CESTAT New Delhi Quashes Duty Demand On Ismartu India, Holds CKD/SKD Reclassification Not Established

The New Delhi Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) on 18 May set aside the customs duty demand, confiscation order and penalty imposed on Ismartu India Pvt. Ltd., holding that the Department failed to establish that the imported goods were complete mobile phones in CKD/SKD condition.

President Justice Dilip Gupta and Technical Member P. Anjani Kumar reiterated that imported goods can be reclassified as finished articles under Rule 2(a) of the General Rules for Interpretation of the Customs Tariff only if the Customs Department discharges the burden of proving that they possess the essential character of the complete goods. The Bench held:

“....the provisions of rule 2(a) of GIR, the goods imported by the appellant are not parts of mobile phones, but complete mobile sets attracting duty under CTI 8517 14 00/CTI 8517 12 19”

The dispute arose from imports of mobile phone parts from Hong Kong, which the company declared under tariff headings applicable to parts of mobile phones. The Department, however, alleged that the consignments in fact constituted complete mobile phones in CKD/SKD condition and were liable to be classified under CTI 8517 14 00 / 8517 12 19, attracting higher duty.

A show cause notice was issued proposing reclassification, recovery of differential duty along with interest under Section 28AA of the Customs Act, and penalty under Section 112(a)(ii). The Department relied on Chartered Engineer reports stating that even after assembly, the goods would require batteries, cameras, software loading, testing and quality checks before becoming functional mobile phones.

The Tribunal held that under Rule 2(a), incomplete or unfinished articles can be treated as complete goods only if they acquire the essential character of the finished product. It found that the Department's evidence did not conclusively establish this threshold.

Rejecting the Revenue's stand, the Bench observed that mere resemblance of assembled parts to a mobile handset does not establish classification as a complete mobile phone, and reiterated that the burden of proof rested on the Department.

The Tribunal also relied on the Chartered Engineer's findings that the imported components constituted an incomplete mobile phone requiring further components and processes before becoming marketable. It observed:

“....the Chartered Engineer reported that the parts imported by the appellant form an incomplete mobile phone. It cannot, therefore, be said that the department could conclusively establish that the parts imported by the appellant have the essential characteristic of a complete or finished mobile phone.”

Accordingly, CESTAT set aside the reclassification order, customs duty demand, confiscation order and penalty imposed on the company.

For Appellant: Shri Tarun Gulati, senior advocate assisted by Shri Rupesh Gupta, Shri Tarun Jain, Ms. Kritika Tuteja and Ms. Shruti Kulkarni, advocates

For Respondent: Shri Shiv Shankar, authorized representative