Applicability of IGST on Sale of Warehoused Goods

[CASanjay Kumawat]

Introduction

The facility of warehousing of imported goods in Customs Bonded Warehouses, without payment of Customs duty otherwise leviable on import, is permitted under the Customs Act, 1962. Apart from specific provisions in the said Act (specially under Chapter IX), certain Regulations have been also framed and provisions of Warehoused Goods (Removal) Regulations, 1963 and Manufacture and Other Operations in Warehoused Regulations, 1966 could be referred to in this regard. Basically, goods after landing are permitted to be removed to a warehouse without payment of duty and duty is collected at the time of clearance from the warehouse.

Accordingly, Chapter IX of the Customs Act provides for deposit of goods into a customs bonded warehouse licensed under section 57 or 58 or 58A without payment of duty and the procedures to be followed with respect to the warehoused goods.

Bonding of Import Goods

Where bonding facility is desired on importation, the importer or his representative is required to present to the Customs a Bill of Entry for warehousing (also known as Into-Bond Bill of Entry) in the prescribed form along with relevant documents required. The duties liable are assessed but not required to be paid. A suitable bond has to be executed with the Bond Section before Customs allow bonding. Once the warehousing bond has been executed by the importer, the Customs may order the deposit of the goods in the warehouse. The goods are normally escorted to Bonded Warehouse if the warehouse is at the same port/airport station where goods landed. Otherwise these are allowed to be moved under a transit bond - without escort.

The whole of the bonded goods are to be fully accounted for - by way of home consumption/export etc. Once all the goods brought under any bond have been accounted for to the satisfaction of the Customs officer, after payment of all duties etc., the Customs officer cancels and returns the bond executed as discharged in full.

Clearance of imported goods

The importer of any warehoused goods can clear the goods for home consumption by filing an ex-bond Bill of Entry and after payment of duties etc. in terms of section 68 of the Customs Act.

Transfer of Bonded Goods or Transfer of ownership

Section 59 (3) of the Customs Act, 1962 provides for the transfer of bonded goods to another person. The sale of the warehoused goods to holders of duty exemption or duty concession license for the goods is permitted under the law (Board’s instructions issued from F. No. 473/43/94 dtd. 22.9.1994 refers in this regard).

Accordingly, Sub-section (3) of section 59 provides that the importer is at liberty to transfer the ownership of such goods to another person while the goods remain deposited in the warehouse.

Supply under GST

The CBEC vide Circular No.46/2017-Customs, dated 24.11.2017 provides for the levy of IGST/GST. 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 CGST Act, 2017 and shall be taxable in terms of section 9 of the CGST Act read with section 20 of the IGST Act, 2017.

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.

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.

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 5 of the IGST Act, 2017.

Section 5(1) of IGST ACT, 2017: Subject to the provisions of sub-section (2), there shall be levied a tax called the integrated goods and services tax on all inter-State supplies of goods or services or both, except on the supply of alcoholic liquor for human consumption, on the value determined under section 15 of the Central Goods and Services Tax Act and at such rates, not exceeding forty per cent., as may be notified by the Government on the recommendations of the Council and collected in such manner as may be prescribed and shall be paid by the taxable person:

Provided that the integrated tax on goods imported into India shall be levied and collected in accordance with the provisions of section 3 of the Customs Tariff Act, 1975 on the value as determined under the said Act at the point when duties of customs are levied on the said goods under section 12 of the Customs Act, 1962.

However, it may be noted that so long as such goods remain deposited in the warehouse the customs duty to be collected shall remain deferred. Further, it is only when such goods are ex-bonded under section 68, shall the deferred duty be collected, at the value as had been determined under section 14 of the Customs Act, 1962 in addition to IGST leviable. [Illustrative charts A, B and C are attached to the circular to facilitate better understanding] .

Rate of Duty/ Value for Assessment

The value of imported goods, for purposes of charging customs duty, is determined as per section 14 of the Customs Act, 1962 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, such as, port charges / port demurrage charges or costs for customs clearing or transporting the goods from the port to the customs bonded warehouse or costs of storage at the customs bonded warehouse, cannot be added to the value of the goods, for the purpose of levy of duties of customs at the stage of ex-bonding.

Further, clause (b) of sub-section (1) of Section 15 of the Customs Act provides that the rate of duty or tariff valuation for an ex-bond Bill of Entry shall be the date on which it is filed. There is no provision to vary the assessable value of the goods at the ex-bond stage unless they are such goods on which tariff valuation applies.

Therefore, duties of customs (BCD + IGST) shall be paid on the imported goods at the stage of ex-bonding on the value determined under section 14 of the Customs Act.

Illustrations for assessment of duties under customs and GST

Illustration 1: Goods imported, bonded and sold while in the Bonded Warehouse and clearance thereof:

1. Goods imported by “A” on 2^nd July 2017. Importer wants to deposit the goods in a bonded warehouse to defer duty.

2. Importer files an “into bond bill of entry” and the goods are deposited in a Bonded Warehouse. BCD and IGST [Section 3(7) of Customs Tariff Act 1975] are deferred.

Illustration of duty deferment:

1. Value of goods = ₹ 100
2. Say BCD is 10% = ₹ 10 (10% of ₹ 100)
3. Say IGST is 12% = ₹ 13.2 (12% of ₹ 110)
4. Duty Deferred (ii+iii) = 23.20

3. “A’ sells the goods to “B” on 21^st July 2017 for ₹ 300 and charges
   IGST of Rs. 36 @12% (IGST). Payment of the above IGST of ₹ 36 and filing of return for the same should be done by 20^th August 2017.

The credit of IGST paid can be availed as per Section 16(2)(b) of CGST Act.

4. “B” files an Ex-bond Bill of entry on 25^th of September 2017 and pays ₹ 23.20 (the deferred duty, in addition to duty of ₹ 36 paid earlier as indicated in Point-C).

The credit of IGST paid can be availed.

5. Total duty paid: 23.20+36= ₹ 59.2

6. In this case, when ‘A’ sells the goods to ‘B’, ‘A’ becomes the supplier of the goods as per IGST Act and is therefore liable to pay IGST under section 5 of IGST Act, as explained in Point -C. ‘B’ in turn becomes the importer and is therefore liable to pay the duties deferred as in Point-B, on ex-bonding, as explained in Point-D above.

Illustration 2: Goods imported, bonded and cleared for home consumption and subsequent sale thereof:

1. Goods imported by “A” on 2^nd July 2017. Importer wants to deposit the goods in a bonded warehouse to defer duty.

2. Importer files an “into bond bill of entry” and the goods are deposited in a Bonded Warehouse. BCD and IGST [Section 3(7) of Customs Tariff Act 1975] are deferred.

Illustration of duty deferment:

1. Value of goods = ₹ 100
2. Say BCD is 10% = ₹ 10 (10% of ₹ 100)
3. Say IGST is 12% = ₹ 13.2 (12% of ₹ 110)
4. Duty Deferred (ii+iii) = 23.20

3. “A” files an Ex-bond Bill of entry on 21^st July 2017 and pays ₹ 23.20 (the deferred duty). Credit of IGST paid can be availed.

4. “A’ sells the goods to “B” on 25^th September 2017 for ₹ 300 and charges GST @ say 12% = ₹ 36. Credit of which can be availed.

5. Total duty paid: 23.20+36= ₹ 59.2

Illustration 3: Goods imported and cleared for home consumption and subsequent sale thereof:

1. Goods imported by “A” on 2^nd July 2017. Importer clears the goods for home consumption.

Illustration of duty deferment:

1. Value of goods = ₹ 100
2. Say BCD is 10% = ₹ 10 (10% of ₹ 100)
3. Say IGST is 12% = ₹ 13.2 (12% of ₹ 110)
4. Duty Deferred (ii+iii) = 23.20

2. ‘A’ can take credit of IGST paid at the time of clearance for home consumption.

3. ‘A’ sells the goods to ‘B’ for ₹ 300 on 25th September 2017 and charges GST. Value of goods= ₹ 300 GST (say 12 %) = ₹ 36. Credit of which can be availed.

4. Total duty paid: 23.20+36= ₹ 59.2

Recovery of Duty on Bonded Goods

Customs Officers may demand from the owner of bonded goods the full amount of duty chargeable on such goods, along with all penalties, rent, interest and other charges payable in the following cases:

1. Where any warehoused goods are removed in contravention of the Customs Act, 1962;
2. Where such goods have not been removed from a warehouse at the expiry of the period permitted under section 61;
3. Where any warehoused goods have been taken under section 64 as samples without payment of duty; and
4. Where any bonded goods have not been cleared for home consumption or exportation or are not duly accounted for to the satisfaction of the Customs.
5. In case the owner fails to pay the amount as demanded above, Customs may detain and sell, after notice to the owner, such sufficient portion of the bonded goods as may be selected.