Manufacturing and Other Operations in Warehouse (MOOWR)

The launch of the MOOWR scheme was intended to provide a deferral of customs duties (BCD & IGST) on imported goods utilized for manufacturing or other operational activities. This strategic initiative aims to position India as a competitive manufacturing center and an appealing investment destination. In this article we are going to made detailed discussion about the Manufacturing and Other Operations in Warehouse (MOOWR) scheme and its GST implications.

Before going into detailed discussion it is necessary to know that the provisions related to the Manufacturing and Other Operations in Warehouse (MOOWR) scheme are contained in Customs Act 1962 and the Custom Regulations notified vide Notification No. 69/2019-Cus (NT) dated 01.10.2019 are also contains the provisions for MOOWR scheme. Such Regulations are known as Manufacture & Other Operations in Warehouse (no. 2) Regulations, 2019. There are total 20 regulations given in respect of the said MOOWR scheme.

Section 65 of Customs Act 1962 contains the provisions for manufacture and other operations in relation to goods in a warehouse.  As per section 65(1) of the Customs Act 1962, the owner of any warehoused goods, with the permission of the Principal Commissioner of Customs or Commissioner of Customs, may carry on any manufacturing process or other operations in the warehouse in relation to such goods. Further, Sub Section 2 of Section 65 of Customs Act 1962 contains the provisions in respect of any waste or loss of warehouse goods in the course of any operation. The said sub-section is laid down as follows;

“(2) Where in the course of any operations permissible in relation to any warehoused goods under sub-section (1), there is any waste or refuse, the following provisions shall apply : -
(a) if the whole or any part of the goods resulting from such operations are exported, import duty shall be remitted on the quantity of the warehoused goods contained in so much of the waste or refuse as has arisen from the operations carried on in relation to the goods exported

Provided that such waste or refuse is either destroyed or duty is paid on such waste or refuse as if it had been imported into India in that form;

(b) if the whole or any part of the goods resulting from such operations are cleared from the warehouse for home consumption, import duty shall be charged on the quantity of the warehoused goods contained in so much of the waste or refuse as has arisen from the operations carried on in relation to the goods cleared for home consumption”.

Further, section 66 of Customs Act 1962 gives the Power to exempt imported materials used in the manufacture of goods in warehouse and states that If any imported materials are used in accordance with the provisions of section 65 for the manufacture of any goods and the rate of duty leviable on the imported materials exceeds the rate of duty leviable on such goods, the Central Government, if satisfied that in the interests of the establishment or development of any domestic industry it is necessary so to do, may, by notification in the Official Gazette, exempt the imported materials from the whole or part of the excess rate of duty.

Now three important questions that arises are as follows;
1.Whether imported goods which were stored in warehouse for manufacturing and other operations in warehouse can be transferred from one warehouse to another warehouse.
2. Whether such warehoused goods can be cleared for home consumptions.
3. Whether such warehoused goods can be exported from warehouse.

For the question of transfer the goods from one warehouse to another, there is a provision under section 67 of Customs Act 1962 for removal of goods from one warehouse to another warehouse, which states that the owner of any warehoused goods may with the permission of the proper officer, remove goods from one warehouse to another, subject to certain conditions.

For the second question regarding the clearance of warehoused goods for home consumptions, The provisions are contained in Section 68 of Customs Act 1962 and such provisions are summarised as follows;
Any warehoused goods may be cleared from the warehouse for home consumption, if
(a) a bill of entry for home consumption has been presented in the prescribed form;
(b) the import duty, interest, fine and penalties payable in respect of such goods have been paid;
(c) an order for clearance of such goods has been made by the proper officer.

The order referred to in clause (c) may also be made electronically on the basis of risk evaluation. Before an order for clearance of goods for home consumption has been made, the owner of warehoused goods may relinquish his title to the goods upon payment of penalties that may be payable in respect of such goods and upon such relinquishment, he shall not be liable to pay duty thereon. However, the owner shall not be allowed to relinquish his title to such goods regarding which an offence appears to have been committed.

The provisions for clearance of warehoused goods for export are mentioned in Section 69 of the Customs Act 1962 which are summarised as follows;
Any warehoused goods may be exported without payment of import duty if -
(a) a shipping bill or a bill of export or the form as prescribed under section 84 has been presented;
(b) the export duty, fine and penalties payable in respect of such goods have been paid and
(c) an order for clearance of such goods for export has been made by the proper officer.

The order referred to in clause (c) may also be made electronically on the basis of risk evaluation. However, if the Central Government is of the opinion that such warehoused goods are likely to be smuggled back into India, it may by notification direct that such goods shall not be exported without payment of duty or may be allowed to be so exported subject to certain restrictions and conditions.

Till now, we have made detailed discusssion about the provisions related to the Manufacturing and Other Operations in Warehouse (MOOWR) scheme as contained in the Customs Act 1962. Now we are going to understand the provisions contained in the Customs Regulations which were notified by Notification No. 69/2019-Cus (NT) dated 01.10.2019. So let’s discuss these regulations one by one;

The Regulation 1 of custom regulation in respect of MOOWR scheme contains the short title & commencement of such scheme which states that they shall come into force on the date of their publication in the official gazette. Regulation 2 contains the definitions and Regulation 3 talks about the application of such regulations that these regulations shall apply to the units that operate or the units applying for permission to operate under section 65 of the Act, in a warehouse licensed under section 58 of the Act. Regulation 4 determines the eligibility for application for operating under these regulations. The said regulation 4 is summarised as below;

Regulation 4: The following persons shall be eligible to apply for operating under these regulations, -
(i) a person who has been granted a license for a warehouse under section 58 of the Act
(ii) a person who applies for a license for a warehouse under section 58 along with permission for undertaking manufacturing or other operations in the warehouse under section 65 of the Act. An application shall be made to the Principal Commissioner of Customs or the Commissioner of Customs, as the case may be, along with an undertaking to, -
(i) maintain accounts of receipt & removal of goods in digital form and digitally furnish the same to the bond officer on monthly basis;
(ii) execute a bond in such format as may be specified; and
(iii) inform the input-output norms, for raw materials and the final products and to inform the revised input-output norms in case of change therein.

Regulation 5 states that upon due verification of the application, the proper officer shall grant the permission to operate under the provisions of these regulations and as per regulation 6 any permission granted shall remain valid unless it is cancelled or surrendered, or the license issued under section 58 is cancelled or surrendered.

Regulation 7 states that upon receipt of permission such person shall appoint a warehouse keeper. The warehouse keeper shall obtain a digital signature from authorities licensed by the Controller of Certifying Authorities for filing electronic documents required under the Act/Rules/Regulations.

As per Regulation 8, a person who has been granted permission shall provide at the warehouse, -
(i) signage that indicates that the site or building is a customs bonded warehouse;
(ii) a computerized system for accounting of receipt, storage, operations and removal of goods; and (iii) such facilities, equipment and personnel as are sufficient to control access to the warehouse, provide secure storage of the goods in it and ensure compliance to these regulations by officers of customs.

Regulation 9 prescribes the conditions for transport of goods and as per sub regulation 1 of regulation 9 where the goods are transported from the customs station of import to a warehouse or from one warehouse to another warehouse or from the warehouse to a customs station for export, the load compartment of the means of transport shall be securely sealed with a one-time-lock. However, the proper officer may having regard to the nature of goods or manner of transport, permit transport of such goods without affixing the one-time-lock.

Regulation 10 states that upon receipt of goods at a warehouse from the custom station, the licensee shall verify the one-time-lock and if the one-time-lock is not found intact, the licensee will inform the bond officer immediately and refuse the unloading of the goods. If one-time-lock is found intact he shall allow unloading and verify the quantity and report with in 24 hours to the bond officer, if any discrepancy found in the quantity. Acknowledge the receipt of the goods by endorsing the transportation document presented by the carrier of the goods and retain a copy thereof and take into record the goods received and send acknowledgement to the proper officer  and to the bond officer regarding the receipt of the goods in the warehouse.

Regulation 11 prescribes the duty of licencee in case the goods are received from another warehouse and states that the licensee shall verify the one-time-lock affixed and inform the bond officer immediately if the one-time-lock is not found intact and refuse the unloading of the goods and if one-time-lock is found intact he shall allow unloading and verify the quantity and report with in 24 hours to the bond officer, if any discrepancy found in the quantity. Acknowledge the receipt of the goods by endorsing the transportation document presented by the carrier of the goods and retain a copy thereof and take into record the goods received and send a copy of the retained documents to the bond officer and to the warehouse keeper of the warehouse from where the goods have been received.

As per Regulation 12, in case of receipt of the domestically procured goods, the licensee shall take into record the goods received. The provisions for transfer of goods from a warehouse are mentioned in Regulation 13 and these are summarised below;
A licensee shall allow transfer of warehoused goods to another warehouse or to a customs station for export, with due intimation to the bond officer. Upon intimation to the bond officer the licensee shall allow removal of the goods and affix a one-time-lock to the means of transport, endorse the number of the one-time-lock on the Form & on the transport document and retain a copy thereof, take into record the removal of the goods; and send the copies of the retained documents to the bond officer.

Regulation 14 talks about the removal of resultant goods for home consumption that a licensee can remove the resultant goods from warehouse for home consumption after filing a bill of entry for home consumption and on payment of import duty, interest, fine and penalties payable, if any, in respect of such goods. Similarly, the regulation 15 contains the provisions for removal of resultant goods for export and states that a licensee shall remove the resultant goods from the warehouse for export, upon filing a shipping bill or a bill of export and affixing a one-time-lock to the load compartment of the means of transport.

Regulation 16 prescribes the conditions for due arrival of goods that the licensee of the goods shall produce,
(i) an acknowledgement to the proper officer that the goods have been deposited in the warehouse.
(ii) an acknowledgement to the bond officer, which was issued by the licensee of the warehouse to which the goods have been removed, stating that the goods have arrived at that place.
(iii) an acknowledgement to the bond officer in charge of the warehouse, which was issued by the proper officer at the customs station of export that the goods have arrived at that place.
The owner of such goods shall be liable to pay the full amount of duty chargeable on account of such goods together with interest, fine and penalties payable under section 72(1), in case of failure to the above.

Regulation 17 prescribes the records to be maintained in relation to warehoused goods, that a licensee shall
(i) maintain detailed records of the receipt, handling, storing, and removal of any goods into or from the warehouse, as the case may be, and produce the same to the bond officer, as and when required;
(ii) keep a record of each activity, operation or action taken in relation to the warehoused goods;
(iii) keep a record of drawl of samples from the warehoused goods under the Act or any other law for the time being in force; and
(iv) keep copies of the bills of entry, transport documents, Forms for transfer of goods from a warehouse, shipping bills or bills of export or any other documents evidencing the receipt or removal of goods into or from the warehouse and copies of the bonds executed under section 59.
Such records and accounts shall be required to be maintained for a minimum period of five years from the date of removal of goods from the warehouse. The digital copies of such records are also updated at another place to prevent loss of records due to natural calamities, fire, theft, skilful pilferage or computer malfunction. A monthly return of the receipt, storage, operations and removal of the goods in the warehouse shall be filed within 10 days after the close of the month to which such return relates.

Regulation 18 states that the proper officer may conduct audit of a unit operating under MOOWR Scheme and as per regulation 19, if a person contravenes any of the provisions of these regulations, or fails to comply with any of the provision of these regulations, he shall be liable to a penalty in accordance with the provisions of the Act. Further Regulation 20 gives the power to the exempt a class of goods from any of the provisions of these regulations.

After understanding the detailed discussion about the provisions contained in Customs Act & Regulations about the MOOWR scheme it is important to have some discussion about this from GST prospective also. Some basics doubts/questions that arise about the MOOWR scheme are as follows;
1. If imported goods are stored in warehouse under the Manufacture & Other Operations in Warehouse Regulations (MOOWR) Scheme and such goods are directly sold to another MOOWR. Whether GST would be applicable on such transaction/sale?
2. Whether BCD & IGST contended in the manufactured goods, needs to be paid?

Let’s discuss both questions one by one;
1. For the question of transfer of goods from one MOOWR to another MOOWR, it is important to know that Schedule III of CGST Act 2017 contains the activities or transactions that shall neither be treated as a supply of goods nor a supply of services. Thus any transaction which comes under the preview of Schedule III, the GST would not be applicable on such transaction. The clause (a) of para 8 of Schedule III is laid down as follows;
"(a) Supply of warehoused goods to any person before clearance for home consumption"

As per Para 8(a) of Schedule III of CGST Act 2017 the supply of warehouse goods before clearance for home consumption would not be treated as a supply of goods or supply of services. Hence, the goods which are stored in a warehouse under MOOWR Scheme and such goods (after manufacture) are sold to another MOOWR which is allowed under the Regulation 13 of MOOWR scheme,  such transaction would be covered under clause 8(a) of the Schedule III of CGST Act, 2017 and no GST would be payable on such transaction.

The advance ruling authority in the case of Sunwoda Electronic India Private Limited [2024(04)LCX0322(AAR)] also held that where the imported goods stored in a 3P FTWZ warehouse, is being moved to the Bonded Warehouse (MOOWR) on effecting a sale to an OEM’s MOOWR unit, taxes under GST are not leviable, as the transaction gets squarely covered under clause 8(a) of the Schedule III of the CGST Act, 2017.

2. For the second question regarding the payment of BCD & IGST, since the goods (after manufacture) are transferred to another warehouse, it is to be noted that if manufactured goods under MOOWR scheme are exported then BCD & IGST would not be payable and if manufactured goods are sold in India then BCD & IGST (import duty which was not paid at time of import would be payable). However, when the goods are merely transfer from one warehouse to another warehouse under MOOWR scheme, the BCD & IGST would not be payable on such transaction.

Conclusion: While concluding about the MOOWR scheme, it can be said that under MOOWR scheme the goods can be imported with deferred duty facility and when finished goods are exported, no duty is payable on the imported inputs. However, if the finished goods are sold to DTA, then GST on such finished goods + import duty which was deffered on the imported inputs are liable to be paid.

Disclaimer: The information given in this article is solely for purpose of understanding the law. It is completely based on the interpretation of the author and cannot be constituted as a legal advise, the author of this article and Lawcrux team is not responsible for any legal issues if arises on the basis of the interpretation given above.