Acme Heergarh Powertech Private ... vs Central Board Of Indirect Taxes And ... on 6 May, 2024

Outcome**
The Delhi High Court allowed the writ petitions.
* The impugned Instruction No. 13/2022-Customs dated 09.07.2022 issued by the Central Board of Indirect Taxes and Customs (CBIC) was quashed insofar as it mandated review of existing licenses and taking "follow-up" action.
* The Show Cause Notices (SCNs) dated 13.07.2022 (in W.P.(C) 10537/2022 and connected matters) and 12.12.2022 (in W.P.(C) 1507/2023) were quashed.
* The order dated 19.07.2022 cancelling the license of Avaada MH Sustainable Pvt Ltd (in W.P.(C) 10838/2022) was quashed.
* W.P.(C) 12386/2022 was disposed of in terms of prior interim directions regarding provisional duty bonds.
The Court left it open to the respondents to proceed further in accordance with law.

2. Core Issue
The core issues before the Court were:
a. The validity of CBIC Instruction No. 13/2022-Customs dated 09.07.2022, particularly whether it violated the limitations imposed by the proviso to Section 151A of the Customs Act, 1962 by interfering with the quasi-judicial discretion of customs officers.
b. Whether the activity of solar power generation, utilizing imported capital goods (solar panels/modules) within a customs bonded warehouse, qualifies as "manufacture or other operations" permissible under Section 65 of the Customs Act, 1962, thereby allowing duty deferment under the Manufacture and other Operations in Warehouse (No.2) Regulations, 2019 (MOOWR Regulations).

3. Key Facts
* Petitioners (Acme, Avaada, Jakson Power) are engaged in solar power generation and had obtained licenses under the MOOWR Regulations, 2019, which operate under Section 65 read with Section 58 of the Customs Act, 1962.
* These licenses allowed them to import capital goods (solar panels, modules) for setting up solar power plants into customs bonded warehouses, deferring payment of Basic Customs Duty (BCD) and Integrated Goods and Service Tax (IGST).
* Prior to 01.04.2022, import of solar cells and modules attracted 'Nil' BCD, though a safeguard duty was in force from 2018-2021. From 01.04.2022, BCD of 25% (solar cells) and 40% (solar modules) was imposed. Petitioners claimed their imports largely preceded this BCD levy.
* The Ministry of New and Renewable Energy (MNRE) communicated to the Department of Revenue that solar power developers were allegedly misusing MOOWR to avoid import duties and GST (as electricity is GST-exempt), undermining domestic manufacturing. Industry associations also made representations.
* The CBIC issued Instruction No. 13/2022-Customs on 09.07.2022, stating that solar power generation is outside the scope of MOOWR 2019. The instruction reasoned that 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 of resultant goods.
* The instruction directed customs authorities to "immediately review" existing permissions granted to solar power units and take "necessary follow-up action," and to grant "no further permissions" in such cases.
* Following the instruction, Show Cause Notices were issued to the petitioners proposing cancellation of their licenses. In one case, a license was already cancelled.
* The petitioners, in their original applications for licenses, had clearly disclosed that the purpose of importing capital goods was for generating electrical energy.
* Contemporaneous documents, including earlier CBIC Circulars, FAQs, and information on the "Invest India" portal, had explicitly stated that MOOWR benefits extended to imported capital goods with duty deferment "without any time limitation" until clearance for home consumption, and that the duty on capital goods would not be incorporated into finished goods. These documents did not exclude solar power generation.

4. Arguments (Taxpayer vs Revenue)

Taxpayer (Petitioners):
* Validity of Instruction: The impugned Instruction is ultra vires Section 151A of the Customs Act, 1962. The proviso to Section 151A restricts the Board from issuing directions that compel officers to make a particular assessment, dispose of a case in a specific manner, or interfere with their quasi-judicial discretion. Granting or cancelling a license is a quasi-judicial act requiring independent application of mind; the instruction's peremptory directions to review and take "follow-up action" (i.e., cancel) existing licenses, and to deny new ones, constitute such interference and abdication of discretion.
* Applicability of MOOWR: Sections 61 and 65 of the Customs Act, along with the MOOWR Regulations, do not exclude solar power generation.
* Section 61(1)(a) specifically provides for capital goods to remain warehoused until clearance, without a time limit, if used in manufacturing or other operations under Section 65. This distinguishes them from raw materials or other goods that might be consumed or have time limits.
* Section 65 refers to "any warehoused goods" and "any manufacturing process or other operations in relation to such goods." The terms are broad and do not restrict the type of goods (tangible/intangible) or the nature of manufacturing/operations.
* The phrase "in relation to such goods" implies a broad "connection with," "association with," or "pertaining to" the warehoused goods, not necessarily their physical transformation or consumption into the resultant product. Solar panels are clearly "in relation to" electricity generation.
* The inapplicability of input-output norms to electricity, or the impossibility of affixing a one-time-lock to electricity for export (Regulation 15), are not valid grounds for exclusion. These provisions are primarily for consumable inputs and exported goods, not capital goods used in general manufacturing/operations or domestic clearances.
* Contemporaneous policy documents (CBIC Circular, FAQs, Invest India portal) clearly encouraged the scheme for both raw materials and capital goods, explicitly stating indefinite duty deferment for capital goods and no incorporation of their duty into finished goods.

Revenue (CBIC & Anr.):
* Policy & Misuse: The Union Government's policy is to promote domestic manufacturing of solar cells/modules. MOOWR is being misused by solar power developers to avoid BCD and IGST, creating an unfair competitive advantage over domestic manufacturers, especially since electricity is GST-exempt. The Instruction was necessary to align with this policy.
* Interpretation of MOOWR: Sections 61 and 65 and MOOWR Regulations are not applicable to solar power generation.
* The "manufacturing process or other operations" under Section 65 must be undertaken on the "warehoused goods" themselves, implying a transformation or consumption of the imported goods into the resultant product. Solar panels merely convert sunlight (not an imported/warehoused good) into electricity; they are not themselves manufactured upon.
* Electricity, as the resultant product, cannot be "deposited in a warehouse," nor can it physically comply with conditions like affixing a "one-time-lock" for removal (Regulation 15) or being "contained in so much of the resultant goods" for input-output tracking (Regulation 14).
* The scheme's intent is for duty to be paid on inputs contained in the finished goods (for domestic consumption) or remitted (for export). Solar power generation circumvents this.
* The phrase "in relation to" must be interpreted contextually to mean direct involvement and consumption of warehoused goods in the manufacturing process, consistent with the scheme's purpose.
* Purposive Interpretation: The Court should adopt a purposive interpretation to prevent anomalies and uphold the legislative intent of promoting domestic industry, even if it means departing from a literal reading of the statute.

5. Court’s Reasoning
* On the Validity of the Impugned Instruction:
* The Court held that the grant/cancellation of a license under Section 58B of the Customs Act involves quasi-judicial functions, requiring independent judgment by customs officers.
* Section 151A, while allowing the Board to issue general instructions for uniformity, specifically prohibits dictating the outcome of a particular assessment or case, or interfering with discretion.
* The impugned Instruction, by definitively concluding that solar power generation falls outside MOOWR and mandating review/cancellation of existing licenses and prohibition of new ones, directly trespassed on the quasi-judicial discretion of the licensing authorities. This amounts to "acting under dictation" and abdication of power, which is impermissible. The SCNs issued clearly demonstrated this compelled action.
* On the Interpretation of Sections 61 and 65 and MOOWR:
* Section 61: Post-2016 amendments, Section 61(1)(a) explicitly allows "capital goods" for manufacturing/other operations under Section 65 to remain warehoused until "clearance," without a time limit. This legislative intent allows for indefinite warehousing of capital goods, unlike other categories of goods which have time restrictions or are meant for "consumption."
* Section 65: The language "any warehoused goods" and "any manufacturing process or other operations" is broad and does not contain any express or implied exclusion for solar power generation or for intangible resultant goods like electricity. The phrase "other operations" expands the scope beyond traditional manufacturing processes involving physical transformation or consumption of the warehoused goods.
* "In relation to": Citing Supreme Court precedents (Doypack Systems, Mansukhlal Dhanraj Jain, Maruti Suzuki), the Court affirmed that "in relation to" has a wide meaning, signifying a "causal link," "connection with," or "association with" the warehoused goods. As long as the imported capital goods (solar panels) are concerned with or relate to the manufacturing activity (electricity generation), the condition is met, regardless of whether the capital goods are consumed or physically transformed. Capital goods, by nature, are durable and for repetitive use, not necessarily for consumption in the end product.
* MOOWR Regulations & Contemporaneous Material: The Court meticulously reviewed the CBIC's own Circular (01.10.2019), FAQs, and the "Invest India" portal. These materials consistently communicated that the MOOWR scheme allowed indefinite duty deferment for imported capital goods used in manufacturing, with duty payable only upon their clearance to the domestic market, and explicitly stated that duty on capital goods does not get incorporated into finished goods. This contemporaneous understanding supports the petitioners' interpretation and contradicts the revenue's later restrictive view.
* Operational Requirements: The argument about the "one-time-lock" (Regulation 15 for export) and input-output norms (Regulation 14 for consumption) was dismissed. These specific requirements are not universally applicable to all scenarios under Section 65, especially for capital goods not consumed in the end product or for domestically cleared resultant goods that are intangible.
* On Purposive Interpretation & Policy:
* While acknowledging the Union's policy objectives to boost domestic manufacturing and promote renewable energy, the Court emphasized that judicial interpretation must adhere to the clear and unambiguous language of the statute.
* The literal rule of interpretation is paramount, and purposive interpretation is only resorted to when statutory language is ambiguous or leads to absurdity, which was not the case here.
* The Court cannot "reconstruct" or "amend" a statutory provision to introduce exclusions or conditions not present in the plain text, merely to address perceived economic inequities or policy concerns. Such changes are for the Legislature to implement.

6. Statutory References
* Customs Act, 1962: Sections 2(43), 2(44), 12(1), 14(1), 15, 46, 47, 48, 57, 58, 58A, 58B, 59, 60, 61(1)(a), (b), (c), 65, 65A (not enforced), 68, 69, 143AA, 151A, 157.
* Manufacture and other Operations in Warehouse (No.2) Regulations, 2019 (MOOWR Regulations): Regulations 3, 4, 5, 6, 8, 10, 11, 13, 14, 15, 20.
* Customs Tariff Act, 1975: Section 8B, Tariff Entry 8541 42 00, 8541 43 00, CTH 9801.
* Central Goods and Services Tax Act, 2017: Sections 2(19), 2(59), 7, 9.
* Integrated Goods and Services Tax Act, 2017: Section 5.
* Other: Private Warehouse Licensing Regulations, 2016; Warehoused Goods (Removal) Regulations, 2016; Warehouse (Custody and Handling of Goods) Regulation, 2016; Customs (Provisional Duty Assessment) Regulations, 2011; 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; Finance Act 2020; Finance Act 2022; Central Excise Act, 1944 (Section 3(1) and 37B).

7. Precedents Cited
* Indian National Congress (I) vs. Institute of Social Welfare & Ors. (2002) 5 SCC 685
* Jaswant Sugar Mills Ltd v. Lakshmi Chand & Ors. (1963) Supp 1 SCR 242
* Sukhlal vs Collector, Satna (1968 SCC OnLine MP 44)
* Orient Paper Mills Ltd. vs Union of India (1969) 1 SCR 245
* Faridabad Iron & Steel Traders Association vs. Union of India (2003 SCC Online Del 1300)
* Varsha Plastics Pvt. Ltd. vs. Union of India (2009) 3 SCC 365
* Anirudhsinhji Karansinhji Jadeja vs. State of Gujarat (1995) 5 SCC 302
* Commissioner of Police, Bombay vs. Gordhandas Bhanji (1952 SCR 135)
* M/s. Doypack Systems Private Limited v. UOI & Ors. (1988) 2 SCC 299
* Maxopp Investment Limited v. CIT, New Delhi (2018) 15 SCC 523
* Haji Ismail Noor Mohammad & Company v. State of Uttar Pradesh & Anr. (1973 SCC Online All 3)
* Suresh Kumar v. State of Uttar Pradesh & Ors. (Judgment dated 19 April 2019 in Writ (A) No. 27260/2018)
* Mansukhlal Dhanraj Jain v. Eknath Vithal Ogale (1995) 2 SCC 665
* Maruti Suzuki Limited v. Commissioner of Central Excise, Delhi (2009) 9 SCC 193
* The Bullion and Jewellers Association (Regd.) vs. UOI & Ors. (2016 SCC Online Del 2437)
* Union of India & Ors vs. Karvy Stock Broking Ltd. (2015 SCC Online SC 1788)
* M K Ranjitsinh & Ors vs. Union of India & Ors. (2024 SCC OnLine SC 570)
* Raghunath Rai Bareja & Anr. vs. Punjab National Bank & Ors. (2007) 2 SCC 230
* (And various other judgments cited within the main precedents).