FEBRUARY 17, 2020

By Sreenivas Malyala, Appraiser, Bangalore Customs

IT was a welcome move that the CBIC sincerely attempted to amend and modify the MOOWR (No.1), 2019 by notifying the new MOOWR(No.2), 2019 {vide Notification No. 69/2019-Customs (N.T.)} as the earlier version was no improvement over the archaic MOOWR, 1966. It was not only due to the consistent demand of the non-EOU export industry to clarify the procedures and easen the import-for-export business which put pressure on CBIC, but also due to the sincerity of the senior officers in the Board, to bring in this alternate procedure in view the proposed discontinuation of IGST exemption on imports under EOU/EHTP/STP/EPCG/ Advance Authorisation Schemes from 1st April 2020, the MOOWR(No.2), 2019 in its present form are brought into force. An accompanying Circular No. 34/2019-Cus dated 01.10.2019 has also been issued.

The Regulations did not limit the circumstances under which, the route of Section 65 can be embraced by the importers. Thus, any person who intends to avail the Regulations, is not governed by any Tariff Notification and other conditions except compliance to the MOOWR, 2019. Thus, the Regulations indeed bring in a scheme alternative to that of EOU/EHTP/STP Schemes with no hassles of compliance of DGFT/Development Commissioner/STP Authorities. There may be certain initial skepticism in view of the IGST exemption now available for EOU/EHTP/STP on the imported inputs used in manufacture of resultant products which are cleared in DTA. However, given the fact that IGST paid will be available as input credit, the MOOWR, 2019 are advantageous inasmuch as they reduce compliance burden on the importers.

The Regulations require the Licensee to notify input-output norms, wherever necessary, which means that input-output norms are not mandatorily notified in all cases, leaving room for ‘other operations' like services. In respect of pure service industries, like that of STPs which import capital goods only, the new MOOWR, 2019 open new vistas with reduced compliance and it is only time before many STPs migrate to the new MOOWR, 2019. Even for the manufacturer-importers who import against back to back export orders, the MOOWR, 2019 provides a safe and easy route than the other EP Schemes like EOU/EHTP/STP and Advance License. There is burden of time frame of exports as in the Advance License/Advance Authorisation and the requirement of positive NFE as in the case of EOUs. With the hassles of dual compliance (with Customs and DGFT) and transaction costs, EP schemes will prove cumbersome compared to compliance to MOOWR, 2019.

CBIC has already liberalized warehousing procedures by removing physical control of warehouses and replacing the requirement of presence of Bond Officers with introduction of statutory warehouse keeper to be appointed by the Licensees, and made life easier for warehouse licensees after introduction of new warehousing provisions in 2016. In-bond Manufacture has the other advantage that raw materials and Capital Goods can be imported and kept in Bond eternally without the requirement of extension of warehousing bond. Further, waiver of interest on warehoused goods used for manufacture under Section 65 {read Section 61(2) Section 61(1)(a) and (b)}, MOOWR, 2019 is indeed a great scheme of import duty exemption without a requirement of conditional export and Foreign Exchange realization and no hassles of compliance. For detailed analysis of advantages of MOOWR, 2019 over other schemes please visit the website of Invest india.

ISSUES REQUIRING CLARIFICATION:

There are certain apprehensions which arose due to lack of clarity on few issues relating to the Regulations. The most important ones are:

1. Is service activity covered under "Other Operations". Can a Service Provider utilise MOOWR, 2019?

Service Industry, mainly the Software Exporters are apprehensive about the applicability. The Regulations, time and again talk about Manufacture and the other operations are underplayed. There is no clarity on what these "Other Operations" are. The Regulations do not speak about the list of activities that can be permitted under category of "Other Operations". The Circular No. 34/2019-Cus dated 1.10.2019 also does not clarify on this aspect. Thus, the Regulations leave it unanswered. The Commissioner's may or may not allow Services in the "Other Operations Category".  Many goods other than the Capital Goods need to be imported by such Service Exporters. What is the discretion allowed to Commissioner to permit import of goods by such importers? There may be different goods that may be consumed in relation to such Service Activity. Whether such imports are allowed? There may be apprehension in the customs formations at ports to allow all types of goods into the warehouses licensed under Section 58 and 65. How to reconcile such apprehensions?

The MOOWR,1966 were applied in the context of EOUs/EHTPs and also STPs till 2016 in the form of IBMSO(In-Bond Manufacture Sanction Order). STPs which purely carry out an activity of service(Software Development) were under the predecessor MOOWR, 1966. In such a situation as there are no changes in the provisions of Section 65 of Customs Act, 1962, can it be presumed that the Service Activity can be permitted in MOOWR, 2019?

Incidentally, the website of Investindia [National Investment Prmotion & Facilitation Agency] with whom the CBIC partnered to promote the MOOWR, 2019 indicates that Service Activity is not permitted. CBIC needs to clarify this.

( https://invest-india-revamp-static-files.s3.ap-south-1.amazonaws.com/s3fs-public/2020-01/Bonded%20Manufacturing%20Report%2027.01.2020_1.pdf )

2. There is confusion on Interest Payment:

As per the MOOWR, 2019 whenever the finished goods are sold in DTA on payment of GST, an Ex-Bond of Bill of Entry has to be filed for the inputs and duty, interest, fine and penalties, if any, have to be paid by the Licensee/importer. (refer Regulation 14 read with proviso). As the warehoused goods carry interest after the free period of 90 days as provided under Section 61(2)(c), when an Ex-Bond  Bill of Entry is filed, interest is calculated by the system despite the fact that such interest is not leviable. The Regulation 14 proviso also states that interest need to be paid. 

The Bond Module in ICES has to be modified to ensure that interest is not charged in respect of the goods imported for  manufacture and other operations under Section 65. Indeed, by making a specific stream of Warehouse Codes for warehouses which are under Section 58 as well as Section 65, it is possible to ensure implementation of interest waiver mandated under Section 61. But the apprehension is that such system provision may create  room for misuse of this for goods imported purely for Trading. This issue needs to be reconciled in the system without having to leave loopholes for misuse. Alternatively, it may be clarified that import duties on warehoused goods incorporated in finished products cleared in DTA may be paid outside the system as is the case with the goods imported by EOUs. 

3. Depreciation on Capital Goods:

The Capital Goods that may be imported by the Licensee under Section 65 would eventually depreciate in value. However, there is no clarity in the Regulations on Depreciation for payment of duty on Capital Goods at the time of debonding. The Circular also does not clarify. If the scheme is to be made attractive, the benefit of depreciation extended to EOU/EHTP/STP need to be explicitly extended for capital goods imported under MOOWR, 2019.

4. Temporary Removal of Imported Inputs:

MOOWR provide for clearance of goods for export, home consumption or transfer to another warehouse. Practically, for manufacturers, there would be a need to temporarily remove goods for job work etc. Since there is no provision and the warehoused  goods are subject to record based control, any suo-moto removal will be viewed as violation. Regulations or Circular may provide for permission for removal for job work with due permission of Proper Officer. 

5. Closure of Bonds:

When the finished products made from imported and warehoused raw material, are exported from the warehouse, Shipping Bill is filed for export of finished products. No system of closure of Bonds is provided. Such Bonds will remain unclosed forever. There may be exposure on account of closure of Bonds at the Port of Import. The system of reconciliation and closure of Bonds may have to be prescribed.

6. Liquidity Burden on account of IGST on imported inputs:

When the finished products are cleared for DTA on payment of GST, the Customs Duty along with IGST has to be reversed on inputs used in the manufacture of finished products. Though such IGST is available as credit, as the payment of GST and also Customs Duties and IGST on inputs occur almost at the same time, liquidity is bound to suffer. But, given the advantages of MOOWR, 2019, the Licensee may have to live with it and over a period of time (usually first few months) till the effect is nullified with continual adjustment of IGST credit against the GST payments. 

Way forward: 

If  CBIC clarifies the above issues, and the field staff implements it  with the full sincerity with which the CBIC has introduced the new comprehensive MOOWR(No.2), 2019, the same will be an effective replacement of many EP Schemes with the advantage of reduced compliance. Indeed, the apprehensions of the Trade discussed above  may dissolve quite soon and some may not have any immediate impact on operations for many players. Even with certain initial issues which require clarification, the MOOWR, 2019 are still very attractive, given the advantages. Let's all hope that the industry makes good use of the new MOOWR, 2019 which is a scheme disguised in Regulations.

(The views expressed are strictly personal)