UNLOCKING CASH FLOW WITH MOOWR

[Pradeep Reddy]

What if you could delay paying import duties—and sometimes avoid them completely?

That’s the advantage offered by the MOOWR Scheme.

Re-introduced by the Government of India in 2019, the Manufacture and Other Operations in Warehouse Regulations (MOOWR) revamped the 1966 version to align with WTO norms.

Unlike the schemes Advance Authorization (AA), Export Promotion of Capital Goods (EPCG), Export Oriented Unit (EOU), or Special Economic Zone (SEZ), MOOWR does not involve export obligation.

It is suitable for any manufacturer or processor—large or small, domestic or global. There’s no restriction on location or investment size.

WHAT MOOWR OFFERS

MOOWR lets manufacturers:

• Import capital goods and raw materials without paying customs duty (‘duty’) upfront
• Defer duty on raw materials until finished goods are sold in domestic market.
• Save interest: No interest is charged on the deferred customs duty for raw materials component when finished goods are sold in domestic market.
• Avoid duty on raw materials used in finished goods exported and on capital goods re-exported after its lifetime
• Defer and avoid duty on waste generated during the manufacture process when the finished goods are sold in domestic market and overseas market respectively

MOOWR – Case Study

Let’s understand MOOWR with a simple illustration before understanding the other nuances.

ABC Technologies obtained MOOWR license in the year 2023. They import sensors for manufacture of finished goods. With MOOWR, they deferred/avoided customs duty.

Machinery

ABC imported machinery worth ₹1 crore. Normally, customs duty payable would be ₹10 lakhs.

With MOOWR, they paid nothing upfront. They saved ₹60k /year in interest—6% of ₹10 lakhs.

Ten years later (i.e. after its lifetime), if they export or scrap the machinery, no duty is payable. If sold in India, duty is payable but no interest payable.

Raw material

ABC imported raw material worth ₹50 lakhs. No duty was paid at the time of import,

though duty payable was ₹10 lakhs.

Assuming a timeline of 3 months for conversation of raw material into finished goods and its ultimate sale, interest saving would be at least ₹15K —6% *3* ₹10 lakhs/12.

Packing material

ABC imported packaging materials worth ₹10 lakhs.

70% of it was used for exported products —no customs duty was paid at the time of import, and such duty shall be waived off upon export.

Customs Duty is payable only on 30% of the packing material used for domestic sales.

More importantly, no interest payable on the Customs Duty payable on the raw materials used manufacture of goods for domestic sales.

Assume a working capital cycle of 3 months, ABC can save interest on packing material worth ₹3 lakhs for a period of 3 months.

MOOWR –KEY COMPLIANCE REQUIREMENTS

1. Import without customs duty- File a bill of entry for warehousing. No duty or IGST is payable upfront.

2. Manufacture-Use imported and local inputs for manufacture. Pay GST on domestic purchases. Declare input-output norms.

3. Job Work-Goods can be sent for job work after reaching the MOOWR unit, they must return within 1 year. Tools and molds also can be sent for job work.

4. Export-Raise GST invoice, e-way bill, and seal goods. Submit export proof within 1 month to the bond officer at jurisdictional customs office.

5. Sell in India-File bills of entry for home consumption for the raw material component of finished goods.

Example: If inputs consumed in manufacture of finished goods were imported through 5 Bills of Entry (BOE), separate bills of entry for home consumption for such 5 BOE must be filed at the time of sale. This is a huge compliance burden, especially when goods are sourced across multiple consignments.

6. Records and Compliances

• Maintain records for receipt, processing and removal of goods procured
• Maintain separate inventory for domestic and imported goods.
• Use FIFO method for tracking the goods procured.
• Appoint a warehouse keeper who is responsible for day-to-day functioning of the warehouse.
• File returns by the 10th of the following month.

SPECIAL SCENARIOS TO WATCH

• Inter-Unit Transfers Allowed- Goods can be transferred from one MOOWR unit to another.
• Scrap/waste disposal in the domestic market attracts duty; it’s waived if exported.
• Goods received from SEZs or FTWZs are treated as imports and must follow bonding formalities.
• Inputs received free of cost must be declared at nominal value and properly recorded.
• Goods returning from testing or repairs should be handled as fresh imports or DTA inputs.

CHALLENGES AND FUTURE UNCERTAINTY

While MOOWR is a beneficial scheme, these challenges are hindering its performance.

• Complex compliance: Filing multiple BOEs for each DTA sale is time-consuming and complex.
• No depreciation is allowed when capital goods are sold in the domestic market—duty is on full import value.
• No RODTEP or Drawback: MOOWR-based exports are less competitive given they are not eligible for RODTEP scrips or Drawback. Typically benefits RODTEP and Drawback would be in the range of 4-5% of the value of exported good, which is significant for a lot of exporters.
• New concern: The Finance Act 2024 empowered the Government of India to exclude certain goods or operations from the applicability of MOOWR scheme. This adds unpredictability, making long-term planning difficult for businesses relying on this scheme and creating an unease in doing business.

Takeaways

• If you are importing raw materials or machinery regularly, consider obtaining a MOOWR license.
• Be prepared for higher compliance costs.
• Evaluate if loss of RODTEP/Drawback is offset by duty deferment benefits.

MOOWR is one of the most flexible and cash-flow-friendly customs schemes available in India. It’s ideal for businesses that import raw material or machinery and sell their finished goods either in domestic market or export market.

Small and Mid-sized manufacturers initially hesitate to register under MOOWR because of compliance worries. But once they set up the systems, the cash flow benefits are too significant to ignore.

Over to You! Would MOOWR suit your business needs? Share your thoughts, questions, or experiences!