Unlocking Phones Before Export Not ‘Use’: Supreme Court Backs Exporters, Upholds Duty Drawback Relief

The dispute arose from the denial of duty drawback claims to Avik Televentures Pvt. Ltd., an exporter of mobile phones, on the ground that the devices had been unlocked or activated before being exported. Customs authorities had treated such unlocking or activation as the phones having been “taken into use”, which would disqualify the exporter from availing duty drawback under Rule 3 of the Duty Drawback Rules.

Rule 3 lays down the basic eligibility condition for claiming duty drawback on exported goods. It provides that duty drawback is admissible only if the exported goods are new, unused, and have not been “taken into use” in India before export. The rule is intended to ensure that drawback benefits are granted only for goods meant for export and not for goods that have been consumed, commercially exploited, or used in the domestic market. If goods are found to have been used, even partially, prior to export, Customs can deny drawback. However, courts have consistently clarified that limited, technical, or preparatory steps such as testing, inspection, or configuration undertaken solely to make the goods export-ready do not amount to the goods being “taken into use” under Rule 3.

The Delhi High Court, in its judgment dated May 27, 2025, rejected this interpretation and held that unlocking or activating mobile phones is merely a technical configuration and does not amount to the goods being “taken into use”. The High Court had accordingly set aside a June 26, 2023 order of the Assistant Commissioner of Customs that had denied drawback benefits to the exporter.

While deciding the issue, the High Court examined whether limited acts such as switching on a phone, inserting a SIM card, or making a brief call for activation could be equated with actual use of the product. Relying on its earlier decision in AIMS Retail Services Private Limited (2023), the Court held that such steps do not constitute real use, do not diminish the value of the phone, and are carried out only to enable the device to function in a particular territory or network.

The Court also took note of India’s growing role in mobile phone manufacturing and assembly, observing that unlocking or activation enhances the utility of the device for overseas consumers by allowing seamless use across networks and countries. Such value addition, the Court held, cannot be used as a ground to deny exporters their statutory entitlement to duty drawback.

While allowing the writ petition, the High Court clarified that although unlocking or activation does not amount to “use” under the Duty Drawback Rules, individual claims would still be subject to scrutiny and processing by Customs in accordance with law.

With the Supreme Court refusing to interfere, the Delhi High Court’s interpretation of Rule 3, that unlocking or activating mobile phones prior to export does not amount to the goods being “taken into use”, now holds the field and provides significant clarity and relief to exporters in the sector.