9911796707
TMI Blog2025 (2) TMI 596X X X X Extracts X X X X X X X X Extracts X X X X ..... 7/2023 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) with Mr. Rahul Kumar Sharma, GP for R-1/UOI (M: 9868895906) Mr. Ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t'23 Rs. 23,85,138/- (already disbursed) Rs. 7,78,695/- (not disbursed) 8. W.P. (C) 1499/2024 SCN dt 21st June, 2023 Rs. 28,66,909/- (already disbursed) Rs. 10,14,936/- (not disbursed) 9. W.P. (C) 891/2024 SCN dt 31st 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.10th March, 2023; (ii) Order-in-Original dt. 26th May, 2023; (iii) Order-in-Original dt.26th June, 2023. Rs. 55,49,356/- 11. W.P. (C) 10365/2023 (i) Order-in-Original dt. 11th May, 2023; (ii) Order-in-Original dt. 6th June, 2023; (iii) Order-in-Original dt. 23rd June, 2023. Rs.1,04,18, 555/- 12. W.P. (C) 10367/2023 (i) Order-in-Original dt. 23rd February, 2023; (ii) Order-in-Original dt. 24th April, 2023; (iii) Order-in-Original dt. 27th April, 2023; (iv) Order-in-Original dt. 30th May, 2023; (v) Order-in-Original dt. 26th June, 2023. Rs. 81,49,989/- 13. W.P. (C) 10379/2023 (i) Order-in-Original dt. 8th June, 2023; (ii) Order-in-Original dt. 23rd June, 2023. Rs. 1,27,46,945/- 14. W.P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... / 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. Unlocking/Activation Method 2 8. In addition to the above method of unlocking/activating the mobile phones, in recent time, phones are unlocked/activated through another method known as "air-activation" or "over-the-air" ("OTA") activation method. It is the case of the Petitioners that air-activation is a process vide which mobile phones are unlocked/activated through a computer sy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... back 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 May, 2021 passed in W.P.(C) 4744/2021 is reproduced hereunder for ease of reference: "Proceedings have been conducted through video conferencing. Learned counsel for the petitioners seeks permission to withdraw the writ petition with liberty to file a fresh petition espousing individual grievances, if any, of the Members of the Petitioner Association. Permission as prayed for is granted. The petition, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 exported in bulk by the Petitioners in response to the orders, which they receive from various foreign countries. 17. The case of the Petitioners is that under Section 75 of the Act, the said process of unlocking/activating the mobile phones would still entitle them to the duty drawbacks on the export of the same. Mr. V Lakshmikumaran, ld. Counsel argues that the difficulty has arisen in view of the Clarifications issued by the CBIC qua eligibility of the duty ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eady 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 substituted with the current expression "manufactured, processed or on which operation has been carried out in India". The ld. Counsel has laid emphasis on the Clause 61 of the Statement of Objects and Reasons appended to the Finance Bill, 1995, as per which, the said amendment was brought with the intention to extend the duty drawbacks to not only goods manufactured in India but also to the goods processed or subjected to any operation in India. 23. It is submitted that the said expanded definition has al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orters 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 up, insertion of sim cards and making a call to the export destination. The said process is substantially detached from the entire process of manufacturing or processing of the said mobile phones. The ld. Counsel for the CBIC has placed reliance on the decision of the Supreme Court in the case of Commissioner of Central Excise, Chennai II Commissionerate v. Tarpaulin International, 2010 (9) SCC 103, to argue that unlocking/activation of the mobile phones would also not amount to "processing" as the same entails a transformati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inery, 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 and the CBIC has clearly clarified that the process of unlocking/activation would constitute "taken into use" under proviso to Rule 3(1) of the Duty Drawback Rules and therefore, drawbacks cannot be given to the Petitioners. Under such circumstances, it is the view of CBIC that the Petitioners are not entitled to duty drawbacks. IV. Rejoinder Submissions 38. In rejoinder, Mr. Lakshmikumaran, ld. Counsel for the Petitioners highlighted the fact that none of the OEMs have any objections to the drawbacks being given to the Petitioners. In fact, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed 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 which exporters may claim duty drawbacks. Under Section 74 of the Act, duty drawbacks are allowable on re-export of duty payable goods imported into India. As per the said section, if any product is imported into India and is, thereafter exported up to 90% of the customs duty can be claimed as drawback subject to various conditions as set out therein. Under Section 74 (2) of the Act if the exported goods 'have been used' after the importation, then the duration of the said use and the depreciation in value would be considered by the Government for fixing the rate of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, specify, be deemed never to have been allowed and the Central Government may, by rules made under sub-section (2), specify the procedure for the recovery or adjustment of the amount of such drawback." 48. In the present petitions, there is no dispute as to the rate of drawback applicable to locked/activated mobile phones exported by the Petitioners. It is also not in dispute that if not for the process of unlocking, the Petitioners would be entitled to drawbacks. The only issue which is contested by the Customs Department is that the Petitioners are not entitled to duty drawback on the export ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 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." 51. The purpose of duty drawbacks is to ensure that the customs duty paid by the importers or excise/GST paid by local manufacturers on a particular good is not loaded on to the said good/product when exported, making such products uncompetitive in the international market. The burden of these duties/taxes collected by the Government are eased in respect of the exporters, so that adequate relief is provided to them to compete in international markets with foreign exporters. In addition, easing of the said burden allows encouragement for exports which enables earning of foreign exchange for the country. 52. At this stage, it is relevant to consider the le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 and export them to the destination countries. In some cases, the Petitioners, depending upon the final destination of the product, may even undertake unlocking/activation of the said mobile phones. 57. It is not in dispute that the OEMs themselves are entitled to duty drawbacks on the export of mobile phones and which they are availing. 58. In this context, the question is whether the Petitioners can be deprived of the said drawbacks in terms of the Proviso to Rule 3 of the Duty Drawbacks Rules. In order to decide this issue, the process of unlocking/activation of the mobile phones needs to be understood. V.(B). Unlocking/Activation of Mobile Phones: 59. Some mobile phones which are manufactured in different count ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erty 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 handsets out of India upon receipt of orders / requirements from overseas customers. In this process, the Company procures our brand mobile handsets (sealed boxes containing the mobile handset, mobile handset accessories' warranty card, quick start guide, etc.) either from us or our distributors, dealers or channel partners based in India. Some of these mobile handsets are 'locked' by us to restrict its usage to a specific geographical location or mobile carriers (operators). This 'lock' limits the use of the device to SIM cards of network operator it is locked to, or overall operators within a specific region. Consequently, these locked mobile handsets cannot be used outside India without undertaking the process of unlocking of the mobile handsets. The steps involve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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'. Hope the above explanation/clarification surrounding the process of unlocking will convey our clear views / stance on the subject." 60. Mobile telephony and the practices adopted by telecom service providers is a complex aspect of telecommunication. However, from a perusal of the record in these cases, it is clear that unlocking of mobile phones is not seriously objected to by any OEM and in fact the same is a common prevalent practice. It is also pointed out that there are several videos publicly available on online platforms which guide customers to unlock/activate their mobile phones. 61. The process of unlocking/activating the mobile phones has also evolved from time to time. Such process initially involved insertion of SIM cards and making a call to the network of the destination country. In recent times it could also be done through 'air-activatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ether 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 machinery/equipment amounts to use of the goods. 4. The Assistant Collector of Customs found that the instruments were used during exhibition for demonstration. A contention was raised that the items were not commercially used. It was found that the demonstration tantamounts to usage as the equipments imported are required to be operated and appropriately regarded as used. No evidence was put forth to prove that the instruments were not operated during the course of exhibition. Against the order of the Assistant Collector dated 30-1-1991, an appeal was preferred with the Collector of Customs and Central Excise (Appeals) which was dismissed on 28-11-1991. The Appellate Authority found that the demonstration in an exhibition involves use of the goods as without the use of the goods, demonstration is not possible. The revision preferred before the Government of India was also rejected on 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 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 study and research, amounts to 'use' of a car after importation thereof into India as contemplated under section 74 (2) of the Act. The relevant paragraphs of the judgement of Bombay High Court are as under: "19. Now, let us examine whether the petitioners are justified in their contention that under section 74 (2) of the Act 'use' contemplated is commercial use of the imported goods prior to its export. In other words, is it necessary for the purposes of section 74 (2) that the goods must be used prior to its export for the purpose for which it was intended. Can it be said that in absence of such included user the goods were not used or that there was no use within the meaning of section 74 (2) of the Act. In order to answer these questions, undisputed facts noticed are: The petitioners were desirous of manufacturing car spare parts to avoid depending on imported components. In order to carry out st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acture 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 permitted by the export policy of the country. Use of the car for the purpose of research can also be said to be use for commercial purpose. As a matter of fact, petitioners, in our opinion, are estopped from canvassing any contrary contention. The impugned order though did not take this view, which Revenue could, persuade us to support the ultimate conclusion reached the impugned order may be for the different reasons recorded herein. The impugned order thus can be sustained for the reasons recorded herein, in addition to the reason given by the authorities below." 68. Thus, the Division Bench of the Bombay High Court held in Daimler (supra) that the car had been used for the purpose for which it had been imported and, therefore, it was put to 'use' under Section 74 (2) of the Act. It is noted that the Bombay High Court was considering the interpretation of the term 'use' under Section 74 of the Act and not under Section 75 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ho 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 the tax paid thereon under the provisions of Section 19. The application ultimately came to be heard by the West Bengal Taxation Tribunal. By the order that is impugned in this appeal by special leave, the application was allowed. The Tribunal took the view that, for the purposes of Sections 6 and 19, a demonstration for promoting business interests but without charging any fees for such demonstration could not be treated as "use". 3. The conclusion of the Tribunal has been assailed on behalf of the appellants on two grounds but, having regard to the view that we take, it is necessary to refer only to one ground, namely, that the said machine had been used within the Calcutta Metropolitan Area and that, therefore, the refund under Section 19 was not available. Learned counsel for the respondents submitted that the said machine had not been utilised for the purpose for which it was intended and that, therefore, there was no use within the meaning ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 here itself that the words and expressions defined in one statute as judicially interpreted do not afford a guide to construction of the same words or expressions in another statute unless both the statutes are pari materia legislations or it is specifically so provided in one statute to give the same meaning to the words as defined in the other statute. The aim and object of the two legislations, namely, the Gift Tax Act and the Estate Duty Act are not similar." 72. An analysis of all the decisions discussed above, would show that in each of the cases, the product-in-question has been utilized - either for demonstration, research, exhibition, etc., in a manner so as to diminish its value. The same had utilized the capabilities of the product and did not add any additional feature or value to the product. Thus, the said decisions are in sharp contrast to the facts of the present case wherein the unlocking/activation of a mobile phone makes the product more accessible and more useful co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns 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 country and the phone has been not been unlocked/activated in the country of its manufacturing, then the same may prove to be an expensive proposition for the consumer in the said foreign country. Thus, before exporting a product, unlocking/activating the phone to enable it to be used in the destination country would in the opinion of this Court be mere Configuration of the phone for the concerned territory and nothing more. 76. The prevalence of multiple networks, multiple service providers across the world has also to be viewed in the context of standardisation of mobile phone technologies where a phone manufactured in one country can be used in another country seamlessly. Considering the thousands of uses that a mobile phone can be put to, mere unlocking cannot constitute use by the Petitioners. The development of standards in the field of telecommunication which enables usage of mobile phones across countries may be rendered ineffective if such configuration is held to the detriment of the OE ..... X X X X Extracts X X X X X X X X Extracts X X X X
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