Day 7 – Customs Warehousing (Public & Private Bonded Warehouses) — A Practitioners’ Black-Letter Guide

1 │ Primary statutory framework (Customs Act, 1962)

Provision	Exact statutory mandate
Section 57 – Licensing of public warehouse	“The Principal Commissioner of Customs or Commissioner of Customs may, subject to such conditions as may be prescribed, license a public warehouse wherein dutiable goods may be deposited.”
Section 58 – Licensing of private warehouse	“…may, subject to such conditions as may be prescribed, licence a private warehouse wherein dutiable goods imported by or on behalf of the licensee may be deposited.”
Section 59 –Warehousing bond	Requires execution of a bond equal to 3 × the assessed duty plus furnishing of prescribed security.
Section 60 – Order for removal to warehouse	Proper officer may permit removal once Section 59 compliance is complete.
Section 61 – Warehousing period & interest	(i) Initial period – 1 year. (ii) Commissioner may renew year‑wise; interest at the rate notified under Section 47(2) becomes payable from the day after expiry.
Section 73 – Cancellation of bond	Bond is cancelled only after every package is cleared / exported and all dues are paid.

Delegated legislation:

• Warehouse (Custody & Handling of Goods) Regulations, 2016 – Notification 68/2016‑Cus (N.T.)
• Private/Public Warehouse Licensing Regulations, 2016 – Notification 71/2016‑Cus (N.T.)

2 │ Bonds & security architecture (In Private Bonded Warehouse)

As per the Customs Act, 1962 and relevant CBIC Circulars (Circular Nos. 18/2016, 21/2016, and 24/2016), the following is a consolidated explanation of the bond and bank guarantee (BG) requirements applicable to Private Bonded Warehouses:

2.1 Legal Basis

• Section 59 of the Customs Act, 1962 – Requires importers to execute a bond for warehousing of imported goods.
• Section 59(3) – Mandates the furnishing of security in addition to the bond.
• Private Warehouse Licensing Regulations, 2016 – Governs licensing conditions including solvency certificate.

2.2 Types of Bonds Required

Bond Type	Applicable Under	Amount	Key Features
Consignment Bond	Section 59(1)	3 times the duty assessed	Executed for each individual consignment. Used where warehousing is not frequent.
General Bond	Section 59(2)	3 times the estimated aggregate duty	Covers multiple consignments within a specified period. Needs maintenance of debit/credit schedule annexed to the bond.

(Ref: Circular No. 18/2016-Customs)

2.3 Bank Guarantee (Security) Requirement under Section 59(3)

A. Exemptions from BG Requirement

No BG is required for the following:

• Central / State / UT Governments and their undertakings
• Goods for:
• Power generation units
• Petroleum sector
• Project imports
• Shipbuilding
• Manufacture-in-bond scheme (u/s 65)
• Diplomats
• Duty-free shops
• Ship/airline stores
• Importers under AEO/ACP schemes – governed by their respective circulars

(Ref: Circular No. 21/2016-Customs)

B. For All Other Importers (Non-sensitive Goods)

Warehousing Period	Security Requirement
Up to 1 year	No BG required
1 year ≤ 2 years	BG = 25% of duty + interest
2 years ≤ 3 years	BG = 50% of duty + interest
3 years	BG = 100% of duty + interest

C. For Sensitive Goods (Wines, Cigarettes, Precious Metals, etc.)

Warehouse Type	Requirement
Private Warehouse	BG = 100% of duty before removal from customs station
Extension Beyond Any Period	BG = 100% of duty + interest for the period sought

(Ref: Circular No. 21/2016, para 4(d))

2.4 Solvency Certificate Requirement

Regulation	Requirement
Reg. 3(1)(c), Private Warehouse Licensing	Solvency Certificate from Scheduled Bank
Amount	Equal to maximum duty likely at any time in the warehouse
Exemptions	Central/State Govts., EOUs, STPIs, and AEOs as per policy/circulars

(Ref: Circular No. 24/2016-Customs)

2.5 Recovery Mechanism

• The amount due under the bond (duty, interest, penalty) can be recovered by Customs under Section 142(1) of the Customs Act.

2.6. Key Compliance Notes

• Transit Insurance is not required if BG covers both transit and storage (for sensitive goods in private warehouses).
• Bond remains valid until goods are cleared for home consumption/export.
• Extensions require Commissioner-level approval along with BG and declaration of nondeterioration.

2.7 BG grid for storage extensions (Circular 21/2016):

Extension year	Ordinary goods	Sensitive goods in public WH	Sensitive goods in private WH
0 – 12 m	Nil	Nil	100% duty
12 – 24 m	25% (duty + interest)	50%	Duty + interest
24 – 36 m	50%	100%	Duty + interest
> 36 m	100%	100%	Duty + interest

4 │ Bond to Bond Transfer (BG/Bond)

When goods are transferred from one bonded warehouse to another bonded warehouse, the treatment of the Bank Guarantee (BG) depends on the scope and wording of the original bond and BG, as well as the jurisdictional practices of Customs authorities. Here’s a clear and practical breakdown:

✅ Legal Framework:

• Section 59 of the Customs Act, 1962 governs the requirement of bond and security for warehoused goods.
• As per Circular No. 21/2016-Customs, the BG must be submitted at the port of import (where Bill of Entry for warehousing is filed).
• Section 67 of the Customs Act allows movement of goods from one warehouse to another.

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Practical Treatment of BG during Warehouse-to-Warehouse Transfer:

Scenario	BG Transfer Required?	Explanation
General Bond with national jurisdiction coverage (mentioning movement to multiple warehouses)	No separate BG required	If the bond and BG are issued with broad coverage and include all warehouse locations, it remains valid. You must ensure goods are duly accounted for at both ends (transfer-in and transfer-out).
Consignment Bond or warehouse-specific bond	Separate BG may be required at new location	If the bond/BG is location-specific (common for sensitive goods), the new warehouse’s jurisdiction may require a fresh BG.
Sensitive Goods (Liquor, Tobacco, Precious Metals, etc.)	Fresh BG likely required at receiving warehouse	Para 4(d)(ii) of Circular 21/2016 mandates BG for each leg of movement for sensitive goods when transferring between public and private warehouses.

Important Notes:

• There is no requirement to “shift” the BG to the new jurisdiction in legal terms. Instead, either:
• The existing bond/BG must cover the entire supply chain, or
• A new BG is submitted at the receiving customs jurisdiction, typically if that port raises fresh warehousing Bill of Entry.
• Customs Procedure: A re-warehousing certificate and proper transfer documentation (Ex-bond, Into-bond B/E) must be filed to prove due accountal under Section 67.

Recommended Actions:

• Check the wording of your General Bond and BG – If it includes multiple warehouse locations, no additional BG is needed.
• Take permission under Section 67 from the jurisdictional AC/DC.
• Ensure all transfers are documented via prescribed customs forms.
• If sensitive goods are involved, plan for fresh BGs as per Circular 21/2016.

5 │ End-to-end compliance chronology

1. File Warehousing Bill of Entry; duty is provisionally assessed.
2. Execute bond & furnish BG/insurance (Section 59; Cir. 18/2016 & 21/2016).
3. Section 60 order issued; goods escorted / sealed with one‑time lock to the warehouse.
4. Arrival checks – seal verification & quantity reconciliation (Reg. 5, WCHR 2016).
5. Storage & permitted operations (Section 64 minor operations; Section 65 in‑bond manufacture with separate permission).
6. Transfers – Section 67; original bond continues, but fresh insurance/BG if not already blanket‑covered.
7. Clearance routes: (a) Home consumption – ex‑bond B/E (Section 68); pay duty + interest. (b) Export – Shipping Bill (Section 69); duty waived, drawback where eligible.
8. Bond cancellation (Section 73) once Customs accepts full reconciliation.

6 │ Warehousing period & interest matrix

Category (Section 61)	Authorised period	Extensions (12m blocks)	Interest trigger	Statutory rate ref.
All goods (general)	1 year	Commissioner may grant indefinite year‑wise extension (BG per grid)	Day after authorised period lapses	Rate notified under Section 47(2) (15 % p.a.)
Capital goods for 100% EOUs etc.	Unlimited (Section 61(1)(a))	N/A	No interest	–

7 │ Public vs Private bonded warehouses — compliance snapshot

Aspect	Public WH (Section 57)	Private WH (Section 58)
Accessibility	Any importer	Solely licensee (or authorised client)
Solvency certificate	Not required	Mandatory — Cir. 24/2016‑Cus
In‑bond manufacture (Section 65)	Prohibited	Permissible with separate permission
BG for sensitive goods	Deferred (0% first year)	100% duty up‑front
Customs presence	May station resident bond‑officer	Records‑based audit; surprise checks

7. Leading precedents every warehouse operator should know

#	Citation	Holding
1	Kesoram Rayon v. CC, 1989 (86) ELT 464 (SC)	Interest under Section 61(2) is chargeable only after expiry of the authorised period.
2	Kiran Spinning Mills v. CC, 1999 (113) ELT 753 (SC)	Duty rate and valuation are those on the ex‑bond date, not the warehousing date.
3	Pratibha Processors v. UOI, 1996 (88) ELT 12 (SC)	Where duty becomes NIL on clearance, no interest is leviable.
4	Shasun Chemicals & Drugs Ltd v. CC, 2009‑TIOL‑326‑CESTAT‑MAD	Interest continues until auction where goods are sold under Section 72 after period lapses.
5	Flemingo DFS Pvt Ltd v. CC, 2023 (8) TMI 17 (CESTAT)	Licence renewal cannot be refused once duty dispute is resolved.
6	Capgemini Technology Services India Ltd v. CC, 2021‑CESTAT‑Mum	Licence covers only inspected premises; audit scope cannot widen without notice.
7	Indian Oil Corporation v. CC, 1986 (6) ECR 130 (Tri‑Del)	Interest demand unsustainable where notice of expiry not properly served.
8	Hindalco Industries Ltd v. CC, 2008 (231) ELT 36 (Guj.)	Duty‑free exemption clears the interest liability.
9	Bangalore Wire Rod Mills case (SC, 1996)	Interest recomputation required where original period was misstated by Customs.
10	ACME Aklera Power Tech. v. CCE, 2024‑CESTAT‑Del	Capital goods warehoused under Section 61(1)(a) enjoy unlimited period; no interest.

7. Practitioner check‑list

1. Calendar the 11‑month mark of every lot; seek extensions well before expiry with fresh BG where applicable.
2. Maintain a live bond ledger (Schedule to General Bond) for Customs audit.
3. Ensure monthly returns under Reg. 11(4), WCHR 2016 are filed by the 10th of each month.
4. For bond‑to‑bond transfers, quote the originating Section 59 bond number on the form and endorse the new one‑time‑lock number.

Feedback /suggestions welcome at CA Navjot Singh | [email protected] | +91 9953357935