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GST UPDATE ON APPLICABILITY OF GST ON GOODS TRANSFERRED/SOLD FROM CUSTOM BONDED WAREHOUSE

GST NOTE ON APPLICABILITY OF GST ON GOODS TRANSFERRED/SOLD FROM CUSTOM BONDED WAREHOUSE

GST NOTE ON APPLICABILITY OF GST ON GOODS TRANSFERRED/SOLD FROM CUSTOM BONDED WAREHOUSE

 

On 24th November, 2017, CBEC issued circular no. 46/2017-Customs clarifying issues regarding levy of IGST on goods sold from custom bonded warehouse. This circular has discussed the provisions of section 14 of Customs Act, 1962 regarding the valuation of imported goods. This section states that the value of goods on which custom duty will be payable will be the value at the time of import i.e. at the time of filing of the into-bond Bill of Entry. Any costs incurred after the import of goods cannot be added to the value of the goods, for the purpose of levy of duties of customs at the stage of ex-bonding. Therefore, duties of customs (BCD + IGST) shall be paid on the imported goods at the stage of ex- bonding as per this section 14. For eg. if the value of goods imported by A is Rs. 5 lacs, rate of custom duty is 10% & rate of IGST is 18%; the amount of custom duty and IGST will be calculated as follows:-

Value of imported goods                       5,00,000

Custom duty @ 10%                                   50,000

                                                                       5,50,000

IGST @ 18%                                                  99,000

Total                                                             6,49,000

 

As per clarification given in this circular, total duty & tax payment (50,000 + 99,000) = Rs. 1,49,000/- will be deferred and will be payable at the time of ex-bonding of imported goods.

 

It has also been clarified that under IGST Act, 2017, supply of imported goods which takes place before they cross the customs frontiers of India, shall be treated as an inter-State supply on which IGST is applicable under section 7(2) of the Act. Thus, if the goods are sold to some other person, such transaction of sale/transfer will be subject to IGST under the IGST Act. The value of such supply shall be determined as per section 15 of the CGST Act read with section 20 of the IGST Act and the rules made there under, without prejudice to the fact that the liability of import duty (which includes BCD and applicable IGST payable under the Customs Tariff Act) has also arisen and will be collected at the ex-bond stage.

 

Suppose, in the above referred example, the goods are sold by A to B at Rs. 10,00,000/-. In such a case, IGST will be payable by A as follows:-

 

Value of sale                                  10,00,000

IGST @ 18%                                    1,80,000

                                                          11,80,000

 

A will issue GST invoice for this value and IGST payable on the same. The credit of IGST of Rs. 1,80,000/- will be receivable by B on this invoice issued by A.  

 

In the above case, the goods are already sold by A to B while the goods were lying at warehouse. Therefore, at the time of ex-bonding; the bill of entry will be filed by B and total tax amounting to Rs. 1,49,000/- will be payable by him to Government exchequer. The credit of IGST of Rs. 99,000/- as involved in the bill of entry will also be receivable by B on the basis of bill of entry. Therefore, in this case, credit of IGST paid at both the times, i.e. Rs. 2,48,000/- (Rs. 99,000/- + Rs. 1,49,000/-) will be available to B.

 

Suppose B further sells these goods at Rs. 12,00,000/-. The IGST at 18%, i.e. Rs. 2,16,000/- will be payable by him. In the given case, the credit available is Rs. 2,48,000/-; therefore, the entire IGST of Rs. 2,16,000/- can be paid from the credit available with him. Even after entirely using the credit, the amount of Rs. 32,000/- will be left surplus with B. This will happen in every similar case. Therefore, the accumulated credit will increase with each and every transaction. In this case, if B is trader, he will not be able to utilize the credit in any case. Also, refund of unutilized credit will not be available to him as there is neither any export nor it is the case of inverted tax structure. Thus, this clarification will result into extinguishing the practice of in-bond sale of goods. In the given situation, B will always buy the goods after the ex-bonding as in that case A will be required to pay IGST once and the same will be charged from B. B will avail its credit and will use the same at the time of paying the tax on sale made by him.

The content of this GST update is for educational purpose only and not intended for solicitation.

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