IGST Payment must before Customs Bonding for Manufacture in New Sec 65 of Customs Act

· Manufacturing for Export in New MOOWR Scheme Affected

Finance Bill, 2023 was passed by the Lok Sabha on March 24, 2023.

Section 65 of the Customs Act allows manufacture and other operations in customs-bonded warehouse.

In the amended to Finance Bill, Section 65A has been inserted to provide for payment of IGST and Compensation Cess before depositing goods in warehouse for manufacturing, only Basic Customs Duty exempted warehousing. GST refund will apply in case of export.

The new Section 65A implemented from a date to be notified, importer must file BoE for home consumption (instead of BoE for warehousing) and pay applicable IGST and Compensation Cess before warehousing.

Even transfer of warehoused goods from one warehouse to another will be through BoE for home consumption and on payment of IGST and Compensation Cess. The provision is only with prospective effect.

The Customs Act allows warehousing without payment of Customs and IGST, for DTA sales the duties are payable on clearance of goods from warehouse for home consumption.

In the earlier system, for warehousing goods, importer Bill of Entry (‘BoE’)/ BoE for warehousing was required. Further, to clear such goods from warehouse to DTA, importer filed ex-bond BoE / BoE for home consumption.

Extract from Finance Act, 2023 AS PASSED BY LOK SABHA ON 24.03.2023

Amendment of section 65. [Manufacture and other operations in relation to goods in a warehouse]

129. In the Customs Act, in section 65, in sub-section (1), for the words "subject to", the words, figures and letter "subject to the provisions of section 65A and" shall be substituted.

Insertion of new section 65A

Goods brought for operations in warehouse to have ordinarily paid certain taxes

130. After section 65 of the Customs Act, the following section shall be inserted, namely:-

'65A. (1) Notwithstanding anything to the contrary contained in this Act or the Customs Tariff Act, 1975, the following provision shall, with effect from such date as may be notified by the Central Government, apply to goods in relation to which any manufacturing process or other operations in terms of section 65 may be carried out, namely:-

(A) the dutiable goods, which are deposited in the warehouse shall be goods on which the integrated tax under sub-section (7) and the goods and services tax compensation cess under sub-section (9), of section 3 of the Customs Tariff Act, 1975 have been paid, and only for the purpose of the duty payable, other than the said tax and cess paid, such dutiable goods shall be warehoused goods;

(B) the dutiable goods shall be permitted to be removed for the purpose of deposit in the warehouse, where—

(i) in respect of the goods, an entry thereof has been made by presenting electronically on the customs automated system, a bill of entry for home consumption under section 46 and the goods have been assessed to duty under section 17 or section 18, as the case may be, in accordance with clause (a) of sub-section (1) of section 15;

(ii) the integrated tax under sub-section (7) and the goods and services tax compensation cess under sub-section (9), of section 3 of the Customs Tariff Act, 1975 have been paid in accordance with section 47;

(iii) on removal of the goods from another warehouse in terms of section 67, a bill of entry for home consumption under clause (a) of section 68 has been presented and the integrated tax under sub-section (7) and the goods and services tax compensation cess under sub-section (9), of section 3 of the Customs Tariff Act, 1975 have been paid before the goods are so removed from that other warehouse;

(iv) the provisions of section 59, subject to the following modifications therein, have been complied with, namely:—

(a) for the words "bill of entry for warehousing", the words "bill of entry for home consumption" shall be substituted; and

(b) for the words "amount of the duty assessed", the words "amount of duty assessed, but not paid" shall be substituted;

(C) the duty payable in respect of warehoused goods referred to in clause (A), to the extent not paid, is paid before the goods are removed from the warehouse in such manner as may be prescribed.

(2) The provisions of sub-section (1) shall not apply for the purpose of manufacturing process or other operations in terms of section 65 to dutiable goods which have been deposited in the warehouse or permitted to be removed for deposit in the warehouse prior to the date notified under that sub-section.

(3) The Central Government may, if it considers necessary or expedient, and having regard to such criteria, including but not limited to, the nature or class or categories of goods, or class of importers or exporters, or industry sector, exempt, by notification, such goods in relation to which any manufacturing process or other operations in terms of section 65 may be carried out, as may be specified in the notification, from the application of this section.'