CESTAT rules activated mobile phones eligible for drawback, quashes customs penalties on SOL Mobiles.

May 12, 2026 : The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Mumbai has set aside a massive customs penalty and confiscation order passed against mobile phone exporter SOL Mobiles Private Limited and its senior executive, holding that unlocking and activating mobile phones before export does not amount to “use” of the product under duty drawback rules.

In a significant ruling for the electronics export industry, the tribunal ruled that customs authorities could not deny duty drawback benefits or impose penalties merely because mobile phones were activated, configured, or tested before export for overseas functionality. The decision follows earlier judgments of the Delhi High Court and the Supreme Court in the AIMS Retail Services litigation, which had already settled the legal position on the issue.

The appeals were filed by SOL Mobiles Private Limited and its Vice-President (Finance and Accounts), Manjit Jha, challenging an Order-in-Original dated September 30, 2024 passed by the Commissioner of Customs (Export), Air Cargo Complex, Mumbai. The commissioner had confiscated exported goods valued at nearly Rs. 28 crore, rejected drawback claims, and imposed heavy redemption fines and penalties under Sections 113(i), 113(ia), 114(iii), and 114AA of the Customs Act, 1962.

According to the case records, SOL Mobiles was engaged in trading and exporting branded mobile phones including Samsung, Redmi, Oppo, Honor, and Motorola devices. The company procured the phones locally from authorized Indian distributors and exported them through Mumbai Air Cargo Complex. Customs authorities initiated an investigation into 46 shipping bills relating to exports made during 2018-19 after a clarification issued by the Central Board of Indirect Taxes and Customs (CBIC) in September 2020 questioned the admissibility of drawback benefits on “unlocked” or “tested” mobile phones exported by merchant exporters.

The Special Investigation and Intelligence Branch (SIIB-X) alleged that the exporter had opened the original packaging of the phones, activated the handsets by inserting SIM cards, placing calls, changing language settings, or flashing software, and then repacked them before export. Customs authorities argued that these activities amounted to the phones being “taken into use” after manufacture, thereby disqualifying them from duty drawback benefits under the Customs and Central Excise Duties Drawback Rules, 2017.

The department further alleged that the exporter suppressed material facts and misdeclared the nature of exported goods, exposing the consignments to confiscation under Section 113 of the Customs Act. The adjudicating authority subsequently imposed redemption fines of Rs. 2.7 crore and separate penalties running into crores of rupees on both the company and its executive.

Before the tribunal, counsel for the appellants argued that the controversy had already been conclusively decided by the Delhi High Court in AIMS Retail Services Pvt. Ltd. v. Union of India, where the court had quashed the CBIC clarification dated September 25, 2020. The High Court had ruled that unlocking or activating mobile phones for use outside India was merely a process of “configuration” and did not amount to the products being “taken into use.” The tribunal was informed that the Supreme Court had later dismissed the Union government’s appeal as well as a subsequent review petition, thereby affirming the High Court’s interpretation.

The tribunal also examined an earlier writ petition filed before the Bombay High Court by SOL Mobiles and another exporter, Kisha Telelinks Private Limited. The Bombay High Court had disposed of the petition in October 2025, directing customs authorities to process drawback claims without relying on the impugned CBIC circular. The CESTAT clarified that the writ proceedings had already concluded and there was no parallel litigation pending before another forum.

While deciding the appeals, the tribunal relied heavily on the Delhi High Court’s findings and reproduced its observations. The High Court had categorically held: “The unlocking/activating of the mobile phones as per the procedures adopted by the Petitioners herein is mere ‘Configuration’ of the product to make it usable and does not constitute ‘taken into use’ under proviso to Rule 3 of the Duty Drawback Rules.”

The bench comprising Judicial Member S.K. Mohanty and Technical Member M.M. Parthiban observed that once the legal basis of the CBIC clarification itself had been quashed, the allegations of misdeclaration, suppression, and wrongful export could not survive. The tribunal noted that the exporter’s actions such as software flashing, language setting updates, and SIM-based activation were merely preparatory configurations necessary for enabling overseas use of the devices and did not transform the nature of the goods into “used” products.

The tribunal further recorded that the Supreme Court had dismissed the department’s Special Leave Petition and later rejected its review plea, thereby giving finality to the legal position. In light of those judgments, CESTAT concluded that the confiscation of goods and imposition of penalties “does not stand the legal scrutiny.”

Setting aside the impugned order in entirety, the tribunal allowed the appeals with consequential relief in accordance with law.

The ruling is expected to have wide implications for India’s electronics export sector, especially merchant exporters dealing in smartphones and electronic devices that require region-specific activation or software configuration before shipment abroad. The judgment reinforces that technical configuration necessary for international usability cannot automatically be equated with “use” under customs drawback law. It also limits the scope of departmental action based on administrative clarifications that exceed statutory provisions.

The decision may further influence pending disputes involving drawback claims in the electronics and telecom sector, where customs authorities have relied on the 2020 CBIC clarification to deny export incentives or initiate penal proceedings. By affirming that such activation processes do not amount to post-manufacture use, the tribunal has provided greater legal certainty to exporters operating in cross-border electronics trade.

Case Reference : SOL Mobiles Private Limited v. Commissioner of Customs, Air Cargo Complex, Mumbai & Manjit Jha v. Commissioner of Customs, Air Cargo Complex, Mumbai, Customs Appeal Nos. 87854 and 87855 of 2024, decided on May 12, 2026 by CESTAT Mumbai.