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 assemblies used in cellular mobile phones. The exemption benefit extends to inputs that get scrapped during manufacturing process, as they were imported with intention for use in manufacturing display assemblies. AAR rejected the Port Commissionerate's contention that the advance ruling application was ineligible under Section 28E(b) of Customs Act. The ruling clarified that exemption availability depends on import purpose rather than final incorporation into finished product.

---

---

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.

---