CESTAT Kolkata: No Interest Payable on Deferred Customs Duty for Capital Goods under MOOWR Scheme

Aadrikaa Legal Services (ALS) – IDT Tax I Arbitration I Litigation

Date: 21.07.2026

CESTAT Kolkata: No Interest Payable on Deferred Customs Duty for Capital Goods under MOOWR Scheme

The Customs, Excise & Service Tax Appellate Tribunal (CESTAT), Kolkata, recently delivered a significant judgment in the case of Dalmia Cement (Bharat) Limited. The case revolved around the levy of interest on customs duty for capital goods imported under the Manufacture and Other Operations in Warehouse Regulations, 2019 (MOOWR Scheme). This article provides a detailed analysis of the case, its legal context, and its implications for manufacturers utilizing the MOOWR scheme.

Background: The MOOWR Scheme and Dalmia Cement’s Import

The MOOWR Scheme, introduced by the Central Board of Indirect Taxes and Customs (CBIC), allows manufacturers to import capital goods into bonded warehouses without immediate payment of customs duty. Duty is deferred until the goods are cleared for domestic use. Dalmia Cement, a major cement manufacturer, imported a Cooler (gearbox) from Germany under this scheme, intending to use it in their manufacturing process.

Upon import, the goods were warehoused without payment of duty. Later, due to operational reasons, Dalmia Cement cleared the goods for home consumption and paid the deferred customs duty. However, the Customs authorities also levied interest under Section 61(2) of the Customs Act, which Dalmia Cement contested.

Legal Dispute: Is Interest Payable on Deferred Duty?

The core legal issue was whether interest under Section 61(2) is payable when capital goods, imported under the MOOWR scheme and intended for use in manufacturing, are cleared for home consumption.

Dalmia Cement’s Arguments

1. Intention to Use vs. Actual Use: Dalmia Cement argued that the law requires only an “intention to use” the capital goods in manufacturing, not actual usage, to qualify for duty deferment without interest.
2. Supporting Precedents: The company cited Supreme Court judgments (e.g., State of Haryana vs. Dalmia Dadri Cement Ltd., Steel Authority of India Ltd. vs. Collector of Central Excise, and BPL Display Devices Ltd. vs. Commissioner of Central Excise) that interpreted “for use” as “intended for use,” not actual use.
3. CBIC Clarifications: Dalmia Cement referred to CBIC’s 2020 FAQ and public notices, which clarified that no interest is payable on capital goods cleared from a Section 65 warehouse for home consumption.

Customs Department’s Position

The Customs authorities relied on Paragraph 12 of CBIC Circular No. 34/2019, which states that interest is payable when goods are cleared for home consumption from a bonded warehouse, arguing that the benefit of interest-free deferment applies only if the goods are actually used in manufacturing.

Tribunal’s Analysis and Decision

The Tribunal examined:

• The language of Section 61(1)(a) of the Customs Act, which allows capital goods intended for use in manufacturing to remain in the warehouse until clearance.
• The distinction between “intended for use” and “actual use,” as established by Supreme Court precedents.
• Conflicting CBIC clarifications: the 2019 Circular vs. the 2020 FAQ.

The Tribunal concluded:

1. Intention Suffices: The law requires only an intention to use the goods in manufacturing, not actual usage, to avail the benefit of deferred duty without interest.
2. Precedent Applies: Supreme Court and Tribunal decisions support this interpretation.
3. Interest Not Payable: Since Dalmia Cement imported the goods with the intention to use them in manufacturing (as documented in their MOOWR license application), no interest was payable on the deferred duty when the goods were cleared for home consumption.

The Tribunal set aside the order upholding the interest demand and allowed Dalmia Cement’s appeal, entitling them to a refund of the interest paid.

Implications for Industry

This decision provides clarity and relief for manufacturers using the MOOWR scheme:

• Certainty in Duty Deferment: Manufacturers can import capital goods under MOOWR and clear them for home consumption without the risk of interest liability, provided the intention to use is documented.
• Legal Precedent: The judgment reinforces the interpretation of “intended for use” in customs law, aligning with Supreme Court jurisprudence.
• Operational Flexibility: Companies can adapt to operational changes without fear of retrospective interest demands, as long as their original intent to use the goods in manufacturing is clear.

Conclusion

The CESTAT Kolkata’s decision in favor of Dalmia Cement sets an important precedent for the application of the MOOWR scheme and the interpretation of interest liability under the Customs Act. It underscores the importance of legislative intent and provides much-needed clarity for businesses investing in India’s manufacturing sector.

Source: CESTAT Kolkata

Disclaimer

Handy Download:

Write to us at office@aadrikaalaw.com

Tel: +91-11-4999 2707 I +91-9999005379

www.aadrikaalaw.com