No interest on capital goods cleared into DTA after use in bonded warehouse

We have an EOU for research & development (R&D) services. We import inputs like reagents duty free. We now want to provide R&D services to a special economic zone (SEZ) unit. Do we have to pay the duty on the inputs that we use for providing such services?

 

Para 11 of notification 52/2003-Cus dated 31.3.003 says that ‘nothing contained in this notification shall apply to the goods imported by a service sector export-oriented undertaking… who does not directly export services out of India’. However, Para 3 of the notification requires you to reverse only the BCD on the inputs, ‘notwithstanding anything contained in this notification’. Despite this exc­­­e­ption, you may consider opting for safety by reversing the IGST also and taking input tax credit (ITC) of the same to avoid any audit objection later.

 

We manufacture in a bonded warehouse. What will be the duty rate on capital goods that we have brought into warehouse if we remove them into DTA after 3-4 years of use and whether interest will be charged when we remove them from the warehouse. Please give us the  specific provisions.  

 

Manufacturing in bonded warehouses is covered under Section 65 of the Customs Act, 1962 (CA 62) and Manufacture and Other Operations in Warehouse (No. 2) Regulations, 2019 (MOOWR). The duty rate, when you clear the warehoused goods under Section 68 of CA 62 will be the date of bill of entry for home consumption in accordance with Section 15(1)(b) of CA 62. No interest is payable on such goods because Section 61(2) of CA 62 does not apply to capital goods used in the warehouse and covered under Section 61(1)(a) of CA 62.

 

The government press note issued after the 56th meeting of the GST Council on September 3, 2025, says that the goods and services tax (GST) rate on leasing or rental services, without operator, of goods will go up from 28 per cent to 40 per cent from September 22, 2025.  I think the GST rate on such services at present is 18 per cent. Can you please clarify?

 

S.No.17 of the notification 8/2017-IT (Rate) dated June 28, 2017 (as amended) covers ‘leasing or rental services without operator’ against the service code 9973. There are, effectively, 5 different descriptions of service under that heading. The first of the entries attracting 18 per cent GST relates to intellectual property rights. 3 other entries under the same heading attract GST at the same rate of integrated tax as on the supply of like goods involving transfer of title in goods. The residual entry for other than the 4 entries mentioned, attracts 18 per cent GST. Thus, the press note is confusing.  Clarity might emerge after the issue of notification of the new rates.

 

We have issued the invoice for supply of services at the current GST rate but the payment will come after the GST rate change on September 22, 2025. Will the current rates apply?

 

Yes. Section 14a(ii) of the CGST Act, 2017 says that in such cases, the time of supply shall be the date of invoice.

 

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