Exported by-products qualify as resultant goods under MOOWR: CAAR

In re Gemini Edibles & Fats India Limited (CAAR Mumbai)

The application before the Customs Authority for Advance Ruling (CAAR), Mumbai, was filed by Gemini Edibles & Fats India Limited under Section 28H(1) of the Customs Act, 1962 seeking clarification on the applicability of the Manufacture and Other Operations in Warehouse Regulations, 2019 (MOOWR Scheme) in relation to the import of crude edible oils, their processing in a bonded warehouse, and the duty implications where certain output products are exported.

The applicant manufactures refined edible oils by processing imported Crude Sunflower Oil and Crude Palm Oil. The refining process produces refined edible oils as the principal outputs and also generates Palm Fatty Acid Distillate, Refined Palm Stearin, Sunflower Acid Oil and Sunflower Distilled Fatty Acid. The applicant proposed to operate under Section 65 of the Customs Act and sought advance rulings on whether exports of these products would qualify for benefits under the MOOWR Scheme, including remission of duty on imported crude oils attributable to exported products, even where the refined edible oils were cleared for domestic consumption.

The applicant submitted that the MOOWR Scheme permits import of goods under duty deferment and provides that no duty is payable on imported goods contained in resultant products that are exported. It contended that the expression “resultant goods” should include all outputs of the manufacturing process, including products commercially referred to as by-products, as the law does not distinguish between principal products and by-products. The applicant further stated that the exported products are commercially valuable commodities arising inevitably during refining and argued that proportionate benefit should be available based on the quantity of imported crude oil contained in exported products. It also provided manufacturing flow charts, yield ratios and proposed maintaining detailed records to establish input-output correlation.

The jurisdictional Commissionerate opposed the application. It stated that the MOOWR Scheme recognises only “resultant goods” and not “by-products,” and that the scheme is a duty deferment mechanism rather than a duty exemption scheme. According to the Commissionerate, the applicant’s proposal to apportion imported crude oil between principal products and by-products had no support under the statutory framework because no mechanism exists for such apportionment. It therefore requested rejection of the application.

The Authority examined the submissions, the statutory provisions, the Circular governing the MOOWR Scheme, the comments of the Commissionerate, the applicant’s rebuttal, and the arguments made during the personal hearings. It held that the questions raised by the applicant were within the scope of advance ruling under Section 28H(2) of the Customs Act as they related to duty liability and remission under the MOOWR Scheme.

The Authority observed that Section 65 of the Customs Act and the MOOWR Regulations do not define the expression “resultant goods.” It held that, in its ordinary commercial sense, the expression covers all goods emerging from the manufacturing process, including principal products, co-products and products commercially described as by-products. It found that Palm Fatty Acid Distillate, Acid Oils, Stearin and Distilled Fatty Acids arise inevitably during refining, possess independent commercial identity and value, and therefore qualify as “resultant goods.” It rejected the view that the absence of the expression “by-products” in the Scheme excludes such goods from its scope.

The Authority further held that the MOOWR framework, read with Sections 65 and 69 of the Customs Act and Circular No. 34/2019-Customs, provides that duty is not payable on imported inputs contained in exported resultant goods. It observed that Clause 7 of the Circular uses the expression “to the extent,” indicating a proportionate remission mechanism linked to exports. The Authority concluded that the benefit applies equally to all resultant goods and is not confined to principal products.

On the issue of apportionment, the Authority held that although the law does not prescribe a detailed computational formula, the statutory framework inherently permits proportional attribution of imported inputs based on verifiable input-output ratios. It accepted that the applicant’s yield data could provide a reasonable basis for such correlation. It also held that duty payable on goods cleared for home consumption is limited to the imported inputs contained in those goods, while exported resultant goods are entitled to remission of duty on the imported inputs contained in them.

Accordingly, the Authority ruled that exports of Palm Fatty Acid Distillate, Refined Palm Stearin, Sunflower Acid Oil and Sunflower Distilled Fatty Acid qualify as exports of “resultant goods” under Section 65 of the Customs Act read with the MOOWR Scheme. It further ruled that proportionate duty remission is available on imported crude oils attributable to exported resultant goods, even where the principal refined oils are cleared for domestic consumption, and that the MOOWR Scheme permits duty-free import of crude oils to the extent they are contained in resultant goods exported from the bonded warehouse.

FAQs

Q1. What issue was considered by the Customs Authority for Advance Ruling?

Ans. The Authority examined whether exports of products arising during the refining of imported crude oils qualify as “resultant goods” under the MOOWR Scheme and the corresponding duty implications.

Q2. Which products were the subject of the ruling?

Ans. The ruling covered Palm Fatty Acid Distillate, Refined Palm Stearin, Sunflower Acid Oil and Sunflower Distilled Fatty Acid produced during the refining of crude edible oils.

Q3. Did the Authority treat these products as “resultant goods”?

Ans. Yes. The Authority held that these products qualify as “resultant goods” under Section 65 of the Customs Act and the MOOWR Scheme.

Q4. What did the Authority decide regarding duty on imported crude oils used in exported products?

Ans. It ruled that proportionate remission of duty is available on imported crude oils contained in exported resultant goods, subject to proper accounting, identification and correlation.

Q5. What was the final outcome of the application?

Ans. The Authority ruled that exports of the specified resultant goods qualify for the applicable benefits under the MOOWR framework and that proportionate duty remission is available even where the principal products are cleared for domestic consumption.

FULL TEXT OF THE ORDER OF CUSTOMS AUTHORITY OF ADVANCE RULING, MUMBAI