CESTAT: Lithium-Ion Batteries Imported for Mobile Phone Manufacturing Attract 12% IGST, Not 18% or 28%
Pranav B Prem
The Customs, Excise, and Service Tax Appellate Tribunal (CESTAT), Principal Bench at New Delhi, comprising Justice Dilip Gupta (President) and Ms. Hemambika R. Priya (Technical Member), allowed the appeal filed by Samsung India Electronics Pvt. Ltd., holding that lithium-ion batteries imported for use in the manufacture of mobile phones would attract Integrated Goods and Services Tax (IGST) at 12% under Serial No. 203 of Schedule II to the IGST Rate Notification, up to March 31, 2020.
Background
Samsung India Electronics Pvt. Ltd., engaged in the manufacture of mobile phones, imported lithium-ion batteries specifically designed as per the requirements of various mobile phone models. Samsung discharged IGST at 12% on these imports under Serial No. 203 of Schedule II to the IGST Rate Notification dated June 28, 2017. However, a show cause notice was issued to the company by the Customs Department, alleging that lithium-ion batteries should be charged IGST at 28% (under Serial No. 139 of Schedule IV) up to July 26, 2018, and thereafter at 18% (under Serial No. 376AA of Schedule III), as the batteries were classifiable under Customs Tariff Item 8507 60 00.
The Principal Commissioner, accepting the Department's stand, held that the rules for interpreting Customs Tariff also apply to the IGST Rate Notification. Consequently, the more specific entries for lithium-ion batteries under CTI 8507 60 00 were held applicable, overriding the general entry for mobile phone parts under Serial No. 203.
Samsung, aggrieved by this decision, filed the present appeal along with other mobile manufacturers who faced similar demands. The primary issue before the Tribunal was whether lithium-ion batteries imported for use in the manufacture of mobile phones were rightly chargeable at 12% IGST.
Arguments and Analysis
Samsung contended that lithium-ion batteries are a vital component in mobile phones and are covered under Chapter 85. Since these batteries are used in the manufacture of mobile phones, they qualify as “parts” under Serial No. 203, which prescribes 12% IGST. The company argued that the entries in the IGST Rate Notification are not perfectly aligned with the Customs Tariff, and hence, the General Rules for Interpretation (GRI) of the Customs Tariff should not be rigidly applied while interpreting taxing entries under the IGST framework. It was further submitted that the taxing entry must be interpreted based on its plain language and in favor of the taxpayer if ambiguity exists.
Supporting Samsung's case, the Tribunal took note of a 2017 clarification by the Commissioner of Customs (ACC-Import), New Delhi, which clearly stated that battery packs imported as mobile phone parts for manufacturing purposes attract 12% IGST, while those imported as spares would be taxed at higher rates.
The Tribunal also referred to the 31st and 39th GST Council Meeting Agendas. The 31st Meeting confirmed that lithium-ion batteries used in mobile phone manufacturing attract 12% GST. The 39th Meeting recommended an increase from 12% to 18% for mobile phones and their parts to remove inversion, thereby reaffirming the earlier 12% classification.
Samsung further cited decisions of the Authority for Advance Ruling and earlier Tribunal rulings that recognized lithium-ion batteries used in mobile phone manufacturing as qualifying for concessional GST treatment under Serial No. 203.
The Department, however, argued that since lithium-ion batteries are classifiable under a specific tariff heading (8507 60 00), they should be taxed under the more specific entries in the IGST Notification—Serial Nos. 139 and 376AA. It maintained that once a good is classified specifically under the Tariff, it must be taxed accordingly under IGST by applying GRI principles. It also stated that post-import usage is not a relevant criterion for classification and rate determination.
Findings of the Tribunal
The Tribunal held that the IGST Rate Notification is a taxing notification and must be interpreted independently. It found that the Customs Tariff and IGST Rate Schedules are not perfectly aligned and thus interpretation tools like GRI can only be applied “so far as may be,” not absolutely.
It noted that the lithium-ion batteries fulfilled both criteria of Serial No. 203—they fall under Chapter 85 and are imported for manufacture of mobile phones. The Tribunal emphasized that the specific language of Serial No. 203 should prevail and that lithium-ion batteries, being integral and indispensable to mobile phones, clearly qualify as “parts.”
The Tribunal also rejected the Department’s argument that usage cannot be verified at the time of import. Relying on the Supreme Court's ruling in BPL Display Devices Ltd [2004 (174) E.L.T. 5 (S.C.)], it held that the term “for manufacture” includes “intended for manufacture.” Therefore, importers can declare their intended use, and classification must be based on that intent.
Finally, the Tribunal clarified that the IGST Rate Notification is not an exemption notification but a taxing one. Hence, if any ambiguity arises, it must be interpreted in favor of the taxpayer, as reiterated by the Supreme Court in Safari Retreats Pvt. Ltd [Civil Appeal No. 2948 of 2023 decided on 03.10.2024].
Verdict
Allowing Samsung’s appeal, the Tribunal held that lithium-ion batteries imported for use in the manufacture of mobile phones up to March 31, 2020, are classifiable under Serial No. 203 of Schedule II and are liable to IGST at 12%. The Tribunal rejected the Department's classification under Serial Nos. 139 and 376AA and directed that no penalty, interest, or redemption fine was leviable on Samsung in the absence of any misstatement or suppression.
Appearance
Shri B.L. Narasimhan, Ms. Nupur Maheshwari, Shri Siddhant Indrajit, Shri Ashwin Sundaram, Shri Kishore Kunal, Ms. Runjhun Pare, Shri Jayesh, Shri Srinivas Kotni, Shri Akshay Kumar and Ms. Madhumita Singh, Advocates for the Appellants
Shri S.K. Rahman, Authorized Representative for the Department
Cause Title: Samsung India Electronics Pvt. Ltd. & Ors. V. Principal Commissioner of Customs
Case No: Customs Appeal No. 50727 OF 2021
Coram: Justice Dilip Gupta [President], Ms. Hemambika R. Priya [Technical Member]
