of TIOL website it has been demonstrated that there is no legal provision under which IGST under the IGST Act can be levied on the goods imported into India because the levy under Section 3(7) of the Customs Tariff Act is not a levy under the IGST Act; the levy under the said section 3(7) is not dependent upon the proviso to section 5(1) of the IGST Act and the said levy [i.e. the levy under the said section 3(7)] would remain unaffected even if the said proviso (i.e. proviso to section 5(1) of the IGST Act) did not exist or ceases to exist. Indeed it is understood that the Law Ministry is also of the view that the levy under section 3(7) of the Customs Tariff Act is a levy under entry no. 83 of List 1 (Seventh Schedule of the Constitution).

Finale

5. The sum total of what has been stated in the preceding paragraphs fulfils the purposes for which this article was penned.

(The views expressed are strictly personal.)