MAY 30, 2018

By Vijay Kumar

DOUBLE IGST on Imported Goods deposited in Customs Bonded Warehouses

This was a huge confusion, even by our taxing standards. I will try to make it as simple as possible.

Imported goods can be stored in bonded warehouses and duty can be paid at the time of clearances from the warehouses. While the goods are still in the warehouse they can be sold to another party and he can pay the duties.

By Circular Number 46/2017-Customs, dated 24.11.2017 (later, a small substitution was made in the circular on 06.12.2017 vide F.No. 473/10/2017–LC), the Board dropped a Bomb on the unsuspecting importers who stocked their goods in the warehouses and sold them to others. The Board said that this involves two transactions – one, clearance from the warehouse and two, sale to another person and the wise Board clarified cruelly that IGST is payable on both the transactions. That is, they wanted IGST TWICE! Hell could not have more fury.

We carried several articles, all condemning the Board's wisdom.

Mr. KK Sharma, a former Member of the Board in his article Customs Circular No. 46/2017 needs immediate burial, stated,

- legal incongruities apart, tax implications of the circular are simply debilitating for the buyers of such goods.

- the circular fails to cogently answer those questions. In fact, it not only contradicts itself but also misinterprets the GST law

- it is evident that sale/transfer of warehoused goods is legally and practically no different from a high sea sale.

- The circular thus warrants an immediate burial before it creates more chaos.

Mr. BSV Murthy, a former Member of CESTAT wrote Customs Circular 46/2017 doubles IGST burden.

- Unfortunately, the stand taken that the bonded warehouses have to discharge IGST at the time of sale to the customer who files bill of entry appears to be wrong.

- The circular issued by the Board does not appear to have taken into consideration different legal provisions in Customs Act and the IGST Act which was necessary.

- Even if it was found leviable by the Board,proper approach was to issue an exemption notificationsince it will create an additional burden on purchaser from a bonded warehouse.

- In the budget, retrospective effect should be given to the notification. This is because when GST was introduced, there was no intention to collect additional taxes on the goods and the intention was to ensure that the tax burden remained at approximately at the same level.

- In this case the burden of IGST simply doubles. One can only hope that CBEC will ensure that what the Finance Minister has said many times that tax rates will be kept approximately at the same level does not turn out to be false.

Mr. K. Srinivasan, Assistant Commissioner said, " In conclusion, the clarification given under Circular 46/2017 dt 24-11-2017 is based on a misplaced understanding of the point of Law ."

Mr. Hans Raj Garg, a former Additional Director in DRI in his piece, Warehoused goods, IGST & Board Circular 46/2017 - confusion galore commented, " The Circular appears to go against the very genesis of GST inasmuch as it promotes taxation of the same goods twice in the hands of the same person which is otherwise revenue neutral but creates mischief for trading community because of limited scope for value addition & use of the accumulated ITC ."

While things stood at such height of confusion and anxiety, the Board stood valiantly – silent and then came the Budget. The Finance Act 2018 has inserted a new sub-section 8A in Section 3 of the Customs Tariff Act so as to provide that the valuation for the purpose of levy of integrated tax on warehoused imported goods at the time of clearance for home consumption would be either the transaction value or the value as per sub-section (8) of section 3 of the Customs Tariff Act (valuation done at the time of filing the into-bond bill of entry), whichever is higher.

Even after this amendment, the Board stoically remained silent as to whether the Circular Number 46/2017-Customs, dated 24.11.2017, was still in existence or has been trampled by the Finance Act.

Mr. Mohana Rao, a retired Assistant Commissioner writing in our columns observed,

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

Ms. Surbhi Premi writing in TIOL asked, Has Circular 46/2017-Cus lost steam ? And suggested, in the light of the 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 .

But the Government was on a short Rip Van Winkle and did not bother to clarify whether the Board Circular was superior to an Act passed by Parliament as many taxmen truly believe.

After nearly two months, the Board has decided that the issue needs a clarification.

The Board re-examined the issue. The whole problem started only because they did not examine it when they issued the first circular. Anyway, re-exam, they did and now by Circular No. 3/1/2018-IGST, Dated, 25th May 2018, Board clarifies that:

Integrated tax shall be levied and collected at the time of final clearance of the warehoused goods for home consumption i.e., at the time of filing the ex-bond bill of entry and the value addition accruing at each stage of supply shall form part of the value on which the integrated tax would be payable at the time of clearance of the warehoused goods for home consumption.

In other words, the supply of goods before their clearance from the warehouse would not be subject to the levy of integrated tax and the same would be levied and collected only when the warehoused goods are cleared for home consumption from the customs bonded warehouse.

When you say, "in other words", it means that your first words were not very clear. It by no means, means that the ‘other words' are. Anyway, what the Board seems to be saying is, you don't need to pay IGST twice, but pay it on the higher value.

And, significantly, they have not withdrawn the earlier Circular, but even goes on to clarify that, the new Circular would be applicable for supply of warehoused goods, while being deposited in a Customs bonded warehouse, on or after the 1st of April, 2018 . Bless them, the litigation is kept alive for the period prior to 1st of April, 2018. Remember, all our experts including a former Member of the Board and a former Member of the CESTAT had opined that the first Circular was patently wrong and the law was amended only with effect from 1.4.2018. Then what is the point in keeping an illegal, illogical and immature circular alive, except for the noble cause of promoting litigation? And how much of the hard-earned GST money, they propose to waste on meaningless litigation? Why can't they simply admit a mistake and withdraw that Circular and be done with it.

Interestingly, the matter is already before the Delhi High Court in Devashish Polymers Private Limited vs Union of India and the next date of hearing is 16th July 2018. Let's hope the Government doesn't hire a dozen expensive lawyers to tell the High Court that they have issued a Circular and litigation from July 2017 to March 2018 will continue.

Recently a trader explained to me the difference between Central and State GST officers. While the Central GST officers are busy complicating/confusing/comprehending the law, the State GST guys are happily booking cases and stopping trucks, oblivious of the laws and confusion. The e-way bill came into existence on 1 st April 2018 and on 7th April 2018, the learned Assistant Commissioner, Commercial Tax seized a vehicle for not filling the vehicle number in the e-way bill.The assessee rushed to the High Court and the High Court passed an order on 13.4.2018 releasing the vehicle and quashing the Show Cause Notice observing, " Merely of not mentioning of the vehicle no. in Part-B cannot be a ground for seizure of the goods. We hold that the order of seizure is totally illegal .

God knows how many suffered because they could not go the High Court.

No GST on Farmers

Government has given a Press Release stating, "It has been reported in certain section of the Press that certain changes have been made in GST law relating to farmers, which will come into force with effect from 1 st June, 2018 according to which farmers would be required to take registration and pay GST of 18% when they lease out their land ."

Government clarifies, "This news is factually incorrect and misleading. There has been No Change in the GST law and taxation relating to farmers since July, 2017, when GST was implemented. Support services to agriculture, forestry, fishing or animal husbandry are exempt from GST. Such exempted support services include renting or leasing of vacant land with or without a structure incidental to its use. Thus, renting or leasing of land by farmers for agriculture, forestry, fishing or animal husbandry on batai (share cropping) or otherwise is also ?exempt from GST."