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Unlocking Mobile Phones Does Not Constitute 'Use' Under Customs Act: Delhi High Court

Overview of the Case

On February 13, 2025, the High Court of Delhi delivered a significant judgment regarding the eligibility of duty drawbacks for exporters of mobile phones that have been unlocked or activated post-manufacture. The case involved multiple petitioners, including M/S AIMS RETAIL SERVICES PRIVATE LIMITED , who challenged the rejection of their claims for duty drawbacks on exported mobile phones that had undergone unlocking processes.

Legal Question

The central legal question was whether the act of unlocking mobile phones after they are manufactured disqualifies the petitioners from claiming duty drawbacks under Section 75 of the Customs Act, 1962, and the Customs and Central Excise Duties Drawback Rules, 2017.

Arguments Presented

Petitioners' Arguments

The petitioners, represented by Mr. V. Lakshmikumaran and his team, argued that the unlocking process does not equate to the mobile phones being "taken into use." They contended that the unlocking merely prepares the phones for use in foreign markets, thus maintaining their status as new products. The petitioners emphasized that:

• The unlocking process is a necessary step to make the phones marketable outside India.
• The term "taken into use" should be interpreted to mean actual usage, not merely preparation for use.

Respondents' Arguments

The respondents, represented by Mr. Aditya Singla , argued that the unlocking process constitutes a form of use, thereby disqualifying the petitioners from claiming duty drawbacks. They cited clarifications issued by the Central Board of Indirect Taxes & Customs (CBIC) , which stated that any post-manufacturing activity, including unlocking, renders the goods ineligible for drawbacks.

Judicial Reasoning

The court analyzed the definitions and interpretations of "taken into use" within the context of the Customs Act. It noted that:

• The unlocking process does not diminish the value or alter the fundamental attributes of the mobile phones.
• The act of unlocking is merely a configuration to enable the phones for use in different geographical regions, rather than actual use.

The court referenced previous judgments, including Liberty India v. CIT , to highlight the purpose of duty drawbacks, which is to prevent the burden of customs duties from making exported goods uncompetitive.

Final Decision

The Delhi High Court quashed the clarifications issued by the CBIC that denied duty drawbacks based on the unlocking process. It ruled that the unlocking of mobile phones does not constitute "taken into use" under the relevant provisions of the Customs Act. The court directed the Customs Department to process the duty drawback claims of the petitioners in accordance with the law.

Implications

This ruling is significant for exporters in the mobile phone industry, as it clarifies the legal standing regarding duty drawbacks for unlocked devices. The decision reinforces the notion that necessary modifications for market compatibility do not equate to the goods being used, thus preserving the exporters' rights to claim drawbacks.

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This judgment sets a precedent that could influence future cases involving the export of modified goods and their eligibility for duty drawbacks under Indian law.