AUGUST 27, 2024

By CA Hunny Munjal

Introduction to the MOOWR Scheme: THE Manufacture and Other Operations in Warehouse Regulations (MOOWR) Scheme is a significant initiative aimed at bolstering India's position as a competitive manufacturing hub and an attractive destination for foreign investment. Enshrined under the Customs Act, 1962, the MOOWR scheme provides businesses with the ability to import raw materials and capital goods without immediate payment of customs duty. These goods can be used for manufacturing or other operations within a bonded warehouse, with the final products either being exported or sold in the domestic market.

The scheme aligns with the objectives of the Indian government to promote the ‘Make in India' initiative, facilitate ease of doing business, and encourage Foreign Direct Investment (FDI). The MOOWR scheme's flexibility and operational efficiency make it a preferred choice for manufacturers looking to optimize their production costs while adhering to regulatory requirements.

Legislative Framework Governing the MOOWR Scheme: The MOOWR scheme is governed by several key legislative provisions under the Customs Act, 1962, along with various regulations and notifications that provide a comprehensive legal framework:

1. Chapter IX of Customs Act, 1962 (Sections 57 to 73A): These sections outline the legal basis for warehousing, including the establishment of private bonded warehouses and the conditions under which goods can be stored, manufactured, or processed within these facilities.

2. The Private Warehouse Licensing Regulations, 2016: This regulation governs the licensing and operation of private warehouses, setting out the requirements for obtaining a license and the obligations of warehouse operators.

3. The Manufacture and Other Operations in Warehouse (No. 2) Regulations, 2019: Notified through Notification No. 69/2019-Customs (N.T.) dated 1-10-2019, these regulations specifically address the procedures and conditions for conducting manufacturing and other operations in a bonded warehouse under Section 58 of the Customs Act, 1962.

4. The Manufacture and Other Operations in Special Warehouse Regulations, 2020: Issued under Notification No. 75/2020-Customs (N.T.) dated 17-08-2020, these regulations apply to special warehouses, including those dealing with high-value or sensitive goods, under Section 58A of the Customs Act, 1962.

Key Features of the MOOWR Scheme: The MOOWR scheme offers several benefits and operational flexibilities that make it attractive for manufacturers:

- Deferred Duty on Imported Capital Goods: Importers can defer the payment of customs duties on capital goods until they are cleared from the bonded warehouse. This deferral helps in managing cash flow effectively.

- Deferred Duty on Imported Raw Materials: Similar to capital goods, duties on imported raw materials are deferred until the finished products are cleared from the warehouse. If the finished goods are exported, the deferred duty is waived entirely.

- Warehouse to Warehouse Transfer: The scheme allows for duty-free transfer of goods between warehouses, providing businesses with logistical flexibility and efficiency.

- No Export Obligation: Unlike other schemes that mandate export obligations, the MOOWR scheme allows entities to sell up to 100% of their output in the domestic market without any export commitment.

Operational Procedures Under Section 65 of the Customs Act, 1962 Under Section 65 of the Customs Act, 1962, the MOOWR scheme provides specific guidelines for manufacturing and other operations:

- Deferred Payment of IGST & BCD: Importers can defer the payment of Integrated Goods and Services Tax (IGST) and Basic Customs Duty (BCD) without incurring interest costs.

- Addition of Domestic Market Inputs: Businesses can utilize domestically sourced raw materials and capital goods in their manufacturing processes. The GST paid on these inputs can be claimed as Input Tax Credit (ITC) if the entity is registered under GST.

- Sale of Resultant Goods in India: When resultant goods are sold in the domestic market, appropriate GST, along with the deferred BCD and IGST, is payable on a pro-rata basis based on the input-output ratio.

- Export of Resultant Goods: If resultant goods are exported, the BCD and IGST on imports are waived, and the exporter is eligible for an IGST refund. There are no interest costs associated with the deferral of BCD and IGST.

Comparative Analysis: MOOWR Scheme vs. Other Schemes: The MOOWR scheme is often compared with other duty exemption schemes such as Advance Authorization (AA), Export Promotion Capital Goods (EPCG), Special Economic Zones (SEZ), and Export-Oriented Units (EOU). The MOOWR scheme stands out due to its flexibility, absence of export obligations, and the ease with which manufacturers can integrate domestic market inputs.

Procedure to Apply for the MOOWR Scheme To facilitate the application process, the Central Board of Indirect Taxes and Customs (CBIC) has partnered with Invest India to create a dedicated microsite. The steps to apply are as follows:

1. Visit Invest India and navigate to the "Bonded Manufacturing" section.

2. Click on "New Application" to access the online application form.

3. Submit the required documents, including the Application for License for a Private Bonded Warehouse and Permission for Manufacturing and Other Operations.

Conclusion The MOOWR scheme is a pivotal element in India's strategy to become a global manufacturing hub. By providing deferred duty benefits, flexibility in operations, and no export obligations, the scheme offers a robust platform for manufacturers to optimize their costs and enhance their competitiveness in both domestic and international markets. As India continues to attract foreign investments, the MOOWR scheme will play a crucial role in driving industrial growth and economic development.

[The views expressed are strictly personal.]