Time to consider In-bond manufacturing Scheme by the exporting community in the long run
The Government has introduced the concept of In-bond manufacture under MOOWR (Manufacture and Other Operations in Warehouse), 2019. India has lost their case before the WTO in respect of many schemes where the exports are directly incentivized viz., MEIS, EOU etc. As per the recent reports, Government is considering to phase out the EPCG scheme also as it is hampering the growth of domestic capital goods industry. SEZs are no more lucrative as they do not enjoy the direct tax benefits any more unlike prior to March, 2021. EOUs are losing the flavour due to the cumbersome procedures to be followed by them viz., not able to export the goods on payment of IGST under the claim of rebate of such IGST, supplying community refusing to clear the goods under deemed exports provisions due to audit queries for duty exemptions on the basis of Form A procedure, constant inspections by the Customs authorities under various pretexts etc. Hence there appears to be a dire requirement for a suitable alternative for those who are into predominantly into exports.
Hence some of the salient features of the in-bond manufacturing concept are detailed hereunder:
- Any one can set up a unit as in-bond manufacture. An existing unit can also be converted under this scheme.
- There is no investment threshold to set up a unit as in-bond manufacturing facility.
- There is no requirement of maintaining positive net foreign exchange (NFE).
- There is no obligation for a minimum export target.
- All import of capital goods, raw materials, inputs and consumables are duty free. Both BCD and IGST are exempt at the time of import.
- All domestic procurements are subject to GST and the GST paid is creditable.
- The goods as such or as finished goods or waste/rejects can be exported duty free after any length of time without any interest liability.
- The goods as such or as finished goods or waste/rejects can be cleared domestically, but the import duty component has to be reversed on pro-rata basis.
- The SION (Standard Input Output Norms) can be self declared and need not be ratified by the Norms Committee of the Ministry of Commerce. Self declared norms need to be approved by the jurisdictional Principal Commissioner of Customs, who is the registering authority.
- No geographical limitation on where such units can be set up. No requirement to have a contiguous zone, but requires to satisfy only bonded warehouse requirements in terms of safety and security.
- A single application cum approval form for uniformity of practice with a single point of approval to set up the operations of such units. The approval authority would be the jurisdictional Principal Commissioner of Customs.
- Once approval is granted, the same will be valid till the unit is into operations and there is no need to renew the same from time to time.
- Improved liquidity with deferment of import duty and no interest liability.
- A single digital account for ease of doing business and easy compliance.
- Enables efficient capacity utilization, as there is no limit on quantum of clearances that can be exported or cleared to the domestic market.
- A warehouse keeper needs to be appointed for operating as a private bonded warehouse under Sec 58 of Customs Act, 1962.
- The customs inspection will be risk based and not as a routine. Even audit frequency is also not defined and is based on risk assessment. Ex-bond clearance does not require approval from bond officer.
- Most of the provisions are aligned with GST and hence no conflicts. For example, in the case of job work under SEZ, the raw materials or finished goods to be returned within 120 days, but under GST, the time limit for raw materials is one year and for capital goods it is three years and in case of jigs, dies and moulds there is no return time limit prescribed.
- Job work is permitted both for inward and outward also.
- No restrictions under Rule 96(10) of CGST Rules, 2017 for claiming the IGST rebate on payment against exports.
- Ease of compliances as records can be preserved in digital mode and are to be kept for 5 years only.
- When an existing EOU/DTA gets converted as in-bond manufacturing facility, its GST registration remains the same, but for the change of status as in-bond manufacturing facility on conversion from an existing DTA/EOU and hence the input credit accumulated in the electronic credit ledger will also gets transitioned.
- A scheme administered by Department of Revenue authorities only and is subjected to Customs Act and GST Act regulations.
- No depreciation is available on the capital goods cleared into domestic market after being put to use and the entire import duties need to be paid at the time of clearance, but no interest need to be charged. The industry has represented on this point, but as on date no clarification has been issued on the availability of depreciation at the time of de-bonding of capital asset.
- Single window approval on the lines of EOUs or SEZs is not available as it is not under the control of Ministry of Commerce.
Industry may need to evaluate the options before them in the long run and take a conscious call to restructure themselves as it is time for a change in view of the increasing international trade barriers. India is changing their trade policies in order to be competent in the international markets and also giving a strong impetus to Make In India initiative. The Foreign Trade Policy expected to be unveiled effective 01st April, 2022 will surely be reflecting these new initiatives to come and many of the existing schemes may have to give way to new methods of doing business.