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Overview

India permits the establishment of bonded manufacturing facilities where various operations, including manufacturing, can be conducted.

As part of the Indian government's ongoing efforts to position India as a global manufacturing hub and improve ease of doing business, the Central Board of Indirect Taxes (CBIC) has introduced a new initiative. This initiative allows for the import of raw materials and capital goods into bonded manufacturing facilities without the need for immediate payment of import duty, which is deferred. If these imported inputs are used for manufacturing goods that are subsequently exported, the deferred duty is exempted. Import duty on the imported raw materials used in the production is only required to be paid when the finished goods are cleared for the domestic market. Similarly, import duty on capital goods is to be paid only when the capital goods are cleared for the domestic market.

Bonded Manufacturing

Note：When raw materials or capital goods are imported, the import duty is deferred, meaning it does not need to be paid immediately. If these imported inputs are used for manufacturing goods that are subsequently exported, the deferred duty is exempted, along with a waiver of Basic Customs Duty (BCD) and Integrated Goods and Services Tax (IGST) on the imported goods used. Additionally, when the finished goods are exported, the Goods and Services Tax (GST) on the finished goods can be zero-rated, further promoting exports and facilitating ease of doing business in India.

Advantages of bonded warehousing

Highlights

Advantages of Bonded Manufacturing

Deferred Duty on Imported Capital Goods

Advantages of Bonded Manufacturing

Deferred Duty on Imported raw materials

Advantages of Bonded Manufacturing

Warehouse to warehouse duty free transfer allowed

Advantages of Bonded Manufacturing

No fixed obligations

Ease of bonded manufacturing

  • Advantages of Bonded Manufacturing

    Single point of approval

    The Commissioner of Customs serves as the sole point of contact for obtaining approvals and permits related to bonded manufacturing facilities. This centralized approach streamlines the approval process, minimizing the need to interact with multiple authorities, and enhances the ease of doing business in bonded manufacturing facilities.

  • Advantages of Bonded Manufacturing

    Common form

    A common application cum approval form is used to apply for a license for a private bonded facility, as well as permission for manufacturing and other operations. This integrated form simplifies the application process by combining the requirements for obtaining a license for a bonded facility and permission for manufacturing and other operations into a single form. This streamlined approach reduces paperwork, saves time, and enhances the ease of obtaining necessary approvals for setting up and operating a bonded manufacturing facility.

  • Advantages of Bonded Manufacturing

    Unlimited period of warehousing

    Both capital and non-capital goods, such as raw materials and components, can be warehoused in a bonded manufacturing facility until they are cleared for consumption or utilized in the manufacturing process. This allows businesses to store their goods in the bonded facility without paying import duties until they are ready to be consumed or used in production. This flexibility provides cost-effective inventory management options and enhances operational efficiency in bonded manufacturing facilities, contributing to the ease of conducting operations.

  • Advantages of Bonded Manufacturing

    No geographical restriction

    A new manufacturing facility can be established or an existing facility can be converted into a bonded manufacturing facility in any location across India. There are no geographical restrictions on setting up or converting a facility into a bonded manufacturing facility, providing businesses with the flexibility to choose the most suitable location for their operations. This allows for efficient utilization of existing infrastructure or the establishment of new facilities based on business needs, contributing to the ease of establishing and operating bonded manufacturing facilities in India.

  • Advantages of Bonded Manufacturing

    Easy compliance

    All records of manufacturing and other operations in a bonded manufacturing facility are to be maintained digitally in a standardized format. This requirement ensures uniformity and consistency in record-keeping practices, simplifies data management, and facilitates easy access and retrieval of information. Digitally maintaining records in a single format streamlines compliance procedures reduces paperwork, and enhances transparency and accountability in bonded manufacturing operations, contributing to the ease of doing business.

Types of Beneficiaries

Bonded manufacturing offers customs duty exemptions on imported inputs used in the production of finished goods meant for export, making it accessible to businesses of all types. For goods intended for domestic consumption, the duty on imported inputs is deferred until the finished goods are cleared for the domestic market. This allows businesses to benefit from reduced production costs through duty exemptions for export goods and manage cash flow effectively with deferred duty payment for domestic consumption. Bonded manufacturing thus provides businesses with opportunities to optimize their operations and enhance competitiveness in both domestic and international markets.

For a better understanding, the illustrations below show how a manufacturer benefits from bonded manufacturing.

Manufacturer
  • A prominent Japanese automobile manufacturer has expressed interest in setting up a manufacturing facility in India. They have filed an application for licensing a facility near Nagpur, Maharashtra, and have imported required inputs such as airbags, gearboxes, and capital goods for production. The duty on these imports is deferred, providing additional working capital support to the manufacturer.
  • The manufacturer exports 70% of the total vehicles produced, and the deferred duty on these exported vehicles is waived. However, for the remaining 30% of vehicles sold domestically across India, the deferred customs duty and integrated goods and services tax (IGST) are paid at the time of sale.
  • The manufacturer benefits from the deferred duty on imported inputs, which helps to reduce production costs due to duty-free imports. This allows them to optimize their operations, enhance competitiveness, and effectively manage cash flow with the deferred duty payment option. The manufacturer's utilization of bonded manufacturing provides them with financial advantages and supports their goal of manufacturing vehicles in India.

Steps to Start Manufacturing

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Step One

Submit Online Application

Complete the online application form as per providing the following details:

  • Nature of manufacturing
  • Details of imported inputs
  • Anticipated trade volume, etc.

List of Required Documents:

  • Certificate of Incorporation (for companies)
  • Memorandum of Understanding (MoU) and Articles of Association (AoA) (for partnership firms)
  • Partnership Deed (for partnership firms)
  • Copy of ID proofs of proprietors/partners/directors
  • Copy of Aadhar Card of Authorized Signatory
  • Documents supporting property-holding rights, such as rent agreement
  • Copy of warehouse license, if previously issued
  • Ground plan of the site with details
  • Fire safety audit certificate
  • Compliance Icon
Compliance Icon
Step two

Execute a Bond

  • Execute a bond and submit a physical copy to your Jurisdictional Commissioner of Customs.
  • Maintain detailed accounts

Note: A Customs Officer will visit the facility to evaluate compliance before the bond is executed and the license is issued.

Grant Icon

Grant Icon
Step Three

Grant of Sanction

  • The Commissioner of Customs grants permission for manufacturing or other operations in the bonded facility.
  • Permission includes:
    • Manufacturing process or other operations permitted
    • Conditions regarding manufacturing
    • Approved Icon
Approved Icon
Step Four

Commence Manufacturing or Other Operations

The processes for obtaining a license for a private bonded facility (as per Section 58) and for manufacturing or performing other operations (as per Section 65) are combined in a single application as per Annexure A.

Steps for Clearance of Warehoused Goods

  • FOR USE IN THE DOMESTIC MARKET

    When goods stored in a bonded facility are utilized for manufacturing or other operations, and the resulting finished goods are intended for consumption within the domestic market.

  • FOR EXPORT FROM THE CUSTOMS STATION

    When goods stored in a bonded facility are utilized for manufacturing or other operations, and the resulting finished goods are intended for export from a customs station.

  • FOR TRANSFER TO ANOTHER BONDED MANUFACTURING FACILITY*

    When goods stored in a bonded facility are used as raw materials by another industry for further manufacturing in a different bonded facility.

Clearance of Warehoused Goods for Domestic Consumption

Goods stored in a warehouse can be used for consumption within the country or sold in the local market only if the following requirements are met:

  • A bill of entry for home consumption has been filed in the specified format.
  • All applicable import duty, penalties, rent, interest, and other charges for the goods have been paid.
  • An order for clearance of the goods for domestic consumption has been issued by the authorized officer.

Clearance of warehoused goods for Export

Goods stored in a warehouse can be exported to a destination outside India without payment of import duty if the following conditions are fulfilled:

  • A shipping bill or a bill of export has been filed for the goods in the prescribed format.
  • All export duty, penalties, rent, interest, and other charges for the goods have been paid.
  • An order for clearance of the goods for exportation has been issued by the authorized officer.

For further details, refer to the Enrich Services

Conditions for Transporting and Receiving Goods from Another Warehouse

  • In order to transfer goods from one warehouse to another, the following conditions must be met:

  • Complete the Form for Transfer of Goods from a facility provided in the Warehouse Goods (Removal) Regulations Act, 2016.

  • The licensee of the originating warehouse must attach a one-time lock on the means of transport, unless authorized by the Commissioner of Customs to transport without a lock, based on the nature of goods or mode of transport. This lock must be verified upon receipt at the receiving warehouse.

  • Present the "Acknowledgement" received from the licensee of the recipient warehouse, confirming the arrival of goods, to the Bond Officer of the originating warehouse. If the one-time lock is found to be tampered with or missing, immediately inform the bond officer and refuse to unload the goods.

  • If the one-time lock is found intact, allow unloading and verify the number of goods received.

  • Any discrepancy in the number of goods must be reported to the bond officer within twenty-four hours.

  • Endorse the Form for the transfer of goods from the warehouse with the quantity received and retain a copy.

Acknowledge the receipt of the goods by endorsing the transportation document presented by the carrier of the goods and retain a copy for reference.

Essentials to Benefit from Bonded Manufacturing

Export goods

No duty needs to be paid on imported raw materials or capital goods if the following requirements are fulfilled:

  • Proper documents of export declaration, such as Shipping Bill, Bill of Export, or prescribed Form, are submitted based on the mode of transportation.
  • Export duty, fines, and penalties, if any, are duly paid.
  • An order of clearance of goods is issued by the Customs Officer.
Goods for home consumption
  • Duty payment for imported raw materials may also be required through an ex-Bond Bill of Entry at the time of supplying finished goods that are manufactured using those raw materials. It is necessary to maintain a record of this transaction in accordance.
Waste/ refused goods

If any waste or refuse is generated during allowable operations on warehoused goods, the following rules shall apply:

  • If the resulting goods or any portion thereof are exported, the import duty shall be waived on the quantity of the warehoused goods contained in the waste or refuse that arose from the operations related to the exported goods. However, this waiver applies only if the waste or refuse is destroyed or duty is paid on it as if it had been imported into India in that particular form.
  • If the resulting goods or any part thereof are cleared from the warehouse for domestic consumption, import duty shall be levied on the quantity of the warehoused goods contained in the waste or refuse that arose from the operations related to the goods cleared for domestic consumption.

Requirements for Record-keeping

1. Maintenance of records
  • Maintain comprehensive records of the receipt, handling, storage, and removal of goods in accordance
  • Document all activities, operations, or actions related to the warehoused goods.
  • Record the withdrawal of samples from the warehoused goods.
  • Retain copies of the following documents:
    • Bills of Entry
    • Transport documents
    • Forms for transfer of goods from the warehouse
    • Shipping Bills
    • Bills of Export
    • Any other documents indicating receipt or removal of goods from the warehouse
2. Preservation of physical and digital records
  • Maintain accurate and updated records and accounts, and preserve them for a minimum of 5 years from the date of goods' removal from the facility.
  • Ensure that digital copies of the records are also updated and preserved at a location outside the facility to safeguard against loss due to natural calamities.
3. Filing monthly returns
  • Submit monthly returns within 10 days of the end of each month.

Licensees who do not comply with any of the provisions of these regulations will be subject to penalties as per the Customs Act, 1962.

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