A Critique-Liberalisation of warehousing provisions in respect of EOUs/EHTPs/STPs

EOUs are Private Bounded Warehouses licensed under section 58 of the Customs Act, 1962 and permitted under section 65 of the Customs Act, 1962 to carry out manufacturing activities within bounded premises. Section 61 of the Customs Act, 1962 governs the time limit/period to which imported goods may remain warehoused.

Even though the extension of warehousing period, after the expiry of specified period, was permissible with the specific approval of Principal Commissioner of Customs or Commissioner of Customs, it was causing great difficulty to the trade/units as they were required to approach the officer to get the extension through discretionary powers vested with him.  Moreover, subjected goods, for which extension of warehousing period to be sought, were also required to be physically verified by the officer. Thus process of extension was time consuming and disruptive for smooth business operations of the units.

BUDGET 2016 has aimed at rationalizing the warehousing provisions in relation to an EOU/EHTP/STP, by substituting erstwhile section 61 with a new section extending the warehousing period. A brief comparative of relevant existing provisions vis-à-vis proposed amendments is as follows. Warehousing period for units other than EOU/EHTP/STP would continue to remain same i.e. One (1) Year.

It is also interesting to note that, though the warehousing provisions for EHTP/STP units are same as EOUs and governed by the Notification no. 52/2003-Customs-Tariff dated 31-03-2003, there were no specific reference of EHTP/STP in section 61 of the Custom Act, 1962 which governs the warehousing period for goods deposited in private bonded warehouse licensed under section 58 of the Custom Act, 1962. Now with the proposed new section, government has covered up this legal lacuna and EHTP/STP has been specifically included therein along with EOUs. 

Further, as per sub-clause (I) of clause (d) of condition specified under serial no. 3 of para 1 of the Notification no. 52/2003-Customs-Tariff dated 31-03-2003, period of utilization of goods including capital goods shall be co-terminus with validity of Letter of Permission (LoP). However, duty along with interest can be demanded if such goods are not proved to the satisfaction of the officer to have been installed or otherwise used within the unit for specified purposes with in the validity period of LoP.

In our view, in case of validity of LoP is expired and it does not get extended further, a unit would cease to be an EOU/EHTP/STP, accordingly benefits of warehousing period as mentioned in proposed section 61, i.e. till clearance from warehouse or consumption, as the case may be, would also be ceased, and duty along with interest might be demanded for goods warehoused and lying un-utilized at the time of expiry of validity.  

Flexibility to get the goods remains warehoused till clearance or consumption, as the case may be, will bring a big relief for EOU/EHTP/STP units, as no separate application for extension for goods having warehousing period expired would be required and timely extension/renewal of LoP validity  and Warehousing License would be sufficient for this purpose.

The provision of new section shall come in force on or after The Finance Bill, 2016 is enacted.

The authors are Lucky Ahuja – Manager and Anurag Hans – Senior Executive from SKP Business Consulting LLP and the above views are personal.