MARCH 31, 2023

By Rajat Dosi, Partner RSA Legal Solutions

THE Finance Minister has proposed certain changes in the Customs Act, 1962, by making last minute addition in the Finance Bill, 2023. Incidentally, these changes were not a part of the Union Budget 2023 introduced in the Parliament in the month of February 2023. These changes / additions have been passed by both the Houses of the Parliament and would become a part of the law very soon, on its assent by the Hon'ble President of India.

As mentioned, certain crucial amendments have been made in the Customs Bonded Warehousing Scheme. This article seeks to highlight such changes and some issues wherein there is lack of clarity.

IGST and GST Compensation Exemption Withdrawn

A new provision, Section 65A, has been inserted in the Customs Act, which will be applicable once the said provision is notified by the Central Government. This provision inter alia seeks to withdraw IGST and GST Compensation Cess exemption currently made available to all imports made in a customs bonded warehouse undertaking manufacturing and other operations therein.

It is noteworthy that this exemption has been withdrawn only in respect of customs bonded warehouse which are undertaking manufacturing and other operations therein by taking permission to this effect under section 65 of the Customs Act including units registered under the MOOWRs Scheme (Manufacture and Other Operations in Warehouse (No. 2) Regulations, 2019). However, the said exemption will continue to be applicable in respect of other public and private customs bonded warehouses registered under Section 57, 58 or 58A of the Customs Act, who have not obtained any permission under section 65 of the Customs Act for undertaking manufacturing and other operations therein.

In simple words, once this provision is notified, all customs bonded warehouses undertaking manufacturing and other operations therein including units registered under the MOOWRs Scheme will not be eligible to avail the exemption from IGST and GST Compensation Cess on its import into India. They will only be eligible to avail the benefit of exemption from payment of other types of customs duty and cesses (such as BCD, anti-dumping duty, etc). Of this GST and Compensation payment, these units will, however, be eligible to avail input tax credit (ITC), if otherwise available, under the GST law.

Bill of entry for home consumption in place of warehousing bill of entry

This provision further provides that at the time of import, such units will have to file a bill of entry for home consumption for making imports into India, in place of existing mechanism of filing a warehousing bill of entry.

Transition Mechanism

It has also been stipulated that this provision or withdrawal of IGST and compensation cess will not be applicable to any goods which have already been imported into India by such customs bonded warehouse prior to the notification of this provision.

Lack of Clarity on certain issues

In view of these changes, the following questions emerge for which as of now there is no clarity:

a. Whether any document is required to be issued on clearance of finished goods from such customs bonded warehouse (as earlier bill of entry for home consumption was required to be filed)?

b. Whether interest is payable on customs duty to be paid at the time of clearance of finished goods from such customs bonded warehouse (as earlier no interest was payable)?

Hopefully, at the time of notification of this new provision, the aforementioned issues will be clarified, by way of a circular, by the CBIC.

[The views expressed are strictly personal.]