Acme Raisar Solar Energy Private ... vs Central Board Of Indirect Taxes And ... on 6 May, 2024

Outcome
The Delhi High Court allowed the writ petitions.

• The Central Board of Indirect Taxes and Customs (CBIC) Instruction No. 13/2022-Customs dated July 9, 2022, was quashed insofar as it mandated the review of existing licenses and consequential "follow-up action."
• The Show Cause Notices (SCNs) dated July 13, 2022, and December 12, 2022, issued in purported implementation of the impugned Instruction, were quashed.
• The order dated July 19, 2022, cancelling the warehouse license in W.P.(C) 10838/2022, was quashed.
• W.P.(C) 12386/2022 concerning a provisional duty bond was disposed of in accordance with previous interim orders.
• The Court left it open for the respondents to proceed further in accordance with law, without being guided by the quashed Instruction.

Core Issue
The core issue was two-fold:

1. The validity of CBIC Instruction dated July 9, 2022, which declared the "Manufacture and other Operations in Warehouse (No.2) Regulations, 2019" (MOOWR Regulations) inapplicable to solar power generating units producing electricity, and directed the review and cancellation of existing licenses. This involved interpreting the scope of the Board's powers under Section 151A of the Customs Act, 1962.
2. The substantive question of whether solar power generation using imported capital goods within a customs bonded warehouse falls within the ambit of "manufacture or other operations in relation to such goods" as contemplated by Section 65 read with Section 61 of the Customs Act, 1962, and the MOOWR Regulations.

Key Facts

• Petitioners are solar power generating companies (e.g., Acme Raisar, Avaada, Jakson Power) that secured Power Purchase Agreements (PPAs) for electricity supply.
• They obtained licenses under Sections 58 and 65 of the Customs Act, 1962, and MOOWR Regulations, 2019, to establish private bonded warehouses and undertake solar power generation using imported capital goods (solar panels, modules, inverters).
• In their applications, petitioners clearly declared "electrical energy" as the final product and specified the imported capital goods for setting up the facility.
• The MOOWR Regulations provide for deferment of customs duty and Integrated Goods and Service Tax (IGST) on imported capital goods and inputs used in manufacturing/operations within a bonded warehouse. Post-2016 amendments to Section 61(1)(a), capital goods can remain warehoused until clearance without a specific time limit.
• Prior to April 1, 2022, Basic Customs Duty (BCD) on solar cells and modules was 'Nil', though safeguard duties were applicable. From April 1, 2022, BCD of 25%/40% was imposed on solar cells/modules.
• On July 9, 2022, CBIC issued Instruction No. 13/2022-Customs, stating that MOOWR Regulations were inapplicable to solar power generating units. The instruction reasoned that electricity (the resultant good) cannot be subjected to a "one-time-lock" for transport as required by Regulation 15 (for export) and cannot be "deposited" in a warehouse, thus falling outside MOOWR scope. It directed immediate review of existing licenses and no new permissions.
• Following the instruction, Show Cause Notices were issued to petitioners, and in one case, a license was cancelled.
• The Ministry of New and Renewable Energy (MNRE) and domestic industry associations (ISMA, NIMMA) had raised concerns about solar power developers "misusing" the MOOWR scheme to avoid duties, affecting domestic manufacturing.

Arguments (Taxpayer vs Revenue)

• Taxpayer (Petitioners):

  • Instruction's Validity: The grant/cancellation of a license is a quasi-judicial function. The CBIC Instruction pre-decides the issue and dictates specific action (review/cancellation of licenses, no new permissions), thereby usurping the quasi-judicial discretion of Customs officers and violating the proviso to Section 151A of the Customs Act.
  • Applicability of MOOWR: Sections 61 and 65, and MOOWR Regulations, do not exclude solar power generation. Section 65 applies to "any manufacturing process or other operations in relation to such goods." The phrase "in relation to" is broad, requiring only a "nexus" or "connection," not direct consumption or transformation of capital goods. Capital goods, by nature, are durable and not necessarily consumed in production. The 2016 amendments to Section 61 allow capital goods to remain warehoused indefinitely until clearance. The "one-time-lock" (Regulation 15) and "input-output norms" (Regulation 14) are for removal of resultant goods and inputs, respectively, not for capital goods like solar panels. Contemporaneous clarifications (CBIC Circulars, FAQs, 'Invest India' portal) clearly stated that capital goods could be imported under MOOWR with indefinite duty deferment, and their duty would not be incorporated into finished goods. Petitioners had transparently declared their operations.
  • Policy: While recognizing policy to promote domestic manufacturing, a court cannot rewrite clear statutory provisions based on perceived adverse economic impacts or policy changes.

• Revenue (CBIC):

  • Policy Context: The Instruction aligns with the Union Government's policy to promote domestic manufacturing of solar cells/modules and discourage imports, as evidenced by new BCD levies and amendments to Project Import Regulations. The MOOWR scheme was being misused to circumvent duties.
  • Interpretation of Sections 61 & 65: Section 65's phrase "in relation to such goods" implies that the warehoused goods (capital goods in this case) must themselves undergo manufacturing or other operations and be consumed or transformed. Solar panels merely "aid" in generating electricity from sunlight (which is not an imported/warehoused good), they are not "worked upon" or "consumed." Therefore, solar power generation does not qualify.
  • MOOWR Regulations: Electricity cannot be "deposited" in a warehouse, nor can a "one-time-lock" be affixed to its "means of transport" as required by Regulation 15 for export. Regulation 14's requirement of specifying "warehoused goods contained in so much of the resultant goods" is impossible for electricity generated from non-consumed capital goods. The Board has not exempted electricity under Regulation 20.
  • Purposive Interpretation: The provisions should be interpreted purposively to prevent misuse and support the government's industrial policy.

Court’s Reasoning

• Invalidity of CBIC Instruction (Section 151A):

  • The Court held that the power to grant or cancel a warehouse license under Sections 58/65 and 58B is a quasi-judicial function requiring independent judgment.
  • Section 151A empowers CBIC to issue general instructions for uniformity but explicitly restricts it from directing officers to make a "particular assessment" or "dispose of a particular case in a particular manner" or interfere with their discretion.
  • Paragraph 5 of the impugned Instruction issued a peremptory direction to Customs officers, pre-determining that solar power generation falls outside MOOWR and mandating immediate review and "follow-up action" (i.e., cancellation) of existing licenses and denial of new ones. This directly violated the proviso to Section 151A, stripping officers of their quasi-judicial discretion.
  • This constituted an abdication of independent decision-making power and interference with quasi-judicial functions, which is impermissible. The SCNs, being a direct consequence of this binding instruction, were also invalid.

• Applicability of MOOWR Regulations to Solar Power Generation:

  • Sections 61 & 65 Interpretation: The Court rejected the Revenue's narrow interpretation. The 2016 amendments to Section 61 removed the time limit for capital goods in warehouses used for Section 65 operations, implying indefinite deferment until clearance.
  • Scope of "Manufacture or Other Operations": Section 65's language ("any manufacturing process or other operations") is broad and does not explicitly exclude any industry, type of good (tangible/intangible), or specific manufacturing activity. "Other operations" expands the scope beyond traditional manufacturing.
  • Meaning of "in relation to such goods": The phrase "in relation to" implies a "causal link," "connection," "association," or "concern" between the imported capital goods (solar panels) and the operations (electricity generation). It does not mandate that the capital goods themselves must be consumed, transformed, or form part of the resultant product. Capital goods are durable assets for repetitive use in production.
  • Irrelevance of Specific Regulations:
    • Input-Output Norms (Regulation 14): These are designed for inputs/raw materials that get consumed, not for capital goods. Their non-applicability to solar panels does not exclude solar generation from the scheme.
    • One-time-lock (Regulation 15): This applies to resultant goods removed for export, not home consumption, and is impractical for electricity. Its non-applicability to electricity does not negate the overall scheme for capital goods.
    • Depositing electricity: The argument that electricity cannot be "deposited" in a warehouse (Section 2(44)) is irrelevant to the initial warehousing of capital goods used in the operation.
  • Contemporaneous Interpretation: The CBIC's own FAQs, Circular No. 34/2019, and the 'Invest India' portal explicitly promoted MOOWR as a duty deferment scheme for both raw materials and capital goods, with no time limitation on capital goods warehousing, and clarified that duty on capital goods is payable only upon their clearance to the domestic market, not incorporated into finished goods. This consistent understanding supported the petitioners' activities.

• Purposive Interpretation and Policy: The Court acknowledged the Union's policy objectives to promote domestic manufacturing but held that judicial interpretation must adhere to the clear statutory language. It found no ambiguity, absurdity, or contradiction in Sections 61 and 65 that would warrant deviating from their plain meaning. The Court emphasized that it cannot legislate or introduce new conditions of ineligibility based on the executive's subsequent experience or perceived negative impact on domestic industry.

Statutory References

• Customs Act, 1962:
  • Section 2(43), 2(44) (Definitions of 'warehouse', 'warehoused goods')
  • Section 12(1) (Charging section)
  • Section 15 (Date for determining duty rate)
  • Section 47 (Clearance for home consumption)
  • Section 58, 58B (Licensing & Cancellation of private warehouses)
  • Section 60(1) (Permission for deposit)
  • Section 61 (Period for which goods may remain warehoused, as amended by Act 28 of 2016)
  • Section 65 (Manufacture and other operations in relation to goods in a warehouse)
  • Section 65A (Goods brought for operations in warehouse to have ordinarily paid certain taxes - not yet enforced)
  • Section 151A (Instructions to officers of customs)
• Manufacture and other Operations in Warehouse (No.2) Regulations, 2019 (MOOWR Regulations):
  • Regulations 3, 4, 5, 6 (Application, Eligibility, Grant, Validity of permission)
  • Regulation 14 (Removal of resultant goods for home consumption)
  • Regulation 15 (Removal of resultant goods for export)
  • Regulation 20 (Power to exempt)
• Other Statutes: Customs Tariff Act, 1975; Central Excise Act, 1944; Central Goods and Services Tax Act, 2017; Integrated Goods and Services Tax Act, 2017.

Precedents Cited

• On Quasi-Judicial Function & Interference by Executive:
  • Indian National Congress (I) vs. Institute of Social Welfare & Ors (2002)
  • Jaswant Sugar Mills Ltd v. Lakshmi Chand & Ors (1963)
  • Orient Paper Mills Ltd. vs Union of India (1969)
  • Faridabad Iron & Steel Traders Association vs. Union of India (2003)
  • Varsha Plastics Pvt. Ltd. vs. Union of India (2009)
  • Anirudhsinhji Karansinhji Jadeja vs. State of Gujarat (1995)
  • Commissioner of Police, Bombay vs. Gordhandas Bhanji (1952)
  • The Bullion and Jewellers Association (Regd.) vs. UOI & Ors (2016)
  • Union of India v. Karvy Stock Broking Ltd. (2015)
  • Sandur Micro Circuits Ltd. v. CCE (2008)
• On Interpretation of "in relation to":
  • M/s. Doypack Systems Private Limited v. UOI & Ors (1988)
  • Maxopp Investment Limited v. CIT, New Delhi (2018)
  • Mansukhlal Dhanraj Jain v. Eknath Vithal Ogale (1995)
  • Maruti Suzuki Limited v. Commissioner of Central Excise, Delhi (2009)
• On Purposive Interpretation & Statutory Construction:
  • Raghunath Rai Bareja & Anr. vs. Punjab National Bank & Ors. (2007)
  • M K Ranjitsinh & Ors vs. Union of India & Ors (2024) (on climate change/solar power policy)
  • References to legal treatises: G.P. Singh's Principles of Statutory Interpretation, Craies on Legislation, Cross on Statutory Interpretation, Maxwell on the Interpretation of Statutes.