Manufacture and other operations in relation to goods in a warehouse: - CBEC's Customs Manual 2023 - Customs

21. Manufacture and other operations in relation to goods in a warehouse: Section 65 of the Customs Act, 1962 provides for manufacture as well as carrying out other operations in a bonded warehouse under sections 58 or 58A . 21.1 Manufacture and Other Operations in Private Warehouse (section 58 warehouse) Under section 65 , the Board has prescribed Manufacture and Other Operations in Warehouse(no.2) Regulations, 2019 amended vide Manufacture and Other Operations in Warehouse(no.2) Regulations, 2020 to carry manufacture and other operations in a private warehouse (section 58). These regulations provide for eligibility conditions for grant of licence, conditions of the bond to be executed by the licensee, maintenance of accounts, appointment of warehouse keeper, provision for facilities, equipment and personnel, conditions for transport and receipt of goods from custom station, from another warehouse, domestically procured goods, transfer of goods from a warehouse, removal of resultant goods for home consumption and export, maintenance of records and conduct of audit etc. The form of application to be filed by an applicant before the jurisdictional Principal Commissioner / Commissioner of Customs, the form of accounts and the bond to be executed to be maintained by a private warehouse (section 58) operating under section 65 is prescribed under Circular 34/2019-Customs dated 01.10.2019. 21.2 If the resultant product manufactured or worked upon in a bonded warehouse is exported, the licensee shall have to file a shipping bill and pay any amounts due. A GST invoice shall also be issued for such removal. In such a case, no duty is required to be paid in respect of the imported goods contained in the resultant product as per the provisions of section 69 of the Customs Act. 21.3 If the resultant product whether emerging out of manufacturing or other operations in the warehouse) is cleared for domestic consumption, such a transaction squarely falls within the ambit of supply under Section 7 of the Central Goods and Services Act, hereinafter referred to as the CGST Act . It would therefore be taxable in terms of Goods and Service Tax Act,2017 section 9 of the CGST Act, 2017 or section 5 of the Integrated Goods and Services Tax Act, 2017 depending upon the supply being intra-state or inter-state. The resultant product will thus be supplied from the warehouse under the cover of GST invoice on the payment of appropriate GST and compensation cess, if any. As regards import duties payable on the imported goods contained in so much of the resultant products are concerned, same shall be paid at the time of supply of the resultant product from the warehouse for which the licensee shall have to file an ex-bond Bill of entry and such transactions shall be duly reflected in the accounts prescribed under Annexure B of Circular No.34/2019-Custom dated 01.10.2019 . 21.4 It may be noted that units operating under section 65 read with section 58 of the Customs Act, are entitled to import capital goods, machinery, inputs etc. by following the provisions under Ch IX. In so far as domestic procurement is concerned, applicable rates of taxes shall be payable and exemptions, if any, can also be availed. By virtue of simply being a unit operating under section 65, they shall not be entitled to procure goods domestically, without payment of taxes. The records in respect of such domestically procured goods shall be indicated in the form for accounts as prescribed. 21.5 Since the warehouse operating under section 65 also functions as a warehouse licensed under section 58, the licensees can import goods and clear them as such, for home consumption under section 68 on payment of import duties, along with interest as per subsection (2) of section 61 of the Act or clear them as such for export under section 69 of the Act. The licensees shall also be required to submit monthly returns in Form B as prescribed under Circular No. 25/2016-Cus dated 8th June 2016 in case the warehouse is used for such purposes i.e. non-section 65 purposes. 21.6 Given the continuous nature of operations in warehouses under section 65 , and the potential need to clear resultant goods expeditiously, the requirement to obtain prior permission of the proper officer for each clearance could pose a challenge to making clearances on time to meet delivery schedules. Therefore to facilitate such timely clearances and for convenience of the trade, recourse has been taken to the powers vested under Section 143 AA , and it has been provided under regulation 13, 14 and 15 of MOOWR 2019 that while a licensee shall file the due documentation (such as the Form for transfer of goods from a warehouse, bill of entry and shipping bill, respectively) and pay the duties due, prior permission of the proper officer is not an essential condition for removal of the warehoused goods (as part of the resultant goods). The licensees who wish to avail self-sealing facility for exports can avail the facility made available under circular 26/2017 customs dated 01.07.2017 and its linked circulars. 21.7 Goods (only inputs) can be removed from a Section 65 unit for jobwork and received after jobwork. Capital goods can be sent outside the Section 65 unit for repair, with the permission of the bond officer. The form for maintaining the account of jobwork by a Section 65 unit is prescribed in Annex B of Circular No. 34/2019-Customs dated 01.10.2019 . Further, Section 65 unit, being a GST registered unit, can perform job work operations and should maintain due accounting of such job work as per the provisions of GST law. [Refer to Circular No. 48/2020-Customs dated 27.10.2020 ]