M/S Aims Retail Services Private Limited vs. Union Of INDIA & Ors.

Facts

The petitioners, various private limited companies and LLPs, challenged Show Cause Notices (SCNs) and Orders-in-Original issued by the respondents (Union of India and other authorities) concerning the eligibility of duty drawbacks on the export of unlocked/activated mobile phones. The core issue revolved around whether the unlocking/activation of mobile phones constituted 'taken into use' under the Duty Drawback Rules, thereby disentitling the exporters from duty drawbacks. The petitioners had sought clarifications from the Central Board of Indirect Taxes and Customs (CBIC), which subsequently issued clarifications dated September 25, 2020, and December 14, 2021, which the petitioners argued took away their benefit under Section 75 of the Act and the Rules. The amount in dispute is not specified in the provided text. The procedural history involves the issuance of SCNs and Orders-in-Original, which are now under challenge before the High Court.

Held

The Court held that the unlocking/activation of mobile phones, as performed by the petitioners, is merely a 'configuration' to make the product usable in the destination territory and does not constitute 'taken into use' under the proviso to Rule 3 of the Duty Drawback Rules. The Court found that the interpretation by the CBIC in its clarifications dated September 25, 2020, and December 14, 2021, that unlocking/activation amounts to 'taken into use' was unsustainable and went beyond the scope of Section 75 of the Act and the Duty Drawback Rules. Consequently, the Court quashed these CBIC clarifications. Furthermore, 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 case individually for the grant of duty drawbacks, and the Customs Department would process these claims in accordance with the law. If drawbacks are granted within three months, no interest would be payable under Section 75A of the Act; otherwise, interest would be payable from the expiry of the three-month period. The non-grant of interest for the previous period was attributed to the ambiguity in the legal position.

Key Issues

1. Whether the unlocking/activation of mobile phones by the petitioners 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 Act? Petitioner's Arguments: The petitioners contended that unlocking/activation of mobile phones is merely a configuration to make the product usable in the destination country and does not amount to 'taken into use'. They argued that the CBIC's clarifications dated September 25, 2020, and December 14, 2021, went beyond Section 75 of the Act and the Duty Drawback Rules by interpreting unlocking/activation as 'taken into use'. They relied on the principle that in cases of ambiguity, benefits should favor exporters. Revenue's Arguments: The revenue argued that unlocking/activation of mobile phones constitutes 'taken into use' as per the CBIC's clarifications, thus disqualifying the petitioners from duty drawbacks.