In this article, an attempt shall be made to explore the ramifications of a specific legislative change introduced in Budget 2024-25 vide Clause 101 of Finance (No.2) Bill, 2024 (‘Finance Bill’) in relation to Section 65 of the Customs Act, 1962 (‘Customs Act’). The amendment proposed under Clause 101 of the Finance Bill shall come into effect on the date of enactment of the Finance (No.2) Act, 2024.
Background of MOOWR scheme
Section 65 of the Customs Act is the foundational provision basis which the Manufacture and Other Operations in Warehouse Regulations (MOOWR) scheme was introduced under Notification No. 69/2019- Customs (N.T.) dated 1 October 2019.
Essentially, the objective behind introduction of MOOWR is to attract investment into India and to strengthen Make in India program. MOOWR allows deferment of import duties on ‘any’ goods (both inputs and capital goods) that are warehoused at the time of import in India for the purpose of carrying out any manufacturing process or other operations with no interest liability. The duties are fully remitted if the goods resulting from such operations are exported. Import duty is payable on proportional inputs only if the manufactured goods or imported goods are cleared in the domestic market
Keeping in mind the beneficial character of MOOWR, it is highlighted that prior to the proposed amendment, the language imported into Section 65 of the Customs Act was wide and liberal because it extended the benefits of MOOWR to ‘any’ warehoused goods. This understanding has been affirmed by the Delhi High Court in the case of ACME Heergarh Powertech Private Limited v. Central Board of Indirect Taxes and Customs & Anr. [Judgement dated 6 May 2024 in W.P.(C) 10537/2022]
Decision in the case of ACME Heergarh Powertech
In this case, Hon’ble High Court dealt with the issue pertaining to the legality of Instruction No. 13/2022-Cus. dated 9 July 2022 (‘Instruction No. 13/2022’) which directed the proper officers to refrain from granting any fresh licenses to solar power generating units and to review licenses issued under MOOWR because in view of the Customs Department, the activity of solar power generation fell outside the ambit of Section 65 of the Customs Act as well as the MOOWR Regulations.
For the purpose of generating solar powered electricity, M/s. Acme Heergarh Powertech Private Limited (‘petitioner’) was granted MOOWR license for warehousing imported capital goods which were used in the generation of solar power in MOOWR Unit. However, on the basis of Instruction No. 13/2022, a Show Cause Notice was issued to the petitioner, proposing to cancel the license held by the petitioner in terms of Section 65 of the Customs Act. Upon adjudication of the matter, it was held that Section 65 of the Customs Act does not make an exception for a certain category of manufacturing activities from its ambit because the provision does not use words of qualification or limitation insofar as the nature of goods is concerned.
Therefore, it was held that Section 65 cannot be recognised as being restricted or limited to a particular or compartmentalized genre of goods. Accordingly, Instruction No. 13/2022 was quashed to the extent it directed the proper officer to cancel or not grant license to solar power generation units under Section 65 of the Customs Act.
Analysis of changes introduced vide Clause 101 of the Finance Bill
As per the Budget 2024-25, Clause 101[1] of Finance Bill has proposed to insert proviso to Section 65(1) of the Customs Act to empower the Central Government to notify certain manufacturing processes and other operations in relation to a class of goods that shall not be permitted in a MOOWR unit. Hence, the proposed amendment seeks to restrict the scope of ‘any warehoused goods’ as contemplated under Section 65 of the Customs Act by empowering the Central Government to exclude the class of such goods/manufacturing and operations which would not be able to avail the benefit of MOOWR.
Conclusion
Thus, vide the amendment, the Central Government has introduced a legislative basis to limit certain manufacturing and operations/class of goods that shall not be permitted for MOOWR benefits. While the policy decision of the Central Government is understandable insofar as it seeks to possess the capability to put brakes on activities that could be perceived as a misuse of the scheme, it does leave certain questions unanswered.
There is no doubt that the MOOWR scheme has been immensely successful. However, the fact that the government possess a carte balance power to remove any operation from the ambit of MOOWR benefits without any advance notice shall dent the viability of the scheme. It shall require importers to re-consider their supply chain operations as they shall be in doubt over the longevity of the benefits that shall accrue under the scheme. Furthermore, existing units which are enjoying benefits under the scheme shall have to conduct a risk analysis as there is no visibility about sudden removal of benefits. Such units may suddenly be saddled with large customs duty liabilities if the benefits are removed without notice.
It is the opinion of the authors that such an amendment should have included additional language to provide a license holder an opportunity to switch to other schemes like EPCG/Advance Authorizations for capital goods/raw materials respectively. Alternatively, grandfathering clauses could be envisaged so as to not adversely impact the vested rights of a license holder.
[The authors are Partner and Associate, respectively, in Customs practice of Lakshmikumaran & Sridharan Attorneys, New Delhi]
[1] Clause 101 of the Finance Bill states that:
‘In section 65 of the Customs Act, in sub-section (1), the following proviso shall be inserted, namely:––
Provided that the Central Government may, if satisfied that it is necessary in the public interest so to do, by notification in the Official Gazette, specify the manufacturing processes and other operations in relation to a class of goods that shall not be permitted in a warehouse.’
