MOOWR Scheme: A Game Changer for Indian Manufacturers

Summary: The article explains that the Manufacturing and Other Operations in Warehouse Regulation (MOOWR) Scheme, introduced under Section 65 of the Customs Act, 1962 and revamped through the MOOWR Regulations, 2019, enables manufacturers to defer customs duty and IGST on imported capital goods and inputs until their clearance for home consumption, thereby improving working capital and supporting the Make in India initiative. It outlines the statutory framework, eligibility conditions, licensing process, compliance requirements, movement of goods, record maintenance, treatment of waste, transfer and surrender of licences, and the scheme’s advantages, including no export obligation, perpetual licence validity, no geographical restrictions, self-assessed input-output norms, and flexible sourcing of domestic materials. The article also discusses the implications of the unnotified Section 65A, which may restrict duty deferment to customs duty alone in future. It concludes that while the scheme offers significant operational and cash flow benefits, businesses must ensure strict compliance with licensing, record-keeping, reporting, and warehouse management requirements.

Introduction:

To boost the Make-in-India Initiative, the Central Board of Indirect Taxation and Customs (CBIC) has introduced the scheme under Section 65 of Customs Act,1962 commonly known as “Manufacturing and Other Operations in Warehouse Regulation” (MOOWR Scheme) which encourages the global manufacturers to meet the global competitiveness by providing immense benefits of Duty Deferment, streamline business processes and flexible environment. The scheme was originally introduced in 1996 and later revamped in 2019 vide Section 65 of the Customs Act,1962 and Manufacture and Other Operations in Warehouse (No. 2) Regulations, 2019 (MOOWR Regulations,2019) vide Notification 69/2019 dated 01.10.2019.

1. MOOWR Scheme:

MOOWR Scheme enables the licensee to defer the liability of custom duty on imported capital goods or inputs, allowing them to undertake the “manufacturing” and “other operations” in a bonded warehouse registered under Section 58 and 58A of the Customs Act,1962 thereby shifting the obligation of Duty payment at the point of clearance of manufactured goods either for Home consumption or export.

Statutory Provisions and Regulatory Framework

The scheme is governed by the provisions of the Customs Act,1962. Relevant provisions, circulars and regulations governing the licensing for private bonded warehouses are outlined as below:

• MOOWR Scheme is also applicable in case of Special bonded warehouses registered under Section 58A of Customs Act,1962. Relevant provisions, circulars and regulations governing the licensing for special bonded warehouses are outlined as below:

2. Objectives:

• Duty Deferment Scheme: This scheme allows the transitioning from immediate Duty Payment to ‘pay-as-you-clear’ model. In other words, one doesn’t need to pay any Customs Duty or IGST at the time of imports; the same is deferred to a later date when the goods so imported are cleared for home consumption from the registered warehouse.
• Boost Make in India Initiative: Encouraging the local manufacturers by reducing requirement for working capital which gets locked into taxes and reducing cost of operating a business. It also helps streamline business processes with no export obligation which ultimately enhances the global competitiveness andboost make in India initiative.
• Ease of Doing Business: Empowering Businesses to prioritize core operations by integrating the facility of Bonded warehousing within the existing business premises, thereby streamlining supply chains and eliminating the administrative burden of repetitive customs clearances for home consumption.
• Flexibility: The scheme allows the businesses to source materials from Domestic Tariff Area and kept in a bonded warehouse to use further in the process of manufacturing or other operations, Self assessed Input output Norms, transfer of imported capital goods or inputs from one warehouse to another or with the job worker by extending the scope of doing the business in flexible environment.

3. Applicability & Approvals:

• CBIC has also published the User Manual that provide the guidelines for registration which can be accessed through the following link:

https://www.icegate.gov.in/guidelines/warehouse-licensing

Key compliance requirements for movement and receipt of Goods under MOOWR scheme:

4. Compliances Requirements & Maintenance of records:

A. Relevant Notifications and Circulars

B. Compliance Requirements:

• The licensee must file the self-assessed monthly returns in Form-B (prescribed under Circular 25/2016 dated 08/06/2016) containing the details of the receipt, storage, operations and removal of the goods in a warehouse within 10 days from the end of month for which return is furnished. Return has to be filled on or before 10^th of every month for the previous month.
• The monthly returns must be filed with the Bond officer in hard copy as currently online filing is not available.
• Returns once filed cannot be revised.

C. Maintenance of records in relation to warehouse goods:

• Records: The licensee must maintain or keep the following records at the warehouse:
  • Details of receipt of handling, storing, and removal of any goods into or from the warehouse in digital form.
  • Record of each activity, operation or action taken in relation to the warehoused goods.
  • Record of sample withdrawn from the warehouse goods under this act or any other law for being in force.
  • Record of copies of Bills of entry, transport documents, Forms for transfer of goods from a warehouse, shipping bills or bills of export or any other documents evidencing the receipt or removal of goods into or from the warehouse and copies of the bond executed under section 59.
• Prescribed Manner & Form: Circular 34/2019 prescribes the manner for maintenance of records in Annexure-B. All records are to be kept in a Digital form at the warehouse
• Audit Trails: Software embedded for maintenance of electronic records must incorporate the feature of an audit trail.

The proper officer if required may conduct the audit under Section 65 of Customs Act,1962 in accordance with regulation 18 of MOOWR Regulation,2018.

• Where: Along with the maintenance of records at warehouse, the licensee is also required to maintain the updated digital records at other place of business in order to prevent the loss of records due to natural calamities, fire, theft, skilful pilferage or computer malfunction.
• Time Limit: The records maintained shall be preserved forat least 5 years from the date of removal of goods from the warehouse.
• Inspection of Records: The Bond officer or any other officer authorised under this Act can inspect the records of the licensee.

5. Transfer & Surrender of License:

6. Treatment of Wastage & Refuse generated during the process:

During the process of manufacturing, waste / refuse gets generated which cannot be used for further processing as it is of substandard quality. The treatment of such waste / Refuse, generated in a MOOWR registered warehouse, is governed by Section 65(2) of Customs Act,1962. Question that shall arise is whether one is required to pay duties on sale of such waste / refuse or not. Different scenarios are discussed below:

• If Resultant waste / refuse is Exported:
  • If resultant waste in a MOOWR unit are eventually exported, import duty shall not be levied on the same.
• If resultant waste is sold in domestic market as scrap
  • If the resultant waste is sold in domestic market as scrap then one will have to pay customs duty and IGST on the original import price.
• If resultant waste is in destroyed condition and is then sold in domestic market
  • If the resultant waste is in a condition where it can be termed as “Destroyed” and then it is sold in domestic market then one will NOT be required to pay any customs duty and IGST.
  • Note: “Destroyed Goods” is not defined either under the Customs Act, 1962 or CGST/IGST Act,2017. In the absence of a statutory definition, divergent interpretations are likely to arise whether such goods are to be legally regarded as “destroyed” — thereby escaping levy — or whether they constitute as a distinct class of dutiable products, attracting Custom duty and IGST in accordance with MOOWR scheme.

In our view:

“Destroyed” means a condition in which the goods are not capable of its original use by anyone, be it the seller or the buyer or any other person.

However, if the goods are merely in scrap condition where they are not capable of use for the MOOWR unit, as their quality as is required by him, has deteriorated but these very substandard quality goods are of some use for the buyer and therefore the MOOWR unit sells them as scrap, in that case if such scrap is sold in domestic market, then duty will have to be paid.

7. Advantages of the Scheme:

• No export Obligation: The licensee can freely import the capital goods or raw material for manufacturing and inputs for other operation without any burden of further Export Obligation unlike their in other schemes such as Advance Authorization, EPCG schemes, EOU. Further, the import duty will be remitted in case of export of such manufactured goods.
• No restriction on sourcing of DTA materials: The licensee can freely source the DTA materials used in the process of manufacture or other operations.
• Duty Deferment: The scheme provides the finance assistance to the Licensee by allowing to defer the obligation of Duty payment till the clearance for Home Consumption which ultimately improves the cash flows and optimizes working capital
• No Geographical Restriction: The licensee can freely execute the manufacturing and other operations anywhere in boned warehouse on which license is obtained. There is neither geographical restriction nor requirement of newly setup premises. It means that any premises can be converted into the bonded warehouse subject to the fulfilment of the condition laid down under WOOR Regulations,2019.
• No Restriction of Time Limit for goods stored in warehouse: The scheme allows the storage of imported capital goods or raw material without any restriction of time limit.
• Job work: The scheme allows the permission to transfer the imported goods for job work transaction.
• Perpetual Licensee Validity: Licence will be valid for perpetuity until transfer, surrendered or cancelled. No more periodic renewals of licence are there in this scheme.
• Mechanism of Self-assessment: There are no separate Standard Input Output Norms (SION) are prescribed in the Scheme and its regulations. It usually runs on the principle of self-assessment.
• No Investment Limit: No criteria of minimum Investment that are required to obtain the license under Section 65 of Customs Act,1967.

8. Scheme is only available for Manufacturers and other operations involving trading in goods. It is not available for service providers who wants to import capital goods or inputs.

 9. Implications of Section 65A under MOOWR scheme:

• Currently MOOWR scheme is running under the mandate of Section 65 whereby Customs Duty as well as IGST payable at the time of Imports are deferred to a later date.
• However, in budget 2023, Section 65A was introduced in the Customs Act,1962 which withdraws the benefit of duty deferment on IGST and Compensation cess (taxes prescribed under Section 3(7) & 3(9) of Custom Tariff Act).
• This means that as and when section 65A is notified, persons taking MOOWR license will be eligible for duty deferment of Customs Duty only and IGST would be payable on the imports.
• It is important to note that section 65A is yet not notified even though same was brought in the Customs Act in 2023. It’s been 3 years since the amendment; this gives a feeling that the government is not keen on taking away this all-important benefit which is one big reason for the success of this scheme. One will have to keep an eye on this section though before importing goods under MOOWR.
• It is also important to note that this provision shall not apply on the dutiable goods which have already been imported and brought physically inside the warehouse or permitted to be taken from one MOOWR warehouse to another MOOWR warehouse in terms of Section 65 of Customs Act,1962 prior to the date notified.

 10. FAQ’s on MOOWR Scheme: Key Clarifications for unit operating under scheme

• Warehouse Structural Requirements:

There is no mandatory requirement for MOOWR unit to be fully enclosed. Emphasis of the policy is that the warehouse should be suitable for secure storage of goods with proper boundary walls, gates with access control and personnel for safeguarding of unit. Moreover, depending on nature of goods, operational needs, and industry type, Principal Commissioner/Commissioner of Customs may grant a license to units without having fully closed structure.

• Audit under section 65: Units operating under section 65 are subject to risk-based audit assessment. There is no fixed frequency prescribed for such audits.
• Depreciation under Income tax act on Imported Capital Goods: If imported capital goods are cleared under MOOWRS, the taxpayer will get deferment of customs duty as well as IGST, however he will be eligible to claim depreciation on the basic value of his purchase under the Income Tax Act. FAQ in question 15 is contrary to the above view, however we feel the same is misinterpreted answer.
• Custom Duty and GST liability on clearance of imported capital goods: When capital goods are cleared for home consumption after being used in a MOOWR unit, then custom duties shall be required to be paid on original value at the time of import and not on the depreciated value.
• Who will pay the duties: Let us understand this through an example:

• Inventory Accounting for Input-Output Summary: For maintaining and submitting the input-output summary in each return, units may adopt any inventory accounting method that aligns with Generally Accepted Accounting Principles (GAAP). This flexibility facilitates accurate and transparent reporting in accordance with standard accounting practices.

11. Scheme Comparison:

Conclusion:

“MOOWR” is not only confined to an Export-Import scheme but a strategic shift that allows organisations to integrate premises and warehouses under one roof, while deferring indirect tax liabilities till the point of domestic sale/home consumption. Practically, if we see, this is more than a mere deferment; it is a reform that aligns cash outflows with cash inflows, ensuring that taxes are paid only when finished goods are sold within India. MOOWR’s strength lies in its flexibility with no export obligation, no investment threshold, no geographical limitation within India, and self-assessed Input-output norms. As there is no entry barrier, MOOWR allows the large enterprises and startups to operate on the same pitch to compete in global markets.

One must keep in mind that “Great benefits come with equal responsibilities”. Organisations will have some compliance burden, like monthly return filings, detailed record maintenance in relation to goods, updating the license in case of any changes in HSN code, mandatory requirement of one-time lock on the load compartment in case of transport of goods, yearly solvency certificates, and insurance renewal.

However, one will have to keep a close eye on section 65A, as and when it gets notified by the government, it will redefine the definition of “Warehoused goods”, which limits the scheme benefit only to the deferment of Customs duty, whereas currently this benefit covers both Customs duty as well as IGST. Perhaps, then also something would be better than nothing and in taxation, even small things are good.

Working capital they say is the lifeblood of any business and more so of a manufacturing entity, MOOWR helps you save it till the final stage of sale, hence this scheme is very beneficial and benevolent.

Written by – CA Komal Rajwani, CA Unnati Chechani and CA Nitesh Jain