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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.

NoteWhen 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

Ease 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.

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.

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.

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.

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.

 

Steps to Start Manufacturing

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

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.

STEP THREE

Grant of Sanction

  • The Commissioner of Customs grants permission for manufacturing or other operations in the bonded facility.
  • Permission includes:
  1. Manufacturing process or other operations permitted
  2. Conditions regarding manufacturing
  3. Approved Icon
  4.  

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.

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