DECEMBER 18, 2017

By Bipin K Verma

THIS article is in continuation of my earlier article hosted on this portal on the meaning and impact of Customs Circular 46/2017-Cus dated 24.11.2017 on the issue of levy of GST on sale of imported goods while lying in bonded warehouse. The need for writing about the same circular again arises from the fact that the circular has been updated on 6.12.2017.

In my earlier article, besides doubting the correctness of the view it was pointed out that various credit related issues may emerge on such transaction of in-bond sale/purchase of imported goods. Relevant part of my earlierarticle is extracted below for ready reference:

"Levy of GST separately on such in-bond sales, in line with the above circular would create following complications with regards to availing of credit which too require due attention:

- Who will avail the credit of IGST paid under Customs Tariff Act at the time of clearance from warehouse?

- How can such credit be utilized for payment of second GST on same goods?

- GST under IGST Act will become payable on in-bond sale even before IGST as customs duty is paid. No provision under GST allows refund of said credit even if the same is not utilizable.

It is desirable that CBEC should have addressed the above questions as well under the same circular to harmoniously settle the issue."

Now, surprisingly CBEC has responded or we may say acted on its own in this regard and this is a welcome gesture. The CBEC website now displays an updated version of the said circular. I am sure most of the readers would be unaware about the updated version as the same has been uploaded without any distinct announcement. The main body of the circular remains the same but the illustration part as annexure has been modified and expanded. It says "Illustrative charts A, B and C are attached to the circular to facilitate better understanding- Substituted on 06.12.2017."

Three charts A, B & C illustrate the GST incidence in three situations:

- Goods imported, bonded and sold while in the Bonded Warehouse and clearance thereof .

- Goods imported, bonded and cleared for home consumption and subsequent sale thereof

- Goods imported and cleared for home consumption and subsequent sale thereof

It shows that the gross GST incidence in all three situations would be the same. However, it ignores the fact that incidence of GST for the ultimate purchaser of imported goods would differ and would almost be double for such buyer in first situation (Chart A). In situations covered by Charts B and C the importer pays IGST on import, avails credit of the same and then pays GST on sale of said goods utilizing the credit of GST paid as Customs duty. Thus, the purchaser suffers the incidence once only. While in situation A, GST as part of customs duty may not be available for setting off GST liability arising on purchase of said goods. The updated version specifically illustrates that credit of both the GST paid, once as part of customs duty and second as GST on purchase, shall be available. However, if such purchaser is an ultimate consumer then the single transaction of purchase of goods bears the incidence of GST twice. Even if the said purchaser is a trader, input credit available to him would be more than his output GST liability. Thus, it would not be possible for him to utilize the credit of GST paid twice against the single transaction of sale of such goods unless he has some other business enabling utilization of accumulated credit of GST.

Thus, GST would become payable twice on the goods purchased by a person from an importer while such remain deposited in the bonded warehouse. I feel double incidence of GST on purchase of such imported goods cannot be justified in law and cannot be the intent of the Government too,especially when one of the proclaimed objectives of GST is avoidance of cascading effect. This point is, in itself,is sufficient to canvass the view that the law and its interpretation on the subject issue needs review for positive solution.

[The author is an Executive Partner, Lakshmikumaran & Sridharan, New Delhi and the views expressed in this article are strictly personal.]