Finding that by virtue of the amendment Notification dated July 06, 2019, customs duty would also be leviable on microphones and receivers when imported into India, even if they are imported for the manufacture of PCBA of cellular mobile phones, the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), New Delhi, quashed the order passed by the Principal Commissioner rejecting the claim of Oppo Mobiles India (the appellant) seeking exemption from payment of customs duty under the Exemption Notification dated June 30, 2017, as amended from time to time.
The Tribunal found that the two amendment Notifications dated February 02, 2018 and April 02, 2018, do not in any manner alter Serial No. 6 of the Exemption Notification dated 30.06.2017 in so far as microphones and receivers that were imported by the appellant for the manufacture of PCBA. Accordingly, the Tribunal granted relief to the appellant in the form of an exemption from customs duty on the microphones and receivers.
The Division Bench comprising Justice Dilip Gupta (President) and P.V. Subba Rao (Technical Member) found that the Principal Commissioner has imported his own knowledge to conclude that when the exterior of a phone is removed, there are electronic components inside it which would include receivers and microphones and because “these components need a foundation to sit on and, therefore, these are attached to PCBA or installed correctly on the PCBA to function”.
The Bench clarified that such personal knowledge of the Principal Commissioner cannot form the basis of an order in the absence of any opinion to this effect given by an expert. The finding that receivers and microphones are not parts of PCBA and are parts of a mobile phone is without any basis, and mere reliance on the information downloaded from a certain website cannot be considered authentic.
Further, from the reply filed by the appellant to the show cause notice, the Bench found a reference made to a certificate issued by a Chartered Engineer mentioning that microphones and receivers are mounted on PCBA.
The Bench clarified that the Notification dated July 06, 2019, to the extent it amends Serial No. 6A, simply states that microphones and receivers have been excluded from Serial No. 6A. This means that before this amendment Notification, microphones and receivers were considered as parts used in the manufacture of PCBA of cellular mobile phones.
The Bench also noted that the Principal Commissioner, instead of accepting that before July 06, 2019, microphones and receivers were parts used in the manufacture of PCBA, has applied the Notification retrospectively with effect from February 02, 2018, when there is nothing in the amended Notification which may even remotely suggest that it is retrospective.
In fact, the prospective nature of the Notification is clear from the communication dated July 05, 2019, issued by the Tax Research Unit in the Ministry of Finance in connection with Customs Notification Nos 18/2019 to 27/2019 dated July 06, 2019, added the Bench.
Briefly, the appellant, engaged in the business of manufacturing cellular mobile phones, used to import microphones and receivers for use in the manufacture of Printed Circuit Board Assembly (PCBA), which is used in the manufacture of mobile phones and accordingly availed exemption from payment of duty under Serial No. 6 of the Exemption Notification dated June 30, 2017 and Serial No. 6A of the amendment Notification dated April 02, 2018.
Later, a show cause notice was issued to the appellant, demanding customs duty of Rs. 2.50 crores, alleging that the imported microphones and receivers are not parts of the PCBA, and hence not eligible for exemption benefits, which was confirmed by the Principal Commissioner, who ordered for recovery of the short-paid duty under section 28(1) of the Customs Act with interest under section 28AA and also imposed penalty under section 112(b)(ii). The Principal Commissioner also held that the goods were liable to confiscation under section 111(m) of the Customs Act.
Appearances:
H.K. Sharma, Consultant and D.K. Nayyar, Advocate for the Appellant/ Taxpayer
Mihir Ranjan, Special Counsel for the Respondent/ Department
