M/S Aims Migital Technovations PVT. LTD. vs. Union Of INDIA & Ors.

Facts

The petitioners, various private limited companies and LLPs involved in exporting mobile phones, challenged Show Cause Notices (SCNs) and Orders-in-Original issued by the Customs Department. These actions sought to deny duty drawbacks on exported mobile phones that were unlocked or activated prior to export. The petitioners argued that unlocking/activation was merely a configuration for usability in the destination country and did not constitute 'taken into use' under the Duty Drawback Rules. The Central Board of Indirect Taxes and Customs (CBIC) had issued clarifications in 2020 and 2021 which interpreted such unlocking/activation as 'taken into use', thereby disallowing duty drawbacks. The petitioners sought to quash these notices and orders, and for directions to grant the duty drawbacks.

Held

The Court held that the unlocking/activating of mobile phones by the petitioners was mere 'configuration' to make the product usable in the destination country and did not constitute 'taken into use' under the proviso to Rule 3 of the Duty Drawback Rules. The Court found that the CBIC's clarifications dated 25th September, 2020 and 14th December, 2021, which interpreted unlocking/activation as 'taken into use', went beyond Section 75 of the Customs Act, 1962, and the Duty Drawback Rules, and were therefore unsustainable. Consequently, the Court quashed the respective impugned SCNs and Orders-in-Original that relied on these clarifications. The Court clarified that it had not examined each individual case for the grant of duty drawbacks, and the Customs Department would process these claims in accordance with law. If drawbacks were granted within three months, no interest would be payable; otherwise, interest would be payable by the Customs Department. The non-grant of interest for the previous period was due to the ambiguity in the legal position.

Key Issues

1. Whether the unlocking/activation of mobile phones by the petitioners prior to export constitutes 'taken into use' under the proviso to Rule 3 of the Duty Drawback Rules, thereby disentitling them from duty drawbacks under Section 75 of the Customs Act, 1962. Petitioner's arguments: The petitioners contended that unlocking/activation is merely a configuration to make the mobile phones usable in the destination country and does not amount to 'taken into use'. They argued that the CBIC's clarifications dated 25th September, 2020 and 14th December, 2021, which interpreted unlocking/activation as 'taken into use', went beyond the scope of Section 75 of the Act and the Duty Drawback Rules, and were unsustainable. They relied on the principle that in case of ambiguity, benefits should favor exporters. Revenue's arguments: The revenue authorities argued that unlocking/activation of mobile phones meant they were put to use, thereby disqualifying them from duty drawbacks.