L.G. Electronics India Private Limited Vs Principal Commissioner of Customs (CESTAT Delhi)
CESTAT Delhi held that G-Watch i.e. Smart Watch is classifiable under 8157 6290 and not under CTH 9102 1900. Accordingly, benefit of entry serial no. 955 of notification no. 152/2009-Cus. dated 31.12.2009 doesn’t apply.
Facts-
The appellant had imported 2000 units of “G Watch (Smart Watch)” from the Republic of Korea. They had classified the said goods under CTH 91021900 and have assessed the basic customs duty at the rate of ‘NIL’ BCD after claiming the benefit of entry serial no. 955 of notification no. 152/2009-Cus. dated 31.12.2009. However, IGST at the rate of 18% was paid.
Department observed that the imported goods, “G Watches” are capable of performing many functions other than those related to timekeeping and as such are the smart watches as different from those classifiable under CTH 91021900. Department formed an opinion that such kind of apparatus/device merits classification under CTH 85176290.
Thus, the Show Cause Notice was served upon the appellant proposing rejection of classification claimed by the appellant i.e. under CTH 91021900. It is proposed that the imported goods be classified under 85176290 to which the duty exemption, as availed, is not applicable. Resultantly, short payment of customs duty amounting to Rs.86,62,852/- with respect to the import of the impugned goods was proposed to be recovered along with the interest. The said proposal has been confirmed vide the Order-in-Original. While ordering confiscation, option to impose redemption fine has not been given and penalty of Rs.8,00,000/- has been imposed on the appellant u/s. 112 (a) of the Customs Act, 1962. Being aggrieved the appellant is before this Tribunal.
Conclusion-
Held that once admittedly the impugned goods work on internet, it is not acceptable that the essential character of the impugned goods remains that of timekeeping only. Thus we hereby hold that section notes and chapter notes of Chapter 85 are most relevant for the purpose of classifying imported G-Watch (Smart Watch), it being a device capable of transferring data and even making or receiving phone calls which have not been the intent of the section notes and chapter notes of Chapter 91. Hence, First point of adjudication stands decided in favour of Revenue holding the right classification for the impugned imported product is 8517 6290.
From the notification no. 152/2009-Cus. dated 31.12.2009, we observe that the entry at serial no. 955 thereof gives the benefit of exemption from customs duty to the goods falling under Tariff Entry 9102 to 9103 only. As already held above the goods are classifiable under 8157 6290, the benefit of the said notification shall not be available to the appellant.
FULL TEXT OF THE CESTAT DELHI ORDER
The appellant had imported 2000 units of “G Watch (Smart Watch)” from the Republic of Korea vide two Bills of Entry bearing No. 2370169 and 2375523 both dated 11.03.2019. They had classified the said goods under CTH 91021900 and have assessed the basic customs duty at the rate of ‘NIL’ BCD after claiming the benefit of entry serial no. 955 of notification no. 152/2009-Cus. dated 31.12.2009, However, IGST at the rate of 18% was paid. Department observed that the imported goods, “G Watches” are capable of performing many functions other than those related to timekeeping and as such are the smart watches as different from those classifiable under CTH 91021900. Department formed an opinion that such kind of apparatus/device merits classification under CTH 85176290. Resultantly, the Show Cause Notice No. 01/2020 dated 13.01.2020 was served upon the appellant proposing rejection of classification claimed by the appellant i.e. under CTH 91021900. It is proposed that the imported goods be classified under 85176290 to which the duty exemption, as availed, is not applicable. Resultantly, short payment of customs duty amounting to Rs.86,62,852/- with respect to the import of the impugned goods vide the aforementioned two Bills of Entry was proposed to be recovered along with the interest. The imported goods were proposed to be held liable to confiscation. In addition, the penalty was also proposed to be imposed upon the appellant. The said proposal has been confirmed vide the Order-in-Original bearing no. 55/2020 dated 07.10.2020. While ordering confiscation, option to impose redemption fine has not been given and penalty of Rs.8,00,000/- has been imposed on the appellant under Section 112 (a) of the Customs Act, 1962.Being aggrieved the appellant is before this Tribunal.
2. We have heard Ms. Jyoti Pal and Shri Amitabh Amrit, learned Advocates for the appellant and Shri Rajesh Singh, learned Authorized Representative for the department.
3. Learned counsel for the appellant has mentioned that appellant is a private limited company engaged in import and sale of various electronic goods including LG Watch W7 (Hybrid Watch or impugned goods). It is impressed upon that the impugned goods have two physical watch hands and a micro gearbox and it operate on quartz movements, designed by finest Swiss Watch Maker, SOPROD SA. It is also submitted that the impugned goods carry the look of traditional analog watch and works also like the said analog. Learned counsel acknowledged that though the imported goods perform the smart watch functions with the help of few electrical components (LCD, 4GB RAM, Bluetooth, Qualcomm Chipset etc.), however, still the users can wear the same on their wrist to watch time, to receive alarms etc., just like the traditional watch analog. Hence, the imported goods have rightly been classified by the appellant under CTH 91021900. Chapter 91 covers different types of watches and their features. The impugned goods duly get covered under the criteria given therein. It is further submitted that under Chapter 85 CTH 8517, the goods covered are telephone sets and other apparatus for communication in a wired or wireless network. Whereas the goods covered under CTH 9102 are wrist watches, pocket watches etc., as the heading suggest and there is no denial that the imported goods are wrist watches for observing time. The brochure of their company describing the imported goods has also been elaborated. From no stretch of imagination they can be called as telephones sets/other apparatus, hence the correct classification is CTH 91021900. The findings under challenge are therefore liable to be set aside.
3.1 Learned counsel further mentioned that the tariff entries have to be interpreted as per the relevant section and chapter notes. The decision in the case of Saurashtra Chemical Porbandar Vs. Collector of Customs reported as 1986 (23) ELT 283 (Tri.-LB) and Mauri Yeast India Pvt. Ltd. Vs. State of U.P. reported as 2008 (225) ELT 321 (SC) has been relied upon by the learned counsel. Learned counsel also submitted that the technological advancements have to be taken into consideration while determining the classification. Various other functions of the imported goods is nothing but technological advancement due to which wrist watch/clock cannot be made to fall under any other tariff entry. The decision in the case of Collector of Customs & Central Excise Vs. Lekhraj Jessumal & Sons reported as 1996 (82) ELT 162 (SC) has been relied upon. Learned counsel further submitted that while importing the goods the benefit of notification no. 152/2009-Cus. dated 31.12.2009 has rightly been claimed as the country of origin certificate was duly submitted. All the requirements thereof have duly been satisfied. Above all, the benefit of notification can be claimed at any stage. Finally it is submitted that even if the classification of appellant is not accepted, the act of appellant is merely a claim for incorrect classification. It cannot be alleged as mis-declaration. Question of imposition of penalty upon the appellant does not at all arise. The decision in the case of Northern Plastic Ltd. Vs. Collector of Customs and Central Excise reported as 1998 (101) ELT 549 (SC) has been relied upon. With these submissions, learned counsel has prayed for the order under challenge to be set aside and appeal to be allowed.
4. Learned DR while rebutting these submissions has mentioned that the imported goods have the function of transmission and reception of data which allow the communication to the wired or wireless communication network. Hence, those have rightly been classified by the department under CTH 85176290. It is submitted that importer itself, while filing the Bills of Entry at the time of self-assessment, has declared the imported goods as “G Watch (Smart watch)”. Admittedly the product performed many other functions than merely timekeeping. It is mentioned that even by following General Rules of Interpretation, the goods merits classification under 85176290.
4.1 Learned DR further impressed upon that the declared classification 91021900 covers electrical wrist watches working on the basis of quartz movement. But as per appellant’s own brochure/catalogue, the G watch except being a wearable wrist device and having two moving hands to show time, has the combined mechanical movements with digital functionalities including that of LCD display, touch sensitivity, microphone, Wifi and Bluetooth connectivity and that it needs an operating system as provided by Google. Even the initial set up of time is done through syncing the impugned good with the user phone. On the contrary, the wrist watches/non-smart watch time pieces are set manually. Learned DR also impressed upon that according to World Customs Organization ruling (Harmonised System Committee 55th Session – March 2015), smart watches are technical equipment with display, processor, main memory etc. can fulfill several other functions such as receiving, converting and sending or regenerating sounds, picture and other data. Thus by applying section note 3 to Section XVI, smart watches merits classification under CTH 85176290. Resultantly, the duty exemption under Notification No. 152/2009 is rightly been denied. Impressing upon no infirmity in the order under challenge, appeal is prayed to be dismissed.
5. Having heard the rival contentions of both the parties, perusing the entire records of the appeal memo including the catalogue of the appellant with respect to the impugned imported goods and the Bills of Entry in question, we observe that the following are the issues to be adjudicated:
(i) Whether LG Watch W7 as imported by the appellant is classifiable under CTH 91021900 as claimed by the appellant or is classifiable under CTH 85176290 as confirmed vide the Order-in
(ii) Whether the appellant is eligible to claim concessional rate of basic customs duty under serial no. 955 of the notification no. 152/2009-Cus. dated 31.12.2009,
(iii) Whether the imported goods are liable for confiscation and the appellant is liable for being penalized.
6. First point of adjudication:
Both the parties have relied upon the General Rules of Interpretation (GRI) and have impressed upon that the chapter notes read with GRI decides the tariff entry for a particular goods. In view thereof, we foremost need to look into the tariff entries in question and then the General Rules of Interpretation. Chapter heading and chapter note for Chapter 85 are as follows:
