Manufacturing and other operations in a Warehouse (MOOWR) - A Feasibility Study
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Manufacturing and other operations in a Warehouse
(MOOWR) – A Feasibility Study
CA Ravi Kumar Somani
Introduction:
Government of India through the Central Board of Indirect Taxes and Customs (CBIC) has
announced a scheme of Customs Bonded manufacturing cum warehousing commonly known as
MOOWR i.e. Manufacturing and other operations in a Warehouse. In order to promote
manufacturing & other operations in India and to strengthen the initiative of Aatma Nirbhar Bharat
(Self Reliant India), the bonded manufacturing scheme allows the importers to import the raw
materials and capital goods without payment of duties of customs and IGST. Most striking and
interesting aspect of the scheme is that unlike various existing schemes, the MOOWR scheme is
delinked to the quantum/ obligation of exports and the benefit is also extended to the importers
who import the goods for sale/ removal in the domestic market (i.e. Domestic Tariff Area). This
article intends to provide the details about the various benefits in this scheme and insights on the
various aspects that needs to be looked into for taking an informed decision on opting for the
scheme.
Benefits under the scheme:
Import the raw materials or capital goods without payment of Customs Duty and IGST;
Bring the imported material to factory and carry out the manufacturing or processing using
these raw materials or Capital Goods;
Upon export, the manufactured goods or processed goods, the corresponding Customs duty
stands waived;
In case of clearance for home consumption in domestic area, Customs Duty and IGST needs
to be paid at the time of removal from the factory i.e. bonded area – Deferral in payment of
duty;
Pay Customs Duty and IGST on the Capital goods upon removal of Capital Goods itself for the
home consumption – Huge cash flow benefit in case of new setting up/ expansion;
No export commitments or export obligation to be fulfilled;
No interest implication and the imported inputs/ capital goods can remain in the warehouse
without any time limit – Working capital savings;
License once obtained is valid for perpetuity unless cancelled. No hassles of periodic
renewals.
No regular visits by customs officers & no direct/ physical supervision by the Customs
officials.
Works on the principle of self-assessment.
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(MOOWR) – A Feasibility StudyAssessing the eligibility of the scheme:
The scheme is eligible for the owner of any warehoused goods who carries on any manufacturing
process or other operations in relation to such goods. Various aspects that needs to be considered
while determining the eligibility of the scheme is as under:
Manufacturing: Ambit of ‘manufacturing process’ must be clearly assessed and various
activities undertaken must be studied to evaluate the same.
Other Operations: Scope of activities to be covered in the ambit of ‘Other operations’
needs to be assessed. It is important to determine the nature of the operations undertaken
and its nexus with the goods imported. For example, a mere provision of service which do not
have any direct nexus with the goods imported or whether the activity performed is not in
relation to the goods imported may not be covered in the scheme. Various sectors that can
be covered under the ambit of ‘Other operations’ could be engineering, processing, job work,
packaging etc.
Trading Activities: A person not undertaking the manufacturing operations i.e. a trader or
any other person who is removing the goods ‘as such’ can also avail the benefit under this
scheme subject to payment of applicable interest for warehousing goods beyond a specified
time limit.
Studying the end use of goods imported:
Businesses must segregate the goods imported into various categories and accordingly a study on
the eligibility of the benefit on the various classes of import of goods must be undertaken. All
imported goods can be bifurcated into various sub-classes based on its end use to better assess the
eligibility of its benefits as under:
Import of raw material for manufacture of the finished goods.
Import of raw material for provision of service.
Import of machinery, equipment’s, apparatus etc. that aid in manufacturing the goods or
provision of service.
Import of goods for removal as such.
Import of goods for administrative use i.e. for construction of factory building, Computers &
other equipment’s for administrative use.
Import of consumables, tools, dies, jigs, fixtures etc.
Import for installation, commissioning, fitting out etc. at the customers project site.
Import of goods for removal as warranty replacements, FOC removals, samples, prototypes
etc.
Import of goods that aid marketing, logistics and other post manufacturing activities that
may/ may not be directly in relation to the goods imported.
Studying the impact of supply chain/ distribution and other movement of goods:
Each business may have a different supply chain and a distribution network involving multiple
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(MOOWR) – A Feasibility Studylevels of movement of goods. This can pose some challenge in evaluating the point of taxability and
the measure of the duty liability for movement at various intermediate stages. Therefore, one must
make a proper & correct assessment of the following key movements of the goods in order to
correctly zero down the taxability under the scheme:
Movement of goods to dealers/ distributors network on sale or return basis.
Movement of goods to warehouse for further processing or storage.
Bond to bond warehouse transfer of the goods.
Sale/ transfer of goods to an EOU/ EHTP/ STP and Bio-Technology Parks or to the Special
Economic Zones (SEZ).
Removal of goods to job worker for further processing and return or for job work and sale
directly from the job workers premises.
Treatment in case of destruction/ loss of goods.
Treatment in case of generation of waste/ refuse in the course of manufacture.
Bill to ship to movement i.e. billed to unbonded location and shipped to a customer within/
outside India.
Treatment in case of returns for repairs or any other processing and returning back and in
case of an absolute sales return.
Sale of goods to a merchant exporter for further export.
Sale of goods under the cover of an advance authorisation or EPCG license.
Comparative study & benefit analysis with the existing schemes:
Presently, there are various existing schemes issued under the guise of Customs Act and Foreign
trade policy that extends various import-export benefits to the taxpayers. Before taking any
decision on opting for the scheme, it is imperative for one to understand the various benefits that
are presently being availed and its comparison with the MOOWR scheme. Further, it could be
possible that the entire situation is neutral in as much as the benefit under the existing scheme is
available even while one opts for this warehousing/ bonded manufacturing scheme. Various
existing benefits that needs to be compared are as under:
Export Oriented Units (EOUs), Electronics Hardware Technology Parks (EHTPs), Software
Technology Parks (STPs) And Bio-Technology Parks (BTPs);
Export Promotion Capital Goods (EPCG) scheme;
Advance Authorization scheme;
Deemed Exports;
Duty Free Import Authorization Scheme;
Duty Drawback;
Merchandise/ Service Exports from India Schemes (MEIS/ SEIS);
Preferential trade agreements;
Project imports;
Other existing exemptions & concessions.
Following broad comparative analysis can be useful in this regard:
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(MOOWR) – A Feasibility StudyParticulars EOU EPCG Advance MOOWR
Authorisation
Benefit of Customs Duty on Yes No Yes Yes
Imports on inputs/ raw
materials for exports
Benefit of Customs Duty on Yes Yes No Yes
Imports on Capital Goods for
export supplies
Benefit of Customs Duty on Yes Yes (Partial) Yes Yes
Imports of consumables for (Partial)
export supplies
Benefit of IGST on the above Yes Yes Yes Yes
(Up to Mar 2021)
Duty deferment on Domestic Export obligation Export Export obligation No Export
supplies obligation obligation
Time limit for removals/ usage 3 years N/A 18 months No time limit
Validity period 5 Years 6 Years 12 months Unlimited
(Extendable to validity
10 more years)
Requirement of minimum value No (Positive No Yes Not required
addition NFE to be
fulfilled)
Whether trading of goods No Yes Yes Yes
allowed
Benefit of export with payment No Yes No Yes
of tax under GST
Benefit of depreciation on Yes Yes N/A No
Capital Goods
Estimating the benefit in real terms:
Analysing the benefit under the scheme in real terms can lead to an informed decision making. One
must first compute the amount of benefit in absolute terms under the existing schemes as above
and compare the same with the benefit in absolute terms under the new scheme. Various aspects
to be considered for computing the benefit are as under:
Quantum of projected imports in the next 1/3 years and the value of customs duty cost on
the same.
Reduction in the above cost on account of waiver of the customs duty under this scheme of
MOOWR/ Bonded manufacturing.
Plotting the normal lead time between import of goods and its removal from the factory after
manufacturing and assessing the working capital saving on account of deferral in payment of
customs duty i.e. savings on account of opportunity cost.
Computing the input-output norms and assessing the percentage of imported material as per
BOM in the final output goods at each distribution level i.e. at every stage at which the duty
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(MOOWR) – A Feasibility Studyliability is going to be levied.
An assessment of the duty benefit must be made as to the applicability of the benefit on
various types of duties levied viz., Social welfare surcharge, Anti-dumping duty, safeguard
duties etc.
Treatment in case of Transitional/ spill over aspects:
Treatment of open Advance Authorisations. Both the scenarios where export obligations
completed or pending to be completed;
Treatment of open EPCG licenses. Both the scenarios where export obligations completed or
pending to be completed;
Treatment in case of existing stock of raw materials and WIP, which are duty paid;
Return of goods supplied prior to opting of the scheme;
Possibility of conversion of the existing licenses into the MOOWR scheme.
Conclusion:
While the scheme looks to be lucrative on the face of it, however it becomes imperative for the
businesses to understand the real benefits that would accrue to their industry considering the
quantum of foreign trade, nature of supplies, business model and various other intricacies. As can
be understood from the above, the MOOWR scheme not only extends the benefits in the form of
cost reduction of customs duty/ IGST but also provides the working capital boost by deferring the
duty liability. Apart from manufacturers, the scheme also extends the benefit to other operations
viz., processing on the imported goods, like repacking, e-commerce etc. A feasibility study can be a
good way to head start the impact of the scheme so that a correct and timely decision be taken.
(In case of any feedback or queries, you can reach us at ravikumar@hiregange.com)
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(MOOWR) – A Feasibility StudyBengaluru (HO) Hyderabad NCR (Gurgaon)
Hiregange & Associates 4th Floor, West Block, Srida Anushka 509, Vipul Trade Centre, Sector 48,
1010, 2nd Floor (Above Union Bank) Pride, Sohana Road, Gurgaon,
26th Main, 4th "T" Block, Jayanagar Beside SBI Bank, Road Number 12, Haryana - 122 009
Bengaluru - 560 041 Banjara Hills, Phone: 8510950400
Phone: 080-26536404/05 / 080-41210703 / Hyderabad, Telangana - 500034 E-mail: ashish@hiregange.com
9845011210 Phone: 040-23318128 / 9908113795
E-mail: madhukar@hiregange.com E-mail: sudhir@hiregange.com
Mumbai Visakhapatnam Pune
409, Filix, Opp. Asian Paints, Flat No. 101, D. No. 9-19/18 Rajyog Creations Apartment,
LBS Marg, Bhandup West, Sai Sri Kesav Vihar, Behind Gothi Flat No. 5, IV Floor, Anand Park,
Mumbai - 400 078 Sons Show room, CBM Compound Above HDFC Bank, Aundh,
Phone: 91-9867307715 Visakhapatnam - 530 003. Pune - 411 007.
E-mail: vasant.bhat@hiregange.com Phone: 91-9989604111 Phone: 7680000205 / 020-41202013
E-mail: anil@hiregange.com E-Mail: ravikumar@hiregange.com
Chennai Guwahati Noida
Fagun Chambers, Third Floor, 2A, 2nd floor, Royal Silver Tower, Skybox Business Center,
No.26 Ethiraj Salai, Egmore, Near HomeTown Lachitnagar Main Office No. B2 Basement C-22,
Chennai – 600 008. Road, C Block, Sector 65, Noida (UP)
Phone: 9962508380 / 044-48580801 Ulubari, Guwahati - 781007 Phone: 012-44634496 / 8510950400
E-Mail: vikram@hiregange.com Phone: 91-7670087000 E-mail: ashish@hiregange.com
E-Mail: mannu@hiregange.com
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