Judicial clarity on interest deferment under MOOWR: A review of Rajasthan HC decision in Commissioner v. Acme Aklera Power Technology

Introduction

Many manufacturing and green energy companies use the MOOWR scheme to import capital goods (like machinery or solar panels) without paying customs duty immediately. Sometimes, because of changes in design or supply chain problems, a company cannot use some of these imported goods in production. Instead, they must clear them for home consumption exactly as they arrived—known as ‘as such’ clearances.

During customs audits, Customs officers frequently demand that companies pay retroactive interest on these ‘as such’ clearances. They argue that because the goods were not used for manufacturing, the company loses its interest-free protection.

While the High Court recently granted landmark relief in Commissioner of Customs v. Acme Aklera Power Technology Pvt. Ltd. (‘Acme Aklera’) by holding that interest cannot be levied under Section 61(2) of the Customs Act, 1962 (‘Customs Act’), the judgment is not an automatic safety net. Instead, it uncovers deep exposure risks for unguided operators. This article examines the ruling as a litigation roadmap, exposing critical corporate risk vectors requiring strategic defense.

Statutory architecture vs. Administrative landmines

To evaluate exposure, one must contrast the strict text of the Customs Act against enforcement tools used by field formations. When an importer anchors capital assets in public (Section 57) or private (Section 58) bonded warehouses, Section 15(1)(b) defers duty computation to the date when an Ex-bond Bill of Entry for home consumption is presented under Section 68.

Interest during this deferral period is governed strictly by Section 61, fundamentally reshaped by the Finance Act, 2016:

• Section 61(1)(a) & (b): Capital goods and inputs intended for manufacturing under Section 65 may remain bonded ‘till their clearance or consumption respectively,’ without statutory time limits.

• Section 61(1)(c) & (2): A strict one-year storage cap and subsequent ninety-day interest-trigger mechanism apply exclusively to residuary commercial items under clause (c).

Because Section 61(2) explicitly locks its charging authority solely to clause (c) goods, the Act contains no provision to levy interest on Section 65 bonded items.

Yet, field officers issue demands by weaponizing guidelines. For private bonds, the Revenue invokes Paragraph 12 of CBIC Circular No. 34/2019-Cus. dated 1 October 2019, asserting that ‘as such’ clearances mandate interest recovery. This same enforcement pressure is duplicated for Section 58A Special Warehouses under the 2020 Regulations, where authorities cite Circular No. 36/2020-Cus. dated 17 August 2020 (para 8.1) to demand interest, while using Section 66 control levers to argue that non-utilization breaches bond conditions.

The catalyst: What happened in Acme Aklera

The exact operational risks we often find for our clients were at the center of the Acme Aklera dispute. In this case, the importer brought 8,37,288 solar modules into the country under the MOOWR scheme. However, sudden changes to the layout and a shortage of land meant that a minor fraction of 48,742 modules (5.82%) could not be installed. When the importer cleared this unused portion ‘as such’ under Section 68, the tax authorities placed them under the residuary basket of Section 61(1)(c) and insisted the importer to pay the interest.

To stop immediate recovery actions by the government, the importer made the interest payment under protest and challenged the demand in the appellate forums. Ultimately, Revenue's appeal was dismissed by the High Court.

The High Court's holding: Structural analysis of Section 61

In dismissing the appeal, the High Court performed a strict textual audit of Section 61, evaluating the structural shifts introduced by the Finance Act, 2016. For practitioners defending ongoing audits, the Court’s breakdown introduces six decisive pillars:

• First, removal of time limits: Under amended Section 61(1)(a), Parliament removed the outer time limit entirely for Section 65 goods, allowing indefinite storage ‘till their clearance’.

• Second, inclusion of Section 65 warehouses: The amended architecture expanded clause (a) to include any warehouse permitted for operations under Section 65, bringing the MOOWR scheme directly under statutory protection.

• Third, omission of interest charges: Amended Section 61(2) textually confines interest charges solely to residuary clause (c) goods, deliberately leaving clause (a) and (b) goods outside the interest net to incentivize bonded manufacturing.

• Fourth, irrelevance of the ninety-day trigger: The ninety-day clock under sub-section (2) only activates for clause (c) items; for Section 65 manufacturing bonds, there is no ‘prescribed period’ whose expiry could trigger an interest accrual.

• Fifth, ‘intended use’ threshold: Relying on benchmarks in State of Haryana v. Dalmia Dadri Cement Ltd. and BPL Display Devices Ltd. v. Commissioner of Central Excise, Ghaziabad, the Court ruled that ‘intent’ is a threshold test determined at entry. It cannot be re-characterized retrospectively due to supervening layout developments like a minor 5.82% installation fallout.

• Sixth, circulars cannot override the Customs Act: The Court rejected reliance on Paragraph 12 of Circular No. 34/2019-Cus., holding that an executive instruction under Section 151A cannot resurrect an interest levy that the legislature purposefully repealed.

Critical risk assessments for corporate leaders

While the Acme Aklera ruling provides excellent legal support, it is not an automatic shield. It has always been a matter of dispute as to what constitutes ‘actual use’ and what is intended for use. ‘Intent to use’ must be proven by each company individually. To satisfy auditing teams and successfully defend ‘as such’ clearances, companies must prove their original ‘intent to use,’ which may vary from case to case.

This is the most critical factor to focus, because there are multiple judicial pronouncements on this issue including the rulings against the assessee. In some rulings, it has been held that if an assessee fails to prove that the specific goods under consideration were genuinely intended for use in manufacturing then they will lose the ability to avail of the associated tax benefits and incentives. Therefore, building a clear, case-by-case evidentiary trail of the company’s original intent is absolutely essential to protect from any liability later.

Conclusion: Shifting from reliance to proactive evaluation

The Acme Aklera ruling proves that the law protects businesses that truly intend to manufacture goods. However, it also places the full responsibility of proving this intention onto the importer.

Considering the above discussed aspects, it is highly probable that the customs authorities may dispute that the goods under consideration are not intended for use and thus the matter becomes litigative. In such a scenario, it is important for the company to prove its intent to use and how to prove the same is of utmost importance.

Thus, the companies must carefully plan how they structure their Ex-bond clearances. They must also maintain a thoroughly checked file of internal evidence that will help to prove their intent in case a dispute arises in the future.

[The authors are Executive Partner and Associate Partner, respectively, in Customs practice at Lakshmikumaran & Sridharan Attorneys]

D.B. Custom Appeal No. 1/2025 (Rajasthan High Court)

1987 SCC Online SC 14

(2005) 10 SCC 275