question archive Case Study: Selling Bonded Raw Materials to Outside Market M/S
Case Study: Selling Bonded Raw Materials to Outside Market M/S
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Case Study: Selling Bonded Raw Materials to Outside Market
M/S. Scotia Ltd. is a manufacturing concern. The project is financed by XYZ bank in the form of term loan and working capital. All on a sudden, the client started to open sight L/C for raw materials from another bank .It continued to open L/Cs and sold the bonded raw materials to outside market making huge profit and evading large amount of tax. Later on, the regulatory authority detected the case and both the bank and the client fell into problem.
Causes of Failure
A thorough study of the account reveals the following reasons which caused problem to the client and the bank:
- The 2nd bank did not look into the matter why the client was not opening L/C with its parent bank or the parent bank did not allow him to do so.
- The bank should have judged the scenario why the raw materials under bonded facility were imported with sight L/C and cash retirement basis.
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With the Government’s continuous efforts to promote India as the manufacturing hub globally and the commitment towards ease of doing business, another initiative in this direction by the Central Board of Indirect Taxes (CBIC) is allowing import of raw materials and capital goods without payment of duty for manufacturing and other operations in a bonded manufacturing facility.
When the raw materials or capital goods are imported, the import duty on them is deferred. If these imported inputs are utilised for exports, the deferred duty is exempted. Only when the finished goods are cleared to the domestic market, import duty is to be paid on the imported raw materials used in the production. Import duty on capital goods is to be paid if and when the capital goods are cleared to the domestic market.
