The Delhi High Court has held that the act of unlocking/activating mobile phones after they were manufactured would not disentitle the merchant-exporter from claiming duty drawback on subsequent export of the said mobile phones under Section 75 of the Customs Act, 1962 read with the Customs and Central Excise Duties Drawback Rules, 2017. The exporter-petitioner was represented by Lakshmikumaran & Sridharan Attorneys here.
The Revenue department had contended that steps undertaken by the merchant exporters to unlock/activate the mobile phones, i.e. to undo ‘regional locking’, were all post packaging and post manufacturing activities, and accordingly, the said mobile phones were ‘taken into use’ as per the proviso to Rule 3(1) and thus ineligible for duty drawback.
Amendment by the Finance Act, 1995 in Section 75(1) of the Customs Act to revise the expression ‘manufacture’ to read as ‘manufacture or processing of such goods or carrying out any operation on such goods’, and the definition of ‘manufacture’ under Rule 2(e), were also relied upon by the Court here, while it also noted that the OEMs themselves had no objection in the unlocking/activation of the phones to make the same useable in different markets.
Further, the Court in its Judgement dated 13 February 2025 also rejected the contention that irrespective of the purpose for which the exporters had operated the mobile phones, the moment the said phones were switched on and any function thereto was utilised, the same would constitute ‘use’ under the proviso to Rule 3(1).
Decisions as relied upon by the Department wherein the benefit was not allowed by the Court, were distinguished by the High Court here.
The Court in this regard noted that products involved in those decisions were utilized in a manner so as to diminish their value, while unlocking/activation of a mobile phone made the product more accessible, useful and added value.
The Court in Aims Retail Services Private Limited and Ors. v. Union of India was also of the view that considering the thousands of uses that a mobile phone can be put to, mere unlocking cannot constitute use by the exporter-petitioner, as the process was mere ‘configuration’ of the product to make it usable.