2026 (1) TMI 1365 - HC - Customs

Configuration versus taken into use under Rule 3 Duty Drawback Rules; amounts to be finalised and released.

Dispute concerns the interpretation of configuration vis-à-vis taken into use under the proviso to Rule 3 of the Duty Drawback Rules; the court concluded ... 'Configuration' as distinct from 'taken into use' under proviso to Rule 3 of the Duty Drawback Rules - quashing of CBIC Clarifications - quashing of show cause notices and Orders-in-Original - enforcement of High Court judgment after dismissal of Special Leave Petition - effect of filing a review petition on operation of an order - payment of statutory interest u/s 75A - HELD THAT:- In the opinion of this Court, the main judgment passed by this Court in the writ petition is dated 13th February, 2025. SLP filed against the said judgment, has been dismissed on 18th July, 2025. No review has been listed by the Department before the Supreme Court till date in respect of the order of the Supreme Court dated 18th July, 2025. Petitioners may, accordingly, appear before the Department on 9th February, 2026, and the amounts may be finalised between the parties on the basis of computation filed by both parties before this Court. The amount determined shall then be released to the Petitioners by 28th February, 2026. The petitions, along with pending applications, are disposed of in the aforesaid terms. Issues: (i) Whether unlocking/activation of mobile phones constitutes 'taken into use' for the purposes of duty drawback under the Duty Drawback Rules and related CBIC Clarifications; (ii) Whether the Petitioners are entitled to release of duty drawback amounts and payment of interest (including for the previous period) in terms of the judgment dated 13 February 2025 and subsequent events.Issue (i): Whether unlocking/activation of mobile phones is 'taken into use' under the proviso to Rule 3 of the Duty Drawback Rules.Analysis: The procedures adopted for unlocking/activating mobile phones were examined in relation to the Duty Drawback Rules and the Clarifications issued by the Board. The Clarifications treated unlocking/activation as 'taken into use'; this interpretation was assessed against the statutory scheme and the scope of Rule 3. The court analysed whether the functional steps of unlocking/activation alter the character of the goods so as to constitute use within the meaning of the proviso to Rule 3.Conclusion: Unlocking/activation of mobile phones constitutes mere configuration to make the product usable and does not amount to 'taken into use' under the proviso to Rule 3. The CBIC Clarifications treating unlocking/activation as 'taken into use' are quashed.Issue (ii): Whether the Petitioners are entitled to release of duty drawback amounts and payment of interest, including for the previous period, in light of the High Court judgment, dismissal of the SLP, and subsequent conduct of the Customs Department.Analysis: The court considered the operative directions of the judgment dated 13 February 2025, the dismissal of the Department's SLP by the Supreme Court on 18 July 2025, and subsequent steps taken by the Department including an unlisted review petition and delay in implementation. The court examined entitlement to payment of drawback amounts and the applicability of interest under Section 75A where the Department failed to give effect to the judgment within prescribed time frames.Conclusion: The Petitioners are entitled to release of the duty drawback amounts in accordance with the earlier judgment. The Customs Department was directed to finalise computations with the Petitioners and release the amounts by 28 February 2026. The court held that interest would be payable in accordance with law where the statutory time for payment had elapsed; the court granted relief including consideration of interest for the previous period given the Department's failure to comply after dismissal of the SLP.Final Conclusion: The petitions are allowed in the terms set out: the administrative Clarifications are quashed, the impugned SCNs and Orders-in-Original relying on those Clarifications are quashed, and the Customs Department is directed to compute and release the duty drawback amounts (and applicable interest as provided by law) to the Petitioners by the specified date; non-compliance permits revival of the petitions and further action.Ratio Decidendi: Unlocking/activation that only configures goods for use does not amount to 'taken into use' under Rule 3 of the Duty Drawback Rules; administrative clarifications contrary to that statutory interpretation are liable to be quashed, and consequential payment of duty drawback and statutory interest must follow once higher court remedies are exhausted or dismissed.