Private Bonded Warehouses: A Key to Enhancing International Trade Efficiency

Private Bonded Warehouses: A Key to Enhancing International Trade Efficiency

Private Bonded Warehouses: A Key to Enhancing International Trade Efficiency

Private bonded warehouses play a pivotal role in International Trade Facilitation by providing a secure environment for the storage and processing of goods while allowing businesses duty free goods for exports and deferment of customs duty payments until the goods are cleared for domestic consumption or export. This particularly benefits the businesses dealing with large quantities of goods and high inventory turnover.

The Role of MOOWR Regulations:

To bring clarity, predictability, efficiency to businesses operating in bonded warehouses, and to promote industrial activities, streamline customs procedures, reduce logistics costs, and stimulate foreign trade, the Central Board of Indirect Taxes and Customs (CBIC), vide Notification No. 69/2019-Customs (N.T) dated 01.10.2019, issued the Manufacturing and Other Operations in Warehouse Regulations (hereinafter referred to as the ‘MOOWR’).

These regulations under section 65 of the Customs Act, 1962 (hereinafter referred to as the ‘Act’) prescribes that owner of any warehoused goods may carry on any manufacturing process or other operations in the warehouse in relation to such goods with the permission of Principal Commissioner of Customs or Commissioner of Customs (specified officers) and subject to the prescribed conditions.

Operations in Bonded Warehouses:

To conduct manufacturing or other operations in bonded warehouses; the MOOWR, in conjunction with the 2018 Customs Circular, requires businesses to adhere to a structured set of procedures and fulfil specific prerequisites.

In accordance with Section 65 of the Customs Act, businesses must first obtain a premises license as a private bonded warehouse under Section 58 of the Customs Act. In an effort to simplify the process, the application for obtaining a private bonded warehouse license and permission to operate u/s 65 has been consolidated into a single form, which includes the necessary declarations and undertakings.

However, if a business does not want to apply in a single application, they can submit different applications under sections 58 and 65 respectively. For this purpose, businesses must first obtain a premises license as a private bonded warehouse u/s 58 of the Customs Act. This license is valid unless it is cancelled or surrendered which authorizes businesses to operate as private bonded warehouses, offering essential warehousing services in the realm of international trade.

Procedure to Obtain this Licence:

Firstly, businesses must initiate the process by submitting an application for a private bonded warehouse license to the nearest Customs Commissionerate. The application should be meticulously prepared in accordance with the prescribed format, typically accessible on the official website of the Indian Customs Department.

This application must be accompanied by a comprehensive set of documentation. These documents may comprise proof of ownership or lease of the premises where the warehouse is intended to be established, detailed descriptions of the proposed warehouse's infrastructure and facilities, information pertaining to the security measures in place to safeguard stored goods, and financial documents and statements that substantiate the applicant's financial stability and capability to fulfil the responsibilities of a private bonded warehouse operator.

Subsequently, the Customs authorities will conduct a thorough inspection of the proposed warehouse. This inspection is aimed at verifying compliance with essential criteria encompassing security protocols, infrastructure standards, and adherence to customs regulations.

Additionally, the applicant is obligated to provide a security deposit or bond, the specific amount of which is determined by customs authorities. This bond functions as a financial guarantee, serving to cover potential liabilities or losses linked to the operation of the bonded warehouse.

Upon successful review of the application and premises, and subsequent compliance with regulations, customs authorities will grant approval and formally issue the private bonded warehouse license.

Procedure under Section 65 of the Customs Act:

The procedure typically involves a series of structured steps. That includes:

  1. A premises license as a private bonded warehouse under Section 58 of the Customs Act.
  2. Reviewing the MOOWR Regulations and relevant Customs Circulars. These documents provide comprehensive guidance on the specific requirements and procedures for obtaining permission.
  3. Submission of an application for permission to carry out manufacturing or other operations within the bonded warehouse. This application may necessitate detailed information about the nature of the operations, the goods involved, and the intended processes. It is to be ensured that all mandatory compliance documentation, such as bonds, undertakings, and declarations, is in order and aligns with the stipulations outlined in the regulations.
  4. Formally requested permission from the competent authority, which can be the Principal Commissioner of Customs or a Commissioner of Customs (as specified), for the specific operations you intend to undertake within the bonded warehouse. This request is to be required to accompany the application u/s 65 of the Act.
  5. Subsequently, Customs authorities would conduct inspections or verifications to confirm that the warehouse and the proposed operations, to adhere to the regulations, ensuring compliance and security. For imported goods, it's imperative to follow the guidelines and requirements outlined in the MOOWR and Section 59 of the Customs Act, encompassing procedures related to export, domestic consumption, waste management, and the fulfilment of tax obligations.

Dealing with Imported Goods:

To comply with both MOOWR, 2019 guidelines and Section 59 of the Customs Act, certain requirements must be followed while dealing with imported goods. The requirements are:

  • If the resulting product is exported, a shipping bill and a GST invoice must be filed, and no duty is required on the imported goods within the product.
  • For products intended for domestic consumption, GST and compensation cess must be paid, and import duties on the imported goods within the product are paid at the time of supply.
  • Waste generated during manufacturing can be cleared for home consumption with customs duties and GST. Duties on waste or refuse should be paid manually and records shall be maintained.
  • Capital goods, machinery, and inputs can be imported without paying the Customs Duty and other applicable taxes. However, such capital goods and other materials, if sold in the domestic market, these goods are disposed off at the depreciated value after payment of applicable dutie and taxes.
  • Warehouses u/s 65 and u/s 58 of the Act can import and clear goods for home consumption or export, subject to payment of import duties and filing monthly returns.

Furthermore, Private bonded warehouses must meet specific requirements to ensure the secure storage of goods, including:

  • Goods that are exempt from duty or chargeable at a nil rate can be brought into the warehouse for manufacturing without being considered warehoused goods.
  • While removing warehoused goods to create new products, there is no need to obtain permission from the proper officer, to facilitate timely clearances.

Private bonded warehouses are indispensable tools for businesses involved in importing goods. They provide a secure and cost-effective storage solution, along with operational flexibility within the warehouse. The advanced security measures mitigate the inherent risks of international trade.

The units operating under section 65 read with section 58 of the Customs Act shall demonstrate financial stability, i.e., paramount, as the business is expected to be financially capable of fulfilling the obligations inherent to operating as a private bonded warehouse operator.

Consequently, for the purpose of ensuring the security of stored goods, the implementation of robust security measures is a non-negotiable requirement. This includes the installation of surveillance systems, stringent access controls, and the provision of physical security to safeguard the inventory.

Furthermore, it is pertinent to mention that the business shall maintain records and submit regular reports to customs authorities as specified by the regulations. This is necessary that compliance audits may be conducted by customs authorities on a regular basis, with the sole purpose of ensuring that the operations of the business align with the permissions granted and the regulatory framework.

Therefore, MOOWR is a welcoming step that provides clarity and predictability to businesses operating in Private Bonded Warehouses. It is expected to streamline the procedures and documentation for these kind businesses, reduce logistics costs, and boost the foreign trade mechanism.

We, LEGALLANDS, a Legal 500 Law Firm, offers various jurisdictional, legal and economic services, regarding Customs regulations and Import Duties, tax implications and investments considering different aspects such as entity formation, tax and regulatory compliance, FDI Management, Contract Conveyancing etc.


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