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CA Final · Indirect Tax Laws · Warehousing

Kaveri Traders imports machine parts and warehouses them under a bond executed under section 59. Part of the goods are later transferred to Lotus Components Ltd, an unrelated person, who wants to take over the warehoused goods. Which statement follows from section 59?

Lotus must execute its own bond, as under section 59(1) or (2), and furnish the prescribed security. Section 59(5) places this obligation on a transferee when the whole or part of the goods is transferred to another person.

  1. AKaveri's bond covers the transferee, so Lotus need not execute any bond
  2. BLotus must execute a bond as in sub-section (1) or (2) and furnish the prescribed securityCorrect
  3. CLotus need only furnish security and is exempt from executing a bond
  4. DThe goods lose warehousing status and must be cleared at once

Explanation

Section 59(5) says that where the whole or any part of the goods is transferred to another person, the transferee must execute a bond in the manner of sub-section (1) or (2) and furnish security under sub-section (3). Relying on the transferor's bond is wrong, as is security without a bond.

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