exceeding expectations

SINCE 1985

Manufacturing in Customs Bonded

Warehouse scheme – Whether a viable
alternative to FTP and other schemes such
as Advance Authorization/EOU/SEZ?
CHOOSING THE RIGHT SCHEME

[Link]
 Types of warehouses under Customs Act, 1962
• Public Bonded Warehouse
(Section 57)
• Private Bonded Warehouse
(Section 58)
• Special Warehouse
(Section 58A)

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 Special Bonded Warehouse
• Special bonded warehouses for:
• Storage of gold, silver and other semi-/precious metals
• Supply to Duty Free Stores
• Supply stores to vessels or aircraft
• Supply to foreign privileged persons
• Manufacture and Other Operations in Special Warehouse Regulations, 2020
• Circular No.36/2020-Customs dated 17-08-2020

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 Private Warehouse
• A Private Bonded Warehouse means a
site or a building that is licensed under
Section 58 of the Customs Act, wherein
dutiable goods imported by or on
behalf of licensee can be stored
• These warehouses are owned by
private entities or individuals and are
used exclusively for the goods owned
by, imported by or on behalf of the
licensee

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 Applicable legislations governing MOOWR

Chapter IX of Customs Act 1962 (Section 57 to 73A)

Private warehouse licensing regulations, 2016

Manufacture and Other Operations in Warehouse (No. 2) Regulations, 2019 (MOOWR)

Circular No. 34/2019-Cus dated 01.10.2019

Circular No. 48/2020-Cus. dated 27.10.2020

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 MOOWR: Highlights
• Raw material and capital goods can be brought into warehouse from customs
station without payment of import duties and used in manufacturing of finished
goods
– Remission of import duties on raw material if finished goods are exported

– Deferment of import duties on raw material with no interest liability if

finished goods are cleared for home consumption
– Deferment of import duties on capital goods with no interest liability till the
time they are cleared from warehouse for home consumption. If exported or
destroyed within warehouse, import duties would be remitted
• Raw material cleared as such for home consumption
– Whether interest is payable or not on custom duty?

– Special Warehouse Circular No. 36/2020-Customs dated 17-08-2020

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 MOOWR: Highlights
• Waste/Scrap arising from manufacturing process
– If FG is exported, and
• Waste is Destroyed -- Import duty on warehoused goods contained in
waste would be remitted
• Or Waste is not destroyed: Duty is required to be paid on such waste
considering this as imported goods
– If FG is cleared for home consumption, then import duty on quantity
of warehoused goods contained in so much of waste is required to be
paid

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 MOOWR: Duty implication
Imported raw materials Export of finished goods
and capital goods from the facility

Basic Customs Duty (BCD) + IGST BCD & IGST

deferred (without interest) waived-off

MOOWR

GST is paid on the purchase BCD+IGST on imported raw materials

of raw materials & capitals goods and GST on finished goods to be paid

Domestically sourced raw

Clearance of finished goods for home consumption
materials & Capital Goods

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 MOOWR: Highlights

No minimum investment is required

No minimum area/notified area

Existing warehouse can be converted into private manufacturing license

Submit a triple duty bond under Section 59 of the Customs Act

No export obligation or NFE obligation attached to MOOWR

A single application

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 MOOWR: Eligibility

Person who is granted Section 58 license/applies for Section 58 license along with Section 65 license

Application is made to Principal Commissioner/Commissioner of Customs

Maintains accounts of receipt and removal of goods in digital form in specified format

Execute a bond in such format as may be specified

Inform Principal Commissioner regarding Input-output norms, where necessary, for raw materials and
final products

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 Easing compliance for warehouse under MOOWR
PRIOR TO 14-05-2016 FROM 14-05-2016
61(1) (1) Any warehoused goods may be left in the 61.(1) Any warehoused goods may remain in the warehouse
warehouse in which they are deposited or in any warehouse in which they are deposited or in any warehouse to which
to which they may be removed, they may be removed,––
(a) in the case of capital goods intended for use in any (a) in the case of capital goods intended for use in 100%.
hundred per cent export oriented undertaking, till the expiry EOU, EHTP, STP or any warehouse wherein manufacture or
of five years; other operations have been permitted under section 65, till
(aa) in the case of goods other than capital goods intended their clearance from the warehouse;
for use in any hundred per cent. export-oriented (b) in the case of goods other than capital goods intended for
undertaking, till the expiry of three years; and use in any 100% EOU or EHTP or STP unit or any warehouse
(b) in the case of any other goods, till the expiry of one year, wherein manufacture or other operations have been
after the date on which the proper officer has made an order permitted under section 65, till their consumption or
under section 60 permitting the deposit of the goods in a clearance from the warehouse; and
warehouse : (c) in the case of any other goods, till the expiry of one year
from the date on which the proper officer has made an order
under sub-section (1) of section 60:

Validity of Warehousing period for Section 65 warehouses upto consumption/clearance from

warehouse from earlier validity of 1 year
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 Interest applicability for warehouse under MOOWR
PRIOR TO 14-05-2016 FROM 14-05-2016

61(2) Where any warehoused goods: 61(2) Where any warehoused goods specified in clause (c)
of sub-section (1) remain in a warehouse beyond a period
(ii) specified in sub-clause 61(1)(b), remain in a warehouse of ninety days from the date on which the proper officer
beyond a period of ninety days, interest shall be payable at has made an order under sub-section (1) of section 60,
such rate or rates not exceeding the rate specified in interest shall be payable at such rate as may be fixed by
section 47, as may be fixed by the Board, on the amount of the Central Government under section 47, on the amount
duty payable at the time of clearance of the goods in of duty payable at the time of clearance of the goods, for
accordance with the provisions of section 15 on the the period from the expiry of the said ninety days till the
warehoused goods, for the period from the expiry of the date of payment of duty on the warehoused goods:
said ninety days till the date of payment of duty on the
warehoused
goods:

Interest applicability removed for Section 65 warehouses from earlier applicability

of 90 days
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 Job work under MOOWR
• Sending goods for job work is
permitted from warehouse
• Receipt of goods for job work also
permitted (for export goods as well as
domestic goods)
• Circular No. 48/2020-Cus. dated
27.10.2020
• Repair undertaken in warehouse is
permitted [FAQ No. 19]

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 Other points

Manufacture and other operations is not defined

No AIR of Drawback is available on export from

Warehouse

Filing ex-bond bill of entry for each supply for

home consumsption

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 Points to ponder
• Whether importer can opt for
deferment of only BCD and, pay IGST
and avail credit?
• Is services industry allowed?
• Will clearance of warranty spares and
replacements amount to removing of
goods as such?
• Whether import licenses are required
for warehousing since resultant goods
may also be exported without home
consumption?
• Whether duty paid imported goods can
be brought into the warehouse?
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 exceeding expectations
SINCE 1985

Choosing the right scheme

[Link]
 Various factors in choosing the right scheme
Proportion of
Outlook of Export imported raw
Quantum of DTA
Business and Investment in P&M material vis-à-vis
Business
uncertainty thereof domestic raw
material

Geographical
Licensing Capacity Utilization Compliance
Limitation

Non-Financial
ITC accumulation Financial Benefits
Considerations

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 Benefits of MOOWR over other schemes
No export obligation or minimum value addition required. No limit in clearing FG in DTA.

Capacity utilization by way of undertaking jobwork for DTA units with respect to FG be sold in
DTA

No bar in clearing imported goods as such.

Exports on payment of IGST even if procurement without payment of IGST [No bar under Rule
96(10)]. Can help in minimizing ITC accumulation.

No capacity expansion or new R&D is required for conversion of existing Units

No geographical limitation

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 Financial Benefits not provided under MOOWR
• Excise duty and CST exemption/refund on procurement of FUEL from DTA
• Surrender of IGST on inputs contained in FG not required on clearance into
DTA
• DTA supplier can avail Duty Drawback or AA on supplies to EOU. Also, GST
refund available either to Supplier or EOU recipient.
• Depreciation benefit available for capital goods at the time of
clearance/debonding subject to positive NFE
• No duty on inputs contained in waste if within norms.

The above benefits are provided to an EOU/SEZ since it also has additional
NFE obligation
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 Non-Financial benefits not provided in MOOWR
• Service Exports Units are allowed in EOU/SEZ

• Prohibited goods are allowed to export on case to case basis

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 Scenario if same input is imported as well as
domestically procured
• A unit may use both imported and domestically procured identical inputs. Domestically
procured inputs are used in export business and imported inputs are used in domestic
business.
• EOU: Domestic inputs are duty-free since AIR given to DTA supplier. Hence, exports are free of
taxes. Imported inputs when used in DTA business need to surrender taxes. So it is neutral.
• AA: It is neutral since benefit extended to post-export imported inputs (through legally
disputed)
• MOOWR: There is a problem. Domestic inputs have suffered inherent duties which are not
reimbursed since final exports are not eligible for AIR. Imported inputs when used in domestic
business need to surrender duties.

• This effectively means that MOOWR has pre-import condition to avail benefit. Also, the
quantum of imported raw material should be more than domestic raw material.

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 Procedural Benefits under MOOWR as compared with
AA and EOU/SEZ
• A single application for conversion
• No application and subsequent redemption of various licences like in AA. Once
converted into MOOWR, free flow of duty-deferred inputs and subsequent exports.
Even no renewal of warehouse licence is required
• Monthly Returns are easy since no NFE calculations are involved
• Norms only need to be ratified by Jurisdictional Commissioner and not by Norms
Committee or SION notified
• No restriction on availment of benefits under FTP

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 Transferring imported capital goods to Supporting
Manufacturer location
• Under MOOWR, jobwork is allowed. But capital goods imported cannot be shifted to jobworker
premises. Only tools, moulds and drawings etc. can be provided to jobworker and not main
machinery.
• Under EPCG Scheme, facility of installing the machinery at supporting manufacturer location is
also provided.
• Even EOU/SEZ scheme does not allow shifting of main machinery to supporting manufacturer.

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 Who should OPT for MOOWR?
A few cases

• Heavy investment in imported P&M

• High percentage of imported raw materials vs. domestic raw materials
• Good DTA business along with Export business
• Inverted duty structure (CG can be imported under this scheme to reduce
accumulated ITC)
• Period of operations

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 Way Forward

• Impact Analysis between various schemes based on factual position

• Representation on making MOOWR more attractive
– Eligibility to RODTEP

– Eligibility to Depreciation on Capital goods

– Eligibility to AIR Drawback to DTA Supplier of MOOWR

– Clarification on AA/EPCG along with MOOWR

– Clarification on ‘other operations’ – Warranty goods

– Clarification on storage of duty paid imported goods

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[Link] LOCATIONS

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FOR ANY SUPPORT OR INFORMATION WRITE TO: BENGALURU PRAYAGRAJ

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HYDERABAD KOCHI
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AHMEDABAD JAIPUR
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PUNE NAGPUR
Lspune@[Link] Lsnagpur@[Link]

exceeding expectations
SINCE 1985