Legal principle

Mere unlocking/activation of a mobile phone before export is mere 'configuration' of the product for the destination territory and does not constitute 'taken into use' under the proviso to Rule 3 of the Duty Drawback Rules, and therefore does not disentitle the exporter to duty drawback under Section 75 of the Customs Act, 1962.

Court decision

The writ petitions were allowed. The Court held that unlocking/activating the mobile phones by the procedures adopted by the Petitioners is mere 'Configuration' of the product to make it usable and does not constitute 'taken into use' under the proviso to Rule 3 of the Duty Drawback Rules. The CBIC clarifications were quashed as unsustainable, and the impugned SCNs and Orders-in-Original relying on them were also quashed. The Court did not examine each individual case for drawback entitlement; the Customs Department is to process claims in accordance with law — no interest under Section 75A is payable if drawback is processed and granted within three months, but interest accrues thereafter on eligible drawbacks, with no interest for the previous period due to the earlier legal ambiguity.

Facts

A batch of writ petitions under Article 226 was filed by mobile phone manufacturers/exporters (including M/s AIMS Retail Services Pvt. Ltd., M/s Kanushi Enterprises, M/s AIMS Migital Technovations, M/s Osiya Overseas LLP, M/s Narayani Overseas LLP and others) against show cause notices and orders-in-original rejecting their duty drawback claims on export of unlocked/activated mobile phones. The goods were mobile phones that were unlocked/activated after manufacture to enable use in destination countries. Acting on CBIC clarifications dated 25th September, 2020 and 14th December, 2021, the Customs Department treated unlocking/activation as the phones being 'taken into use' and rejected the drawback claims under Section 75 of the Customs Act, 1962 read with the Customs and Central Excise Duties Drawback Rules, 2017. The disputed drawback amounts across the cases included sums such as Rs. 2,14,09,854/- and Rs. 55,05,150/- in W.P.(C) 9461/2023.

Key provisions

• Section 75, Customs Act, 1962 — Drawback on imported materials used in the manufacture of goods which are exported
• Section 74(2), Customs Act, 1962 — Drawback allowable on re-export of duty-paid goods
• Rule 3(1), Customs and Central Excise Duties Drawback Rules, 2017 — Information to be furnished