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By: Manoj Mishra
14 Aug 2026 7 min read
By permitting import of capital goods and inputs into a bonded manufacturing facility without upfront payment of customs duty, MOOWR eases working capital pressure and supports investment in capital-intensive sectors such as electronics, automobiles, chemicals, engineering goods and renewable energy.
However, one recurring issue has been the treatment of capital goods that are imported under MOOWR with a genuine intention of use in bonded manufacturing but are later not installed or deployed due to business, technical or project-related changes. The question is whether interest can be demanded merely because such capital goods were ultimately cleared for home consumption without actual use.
The recent ruling of the Kolkata Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) in Dalmia Cement (Bharat) Limited provides welcome clarity. The Tribunal held that Section 61(1)(a) of the Customs Act requires capital goods to be "intended for use" in a Section 65 bonded manufacturing warehouse; it does not impose an additional requirement of actual use. The decision strengthens taxpayer certainty and aligns MOOWR with commercial realities of long-gestation manufacturing projects.
Section 61(1)(a) of the Customs Act permits capital goods "intended for use" in a warehouse licensed under Section 65 to remain warehoused until their clearance. Unlike conventional warehousing provisions, the MOOWR scheme allows customs duty on such capital goods to remain deferred until they are cleared for home consumption.
A practical difficulty arises where capital goods are imported and warehoused for a proposed manufacturing operation but are not ultimately installed because of project redesign, technological changes, commercial decisions, capacity rationalisation or cancellation of expansion plans. In such cases, field formations have sought to recover interest under Section 61(2) when the goods are ex-bonded for home consumption.
The central question, therefore, has been whether the expression "intended for use" requires actual utilisation of the capital goods or whether a bona fide intention to use them is sufficient to avail the benefit of duty deferment.
The distinction between "intended for use" and "actual use" is not merely semantic; it is central to the operation of MOOWR. If actual use were treated as a mandatory condition, the interest-free duty deferment benefit could be denied whenever machinery remains unused due to subsequent commercial developments. That would dilute the very objective of MOOWR, which is to encourage manufacturing investment by reducing upfront customs duty cost and providing operational flexibility.
A bona fide intention-based test better reflects business reality. Manufacturing projects often evolve after import because of design modifications, market conditions, technology upgrades or restructuring. Such subsequent developments should not retrospectively alter the nature of the import where the capital goods were genuinely procured for use in bonded manufacturing.
This also distinguishes MOOWR from conditional exemption or export promotion schemes that expressly prescribe post-import obligations, such as export performance or actual-use conditions. MOOWR is primarily a bonded manufacturing and duty deferment framework. Therefore, in the absence of an express statutory actual-use condition, such a requirement should not be read into Section 61(1)(a).
The uncertainty arose from the manner in which Circular No. 34/2019-Customs was interpreted at the field level, particularly when read with Section 61(2). While the Circular addressed procedures for units operating under Section 65, subsequent CBIC FAQs clarified that capital goods imported under MOOWR could be cleared on payment of applicable duty without interest. This divergence between field interpretation and later clarification led to avoidable disputes.
The controversy was therefore not whether capital goods are warehoused goods, but whether interest under Section 61(2) can be invoked for capital goods covered by Section 61(1)(a) merely because they were not actually used before clearance. The Tribunal's answer is clear: where the statutory condition is "intended for use", a bona fide intention at the time of import is sufficient, unless the Department can show diversion, pre-planned domestic sale or absence of genuine manufacturing intent.
Although these decisions did not arise under MOOWR, the Supreme Court has consistently interpreted expressions such as "for use" as referring to intended use unless the statute expressly mandates actual use. In State of Haryana v. Dalmia Dadri Cement Ltd., Steel Authority of India Ltd. and BPL Display Devices Ltd., the Court emphasised the importer's bona fide intention. It held that subsequent non-utilisation does not by itself defeat the benefit, unless the goods are diverted to an altogether different purpose.
The Delhi Bench of the CESTAT applied this principle in ACME Aklera Power Technology Pvt. Ltd., where interest under Section 61(2) was held to be unsustainable merely because certain imported solar modules remained unused due to project-related constraints. Since the modules were imported with the intention of being used in the project, subsequent non-utilisation did not alter their original character.
The Kolkata Bench has now reaffirmed this approach in Dalmia Cement (Bharat) Limited. The Tribunal held that Section 61(1)(a) requires only that the capital goods be intended for use in a bonded manufacturing facility. Administrative circulars or field practices cannot override the statutory text. Accordingly, interest under Section 61(2) cannot be demanded merely because capital goods imported under MOOWR were later cleared on payment of duty without being installed.
The Tribunal's interpretation is also consistent with settled principles of statutory construction. It is a well-recognised rule that where the legislature employs specific language, courts cannot read additional conditions into the statute. Section 61(1)(a) deliberately uses the expression "intended for use" and not "actually used". Reading an actual-use requirement into the provision would effectively amount to judicial legislation.
The interpretation also advances the objective of MOOWR. A strict actual-use condition would make duty deferment uncertain and commercially risky, particularly for capital-intensive projects where implementation timelines and technical requirements may change. An intention-based approach preserves the scheme's flexibility while still allowing the Department to challenge cases of misuse or sham imports.
The Dalmia ruling provides important comfort to manufacturers operating under MOOWR. It confirms that genuine business decisions such as project redesign, technology change, capacity adjustment or non-installation of imported machinery will not automatically trigger interest liability if the goods were originally imported for use in bonded manufacturing.
At the same time, the ruling does not grant blanket immunity in every case of non-use. The taxpayer must be able to demonstrate genuine intention at the time of import. Manufacturers should therefore maintain contemporaneous records such as project reports, licence applications, board approvals, technical evaluations, procurement documents, engineering plans, internal notes explaining non-use and ex-bond clearance records.
While ACME and Dalmia clarify the intended-use test, a few practical aspects of MOOWR still require judicial or administrative guidance:
Addressing these issues through suitable clarifications would further enhance certainty for industry and strengthen the effectiveness of the MOOWR scheme with respect to capital goods.
The Dalmia Cement ruling is an important milestone in the evolution of MOOWR. It reinforces that the statutory test for capital goods under Section 61(1)(a) is "intended for use", not actual use. This interpretation is commercially realistic, consistent with Supreme Court jurisprudence and aligned with the objective of promoting manufacturing investment.
The decision also materially reduces litigation risk for manufacturers whose project assumptions change after import. However, its protection is strongest where the taxpayer can evidence bona fide intent through contemporaneous documentation. The key takeaway is therefore clear: non-use alone should not trigger interest, but absence of demonstrated intent may still invite scrutiny.
Dipika Shetye, Associate Director, Tax, Grant Thornton Bharat, has also contributed to this article.
This article first appeared in the Taxmann on 14 August 2026.
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