CMA Final · Indirect Tax Laws and Practice

Manufacture in Bond: formula sheet

Full chapter guide

Key formulas

Section 65(1): permission rule: Owner of warehoused goods + permission of Principal Commissioner/Commissioner + prescribed conditions = may carry on manufacture or other operations in the warehouse; Permission is from the Commissioner level, not from the proper officer alone. The facility is available to the owner of the goods.
Section 65(2)(a): waste when resulting goods are exported: Duty remitted on warehoused goods contained in waste, if waste is destroyed OR duty is paid on it as if imported in that form; Applies if the whole or any part of the resulting goods is exported, and to waste arising from the goods exported.
Section 65(2)(b): waste when resulting goods are cleared for home consumption: Import duty is charged on the quantity of warehoused goods contained in the waste or refuse; Applies to waste arising from operations on goods cleared for home consumption.
Section 66: excess rate exemption: If duty rate on imported materials > duty rate on goods made, Central Government may exempt the excess (whole or part) by notification; Only if satisfied it is necessary for the establishment or development of a domestic industry.
Section 59(1): bond amount: Bond amount = 3 × duty assessed on the goods; Bond is executed by the importer after the bill of entry for warehousing is assessed.
Bond amount (specific bond): Bond amount = 3 × duty assessed on the goods; Section 59(1): a sum equal to thrice the duty assessed. Duty means the duty assessed under section 17 or 18.
General bond: Amount = as approved by AC/DC of Customs; Section 59(2): for goods to be imported within a specified period. The amount is approved by the officer, not fixed at three times.
Security requirement: Bond + prescribed security; Section 59(3): security is in addition to the bond, whether specific or general.
Transfer to another warehouse: Same bond continues; Section 59(4): no fresh bond is needed when goods move to another warehouse.
Transfer to another person: Transferee executes bond + security; Section 59(5): applies to whole or part of the goods transferred.
Demand on default: Duty + interest, fine, penalties; Section 72(1)(d): where bonded goods are neither cleared nor duly accounted for, the proper officer may demand these and the owner must pay forthwith.
Excess rate of duty: Excess rate = Rate of duty on imported materials − Rate of duty on finished goods; Section 66 operates only when this is positive. The exemption can cover the whole or part of the excess.
Conditions for exemption under section 66: Materials used under s.65 + material rate > goods rate + Central Government satisfied (domestic industry) + Gazette notification; All four elements are needed. The power is by notification, not an individual officer's order.
Clearance for home consumption (section 68): Bill of entry presented + import duty, interest, fine and penalties paid + order of proper officer; Warehoused goods can be cleared only when all three are met. The order may also be made electronically on risk evaluation.
Waste or refuse (section 65(2)): Exported: duty remitted on the warehoused goods contained in the waste, if the waste is destroyed or duty is paid on it as if imported in that form. Cleared for home consumption: duty is charged on that quantity.; Applies to waste or refuse arising from the operations in the warehouse.
Conditions for cancellation (Section 73): Whole of goods cleared/exported/transferred/otherwise duly accounted for AND all amounts due paid ⇒ bond cancelled as discharged in full; Both conditions are needed. Part clearance does not discharge the bond.
Who acts: Proper officer cancels; delivers the cancelled bond on demand; Delivery goes to the person who executed the bond or who is entitled to receive it.
Bond amount under Section 59(1): Bond sum = 3 × duty assessed on the goods; Gives the background to what Section 73 discharges. A general bond under Section 59(2) is for an amount the Assistant or Deputy Commissioner approves.
Ways goods leave the bond: Home consumption | Export | Transfer | Otherwise duly accounted for; These are the four routes named in Section 73.

Quick revision

Manufacture in bond: imported materials are used to make goods in a warehouse without paying import duty at the time of import.
Section 59 applies where a bill of entry for warehousing has been presented under section 46 and assessed to duty under section 17 or section 18.
The section 59 bond is for a sum equal to thrice the amount of duty assessed.
The bond binds the importer to comply with the Act, pay duties and interest on demand, and pay penalties and fines.
A general bond may be permitted by the Assistant or Deputy Commissioner of Customs for goods to be imported within a specified period, in an approved amount.
Security as prescribed must be furnished in addition to the bond.
The bond stays in force even if goods move to another warehouse; a transferee of goods must execute his own bond and furnish security.
Section 66 applies when the duty rate on imported materials exceeds the rate on the goods made from them.
Under section 66 the Central Government must be satisfied that exemption is necessary for the establishment or development of a domestic industry, and acts by notification.
Section 66 exempts from the whole or part of the excess rate, not from all duty.
Section 73: the bond is cancelled when all goods are cleared, exported, transferred or duly accounted for and all dues are paid.
After cancellation the proper officer delivers the cancelled bond on demand to the person who executed it or is entitled to receive it.

Common mistakes

Treating manufacture in bond as automatically available to every warehouse owner. Fix: Always write that permission of the Principal Commissioner or Commissioner of Customs and prescribed conditions are required.
Saying duty is always remitted on waste. Fix: Remission applies when resulting goods are exported, and then the waste must be destroyed or duty paid on it as if imported in that form. For home consumption, duty is charged.
Taking the bond amount as equal to the duty or as the value of goods Fix: Write 'thrice the duty assessed' at the start of your answer and compute 3 × duty.
Treating the security as a substitute for the bond Fix: Section 59(3) says security is in addition to the bond.
Saying the exemption is available whenever goods are made in a warehouse. Fix: Remember the extra conditions: higher material rate, Central Government satisfaction, domestic industry interest and a Gazette notification.
Exempting the full duty on materials instead of only the excess. Fix: Section 66 reaches only the excess rate, in whole or in part. The duty up to the finished goods' rate stays payable.
Saying the bond is cancelled once part of the goods is cleared. Fix: The section speaks of the whole of the goods. Cancellation needs full clearance or accounting.
Ignoring the payment condition and cancelling after clearance alone. Fix: Always check that all amounts due on the goods are paid before declaring discharge.

Exam tips

In MCQs, watch for the words 'permission of the Commissioner'; options that omit permission are usually wrong.
Learn the two limbs of Section 65(2) as a pair: export means remission with a proviso; home consumption means duty is charged.
For comparison questions, write a two-column style answer in sentences: purpose, permission, processing, treatment of waste.
Do not quote section numbers you are unsure of; the sections in this topic are 59, 61, 65, 66 and 73.
Learn the figure 'thrice the duty assessed' and the three undertakings in (a), (b) and (c) of section 59(1).
Distinguish specific bond, general bond, transfer to another warehouse and transfer to another person in four lines.
In case scenarios, check whether the goods are wholly cleared or accounted for. That points to cancellation under section 73 or demand under section 72.
In MCQs, watch for options using value of goods or duty plus interest as the bond base. Both are wrong.