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August 16, 2020

Step wise process to apply for Bonded Manufacturing without paying Import duty

by CA Shivam Jaiswal in Compliance Law, Corporate Law

Step wise process to apply for Bonded Manufacturing without paying Import duty

1. Overview

India allows manufacturing and other operations in a bonded manufacturing facility.

With the Government’s continuous efforts to promote India as the manufacturing hub globally and the commitment towards ease of doing business, another initiative in this direction by the Central Board of Indirect Taxes (CBIC) is allowing import of raw materials and capital goods without payment of duty for manufacturing and other operations in a bonded manufacturing facility.

When the raw materials or capital goods are imported, the import duty on them is deferred. If these imported inputs are utilised for exports, the deferred duty is exempted. Only when the finished goods are cleared to the domestic market, import duty is to be paid on the imported raw materials used in the production. Import duty on capital goods is to be paid if and when the capital goods are cleared to the domestic market.

Note:When the raw materials or capital goods are imported, the import duty on them is deferred. If these imported inputs are utilised for exports, the deferred duty is exempted. Only when the finished goods are cleared to the domestic market, import duty is to be paid on the imported raw materials used in the production. Import duty on capital goods is to be paid if and when the capital goods are cleared to the domestic market

*When finished goods are exported, in addition to the waiver of BCD + IGST on the imported goods used, the GST on the finished goods can be zero-rated.

2. Advantages of bonded warehousing

Highlights

1. Deferred duty on imports of capital goods

Duty on capital goods on capital goods used in manufacturing or other operations is deferred until their clearance from the bonded facility capital goods can be sold to foreign manufacturing after utilization and deferred duty can also be avoided

2. Deferred duty on imports of raw material

Duty on imported row materials used in manufacturing or other operations is deferred until  clearance of finished  goods. Deferred duty is waived in case finished goods are exported.

3. Warehouse to warehouse duty free transfer allowed

Duty-free transfer of goods allowed from one warehouse to another

4. No fixed export obligation

No limit on the share of clearance of finished goods for the domestic market. An entity may manufacture bonded facility and sells up to 100 % on the out put in the domestic market

Ease of bonded manufacturing

Single point of approval

Commissioner of Customs acts as the single point of contact for all approvals

Common form

Common application cum approval form for a license for private bonded facility and permission for manufacturing and other operations

Unlimited period of warehousing

Capital and non-capital goods (raw materials, components, etc.) can remain warehoused until clearance or consumption

No geographical restriction

New manufacturing facility can be set up or an existing facility can be converted into a bonded manufacturing facility irrespective of its location in India

Easy compliance

Maintain all records of manufacturing and other operations digitally in a single format as per Annexure B

3. Types of Beneficiaries

  • A leading Japanese automobile manufacturer intends to manufacture vehicles in India
  • They file an application for licensing a facility near Nagpur, Maharashtra and import required inputs for production like airbags, gearboxes and capital goods. 
  • The duty on such imports is deferred, which provides additional working capital support to the manufacturer.
  • The manufacturer exports 70% of the total produced vehicles and deferred duty on that portion is waived while deferred Custom Duty and IGST are paid on the remaining 30% vehicles at the time of their sale domestically across India.
  • The manufacturer benefits from deferred duty on imported inputs and from reduced production cost due to duty-free imports.

4. Steps to Start Manufacturing

STEP ONE

1. Fill Online Application

  • Fill online application as per Annexure A along with the following details:
  • Nature of manufacturing
  • Particulars of imported inputs 
  • Anticipated trade volume, etc.

2. List of documents required:

  • Certificate of Incorporation (For companies)
  • MoO and AoA (For partnership firm)
  • Partnership Deed (For partnership firm)
  • Copy of ID proofs of proprietors/ partners/ directors
  • Copy of Aadhar Card of Authorised Signatory
  • Documents supporting property-holding rights, such as rent agreement
  • Copy of warehouse license, if issued earlier
  • Ground plan of the site with details
  • Fire safety audit certificate

STEP TWO

Execute a Bond

  • Execute a bond as per Annexure C and submit a physical copy to your Jurisdictional Commissioner of Customs.
  • Maintain detailed accounts as per Annexure B

Note: Before execution of a Bond, a Customs Officer visits the facility to evaluate the compliances in order to issue the license.

STEP THREE

Grant of Sanction

  • Commissioner of Customs grants the permission for manufacturing or other operations in the bonded facility
  • Permission also includes:
  • Manufacturing process or other operations permitted
  • Conditions regarding manufacturing

STEP FOUR

Start Manufacturing or Other Operations

The processes for availing the license for a private bonded facility (as per Section 58) and for manufacturing or performing other operations (as per Section 65) are combined under single application as per Annexure A.

5. Steps for Clearance of Warehoused Goods

Warehoused goods are permitted for clearance after:

  • All compliances are met by the owner of goods as per executed Bond.
  • Deferred duty on imported raw materials or capital goods is paid.
  • GST is paid on the finished goods.
  • Any other compliance as per the Customs Act or any other applicable regulations are met.

OR

TO A CUSTOMS STATION FOR EXPORT

When warehoused goods are used for manufacturing or other operations & finished goods are exported

OR

TO ANOTHER BONDED MANUFACTURING FACILITY*

When warehoused goods are used as raw materials by another industry

Follow Simple Steps to Transport Warehoused Goods

1. Fill Form for Transfer of goods from a facility appended in Warehouse Goods (Removal) Regulations Act, 2016 to transport warehoused goods.

2. Licensee of the originating warehouse affixes a one-time-lock, unless permitted by the Commissioner of Customs to transport without the lock, depending upon the nature of goods or the manner of transport.

3. Produce ‘Acknowledgement’ received from the licensee of the recipient warehouse stating arrival of goods to Bond Officer of the originating warehouse.

Acknowledgement is to be produced in 1 month.

*When goods are transferred from one bonded facility to another, incidence to pay deferred duty is also transferred to the owner of the new facility.

6. Essentials to Benefit from Bonded Manufacturing

Export goods

No duty is to be paid on imported raw materials or capital goods if the following are complied with:

  • Documents of export declaration based on the mode of transportation (Shipping Bill/ Bill of Export/ Form prescribed) are produced
  • Export duty, fines and penalties, if any, are paid
  • Order of clearance of goods issued by the Customs Officer

Goods for home consumption

Duty also payable on imported raw materials through ex-Bond Bill of Entry at the time of supply of finished goods manufactured (record of this to be maintained as per Annexure B).

Waste/ refused goods

Where in the course of any operations permissible in relation to any warehoused goods under sub-section (1), there is any waste or refuse, 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.

7. Requirements for Record-keeping

1. Maintenance of records

  • Maintain detailed records of receipt, handling, storing and removal of goods into/ from the facility as per Annexure-B
  • Keep record of each activity, operation or action taken in relation to the warehoused goods.
  • Keep record of drawl of samples from the warehoused goods.
  • Keep copies of the following documents:
    • Bills of Entry
    • Transport documents
    • Forms for transfer of goods from warehouse
    • Shipping Bills
    • Bills of Export

Any other documents indicating receipt/ removal of goods from the warehouse

2. Preservation of physical and digital records

  • Update records and accounts accurately and preserve for a minimum 5 years from the date of removal of goods from the facility.
  • Preserve updated digital copies of records at a place other than the facility to prevent loss of records due to natural calamities.

3. Filing monthly returns

  • File monthly returns within 10 days of closing of the month.

If licensees fail to comply with any of the provisions of these regulations, they shall be liable to a penalty in accordance with the provisions of the Customs Act, 1962.

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