A New horizon for manufacturing and operating businesses, which CA can explain to their clients

GOI has announced a scheme of Customs Bonded Manufacturing cum warehousing commonly known as Manufacture and Other Operations in Special Warehouse Regulations,2020 (MOOSWR,2020)

• In order to strengthen the initiative of Aatma Nirbhar Bharat and promote manufacturing and other operations in India, this scheme allows importing Capital goods and raw materials without payment of Basic Customs Duty and IGST.
• Most interesting benefit is that this scheme delinks the amount of duty saved with any quantum or export obligation unlike older scheme, further this benefit is also extended to the importer who import goods/raw materials for sale/removal in domestic market.

Benefits in Detail:-

Benefits always push anybody who has a partial or a little interest in a scheme or a product. It is the first thing which every customer or an interested one looks at. Here are a few for this.

• Import Raw material without payment of BCD and IGST
  • Bring these material to factory and use them for manufacturing/other operations without payment of BCD/IGST
  • Upon export of finished goods, the BCD/IGST on imported raw material so consumed in those finished goods stands waived
    • In case of clearance for homeconsumption in domestic area, BCD/IGST needs to be paid at thetime of removal from the factory i.e.bonded area without interest– Deferral in payment ofduty;
    • Import Capital goods without payment of BCD and IGST and pay later without interest only if removed later for home consumption in domestic market. This will save huge cash flows while new setup/expansion
    • No export commitments or export obligations
    • License has no requirement of annual renewal. It is valid perpetually till cancelled.
    • No day-to-day monitoring by customs officials. Only risk based audit shall be conducted

Who can obtain a license under this scheme?

License is a formal written permission from the government or any particular institute who leads or does the controlling or regulatory work. There is a standard procedure and protocols which needs to be followed by every individual or a group who wants one.

There are a set of criteria which the license seeker needs to undergo which are enlisted below.

Any owner of any warehoused goods that carry on any manufacturing process or other operations in relation to such goods.

Any person planning to import Capital goods, for setting up new factory or for expansion purpose

Person whose major raw material is imported goods can take the benefit of this scheme and defer the liability to pay BCD/IGST

An importer who imports goods for trading purpose can defer the liability to pay BCD/IGST up to 90 days without interest

What are the factors to evaluate the quantum of benefit of the scheme?

• Quantum of projected imports in the next 1/3 years and the value of customs duty cost on the same.
• Reduction in the above cost on account of waiver of the customs duty under this scheme of MOOWR/ Bonded Manufacturing.
• Plotting the normal lead time between import of goods and its removal from the factory after manufacturing and assessing the working capital saving on account of deferral in payment of customs duty i.e.savings on account of opportunity cost.
• Computing the input-output norms and assessing the percentage of imported material as per BOM in the final output goods at each distribution level i.e. at every stage at which the duty liability is going to be levied.
• An assessment of the duty benefit must be made as to the applicability of the benefit on various types of duties levied vizSocial welfare surcharge, Anti Dumping duty, safeguard duties etc.

Areas where industry can take help of professionals:-

• Compute the quantum of benefit
• Comparison with the other schemes
• End to end compliance assistance like licensing application, coordination at the time of inspection, implementation of the required systems w.r.t. accounting of goods movement and reporting the same to the authorities as required