The Mumbai Bench of the Customs, Excise & Service Tax Appellate Tribunal (CESTAT) has held that unlocking/activating mobile phones before export, in order to enable their use in a geographical territory outside India, is mere “configuration” of the product to make it usable and does not amount to the goods being “taken into use” under the proviso to Rule 3 of the Customs and Central Excise Duties Drawback Rules, 2017. Hence, the CBIC clarification dated September 25, 2020 to the contrary is unsustainable, and any confiscation, redemption fine, rejection of drawback, or penalties founded on the allegation that such configuration constituted use, mis-declaration, mis-representation, or suppression cannot be legally sustained.
The Division Bench comprising S.K. Mohanty (Judicial Member) and M.M. Parthiban (Technical Member) observed that the entire foundation of the department’s case rested on treating unlocking/activation and allied processes carried out before export as conduct showing that the mobile phones had been “taken into use,” and therefore as mis-declaration, mis-representation, and suppression on the part of the exporter.
Reference was made to the decision of the Delhi High Court in AIMS Retail Services vs Union of India [(2025) 28 Centax 243 (Del.)], which had examined the same issue in detail and held that unlocking/activating mobile phones so as to enable their use in a particular geographical territory outside India is mere “configuration” of the product to make it usable and does not constitute “taken into use” under the proviso to Rule 3 of the Customs and Central Excise Duties Drawback Rules, 2017.
The Tribunal further observed that the High Court decision had attained finality because the department’s civil appeal before the Supreme Court was dismissed on July 18, 2025, and the subsequent review petition was also rejected on January 29, 2026, with the Supreme Court holding that there was no ground for review.
On that basis, the Tribunal held that the consequential action alleging mis-declaration of export product, mis-representation, and suppression by the appellants did not survive. Since the legal basis on which the goods had been treated as liable to confiscation stood removed by the binding precedent in AIMS Retail Services, the confiscation of the impugned goods and the penalties imposed by the Commissioner did not stand legal scrutiny.
Briefly, the appellant company was engaged in trading various brands of mobile phones, procuring them locally from authorized channel partners in India and exporting them through the Air Cargo Complex, Sahar, Mumbai. Out of 112 shipping bills filed during the disputed period 2018–2019, drawback benefits were claimed in respect of 46 shipping bills.
An investigation was initiated by SIIB-X on the basis of a clarification issued by the Drawback Division of CBIC vide letter dated September 25, 2020 regarding admissibility of duty drawback on export of “unlocked/tested” mobile phones by merchant exporters. During investigation, it was observed that the mobile phones procured locally were subjected to usage prior to export by unsealing the original packaging and activating the handsets through placing calls, updating language settings, or flashing software, followed by repacking after removal of the local SIM card and dispatch for export. SIIB-X also noted that, as per the “Regional Lock Guide” booklet accompanying Samsung brand mobile phones, unlocking was a mandatory procedure to make the devices functional outside India.
Based on the above, the department concluded that such activities were performed after manufacture and packing had been completed and therefore amounted to use of the goods by the exporter before export, rendering them ineligible for duty drawback. It was further alleged that the appellant exporter had mis-declared the description of the exported mobile phones, mis-stated that the goods had not been taken into use after manufacture, and by omission and suppression of facts exposed export goods having total FOB value of Rs. 27.99 Crores to confiscation under Sections 113(i) and 113(ia) of the Customs Act, 1962, besides rejection of drawback and imposition of penalties under Sections 114(iii) and 114AA. A show cause notice dated April 26, 2024 was accordingly issued.
The adjudicating authority confirmed the proposals in the show cause, confiscated the exported goods under Sections 113(i) and 113(ia), allowed redemption on payment of fine of Rs. 2.70 Crores, rejected drawback benefits, and imposed penalties of Rs. 2.70 Crores and Rs. 1.75 Crores under Section 114(iii), and Rs. 3 Crores and Rs. 2 Crores under Section 114AA on the company and Manjit Jha respectively.
Appearances:
Anupam Dighe, Advocate for the Appellants
Jitesh Kumar Jain, Authorised Representative for Respondent
