ALO Law Office- IDT Tax I Arbitration I Litigation
Date: 29.12.2025
CESTAT Mumbai Sets Aside Customs Order Denying Duty Drawback on Activated Mobile Phones
This Article has been written by Shri Ravi Shekhar Jha, Advocate based in New Delhi. The views expressed are based on his interpretation of the law. He can be reached at his email id intelconsul@gmail.comor on his Mobile +91-9999005379.
In a landmark decision, the Customs, Excise & Service Tax Appellate Tribunal (CESTAT), Mumbai, has delivered a significant judgment in favor of M/s Arete Exim, a Rajkot-based proprietary concern, by setting aside the order of the Commissioner of Customs (Export), Air Cargo Complex, Mumbai. The case revolved around the denial of duty drawback claims on the export of activated mobile phones, which were alleged to have been “taken into use” prior to export. β
Background of the Case
The dispute originated from a consignment exported by M/s Arete Exim in December 2019, which included activated Samsung mobile phones and non-activated Redmi mobile phones. β The Special Intelligence and Investigation Branch (SIIB) of the Air Cargo Complex, Mumbai, conducted an investigation and concluded that the activated mobile phones were “taken into use” before export, making them ineligible for duty drawback under Rule 3(1) of the Customs and Central Excise Duties Drawback Rules, 2017. β Subsequently, a show-cause notice was issued in March 2024, proposing recovery of βΉ1.57 crore in duty drawback, along with interest and penalties totaling βΉ11.6 crore.
Key Arguments and Legal Precedents
During the appeal hearing, the counsel for the appellant, argued that the issue had already been settled by the Hon’ble Delhi High Court in the case of AIMS Retail Services Pvt. β Ltd. & Others vs. Union of India & Others. β The High Court had ruled that unlocking or activating mobile phones to make them usable in a specific geographical region does not constitute “taken into use” under the Drawback Rules. β The court also quashed the CBIC’s clarificatory circular that had formed the basis of the customs department’s claim. β
The Delhi High Court’s judgment was upheld by the Hon’ble Supreme Court, which dismissed the Special Leave Petition (SLP) filed by the customs department, thereby affirming the High Court’s decision. β
CESTAT’s Observations
The CESTAT Mumbai bench, comprising Hon’ble Judicial Member and Hon’ble Technical Member, thoroughly examined the case records and the precedent set by the Delhi High Court. β The bench observed that the activation of mobile phones is merely a configuration process and does not amount to “use” as defined under the Drawback Rules. β The tribunal also noted the unreasonable delay of over four years in issuing the show-cause notice, which lacked proper justification. β
Final Verdict
In its final order, the CESTAT Mumbai allowed the appeal, setting aside the order passed by the Commissioner of Customs (Export). β The tribunal ruled that M/s Arete Exim is eligible to retain the duty drawback on the disputed exports made between May 2019 and December 2019, along with consequential benefits. β The show-cause notice issued in March 2024 was also quashed due to the unjustifiable delay. β
Implications for Exporters
This judgment is a significant win for exporters, as it reinforces the principle that mere activation or configuration of products does not render them “used” under the Drawback Rules. β It also highlights the importance of adhering to reasonable timelines in issuing show-cause notices, ensuring fairness in adjudication processes. β
Exporters can take solace in the fact that the judiciary continues to uphold their rights and provide clarity on complex regulatory issues. This case serves as a reminder of the importance of challenging unjustified claims and relying on established legal precedents to protect their interests.
Conclusion
The CESTAT Mumbai’s decision in favor of M/s Arete Exim is a milestone in the realm of customs law, providing much-needed clarity on the interpretation of “taken into use” under the Drawback Rules. It underscores the judiciary’s role in safeguarding the rights of exporters and ensuring that regulatory authorities act within the bounds of the law. This judgment will undoubtedly serve as a guiding precedent for similar cases in the future, fostering a fair and transparent trade environment.
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Source: CESTAT Mumbai
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