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CMA Final · Indirect Tax Laws and Practice · Manufacture in Bond

Imported materials are used under section 65 to manufacture goods in a warehouse. The duty rate on the materials is 20% and on the finished goods is 12%. Under the Customs Act, 1962, what may the Central Government do?

The Central Government may, by notification, exempt the imported materials from the whole or part of the excess rate, here 8 percentage points, if satisfied it is necessary for establishing or developing a domestic industry. The power covers only the excess, not the whole duty.

  1. AExempt the materials from the whole or part of the excess rate of 8%, by notification, if satisfied it is necessary in the interest of establishing or developing a domestic industryCorrect
  2. BExempt the finished goods from all duty automatically
  3. CExempt the materials from the whole 20% rate in every case
  4. DReduce the finished goods' rate to 20%

Explanation

Section 66 applies where the rate on imported materials exceeds the rate on the goods manufactured. Excess = 20% - 12% = 8%. The Government may, by notification and if satisfied it is necessary for developing a domestic industry, exempt the materials from the whole or part of that excess only, not the entire 20%.

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