Acme Heergarh Powertech Private ... vs Assistant Commissioner Of Customs, Icd ... 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 July 9, 2022, which mandated a review and "follow-up action" on existing MOOWR licenses for solar power generating units. Consequently, all Show Cause Notices (SCNs) issued based on this instruction were also quashed. A specific order cancelling one petitioner's license was also set aside. The Court affirmed that solar power generation is an activity permissible under Section 65 of the Customs Act, 1962, read with the MOOWR Regulations, 2019.

2. Core Issue
The core issue was two-fold:
a. The validity of CBIC Instruction No. 13/2022-Customs dated July 9, 2022, which declared the Manufacture and other Operations in Warehouse (No.2) Regulations, 2019 (MOOWR) inapplicable to solar power generating units, and mandated review/cancellation of existing licenses.
b. The fundamental question of whether solar power generation, utilizing imported capital goods (solar panels/modules) housed in a customs bonded warehouse, qualifies as an "operation" or "manufacturing process" permissible under Section 65 of the Customs Act, 1962, thereby allowing duty deferment benefits under the MOOWR Scheme.

3. Key Facts
* Petitioners (Acme, Avaada, Jakson Power) are solar power generating units.
* They were granted licenses under Section 58 and permissions under Section 65 of the Customs Act, 1962, read with MOOWR Regulations, 2019, to import capital goods (solar panels/modules) and undertake solar power generation within bonded warehouses with customs duty deferment.
* In their applications, petitioners explicitly declared "electrical energy" as the final product and solar panels/modules as capital goods for setting up the facility.
* Prior to April 1, 2022, Basic Customs Duty (BCD) on solar cells and modules was nil due to exemptions, though safeguard duties were applicable for some periods. Post April 1, 2022, BCD was imposed at 25% and 40% respectively.
* CBIC issued Instruction No. 13/2022-Customs on July 9, 2022, asserting that MOOWR 2019 is inapplicable to solar power generation. The instruction cited the impossibility of affixing a "one-time-lock" (Regulation 15) to electricity for export and the inability of electricity to be "deposited in a warehouse." It directed customs authorities to immediately review and take "necessary follow-up action" on existing permissions and not grant new ones.
* Following the impugned Instruction, SCNs were issued to petitioners proposing cancellation of their MOOWR licenses. In one case, a license was already cancelled.
* Earlier CBIC circulars, FAQs, and the "Invest India" portal had promoted MOOWR benefits, stating unlimited duty deferment on imported capital goods until their clearance to the domestic market, and explicitly clarifying that duty on capital goods would not be incorporated into finished goods.
* The Ministry of New and Renewable Energy (MNRE) communicated to the Department of Revenue in July 2022 that solar power developers were "misusing" MOOWR to avoid duties, leading to a distorted playing field for domestic manufacturers.

4. Arguments

• Taxpayer (Petitioners):

  • Invalidity of Instruction: The impugned Instruction is ultra vires Section 151A of the Customs Act, 1962, as it interferes with the quasi-judicial discretion of customs officers in assessing individual cases and granting/cancelling licenses. The Board cannot issue directives that dictate a particular assessment or outcome.
  • Applicability of MOOWR to Solar Power: Section 65 broadly permits "any manufacturing process or other operations" in relation to "any warehoused goods." It does not exclude intangible products like electricity or specific industries.
  • Interpretation of "in relation to such goods": This phrase implies a broad connection or association, not necessarily the consumption or physical transformation of the imported capital goods (solar panels) into the resultant product (electricity). The panels are "used in relation to" generating power.
  • Duty Deferment for Capital Goods: Section 61, post-2016 amendments, allows capital goods to remain warehoused until clearance without a time limit, supporting long-term usage in manufacturing processes.
  • Contradiction with Earlier Stance: Previous CBIC communications (FAQs, Circulars) and the "Invest India" portal unequivocally supported duty deferment for imported capital goods in manufacturing operations, without imposing restrictions based on the nature of the resultant product or requiring physical incorporation.
  • Regulation 15 (one-time-lock): This provision applies to the export of resultant goods, not to electricity predominantly supplied domestically. Its impracticality for electricity should not negate the entire scheme's applicability.

• Revenue (CBIC/Customs):

  • Policy & Misuse: The Instruction was issued to address the "misuse" of MOOWR benefits by solar power developers, which created an uneven playing field for domestic solar manufacturing, conflicting with "Make in India" initiatives.
  • Strict Interpretation of Section 65: The phrase "in relation to such goods" means that the imported warehoused goods (solar panels/modules) themselves must undergo manufacturing or operations. Solar panels merely convert sunlight; they are not "manufactured" into electricity.
  • Nature of Resultant Goods: Electricity cannot be "deposited in a warehouse" and cannot comply with the "one-time-lock" requirement for removal of resultant goods for export under Regulation 15, thus falling outside the MOOWR scheme.
  • Input-Output Norms: Regulation 14, requiring the indication of "warehoused goods contained in so much of the resultant goods," implies that the imported goods must be physically incorporated into the final product, which is not possible with electricity.
  • The Board had not specifically exempted electricity under Regulation 20, further indicating its non-coverage.

5. Court’s Reasoning

• On the Impugned Instruction:

  • The Court held that the instruction directly commanded customs officers to review and take "follow-up action" (i.e., cancel licenses) based on the Board's pre-determined view that solar power generation is ineligible. This clearly violated the proviso to Section 151A, which prohibits the Board from dictating specific assessments or interfering with the quasi-judicial discretion of customs officers.
  • Granting or cancelling a license is a quasi-judicial act requiring independent application of mind, inquiry, and adherence to natural justice, which the instruction abrogated. The SCNs themselves demonstrated that officers felt bound by the instruction.

• On the Interplay of Sections 61 and 65 and MOOWR:

  • Section 61: The 2016 amendments eliminated the time limit for warehousing capital goods in units operating under Section 65, indicating an intent to allow long-term, continuous use of such goods in manufacturing or other operations without upfront duty payment until final clearance.
  • Section 65: The language "any manufacturing process or other operations in the warehouse in relation to such goods" is broad.
    • "Other operations" expands the scope beyond traditional manufacturing that consumes inputs.
    • "In relation to such goods" signifies a causal link, association, or connection with the warehoused goods, not necessarily their consumption or transformation. Capital goods like solar panels, which are durable and yield electricity over time, are indeed used "in relation to" the manufacturing of electricity.
    • The Act does not exclude intangible goods like electricity or specific industries from the benefits of Section 65.
  • MOOWR Regulations:
    • The argument based on "input-output ratios" in Regulation 14 is not determinative, as these norms apply primarily to raw materials/inputs consumed in manufacturing, not necessarily to capital goods that are durable and contribute to production without being consumed.
    • The "one-time-lock" requirement in Regulation 15 is for export and cannot be universally applied to all resultant goods or operations, especially for electricity which is generally supplied domestically. The absence of an exemption under Regulation 20 for electricity does not imply outright exclusion, but rather reflects a gap in the regulations.
  • Contemporaneous Material: The CBIC's own Circulars, FAQs, and the "Invest India" portal consistently stated that capital goods could be imported duty-deferred without time limits and that the duty on capital goods is not incorporated into the finished products. This official stance contradicts the restrictive interpretation later adopted by the Board in the impugned instruction.

• On Purposive Interpretation:

  • The Court acknowledged the Union's policy objectives for promoting domestic manufacturing and renewable energy but emphasized that a court's role is to interpret statutes based on their plain language and well-defined precepts, not to rewrite them to align with evolving policy or to address perceived "anomalies" or "inequitable results" (especially in taxing statutes).
  • The language of Sections 61 and 65 is clear and unambiguous and does not require a strained interpretation. The Revenue's arguments were based on policy considerations, not statutory ambiguity.

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, 65, 65A (not yet enforced), 68, 69, 151A, 157, 143AA.
* 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, CTH 8541 42 00, 8541 43 00, 9801.
* 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 3, 37B.
* Limitation Act: Article 136.

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
* State of U.P. v. Mohd. Nooh, AIR 1958 SC 86
* 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
* State Wakf Board v. Abdul Azeez AIR 1968 Mad 79
* 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
* Renusagar Power Co. Ltd. v. General Electric Co. (1984) 4 SCC 679
* 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 v. Karvy Stock Broking Ltd. (2015) 39 STR 705 (SC)
* 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
* Navin Chemicals Mfg. and Trading Co. Ltd. v. Collector of Customs, (1993) 4 SCC 320
* State of Karnataka v. Azad Coach Builders (P) Ltd., (2010) 9 SCC 524