Sale from Free Trade Zone warehouse (Custom)

This query is : Resolved

Manoj Tambat

( Author )
01 April 2011

Dear Sir,

My firm is a DTA firm from Maharashtra.
I wish to import goods & store the same in a Free Trade Zone Warehouse (FTZW) in mumbai.

The same shall then be sold in parts to customers of variuous legal status like -
1) SEZ based manufcaturing units
2) 100 % EOU Manufcaturing units
3) DTA manufcaturing units.
These customers will carry out customs clearance for the goods bought from me.

The reason for opting for FTZW storage & customs clearnace by customers is -
The product falls under consessional duty as it is intended for use in Solar related end products.

Please advise - WHEN I WILL RAISE INVOICE ON CUSTOMERS DOES VAT APPLICABLE.

Thanks & Regards,

RAMESH KUMAR VERMA

( Expert )
04 April 2011

Before discussing the relevant provisions one need to understand what SEZ means. Full form of SEZ is Special Economic Zone. These are designated areas in countries that possess special economic regulations that are different from other areas in the same country. Moreover, these regulations tend to contain measures that are conducive to foreign direct investment. Conducting business in a SEZ usually means that a company will receive tax incentives and the opportunity to pay lower tariffs.

Section 8(6),8(7) and 8(8) of the CST Act deals with the exemptions available to a SEZ unit or SEZ developer from CST. When goods are sold to a SEZ unit or SEZ developer then no CST is payable by such unit or developer as per the above sub sections subject to fulfillment of certain conditions. The conditions and forms relating to such exemption are provided as follows for the benefit of all concerned.

hence No VAT applicable in the case.

Manoj Tambat

( Author )
05 April 2011

Dear Mr. Verma,
Many Thanks for the reply.

I was little concerned for the fact that my firm is a DTA & I am using the services of a FREE TRADE ZONE Warehouse service provider.

The invoice from me will be raised as a DTA firm & sale to be treated as High Seas Sales.

While studying the tax implications for the method, I came across the case study & analysis by Mr. S B Thakar on Taxguru.com. The link is as below -

http://taxguru.in/goods-and-service-tax/sale-in-course-of-import-by-transfer-of-documents-of-title-to-goods-before-the-goods-crosses-custom-frontiers-of-india-high-seas-sale.html

This is related to custom binded warehouse. However Free Trade Zone is a different concept. I agree.

But while giving verdict for custom banded warehouse sale the Maharashtra tribunal had emphasized on the fact that the customs barrier is crossed when the first provisional Bill of entry is passed.

Even my service provider is of same view of you.

However I am skeptical & trying to be extra cautious before entering in this new arrangement.

Your guidance is highly appreciated.

Thanks.