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GST

Scheme for manufacturing and Processing in a bonded facility – GST Impact

[Source: ICAI GST Newsletter; Author: CA Abhishek Agarwal]

BONDED MANUFACTURING SCHEME

Government along with CBIC in order to promote India as the manufacturing hub globally, to promote make in India initiative and to facilitate ease of doing business has come up with the bonded manufacturing scheme.

Under this scheme any person undertaking manufacturing or other operations in a bonded manufacturing facility can import raw materials and capital goods without payment of import duties on them as these duties are deferred. If these imported inputs are utilized 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:

  1. When finished goods are exported, in addition to the waiver of BCD + IGST on the imported (and duty deferred) goods used, the GST on the finished goods can be zero-rated.
  2. Any input GST can be taken as a credit against output GST.
  3. The applicant must comply with the provisions of the Customs Act 1962, and with all other applicable compliances issued by the Government of India for doing business in India.
  4. The warehouse in which permission to carry out manufacture or other operations (as per Section 65) is granted shall also be declared by the Licensee as the principal/additional place of business for the purposes of GST.

This scheme has been introduced via Notification No. 69/2019Cus (NT) dated 1 October 2019 and Circular No.34/2019-Cus dated 1 October 2019.

ADVANTAGES OF BONDED MANUFACTURING

DEFERRED DUTY ON CAPITAL GOODS: Import Duties on Capital goods used in the manufacturing and other activities in the bonded facility are deferred until their clearance from the bonded facility. To avoid the deferred duty capital goods after utilization can be sold off to foreign manufacturers.

DEFERRED DUTY ON RAW MATERIAL: Raw material imported and used in the manufacturing and other activities in the bonded facility are deferred until the clearance of finished goods. If the goods manufactured are exported the deferred duty is waived off.

NO FIXED EXPORT OBLIGATION: No limit on the share of clearance of finished goods for domestic market. An entity may manufacture in the bonded facility and sell 100 % of the output in the domestic market on payment of deferred import duty and GST on output.

SEAMLESS WAREHOUSE TO WAREHOUSE TRANSFER: Transfer goods from the bonded facility to another facility without payment of duty.

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.

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