Bonded warehouses are established under the Customs Act, 1962. You can refer sections 57 to 73 under Chapter IX of Customs Act 1962 to learn the various provisions of bonded warehouse in India. Similar to this act almost all countries have legal provisions governed by their respective acts to establish the bonded warehouse. So what is a bonded warehouse? The warehouse promoter or the importer executes a bond with the Customs Department to establish the bonded warehouse, hence that name. Bonded warehouses are normally used by businesses who are in import and export business.
Let us take a scenario. One of our Italian clients, who is a supplier to leather industries across India has recently established a bonded warehouse. To avail volume and transportation discounts they import almost Rupees 100 Crore worth of goods from Italy. But this is about a year’s worth of inventory they will be supplying to their clients. Assume if the import duty for this product is 20%, then this company should pay a tax of 20 Crore upfront to customs to clear the goods. Think about this situation. Is it worth to pay the customs duty right away? That is where the role of bonded warehouses are helpful to businesses. When goods are taken into bonded warehouses the company can defer the customs duty payment to customs until the time it is taken out of the bonded warehouse. So as and when they are selling smaller quantities to their clients they can pay the customs duty only for that quantity that is released for sale. It helps the company in cash flow and working capital management.