Rule 2(a) of the General Rules of Interpretation requires that for unassembled/incomplete goods to be classified as the final product, the Department must prove they possess the 'essential character' of the finished article; where essential components and functional testing are absent, such goods remain classifiable as parts.

FINAL ORDER NO. 50914/2026

JUSTICE DILIP GUPTA :

Ismartu India Pvt. Ltd.¹1. the appellant has filed this appeal to assail the order dated June 19, 2024 passed by the Principal Commissioner of Customs that rejects the classification of the goods imported by the appellant and reclassifies the same and, accordingly, confirms the differential customs duty with interest under section 28AA of the Customs Act, 1962²2. the Customs Act and penalty under section 112(a)(ii) of the Customs Act. The order also confiscates the goods with an option to the appellant to redeem the same on payment of redemption fine.

2. The appellant is engaged in the business of manufacturing/assembling mobile phones and for this purpose the appellant imported certain goods from M/s Techno Mobile Ltd., Hong Kong and filed a Bill of Entry dated September 14, 2022 declaring the goods as ‘Parts of MFR of Mobile Phones’. Believing that the goods are mobile phones in CKD condition and not parts of mobile phones, an investigation was started. The appellant provided complete details of the goods covered under the said Bill of Entry and explained that the consignment covered under five different invoices were parts of five different models of mobile. The appellant also provided documents in respect of actual descriptions and classification of the impugned goods. Summons dated September 26, 2022 was issued to Dinesh Goyal, authorized representative of the appellant, and his statement was recorded under section 108 of the Customs Act. The appellant also, by a letter dated September 30, 2022, submitted a list of local purchased items for the models imported. The appellant clarified that the material imported was insufficient to manufacture a phone and so the appellant has to procure additional material locally, including items beyond batteries.

3. The officers of the department availed services of a Chartered Engineer to ascertain the exact nature of the goods. The Chartered Engineer submitted a report dated November 29, 2022 which inter alia mentions :

"On visual examination, it is noted that prima facie the parts received after assembling will form an incomplete product and not in working condition. Though they acquire the article shape of a Mobile Phone & thus in light of the above prima facie have essential characteristics of the article but these goods do not form a complete article as the battery, camera, software etc. are required, processing for quality control, product testing for safety factors, individual packaging warrant compliance etc., is required for marketability."

4. The department further sought clarification from the Chartered Engineer as to whether the assembled goods with the addition of a battery would have communication functionality, even if the camera did not work. The Chartered Engineer, in his report dated January 05, 2023, stated that it was not possible to determine the communication functionality of the device without testing it through an approved laboratory.

5. The appellant was also asked by the department to submit details of the consignment imported during the last two years and the appellant provided the data by a letter dated March 31, 2023.

6. A show cause notice dated July 25, 2023 was issued by the Commissioner of Customs (Import) mentioning that the appellant had wrongly self assessed the Bills of Entry as the goods were a complete mobile set attracting duty