Acme Deoghar Solar Power 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 No. 13/2022-Customs dated 09 July 2022 insofar as it mandated the review of existing licenses and taking "follow-up" action. Consequently, all Show Cause Notices (SCNs) issued in purported implementation of this Instruction were also quashed. A specific order dated 19 July 2022 cancelling a petitioner's license was also quashed. The Court left it open to the respondents to proceed further in accordance with law.

Core Issue
The core issue was the validity of CBIC Instruction No. 13/2022-Customs dated 09 July 2022, which declared the Manufacture and other Operations in Warehouse (No.2) Regulations, 2019 (MOOWR Regulations) inapplicable to solar power generating units using imported capital goods (solar panels/cells) to produce electricity. A broader question was whether solar power generation activities are permissible under Section 65 of the Customs Act, 1962, allowing for duty deferment on imported capital goods.

Key Facts

• Petitioners (Acme, Avaada, Jakson Power, etc.) are solar power generating units that obtained licenses under Sections 58 and 65 of the Customs Act, 1962, read with MOOWR Regulations, 2019.
• These licenses permitted warehousing of imported capital goods (solar panels, PV modules, inverters) for the purpose of generating electricity, which was explicitly declared as the "final product" in their applications.
• The MOOWR scheme allows for duty deferment on imported capital goods and inputs used in manufacturing or other operations within a customs bonded warehouse.
• Historically, import of solar cells and modules was often duty-free (Nil BCD) but subject to safeguard duties during certain periods (e.g., 2018-2021).
• The Union Government announced a policy shift in 2020 and 2021 to promote domestic manufacturing, leading to the imposition of Basic Customs Duty (BCD) of 25% on solar cells and 40% on solar modules from 01 April 2022.
• The Ministry of New and Renewable Energy (MNRE) communicated to the Department of Revenue (July 2022) concerns that solar power developers were "misusing" MOOWR Regulations to avoid BCD and GST on imported solar equipment, creating a non-level playing field for domestic manufacturers.
• The impugned CBIC Instruction, issued on 09 July 2022, declared MOOWR Regulations inapplicable to solar power units. Its reasoning was that electricity (the resultant good) cannot be subjected to a "one-time-lock" for transport or be "deposited in a warehouse" as required by MOOWR Regulation 15 and the spirit of the scheme.
• The Instruction also directed Customs authorities to "immediately review" existing permissions and take "necessary follow up action" (implying cancellation), and to grant "no further permissions."
• Following the Instruction, SCNs were issued to petitioners proposing cancellation of their licenses, and in one case, a license was actually cancelled.

Arguments (Taxpayer vs Revenue)

• Taxpayer (Petitioners):
  • Validity of Instruction: The Instruction is ultra vires Section 151A of the Customs Act, 1962, particularly its proviso, which prohibits the Board from directing Customs officers to make a particular assessment or dispose of a case in a particular manner, or interfering with quasi-judicial discretion. Granting/cancelling a license is a quasi-judicial act requiring independent judgment.
  • Interpretation of Sections 61 & 65:
    • Section 65 does not exclude any specific industry (like solar power generation) or type of product (tangible or intangible, like electricity) from its ambit.
    • Section 61(1)(a) (post-2016 amendment) explicitly allows capital goods used in a Section 65 warehouse to remain there "till their clearance," implying no time limit and duty deferment for their entire useful life if not cleared to the domestic market. This contrasts with "other goods" (inputs/raw materials) which have consumption/time limits.
    • The phrase "in relation to such goods" in Section 65 should be given a wide, comprehensive meaning, implying a "connection," "association," or "concern" between the imported capital goods and the manufacturing/operations, not necessarily that the capital goods themselves must undergo physical transformation or be consumed in the resultant product. Solar panels are indeed used "in relation to" electricity generation.
    • The inapplicability of input-output norms for electricity generation is not a disqualifier, as capital goods are not always consumed in the manufacturing process.
  • Contemporaneous Interpretation: CBIC's own prior circulars (e.g., Circular 34/2019), Frequently Asked Questions (FAQs), and promotional materials (e.g., "Invest India" portal) unequivocally stated that MOOWR benefits apply to both imported capital goods and inputs, with indefinite duty deferment on capital goods until their clearance to the domestic market, and duty on capital goods not getting incorporated into finished goods. This aligns with the petitioners' understanding.
• Revenue (CBIC):
  • Policy & Misuse: The Instruction was necessary to address the "misuse" of MOOWR Regulations by solar power developers, who avoided BCD and GST on imported equipment, undermining the government's "Make in India" and "Atma Nirbhar Bharat" initiatives and creating an unfair playing field for domestic manufacturers.
  • Restrictive Interpretation of Section 65:
    • Section 65 and MOOWR Regulations envision a "manufacturing process or other operations" performed on the "warehoused goods" themselves, where the goods are physically transformed or consumed.
    • "Warehoused goods" must be identifiable in the "resultant goods" or accounted for in input-output norms. Since sunlight (the actual input for electricity) is not an "imported good" or "warehoused good," and electricity cannot be stored or physically contained, solar power generation does not fit the scheme.
    • MOOWR Regulation 15 (removal for export) requiring a "one-time-lock" on the "means of transport" for resultant goods, and Regulation 14 (removal for home consumption) referring to "warehoused goods contained in so much of the resultant goods," indicate the scheme applies only to tangible goods. Electricity cannot meet these conditions.
    • The Board had not issued an exemption for electricity under Regulation 20.
  • Purposive Interpretation: The Court should adopt a purposive interpretation of the statute and regulations to prevent unintended distortions of the market and align with the national policy to promote domestic manufacturing.

Court’s Reasoning

• On the Impugned Instruction's Validity: The Court found the Instruction to be ultra vires Section 151A. It held that granting/cancelling licenses under Sections 58 and 65 is a quasi-judicial function. The Instruction's peremptory directions to "immediately review" and take "necessary follow-up action" on existing licenses, coupled with a blanket prohibition on new permissions, encroached upon the independent judgment and discretion of Customs officers, effectively dictating the outcome of quasi-judicial proceedings. This violates the proviso to Section 151A and established principles of administrative law against acting under dictation.
• On the Interpretation of Sections 61 & 65:
  • The Court noted the significant 2016 amendments to Section 61, removing the time limit for warehousing of capital goods used in Section 65 operations. This deliberate legislative change indicates an intent to allow long-term storage and use of capital goods without upfront duty payment, distinct from goods consumed in manufacture.
  • Section 65's language ("any warehoused goods," "any manufacturing process or other operations") is broad and does not explicitly exclude any specific industry, type of goods (tangible or intangible), or nature of manufacturing activity. The term "other operations" specifically expands the scope beyond traditional manufacturing where inputs are directly transformed.
  • The phrase "in relation to such goods" was interpreted broadly, following Supreme Court precedents (Doypack Systems, Mansukhlal Dhanraj Jain, Maruti Suzuki Limited), to mean a "causal link," "connection," "association," or "concern." It does not necessitate the capital goods themselves being consumed or undergoing physical transformation in the manufacturing process. Solar panels are clearly used "in relation to" the generation of electricity.
  • The inapplicability of input-output norms for electricity generation (where capital goods are not consumed) is not a bar, as these norms are relevant for consumables, not necessarily for all capital goods.
• On MOOWR Regulations and Contemporaneous Material: The Court heavily relied on CBIC's own interpretive materials (FAQs, Circular 34/2019, "Invest India" portal). These materials consistently represented that the MOOWR scheme allowed duty deferment for both capital goods and inputs, with "no time limitation" for capital goods, and clarified that duty on capital goods is payable only upon their clearance to the domestic market, not incorporated into finished goods. This directly contradicted the Revenue's restrictive interpretation in the impugned Instruction and supported the petitioners' eligibility.
• On Purposive Interpretation and Policy Concerns: While acknowledging the Union's policy objectives to promote domestic manufacturing and renewable energy, the Court emphasized that judicial interpretation must adhere to the clear and unambiguous language of the statute. The Court cannot "reconstruct" statutory provisions or introduce conditions of ineligibility in the garb of interpretation to address perceived market distortions or executive experiences, especially when the statutory language is plain and does not lead to absurdity. Amending the law is the prerogative of the legislature, not the judiciary.

Statutory References

• Customs Act, 1962: Sections 2(43), 2(44), 12(1), 14, 15, 46, 47, 48, 57, 58, 58A, 58B, 59, 60, 61(1)(a), 61(1)(b), 61(1)(c), 65, 65A (not enforced), 67, 68, 69, 143AA, 151A, 157, Chapter VII, Chapter IX.
• Customs Tariff Act, 1975: Sections 3(7), 3(9), 8B, First Schedule (CTH 8541 40 11, 8541 40 12, 8541 42 00, 8541 43 00, 9801).
• Manufacture and other Operations in Warehouse (No.2) Regulations, 2019 (MOOWR Regulations): Regulations 3, 4, 5, 6, 8, 10, 11, 13, 14, 15, 20.
• Central Goods and Services Tax Act, 2017 (CGST Act, 2017): Sections 2(19) (capital goods), 2(59) (input), 7, 9.
• Integrated Goods and Services Tax Act, 2017: Section 5.
• Central Excise Act, 1944: Sections 3, 37B.
• Customs (Provisional Duty Assessment) Regulations, 2011: Regulation 2(2), 4.
• Private Warehouse Licensing Regulations, 2016: Regulations 3(2)(e)(i), 8.
• Warehoused Goods (Removal) Regulations, 2016.
• Warehouse (Custody and Handling of Goods) Regulation, 2016.
• Customs (Import of goods at Concessional Rate of Duty) Rules, 2017: Rule 3(aa).
• Customs (Import of Goods at Concessional Rate of Duty or for Specified End Use) Rules, 2022: Rule 3(b).
• Finance Act, 2020: Section 117(b), Third Schedule.
• Finance Act, 2022.
• Limitation Act: Article 136.
• Arms Act, 1959.

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
• State Wakf Board v. Abdul Azeez AIR 1968 Mad 79
• Nitai Charan Bagchi v. Suresh Chandra Paul 66 Cal WN 767
• Shyam Lal v. M. Shyamlal AIR 1933 All 649
• Maxopp Investment Limited v. CIT, New Delhi (2018) 15 SCC 523
• CIT v. Walfort Share and Stock Brokers (P) Ltd. (2010) 8 SCC 137
• Haji Ismail Noor Mohammad & Company v. State of Uttar Pradesh & Anr 1973 SCC Online All 3
• Suresh Kumar v. State of Uttar Pradesh & Ors (Writ (A) No. 27260/2018, dated 19 April 2019)
• Dharambeer Singh Vs. State of U.P. and Ors. 2004 (4) ESC 2838 (Alld.)
• Alok Kumar Pandey Vs. State of U.P. and Ors. (Civil Misc. Writ Petition No. 29107 of 1999, decided on 19.7.1999)
• Nirmal Chandra Mishra and Ors. v. State of U.P. and Ors. 1997 (1) ESC 412
• B.Ed. Berozgar Sangh, Sonnhadra and Ors Vs. State of U.P. and other 1997 (30) ALR 737
• Mohd. Riazul Usman Gani and Ors. Vs. District and Session Judge, Nagpur and Ors. 2000 (2) ESC 956 (SC)
• 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. Madras Steel Re-rollers Association (2012) 278 ELT 584 (SC)
• Collector of Central Excise v. Dhiren Chemical Industries [2002] 254 ITR 554 (SC)
• Union of India & Ors vs. Karvy Stock Broking Ltd. 2015 SCC Online SC 1788
• Union of India v. Inter Continental (India) (2008) 226 ELT 16 (SC)
• Sandur Micro Circuits Ltd. v. CCE (2008) 11 RC 615
• UCO Bank v. CIT [1999] 237 ITR 889 (SC)
• Allen Diesel India P. Ltd. v. Union of India [2016] 37 GSTR 166 (Delhi)
• Modi Rubber Ltd. v. Union of India (1978) 2 ELT 127 (Delhi)
• 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
• Nasiruddin v. Sita Ram Agarwal [(2003) 2 SCC 577 : AIR 2003 SC 1543]
• E. Palanisamy v. Palanisamy [(2003) 1 SCC 123]
• Hiralal Ratanlal v. STO [(1973) 1 SCC 216 : 1973 SCC (Tax) 307 : AIR 1973 SC 1034]
• Swedish Match Abv. Securities and Exchange Board of India [(2004) 11 SCC 641 : AIR 2004 SC 4219]
• Prakash Nath Khanna v. CIT [(2004) 9 SCC 686]
• Delhi Financial Corpn. V. Rajiv Anand [(2004) 11 SCC 625]
• Govt. of A.P. v. Road Rollers Owners Welfare Assn. [(2004) 6 SCC 210]
• J.P. Bansal v. State of Rajasthan [(2003) 5 SCC 134 : 2003 SCC (L&S) 605 : AIR 2003 SC 1405]
• State of Jharkhand v. Govind Singh [(2005) 10 SCC 437 : 2005 SCC (Cri) 1570 : JT (2004) 10 SC 349]
• Jinia Keotin v. Kumar Sitaram Manjhi [(2003) 1 SCC 730]