AUGUST 21 , 2020

By D Kalirajan, Advocate

THE Central Government has introduced various export promotion schemes under the Foreign Trade Policies announced from time to time. As the benefits under certain Schemes are provided based on export performance, the WTO's Dispute Settlement panel ruled that such schemes are in the nature of 'prohibited subsidy' and recommended India to withdraw the said schemes viz., AA, EPCG, EOU, etc. While the said dispute is pending, the Central Government has commenced formulation of proposed FTP 2020-25. Plethora of questions on continuation of aforesaid export promotion schemes, especially those who invested heavily on EOUs, are in the minds of Indian exporters. This article would deal with different scheme provided under the Customs Act i.e., the Scheme/facility of manufacture and other operations under bonded warehouse as provided under the Customs Act, 1962. The Ministry of Finance has named the said facility as 'Manufacture and other operations under bond scheme' (for brevity 'MOOW Scheme') which may appear to be a potential alternative to EOU Scheme.

MOOW Scheme & features

The MOOW Scheme/facility is not new. It has been in existence under the Sea Customs Act and continued in the Customs Act, 1962 too, much before the EOU Scheme was announced by the Central Government. In order to attract the investments and support 'Make in India' Programme, the Central Government has revamped the provisions under the Customs law and widened the scope of MOOW Scheme/facility. The Manufacture and Other Operations in Warehouse (No. 2) Regulations, 2019 (for brevity 'the warehouse manufacturing Regulations') which provides legal frame work for the MOOW Scheme has been notified by the Central Government vide notification No. 69/2019-Cus.(N.T.) dated 01.10.2019. The MOOW Scheme provides import duty deferment and remission benefits to the unit operating within the Bonded warehouses, when such units undertake the manufacture or other operations on the goods imported. The key features of the MOOW Scheme are as follows:

a. No duty and tax payment at the time of importing and storing the goods including capital goods in the Bonded warehouse.

b. A common application can be filed, online, for setting up Private Bonded Warehouse and to seek permission for carrying out manufacture or other operations.

c. Existing manufacturing facility can be converted into a bonded manufacturing facility irrespective of its location in India.

d. Local procurement for manufacturing activities permitted on payment of applicable GST.

e. Goods can be removed from warehouse for Job-work by following GST compliances.

f. The duties are fully remitted if the processed goods are exported.

g. No limit on DTA sale and such sale should be against the payment of import duties on the inputs contained in the final products, and on payment of GST on the final products. No interest liability on such deferred customs duty payment.

h. Manufacturing and Trading can be carried out simultaneously, unlike EOU Scheme where trading is not allowed.

i. Single point control viz., the jurisdictional Commissioner of Customs, unlike, EOU where the multiple agencies involved in controlling and monitoring the EOU viz., the Development Commissioner, and the Indian Customs, Norms Committee, etc.

It is clear from the features of MOOW Scheme that it can be viewed as a scheme alternative to EOU Scheme, with certain changes in the mode of operations and procedural compliance requirements. Actually, the MOOW Scheme provides more advantages than EOU Scheme, in terms of permitting DTA sale without any limit, permitting job-work, etc.

However, the said scheme has many unanswered questions as below:

a. Value to be adopted for clearance of used capital goods from the Bonded warehouse is not clear. The plain reading of the Customs law suggests that the import duty is required to be paid on the value of capital goods which is prevailing at the time of import.

b. Unlike EOU Scheme, supply to Private Bonded warehouse is not treated as Deemed export under FTP and GST Law.

c. No clarity on certification of wastage norms viz., self-certification or approved by the Customs Authorities. In case it should be approved by the Customs Authorities, what would be the basis for such wastage norms fixation.

d. As the permitted warehousing period for goods intended for manufacture and for trading is different, it would be difficult to maintain track of imported goods.

e. Since the supply of 'warehouse goods' before clearance for home consumption should be treated neither as supply of goods nor as supply of service, the scope of expression 'warehoused goods' needs clarity from the GST Law perspective.

f. Whether clearance of manufactured goods from one warehouse to another warehouse of the same or different entity is permissible without payment of customs duties and GST since such in bond movement cannot be considered as removal for home consumption.

In view of such ambiguity on various aspects of MOOW Scheme, the proposed investors and existing Companies are struggling to arrive at a conclusion on setting up or converting an existing unit into Private Bonded warehouse, and in case no clarity is given by the CBIC, the scheme would appear unattractive. The stakeholders, especially existing EOUs, may urge the Board to provide more clarity on the MOOW Scheme, while the fate of existing EOU Scheme is unclear, to take timely business decision.

[The author is Principal Associate at Lakshmikumaran & Sridharan, Bangalore and the views expressed in the article are strictly personal.]