Overview

(A)    BACKGROUND

There was a huge hue and cry among the trade and industry, when the Central Board of Indirect Taxes and Customs (“CBIC”) (formerly known as “Central Board of Excise and Customs”) issued a Circular No. 46 / 2017-Customs in November, 2017. The CBIC vide the said circular clarified that when the importer stores goods in a customs bonded warehouse and subsequently transfers / sells such goods to another person, then Integrated Goods and Services Tax (“IGST”) will be attracted on such sale / transfer of warehoused goods since such transaction constitutes “supply” under Section 7 of the Central Goods and Services Tax Act, 2017 and same would be in the course of an “inter-state supply“ in terms of Section 7(2) of the IGST Act, 2017.

It is relevant to mention here that such an erroneous clarification was given based on the following reasons:

(i)      the value of imported goods, for purposes of charging customs duty, is determined as per section 14 of the Customs Act, 1962 at the time of import i.e., at the time of filing of the into-bond Bill of Entry.

(ii)      any costs incurred after the import of goods, such as, port charges / port demurrage charges or costs for customs clearing or transporting the goods from the port to the customs bonded warehouse or costs of storage at the customs bonded warehouse, cannot be added to the value of the goods, for the purpose of levy of duties of customs at the stage of ex-bonding.

(iii)     duties of customs (BCD + IGST) was to be paid on the imported goods at the stage of ex-bonding on the value determined under section 14 of the Customs Act.

As a consequence of such circular, a purchaser (one who has procured the warehoused goods from the original importer) has to suffer IGST twice on such goods viz. one at the time of purchase of goods from the importer who has kept the goods in a customs bonded warehouse by filing an into-bond bill of entry and second at the time when goods are cleared for home consumption from customs bonded warehouse.

Further, under the Customs Law, the duties of customs including BCD and IGST would be levied and collected only when goods are being cleared for home consumption i.e., when the importer files a bill of entry for home consumption. However, the CBIC completely overlooked these relevant issues in its aforesaid circular and erroneously clarified that IGST will be leviable on goods which are transferred / sold in a customs bonded warehouse.

(B)    CLARIFICATION

In order to remove the above discussed anomalies in its circular dated 24.11.2017, the CBIC re-examined this issue of levy of IGST on such sale / transfer of warehoused goods and issued a new Circular No. 31 / 1 / 2018 IGST dated 25.05.2018 in this regard.

The CBIC vide its new Circular dated 25.05.2018 has now clarified that IGST shall be levied and collected only at the time of clearance of the warehoused goods i.e., at the time of filing the ex-bond bill of entry for home consumption.

In other words, IGST will not be leviable on goods transferred / sold , within a customs bonded warehouse and the same would be levied and collected only when the warehoused goods are finally cleared for home consumption from the customs bonded warehouse.

The key highlights of the new circular dated 25.05.2018 issued by CBIC are summarized as under:-

• As per Section 7(2) of the Integrated Goods and Services Tax Act, 2017, the supply of goods would be treated as “Inter-State Supply” only when it crosses the custom frontiers of India. However, in the earlier circular dated 24.11.2017, CBIC noted that supply of goods which takes place before they cross customs frontiers of India, shall be treated as an Inter-State Supply, which was an apparent error on the part of CBIC;
• As per proviso to Section 5(1) of the IGST Act, IGST on goods imported into India would be levied and collected in accordance with the provisions of Section 3 of the Customs Tariff Act, 1975. Accordingly it was noted that point of levy in case of supply of warehoused goods would be the point at which the duty is collected i.e., at the time of clearance of such goods for home consumption;
• IGST shall be levied and collected only at the time of final clearance of the warehoused goods for home consumption i.e., at the time of filing the ex-bond bill of entry;
• In terms of Section 3(8A) of the Customs Tariff Act, 1975 (inserted vide Section 102 of the Finance Act, 2018), the value on which the Integrated Tax shall be levied would be either the transaction value or the valuation done at the time of filing the into-bond bill of entry whichever is higher;
• The clarification given by the CBIC vide the new circular dated 25.05.2018 would be applicable for supply of warehoused goods, deposited in a customs bonded warehouse on or after 01.04.2018.

(C)    Our Comments

The recent circular issued by the CBIC has brought a much needed respite to trade and industry, as it has categorically clarified that no integrated tax would be leviable on a transaction involving sale/transfer of warehoused goods within the warehouse and the same will leviable only when such warehoused goods are finally cleared for home consumption from the customs bonded warehouse i.e., when the ex-bond bill of entry is filed by the purchaser. As per our best understanding, the CBIC has addressed this issue because the Central Government has introduced the relevant provisions under the Customs Tariff Act, 1975 in order to enable the Customs Authorities to levy Customs Duties including IGST on the amount paid or payable as consideration for the sale of such goods.

Though the Circular has given big relief to the assesses w.e.f. 01.04.2018, however, it does not provide any clarification with regard to the previous transactions where GST has already been paid twice-over in view of the erroneous clarification given by the CBIC vide Circular No. 46/2017- Customs. In our view, the CBIC must clarify its stand even in respect of transactions undertaken prior to 01.04.2018 on which GST has been paid twice-over; otherwise it would lead to floodgate of litigation before the Courts.

Illustration

An importer ‘A’ procures the goods from the foreign supplier @ Rs. 1000/- and subsequently imports such goods into India and stores them in a customs bonded warehouse by filing an into-bond bill of entry (without payment of any customs duties).

While the goods were stored in a customs bonded warehouse, ‘A’ transferred/ sold the said imported / warehoused goods to ‘B’ (purchaser) @ Rs. 2000/-. As per the new Circular, no IGST would be leviable on a transaction of sale/ purchase of warehoused goods within the warehouse. However, IGST would be attracted only when ‘B’ (to whom ownership of goods is transferred by ‘A’) files an ex-bond bill of entry for clearance of goods for home consumption from a customs bonded warehouse.

Thus the value on which B needs to pay Customs Duties including IGST will be the transaction value of warehoused goods i.e., Rs 2000/- and not the value declared by ‘A’ at the time of filing into bill of entry i.e., Rs. 1000/-.