TaxTMI 
TaxTMI 
2025 (2) TMI 596
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..../2023, W.P.(C) 10365/2023 and CM APPL. 40165/2023, W.P.(C) 10367/2023 and CM APPL. 40170/2023, W.P.(C) 10379/2023 and CM APPL. 40187/2023, W.P.(C) 10382/2023 and CM APPL. 40193/2023, W.P.(C) 10932/2023 and CM APPLs. 42359/2023, 10239/2024, W.P.(C) 10936/2023 and CM APPLs. 42381/2023, 10126/2024, W.P.(C) 10947/2023 and CM APPL. 42480/2023, W.P.(C) 10975/2023 and CM APPLs. 42537/2023, 10238/2024, W.P.(C) 11030/2023 and CM APPLs. 42793/2023, 10237/2024, W.P.(C) 14407/2024 and CM APPL. 60398/2024, W.P.(C) 14454/2024 and CM APPL. 60599/2024, W.P.(C) 1449/2024 and CM APPL. 5996/2024, W.P.(C) 1499/2024 and CM APPL. 6203/2024, W.P.(C) 8488/2024 and CM APPL. 34939/2024, W.P.(C) 891/2024, W.P.(C) 468/2025 & CM APPL. 2203/2025, W.P.(C) 496/2025 & CM APPL. 2319/2025, W.P.(C) 516/2025 & CM APPL. 2413/2025, W.P.(C) 518/2025 & CM APPL. 2425/2025. For the Petitioner Through: Mr. V. Lakshmikumaran, Mr. Yogendra Aldak, Mr. Agrim Arora, Mr. Sumit Khadaria & Mr. Rohit Gupta, Advs. Mr. Dayaar Singla and Mr. Rohit Gupta, Advs. (M: 9464004422). Mr. Pradeep Jain, Mr. Sambhav Jain and Mr. Pranav Raj Singh, Advs. (M: 98991 52568), For the Respondents Through: Ms. Bharathi Raju, Sr. Panel Counsel (UOI)....
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....11030/2023 SCN dt 17^th May, 2023 Rs. 38,78,148/- (already disbursed) Rs. 36,20,466/- (not disbursed) 7. W.P. (C) 1449/2024 SCN dt 30^th August'23 Rs. 23,85,138/- (already disbursed) Rs. 7,78,695/- (not disbursed) 8. W.P. (C) 1499/2024 SCN dt 21^st June, 2023 Rs. 28,66,909/- (already disbursed) Rs. 10,14,936/- (not disbursed) 9. W.P. (C) 891/2024 SCN dt 31^st August'23 Rs. 21,46,919/- (already disbursed) Rs. 9,47,849/- (not disbursed) II. Cases where the Orders-in-Original have been challenged 10. W.P. (C) 10362/2023 (i) Order-in-Original dt.10^th March, 2023; (ii) Order-in-Original dt. 26^th May, 2023; (iii) Order-in-Original dt.26^th June, 2023. Rs. 55,49,356/- 11. W.P. (C) 10365/2023 (i) Order-in-Original dt. 11^th May, 2023; (ii) Order-in-Original dt. 6^th June, 2023; (iii) Order-in-Original dt. 23^rd June, 2023. Rs.1,04,18, 555/- 12. W.P. (C) 10367/2023 (i) Order-in-Original dt. 23^rd February, 2023; (ii) Order-in-Original dt. 24^th April, 2023; (iii) Order-in-Original dt. 27^th April, 2023; (iv) Order-in-Original ....
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....restricted to a specific geographical location, also referred to as the "regional lock", which in the present case would be India. The said locked mobile phones are stated to be 'unlocked' or 'activated' by the Petitioners, to allow their use outside India, by various methods. Unlocking/Activation Method 1 7. One method of unlocking/ activation is by inserting a SIM card and making a call to a foreign number by undertaking the procedure set out below: i. The mobile handset is first removed from sealed boxes. Since the battery is inbuilt and charged with sufficient power, the phone is switched on. ii. The mobile handset is then inserted with a SIM Card of the region for which the handset is regionally locked. iii. Using the said SIM Card, a phone call is made either to another number owned by the exporter or to an automated call centre of the mobile operator. iv. The handset is then kept on mute mode for five minutes. v. After five minutes, the call is ended, and the handset permanently and automatically unlocks from the regional lock setting. vi. The mobile handset is then exported outside India to overseas customers. U....
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.... merchant exporters on mobile handsets/phones like activation and unlocking of mobile phones by inserting in Indian SIM card, placing a call for about 5 minutes, testing of handsets before 'use' export, re-flashing of software for a particular region, etc. are all post manufacturing and post packaging activities. Clause (i) of second proviso to Rule 3 (1) of the Customs and Central Excise Duties Drawback Rules, 2017 provides that so Duty Drawback shall be allowed on export of goods that have been taken into use after manufacture. As the said mobile handsets/phones entered for export have been opened and worked upon for sale in destination countries, thereby they are already 'taken into use' and thus not entitled for Duty Drawback." 11. The aforesaid clarification was challenged by the MEIMEA before this Court in W.P.(C) 4744/2021 titled as Mobile and Electronics Indian Merchant Exporters Association Trust & Ors. vs. The Joint Secretary (Drawback) & Ors., however, on 19th May, 2021 the said petition was withdrawn by the Petitioner Association therein, with liberty to file fresh petition qua individual grievances of the members of the said association. The order dated 19th....
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....elevant period. SCNs were issued to the Petitioners by the Customs Department. In some cases the said SCNs have been adjudicated and corresponding Order-in-Original have also been passed by the Customs Department rejecting the claim for duty drawback on the exports of unlocked/activated mobile phones by the Petitioners. The said claims have been rejected by the Customs Department by relying on the Clarifications issued by the CBIC. 15. The Petitioners have assailed the respective SCNs and Order-in-Original passed in each case. Hence, the present petitions. II. Submissions on behalf of the Petitioners 16. Mr. V. Lakshmikumaran, ld. Counsel appearing on behalf of the Petitioners, at the outset, submits that the Petitioners are merchant exporters of mobile phones. The Petitioners purchase mobile phones from various sources including the OEMs, who themselves are entitled to duty drawback on the exported mobile phones. However, the Petitioners, purchase these mobile phones in small quantities from the OEMs and unlock/activate these phones to enable the customers in certain foreign countries to use the said mobile phones without any hindrance. Thus, unlocked/activated phones are....
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....ke medical devices "ready for use". The medical devices are "taken into use" when deployed for patient diagnostics or treatment. c. Aircraft: Assembly, system checks, test flights, and delivery to airline company make aircrafts "ready for use". The aircrafts are "taken into use" when actually used for carrying passengers or cargo service. Similarly, it is submitted that the software installation, factory quality tests and unlocking for regional compatibility make the mobile phones "ready for use". The same are taken into use when the customer connects the said phones to a network and operate it for communication or applications. 21. Accordingly, it is argued by the ld. Counsel for the Petitioners that one-time activity i.e., unlocking/activating of mobile phones cannot lead to the interpretation that the said mobile phones have been "taken into use after manufacturing". II(B). Scope of the term 'manufacture' under Section 75 of the Act read with Duty Drawback Rules 22. It is submitted by Mr. Lakshmikumaran, ld. Counsel that the term "manufacture" under Section 75 of the Act has been expanded by the amendment vide Finance Act, 1995. The said term has been substi....
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....e duty drawback under Section 75 of the Act read with the Duty Drawback Rules. III.(A).Purpose of granting duty drawbacks 28. It is submitted by the ld. Counsel for CBIC that the statutory scheme of the Act qua grant of duty drawbacks is designed to incentivize domestic manufacturers and value addition rather than mere promotion of exports. The duty drawback scheme canvased from the relevant provisions of the Act and the Duty Drawback Rules would show that there is a conscious differentiation between merchant exporters and manufacturing exporters. This differentiation, as per the ld. Counsel, is to promote value addition activities in the form of processing, assembling or manufacturing. 29. Considering the purpose of the duty drawback scheme, it is argued by the ld. Counsel, that the Petitioners are neither manufacturers nor are they adding any value to the final product and thus, they cannot claim duty drawbacks under the present statutory regime. III.(B).Unlocking/activation of mobile phones is not part of manufacturing process 30. It is his submission that the process of unlocking/activation of the mobile phones would require the phones to be unboxed and powered u....
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.... Mahindra and Mahindra, (2003) 11 SCC 749, even the act of switching the phone on would amount to the same being "taken into use". 36. The distinction between products being "taken into use" and "ready for use", as argued by the Petitioners, is artificial in nature as per the CBIC. The ld. Counsel has distinguished the examples relied upon by the Petitioners in support of the contention qua "ready for use", on the ground that the steps such as assembly, calibration and trial runs are part of the manufacturing process of the device/machinery, since in the absence of the same the said device/machinery would not have the essential characteristics of being a finished product. III.(D).Limited scope of judicial scrutiny 37. It is the submission of ld. Counsel for CBIC that the that the term "taken into use" having been used in a taxation statue has to be construed strictly. Moreover the scope of judicial scrutiny according to Mr. Singla, ld. Counsel in matters of economic policy is within the realm of the Government and the Court ought not to interfere with the same easily. He submits that the Petitioners, through their association i.e., MEIMEA, had written letters to the CBIC a....
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....e. Even in the latter case, the drawback that is given is of a lesser value, but it is not rejected forthright. 42. Lastly, ld. Counsel also submits that irrespective of whether the Petitioners are treated as manufactures or non-manufactures, the Petitioners would be entitled to drawback on the basis of 'all industry rate'. V. Analysis & Findings 43. Heard the parties. The Court has also perused the written submissions submitted on behalf of the parties. 44. At the outset, it is noted that during the course of hearing, the Petitioners have not pressed on the challenge to the vires of Rule 17 of the Duty Drawback Rules. Hence, the Court need not venture to decide the same. V.(A). Statutory Regime of the Act qua Duty Drawbacks 45. Exports are integral to the strength of any economy. The health of any economy is measured on various indices - exports being one of them. The present case involves an important component of exports i.e., availment of duty drawbacks for exporters. 46. Duty drawbacks are part of the statutory regime under the Act and the same is governed by Chapter 10 of the Act. Section 74 and Section 75 of the Act deal with different situations under w....
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.... in respect of such goods in accordance with, and subject to, the rules made under sub-section (2): Provided that no drawback shall be allowed under this sub-section in respect of any of the aforesaid goods which the Central Government may, by rules made under sub-section (2), specify, if the export value of such goods or class of goods is less than the value of the imported materials used in the manufacture or processing of such goods or carrying out any operation on such goods or class of goods, or is not more than such percentage of the value of the imported materials used in the manufacture or processing of such goods or carrying out any operation on such goods or class of goods as the Central Government may, by notification in the Official Gazette, specify in this behalf: Provided further that where any drawback has been allowed on any goods under this sub-section and the sale proceeds in respect of such goods are not received by or on behalf of the exporter in India within the time allowed under the Foreign Exchange Management Act, 1999 (42 of 1999), such drawback shall except under such circumstances or such conditions as the Central Government may, by rule....
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....n into use" would be the question determinable. 50. The concept of duty drawbacks has been well explained by Supreme Court in Liberty India v. CIT, 2009 (241) ELT 326 (SC), wherein the Court observed as under: "17. The next question is - what is duty drawback? Section 75 of the Customs Act, 1962 and Section 37 of the Central Excise Act, 1944 empower Government of India to provide for repayment of customs and excise duty paid by an assessee. The refund is of the average amount of duty paid on materials, of any particular class or description of goods used in the manufacture of export goods of specified class. The Rules do not envisage a refund of an amount arithmetically equal to customs duty or central excise duty actually paid by an individual importer-cum-manufacturer. Sub-section (2) of Section 75 of the Customs Act requires the amount of drawback to be determined on a consideration of all the circumstances prevalent in a particular trade and also based on the facts situation relevant in respect of each of various classes of goods imported. Basically, the source of duty drawback receipt lies in Section 75 of the Customs Act and Section 37 of the Central Excise Act." ....
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.... section 75 of the Customs Act so as to allow drawback not only on goods manufactured in India but also on goods processed or subjected to any operation in India. This clause also proposes to insert new sub-section (3) with a view to enabling the grant of drawback with retrospective effect in specified cases." 54. In addition, the Rule 2(e) of the Duty Drawback Rules defines the term manufacture as under: ""manufacture" includes processing of or any other operation carried out on goods, and the term manufacturer shall be construed accordingly; " 55. A conjoint reading of Section 75 of the Act, as amended, along with the Duty Drawback Rules introduced from time to time would show that the purpose of the said provisions is to encourage not mere complete manufacturing but even steps such as processing, assembling, refining, or any other value addition to the product. 56. The Petitioners in these cases may not be the importers of the material used for the manufacturing of the mobile phones, however, they are the exporters of fully manufactured mobile phones and are eligible for drawbacks. The Petitioners procure orders for exports, purchase the phones from the OEMs an....
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....ered by Custom authorities regarding unscrupulous exportation of various models of Samsung brand mobile phones being as follows: • Seals of certain mobile phone boxes were tampered either to remove complimentary accessory or to make any other modification/ alteration. • Mobile phones are being exported as SIM unlocked by way of using Indian SIM for a period of minimum 5 minutes Given the above background, we would like to inform your good-office that the above-mentioned exports are not being made by Samsung India Electronics India Private Limited ('SIEPL/ the Company') and accordingly the Company has no nexus/ control over such exports. Further, in our view, the above-mentioned instance do not amount to infringement of any intellectual Property Right ('IPR')/ trademark law or any other fair-trade practice. As such, it is requested from good-self to direct the requirement of opinion/ legal comments to the assessee making such exports." Letter dated 8th July, 2023 by M/s United Telelinks (Bangalore) Ltd. "We understand that Kisha Telelinks Pvt Ltd ('company') is engaged in the business of trade and export of branded mobile ....
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....l of certain software restriction in the handsets and such removal cannot be treated as having used for either technical or commercial parlance, merely because a particular way of unlocking process was resorted to. You may also note that we manufacture mobile handsets in unlocked condition as well as in locked condition - for instance, we manufacture certain mobile handsets for 'Reliance - Jio network' only, restricting its use with their network only. Having said the above, such locked mobile handsets when unlocked are at par with other mobile handsets manufactured in an unlocked condition for all the technical and commercial purposes. In view of the above, we confirm that the said process of unlocking is an integral process to make the mobile handsets operational and marketable outside India. It should therefore be construed as an extension of the manufacturing process owing to the inbuilt limitation surrounding its usage qua a geography or network, as the case may be. Such one-time / limited activity of unlocking essentially makes the mobile handsets 'ready to use', marketable and saleable and in no way renders them as 'taken into use'. ....
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....g listed in one place. 63. The mere possible range of usage of a mobile phone would show that the scope of such "use" is vast and undefinable. The expression "taken into use" has to be interpreted in this context. 64. The second dimension is that the phrase "taken into use" would be capable of varying interpretations depending on the product in question. The said phrase cannot be understood to have identical/universal meaning for all products. The phrase "taken into use" is, thus, a dynamic concept and its meaning would depend upon the nature of use and could vary from product to product and industry to industry. 65. The Customs Department has relied on a number of decisions to interpret this term. In M/s. Millipore (India) Private Limited, Bangalore v. Union of India and Others, 1999 SCC OnLine Kar 221, the Karnataka High Court was concerned with the question as to whether a particular equipment which has been exhibited, demonstrated and, thereafter, re-exported, would be eligible for duty drawback under Section 74 of the Act. The High Court of Karnataka observed as under: "3. The short point to be decided is as to whether demonstration and exhibition of the mach....
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....goods. There is no such contemplation under Section 74 and therefore, the use for exhibition would be covered under the term used under Section 74 (2). The refund has rightly been granted. No case for interference is made out." 66. In the above decision the Karnataka High Court noted that there is a difference between display and demonstration. In the said case since the machineries were operated, albeit, for a short time for demonstration and, therefore, did not remain a new machinery. The Karnataka High Court being conscious of the distinction between Section 74 and Section 75 of the Act held that, in the facts of that case, refund would only be available under Section 74 (2) of the Act. 67. The next case relied upon by the Customs Department is Daimler Chrysler India Pvt. Ltd. v. Union of India, 2003 SCC OnLine Bom 901, wherein a fully built car was imported from South Africa for the purpose of study and development of component parts of the car. As part of the study and research, the imported car was driven from Pune to Mumbai for more than 242 Kms. The Bombay High Court was considering the question whether or not the use of fully built imported car, during the course of ....
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....the purpose for which import was made. The answer, in our opinion should be in the negative. [...] 25. Turning to the facts of the present case, on the legal canvas quoted hereinabove, one has to take into account the purpose for which the import of car was made and the scheme under which it was imported. The import of the car in question was in made under the policy of the Government of India, which permitted free importability of the goods for certain categories of imports not involving foreign exchange remittances. In the case at hand, car was imported under clause 98(xii) quoted supra, which permitted import of the prototypes and samples by the actual users, industrial or research and development institutions as per the terms of the policy framed in this behalf. After importation of car it was actually used as a specimen for conducting research to imitate spare parts thereof, with a view to develop its manufacture in India. The car was driven within factory premises for the said purpose. In our opinion, on the factual matrix of this case, which is not in dispute, the car was used for the purpose for which it was imported, taking advantage of free importability....
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....thority is satisfied that any specified goods upon which the tax had been paid had been exported or conveyed out of the Calcutta Metropolitan Area within a period of six months from the date of their entry therein "without being consumed, used or sold therein". Rule 14 (4) deals with the exemption from the levy of the tax of goods brought into the Calcutta Metropolitan Area for the purposes of exhibitions organised by local authorities or organisations approved by the State Government, if the conditions therein stated are satisfied. 2. The respondents proposed to bring within the Calcutta Metropolitan Area a Heidelberg Four-Colour Sheetfed Offset Press, Model MOV, for the purposes of exhibition. They applied for exemption from payment of the tax under Rule 14 (4). The application was rejected. The tax was then paid. The said machine was exhibited and, in the words of the affidavit filed on behalf of the respondents in this Court: "Those who were interested in these machines wanted demonstration. It was demonstrated." The respondents then wanted to remove the said machine from the Calcutta Metropolitan Area within six months of its entry therein and applied for a refund of ....
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....e exported mobile phones, the moment the said mobile phones have been switched on and any function thereto has been utilised, the same would constitute 'use' under the proviso to Rule 3 (1) of the Duty Drawback Rules. This argument cannot be sustained, in the opinion of this Court, as the decision of the Supreme Court in Mahindra (supra) does not support the stand of the Customs Department. It is settled law that interpretation by the Courts of words and expressions under one statute cannot be relied upon as a guide for interpreting words and expressions in another statute unless both the statutes are pari materia legislations or it is expressly provided for in the statute under consideration. In this regard, the Supreme Court in Jagatram Ahuja v. CGT, (2000) 8 SCC 249 has observed as under: "23. We find that Kantilal Trikamlal case [(1976) 4 SCC 643 : 1977 SCC (Tax) 90 : (1976) 105 ITR 92] supports the view taken in Getty Chettiar case [(1971) 2 SCC 741 : (1971) 82 ITR 599]. Added to this, Section 2(15) of the Estate Duty Act, defining "property" came up for consideration in Kantilal Trikamlal case [(1976) 4 SCC 643 : 1977 SCC (Tax) 90 : (1976) 105 ITR 92]. We may state h....
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....sive and non-functional. 74. Further, it would be pragmatic to assume that for a consumer the process of unlocking/activation of mobile phones would result in value addition over a locked/non-activated mobile phone. Thereby, allowing the unrestricted use of the said mobile phones. The process of unlocking/activation of the mobile phones, by any method, would not result in depreciation in the value of the said phones. 75. A manufacturer, in order to test the mobile phone before finally packing the product may have checked the same by activating it in a particular network in the same country of manufacture. If the phone is used in the same country where it has been manufactured, then there would be no difficulty. Whenever the customer travels abroad on a different carrier or network, international charges are collected and if the mobile phone is locked to a particular region or network then the customer would have to find alternatives to operate the said mobile phone or purchase proper plans to use the phone in a foreign territory. However, if the product is to be exported to a foreign country and enabled for usage in the local network through service providers in the said coun....