2024 (10) TMI 911 - AT - Customs

Imported components for lithium-ion battery manufacturing qualify for exemption benefits under N/N. 50/2017-Cus despite captive use

M/s. Ambrane India Pvt. Ltd. Versus Commissioner of Customs (Preventive) - New Delhi

CESTAT New Delhi allowed the appeal regarding exemption benefit under N/N. 50/2017-Cus dated 30.06.2017 for imported components used in manufacturing ... Exemption benefit of N/N. 50/2017-Cus dated 30.06.2017, entry at Sl. No. 512 - It is alleged that the appellant has used the imported goods (parts, components, accessories etc.) received on concessional rate of customs duty in terms of N/N. 50/2017 dated 30.06.2017 not for the manufacture of Lithium-ion battery but for manufacturing the power bank - HELD THAT:- The benefit of exemption to components, parts and accessories to be imported at concessional rate of duty since is based on observance and compliance of IGCR Rules, 2017, therefore the term manufacture appearing in Notification No. 50/2017 dated 30.06.2017 in its entry at S.No. 512 has to be interpreted by taking into consideration the provision of Rule 3 (e) of IGCR Rules, 2017. The term cell and battery are used inter changeably, however both are quite different. Cell is a single unit device which convert chemical energy into electrical energy whereas battery is a group of such cells. Depending upon the type of electro lights used in the cell. The cell is either wet or dry. Whereas battery is either a primary battery or a secondary battery i.e. a chargeable or nonchargeable battery. Cell is a single unit and battery is a combination of those single units - the term manufacture of Rule 3(e) IGCR, 2017 gets satisfied at the time of emergence of battery as distinct from its component i.e. individual lithiumcell and others. From the case law as quoted above about interpretation of a notification, it is clear that definition of ‘Manufacture’ as given in IGCR Rules, 2017, the scope thereof cannot be enlarged from the stage of emergence of new product to the stage of manufacture of final product which is Power Bank in the present case. Coming back to Entry No. 512, it is observed that the exemption is available when the imported parts and components are used in manufacture of lithium batteries. The notification is nowhere requiring the Lithium Ion Battery to be manufactured as the final product of the importer. This observation and definition of manufacture under IGCR Rules, 2017 a joint reading, is sufficient for us to hold that the Entry No. 512, the term manufacture therein, has not to be understood/interpreted in terms of the definition of manufacture given under Excise Act, 1944 - since the appellant has used the imported parts and components in manufacture of Lithium Ion Battery which irrespective the battery has been captively used to manufacture power bank and irrespective that power bank has a slight different connotation from Lithium Ion Battery despite having the same function as that of Lithium Ion Battery, the appellant entitled for the benefit of exemption of Entry No. 512 of Notification 50/2017 dated 30.06.2017. It is evident that w.e.f. 29.01.2019, lithium-ion cells were taken out of the scope of Serial No. 512 of N/N. 50/2017-Cus and placed in a separate entry 17B of N/N. 02/2019 where those were made chargeable to duty at the rate of 5%. Conversely, Lithium-ion cells were squarely covered within the ambit of Sr. No. 512 prior to 29.01.2019 and were eligible for exemption. Hence, the amendment made vide Notification Nos. 02/2019-Cus and 03/2019- Cus both dated 29.01.2019 clearly manifest that before the amendment, subject goods were exempted vide Notification No. 50/2017-Cus. Post the above amendment, the subject goods have been withdrawn from exemption notification and have been placed under the duty rate of 5%. The power bank performs the same function of storing and transfering electrical energy, it being a Lithium Ion Battery that is a combination of Lithium Ion Cells,however, connected to a printed circuit board which is meant for converting the 3.7 volt stored energy to 5 volt energy as is required by the gadget to be charged through the said power bank working on Lithium Ion Battery. It also stands established that it is only the printed circuit board(PCBA) which distinguishes a generic Lithium Ion Battery from power bank. Appellant is admittedly paying Customs Duty on the import of said PCBA - any productcalled Power Bank was not known to trade nor to HSN during the relevant time. As brought to notice, there was a TRU circular dated 26.04.2017 wherein it was clarified that the power banks merits classification as an accumulator under Heading 8507 of the Customs Tariff Act and the chapter heading 8507 covers Lithium Ion Accumulator. It is held that from the raw material imported by the appellant at concessional/ exempted rate of customs Duty in terms of Notification No. 50/2017 dated 30.06.2017 has been utilised by them to manufacture Lithium Ion Battery (Accumulator) which has been captively used by them to manufacture ‘Power Bank’. Hence it is held that appellants have rightly claimed the exemption. The appellant since has duly complied with the condition no. 9 of the Notification No. 50/2017, the appellant is entitled for the benefit of exemption of the said Notification No. 50/2017 dated 30.06.2017. Though Notification No. 02/2019 dated 29.01.2019 distinguished Lithium ion Battery from Power Bank but the first time in January 2019 i.e. after the period in question duty demand is not sustainable, as notification cannot be given retrospective effect. The impugned show cause notice is also held being barred by limitation. The said demand is also liable to be set aside on this ground as well. The order under challenge is hereby set aside - Appeal allowed. Issues Involved:1. Eligibility for duty exemption under Notification No. 50/2017-Cus for parts used in manufacturing Lithium-ion batteries.2. Distinction between Lithium-ion batteries and power banks.3. Compliance with IGCR Rules, 2017.4. Invocation of extended period of limitation.5. Interpretation of exemption notifications.Issue-wise Detailed Analysis:1. Eligibility for Duty Exemption:The core issue is whether the appellant is eligible for duty exemption under Entry No. 512 of Notification No. 50/2017-Cus, which allows duty-free import of parts for manufacturing Lithium-ion batteries. The appellant argued that they manufactured Lithium-ion batteries using imported parts and thus availed the exemption rightly. The department contended that the appellant manufactured power banks, which are distinct from Lithium-ion batteries, and thus wrongly availed the exemption.2. Distinction Between Lithium-ion Batteries and Power Banks:The tribunal examined whether the appellant manufactured Lithium-ion batteries or power banks. It was found that the appellant imported parts like Lithium-ion cells and other components, which were used to create Lithium-ion batteries. These batteries were then used in power banks by adding a PCB. The tribunal concluded that the primary product manufactured was a Lithium-ion battery, and the subsequent use in power banks did not negate the eligibility for exemption.3. Compliance with IGCR Rules, 2017:The appellant complied with the Customs (Import of Goods at Concessional Rate of Duty) Rules, 2017, by providing necessary information and executing continuity bonds. The tribunal noted that the jurisdictional customs officers monitored the appellant's compliance, indicating no suppression of facts or misuse of the exemption.4. Invocation of Extended Period of Limitation:The department's invocation of the extended period of limitation was challenged by the appellant. The tribunal found that the appellant had transparently communicated its manufacturing process and intentions, with no evidence of suppression or misrepresentation. Consequently, the invocation of the extended period was deemed unjustified.5. Interpretation of Exemption Notifications:The tribunal emphasized the need for strict interpretation of exemption notifications, as per the Supreme Court's guidance in the case of Commissioner of Customs (Import), Mumbai Vs. Dilip Kumar & Company. The tribunal held that the exemption notification should be interpreted in favor of the appellant, as the manufacturing of Lithium-ion batteries was within the scope of the notification, and the subsequent use in power banks did not alter this eligibility.Conclusion:The tribunal concluded that the appellant was eligible for the duty exemption under Notification No. 50/2017-Cus, as they manufactured Lithium-ion batteries, and the subsequent use in power banks was irrelevant to the exemption eligibility. The extended period of limitation was not applicable due to the appellant's compliance with the IGCR Rules, 2017. The order under challenge was set aside, and the appeal was allowed.