Imported goods may be deposited in a bonded warehouse without of payment of customs duty, under Section 60 (2) of the Customs Act (CA). The importer may transfer the ownership of such warehoused goods to another in accordance with Section 59 (5) of the CA. The warehoused goods may be cleared for home consumption on payment of duty under Section 69. In sum, payment of duty is deferred till the goods are cleared from the bonded warehouse.
Last November, the customs wing of the Central Board of Excise and Customs, as it was then named, said in-bond transfer of warehoused goods squarely fell within the definition of ‘supply’ and had to be taxable. Its circular 46/2017-Customs dated November 24 said under section 7(2) of the IGST Act, 2017, any supply of imported goods which took place before these crossed the customs frontiers of India shall be treated as inter-state supply. And, so, any such transaction was subject to IGST. This meant tax on the imported good twice – once at the time of in-bond sales and again at the time of clearance from a bonded warehouse for home consumption.
However, the proviso to Section 5(1) of the IGST Act says it is to be levied on goods imported into India and collected in accordance with the provisions of section 3 of the Customs Tariff Act (CTA), on the value determined at the point when customs duties
are levied (under section 12 of the CA). Relying on this provision, the GST wing of CBIC has now clarified through circular 3/1/2018-GST dated May 25, 2018, that supply of goods before clearance from the warehouse would not be subject to IGST. This would be levied and collected only when the warehoused goods are cleared for home consumption from a customs-bonded warehouse. This means the imported good is to be only taxed once, at the time of clearance from a bonded warehouse.
The value of imported goods, determined under Section 14 of the CA at the time of import and before the goods are warehoused, will not change when these are cleared from a bonded warehouse for the purpose of charging basic customs duty. The value for levy of IGST, determined at the time of import in accord with Section 3(8) of the CTA, will not change when there is no in-bond sale/transfer and the original importer seeks clearance from the bonded warehouse for home consumption. However, when there is in-bond sale, the value for charging IGST will be that determined in accord with Section 3(8A) of the CTA. That is, the last in-bond sale (transaction) value or CTA Section 3(8) value, whichever is higher. This clarification follows changes in the CA, effective from April 1.
GST was supposed to once signify ‘good and simple tax’. These differing opinions within the CBIC itself show how good and simple the new regime is.