APPLICABILITY OF IGST/GST ON GOODS TRANSFERRED/SOLD WHILE BEING DEPOSITED IN WAREHOUSE

[Mr. M. GOVINDARAJAN]

Depositing of goods in warehouses

Chapter IX of the Customs Act, 1962 (‘Act’ for short) provides for warehousing.  This chapter provides for deposit of goods into a customs bonded warehouse.  A warehouse is licensed under section 57of the Act as a public warehouse; under section 58 of the Act as a private warehouse; under section 58A of the Act as a special warehouses.   The goods may be deposited in such warehouses without payment of duty.  Section 59(5) provides that where the whole of the goods or any part thereof are transferred to another person.  For this, the transferee shall execute a bond in a sum equal to thrice the amount of duty assessed on such goods.    The Assistant Commissioner of Customs or Deputy Commissioner of Customs may permit an importer to execute a general bond in such amount as the Assistant Commissioner of Customs or Deputy Commissioner of Customs may approve in respect of the warehousing of goods to be imported by him within a specified period.   The importer shall, in addition to the execution of a bond furnish such security as may be prescribed.

Value of imported goods

Section 14 of the Act provides that the value of imported goods for charging customs duty is determined at the time of import i.e., at the time filing of the into-bond Bill of Entry.   The expenses, such as-

• port charges,
• demurrage charges; or
• charges for customs clearing; or
• transporting the goods from the port to the customs bonded warehouse of charges for storage at the customs bonded warehouse

cannot be added to the value of the goods for the levy of customs duty at the stage of ex-bonding.

Section 15 of the Act provides that the rate of duty and tariff valuation, if any, applicable to any imported goods, shall be the rate and valuation in force, -

•  in the case of goods entered for home consumption under section 46, on the date on which a bill of entry in respect of such goods is presented under that section;
•  in the case of goods cleared from a warehouse under section 68, on the date on which a bill of entry for home consumption in respect of such goods is presented under that section;
• in the case of any other goods, on the date of payment of duty :
• if a bill of entry has been presented before the date of entry inwards of the vessel or the arrival of the aircraft ¹[or the vehicle] by which the goods are imported, the bill of entry shall be deemed to have been presented on the date of such entry inwards or the arrival, as the case may be.

There is no provision to vary the assessable value of the goods at ex-bond stage unless they are such goods on which tariff valuation applies.  Hence, basic customs duty and IGST shall be paid on the imported goods at the stage of exbonding on the value determined under Section 14 of the Act.

Sale/transfer of goods

Vide Circular No.46/2017-Customs, dated 24.11.2017 the Board 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.  These transactions falls within the definition of the term ‘supply’ under section 7 of the CGST Act, 2017.   The same shall be taxable under section 9 of the CGST Act read with section 20 of IGST Act, 2017.

Section 7(2) of the IGST Act provides that any supply of imported goods which takes place before they cross the customs frontiers of India, shall be treated as inter-state supply.  Therefore a transaction of sale/transfer will be subject to integrated tax under IGST Act.  The value of such supply is to be determined under section 15 of the CGST Act read with section 20 of the IGST Act and the rules made there under. This is without prejudice to the fact the customs duty will be levied and collected at ex-bond stage.

Additional taxable event

The circular indicated that 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 goods, whether for home consumption or export.

Deferment of customs duty

The circular clarified that so long as the goods remain deposited in the warehouse the customs duty to be collected shall remain deferred.  It is only when such goods are ex-bonded under section 68 of the Act, shall the deferred duty be collected at the value as had been determined under section 14 of the Act in addition to the integrated tax leviable.

Example

The circular gives on example in bond sales and clearance thereof.

• Goods imported by A on 02.07.2017 – importer wants to deposit the goods in the bonded warehouse to defer customs duty;
• Importer files an ‘into-bond bill of entry’ and the goods are deposited in the Bonded warehouse.Customs duty and integrated tax are deferred.

• Value of goods = ₹ 100
• BCD (say 10%)= ₹ 10
• IGST (say 12%)=Rs.13.2 (12% on ₹ 110/-)
• Duty deferred = ₹ 23.20 (Rs.10 + ₹ 13.20)

• A sells goods to B on 21.07.2017 for ₹ 300/- and charged integrated tax ₹ 36/- (12%). The payment of integrated tax ₹ 36/- and filing of return for the same should be done by 20.08.2017.
• B files an ex-bond bill of entry on 25.09.2017 and pays ₹ 23.20/- , the deferred duty, in addition to the duty of ₹ 36/- paid earlier.