Apple Home Pod classifiable under TI 8517 6290: AAR Customs

In re Apple India Private Limit (Custom Authority for Advance Ruling, Mumbai)

Considering the attributes of the device in question, which is capable of receiving voice commands, covert such voice commands into text to perform multiple tasks, e.g., stream music from the internet or another Apple device, retrieve information available in the net like weather, traffic, news, sports updates etc., regenerate such information back to the user in the form of music/speech, and also act as a home automation device to control reconditioners, locks, lights etc., it is clear that the product in question has multiple facets, and therefore, its classification would depend upon identifying the essential character of the device. The product consists of an Apple designed A8 chip, a six-microphone array, a seven-tweeter array, and a high excursion woofer enclosed in a seamless mesh fabric. The device works wirelessly through Wi-Fi or Bluetooth and as already noted it can play music directly from the internet or from another Apple device through AirPlay 2. Through its digital assistant, Siri, a user can give voice commands not only for obtaining the preferred music, but also information like, weather, news etc. Therefore, unlike a mere speaker, which only reproduces sound, the HomePod is a convergence device which is capable of receiving voice commands and processing such commands internally to receive the desired end result, be it music or information, and regenerate such music or information back to the user via the speakers. The primary mode of interacting with the device is voice commands, though it is possible to play, pause and raise volume by tapping the top of the device. The home automation functions of the device to control a wide range of accessories is carried out via a hardware certification platfonn and a database system that makes possible integrate, configure, and communicate between a wide variety of products. The control of such devices is also done through Siri via voice commands. Considering the various functions that the device is capable of and taking into account the existing tariff classification system, I am of the considered opinion that the product in question answers to the description of six-digit entry 851762 which is meant for ‘Machines for reception, conversion and transmission or regeneration of voice, images, other data, including switching and routing apparatus’ and more specifically under the residuary sub-heading 85176290.

Full text of the order of Custom Authority for Advance Ruling, Mumbai

M/s. Apple India Pvt. Ltd. vide their application dated 22.12.2017 sought an advance ruling on the question, ‘Whether the import of Apple HomePod will be classified under Customs Tariff Heading (CTH) 8517.62.90?’ The application was received in the secretariat of the erstwhile Authority for Advance Rulings, Central Excise, Customs & Service Tax on 26.12.2017. The application was admitted on 25.05.2018 and was heard on 29.06.2018. However, no ruling has been given. Thereafter, on appointment of the Customs Authority for Advance Rulings, Mumbai under the provisions of section 28EA of the Customs Act, 1962; the secretariat of the erstwhile AAR transferred the said application to the CAAR, Mumbai.

2. On scrutiny by the Secretary to the Customs Authority for Advance Rulings, Mumbai, it appeared that the application has lapsed since no ruling was given within 3 months as mandated under sub-section 6 of section 28-1 of the Act. However, on constructive interpretation of law and purely as a trade facilitation measure, the applicant was given an opportunity to re-submit the application if they continued to be desirous of obtaining an advance ruling as sought originally. Accordingly, the application has been submitted on 01.04.2021.

3. In their original application, the applicant indicated that they wish to import HomePods through the airports/air cargo complexes of New Delhi, Chennai, Bangalore, Mumbai, and Kolkata. In their fresh application dated 01.04.2021 also, the applicant has expressed the same intention. The applicant has also quoted decisions of the erstwhile AAR in the cases of BMW India Pvt. Ltd., Agilent Technologies India Pvt. Ltd., and Xerox India Ltd. in support of their application.

4. In respect of the application for advance ruling filed originally, the Chennai Air Cargo Commissionerate was of the view that Apple HomePods merit classification under sub-heading 85182900 of the tariff. However, the Commissioner of Customs of Bangalore Airport and Air Cargo Complex was of the view that the product merits classification under sub-heading 85176290, concurring with the view of the applicant. The same view was also reiterated by the Delhi and Mumbai Air Cargo Commissioners. No comments were received from Kolkata Commissioner. The comments from the commissionerates were conveyed to the applicant and their rebuttal in respect of the comments from Chennai is also on record. Subsequently, the Commissioner, Chennai VII has reconsidered their earlier stand and concurred with the applicant’s as well as views of the concerned Principal Commissioners/Commissioners of New Delhi, Mumbai and Bangalore that Apple HomePods merit classification under sub-heading 87176290 of the tariff. After the filing of the application dated 01.04.2021, all the aforementioned commissioners of customs were requested to communicate their comments or re-affirm their earlier position, as may be convenient. Replies have been received from New Delhi and Mumbai, reiterating the earlier position. Mumbai Air Cargo, in addition, as also enclosed a copy of the Bill of Entry No. 9504350, dated 03.01.2019 vide which HomePod Model A 16 has been imported by classifying the same under sub-heading 87176290 of the customs tariff.

5. The application was listed for admission on 19.05.2021. On the issue of whether an advance ruling can be given in respect of goods already imported, Sri Kanchun Kaushal, appearing on behalf of the applicant, argued that they had filed the application in 2017 and its mere transfer to the present authority doesn’t make it a new application. The learned counsel emphasised the provisions of sub-section 2 and 3 of section 28F in support of their line of reasoning. Additional time of one week has also been sought for submission of additional written brief. The applicant has made further submissions vide their communication dated 21.05.2021. In the said submissions, the applicant has quoted the relevant portions of the law as it pertained to advance rulings in customs when their application was filed for the first time in December, 2017 as well as the law as it stands now. The applicant has reiterated that they qualify as an applicant as per the provisions of law and also have a right to receive an advance ruling. The main thrust of the arguments of the applicant is that their application filed afresh on 01.04.2021 cannot be treated as a fresh application and that their original date of filing on 26.12.2017 would stand and since the original application has simply been transferred to the present authority, the present proceedings would be deemed to be a continuation of the past proceedings. The applicant also argues that since they had filed an application for advance ruling and only thereafter, they had resorted to import, their right to receive an advance ruling wouldn’t be adversely affected. The decision of Hon’ble Delhi High Court in the case of M/s. Hyosung Corporation reported at 2016 (284) CTR 121 is cited in support of this contention. During the oral arguments, the provisions of sub-section (3) of section 28F of the Act was emphasized again. The applicant has also cited the doctrine of legitimate expectation in support of their argument to receive an advance ruling. The applicant also states that since their original application stood admitted by the erstwhile authority, the doctrine of promissory estoppel would require a continuation of proceedings rather than a fresh proceeding. Several case laws have been cited in support of this contention.

6. I have gone through the case records, and written as well as oral submissions. An application for advance ruling was filed before the erstwhile AAR on 26.12.2017. At the relevant time, the time limit prescribed in the statute was ninety days. This time period was amended to three months w.e.f. 29.03.2018 by virtue of the section 68 of the Finance Act, 2018. Now, the question that arises is that if an advance ruling is not rendered within the time limit prescribed in the statute, what would be the result? One possible answer to that is that the application lapses, and therefore, would require to be re-submitted or revalidated. The other possibility, the one favoured by the applicant, is that the application would continue to exist until an advance ruling is rendered. The scheme of advance rulings in customs was introduced by virtue of section 103 of the Finance Act, 1999. It is contained in the chapter VB of the Customs Act, 1962. Major amendments/deletions/substitutions were carried out to the scheme of advance rulings in the Finance Acts of 2017 and 2018. Prior to such changes, advance rulings were given by the AAR which comprised of a chairperson, who was to be a retired judge of the Supreme Court, an officer of the Indian Customs and Central Excise Service who is qualified to be a Member of the Board, and an officer of the Indian Legal Service who is, or is qualified to be, an Additional Secretary to the Government of India. However, by virtue of section 28EA, inserted in the Act w.e.f. 28.03.2018, provision was made for appointment of an officer of the rank of Principal Commissioner of Customs or Commissioner of Customs as the CAAR to render advance rulings and at the same time the erstwhile AAR was converted into an appellate body. However, during the transition period, the proviso to section 28EA(1) made provision for filing of advance ruling applications with the erstwhile AAR, while making provision of transfer of pending cases to the newly created CAARs under sub-sections (2) and (3) of the section 28F of the Act. In this case the applicant filed an application for advance rulings on 26.12.2017 under the proviso to the sub-section (1) of section 28EA of the Act. This application has, however, not been disposed of by the erstwhile authority. Thereafter, on the appointment of CAAR, Mumbai and notification of the relevant regulations w.e.f. 04.01.2021, this application has been transferred to CAAR, Mumbai under the provisions of sub-section (3) of section 28F. The said provision states that, ‘On and from the date of appointment of the Customs Authority for Advance Rulings, every application and proceeding pending before the erstwhile Authority for Advance Rulings shall stand transferred to the Authority from the stage at which such application or proceeding stood as on the date of such appointment.’ In the advance ruling no. CAAR/Mum/ARC/4/2021, dated 27.04.2021, I have taken a view that applications where advance rulings were not given by the erstwhile AAR would be considered as lapsed and an application which had already lapsed at the end of the erstwhile AAR, would remain so at the time of transfer to CAAR. On careful reconsideration, I have reached the conclusion that it is perhaps not desirable to adopt a restrictive interpretation of law. It is true that the applicant was not at fault that their application went unattended. Therefore, they shouldn’t be penalised as there was no failure on their part. Therefore, the present proceedings would be deemed to be a continuation of the earlier proceedings and not a fresh application, as was initially interpreted by the secretariat. The significance of this line of reasoning would be that the applicant would remain eligible for receiving advance rulings in respect of those products which have been imported after filing the advance ruling application. The definition of ‘advance ruling’ as per clause (b) of the section 28E of the Act is that, ‘It is a written decision on any of the questions referred to in section 28H raised by the applicant in his application in respect of any goods prior to its importation or exportation’. Therefore, a reasonable interpretation of the definition would lead one to the conclusion that if an application for advance ruling has been filed, and there is a delay in rendering a decision, as has happened in this very instance, imports made after filing the advance ruling application would not take away the right of the applicant to receive a ruling.

7. In the present application, the applicant has indicated as many as five entry ports for the import of HomePods for which an advance ruling has been sought. Sub-section (1) of section 28-I of the Act states that, ‘On receipt of an application, the Authority shall cause a copy thereof to be forwarded to the Principal Commissioner of Customs or Commissioner of Customs and, if necessary, call upon him to furnish the relevant records:

Provided that where any records have been called for by the Authority in any case, such records shall, as soon as possible, be returned to the Principal Commissioner of Customs or Commissioner of Customs.’

Further, clause (c) to the sub-section (1) of section 28J of the Act lays down that an advance ruling pronounced under section 28-1 would be binding, among others, on the Principal Commissioner of Customs or Commissioner of Customs, and the customs authorities subordinate to him, in respect of the applicant.

Further, section 28KA read with regulation 9 mandates that the Principal Commissioner or the Commissioner is authorised to file an appeal against an advance ruling.

The import of reading all the legal provisions cited above together leads one to the inescapable conclusion that the scheme of advance rulings in customs, as contained in the Chapter VB of the Act, envisages that an applicant would indicate only one port/point of entry for their proposed activity. The use of defmite article ‘the’ in all these legal provisions also point to the intention of the legislature to define a specific individual and not indulge in a generic description where a singular can be read as plural and vice versa. The statutory mandate to give a ruling within 3 months of filing an application would also be difficult to comply with if applicants cite multiple ports/points of import/export as corresponding with multiple Principal Commissioners/Commissioners and conveying their comments to the applicant and take in to account the rebuttals/rejoinders of the applicant would be time consuming and would make it difficult to render advance rulings within the time prescribed in the statute. In my view, applicants should avoid such tactics which would only result in delay. However, in the present proceedings, considering the fact that this is a transferred application and also that comments of four of the five Principal Commissioners/Commissioners are on record, I am not pursuing this issue any further.

8. The matter was listed for final hearing on 08.06.2021. Before the hearing, the applicant submitted additional written submissions in which they summarised their entire application with respect to the functionality and technical specifications of the product intended for import, emphasised the fact that four Principal Commissioners/ Commissioners of Customs have concurred with their stand, reproduced the relevant portions of the tariff, made reference to the relevant portions of the HSN Explanatory Notes, drew attention to the relevant rule for interpretation of tariff, and also referred to United States Customs’ tariff rulings on two similar products, namely, Super Tooth and Sonos Play. On the basis of the same, they requested that a ruling be given classifying HomePods under sub-heading 85176290. During the hearing, Sri Kanchun Kaushal, representing the applicant took me through their submissions in great detail. The Additional/Joint/Deputy Commissioners, representing the concerned Principal Commissioners/Commissioners of Mumbai, Chennai and Bangalore also reiterated their earlier comments supporting classification under sub-heading 85176290.

9. According to the applicant, an Apple HomePod, the classification of which is the subject matter of the present proceedings, is stated to be essentially a home entertainment device allowing the user to connect wirelessly to internet via Wi-Fi or Bluetooth and stream music directly from the internet without the need for any accompanying device. It requires the user to subscribe to Apple music store for gaining access to the database. The device is stated to follow a general trend of convergence of functionality otherwise known as the “Internet of Things”. The device can also stream music directly from another Apple device with Airplay 2 functionality. Another key differentiator of HomePods from Apple’s existing product range is that the device can provide news, weather, traffic and sports updates. It can also provide translations, set timers and tells the time all via voice commands/requests received through a digital assistant (Siri) which is built into the device. The device converts the voice commands/requests into audio text in order to search the internet for the information, and once found, it regenerates the information back to the user in the form of speech from the device’s speaker. The device also has the ability to control a wide range of accessories via a hardware certification platform and database system that allows to integrate, configure, and communicate between a wide variety of home products like locks, lights, security equipment, and other home automation products, from air conditioners to garage doors to security cameras all connected to the same wireless network. Thus, the device enables controlling of various home applications via Siri through voice commands by adding an accessory to the Home app installed on iPhone, iPad, Apple Watch, Apple Mac Computer, etc. The key functionality of the device is to provide an interactive interface by receiving, converting and regenerating voice data that is used to operate and control smart devices set up inside one’s house. The device can recognise the user’s voice commands and help in carrying out functions like lowering the thermostat of the air conditioner, lowering one’s garage door, operate live camera streaming, turn on/off lights at home, etc. In nutshell, HomePod is a device which has multiple usages with primary feature designed to receive data in the form of voice command/request, convert this into audio text in order to retrieve data from the internet and regenerate the data back to a user in form of a speech. The applicant has summarised the key characteristics of the product are as follows:

• It can only function in a wireless network either via Wi-Fi or Bluetooth connection,
• It can stream music from internet,
• Has Apple A8 microprocessor chip,
• Controls for pausing or skipping music and volume control,
• Provides multi-room speaker support with AirPlay 2,
• High-excursion woofer with custom amplifier,
• Array of seven horn-loaded tweeters, each with its ow custom amplifier,
• Six-microphone array for far-field Ski and room sensing,
• Internal low-frequency calibration microphone for automatic bass correction,
• Direct and ambient audio beamforming,
• Transparent studio-level dynamic processing.

10. As already mentioned, the applicant is of the view that the Apple HomePod merits classification under sub-heading 85176290. Four Principal Commissioners/Commissioners, at the Air Cargo Complexes at New Delhi, Mumbai, Chennai, and Bangalore also share the same view. The relevant portions of the heading 8517 of the first schedule to the Customs Tariff Act reads as below: –

8517 Telephone sets, including telephones for cellular networks or for other wireless networks; other apparatus for the transmission or reception of voice, images or other data, including apparatus for communication in a wired or wireless network (such as a local or wide area network), Other than transmission or reception apparatus of heading 8443, 8525, 8527 or 8528

• • Telephone sets, including telephones for cellular networks or for other wireless networks:
  • Other apparatus for transmission or reception of voice, images or other data, including apparatus for communication in a wired or wireless network (such as local or wide area network):
    • 8517.62 — Machines for reception, conversion and transmission or regeneration of voice, images or other data, including switching and routing apparatus:
    • 8517.62.10 — PLCC Equipment
    • 8517.62.20 — Voice frequency telegraphy
    • 8517.62.30 — Modems (modulators-demodulators)
    • 8517.62.40 — High bit rate digital subscriber line system (HDSL)
    • 8517.62.50 — Digital loop carrier system (DLC)
    • 8517.62.60 — Synchronous digital hierarchy system (SDH)
    • 8517.62.70 — Multiplexers, statistical multiplexers
    • 8517.62.90 — Others

11. Considering the attributes of the device in question, which is capable of receiving voice commands, covert such voice commands into text to perform multiple tasks, e.g., stream music from the internet or another Apple device, retrieve information available in the net like weather, traffic, news, sports updates etc., regenerate such information back to the user in the form of music/speech, and also act as a home automation device to control reconditioners, locks, lights etc., it is clear that the product in question has multiple facets, and therefore, its classification would depend upon identifying the essential character of the device. The product consists of an Apple designed A8 chip, a six-microphone array, a seven-tweeter array, and a high excursion woofer enclosed in a seamless mesh fabric. The device works wirelessly through Wi-Fi or Bluetooth and as already noted it can play music directly from the internet or from another Apple device through AirPlay 2. Through its digital assistant, Siri, a user can give voice commands not only for obtaining the preferred music, but also information like, weather, news etc. Therefore, unlike a mere speaker, which only reproduces sound, the HomePod is a convergence device which is capable of receiving voice commands and processing such commands internally to receive the desired end result, be it music or information, and regenerate such music or information back to the user via the speakers. The primary mode of interacting with the device is voice commands, though it is possible to play, pause and raise volume by tapping the top of the device. The home automation functions of the device to control a wide range of accessories is carried out via a hardware certification platfonn and a database system that makes possible integrate, configure, and communicate between a wide variety of products. The control of such devices is also done through Siri via voice commands. Considering the various functions that the device is capable of and taking into account the existing tariff classification system, I am of the considered opinion that the product in question answers to the description of six-digit entry 851762 which is meant for ‘Machines for reception, conversion and transmission or regeneration of voice, images, other data, including switching and routing apparatus’ and more specifically under the residuary sub-heading 85176290.

In view of my aforesaid discussions, I rule that Apple HomePods merit classification under sub-heading 85176290 of the first schedule to the Customs Tariff Act, 1975.