CMA Final · Indirect Tax Laws and Practice

Manufacture in Bond: CMA Final Paper 19 Chapter Guide

Manufacture in bond means making goods inside a customs warehouse from imported materials without paying import duty up front. The importer executes a bond under section 59 for thrice the assessed duty. Section 66 allows relief on excess duty rate. Section 73 cancels the bond once goods are cleared, exported or accounted for and dues are paid.

What this chapter covers

This chapter deals with the customs warehousing route. Imported materials go into a warehouse on a bill of entry for warehousing. Duty is not paid at the time of import. The importer binds himself by a bond to comply with the law and to pay dues later. Materials can then be used to manufacture goods in the warehouse, and the chapter follows the bond from its start to its end.

Three sections carry the chapter. Section 59 is the warehousing bond: who executes it, for what amount, and what it promises. Section 66 is a power of the Central Government to exempt imported materials from the excess rate of duty when the materials bear a higher rate than the finished goods. Section 73 is the closing step: cancellation and return of the bond.

The chapter links to the rest of Paper 19 in a clear way. It sits next to warehousing, valuation and assessment, duty drawback and exemptions under the Customs Act. Section 66 and the drawback rules under section 75 both deal with relief on duty paid or payable on imported inputs, and exam questions often test whether you can tell them apart. Section 25 on exemption in the public interest is the general power behind many notifications.

This chapter is short and the law is precise, so it suits both MCQs and short written answers. Questions usually ask for the bond amount, the conditions of a general bond, the condition for section 66, or when a bond is cancelled. These are easy marks if you know the exact wording and lose marks if you rely on a vague memory. The chapter also trains you to read a customs section closely, which helps across the whole paper.

Manufacture in Bond: topics in the order to study them

1Manufacture in Bond: Concept and ScopeStart here so you understand the idea of duty-free import into a warehouse and manufacture there before reading the sections.
2Warehousing Bond under Section 59The bond is the foundation of the whole scheme, and the other two sections refer back to it.
3Exemption of Imported Materials under Section 66Read this after the bond, because it applies to materials used in manufacture in the warehouse and depends on a comparison of duty rates.
4Cancellation and Return of Bond under Section 73Finish with the end of the cycle, which only makes sense once you know what the bond covers.

How to prepare Manufacture in Bond

The chapter is small, so the aim is exact recall of conditions plus the ability to apply them to a short case.

Read the concept topic first and draw a simple flow: import, warehousing bill of entry, assessment, bond, manufacture or storage, clearance or export, bond cancelled.
Learn section 59 line by line. Note that the bond is for a sum equal to thrice the duty assessed and that it covers three undertakings: comply with the law, pay duties and interest on demand, and pay penalties and fines.
Add the variations in section 59: a general bond for goods imported within a specified period, in an amount the Assistant or Deputy Commissioner approves; security in addition to the bond; continuation of the bond on transfer to another warehouse; and a fresh bond by a transferee.
Learn section 66 as a condition test: materials used under section 65, duty rate on materials higher than on the goods, Central Government satisfied that it is necessary for establishing or developing a domestic industry, exemption by notification from the whole or part of the excess.
Learn section 73 as a checklist: all goods covered by the bond cleared for home consumption, exported, transferred or otherwise duly accounted for, and all dues paid. Then the proper officer cancels the bond and delivers it on demand.
Compare sections 66 and 75 and section 25 in one small table in your own notes so you do not mix them up.
Practise short case questions where you must state the bond amount or decide whether a bond can be cancelled, and check each answer against the exact wording.

Common mistakes in Manufacture in Bond

Writing the bond amount as equal to, or twice, the duty.
Fix: Fix it as thrice the duty assessed, and say that it is a sum under section 59(1).
Treating section 66 as a full exemption of imported materials.
Fix: Write that the exemption is only from the whole or part of the excess of the rate on materials over the rate on the goods.
Leaving out the condition of domestic industry in section 66.
Fix: State all conditions: use under section 65, higher rate on materials, satisfaction of the Central Government on domestic industry, and a notification.
Cancelling the bond as soon as goods are cleared, without checking dues.
Fix: Check two things in every case: all goods covered are accounted for, and all amounts due are paid.
Mixing up section 66 relief, section 75 drawback and section 25 exemption.
Fix: Remember: section 66 is excess duty on materials used in warehouse manufacture, section 75 is drawback on materials in exported goods, section 25 is a general public-interest exemption.
Forgetting that a transfer needs a new bond from the transferee.
Fix: Separate the two cases: transfer of goods to another warehouse keeps the importer's bond in force; transfer of goods to another person requires that person to execute a bond and furnish security.

Last-day revision: Manufacture in Bond

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.

Manufacture in Bond practice questions

Manufacture in Bond in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

CA FinalWarehousing

Manufacture in Bond: frequently asked questions

What is manufacture in bond under the Customs Act?

It is the manufacture of goods in a customs warehouse using imported materials that were brought in on a bill of entry for warehousing. Duty is not paid at import. The importer instead executes a bond and pays duty when the goods are cleared.

What is the amount of the warehousing bond under section 59?

The bond is for a sum equal to thrice the amount of duty assessed on the goods. The Assistant or Deputy Commissioner of Customs may also permit a general bond in an approved amount for goods to be imported within a specified period.

When does section 66 apply?

It applies when imported materials are used for manufacture in a warehouse and the duty rate on the materials is higher than the rate on the goods made. If the Central Government is satisfied that it is necessary for a domestic industry, it may exempt the materials from the whole or part of the excess by notification.

When is a warehousing bond cancelled under section 73?

The proper officer cancels the bond when the whole of the goods covered have been cleared for home consumption, exported, transferred or otherwise duly accounted for, and all amounts due have been paid. The cancelled bond is delivered on demand to the person who executed it or is entitled to receive it.