A batch of writ petitions challenged the validity of a Central Board of Indirect Taxes and Customs (CBIC) instruction dated July 9, 2022. The instruction, issued under section 151A of the Customs Act, 1962, pertained to the warehousing of imported capital goods used in the solar power-generation and the asserted inapplicability of the Manufacture and other Operations in Warehouse Regulations, 2019 (MOOWR Scheme).
The board argued that solar power-generating units operating from designated warehouses and clearing electricity for home consumption are ineligible under the MOOWR Scheme. The key issue was whether solar power-generation qualifies an operation or activity permissible under Section 65 of the Customs Act, 1962, thereby making solar power-generating companies eligible for duty deferment on imported capital goods under the MOOWR Scheme.
The Petitioners contended that the instructions deprived the Customs authorities of their statutory discretion in assessing and granting licenses. They argued that the license granted under the MOOWR regulations is a judicial act involving an investigation, inquiry and verification by the customs officer before issuance. Furthermore, they asserted that section 65 of the Customs Act permits manufacturing operations within a warehouse without excluding any specific industry, including solar power- generation.
The Hon’ble High Court of Delhi (Delhi HC/Court) ruled in favor of the Petitioners stating that the mandatory instructions to cancel all permissions granted to solar power-generating units amounted to impermissible interference with the quasi-judicial discretionary powers of licensing authorities. Regarding the interplay of section 61 and 65 of the Customs Act, the Court noted that the terms “capital goods” are durable assets that aid in production and are not required to be consumed or form part of the resultant goods during the manufacturing process.
Additionally, the Court held that the MOOWR Scheme applies to both imported capital goods and inputs for further processing, without exclusion based on the nature of the resultant goods. The duty deferment on imported capital goods is without any time limitation, and duty is payable only when the capital goods themselves are cleared into the domestic market. The Court emphasized that it cannot modify the express legislative language or decline to apply a statutory provision simply because it leads to undesirable results.
The judgment is a welcome step towards effectuating the MOOWR Scheme, which was introduced to provide a duty-free import of goods for manufacturing purposes. With the Court’s affirmation, the solar industry can now avail benefits under the scheme, However, there is a possibility that the department will challenge this judgment before the Hon’ble Supreme Court of India. While the outcome is unpredictable, given the strong arguments on both the sides, the industry needs to be cautious while availing the benefits under the scheme.