Sangeetha Prathap

The Customs Authority for Advance Rulings (CAAR), Mumbai, has held that lithium-ion cells imported under Entry 527B of Notification No. 50/2017-Customs will not be eligible for concessional duty where such cells are used as replacement parts in battery packs, become scrap during the manufacturing process, or are rejected due to defects after import. The Authority ruled that the exemption is strictly linked to actual use of the imported cells in the manufacture of new batteries or battery packs for electrically operated or hybrid motor vehicles, and any quantity of cells that does not fulfil this condition must attract duty along with interest.

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The applicant, Tata Autocomp Gotion Green Energy Solutions Systems Limited, a joint venture engaged in manufacturing EV battery packs, imports lithium-ion cells and avails the concessional duty under Entry 527B on the basis that the goods are used to produce battery packs for EVs. While the exemption was undisputed for cells directly utilised in production, the company sought clarity on three commercially recurring scenarios: cells used to replace defective parts under warranty in already manufactured battery packs, cells scrapped due to damage during the production process, and cells rejected upon import due to quality non-compliance before entering the assembly line. The applicant argued that since all imports were made with the intention of manufacture, and since scrap and replacements were inherent to industrial manufacturing, the exemption should continue to apply. It also questioned the starting point for computation of interest in cases where duty becomes payable.

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CAAR examined the statutory conditions under the Customs (Import of Goods at Concessional Rate of Duty) Rules, 2022 (IGCRD Rules) and held that the exemption cannot be extended to cells used merely as replacements because the activity does not amount to “manufacture,” as defined under Rule 3(1)(i), which requires the emergence of a new product with a distinct name, character or use. The Authority reasoned that replacing cells in a previously manufactured battery pack does not result in the creation of a new product, and therefore the exemption benefit cannot continue in such situations. For cells that become scrap during the manufacturing process, the Authority held that the Rules do not recognise “process loss” or “scrap” as a permitted category under concessional duty. Instead, such scrap is treated as “unutilised or defective goods” requiring re-export or duty payment with interest, as per Rule 10. Similarly, cells that fail quality checks immediately after import were held to be defective goods that were never put to use for manufacture, and therefore outside the eligibility of the exemption.

CAAR also rejected the contention that interest should accrue only after the lapse of six months from the date of import, noting that Rule 11 requires interest to be calculated from the date of import until payment of duty where exemption conditions are later found to be unfulfilled. The Authority further declined to apply favourable outcomes from rulings cited by the applicant—including Samsung Display and Sunwoda Electronics—observing that advance rulings bind only the parties involved and jurisdictional officers in those specific matters, and that the factual matrix in the present application was not comparable. It reiterated that the exemption is conditional upon actual utilisation of goods in the manufacture of battery packs, and intention alone cannot substitute compliance.

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Accordingly, CAAR concluded that lithium-ion cells used as warranty replacements, scrapped during production, or found defective after import do not fall within the statutory scope of Entry 527B, and that the importer is required to pay duty along with interest from the date of import in all such cases. The ruling definitively establishes that the concessional duty is available only where the imported cells are utilised in the manufacture of a new battery or battery pack for EVs or hybrid vehicles, and not for any secondary or incidental usage.

Applicant’s Name: Tata Autocomp Gotion Green Energy Solutions Systems Ltd.