CESTAT Kolkata: Interest Under Section 61(2) Not Applicable to Capital Goods Imported Under MOOWR Scheme with Intent to Use — Dalmia Cement (Bharat) Limited Wins Appeal

Background and Facts of the Case

The CESTAT Kolkata, in the matter of Dalmia Cement (Bharat) Limited Vs Commissioner of Customs, delivered a significant ruling in favour of the assessee by quashing an interest demand raised under Section 61(2) of the Customs Act, 1962. The appeal arose from a dispute over whether interest was payable when capital goods, imported under the Manufacture and Other Operations in Warehouse Regulations, 2019 (MOOWR Scheme), were cleared for home consumption without having been actually used within the bonded warehouse.

Dalmia Cement (Bharat) Limited is engaged in the manufacture of clinker and cement and regularly imports capital goods from overseas. The CBIC, with a view to promoting domestic manufacturing under the 'Make in India' initiative, introduced the MOOWR Scheme under Section 65 of the Customs Act, 1962. This scheme permits manufacturers to import capital goods into bonded warehouses without upfront payment of customs duty, with duty becoming payable only upon clearance of goods for domestic consumption, and crucially, without any accompanying interest liability.

The assessee held a warehouse licence bearing No. 02/SH/CCP/WH/2023 dated 25.01.2023, issued under Section 58 read with Section 65 of the Customs Act, 1962, authorising it to operate a private bonded warehouse (MOOWR warehouse) and carry out manufacturing operations on imported dutiable goods deposited therein without payment of duty.

Import of Capital Goods and Subsequent Clearance

Pursuant to this licence, the assessee imported a Cooler (Gear Box) — classified under Customs Tariff Heading 84195090 — from Germany, earmarked for use within its manufacturing facility. The cooler is a critical component used to rapidly quench hot clinker and reduce its temperature during the cement manufacturing process. An Into-Bond Bill of Entry No. 4425836 dated 31.01.2023 was duly filed, and the goods were transferred to the MOOWR warehouse with customs duty deferred in accordance with the scheme.

However, owing to subsequent operational and commercial reasons, the goods could not be deployed for their originally intended purpose within the warehouse. Accordingly, the assessee cleared the goods for home consumption by filing Ex-Bond Bill of Entry No. 7035980 dated 25.07.2023 and paid deferred customs duty of Rs. 12,88,709/-.

At the time of clearance, the Assistant Commissioner of Customs, Kolkata raised a demand of interest amounting to Rs. 43,898/- under Section 61(2) of the Customs Act, 1962. Since the goods were required urgently, the assessee paid the interest amount under protest. An appeal before the Commissioner of Customs (Appeals) was rejected vide Order-In-Appeal No. KOL/CUS/PORT/KS/396/2024 dated 24.06.2024, which upheld the interest levy. The assessee therefore approached the CESTAT Kolkata.

Section 61(1)(a) of the Customs Act, 1962 permits warehoused goods to remain in the warehouse till their clearance, subject to the following twin conditions:

  1. The goods must be capital goods in nature.
  2. Such capital goods must be "intended for use" in a warehouse where manufacturing operations are sanctioned under Section 65.

Critical Point: The provision uses the phrase "intended for use" — not "actually used" or "put to use." This distinction became the fulcrum of the entire dispute.

Section 61(2) imposes interest on goods that remain warehoused beyond the permitted period. The Revenue argued that since the capital goods were never actually used in manufacturing within the warehouse before being cleared for home consumption, the benefit of Section 61(1)(a) was unavailable and interest was chargeable under Section 61(2).

Contentions of the Assessee

The learned counsel for the assessee advanced the following arguments: