2025 (1) TMI 995 - AAR - Customs

Customs duty exemption under Notification 57/2017 Entry 5D(b) applies to inputs for mobile display assembly manufacturing including scrapped materials

AAR ruled that customs duty exemption under Notification No. 57/2017-Customs Entry 5D(b) applies to inputs and parts imported for manufacturing display ... Applicability of exemption notification issued under the Customs Act or Customs Tariff Act, 1975 on import of inputs and parts and principles to be adopted for the purposes of valuation of goods as detailed out in Annexure II - benefit of Sl. No. 5D (b) of Notification No. 57/2017-Customs dated 30th June 2017 (As amended) - import of inputs or parts for use in manufacturing of display assembly which in turn will be used for manufacturing of cellular mobile phones - inputs or parts imported for use in manufacturing of display assembly which get scrapped during the manufacturing process - whether the availed customs duty exemption to be fully reversed or to be reversed in proportion to the values of scrap, so generated? Whether benefit of Sl. No. 5D (b) of Notification No. 57/2017-Customs dated 30th June 2017 (As amended) shall be available, in case of import of inputs or parts for use in manufacturing of display assembly which in turn will be used for manufacturing of cellular mobile phones? - HELD THAT:- On the question of whether the benefit of Sl. No. 5d(B) of Notification No. 57/2017-Customs, dated 30th June 2017 (as amended) shall be available in Respect of inputs or parts imported for use in manufacturing of Display Assembly which get scrapped during the manufacturing process, the Applicant imports inputs and parts for use in manufacturing of display assemblies which in turn are used in manufacturing of cellular mobile phones - The process of manufacturing display assemblies is subject ‘to a certain amount of process loss on account of modification of parts for the purpose of assembling, process failure, etc. The inputs and parts damaged during the manufacturing process are scrapped by the Applicant. The scrap generated during the manufacturing process are sold to the Government authorised e-waste vendors who are empanelled with the Applicant. The e-waste vendor collects the scrap and disposes off as per the authorised Government norms. Whether the benefit provided in relation to inputs and parts for use in manufacture of display assembly shall be available in respect of inputs or parts which were imported for use in manufacture of display assembly but get damaged in the manufacturing process and thereby do not form part of a finished display assembly? - HELD THAT:- It is imperative to analyse the scope of benefit provided under Entry’ No. 5D(b) of the exemption notification. The benefit is provided on import of inputs and parts for use in manufacture of display assembly. It is analysed that whether inputs and parts which are imported for the purpose and with the intention to use in manufacture of display assemblies but get damaged during the manufacturing process and do not form part of the finished display assembly can be said to be imported for use in manufacture of display assembly. The meaning of the term “its” used in the definition of advance ruling under Section 28E(b) of Customs Act also needs to be looked into. This is because the term “its” does not clarify whether advance ruling can only be sought prior to first importation of a particular goods which has never been imported or it can also be sought before importation of a goods which is being imported by the Applicant. Further, it is trite law that principle of harmonious construction must be kept in mind while construing any statute. This principle enunciates that while interpreting any law. the statute must be read as a whole, and all the legal provisions must be read harmoniously to give effect to each word of the statute. Accordingly, to correctly interpret the intention of the legislation at hand. Section 28E(b) and Section 28-I(2) needs to be read together. The exemption benefit is available to “Inputs or parts for use in manufacture of Display Assembly of cellular mobile phones”. The term, “for use” mentioned in Sl. No. 5D(b) has not been defined in the Customs Act and Notification No. 57/2017 - the Applicant is of the opinion that the exemption from BCD under Sr. No. 5D(b) of Notification No. 57/2017 is available to all inputs and parts used in the manufacture of Display Assembly irrespective of whether the same get incorporated in the manufactured Display Assembly or are damaged or scrapped during manufacturing. Further, it is trite law’ that an exemption notification ought to be construed strictly in order to determine the applicability of the exemption provision. Conclusion - i) The benefit shall be available in case of import of inputs or parts for use in manufacturing of display assembly which in turn will be used for manufacturing of cellular mobile phones. ii) The benefit shall be available in respect of inputs or parts imported for use in manufacturing of display assembly which get scrapped during the manufacturing process. iii) The contention of the Port Commissionerate to state that the present Advance Application Ruling filed by the Applicant is not eligible in terms of Section 28E(b) merits rejection is completely untenable. ISSUES: Whether the benefit of exemption under Sl. No. 5D(b) of Notification No. 57/2017-Customs dated 30th June 2017 (as amended) is available on import of inputs or parts for use in manufacturing of display assemblies which are used in manufacturing of cellular mobile phones. Whether the said exemption benefit is available in respect of inputs or parts imported for use in manufacturing of display assemblies which get scrapped or damaged during the manufacturing process. If the exemption is not available on scrapped inputs or parts, whether the availed customs duty exemption is to be fully reversed or reversed proportionately to the value of scrap generated. Whether an applicant already engaged in importation of goods and availing exemption benefit can seek an advance ruling under Section 28H of the Customs Act, 1962. RULINGS / HOLDINGS: The benefit under Sl. No. 5D(b) of Notification No. 57/2017-Customs is available for import of inputs or parts for use in manufacturing of display assemblies which in turn are used in manufacturing of cellular mobile phones. The exemption benefit is also available in respect of inputs or parts that get scrapped or damaged during the manufacturing process, as these are considered to be 'for use' in manufacture and not merely those physically incorporated in the finished product. The question of reversal of customs duty exemption in proportion to the value of scrap is not applicable as the exemption applies to scrapped inputs and parts. An applicant already engaged in importation and availing exemption can seek an advance ruling under Section 28H of the Customs Act, provided no dispute or lis is pending before any officer of customs, appellate tribunal, or court in relation to the same goods or questions. RATIONALE: The legal framework includes the Customs Act, 1962, Customs Tariff Act, 1975, Notification No. 57/2017-Customs issued under Section 25 of the Customs Act, and the Customs (Import of Goods at Concessional Rate of Duty or for Specified End Use) Rules, 2022. The term 'for use' in the exemption notification is interpreted in line with judicial precedents to mean 'intended for use' and includes inputs consumed or lost in the manufacturing process, not only those physically present in the finished goods. Judicial precedents from the Supreme Court and High Courts (e.g., J.K. Cotton Spinning & Weaving Mills Co. Ltd., BPL Display Devices Ltd., Steel Authority of India Ltd., Multimetals Ltd., and State of Haryana v. Dalmia Dadri Cement Ltd.) support the principle that inputs scrapped or lost during manufacturing are considered as used in manufacture for the purpose of exemption benefits. The amendment of the definition of 'advance ruling' by the Finance Act, 2018, and the principle of harmonious construction of Sections 28E(b) and 28-I(2) of the Customs Act clarify that advance rulings can be sought even for goods already imported, provided no dispute is pending, and each import is a separate event. Advance ruling mechanism aims to provide clarity on tax positions to prevent litigation, and its scope includes ongoing activities, with rulings having prospective effect only. The exemption notification and IGCR Rules, 2022 require the importer to follow prescribed procedures and maintain accounts evidencing that imported goods are put to use for manufacture, reinforcing the interpretation that scrapped inputs are covered. The authority rejected the contention that the application for advance ruling is not maintainable due to prior imports and upheld the applicant's eligibility to seek advance ruling on ongoing imports.