Interest under Section 61(2) of Customs Act not leviable on capital goods intended for use in permitted warehouses; clarifies distinction between "intended use" and "actual use."
In a significant judgment dated August 10, 2026, the Division Bench of the Rajasthan High Court, Jaipur Bench, comprising Justices Arun Monga and Ashutosh Kumar, has dismissed the appeal filed by the Commissioner of Customs (Preventive), Jaipur, upholding the decision of the Customs, Excise & Service Tax Appellate Tribunal (CESTAT), New Delhi. The judgment clarifies the scope and application of Section 61 of the Customs Act, 1962, especially after its amendment by the Finance Act, 2016, in the context of capital goods warehoused under Section 65 of the Customs Act.
The case involved M/s Acme Aklera Power Technology Pvt. Ltd., which imported solar modules as capital goods under the Manufacture and Other Operations in Warehouse Regulations (MOOWR), 2019 framed under Section 65. The goods were stored in a licensed customs bonded warehouse authorized for manufacturing operations. The Customs Department demanded payment of interest under Section 61(2) on the customs duty payable on modules that remained uninstalled beyond the prescribed ninety days. The Department relied on CBIC Circular No. 34/2019, which mandates interest on goods cleared "as such" without use in Section 65 operations.
The Court, however, held that the amended Section 61(1)(a) of the Customs Act does not prescribe an outer time limit for capital goods intended for use in warehouses permitted under Section 65, thus exempting them from interest liability under Section 61(2). It emphasized the legislative intent to promote bonded manufacturing by allowing deferment of customs duty without interest charges until clearance of such capital goods.
Notably, the Court drew a clear distinction between "intended use" and "actual use," relying on Supreme Court precedents such as State of Haryana v. Dalmia Dadri Cement Ltd. and BPL Display Devices Ltd. It held that the goods' classification depends on the intention at the time of import and warehousing, not on subsequent utilization or non-utilization of a fraction of the goods. The fact that a small percentage (5.82%) of the solar modules were ultimately uninstalled due to project design changes did not alter their intended use classification.
The Court also clarified that the CBIC Circular No. 34/2019 cannot override the statutory provisions of the Customs Act. The circular's clause 12 pertains only to goods cleared "as such" without being used under Section 65 operations and does not apply to capital goods intended for use in Section 65 warehouses.
Rejecting the Department's contention that interest is payable on such goods, the Court stated that interest, like tax, must be levied by clear statutory mandate. Since the amended Section 61(2) confines interest liability to goods falling under clause (c) (other goods with a prescribed warehousing period), no interest can be charged on capital goods under clause (a).
This judgment reinforces the legislative scheme introduced by the Finance Act, 2016, and MOOWR, 2019, which seeks to encourage investment in manufacturing operations within bonded warehouses by providing duty deferment without interest for capital goods. It also puts to rest demands for interest on capital goods merely because a portion remains unutilized or is subsequently cleared for home consumption.
The appeal filed by the Revenue was dismissed, confirming that the respondent company is not liable to pay interest on the customs duty for the solar modules warehoused under Section 65 beyond the ninety-day period.
Bottom Line:
Customs Act, 1962 - Interest under Section 61(2) is not leviable on capital goods intended for use in a warehouse permitted under Section 65, as there is no prescribed warehousing period for such goods under the amended Section 61(1)(a).
Statutory provision(s):
Customs Act, 1962 Sections 61, 65, 68; Finance Act, 2016
