Delhi High Court Allows Duty Drawback on Unlocked Mobile Phones
Justices Prathiba M. Singh and Dharmesh Sharma of the Delhi High Court has ruled that merely unlocking or activating a new mobile phone by disabling the “regional lock,” a restriction imposed by original equipment manufacturers to limit usage to a specific geographical location, does not render the mobile phone a “used” good.
The issue before the court was whether unlocking regionally locked mobile phones before export qualifies as ‘taking into use’ under Clause (i) of the second proviso to Rule 3(1) of the Drawback Rules, thereby disqualifying exporters from claiming duty drawback under the Customs Act, 1962, and the Customs and Central Excise Duties Drawback Rules, 2017.
The petitioners, engaged in the export of mobile phones, argued that unlocking does not amount to actual use but merely makes the phones ‘ready for use.’ They contended that the intent behind the rule is to prohibit drawback on second-hand or used goods and that a phone is only ‘taken into use’ when connected to a network and operated by an end-user.
The Customs Department rejected the drawback claims, asserting that unlocking the phones constitutes ‘taking into use’ after manufacture, rendering them ineligible for the benefit. However, the High Court interpreted the term ‘taken into use’ dynamically, stating that its meaning varies across industries. The court observed that, given the multitude of functions a mobile phone can perform, mere unlocking cannot be equated with usage. The ruling emphasized that such configurations are necessary to facilitate global usability and should not disadvantage exporters.
With this decision, the court reaffirmed that exporters cannot be denied duty drawback under prevailing laws. The petitioners were represented by V Lakshmikumaran, along with Yogendra Aldak, Agrim Arora, and Sumit Khadaria from Lakshmikumaran and Sridharan Attorneys & Mr. Rohit Guptaled and represented the Petitioner in batch of petitions before the High Court of Delhi.