2025 (1) TMI 995 - AAR - Customs

Applicability of exemption notification issued under the Customs Act or Customs Tariff Act 1975 on import of inputs and parts and principles to be adopted for the purposes of valuation of goods as detailed out in Annexure II - benefit of Sl. No. 5D (b) of Notification No. 57/2017-Customs dated 30th June 2017 (As amended) - import of inputs or parts for use in manufacturing of display assembly which in turn will be used for manufacturing of cellular mobile phones - inputs or parts imported for use in manufacturing of display assembly which get scrapped during the manufacturing process - whether the availed customs duty exemption to be fully reversed or to be reversed in proportion to the values of scrap so generated? Whether benefit of Sl. No. 5D (b) of Notification No. 57/2017-Customs dated 30th June 2017 (As amended) shall be available in case of import of inputs or parts for use in manufacturing of display assembly which in turn will be used for manufacturing of cellular mobile phones? - HELD THAT - On the question of whether the benefit of Sl. No. 5d(B) of Notification No. 57/2017-Customs dated 30th June 2017 (as amended) shall be available in Respect of inputs or parts imported for use in manufacturing of Display Assembly which get scrapped during the manufacturing process the Applicant imports inputs and parts for use in manufacturing of display assemblies which in turn are used in manufacturing of cellular mobile phones - The process of manufacturing display assemblies is subject to a certain amount of process loss on account of modification of parts for the purpose of assembling process failure etc. The inputs and parts damaged during the manufacturing process are scrapped by the Applicant. The scrap generated during the manufacturing process are sold to the Government authorised e-waste vendors who are empanelled with the Applicant. The e-waste vendor collects the scrap and disposes off as per the authorised Government norms. Whether the benefit provided in relation to inputs and parts for use in manufacture of display assembly shall be available in respect of inputs or parts which were imported for use in manufacture of display assembly but get damaged in the manufacturing process and thereby do not form part of a finished display assembly? - HELD THAT - It is imperative to analyse the scope of benefit provided under Entry No. 5D(b) of the exemption notification. The benefit is provided on import of inputs and parts for use in manufacture of display assembly. It is analysed that whether inputs and parts which are imported for the purpose and with the intention to use in manufacture of display assemblies but get damaged during the manufacturing process and do not form part of the finished display assembly can be said to be imported for use in manufacture of display assembly. The meaning of the term its used in the definition of advance ruling under Section 28E(b) of Customs Act also needs to be looked into. This is because the term its does not clarify whether advance ruling can only be sought prior to first importation of a particular goods which has never been imported or it can also be sought before importation of a goods which is being imported by the Applicant. Further it is trite law that principle of harmonious construction must be kept in mind while construing any statute. This principle enunciates that while interpreting any law. the statute must be read as a whole and all the legal provisions must be read harmoniously to give effect to each word of the statute. Accordingly to correctly interpret the intention of the legislation at hand. Section 28E(b) and Section 28-I(2) needs to be read together. The exemption benefit is available to Inputs or parts for use in manufacture of Display Assembly of cellular mobile phones . The term for use mentioned in Sl. No. 5D(b) has not been defined in the Customs Act and Notification No. 57/2017 - the Applicant is of the opinion that the exemption from BCD under Sr. No. 5D(b) of Notification No. 57/2017 is available to all inputs and parts used in the manufacture of Display Assembly irrespective of whether the same get incorporated in the manufactured Display Assembly or are damaged or scrapped during manufacturing. Further it is trite law that an exemption notification ought to be construed strictly in order to determine the applicability of the exemption provision. Conclusion - i) The benefit shall be available in case of import of inputs or parts for use in manufacturing of display assembly which in turn will be used for manufacturing of cellular mobile phones. ii) The benefit shall be available in respect of inputs or parts imported for use in manufacturing of display assembly which get scrapped during the manufacturing process. iii) The contention of the Port Commissionerate to state that the present Advance Application Ruling filed by the Applicant is not eligible in terms of Section 28E(b) merits rejection is completely untenable.

Summary

1. ISSUES PRESENTED and CONSIDERED

The legal judgment addresses the following core issues:

• Whether the benefit of Sl. No. 5D(b) of Notification No. 57/2017-Customs dated 30th June 2017, which provides for a nil rate of duty, is available for the import of inputs or parts used in the manufacturing of display assemblies for cellular mobile phones.
• Whether the benefit extends to inputs or parts that get scrapped during the manufacturing process.
• If the benefit is not available for scrapped inputs or parts, whether the availed customs duty exemption should be fully reversed or reversed in proportion to the value of the scrap generated.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Availability of Exemption for Inputs or Parts Used in Manufacturing

• Legal Framework and Precedents: The Customs Act, 1962, and Notification No. 57/2017-Customs, which provides for a nil duty rate on inputs or parts used in manufacturing display assemblies for cellular mobile phones.
• Court's Interpretation and Reasoning: The court interpreted the notification to mean that the exemption is applicable to inputs or parts intended for use in the manufacturing process, regardless of whether they form part of the final product.
• Key Evidence and Findings: The applicant, Samsung Display Noida Pvt. Ltd., imports inputs and parts for manufacturing display assemblies, which are then used in mobile phone production.
• Application of Law to Facts: The court found that the applicant's activities fall within the scope of the exemption provided by the notification.
• Treatment of Competing Arguments: The applicant argued that the exemption should apply to all inputs used in the manufacturing process, while the Customs Department contended that the exemption was not applicable to ongoing imports.
• Conclusions: The court concluded that the exemption applies to the import of inputs or parts used in manufacturing display assemblies for cellular mobile phones.

Issue 2: Exemption for Inputs or Parts Scrapped During Manufacturing

• Legal Framework and Precedents: The same notification and legal principles apply, with additional consideration of the definition of "for use" in manufacturing.
• Court's Interpretation and Reasoning: The court interpreted "for use" to include inputs or parts intended for use, even if they are scrapped during the process.
• Key Evidence and Findings: The applicant demonstrated that scrapped inputs are a natural part of the manufacturing process.
• Application of Law to Facts: The court found that scrapped inputs are considered used in manufacturing, thus qualifying for the exemption.
• Treatment of Competing Arguments: The applicant cited precedents where courts have ruled that inputs intended for use qualify for exemptions, even if scrapped.
• Conclusions: The court held that the exemption applies to inputs or parts scrapped during manufacturing.

Issue 3: Reversal of Customs Duty Exemption

• Legal Framework and Precedents: The Customs Act and related rules on duty reversal.
• Court's Interpretation and Reasoning: Since the court ruled that the exemption applies to scrapped inputs, the question of reversal did not arise.
• Key Evidence and Findings: Not applicable due to the court's ruling on the second issue.
• Application of Law to Facts: Not applicable.
• Treatment of Competing Arguments: The court did not need to address this issue due to its conclusions on the first two issues.
• Conclusions: The question of reversal of customs duty exemption was deemed not applicable.

3. SIGNIFICANT HOLDINGS

• Core Principles Established: The court established that the exemption under Notification No. 57/2017-Customs applies to all inputs or parts intended for use in manufacturing, including those scrapped during the process.
• Final Determinations on Each Issue:
  • The exemption is available for inputs or parts used in manufacturing display assemblies for cellular mobile phones.
  • The exemption extends to inputs or parts scrapped during the manufacturing process.
  • The question of reversing the customs duty exemption does not apply.
• Verbatim Quotes of Crucial Legal Reasoning:
  • "The usage of words 'for use in manufacture' indicates that benefit is available in respect of all inputs and parts which have been used for manufacturing the display assembly and not only in respect of inputs and parts which form part of the finished display assembly."
  • "The exemption from BCD under Sl. No. 5D(b) of Notification No. 57/2017 is available to all inputs and parts used in the manufacture of Display Assembly irrespective of whether the same get incorporated in the manufactured Display Assembly or are damaged or scrapped during manufacturing."