MOOWR scheme made less attractive

Most manufacturers were reluctant to opt for the MOOWR scheme instead of well-established EOU/SEZ/EPCG schemes. Now, even some MOOWR units may opt out of the scheme and go for the competing schemes

In October 2019, the finance ministry introduced the Manufacture and Other Operations in Warehouse (No.2) Regulations (MOOWR), 2019, vastly simplifying the scheme for manufacturing in bonded warehouses and making it more attractive. Now, amendments in the Customs Act, 1962, made through the Finance Act, 2023, that will take effect at a date to be notified later, make the scheme a lot less attractive.

The government conceived the MOOWR in response to a panel ruling at the World Trade Organisation (WTO) that held the export oriented units (EOU) scheme, special economic zones (SEZ) scheme and export promotion capital goods (EPCG) scheme as incompatible with the disciplines under some WTO agreements. MOOWR is a duty deferment scheme under which the licensees operating under Section 65 of the Customs Act, 1962, can import their capital goods and inputs required for production in a bonded warehouse without payment of any duties or taxes. The duties or taxes so deferred are required to be paid only when the capital goods or the inputs or the goods manufactured in the bonded warehouse are cleared in the domestic tariff area (DTA). Since the MOOWR mandated no export obligation, some producers opted for the scheme even when their entire production was to be cleared only in the DTA. Some problems surfaced during implementation of the scheme.

The domestic producers of capital goods and other materials complained that they have to pay goods and services tax (GST) on their supplies to the MOOWR units whereas such units were not required to pay upfront the integrated goods and services tax (IGST) on their imports. Second, deferment of duties and taxes on imported goods had certain revenue implications. Third, the restriction under Rule 96(10) of the central goods and services tax (CGST) Rules, 2017, that the goods manufactured using inputs on which GST was exempted must not be exported on payment of IGST under a refund claim, was not applicable to goods manufactured under the MOOWR scheme. So, the government decided to deny deferment of IGST and GST Compensation Cess on imports by units functioning under the MOOWR scheme. Thus, the requirement to pay the IGST and GST Compensation Cess on imports makes the MOOWR scheme less attractive, as it has a direct implication on the cash flow of the units that have opted for the MOOWR scheme. In any case, the MOOWR scheme has to compete with the EOU scheme, the SEZ scheme and the EPCG scheme that allow exemption from IGST and Compensation Cess on their imports.

The MOOWR units are required to file a bill of entry for warehousing at the time of imports and file a bill of entry for home consumption at the time of clearance from the bonded warehouse. This is rather cumbersome and so the relevant provisions have now been amended to provide that the MOOWR units can claim deferment of duties and taxes by filing a bill of entry for home consumption at the time of import itself. The processes for payment of the deferred duties and taxes at the time of clearance for home consumption are yet to be made clear.

Most manufacturers were reluctant to opt for the MOOWR scheme instead of the well-established EOU/SEZ/EPCG schemes. Now, even some MOOWR units may opt out of the scheme and go for the competing schemes. 

Email: tncrajagopalan@gmail.com