2025 (1) TMI 636 - AAR - Customs

AAR Mumbai clarifies MOOWR operations, duty drawback jurisdiction, and exemption benefits under Notification 21/2023

IN RE : BLUE STAR CLIMATECH LTD.

The AAR Mumbai ruled on multiple issues concerning MOOWR premises operations and duty drawback. The Authority held it lacks jurisdiction to pronounce ... Jurisdiction of Advance Ruling - Duty drawback under Rule 6/Rule 7 of the Customs and Central Excise Duties Drawback Rules, 2017 (notified vide Notification No. 88/2017, dated 21st September 2017) for goods manufactured in the MOOWR premises (Manufacturing and Other Operations in Warehouse Regulations, 2019) and exported therefrom - requirement of import of duty paid raw materials consumed for manufacture of exported goods - import of bonded premise without payment of customs duty under Advance Authorization in accordance with Notification No. 21/2023-Customs, dated 1st April 2023 - supply of manufactured goods by the Applicant to third party customer would be considered as a DTA Sales or Exports. Whether any such jurisdiction of pronouncing ruling as to the question of duty drawback is vested in this Authority or otherwise? - HELD THAT:- It is understood that in the clause (d) of the sub-section (2) of the Section 28(H) of the Customs Act, 1962 there is not any mention of the word ‘drawback; or refund with the words duty or tax. However, it is amply clear that the words ‘chargeable’ and ‘leviable’ are expressly mentioned in the same clause and it is observed that these words are associated with the words duty and tax. Therefore, addition of the word ‘drawback’ with the words duty or tax would be unwarranted and extraneous. Further, in the case of Harshad Chiman Lal Modi v. DLF Universal Ltd. [2005 (9) TMI 588 - SUPREME COURT], the Hon’ble Supreme Court held that “where a court has no jurisdiction over the subject-matter of the suit by reason of any limitation imposed by statute, charter or commission, it cannot take up the cause or matter. An order passed by a Court having no jurisdiction is a nullity. The questions related to duty drawback involved in the present application do not fall within the ambit of any parameter, on which Advance Ruling can be sought. Benefit of exemption Notification No. 21/2023, dated 1-4-2023 - HELD THAT:- To avail the benefit of exemption Notification No. 21/2023, dated 1-4-2023, filing a Bill of Entry for home consumption is mandatory. Once the benefits of the Advance Authorisation scheme are claimed by the applicant, then, the goods imported under said Advance Authorisation shall not be considered as warehoused goods in terms of Section 60 of the Customs Act - The Applicant believes that it can debond the capital goods warehoused into the MOOWR unit by using EPCG authorization. The applicant has clarified that the query does not pertain to admissibility of depreciation benefits at the time of debonding as is admissible to EPCG Scheme, rather, the query is only whether at the time of de-bonding of capital goods imported under the MOOWR Scheme, when the applicant is required to pay appropriate customs duties, whether the benefit of exemption notified vide Notification No. 26/2023-Customs, dated 1st April 2023 can be availed by the Applicant. Whether the Applicant can import goods in bonded premises without payment of customs duty under Advance Authorization and use such goods in the manufacture of exported products? - HELD THAT:- All the three warehouses are set up under different provisions of the Act and they have their own procedures. Public and Private Bonded warehouses are set up to only deposit the goods and not any manufacturing process or other operations are specifically provided in these two warehouses in relation to the goods warehoused therein, whereas, owner of the MOOWR units are allowed to carry on any manufacturing process or other operations in the MOOWR unit in relations to the goods warehoused therein. Therefore, the provisions of the Private Bonded warehouses licensed under Section 58 of the Act and Private Bonded warehouses licensed under both Section 58 and Section 65 are on different footings and cross utilisation of the benefits, granted to the owners of the such warehouses does not appear to be specifically provided in the statute - clause (b) of para 2.36 of the FTP is only about Private Bonded warehouse and Public Bonded warehouse licensed under section 58 and section 57 respectively wherein goods are warehouses/deposited and not any manufacturing process or other operations are carried in relations to such goods. However, in the case at hand, activity is different inasmuch as MOOWR unit of the applicant is licensed not only under section 58 but also under section 65 wherein any manufacturing process or other operations may be carried on in relations to the goods warehoused therein. Conclusion - i) There no such jurisdiction vested in this authority as per the mandate of Chapter VB of the Customs Act, 1962. ii) Subject to the fulfilment of the conditions stipulated in the Notification No. 21/2023-Customs, dated 1st April 2023 and current Foreign Trade Policy, the Applicant can import the goods into the MOOWR unit, upon filing a bill of entry for home consumption and clearance, at the customs station of import. Such goods shall not be considered as warehoused goods in terms of section 60 of the Act. iii) The capital goods, on which the benefits of deferral of Customs duty have already been availed/claimed under the MOOWR Scheme, cannot be further de-bonded by using/utilising EPCH license. iv) Supply of manufactured goods by the Applicant to third party customer can be considered as Exports in case the third-party customer exports such goods as it is outside India and in case the goods are directly delivered to the port of Export. 1. ISSUES PRESENTED and CONSIDEREDThe judgment addresses the following core legal questions:(i) Whether Blue Star Climatech Limited (BSCL) can claim duty drawback under Rule 6/Rule 7 of the Customs and Central Excise Duties Drawback Rules, 2017 for goods manufactured in the MOOWR premises and exported therefrom.(ii) If yes, whether there is a requirement for the import of duty-paid raw materials for the manufacture of exported goods, and whether duty drawback would be available if raw materials are procured without payment of customs duty or domestically with GST payment.(iii) Whether BSCL, as a merchant exporter, can claim duty drawback under Rule 6/Rule 7 on export of goods manufactured by BSCL (a MOOWR unit).(iv) If yes, whether there is a requirement for import of duty-paid raw materials for the manufacture of exported goods, and whether duty drawback would be available if raw materials are procured without payment of customs duty or domestically with GST payment.(v) If the answer to question (iv) is yes, whether the duty drawback would be limited to exports done after the filing of the advance ruling application.(vi) Whether the Applicant can import goods in bonded premises without payment of customs duty under Advance Authorization and use such goods in the manufacture of exported products.(vii) Whether the Applicant can apply for an EPCG license and debond capital goods imported under the MOOWR license by utilizing the EPCG license for payment of customs duty payable on debonding.(viii) Whether the supply of manufactured goods by the Applicant to a third-party customer would be considered as DTA Sales or Exports if the third-party customer exports such goods outside India.2. ISSUE-WISE DETAILED ANALYSISIssue (i) to (v): Duty Drawback EligibilityLegal Framework and Precedents: The Customs and Central Excise Duties Drawback Rules, 2017, particularly Rules 6 and 7, govern the duty drawback claims. The applicant cited various cases, including M/s. First Garments and Leela Scottish Lace Ltd., to support their claim for duty drawback for goods manufactured in a bonded warehouse.Court's Interpretation and Reasoning: The court examined whether the authority had jurisdiction to rule on duty drawback issues. It concluded that duty drawback, being a rebate and not a levy of duty, does not fall under the jurisdiction of the Customs Authority for Advance Rulings as per Section 28H(2) of the Customs Act, 1962.Key Evidence and Findings: The court emphasized the distinction between duty levied under Section 12 of the Customs Act and rebate of duty under Sections 74 and 75, clarifying that the latter does not pertain to the chargeability or leviability of duty.Application of Law to Facts: The court noted that the applicant's questions regarding duty drawback do not align with the statutory mandate for advance rulings, as they do not pertain to the applicability of notifications related to the levy of duty.Treatment of Competing Arguments: The court acknowledged the applicant's reliance on precedents and circulars but maintained that the statutory framework does not support the jurisdiction for ruling on duty drawback claims.Conclusions: The court refrained from passing a ruling on questions (i) to (v) related to duty drawback due to lack of jurisdiction.Issue (vi): Import under Advance AuthorizationLegal Framework and Precedents: Notification No. 21/2023-Customs, dated 1st April 2023, and Circular No. 34/2019-Cus. govern the import of goods under Advance Authorization into bonded premises.Court's Interpretation and Reasoning: The court held that the applicant can import goods into the MOOWR unit under Advance Authorization, provided a bill of entry for home consumption is filed, aligning with the conditions of the notification.Key Evidence and Findings: The court referenced Circular No. 34/2019-Cus., which clarifies the conditions for importing goods exempt from duty into a warehouse.Application of Law to Facts: The court determined that the applicant's proposal aligns with the notification's conditions, allowing importation under Advance Authorization.Conclusions: The court ruled in favor of the applicant for question (vi), subject to compliance with notification conditions.Issue (vii): Debonding with EPCG LicenseLegal Framework and Precedents: Notification No. 26/2023-Customs, dated 1st April 2023, and the EPCG scheme govern the debonding of capital goods.Court's Interpretation and Reasoning: The court concluded that capital goods benefiting from duty deferral under the MOOWR Scheme cannot be debonded using an EPCG license, as the exemption does not extend to such goods.Key Evidence and Findings: The court emphasized the lack of specific provisions in the notification to support the applicant's claim.Application of Law to Facts: The court found that the applicant's interpretation lacked statutory support, as the notification does not cover the proposed activity.Conclusions: The court ruled against the applicant for question (vii).Issue (viii): Classification of Sales as ExportsLegal Framework and Precedents: The Foreign Trade Policy 2023, particularly paras 2.42 and 11.61, outlines the conditions for third-party exports.Court's Interpretation and Reasoning: The court determined that third-party exports are permissible under the current FTP, provided the documentation aligns with FTP requirements.Key Evidence and Findings: The court referenced FTP provisions allowing third-party exports.Application of Law to Facts: The court found that the applicant's transactions meet the criteria for third-party exports.Conclusions: The court ruled in favor of the applicant for question (viii), classifying the transactions as exports.3. SIGNIFICANT HOLDINGSThe court refrained from ruling on duty drawback questions due to jurisdictional limitations, emphasizing the distinction between levy and rebate of duty.For question (vi), the court allowed importation under Advance Authorization, provided compliance with notification conditions.For question (vii), the court denied the use of an EPCG license for debonding capital goods benefiting from duty deferral under MOOWR.For question (viii), the court classified transactions as exports under third-party export provisions of the FTP.Verbatim Quote: 'The exemptions notifications must be strictly interpreted.' This principle guided the court's interpretation of the statutory framework and notifications.