CBIC Instruction directing cancellation of warehousing licenses for solar power generation held ultra vires Section 151A

Delhi HC invalidated a CBIC Instruction dated 09 July 2022 directing cancellation of warehousing licenses for solar power generation activities. The court held the Instruction was ultra vires Section 151A as it exceeded the Board's advisory function by mandating licensing authorities to act under its dictates, violating administrative law principles. The court found solar power generation falls within Section 65 of the Act and MOOWR Regulations, as the statutory provisions do not exclude any particular manufacturing category. The court rejected arguments about creating inequitable competition, stating policy concerns cannot justify judicial reconstruction of statutory provisions. The writ petitions were allowed, and the impugned Instruction and show cause notices were quashed.

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Issues Involved:
1. Validity of the Central Board of Indirect Taxes and Customs (CBIC) Instruction dated 09 July 2022.
2. Interpretation of Sections 61 and 65 of the Customs Act, 1962.
3. Applicability of Manufacture and Other Operations in Warehouse (No.2) Regulations, 2019 (MOOWR Regulations) to solar power generation.
4. Impact of the impugned Instruction on existing licenses and future permissions.
5. Ancillary issues including the demand for a provisional bond for the release of goods.

Summary:

1. Validity of the Impugned Instruction:
The impugned Instruction dated 09 July 2022 issued by the CBIC under Section 151A of the Customs Act, 1962, was challenged for directing a review of existing licenses and prohibiting future permissions for solar power projects under the MOOWR Regulations. The Court held that the Instruction impinges on the discretion of the licensing authorities, compelling them to act in a particular manner, thus violating the Proviso to Section 151A. The Instruction was found to be ultra vires as it interfered with the quasi-judicial functions of the customs officers. Consequently, the Instruction was quashed.

2. Interpretation of Sections 61 and 65 of the Customs Act, 1962:
Sections 61 and 65 of the Customs Act, 1962, were interpreted to determine their applicability to solar power generation. The Court observed that Section 61 allows capital goods to remain in a warehouse until clearance, without any time limitation post the 2016 amendments. Section 65 permits manufacturing or other operations in relation to warehoused goods, without explicitly excluding any category of goods or manufacturing activity. The Court concluded that the statutory scheme does not exclude solar power generation from its ambit.

3. Applicability of MOOWR Regulations to Solar Power Generation:
The Court examined the MOOWR Regulations and contemporaneous materials, including FAQs and promotional literature, which indicated that the scheme was intended to facilitate manufacturing in India using imported capital goods. The Regulations did not exclude solar power generation or any specific manufacturing activity. The Court held that the MOOWR Regulations apply to solar power generation, and the imported capital goods used in such projects could be warehoused without time limitation.

4. Impact on Existing Licenses and Future Permissions:
The impugned Instruction's directive to review existing licenses and prohibit future permissions was found to be beyond the scope of Section 151A and ultra vires. The Court quashed the Show Cause Notices (SCNs) issued based on the Instruction and invalidated the cancellation of licenses that had been carried out under its mandate.

5. Ancillary Issues:
The demand for a provisional bond for the release of goods was addressed in a previous order dated 04 August 2023, which directed the parties to proceed in accordance with that order. The Court reiterated that the cancellation of licenses based on the impugned Instruction was invalid and quashed the relevant orders.

Final Determination:
The writ petitions were allowed, and the impugned Instruction dated 09 July 2022 was quashed. The SCNs issued based on the Instruction were also quashed. The Court left it open for the respondents to proceed in accordance with law regarding any future actions.

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