Tax circular raises fear of double IGST

A Customs circular has raised fears of the government imposing integrated goods and services tax (GST) twice on goods lying in customs bonded warehouses. 

These goods would attract integrated goods and services tax (IGST) twice — once at the time of import and again while being cleared from bonded warehouses by importers.

The Central Board of Excise and Customs (CBEC) has issued a circular clarifying that any supply of imported goods taking place before the goods cross customs frontiers of India should be treated as an inter-state supply and such transaction for sale and transfer would be subject to IGST. This is without prejudice to the levy of customs duty and collection of duty at ex-bound stage. 

PwC said the circular recognised the possibility of double taxation when goods stored in bonded warehouses were transferred to another person. The rationale seemed to be a tax on value addition accruing on an in-bond sale, which is subject to customs duty (including IGST) on the original import value.   

It said the industry should assess the impact of this clarification (mainly on cash flow and compliance) on the warehousing models, including impact on supplies from special economic zones. 

The industry should represent to the government to provide a mechanism to address this anomaly of double levy on the same transaction, by way of exemption or levy only on value addition or other possible options, it suggested.

This circular might lead to litigations and might be challenged primarily on the grounds of jurisdiction since it was issued as a customs circular, the consultant said.