Case Law Details
In re Sunwoda Electronics India Pvt. Ltd. (CAAR Mumbai)
In the case of In re Sunwoda Electronics India Pvt. Ltd. (CAAR Mumbai), the Authority clarified the applicability of concessional duty rates under Sr. No. 527A and Sr. No. 512 of Notification No. 50/2017.
1. Eligibility for Concessional Duty:
- On imports of lithium-ion cells and other inputs/parts for manufacturing battery packs of mobile phones: The benefit is available.
- On such imports used in manufacturing battery packs that are subsequently scrapped during the process: The benefit remains available.
2. Reversal of Duty Exemption: Since the exemption is applicable even when parts are scrapped, reversing the customs duty exemption proportional to the sales value of the scrap does not arise.
Thus, the concessional duty benefit under the notification applies broadly, including to parts scrapped during manufacturing.
FULL TEXT OF THE ORDER OF CUSTOMS AUTHORITY OF ADVANCE RULING, MUMBAI
M/s Sunwoda Electronics India Pvt. Ltd., D204, Sector-63, NOIDA, Gautam Budha Nagar, U.P. 201301 hereinafter referred to as applicant, “in short”, filed the instant application in Form CAAR-1 before the Customs Authority for Advance Rulings, New Delhi (CAAR, in short) for seeking advance ruling. The said application was received in the Secretariat of the CAAR, New Delhi on 28.08.2024 along with their enclosures in terms of Section 28H (1) of the Customs Act, 1962 (hereinafter referred to as the ‘Act’). The IEC of the applicant is 0516000361. As per application, the Applicant is presently engaged in the business of manufacture of lithium-ion battery packs of cellular mobile phones and imports lithium-ion cells, and other various inputs and parts for manufacturing of battery packs of cellular mobile phones.
1.1. In relation to the imported lithium-ion cells, and other inputs and parts, the Applicant is currently availing benefit under Notification No. 50/2017-Customs dated 30th June 2017 (as amended) CNN 50/2017′) which provides for concessional basic customs duty (`BCD’) rate on import of lithium-ion cells, parts and inputs for use in manufacture of battery packs of cellular mobile phones.
1.2 The manufacturing process of battery pack is subject to certain amount of process loss. The inputs and parts damaged during the manufacturing process are scrapped by the Applicant. Presently, the Applicant is discharging duty, On the imported value of the scrapped inputs and parts. The Applicant, however, believes that benefit under NN 50/2017 should be available in relation to the import of lithium-ion cells, inputs and parts for manufacture of battery packs of cellular mobile phones and also in relation to inputs and parts which gets damaged during the manufacturing process and . are scrapped by the Applicant. In view of the amended definition of ‘Advance Ruling’ (as it exists today), it is understood that an application for seeking an advance ruling can be made for any import transaction before its actual import, irrespective of the fact that the similar goods have been imported earlier as every transaction of import is separate and independent of the other transactions. Hence, advance ruling is sought for the future imports of the lithium-ion cells, inputs and parts to be used in manufacture of battery packs of cellular mobile phones. Hence. the applicant wants for advance rulings as under:
i. Whether benefit of concessional rate of duty under Sr. No. 527A and Sr. No. 512 of the NN 50/2017 shall be available:
(a) In case of import of lithium-ion cells, and other inputs & parts respectively for use in the manufacture of battery packs of cellular mobile phones?
(b) In respect of import of lithium-ion cells, and other inputs & parts respectively for use in manufacturing of battery packs of cellular mobile phone which get subsequently scrapped during the manufacturing process?
ii. If the answer to the Question No. I (b) above is in negative, whether the availed customs duty exemption is to be reversed in proportion to the sales value of the scrap, so generated?
The applicant in their application, submitted as under:
1.3 For the purposes of the present application, the Applicant is presently engaged in the business of manufacturing of battery packs of cellular mobile phones. For manufacturing of battery packs, the Applicant imports lithium-ion cells, various inputs and parts. The inputs and parts are currently imported at Delhi Air Cargo (INDEL 4). The said activity is duly stated in the object clause of Memorandum of Association of the Applicant. The relevant excerpt of the Memorandum of Association is reproduced below:
“To carry on the business at any place in India or elsewhere of sale, purchase, import, export, trading, manufacturing, assembling, repairing, operating, altering, installing, servicing, exchanging of all types of electronic related products such as batteries, dome-switch……….”
1.4 Further, in relation to the import of inputs and parts, the Applicant avails the benefit under S.No. 512 of the NN 50/2017, which provides for ‘2.5’ rate of duty on parts, components, and accessories [except Lithium-ion cell and Printed Circuit Board Assembly (PCBA)] imported for use in manufacture of Lithium-ion battery and battery pack.
1.5 Further, in relation to the import of Lithium-ion cells for use in the manufacture of battery or battery pack of cellular mobile phone, the Applicant avails benefit under S. No. 527A of the NN 50/2017 which provides for `5%’ rate of duty on Lithium-ion cell for use in the manufacture of battery or battery pack of cellular mobile phone. Relevant entry of the exemption notification is furnished below for ease of reference:
| S. No. |
Chapter or Heading or Sub-heading or tariff item |
Description of goods | Stand and rate |
Condition No. |
| 512. | 85 or any other Chapter. | Parts, components and accessories except Lithium-ion cell and Printed Circuit Board Assembly (PCBA), for use in manufacture of Lithium-ion battery and battery pack;Sub-parts for use in manufacture of items mentioned at (a) above. |
2.5% | 9 |
| 527A | 8507 60 00 | Lithium ion cell for use in the manufacture of battery or battery pack of cellular mobile phone. Provided that nothing contained in this S. No. shall have effect after the 31st March, 2026. | 5% | – |
1.6 The Applicant for the purpose of manufacturing of battery packs imports various inputs and parts. These inputs and parts are put on the manufacturing line where these are put through various manufacturing and testing processes. The final product produced from the manufacturing line is the battery pack of cellular mobile phones.
1.7 The inputs and parts, after importation as a process goes through below mentioned stages –
a. Inputs & parts quality inspection Onward Quality Check’) — After arrival of inputs and parts inside the Applicant factory, inputs and parts are thoroughly inspected and any defective input or part, based on negotiations with the supplier, is either exported back to the original supplier or disposed. In such cases, the Applicant pays the applicable customs duty on the imported value of inputs or parts to the extent such items are disposed.
b. Loss during manufacturing process — After the inward quality check, once the inputs and parts are approved as fit for manufacturing line, such inputs and parts are moved to the manufacturing line for the purposes of manufacture of battery packs. The process of manufacturing battery packs is subject to a certain amount of process loss on account of modification of parts for the purpose of assembling, process failure, etc. At present, Applicant pays the applicable customs duty on the imported value of inputs and parts damaged during the manufacturing process and exemption benefit is not being currently availed on such damaged inputs and parts
1.8 It is imperative to highlight that the Applicant imports these lithium-ion cells, and other inputs & parts only for the purpose of use in the manufacturing battery packs. The Applicant does not import any inputs or parts for any purpose other than manufacturing of battery packs.
The Applicant qualifies as an ‘applicant’ under Section 28E(c) of the Customs Act, 1962 (`Customs Act’)
Section 28E(c) of the Customs Act reads as under:
“(c). “applicant” means any person —
(i) holding a valid Importer-exporter Code Number granted under section 7 of the Foreign Trade (Development and Regulation) Act, 1992; or
(ii) exporting any goods to India; or
(iii) with a justifiable cause to the satisfaction of the Authority, who makes an application for advance ruling under section 28H;”
(Emphasis supplied)
1.9 The Applicant is a company registered in India and is holding a valid Importer-Exporter Code (`IEC’) Number 0516000361. Copy of the IEC certificate is enclosed herewith as Appendix 2. Thus, the Applicant is rightly covered under the definition of ‘applicant’ as provided under Section 28E(c)(i) of the Customs Act for making this application.
Question raised in the application for advance ruling by the Applicant squarely falls within the ambit of Section 28H(2)(a) of the Customs Act
1.10 Section 28H of the Customs Act provides forAhp questions in respect of which an advance ruling may be sought by an applicant. Section 28H of th6 Customs Act reads as under:
“28H. Application for advance ruling-
(1) An applicant desirous of obtaining an advance ruling under this Chapter may make an application in such form and in such manner and accompanied by such fee as may be prescribed, stating the question on which the advance ruling is sought.
(2) The question on which the advance ruling is sought shall be in respect of, –
(a) classification of goods under the Customs Tariff Act, 1975 (51 of 1975);
(b) applicability of a notification issued under sub-section (1) of section 25, having a bearing on the rate of duty;
(c) the principles to be adopted for the purposes of determination of value of the goods under the provisions of this Act.
(d) applicability of notifications issued in respect of tax or duties under this Act or the Customs Tariff Act, 1975 (51 of 1975) or any tax or duty chargeable under any other law for the time being in force in the same manner as duty of customs leviable under this Act or the Customs Tariff Act;
(e) determination of origin of the goods in terms of the rules notified under the Customs Tariff Act, 1975 (51 of 1975) and matters relating thereto.
(f) any other matter as the Central Government may, by notification, specify.’
(Emphasis supplied)
1.11 The Applicant wishes to obtain the advance ruling on questions relating to applicability of exemption notification issued under subsection (1) of Section 25 of the Customs Act, 1962 (‘Customs Act’) on import of inputs and parts and principles to be adopted for the purposes of valuation of goods as detailed out in Annexure II. Therefore, the questions raised by the Applicant falls within the purview of the provisions of Section 28H(2)(b) and Section 28H(2)(d) of the Customs Act.
1.12 Hence, the application for advance ruling is being filed in conformity with the provisions of Section 28H of the Customs Act.
Question raised under the present advance ruling application is not before any officer of customs, the Appellate Tribunal or any Court.
As per Section 281 (2)(a) of the Customs Act regarding procedure on advance ruling application, no application for advance ruling will be accepted if the question raised in the application is already pending before any forum. Relevant extracts of the provision are reproduced below:
“28l. Procedure on receipt of application. —
(1) ………………….
(3) The Authority may, after examining the application and the records called for, by order, either allow or reject the application:
Provided that the Authority shall not allow the application where the question raised in the application is —
(a) already pending in the applicant’s case before any officer of customs, the Appellate Tribunal or any Court,
(b) the same as in a matter already decided by the Appellate Tribunal or any Court.”
(Emphasis supplied)
1.13 The Applicant submits that questions raised in the Application (as in Annexure II) are not already pending before any officer of Customs, the Appellate Tribunal, or any court in relation to the Applicant. Further, the questions raised in the present case, have not already been decided by the Appellate Tribunal or any court in the Applicant’s case.
1.14 Accordingly, the present application should not be considered as pending before any Court as neither the show cause notice has been issued nor the bill of entries have been provisionally assessed.
1.15 Thus, relying on the above the facts of the current case, Applicant submits that in its case, the application should be accepted for hearing on merits by the Hon’ble CAAR.
1.16 The Applicant wishes to obtain the advance ruling on the questions listed down in form CAAR -1 (as also appearing in Annexure II). Hence, the Applicant has proceeded to file this application before the Hon’ble CAAR, New Delhi for kind consideration.
STATEMENT CONTAINING APPLICANT’S INTERPRETATION OF LAW AND/OR FACTS
1.17 For the import of lithium-ion cells, and other inputs & parts for manufacture of battery packs of cellular mobile phones and Applicant’s interpretation regarding availability of benefit under NN. 50/2017 is discussed in the ensuing paragraphs.
a. The import and export of goods into and out of India is regulated by the Customs Act. Section 12 of the Customs Act is the charging section which stipulates that duties of customs shall be levied on all goods imported into India or exported out of India at such rates as may be specified under the Customs Tariff Act.
b. Section 2 of the Customs Tariff Act provides that the rates at which Basic Customs Duty (BCD’) shall be levied under the Customs Act are specified in two schedules, namely, the First Schedule and the Second Schedule. First Schedule of the Customs Tariff Act deals with the applicable duty structure on import of goods and the Second Schedule deals with the applicable duty structure on export of goods.
c. Section 2 (23) of the Customs Act defines imports in the following manner:
“(23). “import”, with its grammatical variations and cognate expressions, means bringing into India from a place outside India;”
d. Section 25 of the Customs Act contains provisions regarding power to grant exemption from duty. Section 25 (1) of the Customs Act reads as under:
“(1) If the Central Government is satisfied that it is necessary in the public interest so to do, it may, by notification in the Official Gazette, exempt generally either absolutely or subject to such conditions (to be fulfilled before or after clearance) as may be specified in the notification goods of any specified description from the whole or any part of duty of customs leviable thereon.”
e. In exercise of the powers conferred by sub-section (1) of section 25 of the Customs Act, Central Government vide NN. 50/2017 provided exemption from duty of Customs on import of certain goods, as mentioned therein, subject to the conditions specified in the said notification.
f. Entry no. 512 and 527A of the exemption notification reads as under:
| S.No. | Chapter or Heading or Sub-heading or tariff item | Description of goods | Standard rate | Condition No. |
| 512 . | 85 or any other Chapter. | Parts, components and accessories except Lithium-ion cell and Printed Circuit Board Assembly (PCBA), for use in manufacture of Lithium-ion battery and battery pack; Sub-parts for use in manufacture of items mentioned at (_) above. | 2.5% | 9 |
| 527 A. | 8507 60 00 | Lithium-ion cell for use in the manufacture of battery or battery pack of cellular mobile phone. Provided that nothing contained in this S. No. shall have effect after the 31st March, 2026. | 5% | – |
g. Condition no. 9 of the above notification is furnished below for ease of reference:
| Condition No. | Conditions |
| 9. | If the importer follows the procedure set out in the Customs
(Import of Goods at Concessional Rate of Duty) Rules, 2017. |
h. Vide notification no. 74/2022 – Customs (N. T.), dated, 9th September 2022 the Central Government in supersession of the Customs (Import of Goods at Concessional Rate of Duty) Rules, 2017 notified the Customs (Import of Goods at Concessional Rate of Duty or for Specified End Use) Rules, 2022 (`IGCR Rules’).
i. Rule 5 of the IGCR Rules provides for the procedure to be followed. The procedure specified in Rule 5 is furnished below for ease of reference:
(1) The importer who intends to avail the benefit of a notification shall be required to mention the IIN (referred to in sub-rule (2) of Rule 4) and continuity bond number and details while filing the Bill of Entry.
(2) The Deputy Commissioner of Customs or, as the case may be, Assistant Commissioner of Customs at the custom station of importation shall allow the benefit of the notification to the importer.
(3) Where a Bill of Entry is cleared for home consumption, the bond submitted by the importer gets debited automatically in the customs automated system and the details shall be made available electronically to the jurisdictional Customs Officer.”
j. For the purpose of this application, the Applicant hereby submits that it duly complies with the procedure laid down in Rule 5 of the IGCR Rules.
It is evident from S. No. 512 of NN 50/2017 furnished above that exemption from customs duty have been provided on import of inputs and parts [except Lithium-ion cell and Printed Circuit Board Assembly (PCBA)], for use in manufacture of Lithium-ion battery and battery pack. Further, S. No. 527A of NN 50/2017 provides exemption on import of Lithium-ion cell for use in the manufacture of battery or battery pack of cellular mobile phone.
k. The Applicant hereby submits that it currently only manufactures battery packs of cellular mobile phones. A reference in this regard can be drawn to the object clause of the Memorandum of Association (Appendix 1) of the Applicant which specifies the main objects of the Applicant and the activities that it is authorized to carry out.
I. Considering the Applicant is only engaged in manufacturing of battery packs of cellular mobile phones, the Applicant submits that it will import lithium-ion cells, and other inputs & parts only for the purpose of use in the manufacturing battery packs of cellular mobile phones. The Applicant will not import any inputs or parts for any purpose other than manufacturing of battery packs of cellular mobile phones. Illustrative list of inputs and parts which will be imported for manufacturing battery packs are as under:
| S. No. | Description of goods Inputs and parts | CTH | Chapter or Heading or Sub-heading or tariff item |
| 1. | Lithium-ion Cells | 8507 6000 | 8507 6000 |
| 2. | Tapes (Cut to size) | 85079090 | Any chapter – Vide Notification No. 57/2017 – Customs, dated 30th June 2017 |
| 3. | Tapes( in Rolls) | 39191000 | |
| 4. | SICPA GREY-INK- MR-997793 | 32151990 | |
| 5. | AUSTROMELT | 39089000 |
m. In view of above. in relation to the inputs and parts proposed to be imported by the Applicant for the purpose of use in manufacturing of battery packs of cellular mobile phones, the Applicant understands that exemption under entry No. 512 and entry No. 527A of NN 50/2017 should be available irrespective of the classification under Customs Tariff Act of such inputs and parts.
| QUESTION I: WHETHER BENEFIT OF SL. NO. 527A and SL NO. 512 OF NN 50/2017 SHALL BE AVAILABLE – |
| (B) IN RESPECT OF LITHIUM-ION CELLS. AND OTHER INPUTS & PARTS IMPORTED FOR USE IN MANUFACTURE OF BATTERY PACKS OF CELLULAR MOBILE PHONES WHICH GET SCRAPPED DURING THE MANUFACTURING PROCESS? |
n. As discussed above, the Applicant imports lithium-ion cells, and other inputs & parts for use in manufacture of battery packs of cellular mobile phones. Further, as discussed in Annexure I, the inputs and parts imported by the Applicant are put on the manufacturing line where these are put through various manufacturing processes for the purpose of manufacturing of battery packs of cellular mobile phones.
o. The process of manufacturing battery packs is subject to a certain amount of process loss on account of modification of parts for the purpose of manufacturing, process failure, etc. The inputs and parts damaged during the manufacturing process are scrapped by the Applicant. The scrap generated during the manufacturing process is either disposed (for scrapped items like adhesives and tapes) or sold to the Government authorised plastic waste/ metal waste/ battery waste vendors who are empanelled with the Applicant. Such vendor collects the scrap and disposes off as per the authorised Government norms.
p. The question under the present application is in relation to lithium-ion cells, and other inputs & parts which are damaged during the manufacturing process and are subsequently scrapped by the Applicant. In specific, the question is whether the benefit provided in relation to lithium-ion cells, and other inputs & parts for use in manufacture of battery packs of cellular mobile phones shall be available in respect of lithium-ion cells, and other inputs & parts which were imported for use in manufacture of battery packs of cellular mobile phones but get damaged in the manufacturing process and thereby do not form part of a finished battery pack
q. To answer the above question, it is imperative to analyse the scope of benefit provided under entry no. 512 and entry no. 527A of the exemption notification. The benefit is provided on import of lithium-ion cells, and inputs & parts for use in manufacture of battery packs of cellular mobile phones. Now what needs to be analysed is whether inputs and parts which are imported for the purpose and with the intention to use in manufacture of battery packs of cellular mobile phones but get damaged during the manufacturing process and do not form part of the finished battery packs can be said to be imported for use in manufacture of battery packs of cellular mobile phones.
r. At this juncture, the Applicant would like to highlight that benefit under the exemption notification is available in respect of lithium-ion cells, and other inputs & parts ‘for use’ (under S. No. 527A and S. No. 512 of the NN 50/2017 respectively) in the manufacture of battery packs of cellular mobile phones and not in respect of inputs and parts ‘used’ in the manufacture of battery packs of cellular mobile phones.
s. The usage of words ‘for use in manufacture’ indicates that benefit is available in respect of all inputs and parts which have been put to use for manufacturing the battery packs and not only in respect of inputs and parts which form part of the finished battery packs.
t. Every manufacturing process has some inherent loss which is unavoidable considering the nature of the manufacturing process. The inputs which get consumed during the manufacturing process whether by way of forming part of the final output or by way of the inherent process loss are used in the manufacturing process.
u. To corroborate the above understanding reliance is placed on the following submissions.
Intent of the NN 50/2017 to provide concessional benefit where the goods have been used during the manufacture process is supported by IGCR Rules
i. NN 50/2017 has been issued by the Central Government as per the power conferred under Section 25 of the Customs Act. This notification provides exemption benefits to importers for import of certain electronic product used in the manufacture of cellular mobile phones.
ii. The exemption benefit under entry No. 512 of the NN 50/2017 is subject to Condition No.9, which mandates that “If the importer follows the procedure set out in the Customs (Import of Goods at Concessional Rate of Duty) Rules, 2017′. The said Rules have now been replaced by the Customs (Import of Goods at Concessional rate of Duty or for Specified End Use) Rules, 2022 (“IGCR Rules, 2022”). IGCR Rules 2022 has clarified (in Rule 13) that any reference made to IGCR Rules 2017 shall be construed as reference to IGCR Rules 2022.
v. In order to substantiate the interpretation of the Applicant, support is borrowed from the IGCR Rules 2022 wherein as per Rule 4(3), the importer who intends to avail the benefit of a notification shall submit a continuity bond that the goods imported shall be put to use for manufacture of goods. Furthermore, Rule 6 requires the importer to maintain accounts and produce before the jurisdictional commissioner indicating the goods imported which shall be put to use for manufacture of goods or for rendering output service.
w. Here it is pertinent to highlight that even the IGCR Rules, 2022 uses the language that the imported goods shall be “put to use” for manufacture of goods. Therefore, the intent of the Rules is clear (and in alignment with the NN 50/2017) i.e., to provide concessional benefit where the goods have been used during the manufacture process and not necessarily the goods which form part of the manufactured good.
Judicial precedents to support the Applicant’s understanding on the present issue.
x. The phrase ‘for use in manufacture’ has not been defined under the Customs Act, however, what amounts to ‘for use’ or ‘inputs being used in the manufacture of goods’ has been analysed by various courts in numerous judgements few of which have been relied upon by the Applicant in the ensuing paragraphs.
i. Reliance may also be placed on the case of State of Haryana Vs. Dalmia Dadri Cement Ltd., [2004 (178) E.L.T. 13 (S.C.)], wherein the Hon’ble Supreme Court has interpreted the term “for use” mentioned in an exemption notification to mean “intended for use”. The relevant excerpt of the judgment has been extracted as follows:
“10…… On a plain reading of the relevant clause it is clear that the expression “for use” must mean “intended for use”. If the intention of the legislature was to limit the exemption only to such goods sold as were actually used by the undertaking in the generation and distribution of electrical energy, the phraseology used in the exemption clause would have been different as, for example, “goods actually” used or “goods used”.
…..
13. We are, therefore, of the view that the real question which we are called upon to determine is whether, in the present case, the cement supplied was intended for use directly in the generation or distribution of electrical energy. If it was so intended, the exemption was attracted but not otherwise. The certificates which we have referred to earlier issued by the Board clearly show that the intention of the Board was that the cement should be used for a purpose directly connected with the generation or distribution of electrical energy. There is no material to show that the certificates were false certificates given by the Board, having another use in mind, or that they were fraudulently obtained by the assessee in collusion with the Board. The mere fact that some of the cement supplied was, in fact, used by the Board for activities not directly connected with the generation or distribution of electrical energy cannot make any difference regarding the availability of the exemption.
(Emphasis supplied)
ii. Hence, in view of the above, the Applicant is of the opinion that the exemption from BCD under Sr. No. 527A and 512 of NN 50/2017 is available to lithium-ion cells. and other inputs & parts used in the manufacture of battery packs of cellular mobile phones irrespective of whether the same get incorporated in the manufactured battery packs or are damaged or scrapped during manufacturing.
iii. The Hon’ble Supreme Court while examining the phrase ‘inputs being used in the manufacture of goods’ in light of Section 8(3)(b) of the Central Sales Tax, 1956 in the case of J. K. Cotton Spinning & Weaving Mills Co. Ltd. v. The Sales Tax Officer, Kanpur and Anr. [1965 AIR SC 1310] held that if any process is integrally connected with the ultimate production of goods so much so that but for the said process, manufacture of goods would be commercially inexpedient, goods used as inputs in that process would fall within the ambit of the expression ‘used in the manufacture of goods’ and such inputs will be considered as being part of the final manufactured product irrespective of the fact that they are physically not present in it.
iv. Similar view was also upheld by the Hon’ble Madras High Court in the case of M/s. Rupa & Co. Limited, Tirupur V/s The Customs, Excise and Service Tax Appellate Tribunal, The Commissioner of Central Excise [2015 (324) E.L.T. 295 (Mad.)] wherein the Hon’ble High Court allowed the CENVAT credit against the entire inputs used by the assessee even when there was 5% manufacturing process loss. The Hon’ble High Court observed as under:
“13. To say that what is contained in finished product is only a quantity of all the inputs of the same weight as that of the finished product would presuppose that all manufacturing processes would never have an inherent loss in the process of manufacture. The expression ‘inputs of such finished product’ contained in finished products’ cannot be looked at theoretically with its semantics. It has to be understood in the context of what a manufacturing process is. If there is no dispute about the fact that every manufacturing process would automatically result in some kind of a loss such as evaporation, creation of by-products, etc., the total quantity of inputs that went into the making of the finished product represents the inputs of such products in entirety.”
(Emphasis supplied)
y. In view of the above, it is the submitted that the inputs and parts which are damaged during the manufacturing process should be considered as used for manufacturing of battery packs of cellular mobile phones and accordingly, benefit under NN 50/2017 should be available.
z. The Applicant would further like to submit that exemption available to inputs and parts for use in manufacturing of a good should also be available in respect of inputs and parts which get scrapped during the manufacturing process, as these are used in the manufacturing of the goods.
aa. The above view has also been upheld by various courts in numerous cases, few of which has been referred by the Applicant in the ensuing paragraphs.
The Hon’ble Supreme Court in the case of BPL Display Devices Ltd. V/s Commissioner of Central Excise, Ghaziabad [2004 (10) TMI 92 (SC)] held that benefit of the Notifications could not be denied in respect of goods which were intended for use for manufacture of the final product but could not be so used due shortage or leakage. The Apex Court further held that “We are of the view that no material distinction can be drawn between the loss on account of leakage and loss on account of damage. The words ‘for use’ used in similar exemption Notifications have also been construed by this Court earlier in the State of Haryana v. Dalmia Dadri Cement Ltd., [1987 (11) TMI 94 -SUPREME COURT OF INDIA] to mean ‘intended for use’. According to this decision the object of grant of exemption was only to debar those importer/manufacturers from the benefit of the Notifications who had diverted the products imported for other purposes had no intention to use the same for manufacture of the specified items at any stage.”
Similarly in the case of Steel Authority of India Ltd. V/s Collector of Central Excise [1996 (7) TMI 147 (SC)] the Hon’ble Supreme Court dealt with the question whether exemption available to raw naphtha intended for use in the manufacture of fertiliser would be available in respect of raw naphtha consumed for the gases vented out during the interim stages of manufacture due to unavailability of power. The Hon’ble Apex Court held as under:
“There can be no doubt that the raw naphtha that was fed by SAIL into its plant was for the purpose and with the intention of manufacturing fertiliser and that it was only because of supervening circumstances, namely, the low, uncertain and fluctuating availability of power, that the reformed gas produced during the interim stage of manufacture had to be vented out. The benefit of the exemption notification is, therefore, available to SAIL in regard to the raw naphtha that it utilised in its plant for the manufacture of fertiliser but which, for reasons over which it had no control, did not, in fact, result in the manufacture of fertiliser hut had, at the interim stage of reformed gas, to be vented out.”
The Hon’ble Supreme Court in the case of Multimetals Ltd. Ws Assistant Collector, Central Excise [1992 (57) E.L.T. 209 (SC)] dealt with the question whether the duty referable to that portion which is lost also should get rebate while assessing for excise duty on the pipes and tubes of copper and copper alloys held as under:
“Rebate is to be equivalent to the duty already paid on copper and copper alloys in its crude form, that is to say on the input. The idea seems to be that to the extent of the duty paid on the raw material used exemption has to be given and that has no reference to what ultimately found part of the finished product. It is the duty paid on the input material that is relevant and not the duty referable to the ultimate component of the final product. So far as the manufacturer is concerned he has used copper and copper alloys of a particular quantity in the manufacture of pipes and tubes. The ‘manufacturing loss’ forms part of the raw material “used” in the manufacture though not reflected in the final product. The relief, as we understand the Notification, that has to be given to the manufacturer was in respect of the duty already paid on the raw material used in the manufacture of the final product. That is the relief has to be given to the extent of the duty paid on the input material and not with reference to the quantity which ultimately forms part of the final product.”
bb. In view of the above discussion, the Applicant hereby submits that it has been settled beyond doubt by numerous judgements few of which are referred above that exemption shall be available to the inputs which are scrapped during the manufacturing process even though the said inputs do not form part of the finished goods.
cc. Further, it is trite law that an exemption notification ought to be construed strictly in order to determine the applicability of the exemption provision. However, once the exemption becomes applicable then the provisions must be construed liberally [Union of India Vs. Wood Papers Ltd., [1990 (47) E.L.T. 500 (S.C.)]. In case the response to the first question above is affirmative, i.e., the Applicant is eligible to avail the exemption benefit on lithium-ion cells, and other inputs & parts for use in manufacture of battery packs of cellular mobile phones under S. No. 527A and S. No. 512 of the NN 50/2017 respectively. Then as per liberal construction of the exemption notification it can be said that the lithium-ion cells, and other inputs & parts which are for use in the manufacture of battery packs of cellular mobile phones. even if they are damaged/ scrapped during the manufacturing process, will be eligible for exemption under the aforesaid entries.
Hon’ble CAAR New Delhi has passed a favourable ruling on the same issue in the matter of M/s. Samsung Display Noida Private Limited
dd. Another importer M/s. Samsung Display Noida Private Limited had approached your good office seeking clarification on the very same issue i.e., whether the importer shall be eligible to avail the exemption benefit under S. No. 5D (b) of the Notification No. 57/2017 inputs or parts used by them for manufacture of mobile phone displays which get scrapped during the manufacturing process. The language used in S. No. 5D(b) of Notification No. 57/2017 is similar to the language used in S. No. 512 and S. No. 527A of NN 50/2017 as both the notifications use the phrase “for use”. Your good office in the said matter had issued a ruling vide No. CAAR/Del/ Samsung Display/22/2024/ 928 to 933 dated 04.06.2024 wherein it was held that the importer was eligible to avail the exemption benefit under S. No. 5D(b) of the Notification No. 57/2017 in respect of inputs and parts for use in manufacture of mobile display assembly even when such inputs and parts get scrapped during the manufacturing process.
ee. Therefore, in view of the above submissions in toto, it is humbly requested by the Applicant that benefit under entry no. 527A and entry no. 512 of the NN 50/2017 should be made available in respect of lithium-ion cells, and other inputs & parts which are damaged during the manufacturing process of battery packs of cellular mobile phones and are subsequently scrapped by the Applicant.
| QUESTION II: IF THE ANSWER TO THE QUESTION NO. 1(B) ABOVE IS NEGATIVE, WHETHER THE AVAILED CUSTOMS DUTY EXEMPTION IS TO BE REVERSED IN PROPORTION TO THE SALES VALUES OF SCRAP, SO GENERATED? |
ff. In light of the submissions made in relation to question 1(a) & 1(b) above, the Applicant understand that benefit under entry no. 527A and entry no. 512 of NN. 50/2017 should be available in respect of lithium-ion cells, and other inputs & parts respectively which are damaged during the manufacturing process and are subsequently scrapped by the Applicant. However, if the answer to the question no. 1(b) above is negative, authority may clarify if the availed customs duty exemption is to be reversed in proportion to the sales values of scrap, so generated.
gg. In view of the above, the Applicant humbly submits that the Hon’ble Authority may kindly issue the advance ruling as prayed at an early date and, a ruling is sought from the Hon’ble CAAR as follows:
A. The Applicant is eligible to avail exemption under entry no. 527A and entry no. 512 of the NN 50/2017 on import of lithium-ion cells, and other inputs & parts respectively for use in manufacture of battery packs of cellular mobile phones.
B. The Applicant is eligible to avail exemption under entry no. 527A and entry no. 512 of NN 50/2017 in relation to lithium-ion cells, and other inputs & parts respectively for use in manufacture of battery packs of cellular mobile phones which are subsequently scrapped during the manufacturing process.
C. The Applicant craves leave to alter, amend or modify any of the aforesaid grounds or submissions made herein this application and make such additional submissions without prejudice to the submissions made herein, at the time of hearing of the said application.
D. The Applicant also craves leave to produce and provide any such further additional documents in support of its submissions at the time of hearing and before conclusion of the proceedings.
E. The Applicant further prays for an opportunity of being heard in person.
2. COMMENTS OF THE PORT COMMISSIONERATE
Comments from Commissioner of Customs, NS -V were received on 12.11.2024, as follows:-
2.1. In this regard, comments on the Question of L6W Of fact on which Advance Ruling required
a. The applicant appears to be eligible to avail exemption under entry 527A and entry no. 512 of the Notification no. 50/2017-Cus dated 30.06.2017 on import of lithium-ion cells, and other inputs & parts respectively for use in manufacture of .battery packs of cellular mobile phones, in case, all condition mentioned in the said S.no. 09 of the said notification are satisfied. The importer is to follow the procedure set out in the Import of Goods at Concessional Rate of Duty or for Specified End Use (IGCRD) Rules. 2022″
b. The applicant is eligible for to avail exemption under entry 527A and entry no 512 of the notification no. 50/2017-Cus dated 30.06.2017 on import of lithium-ion cells, and other inputs & parts respectively for use in manufacture of battery packs of cellular mobile phones for the issue related to the aspects of subsequent scrapping of imported goods during the manufacturing process, reference is made to inter alia, para 10 of the Customs notification no. 74/2022-Cus (NT) dated 09.09.2022 as amended.
Records of Personal Hearing in the matter.
3. Personal hearing in the matter was conducted through physical-cum-virtual mode on 14.11.2024 wherein the authorized representative of the applicant attended the same and reiterated the written submissions already submitted with the application of the applicant. The Assistant Commissioner of Customs Port JNCH Nhava Sheva-V has also attended the same wherein he reiterated the submissions made by the port.
4. The AR of the applicant had further submitted additional submission-cum-rejoinder in the matter, which are as under:-
4.1 M/s. Sunwoda Electronic India Private Limited is presently engaged in the business of manufacturing of battery packs of cellular mobile phones. For manufacturing of battery packs, the Applicant imports lithium-ion cells, various inputs and parts. The Applicant imports the inputs and parts from the following 3 ports for which it has filed the application before your good office—
- Air Cargo Complex, (Import), Delhi (`ACC Delhi’),
- Noida Customs Commissionerate, ICD Dadri (11CD Dadri’), and
- Jawaharlal Nehru Customs House, Nhava Sheva-V, Mumbai (‘Nhava Sheva’).
4.2 This submission is in furtherance to the Application dated 27.08.2024 (filed on 28.08.2024) for seeking clarity on whether benefit of concessional rate of duty under Sr. No. 527A and Sr. No. 512 of Notification No. 50/2017 dated 30.06.2017 CNN 50/2017′) shall be available:
a) in case of import of lithium-ion cells, and other inputs & parts respectively for use in the manufacture of battery pack of cellular mobile phones
b) in case where such imports get subsequently scrapped during the manufacturing process.
4.3 The Applicant filed rejoinder to the comments received from the Assistant Commissioner of Customs, Noida Customs Commissionerate (`Ld. Assistant Commissioner’) vide letter dated 16.10.2024, from Deputy Commissioner of Customs, Group-VA, ACC Import, New Delhi (Id. Deputy Commissioner’) vide letter dated 4.11.2024, and from Assistant Commissioner of Customs, Group VA, NS-V, JNCH vide letter dated 12.11.2024 (collectively referred to as ‘Port Comments’).
BACKGROUND OF THE PORT COMMENTS
4.4 The Applicant understands that the port authorities of ICD Dadri, ACC, Delhi and Nhava Sheva are aligned with the Applicant on the following points:
Eligibility of the applicant — Comments specifically provided by ICD Dadri and ACC, Delhi
a) The Applicant holds a valid IEC and therefore is eligible for seeking an advance ruling within the meaning of Section 28E (c) of the Customs Act, 1962 (`Customs Act’).
b) The question raised in the application is not pending before any officer of Customs, the Appellate Tribunal or any Court as per proviso of 281 (2) of the Customs Act.
Eligibility to avail concessional benefit on import of lithium-ion cells, and other inputs & parts
c) All ports have agreed that the Applicant is eligible for benefit of concessional rate of duty under S. No. 527A and S. No. 512 of NN 50/2017 for import of import of lithium-ion cells, and other inputs & parts respectively for use in the manufacture of battery pack of cellular mobile phones.
4.5 However, the port authorities at ICD Dadri and ACC Delhi differ from the view of the Applicant as regards availment of concessional benefit on goods which subsequently get scrapped during the manufacturing process, on the following grounds.
| Comments from ICD Dadri |
|
| Comments from ACC Delhi |
|
4.6 As regards port authorities at JNCH Nhava Sheva, Mumbai the Applicant is not clear with the comments as it seems that the authorities at one place is allowing the benefit of concessional rate of duty under the NN 50/2017 and at the same time referring to Rule 10 of IGCR which has been mentioned in a different context by the ICD Dadri and ACC Delhi, as tabulated above.
4.7 The Applicant submits that it agrees with the findings in Para 4 above but disagrees with those in Para 5. Therefore, the Applicant wishes to put forth its submissions justifying its eligibility for the benefit of concessional rate of duty under NN 50/2017 on imports which get subsequently scrapped during the manufacturing process, as outlined in the following paragraphs.
APPLICANT’S REJOINDER TO THE PORT’S COMMENTS
4.8 Applicant’s response to the port comments on eligibility of benefit under NN 50/2017 in respect of imports which get scrapped during the manufacturing process is as under –
Submissions with respect to Rule 10 of the IGCR
4.9 The Applicant submits that it is rightly opined by the Assistant Commissioner, ICD Dadri, in its letter dated 16.10.2024 that the goods which are either scrapped or damaged during the manufacturing process appear to not fall under the category of unutilized or defective goods as per Rule 10 of the IGCR. Hence. Rule 10 may not be applicable in the instant matter.
4.10 In this regard the Applicant submits that Rule 10 of the IGCR deals specifically with ‘unutilized or defective goods’ i.e., goods that are not utilized in the manufacturing process or the goods which are defective since the time of its import. The intent of Rule 10 is to provide an option to the importers to re-export within the prescribed time limit the goods that were unutilized or defective at the time of import. Hence, the Rule is not applicable to goods that were put to use in the manufacturing process or the goods that were subsequently damaged during the manufacturing process.
4.11 However, in the Applicant’s case, it seeks clarity in relation to the inputs and parts which are put to use in the manufacturing process but subsequently jet damaged due to process failure, etc.
These inputs and parts which are damaged during the manufacturing process are scrapped by the Applicant. Since these inputs are not the same as unutilized or defective good covered in Rule 10 of the IGCR. Rule 10 is not applicable in such instances.
Intent of the NN 50/2017 to provide concessional benefit where the goods have been used during the manufacture process is supported by IGCR
4.12 The benefit under NN 50/2017 is available in respect of lithium-ion cells, and other inputs & parts ‘for use’ in the manufacture of battery packs of cellular mobile phones and not in respect of inputs and parts ‘used’ in the manufacture of battery packs of cellular mobile phones.
4.13 The usage of words ‘for use in manufacture’ indicates that benefit is available in respect of all inputs and parts which have been put to use for manufacturing the battery packs and not only in respect of inputs and parts which form part of the finished battery packs.
4.14 The exemption benefit under entry No. 512 & 527A of the NN 50/2017 is subject to Condition No.9, which mandates the importer to follow the procedure set out in IGCR. Thus, to substantiate the interpretation of the Applicant, support is borrowed from the IGCR wherein:
- Under Rule 4(3), the importer who intends to avail the benefit of a notification shall submit a continuity bond that the goods imported shall be put to use for manufacture of goods.
- Rule 6 requires the importer to maintain accounts and produce before the jurisdictional commissioner indicating the goods imported which shall be put to use for manufacture of goods or for rendering output service.
4.14 Here, it is pertinent to highlight that even the IGCR uses the language that the imported goods shall be “put to use” for manufacture of goods. Therefore, the intent of the Rules is clear i.e., to provide concessional benefit where the goods have been used during the manufacture process and not necessarily the goods which form part of the manufactured good.
4.15 Further, what amounts to ‘for use’ or ‘inputs being used in the manufacture of goods’ has been analyzed by various courts in numerous judgements as relied on by the Applicant in its Application made before your good office.
Hon’ble CAAR, New Delhi has passed a favorable ruling on the same issue in another matter
4.16 Your good office has issued a similar Ruling No. CAAR/ Del/ Samsung Display/ 22/ 2024/ 928 to 933 dated 04.06.2024 in the matter of M/s. Samsung Display Noida Private Limited wherein it was held that the importer Company is eligible to avail the exemption benefit under S. No. 5D(b) of the Notification No. 57/2017 in respect of inputs and parts for use in manufacture of mobile display assembly even when such inputs and parts get scrapped during the manufacturing process.
Reliance placed by ICD Dadri on Assistant Commissioner, Gadaq Sub-Division, Gadaq Vs. Mathapathi Basavannewwa [1995 (8) TMI 304 – SC] (`Mathapathi Case’) and Commissioner of Customs (Import), Mumbai Vs. M/s. Dilip Kumar and Company & Ors. [2018 (7) TMI 1826 – SCJ (`Dilip Kumar Case’) is unfounded
4.17 The Ld. Assistant Commissioner has erred in quoting the extract the Mathapathi Case in its letter dated 16.10.2024. In the Mathapathi Case, the Hon’ble Supreme Court while interpreting the relevant provision of Land Acquisition Act, 1894 along with the notification held that the provision was intended to mitigate hardship caused to the landowners by delays in making the award. The court reasoned that “strict construction leads to unjust result, hardship to the owner and defeats legislative object.” This phrase clearly implies that the Court intended to liberally construe the interpretation of the Notification to avoid any unjust result and hardship to the assessee. On the contrary, the port authorities have misconstrued this judgment to conclude that “any hardship and inconvenience caused cannot be the basis to alter the meaning to the language employed by the legislation-. To this extent reliance on this judgment by ICD Dadri is erred and unfounded, as this judgment rather supports the proposition of the Applicant.
4.18 With respect to the Dilip Kumar Case, the port authorities have emphasized on the fact that “statute cannot be interpreted on any presumption/assumption. A taxing statute has to he interpreted in the light of what is clearly expressed; it cannot imply anything which is not expressed… To this extent, the Applicant in its submissions above has substantially established merits of the proposition under consideration. The Applicant is not intending to seek shelter of any presumption/ assumption, rather it has clarified the position of law through other judicial precedents that anything put to use during the process of manufacture is to be considered as material consumed during the manufacturing process. Hence, it satisfies the end use condition and should be able to avail the concessional benefit under Notification No. 50/2017.
4.19 Further, it is submitted that the Applicant agrees that it is trite law laid in the Dilip Kumar case that an exemption notification ought to be construed strictly to determine the applicability of the exemption provision. However, once the exemption becomes applicable then the provisions must be construed liberally as upheld in the Union of India Vs. Wood Papers Ltd., [1990 (47) E.L.T. 500 (S.C.)] (Woof Papers Case’) which was also followed by the Hon’ble Supreme Court in Para 45 and 46 of the judgement in Dilip Kumar Case relied on by the Ld. Assistant Commissioner.
4.20 Applying the rule laid down in Wood Papers Case (as followed in Dilip Kumar Case) to the instant matter. Since the Applicant is eligible to avail the exemption benefit on lithium-ion cells, and other inputs & parts for use in manufacture of battery packs of cellular mobile phones under the NN 50/2017, then as per liberal construction of the exemption notification it can be said that such imports which are for use in manufacturing of battery packs for, if they are damaged/ scrapped during the manufacturing process, will be eligible for exemption benefit.
4.21 In view of the above, the Applicant humbly submits that the Hon’ble Authority may kindly issue the advance ruling as prayed.
Findings, Discussion and Conclusion
5. I have taken into consideration of all the materials placed on record in respect of the subject goods, comments of the customs Port Commissionerate and additional submissions made by the representative of the applicant.
5.1 As it has been observed, M/s. Sunwoda Electronic India Private Limited (Applicant’) is presently engaged in the business of manufacturing of battery packs of cellular mobile phones. For manufacturing of battery packs, the Applicant imports lithium-ion cells, various inputs and parts. The Applicant imports the inputs and parts from the following 3 ports for which it has filed the applications—
- Air Cargo Complex, (Import), Delhi (ACC Delhi’),
- Noida Customs Commissionerate, ICD Dadri (‘ICD Dadri’), and
- Jawaharlal Nehru Customs House, Nhava Sheva-V, Mumbai (‘Nhava Sheva’).
5.2 Application dated 27.08.2024 (filed on 28.08.2024) was made for seeking clarity on whether benefit of concessional rate of duty under Sr. No. 527A and Sr. No. 512 of Notification No. 50/2017 dated 30.06.2017 shall be available:
a) in case of import of lithium-ion cells, and other inputs & parts respectively for use in the manufacture of battery pack of cellular mobile phones
b) in case where such imports get subsequently scrapped during the manufacturing process.
5.3 Eligibility of the applicant — Comments specifically provided by lCD Dadri and ACC, Delhi
a) The Applicant holds a valid IEC and therefore is eligible for seeking an advance ruling within the meaning of Section 28E (c) of the Customs Act, 1962 (‘Customs Act’).
b) The question raised in the application is not pending before any officer of Customs, the Appellate Tribunal or any Court as per proviso of 281 (2) of the Customs Act.
Eligibility to avail concessional benefit on import of lithium-ion cells, and other inputs & parts
c) All ports have agreed that the Applicant is eligible for benefit of concessional rate of duty under S. No. 527A and S. No. 512 of NN 50/2017 for import of import of lithium-ion cells, and other inputs & parts respectively for use in the manufacture of battery pack of cellular mobile phones.
5.4 However, the port authorities at ICD Dadri and ACC Delhi differ from the view of the Applicant as regards availment of concessional benefit on goods which subsequently get scrapped during the manufacturing process, on the following grounds:
A. As per ICD Dadri, it has been opined that as the goods which are either scrapped or damaged during the manufacturing process appear to not fall under the category of defective/scrapped goods of Customs (Import of Goods at Concessional rate of Duty or for Specified End Use) Rules, 2022 (`IGCR’), making Rule 10 inapplicable in this case. Further, the Notfn. 50/2017 only covers those import of goods that shall be put to use for manufacture of goods and the said notification does not explicitly cover damaged/scrapped goods during manufacturing process.
B. As per ACC Delhi, it has been opined that goods wherein the importer has taken benefit of NN 50/ 2017 and that are not consumed for the battery or battery pack of cellular mobile phones are liable for re-export within six months from the date of import. Accordingly, the benefit under NN 50/2017 on imports which are subsequently scrapped during the manufacturing process cannot be given.
5.5 As regards port authorities at JNCH Nhava Sheva, it is not clear with the comments as it seems that the authorities at one place is allowing the benefit of concessional rate of duty under the NN 50/2017 and at the same time referring to Rule 10 of IGCR which has been mentioned in a different context by the ICD Dadri and ACC Delhi, as mentioned in para above.
5.6 The applicant during the hearing also has clarified that the goods imported first has to go through stringent quality check and if anything is found to have been defective or damaged at that stage are made to go through the process of re-export or release to DTA under reversal of duty principle, complying fully with the existing IGCR provisions in letter and spirit. It may be pertinent to mention here that Rule 10 of the IGCR deals specifically with `unutilized or defective goods’ i.e., goods that are not utilized in the manufacturing process or the goods which are defective since the time of its import. The intent of Rule 10 is to provide an option to the importers to re-export within the prescribed time limit the goods that were unutilized or defective at the time of import. Hence, the Rule is not applicable to goods that were put to use in the manufacturing process or the goods that were subsequently damaged during the manufacturing process.
5.7 Coming to analyse the intent of the Notification 50/2017 to provide concessional benefit where the goods have been used during the manufacture process being supported by IGCR, the benefit appears to be available in respect of lithium-ion cells, and other inputs & parts for use’ in the manufacture of battery packs of cellular mobile phones. The usage of words ‘for use in manufacture’ indicates that benefit is available in respect of all inputs and parts which have been put to use for manufacturing the battery packs and not only in respect of inputs and parts which form part of the finished battery packs.
5.8 Further, it is pertinent to highlight that even the IGCR uses the language that the imported goods shall be “put to use” for manufacture of goods. Therefore, the intent of the Rules appears to provide concessional benefit where the goods have been used during the manufacture process and not necessarily the goods which form part of the manufactured good. Further, what amounts to ‘for use’ or ‘inputs being used in the manufacture of goods’ has been analyzed by various courts in numerous judgements as relied on by the Applicant in its Application.
I. Reliance may also be placed on the case of State of Haryana Vs. Dalmia Dadri Cement Ltd., [2004 (178) E.L.T. 13 (S.C.)], wherein the Hon’ble Supreme Court has interpreted the term “for use” mentioned in an exemption notification to mean “intended for use”. The relevant excerpt of the judgment has been extracted as follows:
“10…………………….. On a plain reading of the relevant clause it is clear that the expression “for use” must mean “intended for use”. If the intention of the legislature was to limit the exemption only to such goods sold as were actually used by the undertaking in the generation and distribution of electrical energy, the phraseology used in the exemption clause would have been different as. for example. “goods actually” used or “goods used”.
…….
13. We are, therefore, of the view that the real question which we are called upon to determine is whether, in the present case, the cement supplied was intended for use directly in the generation or distribution of electrical energy. If it was so intended, the exemption was attracted but not otherwise. The certificates which we have referred to earlier issued by the Board clearly show that the intention of the Board was that the cement should be used for a purpose directly connected with the generation or distribution of electrical energy. There is no material to show that the certificates were false certificates given by the Board, having another use in mind, or that they were fraudulently obtained by the assessee in collusion with the Board. The mere fact that some of the cement supplied was, in fact, used by the Board for activities not directly connected with the generation or distribution of electrical energy cannot make any difference regarding the availability of the exemption.
II. The Hon’ble Supreme Court while examining the phrase ‘inputs being used in the manufacture of goods’ in light of Section 8(3)(b) of the Central Sales Tax, 1956 in the case of J. K. Cotton Spinning & Weaving Mills Co. Ltd. v. The Sales Tax Officer, Kanpur and Anr. [1965 AIR SC 1310] held that if any process is integrally connected with the ultimate production of goods so much so that but for the said process, manufacture of goods would be commercially inexpedient, goods used as inputs in that process would fall within the ambit of the expression ‘used in the manufacture of goods’ and such inputs will be considered as being part of the final manufactured product irrespective of the fact that they are physically not present in it.
III. Similar view was also upheld by the Hon’ble Madras High Court in the case of M/s. Rupa & Co. Limited, Tirupur V/s The Customs, Excise and Service Tax Appellate Tribunal, The Commissioner of Central Excise [2015 (324) E.L.T. 295 (Mad.)] wherein the Hon’ble High Court allowed the CENVAT credit against the entire inputs used by the assessee even when there was 5% manufacturing process loss. The Hon’ble High Court observed as under:
“13. To say that what is contained in finished product is only a quantity of all the inputs of the same weight as that of the finished product would presuppose that all manufacturing processes would never have an inherent loss in the process of manufacture. The expression ‘inputs of such finished product’ contained in finished products’ cannot be looked at theoretically with its semantics. It has to be understood in the context of what a manufacturing process is. If there is no dispute about the fact that every manufacturing process would automatically result in some kind of a loss such as evaporation, creation of byproducts, etc., the total quantity of inputs that went into the making of the finished product represents the inputs of such products in entirety.”
IV. The Hon’ble Supreme Court in the case of BPL Display Devices Ltd. V/s Commissioner of Central Excise, Ghaziabad [2004 (10) TM/ 92 (SC)] held that benefit of the Notifications could not be denied in respect of goods which were intended for use for manufacture of the final product but could not be so used due shortage or leakage. The Apex Court further held that “We are of the view that no material distinction can be drawn between the loss on account of leakage and loss on account of damage. The words ‘for use’ used in similar exemption Notifications have also been construed by this Court earlier in the State of Haryana v. Dalmia Dadri Cement Ltd., [1987 (11) TMI 94 -SUPREME COURT OF INDIA] to mean ‘intended for use’. According to this decision the object of grant of exemption was only to debar those importer/manufacturers from the benefit of the Notifications who had diverted the products imported for other purposes and had no intention to use the same for manufacture of the specified items at any stage.”
V. Similarly in the case of Steel Authority of India Ltd. V/s Collector of Central Excise [1996 (7) TMI 147 (SC)] the Hon’ble Supreme Court dealt with the question whether exemption available to raw naphtha intended for use in the manufacture of fertiliser would be available in respect of raw naphtha consumed for the gases vented out during the interim stages of manufacture due to unavailability of power. The Hon’ble Apex Court held as under:
“There can be no doubt that the raw naphtha that was fed by SAIL into its plant was for the purpose and with the intention of manufacturing fertiliser and that it was only because of supervening circumstances, namely, the low, uncertain and fluctuating availability of power, that the reformed gas produced during the interim stage of manufacture had to be vented out. The benefit of the exemption notification is, therefore, available to SAIL in regard to the raw naphtha that it utilised in its plant for the manufacture of fertiliser but which, for reasons over which it had no control, did not, in fact, result in the manufacture of fertiliser but had, at the interim stage of reformed gas, to be vented out.”
VI. The Hon’ble Supreme Court in the case of Multimetals Ltd. V/s Assistant Collector, Central Excise [1992 (57) E.L.T. 209 (SC)] dealt with the question whether the duty referable to that portion which is lost also should get rebate while assessing for excise duty on the pipes and tubes of copper and copper alloys held as under:
“Rebate is to be equivalent to the duty already paid on copper and copper alloys in its crude form, that is to say on the input. The idea seems to be that to the extent of the duty paid on the raw material used exemption has to be given and that has no reference to what ultimately found part of the finished product. It is the duty paid on the input material that is relevant and not the duty referable to the ultimate component of the final product. So far as the manufacturer is concerned he has used copper and copper alloys of a particular quantity in the manufacture of pipes and tubes. The ‘manufacturing loss’ forms part of the raw material “used” in the manufacture though not reflected in the final product. The relief, as we understand the Notification, that has to be given to the manufacturer was in respect of the duty already paid on the raw material used in the manufacture of the final product. That is the relief has to be given to the extent of the duty paid on he input material and not with reference to the quantity which ultimately forms part ofi he final product.”
Hence, in view of the above, the exemption from BCD under Sr. No. 527A and 512 of NN 50/2017 is available to lithium-ion cells, and other inputs & parts used in the manufacture of battery packs of cellular mobile phones irrespective of whether the same get incorporated in the manufactured battery packs or are damaged or scrapped during manufacturing,
5.9 This office has issued a similar Ruling No. CAAR/ Del/ Samsung Display/ 22/ 2024/ 928 to 933 dated 04.06.2024 in the matter of M/s. Samsung Display Noida Private Limited wherein it was held that the importer Company is eligible to avail the exemption benefit under S. No. 5D(b) of the Notification No. 57/2017 in respect of inputs and parts for use in manufacture of mobile display assembly even when such inputs and parts get scrapped during the manufacturing process.
5.10 Reliance placed by TCD Dadri on Assistant Commissioner, Gadaq Sub-Division, Gadaq Vs. Mathapathi Basavannewwa [1995 (8) TMI 304 – SC] (‘Mathapathi Case’) and Commissioner of Customs (Import), Mumbai Vs. M/s. Dilip Kumar and Company & Ors. [2018 (7) TMI 1826 – SC/ (‘Dilip Kumar Case’) is unfounded. The Assistant Commissioner has erred in quoting the extract the Mathapathi Case in its letter dated 16.10.2024. In the Mathapathi Case, the Hon’ble Supreme Court while interpreting the relevant provision of Land Acquisition Act, 1894 along with the notification held that the provision was intended to mitigate hardship caused to the landowners by delays in making the award. The court reasoned that ”strict construction leads to unjust result, hardship to the owner and defeats legislative object.” This phrase clearly implies that the Court intended to liberally construe the interpretation of the Notification to avoid any unjust result and hardship to the assessee. On the contrary, the port authorities have misconstrued this judgment to conclude that “any hardship and inconvenience caused cannot be the basis to alter the meaning to the language employed by the legislation”. To this extent reliance on this judgment by jCD Dadri is erred and unfounded, as this Ridgment rather supports the proposiljon of die-Applicant.
5.11 With respect to the Dilip Kumar Case, the port authorities have emphasized on the fact that “statute cannot be interpreted on any presumption/assumption. A taxing statute has to be interpreted in the light of what is clearly expressed; it cannot imply anything which is not expressed”. To this extent, the Applicant in its submissions above has substantially established merits of the proposition under consideration. The Applicant is not intending to seek shelter of any presumption/ assumption, rather it has clarified the position of law through other judicial precedents that anything put to use during the process of manufacture is to be considered as material consumed during the manufacturing process.
5.12 Further, it is submitted that the Applicant agrees that it is trite law laid in the Dilip Kumar case that an exemption notification ought to be construed strictly to determine the applicability of the exemption provision. However, once the exemption becomes applicable then the provisions must be construed liberally as upheld in the Union of India Vs. Wood Papers Ltd., [1990 (47) E.L.T. 500 (S.C.)] (Woof Papers Case’) which was also followed by the Hon’ble Supreme Court in Para 45 and 46 of the judgement in Dilip Kumar Case relied on by the Ld. Assistant Commissioner. Applying the rule laid down in Wood Papers Case (as followed in Dilip Kumar Case) to the instant matter. Since the Applicant is eligible to avail the exemption benefit on lithium-ion cells, and other inputs & parts for use in manufacture of battery packs of cellular mobile phones under the Notification 50/2017. then as per liberal construction of the exemption notification it can be said that such imports which are for use in manufacturing of battery packs for, if they are damaged/ scrapped during the manufacturing process, will be eligible for exemption benefit.
6. On the basis of the discussions above and keeping the multiple important judgments delivered earlier, the answers to the questions raised by the applicant is answered as follows:
i. Whether benefit of concessional rate of duty under Sr. No. 527A and Sr. No. 512 of the NN 50/2017 shall be available:
(a) In case of import of lithium-ion cells, and other inputs & parts respectively for use in the manufacture of battery packs of cellular mobile phones?
Answer: Yes, it will be available.
(b) In respect of import of lithium-ion cells, and other inputs & parts respectively for use in manufacturing of battery packs of cellular mobile phone which get subsequently scrapped during the manufacturing process?
Answer: Yes, it will be available.
ii. If the answer to the Question No. I (b) above is in negative, whether the availed customs duty exemption is to be reversed in proportion to the sales value of the scrap, so generated?
Answer: Not Applicable.
7. I rule, accordingly.
