1.11 Query
Provision for customs duty liability in respect of goods lying in bonded warehouse.
1.A company is importing components and raw materials, which are kept in the bonded warehouse. Customs duty is paid at the time of debonding the materials. The company does not make any provision in its accounts for customs duty liability for the goods lying in bonded warehouse at the end of the year. Provision is also not made for the goods awaiting clearance at the port which bills of entry may or may not have been filed. Instead, a disclosure is made in the ‘Notes to Accounts’ stating the amount of liability not provided for. According to the querist, the provision is not made on account of the following reasons:
(a) As a going concern, liabilities need not be created until such time they are crystallized.
(b) If the goods are re-exported from the bonded warehouse, customs duty is not payable.
(c) The company has an option to relinquish the title to the goods under section 23(2) of the Customs Act, 1962.
2.The Government auditors are of the opinion that liability has to be provided for goods lying in the bonded warehouse at the end of the year as the liability accrues under section 12 of the Customs Act, 1962, as soon as the goods enter the territorial waters of India. Even though this does not affect the profit and loss account, the amounts of the liabilities and the closing stock will be different. In their view, this has become necessary in view of the amendment to section 209 of the Companies Act requiring companies to maintain their books of account on accrual basis.
3.The querist has pointed out that in an earlier opinion given by the Expert Advisory Committee on similar issue reported at page 64 of the Compendium of Opinions, Volume-1 (3rd Edition, Query No. 1.35), the Committee had mentioned that both the practices are prevalent and whichever method is adopted should be followed consistently.
4.The querist has sought the opinion of the Expert Advisory Committee on the following issues:
(a) Whether the company should provide for customs duty liability for goods lying in the bonded warehouse at the end of the year.
(b) Whether the company should provide for customs duty liability for goods awaiting clearance at the port for which the bills of entry may or may not have been filed at the end of the year.
Opinion March 29, 1990
1.The Committee notes that in the light of the following judgements, it is apparently well established that the goods in question become imported goods as soon as they enter the territorial waters of India and it is at that particular time when the taxable event takes place.
(i) M.S.Shawney v. M/s Sylvania and Laxman Limited 77 Bom LR 380
(ii) Apar Private Limited and Others v. Union of India and Others [1985] 6 ECC 241 (FB) (Bom)
(iii) Dinesh Kumar Neotia v. The Collector of Customs and others [1988] 18 ECC 422 (Cal)
(iv) Jain Shudh Vanaspati Limited v. S.R. Patankar, Asst. Collector of Customs, Bombay and Others [1988] 15 ECC 180: 1988 (33) ELT 77.
2.The Committee also notes that the Full Bench of Bombay High Court in the case of Apar Private Limited and others v. Union of India and others (Supra), while upholding that chargeability under section 12 of the Customs Act arises as soon as the goods enter the territorial waters of India, held that:
* section 12 determines the chargeability;
* section 14 determines the valuation of imported goods; and
* section 15 determines the quantum of duty payable.
3. The Committee is of the view that the chargeability, which is determined by section 12 of the Customs Act, is not deferred to a date when the duty is quantified. Only the quantification and collection of customs duty is postponed and not the chargeability. The Committee is, therefore, of the view that the imported goods are chargeable customs duty as soon as they enter the territorial waters of India.
4. The Committee is also of the view that exemption of payment of customs duty in specific exceptional circumstances can not be taken as an all pervasive argument for non-provision of the duty in respect of all goods lying in bonded warehouse. Thus, the mere fact that the assessee has an option to relinquish the title, which does not happen ordinarily, cannot be considered as an argument for non-provision of customs duty in general. In the view of the Committee, non-provision of customs duty only on goods meant for re-export and lying in bonded warehouse would appear to be justified provided no customs duty is payable in respect thereof because of the re-export from the bonded warehouse.
5. The Committee is, therefore, of the following opinion, in respect of the issues raised by the querist in para 4 of the query:
(a) The company should ordinarily provide for the customs duty liability for goods lying in the bonded warehouse.
(b) The company should provide for the customs duty liability for goods awaiting clearance at the port notwithstanding the fact whether the bills of entry have been filed or not.
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