The concept of import of goods into India is one of the most rigid laws that prevail in the country today and the department does take the concept of import duty and its chargeability seriously as it is one of the major sources of generating tax in the country. In case a manufacturer imports goods for production within the country, he has to pay an import duty on the goods, which makes his cost of production costlier. In such context, it becomes a reason for a sad event which discourages manufacturing in the country with the aid of imported goods.
For the relief of such manufacturer s, the custom act has kept a considerable section for them which allow them carry on the production process without paying import duty on the imported goods. The basis of such allowance is that the goods will not clear the custom tariff area and the duty on such imported goods shall remain due. Once the goods have been imported, the manufacturer has to warehouse those goods instead of clearing them for home consumption, otherwise respective prevailing duty needs to be paid. Once the goods have been shifted to the warehouse, the manufacturer, with the consent of custom authority can set up a manufacturing unit within the manufacture and carry on his own manufacturing process in the warehouse itself. This will allow production of goods within the custom area and it will not attract any sort of duty or penalty. Once the goods have been manufactured, the manufacturer can very well export them back either to the same country or to any third country. In such a case, his duty liability will remain nil, provided the manufacturer has destroyed every bit of waste and scrap that is left after carrying on the manufacturing process. In case, the manufacturer wants to take them or leaves it without any treatment, such shall be chargeable to duty at the same rate at which duty is imposed on imported goods.
On the other hand, if the manufacturer wants to clear the goods for home consumption, the new value of goods after manufacture will be chargeable to import duty, which is not a very intelligent idea to save your duty.
But it shall be remembered, that warehousing the imported goods will attract each and every provision of warehouse with reference to custom act, that is, the manufacturer shall be liable to execute a bond which amounts to twice as of the cost of goods before keeping the goods in the respective warehouse.
Thus, we come to know, that the custom authorities have kept certain issues that favors the manufacturers who have to depend on imported goods as their raw materials, hence, duty has not been levied against it as they will again be re-exported and the rate of import duty shall be counter balanced by such act. But it should be remembered that if goods are cleared for home consumption, import duty needs to be paid in any condition, as it would be crossing the custom barrier.
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