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

Outcome**
The Delhi High Court allowed the writ petitions, quashing the Central Board of Indirect Taxes and Customs (CBIC) Instruction dated 09 July 2022 insofar as it mandated the review and "follow-up" action for existing MOOWR licenses pertaining to solar power generation. Consequential Show Cause Notices (SCNs) issued to the petitioners for license cancellation were also quashed. A specific order cancelling a petitioner's license was also set aside.

2. Core Issue
The central issue was the validity of a CBIC Instruction which declared that the Manufacture and other Operations in Warehouse (No.2) Regulations, 2019 (MOOWR Regulations), framed under Section 65 of the Customs Act, 1962, were inapplicable to solar power generating units where electricity is the resultant good. This instruction mandated Customs authorities to review and cancel existing MOOWR licenses for such units and to refrain from granting new ones, leading to challenges against the instruction and consequential SCNs issued to solar power developers for license cancellation. The Court also broadly examined whether solar power generation constitutes a permissible "manufacturing process or other operations" under Section 65 of the Customs Act, 1962.

3. Key Facts
* Petitioners: Solar power generating units (e.g., ACME and AVAADA entities, Jakson Power) that secured licenses under MOOWR Regulations to import capital goods (solar panels, modules, inverters) for setting up solar power plants and defer import duties.
* MOOWR Regulations (01.10.2019): Enabled duty deferment on imported capital goods and inputs used in manufacturing or other operations within a customs bonded warehouse. For capital goods, the deferment was without a specific time limitation, until clearance for home consumption.
* Petitioner's Operations: Petitioners entered into Power Purchase Agreements (PPAs) to supply electricity to State Electricity Boards for 25 years, declaring "electrical energy" as the final product in their MOOWR license applications.
* Pre-existing Duty Regime: Before 01.04.2022, Basic Customs Duty (BCD) on solar cells and modules was 'Nil', though safeguard duties were applicable. Effective 01.04.2022, BCD became 40% on modules and 25% on cells due to withdrawal of exemptions, reflecting a policy shift to promote domestic manufacturing.
* Impugned Instruction (09.07.2022): Issued by CBIC under Section 151A of the Customs Act, asserted that electricity as a resultant good is incompatible with MOOWR Regulation 15 (export requiring a one-time-lock on transport) and cannot be warehoused. It directed Customs officers to "immediately review" existing permissions and take "necessary follow up action" (implying cancellation) and cease granting new permissions for solar power generation.
* Consequences: Show Cause Notices were issued to petitioners for license cancellation, and in one case, a license was directly cancelled.
* Contemporaneous Interpretation: CBIC's own FAQs and promotional material on the "Invest India" portal had earlier stated that MOOWR applied to capital goods, allowed duty deferment without time limits, and clarified that duty on capital goods was payable only when cleared to the domestic market, not on finished goods.

4. Arguments (Taxpayer vs Revenue)

Taxpayer (Petitioners):
* Validity of the CBIC Instruction: The grant and cancellation of MOOWR licenses by Customs officers are quasi-judicial functions. The impugned Instruction, by explicitly concluding that solar power generation is ineligible and mandating review/cancellation of existing licenses, directly interferes with the quasi-judicial discretion of Customs officers. This violates the proviso to Section 151A of the Customs Act, which prohibits instructions requiring officers to make a particular assessment or dispose of a case in a particular manner. It amounts to an impermissible dictate from a superior authority.
* Interpretation of MOOWR/Customs Act: Section 65 of the Customs Act permits "any manufacturing process or other operations" in relation to "any warehoused goods" (including capital goods) without excluding any specific industry or tangible/intangible products. Section 61(1)(a) specifically allows capital goods to remain warehoused until clearance for home consumption, without a time limit, if used in a Section 65 warehouse. The phrase "in relation to such goods" is broad, implying a connection or association, not necessarily that the capital goods must be consumed or transformed into the resultant product. The inability to affix a "one-time-lock" to electricity or its non-depositability in a warehouse is irrelevant as these provisions are primarily for tangible goods/inputs, and capital goods operate differently.
* Legitimate Expectation/Promissory Estoppel: The petitioners obtained licenses based on CBIC's own policy pronouncements (FAQs, "Invest India" portal, Circulars) which unequivocally promoted the MOOWR scheme for capital goods without time limits, implicitly covering activities like theirs, where declarations were transparently made.

Revenue (CBIC & Customs Authorities):
* Policy & Legislative Intent: The impugned Instruction aligns with the Union's policy to promote domestic manufacturing of solar cells and modules (Make in India, Atma Nirbhar Bharat) and prevent misuse of MOOWR for duty avoidance. The subsequent amendments to Project Import Regulations (excluding solar projects) underscore this policy.
* Interpretation of MOOWR/Customs Act: Section 65's phrase "in relation to such goods" means that the warehoused goods (solar panels/cells) themselves must undergo a manufacturing process or operations, leading to their consumption or transformation. Sunlight, the primary input for electricity, is not "warehoused goods." Solar panels are simply used as tools, not as inputs that are worked upon or consumed. Provisions in MOOWR Regulations 14 and 15 (e.g., "warehoused goods contained in so much of the resultant goods," "affixing a one-time-lock") are unworkable for electricity, indicating legislative intent to exclude it. Allowing solar power generation under MOOWR circumvents BCD and GST on imported capital goods, creating an unfair competitive disadvantage for domestic manufacturers.
* Validity of the Instruction: The Instruction is a legitimate clarification issued under Section 151A to ensure uniformity and prevent misuse of the scheme, not an interference with quasi-judicial functions.

5. Court’s Reasoning

• Invalidity of CBIC Instruction: The Court held that the CBIC Instruction directly violated the proviso to Section 151A of the Customs Act. The instruction issued a "peremptory direction" commanding Customs officers to consider all existing permissions for solar power generation as contrary to law and initiate "follow-up action" (i.e., cancellation). This preempted any independent quasi-judicial assessment by the licensing authorities, rendering the SCNs a mere formality. Such dictation by a superior authority over quasi-judicial functions is impermissible in administrative law, as established by numerous Supreme Court precedents. The petitioners had fully disclosed their operations in their license applications, which were duly granted.
• Interpretation of Sections 61 and 65, and MOOWR:
  • Section 61: The 2016 amendments to Section 61(1)(a) removed the previous time limit for capital goods warehoused for use in Section 65 operations, allowing them to remain warehoused until "clearance from the warehouse." This signifies legislative intent for long-term deferment for capital goods.
  • Section 65: The provision uses broad terms like "any manufacturing process or other operations" in relation to "any warehoused goods." It does not contain any express or implied exclusion for specific industries, types of goods (tangible/intangible), or activities where capital goods are not consumed or transformed.
  • "Other Operations": This phrase expands the scope beyond traditional manufacturing, covering activities where capital goods contribute to the process without being integrated into the final product.
  • "In relation to such goods": Interpreting this phrase, the Court affirmed its wide import, meaning "concerning with," "pertaining to," or "having a connection or association with" the warehoused goods. It merely requires a causal link between the imported capital goods and the manufacturing activity, not their consumption or transformation. Solar panels, by converting sunlight to electricity, are clearly used "in relation to" the warehoused capital goods.
  • Input-Output Norms (Regulation 14): These norms are relevant for raw materials/inputs that get consumed in manufacturing but are not universally applicable to capital goods which are durable and yield products without being consumed themselves. Their inapplicability to electricity generation does not negate the scheme's applicability.
  • Contemporaneous Material: CBIC's own circulars, FAQs, and promotional materials (like the "Invest India" portal) consistently explained MOOWR benefits as extending to both raw materials and capital goods, emphasizing duty deferment without time limits for capital goods, and clarified that duty on capital goods is payable only upon their clearance to the domestic market. This strongly indicated the scheme's intended broad applicability, not a restrictive one.
• Purposive Interpretation & Policy Concerns: While acknowledging the government's policy goals to promote domestic solar manufacturing and level the playing field, the Court emphasized that its role is to interpret the statute as it exists, not to rewrite it or introduce exclusions based on executive policy concerns or perceived "anomalies." The language of Sections 61 and 65 is clear; therefore, applying purposive interpretation to create an exclusion would amount to judicial legislation, which is impermissible, especially in taxing statutes.

6. Statutory References
* Customs Act, 1962: Sections 2(43), 2(44), 12(1), 14, 15, 46, 47, 48, 57, 58, 58A, 58B, 59, 60, 61 (and its amendments by Act 28 of 2016), 65, 65A, 68, 69, 151A (and its proviso), 157, 143AA.
* Customs Tariff Act, 1975: Section 8B, Tariff Entries 8541 42 00, 8541 43 00, CTH 9801.
* Manufacture and other Operations in Warehouse (No.2) Regulations, 2019: Regulations 3, 4, 5, 6, 8, 10, 11, 13, 14, 15, 20.
* Central Goods and Services Tax Act, 2017: Sections 2(19), 2(59), 7, 9.
* Integrated Goods and Services Tax Act, 2017: Section 5.
* Central Excise Act, 1944: Section 37B.
* Private Warehouse Licensing Regulations, 2016.
* Customs (Import of goods at Concessional Rate of Duty) Rules, 2017.
* Customs (Import of Goods at Concessional Rate of Duty or for Specified End Use) Rules, 2022.
* Customs (Provisional Duty Assessment) Regulations, 2011.

7. Precedents Cited
1. Indian National Congress (I) vs. Institute of Social Welfare & Ors (2002)
2. Jaswant Sugar Mills Ltd v. Lakshmi Chand & Ors (1963)
3. Sukhlal vs Collector, Satna (1968)
4. State of U.P. v. Mohd. Nooh (1958)
5. Orient Paper Mills Ltd. vs Union of India (1969)
6. Faridabad Iron & Steel Traders Association vs. Union of India (2003)
7. Genset Engineers Pvt. Limited v. Union of India (1989)
8. Varsha Plastics Pvt. Ltd. vs. Union of India (2009)
9. Anirudhsinhji Karansinhji Jadeja vs. State of Gujarat (1995)
10. Commissioner of Police, Bombay vs. Gordhandas Bhanji (1952)
11. M/s. Doypack Systems Private Limited v. UOI & Ors (1988)
12. State Wakf Board v. Abdul Azeez (1968)
13. Nitai Charan Bagchi v. Suresh Chandra Paul (unspecified date)
14. Shyam Lal v. M. Shyamlal (1933)
15. Maxopp Investment Limited v. CIT, New Delhi (2018)
16. CIT v. Walfort Share and Stock Brokers (P) Ltd. (2010)
17. Haji Ismail Noor Mohammad & Company v. State of Uttar Pradesh & Anr (1973)
18. Suresh Kumar v. State of Uttar Pradesh & Ors (2019)
19. Dharambeer Singh Vs. State of U.P. and Ors. (2004)
20. Alok Kumar Pandey Vs. State of U.P. and Ors. (1999)
21. Nirmal Chandra Mishra and Ors. v. State of U.P. and Ors. (1997)
22. B.Ed. Berozgar Sangh, Sonnhadra and Ors Vs. State of U.P. and other (1997)
23. Mohd. Riazul Usman Gani and Ors. Vs. District and Session Judge, Nagpur and Ors. (2000)
24. Mansukhlal Dhanraj Jain v. Eknath Vithal Ogale (1995)
25. Renusagar Power Co. Ltd. v. General Electric Co. (1984)
26. Maruti Suzuki Limited v. Commissioner of Central Excise, Delhi (2009)
27. The Bullion and Jewellers Association (Regd.) vs. UOI & Ors (2016)
28. Union of India v. Madras Steel Rollers Association (2012)
29. Collector of Central Excise v. Dhiren Chemical Industries (2002)
30. Union of India & Ors vs. Karvy Stock Broking Ltd. (2015)
31. Union of India v. Inter Continental (India) (2008)
32. Sandur Micro Circuits Ltd. v. CCE (2008)
33. UCO Bank v. CIT (1999)
34. Allen Diesel India P. Ltd. v. Union of India (2016)
35. Modi Rubber Ltd. v. Union of India (1978)
36. M K Ranjitsinh & Ors vs. Union of India & Ors (2024)
37. State of Karnataka v. Azad Coach Builders (P) Ltd. (2010)
38. Navin Chemicals Mfg. and Trading Co. Ltd. v. Collector of Customs (1993)
39. Raghunath Rai Bareja & Anr. vs. Punjab National Bank & Ors. (2007)
40. Nasiruddin v. Sita Ram Agarwal (2003)
41. E. Palanisamy v. Palanisamy (2003)
42. Hiralal Ratanlal v. STO (1973)
43. Swedish Match Abv. Securities and Exchange Board of India (2004)
44. Prakash Nath Khanna v. CIT (2004)
45. Delhi Financial Corpn. V. Rajiv Anand (2004)
46. Govt. of A.P. v. Road Rollers Owners Welfare Assn. (2004)
47. J.P. Bansal v. State of Rajasthan (2003)
48. State of Jharkhand v. Govind Singh (2005)
49. Jinia Keotin v. Kumar Sitaram Manjhi (2003)