In re Adit Infratel Private Ltd. (CAAR Delhi)
Summary: M/s Adit Infratel Private Ltd sought an advance ruling on whether lithium-ion cells imported for manufacturing battery or battery packs of cellular mobile phones would qualify for the concessional 5% Basic Customs Duty under Sr. Nos. 319, 320 and 321 of Notification No. 45/2025-Customs dated 24.10.2025 where the cells were damaged and subsequently scrapped during the manufacturing process. The applicant submitted that the expression “for use in manufacture” covered inputs put into the manufacturing process even where some cells were lost or scrapped as an inherent consequence of manufacturing, relying upon judicial precedents concerning manufacturing loss and the meaning of “for use”.
The applicant also relied upon the earlier CAAR ruling in M/s Sunwoda Electronics India Pvt. Ltd., which had allowed the benefit for lithium-ion cells subsequently scrapped during manufacturing. The jurisdictional Commissionerate opposed the claim, emphasizing that the concessional rate was conditional upon specified end-use under the Customs (Import of Goods at Concessional Rate of Duty or for Specified End Use) Rules, 2022 (IGCRD Rules, 2022). The Authority noted that Notification No. 45/2025-Customs makes the concession subject to the IGCRD Rules and that Rule 3(1)(i) defines “manufacture” by reference to emergence of a new product having a distinct nature, character, use or name. The Authority held that cells damaged or rejected during assembly or testing and sold as scrap do not result in emergence of the specified battery or battery pack and therefore fall within “unutilised or defective goods” under Rule 10 of the IGCRD Rules. The Authority distinguished the judicial precedents relied upon by the applicant and expressly disagreed with the earlier Sunwoda ruling.
It followed the reasoning in the CAAR Mumbai ruling concerning Tata Autocomp Gotion Green Energy Solutions Systems Ltd., where scrapped cells were treated as unutilised goods governed by Rules 10 and 11. Accordingly, the Authority ruled that the 5% concessional rate under Sr. Nos. 319, 320 and 321 was not available for lithium-ion cells subsequently scrapped during manufacturing. On the second question, it held that the benefit was required to be reversed under Rules 10 and 11, with differential duty and applicable interest, rather than being calculated by reference to the subsequent sale value of the scrap. The amount payable was linked to the duty applicable to the imported cells and the quantity and value assessed at import, with interest running from import until payment of the differential duty.
Cases Discussed
- State of Haryana Vs. Dalmia Dadri Cement Ltd. [2004 (178) E.L.T. 13 (S.C.)]
- J. K. Cotton Spinning & Weaving Mills Co. Ltd. v. The Sales Tax Officer, Kanpur and Anr. [1965 AIR SC 1310]
- 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.)]
- BPL Display Devices Ltd. V/s Commissioner of Central Excise, Ghaziabad [2004 (10) TMI 92 (SC)]
- Multimetals Ltd. V/s Assistant Collector, Central Excise [1992 (57) E.L.T. 209 (SC)]
- Union of India Vs. Wood Papers Ltd. [1990 (47) E.L.T. 500 (S.C.)]
- M/s. Sunwoda Electronics India Pvt. Ltd.
- M/s. Tata Autocomp Gotion Green Energy Solutions Systems Limited
FULL TEXT OF THE JUDGMENT/ORDER OF CUSTOMS AUTHORITY FOR ADVANCE RULINGS, NEW DELHI
M/s Adit Infratel Private Ltd, Plot No. 155F, Sector 7, IMT Manesar, Gurgaon-122051, having IEC No. 0509092012 and PAN AABCL6812B (hereinafter referred as the “applicant”) has filed an application dated 03.07.2026, seeking advance ruling under section 28H of the Customs Act, 1962, before the Customs Authority for Advance Rulings, New Delhi (CAAR, New Delhi in short). The application was accordingly registered under Serial No. 54/2026-27 dated 03.07.2026. The applicant has requested to determine whether benefit of concessional rate of duty under Sr. No. 319,320,321 of Notification 45/2025 -Customs dated 24.10.2025 shall be available in respect of import of lithium-iron cells for use in manufacturing of battery/battery packs which get subsequently scrapped during the manufacturing process under Customs Tariff Act, 1975.
1.1, The applicant in their application, submitted as follows:
1.2. That the Applicant is a Private limited Company and wants to import/export the goods and for this purpose, is having IEC 0509092012. The Applicant is also registered with GST department having registration no. 06AABCL6812B1Z0.
1.3 That the Applicant is engaged in manufacturing of battery/battery packs of various kinds. For manufacturing of battery packs, the Applicant imports Lithium-ion Cells, various inputs and parts. Further in relation to import of lithium-ion cells for use in the manufacture of battery or battery packs of various usage, the applicant avails the benefits under S.No. 319, 320 and 321 of the Notification No. 45/2025 dated 24.10.2025, (as amended by notification 02/2026 dated 01.02.2026) which provides for 5% rate of duty on Lithium-ion cells for use in manufacture of battery or battery packs. For the kind perusal of the authority, the relevant entry of Notification No. 45/2025 is reproduced below:
| Sr.No. | Chapter or Heading or Sub-heading or tariff item | Description of goods | Standard rate |
|---|---|---|---|
| 319 | 850760000 | Lithium-ion cell use in manufacture of battery or battery pack, other than those mentioned against S. No. 320 and 321: Provided that nothing contained in this S.No. shall have effect after the 31st March, 2028 |
5% |
| 320 | 8507 60 00 | Lithium-ion cells 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, 2028 |
5% |
| 321 | 850760000 | Lithium-ion cell for use in the manufacture of battery or battery pack of electrically operated vehicle or hybrid motor vehicle: Provided that nothing contained in this S.No. shall have effect after 31st March, 2028 |
5% |
1.4. It is imperative to highlight that the Applicant import lithium-ion cells solely for the purpose of use in manufacturing battery packs and not for any other purpose.
1.5. That these lithium-ion cells are put on manufacturing line where these are put through various manufacturing and testing process. The final products produced from the manufacturing line is the battery pack. That 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. Therefore, the Applicant is thus, filing the present application to have advance ruling on following issue.
(i) Whether benefit of concessional rate of duty under Sr. No. 319, 320 and 321 shall be available in respect of import of lithium-iron cells for use in manufacturing of battery packs of cellular mobile phone which get subsequently scrapped during the manufacturing process?
(ii) If the answer to question (i) is in negative, whether the availed customs duty exemption is to be reversed in proportion to the sales value of the scrap, so generated?
SUBMISSIONS OF THE APPLICANT
1.6.1. With regard to the question raised above it is important to made submission separately, therefore submission regarding question (i) is hereinafter:
(i) Whether benefit of concessional rate of duty under Sr. No. 319,320 and 321 shall be available in respect of import of lithium-iron cells for use in manufacturing of battery packs of cellular mobile phone which get subsequently scrapped during the manufacturing process
Before, proceeding to the averments it is apt to mention here that since there are three relevant entries and the applicant is engaged in the manufacture of batteries, which squarely fall within the scope of the aforesaid serial numbers depending upon their end use, the interpretation applicable to all such entries is substantially same. Therefore, for the sake of brevity and to avoid repetition or confusion, the present discussion and arguments are being made with reference to Serial No. 320 only, and the conclusions drawn therefrom shall apply, mutatis mutandis, to the other relevant entries as well.
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 45/2025 (as amended) is discussed in the following paragraphs:
1.6.2. 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.
1.6.3. 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.
1.6.4. 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;”
1.6.5. 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.
1.6.6. In exercise of the powers conferred by sub-section (1) of section 25 of the Customs Act, Central Government vide NN. 45/2025 (as amended) provided exemption from duty of Customs on import of certain goods, as mentioned therein, subject to the conditions specified in the said notification.
1.6.7. At the cost of repetition, Entry no. 319,320 and 321 of the exemption notification is reproduced as below:
| Sr. No. | Chapter or Heading or Sub-heading or tariff item | Description of goods | Standard rate |
|---|---|---|---|
| 320 | 8507 60.00 | Lithium-ion cells 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, 2028 |
5% |
From the perusal of the above entry, it comes out that Notification no. 45/2025, as amended, provides exemption on import of Lithium-ion Cells for use in the manufacture of battery or battery pack of various kind. Considering the Applicant is only engaged in manufacturing of battery packs, the Applicant submits that it will import lithium-ion cells, only for the purpose of use in the manufacturing battery packs as mentioned in the above serial number.
1.7. As discussed above, the Applicant imports lithium-ion cells, for use in manufacture of battery packs of cellular mobile phones. Further, said product 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. 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.
1.8. The question under the present application is in relation to lithium-ion cells, which if damaged during the manufacturing process and subsequently scrapped by the Applicant and thereby do not form part of a finished battery pack. Then whether the benefit provided in relation to lithium-ion cells, for use in manufacture of battery packs of cellular mobile phones shall be available in respect of lithium-ion cells which were imported for use in manufacture of battery packs of cellular mobile phones but get damaged in the manufacturing process
1.9. To answer the above question, it is imperative to analyse the scope of benefit provided under entry no. 320 of the exemption notification. The benefit is provided on import of lithium-ion cells, for use in manufacture of battery packs of cellular mobile phones. Now what needs to be analysed is whether lithium-ion cells 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.
1.10.1 At this juncture, the Applicant would like to highlight that benefit under the exemption notification is available in respect of lithium-ion cells, ‘for use’ (under S. No. 320 of the NN 45/2025) 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.
1.10.2. 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 lithium-ion cells which form part of the finished battery packs.
1.11. 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.
1.12 The intent of the Notification no. 45/2025 to provide concessional benefit where the goods have been used during the manufacture process is supported by the IGCR Rules 2022. 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.
1.12.1. 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 45/2025) 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.
1.13. 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 following paragraphs. Reliance 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 extracts of the judgment read as follows:
“I Ona 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.”
1.14.1. Hence, in view of the above, the Applicant is of the opinion that the exemption from BCD under Sr. No. 320 of NN 45/2025 is available to lithium-ion cells, 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.
1.14.2. Further reliance is placed upon the judgment of Hon’ble Supreme Court, wherein 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.
1.14.3. 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.”
1.15. In view of the above, it is the submitted that the lithium ion cells 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 45/2025 should be available. 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 goods. The above view has also been upheld by Hon’ ble Supreme courts in the case of BPL Display Devices Ltd. V/s Commissioner of Central Excise, Ghaziabad [2004 (10) TMI 92 (SC)] wherein it was 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.”
1.16.1 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 the input material and not with reference to the quantity which ultimately forms part of the final product.”
1.16.2. In view of the above discussion, the Applicant hereby submits that it has been settled beyond doubt by numerous judgements 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. 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.)].
1.17. 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, for use in manufacture of battery packs under S. No. 319,320 and 321 of the NN 45/2025 respectively. Then as per liberal construction of the exemption notification it can be said that the lithium-ion cells, which are for use in the manufacture of battery packs, even if they are damaged/scrapped during the manufacturing process, will be eligible for exemption under the aforesaid entries.
1.18.1 Hon’ble CAAR New Delhi has passed a favourable ruling on the identical issue in the matter of M/s. Sunwoda Electronics India Pvt. Ltd. The relevant extracts of the ruling are as follow:
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 cell 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. 1 (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.
1.18.2. Therefore, in view of the above submissions, it is humbly requested by the Applicant that benefit under entry no. 319,320 and 321 of the NN 45/2025 should be made available in respect of lithium-ion cells, which are damaged during the manufacturing process and are subsequently scrapped by the Applicant.
Question(ii) If the answer to question (i) is in negative, whether the availed customs duty exemption is to be reversed in proportion to the sales value of the scrap, so generated?
1.19. In light of the submissions made in relation to question (i) above, the Applicant understand that benefit under entry no. 319,320 and 321 of NN. 45/2025 should be available in respect of lithium-ion cells, which are damaged during the manufacturing process and are subsequently scrapped by the Applicant. However, if the answer to the question no. I(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.
1.20. 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.
1.21. The Applicant further prays for an opportunity of being heard in person.
2. Comments of the Port Commissionerate:
2.1 The comments of the Jurisdictional port Commissionerate have been received vide letter dated 17.08.2026 and are as follows:
2.2.1. Section 28-E (c) provides 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]
During the scrutiny of the application and supporting documents, it has been observed that applicant holds a valid IEC (0509092012) granted under Section 7 of the Foreign Trade (Development and Regulation) Act, 1992 (22 of 1992). Accordingly, the applicant i.e. M/s Adit Infratel Private Limited is eligible for seeking such advance ruling in terms of section 28-E (c) of the Customs act, 1962.
2.2.2. Section 28-I (2) provides as under:
(2) The Authority may, after examining the application and the records called for, by order, either allow or reject the application.
2.2.3. In this regard, it is submitted that as per available records, there is no such case pending before any officer of customs, the Appellate Tribunal or any Court nor has been decided by the Appellate Tribunal or any Court under ICD PPG & Other ICDs Commissionerate.
2.4. As per record, the Applicant is importing the Lithium Ion Cells from ICD PPG Port (import data attached) and filed application for Advance Ruling seeking clarification for availment of exemption benefit of concessional rate of duty under Sr. No. 319, 320, 321 of Notification No. 45/2025-Customs dated 24.10.2025 in respect of import of lithium-iron cells for use in manufacturing of battery/battery packs which get subsequently scrapped during the manufacturing process. The application for advance ruling is in relation to clause (b) of Section 28H (2) of the Customs Act, 1962.
2.5.1. Comments on the Merits of the Questions Raised in Application No. 54/2026-27 filed by M/s Adit Infratel Private Limited
The applicant has filed application before the Customs Authority for Advance Rulings (CAAR) on the following questions:
i. Question. Whether the benefit of concessional rate of duty under Sr. No. 319, 320, 321 of Notification No. 45/2025-Customs dated 24.10.2025 shall be available in respect of import of lithium-iron cells for use in manufacturing of battery/battery packs which get subsequently scrapped during the manufacturing process?
ii. Question. If the answer to Question No. (i) is in the negative, whether the availed customs duty exemption is to be reversed in proportion to the sales value of the scrap so generated?
2.5.2. In this regard, the matter has been examined in light of the description of the goods, submission/the manufacturing process disclosed by the applicant, the language of the exemption entry, the provisions of the Customs (Import of Goods at Concessional Rate of Duty or for Specified End Use) Rules, 2022 (‘IGCRD Rules, 2022′), and the relevant judicial and quasi-judicial precedents governing the scope of the expression “for use” in conditional exemption notifications.
Statutory and Regulatory Framework
Notification No. 45/2025-Customs dated 24.10.2025
2.6.1. Sr. Nos. 319, 320 and 321 of Notification No. 45/2025-Customs dated 24.10.2025 are cognate entries prescribing concessional/Nil rates of Basic Customs Duty on inputs, parts and raw materials used in the manufacture of batteries/battery packs. By virtue of the General Conditions of Notification No. 45/2025-Customs, all three entries are made subject to compliance with the Customs (Import of Goods at Concessional Rate of Duty or for Specified End Use) Rules, 2022 (“IGCR Rules, 2022”). Accordingly, the concessional benefit under Sr. Nos. 319, 320 and 321 is not an absolute or unconditional exemption but a conditional one, contingent upon actual end-use of the imported goods in the manufacture of battery/battery pack in accordance with the procedure prescribed under the IGCR Rules, 2022.
2.6.2. Customs (Import of Goods at Concessional Rate of Duty or for Specified End Use) Rules, 2022
-
- Rule 3(1)(i) defines “manufacture” to include a process resulting in the emergence of a new product having a distinct name, character or use, and includes processes ancillary to such emergence.
- Rule 5 requires the importer to use the imported goods for the specified purpose (here, manufacture of batteries/battery packs) and to maintain an account of receipt and consumption, to be submitted as a monthly statement (Form IGCR-3).
- Rule 10 “Re-export or clearance of unutilised or defective goods”: an importer holding goods that remain unutilised or are found defective must, within the period specified in the notification (or 6 months from import, extendable by 3 months for sufficient cause), either re-export the goods or clear them for home consumption on payment of applicable duty along with interest;
- Rule 10(3) specifically obliges payment of duty plus interest where the importer opts for home consumption of such unutilised/defective goods.
- Rule 11 provides for recovery of duty (with interest) where the imported goods are not proved to have been used for the specified purpose within the stipulated period, invoking the continuity bond executed by the importer at the time of import.
The IGCR Rules, 2022 contain no separate rule, tolerance limit, or de minimis allowance for normal manufacturing/process loss or scrap generated during conversion of the imported input into the final product — this absence is central to the CAAR’s reasoning discussed below.
Examination of the Legal Framework
2.7. At the outset, it is observed that the concessional rate under Sr. No. 319, 320, 321 of Notification No. 45/2025-Customs is available to lithium-iron cells “for use in the manufacture of battery or battery pack,” and is expressly subject to compliance with the IGCRD Rules, 2022.
2.8. Further, Rule 10(1) of the IGCRD Rules, 2022 requires the importer who has availed the benefit of a notification to use the imported goods in accordance with the conditions of the notification within the prescribed period, and confers upon the importer, in respect of “unutilised or defective goods,” an option to either re-export the goods or clear them for home consumption within that period. Rule 10(3) permits voluntary payment of the applicable duty along with interest for goods so cleared for home consumption. Rule 11 provides for recovery of duty, by invoking the continuity bond, of the differential between the standard rate and the concessional rate availed, together with interest under Section 28AA, computed from the date of import till the date of actual payment, in the event of failure to comply with Rule 10(1) or non-payment/short payment under Rule 10(3)/(4).
2.9. It is significant that neither the IGCRD Rules, 2022, nor Notification No. 45/2025-Customs, carves out a distinct category or separate quantification mechanism for goods that are lost, damaged or rendered scrap during the manufacturing process itself, as opposed to goods that simply remain unutilised in stock. Thus, in the absence of a dedicated rule for manufacturing-process scrap, such goods “are to be considered as unutilized or defective goods” for the purposes of Rule 10, since they are not incorporated in the final product and no tolerance or wastage-norm limit is prescribed under the Rules.
Application to the Present Facts
2.10.1. It is observed that the cells in question are, on the applicant’s own submission, issued for production but get scrapped during the manufacturing process on account of ordinary process/line losses, and are consequently sold as scrap rather than being incorporated into a finished battery or battery pack. Such cells do not result in the “emergence of a new product having a distinct nature or character or use or name” within the meaning of Rule 3(1)(i) of the IGCRD Rules, 2022, and therefore do not satisfy the definition of “manufacture” for the purpose of the exemption. The commercial reality is that the cells have been diverted, at the process stage, out of the stream of manufacture and into disposal as scrap, notwithstanding that this occurred without any intention on the part of the importer.
2.10.2. Such cells fall to be treated as “unutilised or defective goods” for the purposes of Rule 10(1) of the IGCRD Rules, 2022, in respect of which the importer’s remedy is confined to re-export within the prescribed period, or clearance for home consumption on voluntary payment of duty and interest under Rule 10(3).
Reply to Question No. (i)
2.11. In view of the foregoing, it is opined that the benefit of the concessional rate of duty under Sr. No. 319, 320, 321 of Notification No. 45/2025-Customs dated 24.10.2025 will not be available in respect of lithium-iron cells which get scrapped during the manufacturing process and are sold as scrap, as such cells fall within the category of unutilised or defective goods governed by Rule 10 of the IGCRD Rules, 2022, and their sale as scrap does not amount to their having been used in the manufacture of battery or battery pack.
Reply to Question No. (ii)
2.12.1. As regards the manner of reversal, it is seen that neither Notification No. 45/2025-Customs nor the IGCRD Rules, 2022 provides for calculating the duty liability on the basis of the sale value of the scrap. Rule 10(3) read with Rule 11 of the IGCRD Rules, 2022 lays down a clear method for this purpose. The amount to be recovered is the difference between the duty that would have been payable on the goods without the exemption and the duty actually paid at the time of import, along with interest at the rate notified under Section 28AA. This interest is to be calculated from the date of import of the goods on which the exemption was availed, up to the date the differential duty is actually paid. This method is based on the quantity and value of the goods as assessed at the time of import, and has no connection with the price later obtained on sale of the scrap.
2.12.2. The value fetched on sale of scrap is a separate commercial matter and does not affect the customs duty short-paid at the time of import. It is therefore held that the exemption benefit availed on the cells which turned into scrap during manufacture is to be reversed in full. The differential duty on the quantity of such cells, along with interest under Section 28AA from the date of import till the date of payment, is required to be paid. The exemption cannot be reversed only in proportion to the sale value of the scrap.
2.12.3. Any amount realised by the applicant on sale of the scrap to the E-waste agency, or otherwise, remains the applicant’s own commercial receipt and cannot be adjusted against, or reduce, the differential duty and interest payable under Rule 11.
2.13. Further, it has been observed that the similar questions have been raised by M/s Tata Autocomp Gotion Green Energy Solutions Systems Limited and CAAR, Mumbai vide order No. CAAR/Mum/ARC/112, 113/2025-26 dated 21.11.2025 (copy attached for reference) held that:-
a. Benefit will not be available under Entry 527B of the notification to the imported cells used in manufacture of battery or battery packs intended for use as replacements due to defects or under warranty conditions as the cell replacement or repair of an existing battery pack does not qualify the definition of manufacture for the reason that this will not produce new product.
b. Benefit will not be available under Entry 527B of the notification to the imported cells that fall obsolete during the manufacturing process and then the said cells are sold as scrap as the said cells i.e. not used in the manufacturing of the battery or battery pack and hence it will fall under the category of the unutilized goods which will be governed by the provisions of Rule 10(1), (3), (4) and 11 of IGCRD, 2022.
c. Benefit will not be available under Entry 527B of the notification to the imported cells that have been found to be defective post import and hence not issued to production as the defective goods are to be dealt with in accordance with provisions of Rule 10(1), (3), (4) and 11 of IGCRD, 2022; where the option either for re-export or clearance for home consumption were given after following due procedure.
d. The applicant would be required to pay back the benefit availed, and interest would be payable for the period starting from the date of import of the goods on which the exemption was availed and ending with the date of actual payment of the entire amount of the difference of duty.
3. Record of Personal Hearing:
During the course of personal hearing on 07.09.2026, the authorised representative Sh. Bharat Jain, Advocate appeared virtually and reiterated the facts already mentioned in the application. He further submitted that there is no further use of damaged/scrapped Lithium ion Cells. He requested that the case may be decided on merit.
4. Findings, Discussion & Conclusion:
4.1.1. Having examined the CAAR-1 application, the comments received from the jurisdictional Customs Commissionerate and the record of personal hearing and the applicable legal framework, I find the application to be valid in terms of the Customs Act, 1962 and the CAAR Regulations, 2021. I, therefore, allow the application and proceed to determine whether benefit of concessional rate of duty under Sr. No. 319,320,321 of Notification No. 45/2025 -Customs dated 24.10.2025 shall be available in respect of import of lithium-iron cells for use in manufacturing of battery/battery packs which get subsequently scrapped during the manufacturing process under Customs Tariff Act, 1975 on the basis of the information on record. The questions posed for advance ruling is:
“(i) Whether benefit of concessional rate of duty under Sr. No. 319, 320 and 321 shall be available in respect of import of lithium-iron cells for use in manufacturing of battery packs of cellular mobile phone which get subsequently scrapped during the manufacturing process?
(ii) If the answer to question (i) is in negative, whether the availed customs duty exemption is to be reversed in proportion to the sales value of the scrap, so generated?”
4.1.2. The applicant claims that benefit under Sr. No. 319, 320 and 321 of Notification No. 45/2025 -Customs dated 24.10.2025 should be available in respect of lithium-ion cells, which are damaged during the manufacturing process and are subsequently scrapped by the Applicant. However, the jurisdictional Commissionerate has opposed the same.
Statutory framework
4.2.1. Sr. No. 319, 320 and 321 of Notification No. 45/2025-Customs dated 24.10.2025, issued under Section 25(1) of the Customs Act, 1962, extend a concessional rate of 5% BCD to Lithium-ion cells “for use in the manufacture of battery or battery pack” of the respective categories specified therein as under:-
| Sr. No. | Chapter or Heading or Sub-heading or tariff item | Description of goods | Standard rate | Integrated Goods and Services Tax | Condition No. |
|---|---|---|---|---|---|
| 319 | 850760000 | Lithium-ion cell use in manufacture of battery or battery pack, other than those mentioned against S.No. 320 and 321: Provided that nothing contained in this S.No. shall have effect after the 31st March, 2028 |
5% | — | 8 |
| 320 | 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, 2028 | 5% | — | 3 |
| 321 | 850760000 | Lithium-ion cell for use in the manufacture of battery or battery pack of electrically operated vehicle or hybrid motor vehicle: Provided that nothing contained in this S.No. shall have effect after the 31st March, 2028 | 5% | — | 4 |
It is obvious that benefit of concessional rate is conditional and end-use based: and not an absolute or unconditional. By virtue of the General Condition 3 of Notification No. 45/2025-Customs dated 24.10.2025, availment of the concession is expressly made subject to compliance with the Customs (Import of Goods at Concessional Rate of Duty or for Specified End Use) Rules, 2022 (herein after referred as the IGCRD Rules, 2022)
4.2.2. I note that the IGCRD Rules, 2022 constitute a complete, self-contained procedural code prescribed for administering Import of Goods at Concessional Rate of Duty or for Specified End Use.
4.2.2.1. Rule 3(1)(i) defines “manufacture” as under:-
“Manufacture” means the processing of raw materials or inputs by the importer in any manner that results in emergence of a new product having a distinct nature or character or use or name; and the term “manufacturer” shall be construed accordingly;
4.2.2.2. Rule 5 obliges the importer to use the imported goods for the specified purpose (here, manufacture of batteries/battery packs) and to maintain and submit a monthly account of receipt and consumption. Rule 5 is reproduced herein under for reference:-
“5 Procedure to be followed. – (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.”
4.2.2.3. Rule 10 deals with goods that remain “unutilised or defective,” requiring the importer to re-export such goods or clear them for home consumption on payment of duty within the prescribed period, permitting voluntary payment of duty and interest for such clearance. Rule 10 is reproduced herein under for reference:-
“10. Re-export or clearance of unutilised or defective goods. – (1) The importer who has availed the benefit of a notification shall use the goods imported in accordance with the conditions mentioned in the concerned notification within the period and with respect to unutilised or defective goods, so imported, the importer shall have an option to either re-export or clear the same for home consumption, within the said period, namely —
(i) within the period specified in the notification;
(ii) within six months from the date of import, where the time period is not specified in the notification:
Provided that, the said period of six months can be further extended by the jurisdictional Commissioner for a period not exceeding three months, if sufficient reason is shown that the causes for not conforming to the time period were beyond the importer’s control,
(2) Any re-export of the unutilised or defective goods referred to in sub rule (1) shall be recorded by the importer in the monthly statement by providing the details of necessary export documents: Provided that the value of such goods for re-export shall not be less than the value of the said goods at the time of import.
(3) The importer who intends to clear unutilised or defective goods for home consumption shall have an option of voluntary payment of applicable duty along with interest on the common portal and the particulars of such clearance and the duty payment shall be recorded by the importer in the monthly statement.
(4) The importer shall have an option to clear the capital goods imported, after having been used for the specified purpose, on payment of duty equal to the difference between the duty leviable on such goods but for the exemption availed and that already paid, if any, at the time of importation, along with interest, at the rate fixed by the notification issued under section 28AA, on the depreciated value allowed in straight line method as under —
i for every quarter in the first year @ 4%;
ii. for every quarter in the second year @ 3%;
iii. for every quarter in the third year; @ 3%;
iv. for every quarter in the fourth and fifth year @ 2.5%;
v. and thereafter for every quarter @ 2%.
Explanation. – (1) For the purpose of computing rate of depreciation under this rule for any part of a quarter, a full quarter shall be taken into account.
(2) The depreciation shall be allowed from the date when the capital goods imported have come into use for the purpose as laid down in the notification, upto the date of its clearance.
(5) The importer shall have the option of voluntary payment of the duty along with interest, through the common portal and the particulars of such clearance and the duty payment shall be recorded in the monthly statement.”
4.2.2.4. Rule 11 provides for recovery, through the continuity bond, of the differential duty together with interest under Section 28AA where the goods are not proved to have been used for the specified purpose. Rule 11 is reproduced herein under for reference:-
“11. Recovery of duty in certain case. — (1) In the event of any failure on the part of the importer to comply with the conditions mentioned in sub-rule (1) of rule 10 or where the payment referred in sub-rules (3) and (4) of rule 10 is not paid or short paid, the Deputy Commissioner of Customs or, as the case may be, Assistant Commissioner of Customs having jurisdiction over the premises where the imported goods shall be put to use for manufacture of goods or for specified end use or for rendering output service shall take action by invoking the Bond to initiate the recovery proceedings of an amount as under
a. in case of a notification that provides a duty exemption, equal to the difference between the duty leviable on such goods but for the exemption and that already paid, if any, at the time of importation, along with interest, at the rate fixed by notification issued under section 28AA, for the period starting from the date of import of the goods on which the exemption was availed and ending with the date of actual payment of the entire amount of the difference of duty that he is liable to pay.
b. in cases where the notification is other than one that provides an exemption benefit, an amount equal to the assessable value of the goods being imported.
(2) Notwithstanding anything contained in these rules in relation to removal and processing of imported goods for job-work, the importer shall be responsible for ensuring that the said goods are used in accordance with the purposes provided in the notification and in the event of failure to do so, the Deputy Commissioner of Customs, or, as the case may be, the Assistant Commissioner of Customs having jurisdiction over the premises where the imported goods shall be put to use for manufacture of goods or for specified end use or for rendering output service shall take action in accordance with these rules, without prejudice to any other action which may be taken under the Act, rules or regulations made thereunder or under any other law for the time being in force.”
4.3. I note that Rule 3(1)(i) of the IGCRD Rules, 2022 defines “manufacture,” for the purposes of the exemption at issue, as a process resulting in the emergence of a new product having a distinct nature or character or use or name. A lithium-ion cell that is damaged or rejected on the assembly or testing line, and is consequently removed from the production stream and sold as scrap, does not result in the emergence of any such new product. In terms of Rule 3(1)(i), it has not, been used “in the manufacture” of a battery or battery pack; it has, at best, been consumed in an operation that failed to produce the specified article. Such cells fall to be treated as “unutilised or defective goods” for the purposes of Rule 10(1) of the IGCRD Rules, 2022, in respect of which the importer’s remedy is confined to re-export within the prescribed period, or clearance for home consumption on voluntary payment of duty and interest under Rule 10(3).
4.4. The IGCRD Rules, 2022, in substance, contemplate only two outcomes for goods availed of concessional-rate benefit: either they result in manufacture of the specified final product, in which case the concession stands finally availed, or they do not, in which case Rule 10 (Re-export or clearance of unutilised or defective goods) applies. The Rules does not lay down any category for goods issued to production that fail, on account of process loss, to result in the specified manufacture. In this statutory context, “unutilised or defective goods” in Rule 10 must accordingly be read as goods not resulting in the specified manufacture — and not confined to its narrowest sense of goods never issued to production. Therefore, the lithium-ion cell damaged and scrapped during the manufacturing process, should be dealt with under Rule 10 read with Rule 11 of the IGCRD Rules, 2022.
4.5. I note that the neither the IGCRD Rules, 2022, nor Notification No. 45/2025-Customs prescribe no tolerance limit, wastage norm or de minimis allowance for ordinary process loss. Where the Rules and Notifications are silent on any such allowance, such goods “are to be considered as unutilized or defective goods” for the purposes of Rule 10 of the IGCR Rules, 2022.
4.6. The applicant has relied upon various judicial precedents in support of his contentions. However, upon examinations of the facts and circumstances of the present case, I find that those precedents are distinguishable on facts and circumstances therefore does not advance the applicant’s case.
4.7. Precedent: Customs advance ruling of M/s. Tata Autocomp Gotion Green Energy Solutions Systems Ltd.
I find that the Customs Authority for Advance Rulings, Mumbai, in M/s. Tata Autocomp Gotion Green Energy Solutions Systems Ltd. [Order No. CAAR/Mum/ARC/112, 113/2025-26 dated 21.11.2025], on facts materially identical to the present case, has held that “imported cells which “fall obsolete during the manufacturing process and then the said cells are sold as scrap as the said cells “not used in the manufacturing of the battery or battery pack” and hence it will fall under the category of the unutilized goods whch will be fall to be governed by the provisions of Rule 10(1), (3), (4) and Rule 11 of the IGCRD Rules, 2022. The applicant would be required to pay back the benefit availed and interest would be payable for the period starting from the date of actual payment of the entire amount of the difference of duty.
4.8. I find that the applicant also relied upon the CAAR Ruling in respect of M/s. Sunwoda Electronics India Pvt. Ltd. For the reasons above, I respectfully disagree with the CAAR Ruling in respect of M/s. Sunwoda Electronics India Pvt. Ltd.
4.9. For the foregoing reasons, the benefit of the concessional rate of 5% BCD under Sr. No. 319, 320 and 321 of Notification No. 45/2025-Customs dated 24.10.2025 is not available in respect of lithium-ion cells that are damaged or rendered scrap during the manufacturing process and are consequently not incorporated in a finished battery or battery pack. Such cells are to be treated as “unutilised or defective goods” within the meaning of Rule 10 of the IGCR Rules, 2022.
4.10.1. On the second question, Rule 10(3) read with Rule 11 provides the method of computation in case of unutilized or defective goods which is equally applicable for scrap/damaged goods. Rule 11(a) lays down that:-
“a. in case of a notification that provides a duty exemption, equal to the difference between the duty leviable on such goods but for the exemption and that already paid, if any, at the time of importation, along with interest, at the rate fixed by notification issued under section 28AA, for the period starting from the date of import of the goods on which the exemption was availed and ending with the date of actual payment of the entire amount of the difference of duty that he is liable to pay;”
4.10.2. Hence, the amount to be recovered is the difference between the duty that would have been payable on the goods without the exemption and the duty actually paid at the time of import, along with interest at the rate notified under Section 28AA. This interest is to be calculated from the date of import of the goods on which the exemption was availed, up to the date the differential duty is actually paid. This method is based on the quantity and value of the goods as assessed at the time of import, and has no connection with the price later obtained on sale of the scrap.
4.10.3. The price subsequently realised on sale of scrap is a matter of the applicant’s own commercial arrangement and bears no statutory or logical connection to the customs value or quantity of the cells as imported. It is therefore held that the exemption benefit availed on the cells which turned into scrap during manufacture is to be reversed in full, The exemption cannot be reversed only in proportion to the sale value of the scrap.
4.11. For the reasons recorded in the foregoing discussion and findings, the answers to the questions raised by the applicant are as follows:-
Question (i): Whether benefit of concessional rate of duty under Sr. No. 319, 320 and 321 shall be available in respect of import of Lithium-iron cells for use in manufacturing of battery packs of cellular mobile phone which get subsequently scrapped during the manufacturing process?
Answer: No. The benefit of concessional rate of duty under Sr. No. 319, 320 and 321 shall not be available in respect of import of lithium-iron cells for use in manufacturing of battery packs of cellular mobile phone which get subsequently scrapped during the manufacturing process.
Question (ii): If the answer to question (i) 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: The availed customs duty exemption is to be reversed as per Rule 10 read with Rule 11 of the IGCR Rules, 2022.
5. I rule accordingly –
