Mumbai CESTAT Quashes Customs Demands On SOL Mobiles, Says Phone Activation Is “Configuration”, Not “Use”

On 12 May, the Mumbai Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) set aside the customs demands and penalties on SOL Mobiles Private Limited and its Vice-President (Finance & Accounts) Manjit Jha, holding that unlocking and activating mobile phones before export amounted only to “configuration” and not “use” under the Customs and Central Excise Duties Drawback Rules.

Judicial Member S.K. Mohanty and Technical Member M.M. Parthiban held that the customs proceedings could not survive in view of the Delhi High Court's ruling in AIMS Retail Services Pvt. Ltd. & Anr. v. Union of India & Ors., which the Supreme Court later left undisturbed.

The Bench stated that, “...consequent action of alleged mis-declaration of export product, mis-representation and suppression by the appellants exporter does not survive....”

SOL Mobiles traded and exported mobile phones of brands including Samsung, Redmi, Oppo, Honor and Motorola. The company procured the phones from authorised channel partners in India and exported them through the Mumbai Air Cargo Complex.

During 2018-19, the exporter filed 112 shipping bills for export of mobile phones and claimed duty drawback benefits for 46 shipping bills. The Special Investigation and Intelligence Branch (SIIB-X) initiated an investigation after a CBIC clarification dated 25 September 2020 raised questions over the admissibility of drawback on “unlocked/tested” mobile phones exported by merchant exporters.

According to the Department, the company opened the original packaging of the phones before export, activated the devices by placing calls, changing language settings or flashing software, removed local SIM cards and then repacked the phones for export. It relied on Samsung “Regional Lock Guide” booklets, which stated that unlocking was necessary for use outside India.

The Department also alleged that these actions amounted to “use” of the phones prior to export since manufacturing and packing had already been completed. It issued a show cause notice proposing confiscation of goods worth about Rs. 28 crore, denial of drawback benefits and imposition of penalties on allegations of misdeclaration and suppression.

The adjudicating authority later confiscated the exported goods, allowed redemption on payment of a fine of Rs. 2.7 crore and imposed separate penalties running into crores on the company and its executive.

The Tribunal noted that the Delhi High Court had categorically held in AIMS Retail Services that unlocking and activating mobile phones to enable usage outside India merely constituted “configuration” of the product and did not amount to the goods being “taken into use” under the drawback rules.

The Bench further observed that the Supreme Court dismissed the Department's appeal against the Delhi High Court judgment and later rejected the review petition, thereby affirming the legal position. It then held that the allegations of misdeclaration, suppression and wrongful drawback claim could not survive.

Accordingly, the CESTAT set aside the confiscation of goods, denial of duty drawback benefits, redemption fine and penalties imposed on the appellants and granted consequential relief.

For Appellant: Shri Anupam Dighe, Advocate

For Respondent: Shri Jitesh Kumar Jain, Authorised Representative