Ease of Doing Business – Manufacturing in BOND, a Substantial Initiative of the Government of India, Trade should make full use of it and benefit, don’t worry, its WTO Compliant

The article is contributed by

Nishchal Padhya- Foreign Trade Consultant & Managing Director – Siddhartha Logistics FTWZ Pvt. Ltd.

Email: nishchal@siddharthalogistics.com

With the advent of liberalisation of economy in India since 1993, successive governments in power have made many changes in the concerned laws by amending the provisions of the relevant Acts, Rules & Regulations & have also come up with new Acts, Rules & Regulations from time to time affecting the industry, commerce and foreign trade.

Amongst such introduction of new laws & changes, the following provisions could be considered as most significant and game changers:

The SEZ Act, 2005

The SEZ Rules, 2006

EPCG Scheme under FTP

MEIS Scheme under FTP

& the recently notified, Manufacture and other operations in warehouse (no. 2) Regulations, 2019

While the credit for SEZ laws & EPCG Scheme goes to the UPA Government under Dr. Manmohan Singh, the credit for MEIS & Manufacturing in BOND goes to the NDA Government under Narendra Modi.

Although, some people from Trade & Industry including few from Customs & DGFT seem to have not liked the SEZ regime, the SEZ laws seems to have somewhat settled with the trade and implemented in India, however, the SEZ, EPCG, & MEIS policy does not seem to have gone down well with USA under current regime of Mr.Donald Trump Administration.

Recently, India lost the case filed by USA before Dispute settlement panel of WTO while defending the policy of export incentives as the same is found not compliant with World Trade Organisation rules on export subsidies.

Looks like the Government of India was seeing it happening and therefore, as immediate step to guard the interest of its trade and industry, the CBIC recently issued customs Non-Tariff notification no. 69/19 (N.T) on 1^st October 2019 notifying Manufacture and Other operations in warehouse (no.2) Regulation, 2019.

The new Regulation, like SEZ laws, although late in time, is path breaking paving way forward for the industry and trade extending due opportunity to re-calibrate its manufacturing, trading & exports operations in order to align with developed world systems, the new regulation truly brings aspects of ease of doing business on ground for trade & industry & it is WTO Compliant as well.

As per the provisions of the New Manufacturing and Other operations in warehouse (no. 2) Regulations, 2019 any new or existing factory or part of it, can be set-up or converted to Bonded warehouse under Section 58 of The Customs Act, 1962 and manufacturing with other operations can be carried out as per provisions of Section 65 of The Customs Act, 1962. Although it sounds that this has been there since similar Regulation of 1966, there is substantial change under new Regulations, now, the Goods manufactured in the Bonded factory the resultant goods, when removed to any Domestic Tariff Area, the same would be permitted on payment of applicable import duties & taxes only on the goods imported, warehoused and used in the resultant goods & not on the total value of the Resultant goods when removed from the Bonded factory. Resultant goods can also be exported from bonded warehouse directly.

The New Regulation, opens opportunities for all existing factories to either convert part or full of their facility as Bonded warehouse & for new factories part or full being set up as bonded warehouse, with this done, the capital goods, raw materials, components/parts can then be imported as Bonded goods under Section 59 Bond with manufacturing in bond under section 65 where duty is differed until capital goods remain in bonded premises and other materials until consumed or removed.

Such Bonded warehouse factories can procure material from DTA on payment of applicable GST and take credit, imported materials from arrival ports/ SEZ / FTWZ / Bonded Warehouse can be cleared as bonded goods under section 59 Bond under non-payment of any duty or differed duty. The goods imported or procured locally can be utilized for manufacturing resultant goods which in turn can be exported directly from the Bonded premises to port for carriage abroad, or bonded in any other bonded warehouse, or exported to SEZ or FTWZ, such resultant goods can be also removed to DTA on payment of applicable import duties and taxes only on the goods imported, warehoused, and utilized for manufacturing of the resultant goods.

With manufacturing in Bond scheme, the supply chain logistics, payments of duties and taxes, compliances and all such related aspects of procurement of goods from domestic market, imports from abroad, from bonded warehouses, SEZ/FTWZ can be well planned in order to save costs and time overruns.

To keep the incidence of import duties and taxes low, most of the industry have been importing capital goods under duty exemption EPCG scheme by undertaking export obligation for long durations of time and raw materials, components / parts, consumables, spares etc… for exports, under advance authorisation which has been cumbersome and compliance heavy as well.

But now, such goods can be imported under customs warehousing Bond section 59 of the Customs Act, 1962 with differed duty provisions by converting the factory into a bonded facility under Section 58 of the Customs Act, 1962 with permission for manufacturing in bond under provisions of Section 65 of the Customs Act, 1962. Thereby doing away with EPCG & Advance authorisation. Also, for industry serving Domestic & export market both, setting up bonded warehouse based manufacturing in Bond operations would be far more efficient as compared to setting up such project inside any SEZ.

The new Manufacture and other operations in warehouse (no. 2) Regulations, 2019 will change the way the new manufacturing projects are set up and existing are operating for import of Capital Goods, raw materials, components / parts etc. for serving Indian domestic market with export markets from India.

So far as export incentive scheme MEIS is concerned, perhaps the Government should look at utilizing the tried and tested WTO compliant Drawback Scheme, the Government should look at increasing the drawback rates to ensure that no part of duties and taxes is exported, this would also help in ease of doing business.

Optimists say “Better late than never”.