PMI Electro Mobility Solutions, an electric bus manufacturer, imported battery packs, motors, controllers, converters, compressors and braking systems claiming the customs duty exemption available to electric vehicle parts under Serial Numbers 528 and 528A of Notification No. 50/2017-Customs. The exemption comes with strings attached under the Import of Goods at Concessional Rate of Duty Rules, 2017, which require the importer to actually use the imported parts for the stated purpose rather than simply trade them on.
Customs found something it treated as a problem: PMI's own parent company, a related entity, carried out the actual fabrication of the bus bodies into which these imported components went. The Principal Commissioner of Customs (Preventive) read that arrangement as taking the import outside the exemption's protection, since the importer itself was not doing the manufacturing, and confirmed a demand of roughly Rs 1.07 crore in differential duty under Section 28(4) of the Customs Act, the provision used where the department alleges suppression or wilful misstatement justifying a longer limitation period. Interest followed under Section 28AA, and a penalty under Section 114A, with Rs 25 lakh PMI had already deposited appropriated against the demand.
The department's theory, stripped to its essentials, treated the importer and the manufacturer as needing to be the same legal person for the exemption to apply. On that theory, any company that imports components and then hands a stage of the work to a sister concern, a common structure in capital-intensive manufacturing where one entity builds up import licences and compliance infrastructure while another runs the factory floor, would lose a concessional rate it would otherwise qualify for simply because of how the corporate group chose to organise its operations rather than because of anything that happened to the goods themselves.
CESTAT's New Delhi bench set the whole demand aside. The exemption notification and the IGCR Rules ask whether the imported goods were used for the purpose the exemption contemplates, not whether the importer personally turned the screwdriver. On the facts, the imported battery packs, motors and the rest went into buses that PMI itself sold as the manufacturer, with the bodywork done by a related company rather than an unrelated contractor. The Tribunal held that engaging a group company to carry out part of the manufacturing process does not, by itself, break the chain of end use the exemption requires.
The Tribunal's finding of substantial compliance matters as much as its reading of the notification. PMI had kept records showing where the parts went and what they were used for, filed the end-use certificates the IGCR Rules call for, and kept the entire process within its own corporate group rather than diverting the parts to the open market. That paper trail, the Tribunal found, satisfied the Rules even though the company that physically assembled the bus body was a separate legal entity from the importer.
Electric vehicle and component manufacturers that split production across group companies should take note of the line this draws. Vertically organised manufacturing, where one group entity imports components and another handles a stage of assembly or fabrication, is common in the EV industry as capacity gets built out factory by factory. Customs cannot treat that kind of internal division of labour as automatically defeating a concessional rate exemption tied to end use, so long as the end use itself, the parts going into vehicles the importer's group actually puts on the road, is not in question.
For importers facing a similar demand built on Section 28(4)'s extended limitation period, the order is also useful on the suppression question, even if indirectly: a related-party manufacturing arrangement disclosed on the importer's own books is a hard fit for an allegation that the importer concealed facts from the department. Where the structure was never hidden, invoking the extended period becomes correspondingly harder to defend once a tribunal starts asking what, exactly, was concealed.
The ruling arrives at a point where India's push to build domestic electric vehicle manufacturing capacity depends heavily on exactly this kind of group structure, with component imports, assembly and final sale often split across related entities while a single group builds out its supply chain in stages. A customs regime that read the end-use exemption as available only to a company that both imports and personally fabricates every stage of the finished vehicle would have made that staged approach to capacity building considerably more expensive, and would have pushed manufacturers toward less efficient, more consolidated structures purely to protect a tax position rather than for any reason connected to how buses actually get built.