TaxTMI 
TaxTMI 
2026 (9) TMI 1512
X X X X Extracts X X X X
X X X X Extracts X X X X
....lable in respect of import of lithium-iron cells for use in manufacturing of battery/battery packs which get subsequently scrapped during the manufacturing process under Customs Tariff Act, 1975. 1. The applicant in their application, submitted as follows: 1.2. That the Applicant is a Private limited Company and wants to import/export the goods and for this purpose, is having IEC 0509092012. The Applicant is also registered with GST department having registration no. 06AABCL6812BIZ0. 1.3 That the Applicant is engaged in manufacturing of battery/battery packs of various kinds. For manufacturing of battery packs, the Applicant imports Lithium-ion Cells, various inputs and parts. Further in relation to import of lithium-ion cells for use in the manufacture of battery or battery packs of various usage, the applicant avails the benefits under S.No. 319, 320 and 321 of the Notification No. 45/2025 dated 24.10.2025, (as amended by notification 02/2026 dated 01.02.2026) which provides for '5%' rate of duty on Lithium-ion cells for use in manufacture of battery or battery packs. For the kind perusal of the authority, the relevant entry of Notification No. 45/2025 is reprodu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....uently scrapped during the manufacturing process Before, proceeding to the averments it is apt to mention here that since there are three relevant entries and the applicant is engaged in the manufacture of batteries, which squarely fall within the scope of the aforesaid serial numbers depending upon their end use, the interpretation applicable to all such entries is substantially same. Therefore, for the sake of brevity and to avoid repetition or confusion, the present discussion and arguments are being made with reference to Serial No. 320 only, and the conclusions drawn therefrom shall apply, mutatis mutandis, to the other relevant entries as well. For the import of lithium-ion cells, and other inputs & parts for manufacture of battery packs of cellular mobile phones and Applicant's interpretation regarding availability of benefit under NN 45/2025 (as amended) is discussed in the following paragraphs: 1.6.2. The import and export of goods into and out of India is regulated by the Customs Act. Section 12 of the Customs Act is the charging section which stipulates that duties of customs shall be levied on all goods imported into India or exported out of Ind....
X X X X Extracts X X X X
X X X X Extracts X X X X
....pose of use in the manufacturing battery packs as mentioned in the above serial number. 1.7. As discussed above, the Applicant imports lithium-ion cells, for use in manufacture of battery packs of cellular mobile phones. Further, said product imported by the Applicant are put on the manufacturing line where these are put through various manufacturing processes for the purpose of manufacturing of battery packs of cellular mobile phones. The process of manufacturing battery packs is subject to a certain amount of process loss on account of modification of parts for the purpose of manufacturing, process failure, etc. The inputs and parts damaged during the manufacturing process are scrapped by the Applicant. 1.8. The question under the present application is in relation to lithium-ion cells, which if damaged during the manufacturing process and subsequently scrapped by the Applicant and thereby do not form part of a finished battery pack. Then whether the benefit provided in relation to lithium-ion cells, for use in manufacture of battery packs of cellular mobile phones shall be available in respect of lithium-ion cells which were imported for use in manufacture of battery packs....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ndering output service. 1.12.1. Here it is pertinent to highlight that even the IGCR Rules, 2022 uses the language that the imported goods shall be "put to use" for manufacture of goods. Therefore, the intent of the Rules is clear (and in alignment with the NN 45/2025) i.e., to provide concessional benefit where the goods have been used during the manufacture process and not necessarily the goods which form part of the manufactured good. 1.13. The phrase 'for use in manufacture' has not been defined under the Customs Act, however, what amounts to 'for use' or 'inputs being used in the manufacture of goods' has been analysed by various courts in numerous judgements few of which have been relied upon by the Applicant in the following paragraphs. Reliance also be placed on the case of State of Haryana Vs. Dalmia Dadri Cement Ltd., [2004 (178) E.L.T. 13 (S.C.)], wherein the Hon'ble Supreme Court has interpreted the term "for use" mentioned in an exemption notification to mean "intended for use". The relevant extracts of the judgment read as follows: "10 ........ On a plain reading of the relevant clause it is clear that the expression "for use....
X X X X Extracts X X X X
X X X X Extracts X X X X
....will be considered as being part of the final manufactured product irrespective of the fact that they are physically not present in it. 1.14.3. Similar view was also upheld by the Hon'ble Madras High Court in the case of M/s. Rupa & Co. Limited, Tirupur V/s The Customs, Excise and Service Tax Appellate Tribunal, The Commissioner of Central Excise [2015 (324) E.L.T. 295 (Mad.)] wherein the Hon'ble High Court allowed the CENVAT credit against the entire inputs used by the assessce even when there was 5% manufacturing process loss. The Hon'ble High Court observed as under: "13. To say that what is contained in finished product is only a quantity of all the inputs of the same weight as that of the finished product would presuppose that all manufacturing processes would never have an inherent loss in the process of manufacture. The expression inputs of such finished product' contained in finished products' cannot be looked at theoretically with its semantics. It has to be understood in the context of what a manufacturing process is. If there is no dispute about the fact that every manufacturing process would automatically result in some kind of a loss suc....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d exemption has to be given and that has no reference to what ultimately found part of the finished product. It is the duty paid on the input material that is relevant and not the duty referable to the ultimate component of the final product. So far as the manufacturer is concerned he has used copper and copper alloys of a particular quantity in the manufacture of pipes and tubes. The 'manufacturing loss' forms part of the raw material "used" in the manufacture though not reflected in the final product. The relief, as we understand the Notification that has to be given to the manufacturer was in respect of the duty already paid on the raw material used in the manufacture of the final product. That is the relief has to be given to the extent of the duty paid on the input material and not with reference to the quantity which ultimately forms part of the final product." 1.16.2. In view of the above discussion, the Applicant hereby submits that it has been settled beyond doubt by numerous judgements that exemption shall be available to the inputs which are scrapped during the manufacturing process even though the said inputs do not form part of the finished goods. Further, i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....licant. Question(ii) If the answer to question (i) is in negative, whether the availed customs duty exemption is to be reversed in proportion to the sales value of the scrap, so generated? 1.19. In light of the submissions made in relation to question (i) above, the Applicant understand that benefit under entry no. 319,320 and 321 of NN. 45/2025 should be available in respect of lithium-ion cells, which are damaged during the manufacturing process and are subsequently scrapped by the Applicant. However, if the answer to the question no. I(b) above is negative, authority may clarify if the availed customs duty exemption is to be reversed in proportion to the sales values of scrap, so generated. 1.20. The Applicant also craves leave to produce and provide any such further additional documents in support of its submissions at the time of hearing and before conclusion of the proceedings. 1.21. The Applicant further prays for an opportunity of being heard in person. 2. Comments of the Port Commissionerate: 2.1. The comments of the Jurisdictional port Commissionerate have been received vide letter dated 17.08.2026 and are as follows: 2.2.1. Section 28-E (....
X X X X Extracts X X X X
X X X X Extracts X X X X
....is in relation to clause (b) of Section 28H (2) of the Customs Act, 1962. 2.5.1. Comments on the Merits of the Questions Raised in Application No. 54/2026-27 filed by M/s Adit Infratel Private Limited The applicant has filed application before the Customs Authority for Advance Rulings (CAAR) on the following questions: i. Question. Whether the benefit of concessional rate of duty under Sr. No. 319, 320, 321 of Notification No. 45/2025-Customs dated 24.10.2025 shall be available in respect of import of lithium-iron cells for use in manufacturing of battery/battery packs which get subsequently scrapped during the manufacturing process? ii. Question. If the answer to Question No. (i) is in the negative, whether the availed customs duty exemption is to be reversed in proportion to the sales value of the scrap so generated? 2.5.2. In this regard, the matter has been examined in light of the description of the goods, submission/the manufacturing process disclosed by the applicant, the language of the exemption entry, the provisions of the Customs (Import of Goods at Concessional Rate of Duty or for Specified End Use) Rules, 2022 ('IGCRD Rules, 2022....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... The IGCR Rules, 2022 contain no separate rule, tolerance limit, or de minimis allowance for normal manufacturing/process loss or scrap generated during conversion of the imported input into the final product - this absence is central to the CAAR's reasoning discussed below. Examination of the Legal Framework 2.7. At the outset, it is observed that the concessional rate under Sr. No. 319, 320, 321 of Notification No. 45/2025-Customs is available to lithium-iron cells "for use in the manufacture of battery or battery pack," and is expressly subject to compliance with the IGCRD Rules, 2022. 2.8. Further, Rule 10(1) of the IGCRD Rules, 2022 requires the importer who has availed the benefit of a notification to use the imported goods in accordance with the conditions of the notification within the prescribed period, and confers upon the importer, in respect of "unutilised or defective goods," an option to either re-export the goods or clear them for home consumption within that period. Rule 10(3) permits voluntary payment of the applicable duty along with interest for goods so cleared for home consumption. Rule 11 provides for recovery of duty, by invoking the continuity ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ng process and are sold as scrap, as such cells fall within the category of unutilised or defective goods governed by Rule 10 of the IGCRD Rules, 2022, and their sale as scrap does not amount to their having been used in the manufacture of battery or battery pack. Reply to Question No. (ii) 2.12.1. As regards the manner of reversal, it is seen that neither Notification No. 45/2025- Customs nor the IGCRD Rules, 2022 provides for calculating the duty liability on the basis of the sale value of the scrap. Rule 10(3) read with Rule 11 of the IGCRD Rules, 2022 lays down a clear method for this purpose. The amount to be recovered is the difference between the duty that would have been payable on the goods without the exemption and the duty actually paid at the time of import, along with interest at the rate notified under Section 28AA. This interest is to be calculated from the date of import of the goods on which the exemption was availed, up to the date the differential duty is actually paid. This method is based on the quantity and value of the goods as assessed at the time of import, and has no connection with the price later obtained on sale of the scrap. 2.12.2. The value ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the period starting from the date of import of the goods on which the exemption was availed and ending with the date of actual payment of the entire amount of the difference of duty. 3. Record of Personal Hearing: During the course of personal hearing on 07.09.2026, the authorised representative Sh. Bharat Jain, Advocate appeared virtually and reiterated the facts already mentioned in the application. He further submitted that there is no further use of damaged/scrapped Lithium ion Cells. He requested that the case may be decided on merit. 4. Findings, Discussion & Conclusion: 4.1.1. Having examined the CAAR-1 application, the comments received from the jurisdictional Customs Commissionerate and the record of personal hearing and the applicable legal framework, I find the application to be valid in terms of the Customs Act, 1962 and the CAAR Regulations, 2021. I, therefore, allow the application and proceed to determine whether benefit of concessional rate of duty under Sr. No. 319,320,321 of Notification No. 45/2025 -Customs dated 24.10.2025 shall be available in respect of import of lithium-iron cells for use in manufacturing of battery/battery packs which get subseq....
X X X X Extracts X X X X
X X X X Extracts X X X X
..../2025- Customs dated 24.10.2025, availment of the concession is expressly made subject to compliance with the Customs (Import of Goods at Concessional Rate of Duty or for Specified End Use) Rules, 2022 (herein after referred as the IGCRD Rules, 2022). 4.2.2. I note that the IGCRD Rules, 2022 constitute a complete, self-contained procedural code prescribed for administering Import of Goods at Concessional Rate of Duty or for Specified End Use. 4.2.2.1. Rule 3(1)(i) defines manufacture as under: - "Manufacture" means the processing of raw materials or inputs by the importer in any manner that results in emergence of a new product having a distinct nature or character or use or name; and the term "manufacturer" shall be construed accordingly; 4.2.2.2. Rule 5 obliges the importer to use the imported goods for the specified purpose (here, manufacture of batteries/battery packs) and to maintain and submit a monthly account of receipt and consumption. Rule 5 is reproduced herein under for reference: - "5. Procedure to be followed. - (1) The importer who intends to avail the benefit of a notification shall be required to mention the IIN (referred to in sub-rule (....
X X X X Extracts X X X X
X X X X Extracts X X X X
....orter in the monthly statement. (4) The importer shall have an option to clear the capital goods imported, after having been used for the specified purpose, on payment of duty equal to the difference between the duty leviable on such goods but for the exemption availed and that already paid, if any, at the time of importation, along with interest, at the rate fixed by the notification issued under section 28AA, on the depreciated value allowed in straight line method as under - i. for every quarter in the first year @ 4%; ii. for every quarter in the second year @ 3% iii. for every quarter in the third year; @ 3%; iv. for every quarter in the fourth and fifth year @ 2.5%; v. and thereafter for every quarter @ 2%. Explanation. - (1) For the purpose of computing rate of depreciation under this rule for any part of a quarter, a full quarter shall be taken into account. (2) The depreciation shall be allowed from the date when the capital goods imported have come into use for the purpose as laid down in the notification, upto the date of its clearance. (5) The importer shall have the option of voluntary pay....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... other action which may be taken under the Act, rules or regulations made thereunder or under any other law for the time being in force." 4.3. I note that Rule 3(1)(i) of the IGCRD Rules, 2022 defines "manufacture," for the purposes of the exemption at issue, as a process resulting in the emergence of a new product having a distinct nature or character or use or name. A lithium-ion cell that is damaged or rejected on the assembly or testing line, and is consequently removed from the production stream and sold as scrap, does not result in the emergence of any such new product. In terms of Rule 3(1)(i), it has not, been used "in the manufacture" of a battery or battery pack; it has, at best, been consumed in an operation that failed to produce the specified article. Such cells fall to be treated as "unutilised or defective goods" for the purposes of Rule 10(1) of the IGCRD Rules, 2022, in respect of which the importer's remedy is confined to re-export within the prescribed period, or clearance for home consumption on voluntary payment of duty and interest under Rule 10(3). 4.4. The IGCRD Rules, 2022, in substance, contemplate only two outcomes for goods availed of concessio....
X X X X Extracts X X X X
X X X X Extracts X X X X
....uty. 4.8. I find that the applicant also relied upon the CAAR Ruling in respect of M/s. Sunwoda Electronics India Pvt. Ltd. For the reasons above, I respectfully disagree with the CAAR Ruling in respect of M/s. Sunwoda Electronics India Pvt. Ltd. 4.9. For the foregoing reasons, the benefit of the concessional rate of 5% BCD under Sr. No. 319, 320 and 321 of Notification No. 45/2025-Customs dated 24.10.2025 is not available in respect of lithium-ion cells that are damaged or rendered scrap during the manufacturing process and are consequently not incorporated in a finished battery or battery pack. Such cells are to be treated as "unutilised or defective goods" within the meaning of Rule 10 of the IGCR Rules, 2022. 4.10.1. On the second question, Rule 10(3) read with Rule 11 provides the method of computation in case of unutilized or defective goods which is equally applicable for scrap/damaged goods. Rule 11(a) lays down that :- "a. in case of a notification that provides a duty exemption, equal to the difference between the duty leviable on such goods but for the exemption and that already paid, if any, at the time of importation, along with interest, at the rate ....