No Customs Duty Exemption For Lithium-Ion Cells Used As Replacements, Scrap Or Defective Stock: CAAR

In a significant decision affecting electric vehicle (EV) battery manufacturers and assemblers, the Customs Authority for Advance Rulings (CAAR), Mumbai, has held that concessional customs duty benefit under Entry 527B of Notification No. 50/2017-Customs is not available for lithium-ion cells that are used as replacement parts, become scrap during the manufacturing process, or are found defective after import. The applicant, a joint venture engaged in manufacturing EV battery packs, imports lithium-ion cells and avails the concessional duty under Entry 527B which allows a reduced customs duty rate on cells imported for use in manufacturing battery packs for electric or hybrid vehicles. Tata Autocomp approached CAAR seeking clarity on whether the exemption would continue to apply in three recurring but commercially unavoidable scenarios—replacement of defective cells in battery packs, scrapping of cells during the battery assembly process, and rejection of cells due to quality issues immediately after import. The company also sought a clarification on how interest should be computed if duty becomes payable. The imported lithium-ion cells undergo a series of processes including OCV grading, welding, module assembly and integration into battery packs. Some cells get damaged or become obsolete during this process. Others are rejected during pre-production quality checks for failing to meet technical parameters. These defective or surplus cells are eventually disposed of through authorised e-waste handlers. Tata Autocomp argued that since these goods were imported with the intention to use them in manufacture, and since process loss or scrap is a normal part of industrial production, the concessional duty should still apply. CAAR, however, took a strict view of the statutory conditions under the Customs (Import of Goods at Concessional Rate of Duty) Rules, 2022. On the issue of replacement cells, the Authority held that substituting defective cells in already manufactured battery packs does not amount to “manufacture” because no new product emerges. The exemption under Entry 527B, being expressly tied to the condition of using imported cells in the manufacture of a new battery or battery pack, was therefore held to be inapplicable. The Authority concluded that replacement activity falls entirely outside the scope of the notified benefit. On the question of cells that become scrap during the manufacturing process, CAAR clarified that the IGCRD Rules do not recognise “process loss” or “scrap” as a distinct category for concessional duty purposes. Such quantities are treated as “unutilised” or “defective” goods as per Rule 10, requiring either re-export or payment of duty along with applicable interest. The Authority rejected the applicant’s reliance on previous rulings where process scrap had been permitted under concessional schemes, observing that those rulings were fact-specific and not binding. Similarly, lithium-ion cells that fail quality checks after import but before being issued for production were held to be defective goods. As these cells never enter the manufacturing line, the Authority found no basis to allow the exemption. These goods too must be dealt with strictly under Rule 10 of the IGCRD Rules, with the importer required to pay duty and interest or re-export the goods where feasible. Tata Autocomp also contended that interest liability should arise only after the lapse of six months—the period permitted for utilisation of imported goods under the Rules. CAAR disagreed, holding that interest becomes payable from the date of import itself until the date on which duty is discharged. The Authority emphasised that interest is a natural consequence of the denial of exemption and cannot be postponed by invoking the utilisation period. In dismissing the applicant’s reliance on precedents such as the Samsung Display and Sunwoda Electronic rulings, CAAR reiterated that advance rulings bind only the applicant and jurisdictional officers in those particular cases and cannot be applied universally. The Authority noted that the factual matrix differed substantially and that none of the cited cases altered the legal requirement that goods must actually be used in manufacture to qualify for the exemption. The final ruling confirms that lithium-ion cells used as warranty replacements, those scrapped during manufacture, or those found defective after import are all outside the purview of Entry 527B of Notification 50/2017-Customs. In all such scenarios, the importer must pay duty along with interest calculated from the date of import. Ruling Details Applicant’s Name: Tata Autocomp Gotion Green Energy Solutions Systems Ltd. Ruling Date: 21/11/2025 Click Here To Read Ruling Read More: Whether Duty-Free Import of Used Automation Equipment for Refurbishment Is Permissible? CAAR Clarifies

No Customs Duty Exemption For Lithium-Ion Cells Used As Replacements, Scrap Or Defective Stock: CAAR

Membership Required

Latest articles

Lack of Reasoned Order by ICAI Board: Delhi HC Quashes Closure of Professional Misconduct Complaint

No Evidence of Pilferage Under Section 45 of Customs Act: CESTAT Quashes Duty Demand on CONCOR

Classification of EPS-ECU as Automobile Part Upholds; CESTAT Dismisses 196 Appeals by Mitsubishi Electric Automotive India

Delhi High Court Quashes Rs. 96 Crore Reassessment Citing ‘Change of Opinion’, Limitation Bar

More like this

Lack of Reasoned Order by ICAI Board: Delhi HC Quashes Closure of Professional Misconduct Complaint

No Evidence of Pilferage Under Section 45 of Customs Act: CESTAT Quashes Duty Demand on CONCOR

Classification of EPS-ECU as Automobile Part Upholds; CESTAT Dismisses 196 Appeals by Mitsubishi Electric Automotive India

About us

Company

Categories