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August 8, 2020

know all about Bonded Manufacturing Scheme Launched by Customs and CBIC

by Mahesh Mara in GST

know all about Bonded Manufacturing Scheme Launched by Customs and CBIC

Minister of State for Finance & Corporate Affairs participates in CBIC Web interaction on “In Bond Manufacturing & Other Operations”

Union Minister of State for Finance & Corporate Affairs Shri Anurag Singh Thakur presided over a WebEx event on “In Bond Manufacture & Other Operations” in Customs on 7th August, 2020. The event was conducted by the Central Board of Indirect Taxes and Customs (CBIC), in association with US-India Strategic Partnership Forum (USISPF) and Manufacturers Association for Information Technology (MAIT).

Shri Thakur highlighted the significance of the “AtmaNirbhar Bharat Abhiyan” and “Make in India” programme in the context and explained to participants how Section 65 Scheme (In Bond Manufacture and Other Operations) of the Customs represents a very good option for businesses looking to build and manage resilient supply chains.

What do you mean by a bonded warehouse?

A bonded warehouse, or bond, is a building or other secured area in which dutiable goods may be stored, manipulated, or undergo manufacturing operations without payment of duty. It may be managed by the state or by private enterprise. This system exists in all developed countries of the world.Upon entry of goods into the warehouse, the importer and warehouse proprietor would incur liability under a bond. This liability is generally cancelled when the goods are:

  • exported or deemed to be exported;
  • withdrawn for supplies to a vessel or aircraft in international traffic;
  • destroyed under Customs supervision; or
  • withdrawn for consumption domestically after payment of duty.

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What are the provisions of Section 65 of the Customs Act, 1962?

Section 65 of the Customs Act, 1962 pertains to Manufacture and other operations in relation to goods in a warehouse.Section 65 provides that owner of any warehoused goods may carry on any manufacturing process or other operations in the warehouse in relation to such goods with the permission of Principal Commissioner of Customs or Commissioner of Customs (specified officers) and subject to the prescribed conditions.

If in the course of any operations permissible in relation to any warehoused goods there is any waste or refuse, then the following provisions shall apply:

  • if the whole or any part of the goods resulting from such operations are exported, import duty shall be remitted on the quantity of the warehoused goods contained in so much of the waste or refuse as has arisen from the operations carried on in relation to the goods exported. Provided that such waste or refuse is either destroyed or duty is paid on such waste or refuse as if it had been imported into India in that form
  • if the whole or any part of the goods resulting from such operations are cleared from the warehouse for home consumption, import duty shall be charged on the quantity of the warehoused goods contained in so much of the waste or refuse as has arisen from the operations carried on in relation to the goods cleared for home consumption.

Bonded Manufacturing Scheme Launched by Customs and CBIC

Central Board of Indirect Taxes (CBIC) and Customs had launched a revamped and streamlined programme to attract investments into India and strengthen the ‘’Make in India’’ initiative through manufacture and other operations under bond scheme, under Customs Act, 1962 on 15th October, 2020.

Through the Bonded Manufacturing Scheme, the Government promoted India as a manufacturing hub through which the scheme allowed duty-free import of raw materials and goods for manufacturing and other operations in a customs bonded manufacturing facility. The main features of this Scheme are:

  • A single application cum approval form prescribed for uniformity of practice. The jurisdictional Commissioner of Customs will function as a single point of approval to set up and oversee the operations of such units.
  • No geographical limitation on where such units can be set up.
  • The unit can import goods (both inputs and capital goods) under a customs duty deferment program. The duties are fully remitted if the processed goods are exported.
  • There will be no interest liability and units will benefit through improved liquidity.
  • GST compliant goods can be procured from the domestic market for use in manufacture and other operations in a section 65 unit
  • A single digital account has been prescribed for ease of doing business and easy compliance.
  • The scheme would also enable efficient capacity utilization, as there is no limit on quantum of clearances that can be exported or cleared to the domestic market.

What are the advantages of Bonded Warehousing?

  • Deferred duty on capital goods – The import duty on capital goods used in manufacturing or other operations is deferred until the finished products are cleared from the bonded facility. Basically, duty is not collected until goods are withdrawn. Also, capital goods can be sold to foreign manufacturers (i.e., exported) after utilisation and deferred duty can also be avoided or adjusted with the other applicable taxes.
  • Deferred duty on imported raw materials – Duty on imported raw materials used in manufacturing or other operations are deferred until the manufactured goods are cleared to domestic markets. And also, the deferred duty is waived if the finished goods are exported.
  • Seamless warehouse to warehouse transfer – Goods can be transferred from the bonded facility to another facility without payment of duty.
  • No fixed export obligation – There is no limit on the share of export and domestic market to clear the finished goods. A business entity can manufacture in a bonded facility and sell the entire 100% of the output in the domestic market.
  • Importer can sell goods for exportation if the domestic buyer is not found, eliminating the importer’s obligation to pay duties.

 Details of CBIC web interaction on the ‘Bonded Scheme’ conducted on 7th August, 2020

The Minister indicated that the bonded scheme was a welcome addition to the bouquet of schemes that promote investments in India and the ‘Make in India’ programme, while enhancing Ease of Doing Business and could potentially help in converting India into a global manufacturing and e-commerce hub in many sectors such as electronics, chemicals and pharmaceuticals, and even ancillary activities such as repair &refurbishment. Shri Thakur extended an invitation to all eligible units to avail this scheme and also give suggestions to further improve it.

The Minister also noted that the last few months had been testing times for the businesses across the globe due to pandemic, impacting the economy to a great extent.  Indian businesses outperformed all expectations and showed tremendous resilience. 

The Production Linked Incentive in bulk drugs, drug intermediates, active pharmaceutical ingredients and medical devices is one such targeted scheme where we seek to accelerate self-sufficiency.

The scheme under “In Bond Manufacturing” offers deferred import duty on both capital goods as well as raw material or inputs used in bonded manufacturing.

The import duty gets remitted if the finished goods are exported. However, if the finished goods are cleared in the domestic market, the import duty on raw material used becomes payable, but without any burden of interest. Unlike the other Schemes such as SEZ and EOU, which are largely export centric, the present scheme aimed at providing for efficient capacity utilisation.

The scheme also envisaged a minimum physical interface with officials and the monitoring of units under this scheme is entirely record-based and risk-based and thus non-intrusive.  Over 850 Senior Members from Business and Industry attended the highly interactive event representing sectors across the spectrum.

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