Guideline on the Working of Inland Customs Bonded (Public/Private)

Warehouses for Audit Report 2002-03

INTRODUCTION

The main objective of warehousing is to allow trade, the facility to defer payment of duty on imported goods for a period permissible under the Customs Act, 1962, till their actual clearance for home consumption on payment of appropriate duty or their re-export without payment of duty to any foreign port. Goods imported can be warehoused only at a 'Public' or 'Private' bonded warehouses which are appointed/licensed in terms of Section 57 or 58 of the Customs Act, at a place declared as warehousing station under Section 9 of the Act.

The statutory provisions of warehousing are contained in sections 59 to 73 of the Customs Act, 1962.

2. Scope of Audit

The records for three years i.e. 1999-2000 to 2001-2002 maintained in Customs House and at the Public/Private bonded warehouses may be examined to seek assurance that :-

  1. warehoused goods are adequately safeguarded under insurance coverage and cleared on payment of appropriate duty leviable alongwith interest thereon if any.
  2. timely and effective action is taken against the time expired uncleared goods as per Section 72(2) and
  3. (iii) the monitoring mechanism ensure checks on misuse of the facility.

  1. Licensing and holding of goods in warehouse
  2. At the time of grant/renewal of licence for Public/Private bonded warehouses the maximum stock capacity of goods in value and duty leviable thereon are specified in the licence.

    The value of licences and stock held at the warehouse at any point of time may be checked to see that :-

    the stock of warehoused goods including the stock of time expired uncleared goods has not been in excess of the amount specified in the licence. Excess holding of goods leading to breach of the licensing conditions may be highlighted in the review.

  3. Insurance coverage of warehoused goods
  4. As per guidelines contained in Ministry's circular 99/95 dated 20.9.95 warehoused goods should be fully insured by the warehouse keeper against theft, pilferage, fire, natural calamities, risk against rioting etc. at least for a value equal to the Customs duty by a comprehensive insurance policy in favour of Commissioner of Customs.

    Cases where warehoused goods were not covered by any insurance policy, delayed renewal of insurance policy resulting in insufficient safeguard of duty amount and causing loss of revenue may be highlighted.

  5. Control over warehoused goods

Section 62 of the Act required that all warehoused goods shall be under the control of Customs and goods cannot be removed from warehouses without permission of the proper officer. The warehouses are required to be under double lock, one lock of the Customs House, other of the licensee. In case of entry and removal of goods, Preventive Officer (P.O.) of Customs shall accompany the importer/agent with the key of Customs lock and he shall put his signature in the Bond Stock Register maintained in the warehouses.

Through verification of stock register of warehouses it may be checked that the PO himself was present in person during entry or removal of goods and signed the register thus preventing the risk of substitution, and un-lawful removal of warehoused goods.

In addition following points may also be checked in audit that:-

  1. Bond Supdt. has checked the stock register at least once a month.
  2. the statement of receipt/issue and balance in hand are sent to bond department on last day of every month by the Officer of private bonded warehouse.

Non compliance of the conditions in this respect, may be commented in the review.

  1. Warehousing bond

On assessment of a into-bond Bill of Entry, goods are permitted to be deposited in a Public/Private bonded warehouse for a period specified in Section 61 on execution of a warehousing bond under Section 59 for a sum equal to twice the amount of duty assessed under Section 17/18 of the Customs Act, binding the importer to pay all duties and interest, if any, with rent and charges claimable on account of warehousing of such goods and to discharge all penalties incurred for violation of provisions/rules in this regard.

For this purpose the A.C./D.C. Customs may permit an importer to enter into a general bond in such amount as may be approved by them in respect of the warehousing of goods to be imported by him within a specified period. A bond executed under this section by an importer in respect of any goods shall continue in force notwithstanding the transfer of the goods to any other person or the removal of the goods to another warehouse.

In case the goods or any part thereof are transferred to another person, the proper officer may accept a fresh bond from the transferee in a sum equal to twice the amount of duty assessed on the goods transferred and thereupon the bond executed by the transferor shall be enforceable only for a sum mentioned therein less the amount for which a fresh bond is accepted from the transferee.

Goods are allowed to be cleared by filing an ex-bond Bill of entry for home consumption and on payment of import duty, interest if any, along with rent, penalty or other charges payable (Section 68). Goods can also be cleared for exportation without payment of import duty (Section 69).

In respect of Into Bond bills of entry, it should be seen that :-

  1. the prescribed procedure has been followed;
  2. the goods have been correctly assessed to duty;
  3. the bonds executed are for double the amount of duty and are properly stamped;
  4. the removal of goods to the warehouse was done under proper customs supervision;
  5. the certificate of receipt of goods in the warehouse is recorded by the warehouse keeper on the duplicate bill of entry;
  6. the bill of entry bears the necessary court fee stamp.

 

 

In auditing ex-bond bills of entry, it is to be seen that :-

  1. the bill of entry has passed through the prescribed procedure of noting, appraisement, etc.
  2. the appraiser has recorded necessary classification, tariff valuation and rate of duty;
  3. in the case of part clearance of goods that are assessed on weight, as ascertained by percentage weighment and the quantity entered in the bills of entry is proportionately correct according to the particulars on the reverse of the bill of entry;
  4. in the case of wines and spirits imported in casks and drums the quantity entered is proportionately correct according to the particulars shown in the relative regauge form;
  5. the particulars shown in the bill of entry agree with the particulars in the bond register;
  6. attention is being paid to the rate of duty and tariff valuation prevailing on the date of removal of goods.
  7. the bond has been closed within the period of three years from its date or extended period and such extension is covered by proper sanction.

7. Irregular extension of warehousing period

Section 61 of Customs Act permitted warehousing of Capital goods required for 100 per cent EOU upto five years and all other goods for 1 year after the date of orders passed by the proper officer under section 60 permitting the deposit of goods in a warehouse.

On sufficient cause being shown, the Commissioner of Customs may extend the initial warehousing period by six months and Chief Commissioner can extend for a further period as deemed fit, if the goods are not liable to deterioration.

As per the guiding principles in CPN 1/97 dated 2.1.97, an application for extension of warehousing period should be made in a prescribed form at least 15 days prior to expiry of warehousing period. A new bond is to be executed for the extended period and goods are to be physically examined before allowing extension.

 

 

It may be verified in audit that:-

i) extensions of warehousing period were granted by the proper authority and only in exceptional circumstances, belated applications were considered by jurisdictional Chief Commissioner after taking into account the nature of commodity, rate of duty and whether such extension resulting in loss of revenue, as required under Ministry’s Circular No.12/98-Cus dated 5.3.98.

ii) extension of warehousing period has not been granted in a routine manner and for reason like financial difficulties of the importer.

iii) extension has not been granted to the importers, whose goods were already lying uncleared in any warehouse after expiry of the warehousing period (Hyderabad CPN No.38/89 dated 25.5.89).

Irregularities in this regard may be highlighted in the review and cases where extension granted on expired bond resulting in loss of revenue, may be consolidated in Annexure-A.

8. Restricted warehousing period for perishable goods

Section 61 (1) (b) (ii) of the Customs Act empowered the Commissioner of Customs to reduce the period of warehousing in respect of goods likely to deteriorate or of perishable nature. An illustrative list, specifying perishable goods under three categories were included in Ahmedabad CPN No.5/96 dated 7.2.96 read with letter F.No.483/14/88-Cus VII dated 14.10.1988 wherein the initial period of warehousing were stipulated as 45 days only.

It may be verified in audit that such perishable goods were not allowed to be warehoused for normal period or extension of retention period were not permitted for these goods.

Irregularities noticed in this regard may be highlighted in the review and statistical data of such goods awaiting disposal action where chance of recovery of Government dues from sale of such goods is Nil be compiled in Annexure B.

9. Manufacturing operations in bonded warehouses U/S 65

1) With the sanction of the A.C./D.C. of Customs and subject to such conditions and on payment of such fees as may be prescribed, the owner of any warehoused goods may carry on any manufacturing process or other operations in the warehouse in relation to such good.

2) Where in the course of any operations permissible in relation to an warehoused goods under sub-section (1), there is any waste or refuse, the following provisions shall apply:-

a) if the whole or any part of the goods resulting from such operations are exported, import duty shall be remitted on the quantity of the warehoused goods contained in so much of the waste or refuse as has arisen from the operations carried on in relation to the goods exported.

Provided that such waste or refuse is either destroyed or duty is paid on such waste or refuse as if it had been imported into India in that form;

b) if the whole or any part of the goods resulting from such operations are cleared from the warehouse for home consumption, import duty shall be charged on the quantity of the warehoused goods contained in so much of the waste or refuse as has arisen from the operations carried on in relation to the goods cleared for home consumption.

Following points may be seen in audit that:-

i) the procedures prescribed under the "Manufacture and other operations in Warehouse, Regulations, 1966" and supplementary regulations made by the Assistant Commissioner have been followed;

ii) a proper Bond is executed by the importer for the purpose;

iii) the importer have manufactured the end products as per the manufacturing programme and returned the balance materials to the Preventive Officer;

iv) the "end use certificates" issued by the Preventive Officer of the Customs Bond are in the proper forms and are in accordance to the prescribed procedure;

v) appropriate action has been taken for realisation of customs duties on the wastage or balance quantity and rejects as per the provisions of Section 65 of the Customs Act and Rules and Regulations made thereunder.

10 Warehousing of liquid cargo in bulk

Petroleum products and edible oils constitute the major liquid bulk cargo imported besides commodities like Phosphoric acid, Carbon black etc. Preventive (oil) section of Customs House arranges discharge of these liquids from vessels after ullage survey and supervises warehousing in shore tanks

Usually, discharged quantity as per Customs certified ullage survey report is taken as the quantity removed for warehousing for which duty is to be paid

Again, if the ullage survey quantity is in excess of Bill of Lading quantity, the duty on excess quantity is to be paid by the importer in a supplementary Bill of Entry. It is to be seen in audit that the bulk oil/liquid actually shown as cleared from time to time from the warehoused quantity on which the total duty and interest were paid is not less than the ullage survey quantity. Any short fall in duty which is required to be paid by the importer may be shown in Annexure-C.

The insurance of nominated tanks, charging of interest for oil cleared after 6 months or 1 months as the case may be and disposal action on time expired uncleared oils/liquids are also to be looked into and suitably highlighted in the review.

11 Removal of goods from one warehouse to another

Section 67 of the Act, read with para 3 and 4 of notification No.59-Cus dated 1.2.63 allowed removal of goods from one warehouse to another in a different town on execution of a bond for a sum equal to import duty. The bond should ensure that the importer shall produce within three months or within the extended period, a certificate issued by the proper officer at the place of destination that the goods have arrived at the place of destination.

It was noticed in audit that in some cases goods were removed to another station on execution of a Bank Guarantee (BG), but neither the warehousing certificates were produced/recorded in the Import bond department nor the Bank Guarantees were forfeited.

The audit check should bring out such cases where re-warehousing certificates were not produced and action to forfeit and bond or Bank Guarantee has not been initiated (Annexure-D) and suitably highlighted in the review.

12 Clearance of warehoused goods for home consumption

The importer shall present ex-bond Bill of Entry for clearance of warehoused goods for home consumption. After noting in the import department and verification of declared particular with those in bond register, the Bill of Entry shall be presented in the Appraising Department for classification and assessment after duty is recovered, in the account and cash department and "out of charge" given.

a) Levy of Customs Duty

The date relevant for determination of rate of Customs duty in the case of warehoused goods cleared within the permissible warehousing period is the date of their actual removal from the warehouse and not the date of presentation of Ex-bond Bill of Entry or payment of duty {Section 15 (1) (b)}.

It may be scrutinised in audit that:-

  1. there is no change in the rate of duty between the date of payment of duty and date of actual removal of goods.
  2. Where the goods have been allowed to be cleared after expiry of the warehousing period, the rate of Customs duty payable should be at the rate applicable on the date on which permitted warehousing period came to an end.

Irregularities like payment of duty in case of time expired goods at the rate in force on the date of clearance instead of the date of expiry of warehousing period resulting in loss of revenue and cases where clearance of goods resulted in loss of revenue due to non levy of duty on the appropriate date, may be highlighted in the review and such cases may be compiled in Annexure 'E'

  1. Interest liability on warehoused goods

Section 61(2) (ii) of the Customs Act provides for levy of interest in case of clearance of warehoused goods after the period as specified in the relevant notification issued from time to time.

Following interest rates were prescribed in notification 30/99-Cus (NT) dated 12/5/99 against the duration of warehousing period noted below :

6 to 9 months 12% p.a.

9 to 12 months 16% p.a.

beyond 12 months 20% p.a.

The rate has been revised to 24% by notification No.10/2001 customs (NT) dated 1.3.2001 (effective from 16.3.2001) and the duration of the warehousing period for charging interest was amended as thirty days with effect from 1.6.2001 in terms of letter F.No.471/10/2001-LC of Ministry of Finance.

Cases of non levy of interest or interest charged at incorrect rate resulting in loss of revenue may be highlighted in the review and such cases may be consolidated in the Annexure 'F'.

  1. Clearance of warehoused gods for exportation

Section 69 of the Customs Act permits export of warehoused goods on presentation of shipping bill without payment of import duty provided export duty if any, penalties, rent and interest have been paid and order of clearance is obtained from proper officer.

It may be examined in audit that :-

  1. whether interest on import duty wherever leviable on warehoused goods in terms of Section 61 was levied on clearance for exportation.
  2. Particulars of shipping bill presented for clearance have been duly checked with those of into bond BE/bond register/export menifest etc.

14. Goods improperly removed from warehouse, etc. - (1) In any of the following cases :-

where any warehoused goods are removed from a warehouse in contravention of section 71 or have not been removed from a warehouse at the expiration of the period during which such goods are permitted under section 61 to remain in a warehouse or have been taken under section 64 as samples without payment of duty or in respect of which a bond has been executed under Section 59 and which have not been cleared for home consumption or exportation are not duly accounted for to the satisfaction of the proper officer,

the proper officer may demand, and the owner of such goods shall forthwith pay the full amount of duty chargeable on account of such goods together with all penalties, rent, interest and other charges payable in respect of such goods.

(2) If any owner fails to pay any amount demanded under sub-section (1) the proper officer may, without prejudice to any other remedy, cause to be detained and sold, after notice to the owner such sufficient portion of his goods, if any, in the warehouse, as the said officer may select.

In order to obviate inordinate delay Ministry of Finance issued instruction on 9.1.95 to initiate action under section 72 of Customs Act within a week after the expiry of the warehousing period and also for taking further action under Section 142 of Customs Act 1962 for recovery of dues from the importers.

Failure of the department to initiate effective action relating to warehoused goods lying beyond the warehousing period thereby losing their commercial value due to prolonged storage and blocking considerable amount of duty and interest for want of effective departmental action may be highlighted in the review.

From the records maintained by the Import Bond Department and Preventive (Bond) Department (Status reports) and records of warehouses, the value of uncleared goods may be ascertained and shown in Annexure 'G' along with the duty and interest involved (upto 31.3.2002).

An age-wise classification of time expired warehoused goods lying in different warehouse may also be prepared in Annexure 'H' including bulk liquid cargo.

The adequacy and effectiveness of the monitoring system may be evaluated and suitably commented with suggestions if any.

15. Other Irregularities

a) Debonding of warehouses:

In case of cancellation of licences of warehouses, it may be looked into whether the goods are cleared for home consumption or exportation or removed to other warehouses (Sec.61) within seven days from the date of cancellation notice.

b) The observations which are not covered in the preceding categories may also be included under this heading.

16 Maintenance of Records and monitoring mechanism

Bonded warehouses are required to maintain a stock account/register in the proforma prescribed under Chapter VII of Customs Preventive Manual (Central). A stock card is also to be maintained in private bonded warehouses showing receipts and issues from the bond.

The Bond Stock Register maintained by the bond officers should be checked by the bond Superintendents at least once a month and the officer posted in private Bonded warehouses will send a statement to the Bond Department on the last day of every month showing receipts/issues and balances in hand. It has been mandatory for all public warehouses to submit status report as regards the consignments pending for one year and above.

The following audit checks may be exercised:

i) the goods has been stored in a Bonded Warehouses only after due examination. Reverse of the Bill of Entry must confirm the veracity of the declared description with the distinctive identification marks of the subject goods.

ii) the declared description of the goods recorded on the Warehousing Bill of Entry, has been tallied with the description declared on the ex-bond (Green) Bill of Entry at the time of actual removal of the goods from the warehouse,

iii) there should be regular audit and inspection by the senior officers and the Custom House audit parties so that the nature, quantity, number and other relevant particulars with reference to the concerned documents are verified. The exercise could be once in six months for audit parties supported by surprise checks by senior officers.

iv) up to what extent the records of bonded goods in the Customs Houses, has been computerised may be commented.

v) whether the Central Warehousing Corporation and other warehouses are submitting status report of the consignments pending for one year and above. The position can be cross checked in the Custom House where the warehousing Bills of Entry had originated.

vi) the action under section 72 ibid has been initiated on expiry of the warehousing period.

vi) all cases where goods continue to lie in the warehouse after the expiry of warehousing period have been specially taken up for scrutiny by the audit parties in order to guard against deterioration, substitution or any other unlawful removal.

As the facility of warehousing is for deferring payment of duty, there must have effective monitoring so that duty is recovered immediately after the specified period and not indefinitely deferred.

The review should bring out the deficiency in maintenance of records and non compliance of the aforesaid conditions in the monitoring system with suggestions if any, so that the need for any change in the warehousing policy may be recommended to the Government.

Annexure-A

{Referred in Para –7}

Irregular extension of warehousing period

Name of the Commissionerate:

(Amount in lakhs)

Warehouse No. & Date

Commodity

Assessable value

Initial Warehousing period expired on

Extension Applied on

Extension Granted on

Duty & Interest leviable on expiry of

Loss of revenue

Remarks

           

Initial warehouse period

Extended warehouse period

   
                   
                   
                   
                   
                   
                   
                   
                   
                   
                   
                   
                   

 

Annexure-B

{Referred in Para –8}

Time expired warehoused goods of perishable nature awaiting disposal aciton.

Name of the Commissionerate:

(Amount in lakh)

Nature of goods

No of warehouse involved

No of cases

Value (Rs in lakh)

Duty and interest involved (Rs in lakh)

Period/

Remarks

             
             
             
             
             
             
             
             
             
             

Total

           

 

 

 

Annexure-C

{Referred in Para –10}

Short fall in duty on clearance of Liquid Cargo in bulk.

Name of the Commissionerate:

(Amount in lakh)

Warehouse No & Date

Importer

Commodity

Assessable value

Quantity as per ullage survey report

Quantity cleared as per Ex-bond Bill of Entry

Duty paid

Duty leviable

Short fall in duty

                 
                 
                 
                 
                 
                 
                 
                 

 

 

 

 

Annexure-D

{Referred in Para –11}

Non receipt of re-warehousing certificate under Section-67.

Name of the Commissionerate:

(Amount in lakh)

Name of the Importer

Warehouse No and Date

Assessable value of goods

Duty involved

Date transfer goods

Bond amount and date

Bank Guarantee valid upto

Period exceeding 3 months from transfer of goods

Remarks

                 
                 
                 
                 
                 
                 
                 
                 
                 
                 

 

Annexure-E

{Referred in Para –12 (a)}

Clearance of Warehoused goods- Levy of incorrect rate of duty.

Name of the Commissionerate:

(Amount in lakh)

Name of the Importer

Date of Warehousing

Warehousing period expired on

Date of clearance/removal of goods

Assessable value of goods

Duty leviable

Duty paid

Short payment of duty

Remarks

                 
                 
                 
                 
                 
                 
                 
                 
                 

a) Clearance of goods before expiry of warehousing period

  1. Clearance of goods after expiry of warehousing period.

Note: Statistical data for (a) and (b) may be compiled separately.

 

Annexure-F

{Referred in Para –12 (b)}

Clearance of Warehoused goods- Non-levy/short levy of interest.

Name of the Commissionerate:

(Amount in lakh)

Name of the Importer

Warehousing period

Period for which interest chargeable

Goods cleared on

Assessable value

Duty leviable

Interest leviable rate/amount

Interest paid

Short levy of interest

                 
                 
                 
                 
                 
                 
                 
                 
                 
                 

 

 

 

Annexure-G

{Referred in Para –14)}

Statement showing value of warehoused goods awaiting disposal order.

Name of the Commissionerate:

(Amount in lakh)

Name of bonded warehouse

No of cases

Total assessable value of goods

Duty involved at the time of warehousing

Interest upto 31.12.2002

Total of duty and interest

Period exceeding bonded period ( In months)

             
             
             
             
             
             
             
             
             

Total

           

 

Annexure-H

{Referred in Para –14}

Time expired uncleared warehoused gods lying in
different warehouses pending action under Section 72 of Customs Act 1962.

Name of the Commissionerate:

(Amount in lakh)

 

No of warehouses involved

No of cases

Total assessable value of the goods (Rs in lakh)

Duty involved and interest (Rs in lakh)

Remarks

1. Goods pending disposal action for more than 20 years

         

2. Goods pending disposal action for more than 10 years but less than 20 years

         

3. Goods pending disposal action for more than 5 years but less than 10 years

         

4. Goods pending disposal action for more than 1 year but less than5 years

         

Total