Central Board of Indirect Taxes and Customs (CBIC) has issued circular no. 3/1/2018-IGST dated 25 May, 2018 clarifying certain aspects regarding levy of IGST on goods supplied from the customs bonded warehouse (CBW). The clarification is summarised below:

• As per section 7(2) of the IGST Act, 2017, supply of goods imported in India is considered as inter-State supply till such goods cross the custom frontiers. Further, proviso to section 5(1) of the IGST Act states that IGST on goods imported into India is levied and collected in accordance with provisions of section 3 of the Customs Tariff Act. Accordingly, IGST would be imposed on supply of warehoused goods, at the time of collection of customs duty, i.e. clearance of such goods for home consumption.
• The newly introduced section 3(8A) of the Customs Tariff Act, levies IGST (as part of customs duty) on the value which is the higher of transaction value and valuation at the time of filing into-bond bill of entry (including basic customs duty etc).
• IGST on supply of goods stored in CBW would be levied only when the warehoused goods are cleared for home consumption and not on supply of such goods from the CBW prior to its clearance.
• The clarifications are applicable to supply of warehoused goods, on or after 01 April, 2018.

PwC comments:

This clarification is welcomed as it resolves the issue of double taxation on supplies made from a CBW. However, the circular does not address the following aspects:

1. The circular has been made applicable from 01 April, 2018. However, there has not been any amendment in the IGST Act from that date. In such case, it is unclear why the circular has been made effective only for the supplies made on or after 01 April, 2018 since the introduction of section 3(8A) of the Customs Tariff Act with effect from 29 March, 2018 impacting valuation for IGST should not be relevant for the issue of double levy of GST as a local supply. Consequently, the tax treatment of such supplies from 01 July, 2017 to 31 March, 2018 is unclear; especially in view of the customs circular no. 46/2017-Customs dated 24 November, 2017 which approved double taxation and has not been withdrawn.
2. The circular does not provide any clarification on remediation of the situation where GST has been paid twice by various parties (as per circular no. 46/2017-Customs).
3. While the circular clarifies that GST will not apply on goods supplied within a CBW, it does not clarify as to whether such transaction shall be treated as taxable supply or exempt supply for the purpose of input tax credit.
4. The circular only refers to supply of goods stored in CBW and is silent about treatment of supply of goods stored in Free Trade Warehousing Zone, which is a transaction of similar nature.

Bildquelle: Katharina Wieland Müller  / pixelio.de