The Delhi High Court allowed duty drawback claim on exports of unlocked/activated mobile phones.
The bench of Justice Prathiba M. Singh and Justice Dharmesh Sharma has observed that the unlocking/activating of the mobile phones as per the procedures adopted by the Petitioners herein is mere ‘Configuration’ of the product to make it usable and does not constitute “taken into use” under proviso to Rule 3 of the Duty Drawback Rules.
The bench stated that clarifications go beyond Section 75 of the Customs Act, 1962 and the Duty Drawback Rules since the interpretation sought to be given by CBIC is that unlocking/activation of mobile phones constitutes “taken into use”. The interpretation which is contained in the Clarifications is not sustainable.
The Petitioners are the exporters of mobile phones of different brands and models which they procure either directly from the original equipment manufacturers (OEMs) or from distributors, dealers, channel partners, etc. The Petitioners are members of the Mobiles and Electronics Indian Merchants Exporters Association (MEIMEA).
Some of the mobile phones purchased by the Petitioners are “locked” by the OEMs i.e., usage of the said mobile phones is restricted to a specific geographical location, also referred to as the “regional lock”, which in the present case would be India. The locked mobile phones are stated to be ‘unlocked’ or ‘activated’ by the Petitioners, to allow their use outside India, by various methods.
The MEIMEA on several occasions sought urgent release of the drawback on mobile phones exported since October, 2020 from the Commissioner of Customs, ACC Exports, New Delhi. However, the MEIMEA did not receive any response from the Customs Department.
The Customs Department initiated proceedings under the Customs Act, 1962 against the Petitioners qua the claim of duty drawback on unlocked/activated mobile phones exported in the relevant period. SCNs were issued to the Petitioners by the Customs Department. In some cases the SCNs have been adjudicated and corresponding Order 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.
The Petitioners have assailed the respective SCNs and Order passed in each case.
The Petitioners had sought clarifications from the CBIC qua the eligibility of duty drawbacks on export of unlocked/activated mobile phones. In response, the CBIC had issued the two clarifications dated 25th September, 2020 and 14th December, 2021. These two clarifications in effect took away the benefit available to the Petitioners under Section 75 read with the Duty Drawback Rules.
The court held that 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.
The court, while 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 OEM or the traders/exporters.
The court noted that with the growth of mobile phone manufacturing/ assembling in India more and more exports would take place and the mere fact that the products are configured for use in foreign countries cannot deprive the Petitioners from duty drawbacks under the prevalent law discussed hereinabove. Drawbacks are benefits which are given to exporters and in the case of any ambiguity such benefits should go in favour of the exporters and not the other way round.
“The unlocking/activation of the mobile phone merely makes the mobile phone more usable in the destination country and the same would therefore not constitute “taken into use” under proviso to Rule 3 of Duty Drawback Rules,” the court said.
The Court clarified that it has not examined each of the cases as to whether duty drawbacks are liable to be granted or not to the Petitioner therein. The individual cases shall be processed by the Customs Department for drawbacks in accordance with law.
Case Details
Case Title: Aims Retail Services Private Limited Versus Union Of India
Case No.: W.P.(C) 9461/2023 and CM APPL. 36114/2023
Date: 13/02/2025
Counsel For Petitioner: V. Lakshmikumaran
Counsel For Respondent: Sr. Panel Counsel Bharathi Raju
