Government of India Ministry of Finance Department of Revenue Central
Board of Indirect Taxes & Customs ************ Circular No.
34/2019-Customs
North Block, New Delhi Dated 1st October 2019
To,
All Principal Chief Commissioners/Chief Commissioners of Customs
Principal Directors General/Directors General of Customs
Principal Commissioners/Commissioner of Customs
Subject: Procedure to be followed in cases of manufacturing or other operations
undertaken in bonded warehouses under section 65 of the Customs Act-reg.
Madam/Sir,
Please refer to the Manufacture and Other Operations in Warehouse Regulations 2019,
issued vide
Notification No. 44/2019-Customs (N.T) dated 19th June, 2019
and
Circular
38/2018-Customs dated 18.10.2018 issued to streamline the procedure, documentation and
compliances to be followed under Section 65 of the Customs Act, 1962 (hereinafter referred to
as the “Act”).
2. Representations have been received from the trade including potential investors seeking
clarifications on some issues. With a view to provide clarity and predictability and to facilitate
investments, Board has decided to issue a revised circular along with the Manufacture and
Other Operations in Warehouse Regulations 2019 (no. 2 regulations), issued vide
Notification
No.69/2019-Customs (N.T.) dated 01.10.2019, hereinafter referred to as, “MOOWR, 2019”.
Circular 38/2018-Customs stands consolidated and integrated into this Circular.
2. MOOWR, 2019 and this circular covers the procedures and documentation for units
operating under Section 65 in a comprehensive manner, including application for seeking
permission under section 65, provision of execution of the bond by the licensee, receipt, storage
and removal of goods, maintenance of accounts, conduct of audit etc.
3. Consequently, the Warehouse (Custody and Handling of Goods) Regulations, 2016,
and the Warehoused Goods (Removal) Regulations, 2016, which were hitherto governing the
procedure for custody and handling of goods in and removal of goods from public and private
bonded warehouses, have been amended vide
Notification 70/2019-Customs (N.T.) and
71/2019-Customs (N.T.) both dated 01.10.2019 to exclude their application for warehouses
operating under section 65. The said regulations will continue to be applicable for warehouses,
not operating under Section 65.
4. It is to be noted that an applicant desirous of manufacturing or carrying out other
operations in a bonded warehouse under section 65 read with MOOWR, 2019 must also have
the premises licensed as a private bonded warehouse under section 58 of the Customs Act. The
applicants can seek a license under section 58 and permission to operate under section 65
synchronously, or request for permission under section 65, if they already have a warehouse
licensed under section 58.
5. For the sake of uniformity, ease of doing business and exercising due diligence in grant
of permission under section 65, the form of application to be filed by an applicant before the
jurisdictional Principal Commissioner / Commissioner of Customs is prescribed as in
Annexure A. The form of application has been so designed that the process for seeking grant
of license as a private bonded warehouse as well as permission to carry out manufacturing or
other operations stands integrated into a single form. The declaration to be made to satisfy
regulation 5 of Private Warehouse Licensing regulations 2016 and the undertaking to be made
by the applicant as per regulation 4 of MOOWR 2019 is included in the application format
(Part II). The warehouse in which section 65 permission is granted shall also be declared by
the Licensee as the principal/additional place of business for the purposes of GST.
6. It has also been decided that the licensees manufacturing or carrying out other
operations in a bonded warehouse shall be required to maintain records as per the form
prescribed under this circular (Annexure B). Regulation 4 of the MOOWR, 2019, provides
that the applicant under section 65 shall undertake to execute a bond in such format as specified.
Further, Section 59 of the Customs Act requires the owner of the warehoused goods to execute
a triple duty bond for the warehoused goods. Thus, the bond prescribed under this Circular as
per Annexure C serves the requirements of both MOOWR, 2019 and Section 59 of the
Customs Act.
7. To the extent that the resultant product manufactured or worked upon in a bonded
warehouse is exported, the licensee shall have to file a shipping bill and pay any amounts due.
A GST invoice shall also be issued for such removal. In such a case, no duty is required to be
paid in respect of the imported goods contained in the resultant product as per the provisions
of section 69 of the Act.
8. To the extent that the resultant product (whether emerging out of manufacturing or other
operations in the warehouse) is cleared for domestic consumption, such a transaction squarely
falls within the ambit of “supply” under Section 7 of the Central Goods and Service Tax
Act,2017 (hereinafter referred to as the, “CGST Act”). It would therefore be taxable in terms
of section 9 of the CGST Act, 2017 or section 5 of the Integrated Goods and Services Tax Act,
2017 depending upon the supply being intra-state or inter-state. The resultant product will thus
be supplied from the warehouse to the domestic tariff area under the cover of GST invoice on
the payment of appropriate GST and compensation cess, if any. As regards import duties
payable on the imported goods contained in so much of the resultant products are concerned,
same shall be paid at the time of supply of the resultant product from the warehouse for which
the licensee shall have to file an ex-bond Bill of entry and such transactions shall be duly
reflected in the accounts prescribed under Annexure B. As per MOOWR, 2019, the applicant
shall also inform the input-output norms, wherever considered necessary, for raw materials and
final products and shall also inform the revised input-output norms in case of change therein.
9. The waste generated during the course of manufacture of the resultant product may be
cleared for home consumption as per clause (b) to sub-section (2) of section 65 of the Customs
Act on payment of applicable duties of customs and GST.
10. In cases where the resultant product is exported, and duty on the waste or refuse is paid
as per proviso to clause (a) to sub-section (2) of section 65, the same shall be deposited
manually through a Challan. The records maintained as per Annexure-B would be sufficient
for accountal of such goods.
11. It may be noted that units operating under section 65 read with section 58 of the
Customs Act, are entitled to import capital goods, machinery, inputs etc. by following the
provisions under Chapter IX. In so far as domestic procurement is concerned, applicable rates
of taxes shall be payable and exemptions, if any, can also be availed. By virtue of simply being
a unit operating under section 65, they shall not be entitled to procure goods domestically,
without payment of taxes. The records in respect of such domestically procured goods shall be
indicated in the form for accounts (Annexure B).
12. Since the warehouse operating under section 65 also functions as a warehouse licensed
under section 58, the licensees can also import goods and clear them as such, for home
consumption under section 68 on payment of import duties, along with interest as per subsection (2) of section 61 of the Act or clear them as such for export under section 69 of the Act.
The licensees shall also be required to submit monthly returns in “Form B” as prescribed under
Circular No. 25/2016-Cus dated 8th June 2016 in case the warehouse is used for such purposes
i.e. non-section 65 purposes. This is being allowed to enable optimum utilization of available
infrastructure.
13. As per Regulation 3 (2) (e) (i) of the Private Warehouse Licensing Regulations, 2016,
the Principal Commissioner or Commissioner has to be satisfied that the site or building of the
proposed private warehouse is suitable for secure storage of dutiable goods. Regulation 8 of
MOOWR 2019 requires the licensee to provide such facilities, equipment and personnel as are
sufficient to control access to the warehouse, provide secure storage of the goods and ensure
compliance to the regulations. Thus, the regulations do not mandate that a structure fully closed
from all sides is a pre-requisite for grant of license. What is important is that the site or building
is suitable for secure storage of goods and discharge of compliances, such as proper boundary
walls, gate(s) with access control and personnel to safeguard the premises. Moreover,
depending on the nature of goods used, the operations conducted and the industry, some units
may operate without fully closed structures. Therefore, Principal
Commissioner/Commissioners should take into consideration the facilities, equipment and
personnel put in place for secure storage of goods, while considering grant of license.
14. The issue of procurement of imported goods that are exempt from duty or are
chargeable to nil rate of duty into a warehouse operating under section 65 has also been raised.
The objective of section 65 is to enable manufacture and other operations in customs bonded
warehouses. For this purpose, the units should be able to procure required raw materials,
consumables, capital goods etc., imported or procured from domestic market. The goods may
include dutiable goods, exempt goods or those chargeable to nil rate of duty. Denial of the
facility to exempt goods or those chargeable to nil rate of duty, which may be required for
manufacturing, would defeat the objective of Section 65. It is therefore clarified that imported
goods, that are exempt from duty or are chargeable to nil rate of duty, may be brought into the
warehouse, upon filing a bill of entry for home consumption and clearance, at the customs
station of import. Such goods shall not be considered as warehoused goods in terms of section
60 of the Act.
15. Sections 67, 68 and 69 of the Act provides for permission of the proper officer for
removal of the goods from one warehouse to another, for home consumption and for export,
respectively. Even in cases, the resultant goods are being removed, permission of the proper
officer would be required for removal of the (imported) warehoused goods contained in the
resultant goods.
15.1 Given the continuous nature of operations in warehouses under section 65, and the
potential need to clear resultant goods expeditiously, the requirement to obtain prior permission
of the proper officer for each clearance could pose a challenge to making clearances on time to
meet delivery schedules. Therefore to facilitate such timely clearances and for convenience of
the trade, recourse has been taken to the powers vested under Section 143 AA, and it is provided
under regulation 13, 14 and 15 of MOOWR 2019 that while a licensee shall file the due
documentation (such as the Form for transfer of goods from a warehouse, bill of entry and
shipping bill, respectively) and pay the duties due, prior permission of the proper officer is not
an essential condition for removal of the warehoused goods (as part of the resultant goods).
The licensees who wish to avail self-sealing facility for exports can avail the facility made
available under
circular 26/2017 customs dated 01.07.2017 and its linked circulars.
16. Board has partnered with Invest India under the Department for Promotion of Industry
and Internal Trade, Ministry of Commerce and Industry, Government of India to launch a
microsite for the promotion of the scheme and facilitation of investors. The same can be
accessed at https://www.investindia.gov.in/bonded-manufacturing.The microsite also hosts a
digitized application that an applicant can fill online, upload the supporting documents, submit
online and also print the application form.
17. Clarification required, if any, may be sought from the Board
18. Hindi version follows.
F. No: 473/03/2015-LC(pt.)
(Temsunaro Jamir) Joint Commissioner (ICD)
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