TaxTMI 
TaxTMI 
2026 (7) TMI 333
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.... Fats India Limited is a company incorporated in India. 2.2 The applicant is engaged in the business of manufacturing and marketing of edible vegetable oils and fats. The applicant does the activity of manufacturing i.e. processing of crude vegetable oils into refined vegetable oils at its plants in Nellore and Kakinada, in the state of Andhra Pradesh and supplies the finished product through distributors as well as direct supplies to companies under B2B across India. 2.3 The raw materials required for manufacturing of above products such as Crude Sunflower Seed Oil (CSFO) and Crude Palm Oil (CPO) are imported into India from various countries and cleared them for home consumption on payment of applicable Customs Duty and Integrated Goods and Service Tax (IGST). 2.4 During the course of manufacturing/processing of the crude oils into refined oils the applicant gets various following output products. The yield ratio can vary depending on the quality of input raw materials viz Crude Oils. SL.NO INPUT RAW MATERIAL OUTPUT PRODUCTS NATURE OF PRODUCT YIELD RATIO 1 Crude Sunflower Oil Refined Sunflower Oil Main Product 97 Sunflower Acid Oil By-....
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....manufactured goods" under Section 65 of the Customs Act, 1962 read with MOOWR, 2019. 2.8.3 Whether the applicant can avail the duty exemption on the equivalent quantity of crude input oils used in the manufacture of exported by-products, even though the main products such as Refined Palmolein, Refined Sunflower Oil are sold domestically. Specifically, if the applicant exports 100 MT of by-products while selling main products in the domestic market, can the applicant avail duty exemption on the equivalent quantity of crude input oils used in the manufacture of such exported by-products. 2.8.4 Does the MOOWR Scheme permits duty-free import of Crude Oils when only the by- products are exported and the main products are cleared for home consumption on payment of applicable duties? 3. Applicant's interpretation of Law: 3.1 Section 65 of the Customs Act, 1962 (the Act), enables conduct of manufacture and other operations in a Customs bonded warehouse. The scheme has been introduced vide the Manufacturing and Other Operations in Warehouse (no.2) Regulations 2019 (hereinafter referred to as MOOWR, 2019), through Notification No. 69/2019-Customs (N.T) dated 01.10.20....
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.... compensation cess, if any. As regards import duties payable on the imported goods contained in so much of the resultant products are concerned, same shall be paid at the time of supply of the resultant product from the warehouse for which the licensee shall have to file an ex-bond Bill of entry and such transactions shall be duly reflected in the accounts prescribed under Annexure B. 3.3 MOOWR, 2019 enables the applicant for efficient capacity utilization, as there is no limit on quantum of clearances than can be exported or cleared to the domestic market. No export commitments are to be fulfilled for availing benefit under the Scheme. Further, raw materials and capital goods can remain warehoused until clearance from warehouse. 3.4 Apparently MOOWR scheme was introduced to facilitate duty free import for goods manufactured for export. This was done as an alternative to applying the advance authorization for import of raw materials which are used for manufacture of finished goods for export. Under the advance authorization scheme various norms would apply such as Input Output Norms and value addition etc. however there no such conditions under MOOWR Scheme. 3.5 From the a....
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....qualify as 'export of manufactured goods' under Section 65 of the Customs Act, 1962 read with MOOWR, 2019? Comments: A person who has obtained a warehouse licence under Section 58 of the Customs Act, 1962 and permission to carry out manufacturing or other operations under Section 65 can undertake such activities in a bonded warehouse in accordance with the Manufacture and Other Operations in Warehouse Regulations, 2019 (MOOWR Scheme), issued under Notification No. 69/2019-Cus. (N.T.) dated 01.10.2019. Under the said Scheme, the goods that emerge after carrying out manufacturing or other permitted operations in the bonded warehouse, are referred to as "resultant goods." When such 'resultant goods' are cleared from the bonded warehouse for export by filing a shipping bill, bill of export, or other required documents in accordance with the applicable provisions, the clearance is treated as an "export" under the Scheme. In the instant case, the Applicant has described 'Palm Fatty Acid Distillate, Refined Palm Stearin, Sunflower Acid Oil and Sunflower Distilled Fatty Acid' as "by-products" and has asked whether their export of 'by-products&#....
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....only uses the term "resultant goods." The question raised by the Applicant goes beyond the scope of the provisions of the Scheme. Accordingly, it is appeared that the issue has not been properly presented before the Authority. However, even if the term "by-products" is understood to mean "resultant goods," the issue raised in the application has been examined based on the facts and information provided by the Applicant, as explained below: The Applicant is engaged in the manufacture and marketing of edible vegetable oils and fats. The manufacturing process involves refining crude vegetable oils to obtain refined edible oils. For clarity, the relevant 'inputs' and 'resultant goods' are as follows: Input: Crude Sunflower Oil Resultant goods: ○ Refined Sunflower Oil ○ Sunflower Acid Oil ○ Sunflower Distilled Fatty Acid Input: Crude Palm Oil Resultant goods: ○ Refined Palmolein ○ Refined Palm Stearin ○ Palm Fatty Acid Distillate It is observed from the above details and other details furnished by the Applicant that 'Crude....
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....' does not alter the character or usage of the imported crude oil nor does it create any separate or independent entitlement to claim duty exemption Once the entire quantity of imported crude oil is used in the manufacture of the main products, the liability to pay customs duty arises in accordance with the provisions of the MOOWR Scheme at the time of clearance for home consumption. The Scheme does not provide any mechanism for identifying or attributing a specific portion of the imported input to incidental 'by-products'. Further, there is no provision under the MOOWR Scheme permitting segregation or apportionment of imported inputs on the basis of input-output ratio, proportionate consumption, or any reverse calculation method. In the absence of such facilitating provisions, the Applicant cannot bifurcate or apportion the quantity of crude oil between the 'main products' and the 'by-products' for the purpose of claiming partial duty exemption. Accordingly, the claim for duty exemption on the portion of crude oil allegedly attributable to the exported 'by-products' is not supported by the provisions of the Scheme and is, therefore, legally unte....
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....te. In the said rebuttal, the applicant submits: 5.1 ON THE INTERPRETATION OF "RESULTANT GOODS & BY-PRODUCTS 5.1.1 Section 65 of the Customs Act,1962 (the Act) permits manufacturing and other operations in a bonded warehouse. The MOOWR Scheme issued vide Notification No. 69/2019-Cus. (NT) allows import of goods under Customs Duty deferment and these duties are fully remitted if the resultant goods are exported. 5.1.2 The term "resultant goods" are not defined anywhere in the Act or Regulations. Hence, its ordinary meaning in trade parlance must be adopted for interpretation. In trade usage, all the outputs of a manufacturing process, whether main products or incidental by-products, are treated as resultant goods. 5.1.3 As per Annexure I of our application, refining crude oils necessarily yields both refined edible oils and secondary fractions such as Palm Fatty Acid Distillate (PFAD), Refined Palm Stearin, Sunflower Acid Oil, and Sunflower Distilled Fatty Acid. These are not waste/scrap but commercially valuable commodities, regularly traded and exported. 5.1.4 By-products are inherently "resultant goods" because they emerge from the manufacturing process. The law sh....
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....nly on home consumption. If resultant products, including resultant by-products, are exported, the portion of crude oil embedded in them should be treated as duty- free. Denying this benefit would mean exporters pay duty on inputs that physically leave the country, which contradicts the export promotion objective of MOOWR Scheme. 5.3 ON POLICY INTENT: 5.3.1 The MOOWR Scheme was introduced to facilitate and promote exports by reducing working capital blockage. 5.3.2 By-products like PFAD and Acid Oils etc ... are significant export commodities. Denying their recognition as "resultant goods" undermines the export facilitation objective of the Scheme. 5.3.3 The intent of MOOWR scheme is to encourage manufacturing and investment in India. A restrictive interpretation would discourage industries from using MOOWR Scheme, contrary to the government's stated policy of ease of doing business. 6. Personal Hearing Details: The personal hearing on the said matter was held on 30.03.2026 at 11:30 AM. Shri Rajesh Kumar and Shri N. Srinivas authorized representatives appeared for PH in the matter. They reiterated the contention filed with the application that they import Crud....
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....loss whereby oil is left in the bleaching earth. REFINING FLOW CHART [WITH APPROX YIELDS BASIS FFA OF 10%] 7.2 CRUDE PALM OIL 7.2.1 The process of refining Crude Palm Oil (CPO) is carried out through physical refining involving the stages of Bleaching, Deodarization and Fractionation. Bleaching is done to reduce color and remove some impurities. Thereafter deodorization stage removes the FFA in the oil and also removes the odors. REFINING FLOW CHART [WITH APPROX YIELDS BASIS FFA OF 5,O%] 7.2.2 Since palm oil is a hard oil with melting point of around 37 Degrees Celsius. The process of fractionation is done to remove the hard portion viz palm stearin which has melting point of 54 Degrees Celsius. Finished product is refined palmolein which has melting point of 24 Degrees Celsius. Palm stearin is used for various purposes like oleochemicals, soaps and bakery shortenings. Refined palmolein is used as cooking oil. 8. The applicant further submitted that: i. Yield ratios given above vary based on input quality of crude oils mainly the FFA content in the oil. But these variations are not very significant and do not alter the ratios broadly. For instance, FFA in....
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....ing input receipt, processing, and output generation, will be maintained in compliance with MOOWR Scheme ensuring full traceability between imported inputs and exported resultant goods including by-products 9. DISCUSSION AND FINDINGS 9.1 I have carefully considered the application filed by M/s. Gemini Edibles & Fats India Limited, the submissions made therein, the comments furnished by the jurisdictional Commissionerate, the rebuttal filed by the applicant, and the submissions advanced during the course of the personal hearing. The issue for determination pertains to the applicability of remission of duty in the context of operations undertaken under Section 65 of the Customs Act, 1962, read with the Manufacture and Other Operations in Warehouse Regulations, 2019 (MOOWR, 2019), as notified vide Notification No. 69/2019-Customs (N.T.) dated 01.10.2019, and further clarified through Circular No. 34/2019-Customs dated 01.10.2019. At the outset, I note that the jurisdictional Commissionerate has opposed the application primarily on three grounds, namely: (i) that the Scheme does not recognise the concept of "by-products"; (ii) that MOOWR is only a duty def....
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....o exported goods, in line with the principle that exports should be free from domestic taxes and duties. In this context, the jurisdictional Commissionerate's assertion that the scheme is "only" a duty deferment mechanism and not a duty exemption framework requires careful examination. While it is correct that the scheme operates through deferment at the stage of import, such characterization is incomplete. The statutory design, when read holistically with Section 69, clearly contemplates that duty liability does not merely remain deferred indefinitely but stands extinguished upon export of resultant goods. 9.3.4 Thus, while the scheme is structured as a duty deferment mechanism at the stage of import, the statutory framework, read with Section 69 of the Act and Clause 7 of the Circular, effectively provides for duty remission (i.e., extinguishment of liability) to the extent imported inputs are contained in exported goods. The interpretation advanced by the jurisdictional Commissionerate, if accepted, would lead to a situation where even goods physically exported out of India continue to bear the burden of customs duty on their input content. Such a consequence would ....
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....e of the broader expression "resultant goods." The interpretative exercise must therefore be inclusive and not exclusionary. 9.3.9 In the present case, the manufacturing process of refining crude edible oils, as submitted by the application and mentioned at para 7.1 above, inevitably yields multiple outputs, namely: * Refined edible oils (principal products); and * Other fractions such as Palm Fatty Acid Distillate (PFAD), Acid Oils, Stearin, and Distilled Fatty Acids. 9.3.10 The jurisdictional Commissionerate has sought to characterise these as merely incidental or residual outputs lacking independent significance. This position is not borne out from the factual record. As evidenced by the process details and yield data submitted by applicant, such outputs: (i) arise necessarily and unavoidably from the refining process; (ii) are scientifically and chemically distinct fractions; and (iii) are commercially marketable commodities with independent demand. Therefore, these outputs cannot be equated with waste or scrap. On the contrary, they possess distinct commercial identity and economic value, which is a relevant consideration i....
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....cular activity of manufacture" and further that "import of capital goods viz. solar panels, PV modules, inverters, etc. for use in generation of solar power was not excluded." While the jurisdictional Commissionerate has sought to distinguish the said judgment, I find that the underlying principle emerging therefrom-namely, that the statutory framework governing Section 65 read with the MOOWR Regulations does not admit of restrictive or exclusionary interpretations in the absence of express provision-is directly applicable to the present issue. Accordingly, a narrow construction that defeats the facilitative intent of the scheme cannot be sustained. 9.3.16 The jurisdictional Commissionerate's comments, if accepted, would lead to an anomalous situation where goods that are admittedly manufactured, marketable, and exported would nonetheless be denied recognition as "resultant goods" merely because they are not the primary output. Such an interpretation would be contrary to commercial reality and the object of the scheme. 9.3.17 Further, I observe merit in the applicant's contention that adopting a restrictive interpretation excluding by-products would undermine the e....
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.... Accordingly, it is observed that, though the scheme is structured as a duty deferment facility, such characterization cannot dilute the fundamental principle that goods exported out of India should not ultimately suffer the burden of customs duty on the imported inputs contained therein. 9.4.3 The procedure and duty implications under the scheme are further clarified in Circular No. 34/2019-Customs dated 01.10.2019, wherein: * Clause 7 provides that: "To the extent that the resultant product manufactured or worked upon in a bonded warehouse is exported, the licensee shall have to file a shipping bill and pay any amounts due. A GST invoice shall also be issued for such removal. In such a case, no duty is required to be paid in respect of the imported goods contained in the resultant product as per the provisions of section 69 of the Act." * Clause 8 provides that: "To the extent that the resultant product (whether emerging out of manufacturing or other operations in the warehouse) is cleared for domestic consumption, such a transaction squarely falls within the ambit of "supply" under Section 7 of the Central Goods and Service Tax Act, 2017 (h....
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....t categories of resultant goods and applies equally to all resultant goods exported from the bonded warehouse, including the subject goods under consideration. 9.4.7 Once it is accepted that all outputs -- including those described as by-products-constitute resultant goods, the benefit under Section 69 read with Clause 7 cannot be restricted only to principal products. Any such restrictive interpretation would introduce a distinction not borne out from the statutory scheme. 9.4.8 The objection of the jurisdictional Commissionerate proceeds on a narrow construction of "resultant goods" by excluding by-products. As already discussed, such exclusion is not supported either by the statutory framework or the Circular, and therefore not legally sustainable. 9.4.9 Accordingly, where manufacturing is undertaken under Section 65 and resultant goods are exported under Section 69, the duty liability on imported inputs embedded in such exported goods stands extinguished to the extent of such export. 9.4.10 This interpretation is consistent with the foundational principle that exports should remain free from domestic tax incidence, and that provisions facilitating export must receiv....
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....f imported inputs to exported resultant goods, based on verifiable yield ratios, is inherent in the statutory framework under Sections 65 and 69 read with Circular No. 34/2019-Customs. 9.5.9 In view of the above I observe that the objection of the jurisdictional Commissionerate is therefore not legally tenable. 9.6 Clearance of Resultant Goods for Home Consumption 9.6.1 It is not disputed that certain resultant goods are cleared for home consumption. The jurisdictional Commissionerate has contended that in such cases duty is payable on the entire quantity of imported inputs without apportionment. This contention is not sustainable as: 9.6.2 Section 68 of the Customs Act, 1962, read with Clause 8 of Circular No. 34/2019-Customs, governs clearance for home consumption and clearly provides that duty is payable only on imported goods contained in so much of the resultant products cleared. 9.6.3 The expression "contained in so much of the resultant products" is determinative, as it expressly incorporates an attribution-based mechanism limiting duty liability to the portion of inputs embedded in goods actually cleared domestically. 9.6.4 Thus, duty liability under Secti....