Case Law Details

Case Name : In re Ingram Micro Private Ltd (CAAR Mumbai)
Appeal Number : Ruling Nos. CAAR/Mum/ARC/11/2022
Date of Judgement/Order : 10/05/2022
Related Assessment Year :

In re Ingram Micro Private Ltd (CAAR Mumbai)

CAAR rule that the: –

a) Tello drone merits classification under subheading 95030010 of the first schedule to the Customs Tariff Act, 1975 and would attract basic customs duty @60% adv. and [email protected] 18%;

b) AGRAS T16 drone merits classification under subheading 88062400 of the first schedule to the Customs Tariff Act, 1975 and would attract basic customs duty @2.5% adv. and [email protected] 5%;

c) Mavic Air 2 drone merits classification under subheading 88062200 of the first schedule to the Customs Tariff Act, 1975 and would attract basic customs duty @10% adv. and [email protected] 18%;

d) Dji Mini 2 drone merits classification under subheading 88062100 of the first schedule to the Customs Tariff Act, 1975 and would attract basic customs duty @10% adv. and [email protected] 18%;

e) Phantom 4 Pro drone merits classification under subheading 88062200 of the first schedule to the Customs Tariff Act, 1975 and would attract basic customs duty @10% adv. and [email protected] 18%.

FULL TEXT OF ORDER OF CUSTOMS AUTHORITY OF ADVANCE RULING, MUMBAI

M/s Ingram Micro Private Ltd. filed an application on 11.03.2022 seeking advance rulings on the classification of various types of drones and applicable customs duty and IGST rate on the impugned devices.

2. The applicant is predominantly engaged in the import of information technology and networking products and supplying them through their distribution system in the Indian market. They intend to import the following models of drones:

Sr. No. Name of the drones proposed to be imported Features of the drones Key technical specifications of the
drones
1 Tello Drone (With camera) Used for taking photographs/videos.

The model incorporating a camera can transmit visuals to the user on the remote controlling device, when in flight. Photo is not stored either in a drone or in a remote device Users can learn the basics of programming while using the drone.

Category as per Drone Rules, 2021: Nano Category as per Exim Policy: Nano

No. of Rotors: 4 Weight: 80g Max take-off weight — 80g Dimensions:

98 (L) x 92.5(B) x 41 (H) mm Flight Distance: 100m Flight Time: 13min Flight Height: 15m Camera: Photo:5MP (2592×1936) FOV: 82.6° Video: HD720P30 Format: JPG(Photo); MP4(Video) Control — Manual control using virtual joysticks in Tello App or using a remote controller.

2 AGRAS T16 The drone is used to carry and spray agricultural products like pesticides over wide areas.

A radar and 3D mapping system help calibrate the device during flight and demarcate the area to be covered.

Has radar and 3D mapping which enable users to fly the drones in low light or when visibility is low/poor.

Category As per Drone Rules, 2021: Medium

No. of Rotors: 6 Total Weight (Excluding battery):

18.5kg Takeoff weight: 24.5 kg with a 17500 Mah battery Max take-off weight — 42kg Dimensions: 2509 (L) x2213 (B) x732 (H) mm (Arms and propellers unfolded)

Camera:

FOV Horizontal: 98°, Vertical: 78° Resolution: 1280×960 30 fps FPV Spotlight FOV: 110°, Max brightness: 12 lux at 5 m of direct light Flight Distance: 3 Kms

Flight Time: 10min

Flight Height: 2000m

Control — using a remote controller

GNSS: RTK+GNSS Dual Redundancy System

3 Mavic Air 2 Used for capturing images while flying.

The platform provided by the flight of the drone enables a user to shoot visuals from various altitudes and angles

The drone has a significantly longer flight time and speed to capture a wide range of events from the air

Category As per Drone Rules, 2021: Micro

No. of Rotors: 4

Max take-off weight: 570g

Dimension (Unfolded): 183(L) X

253(B) X 77(H) mm

Flight Distance: 18.5 km

Flight Time: 34min

Flight Height: 5000m

Camera: FOV: about 84° 35 mm

Format

Equivalent: 24 mm

Aperture: f/2.8

Shooting Range: 1 m to 00

Control — using a remote controller

Storage — Internal memory 8 GB

GNSS: GPS+GLONASS

4 DJI mini-2

 

Used for capturing images while flying

The platform provided by the flight of the drone enables a user to shoot visuals from various altitudes and angles. Photo is not stored either in a drone or in a remote device

The drone has a significantly longer flight time and speed to capture a wide range of events from the air.

Category As per Drone Rules, 2021: Nano

 

No. of Rotors: 4

Max take-off weight: 249g

Dimension (Unfolded): 159(L) X

203(B) X 56(H) mm

Flight Distance: 16 km

Flight Time: 31 mins

Flight Height: 4000m

Camera: FOV: about 83° 35 mm

Format

Equivalent: 24 mm

Aperture: f/2.8

Shooting Range: 1 m to co

Control — using a remote controller

GNSS: GPS+GLONASS+Galileo

5 Phantom 4 Pro Used for capturing images while flying

The platform provided by the flight of the drone enables a user to shoot visuals from various altitudes and angles. Photo is not stored either in a drone or in a remote device

The drone has a significantly longer flight time and speed to capture a wide range of events from the air

Category As per Drone: Rules, 2021: Micro

No. of Rotors: 4

Max take-off weight: 1375g

Dimension (folded) 289.5(L) X

289.5(B) X 196(H) mm

Flight Distance: 14 km

Flight Time: 30mins

Flight Height: 6000m

Camera: FOV: about 84° 35 mm

Format

Equivalent: 24 mm f/2.8/11

Shooting Range: 1 m to 00

Control — using remote

Controller

GNSS: GPS+GLONASS+Galileo

2.1  The drones are essentially unmanned aircraft which can be controlled by users using their smartphones or remote controlling device. Users can fly the drones from the ground. All the drones are equipped with a rechargeable battery. This ensures that users have an unhindered experience of the flying capabilities offered by the drones. Further, the drones also have built-in sensors which alert the user about any obstacles which are present in the path of flight.

2.2 The applicant had sought classification of Tello drone and AGRAS T16 drone and Mavic drone vide application dated 19.05.2021. Ruling No. CAAR/Mum/ARC/13/2021, dated 25.06.2021 was issued to the applicant classifying the above-mentioned products under headings 9503, 8802 and 8802, respectively. The first schedule of the Customs Tariff Act, 1975 has been amended by virtue of section 104(iii) read with the fourth schedule of the Finance Act, 2021 with effect from 01.01.2022. The amendment introduced a new heading 88.06 for unmanned aircrafts and the same has been excluded from heading 88.02. In this context and in relation to the goods mentioned in para 2, the questions on which advance ruling has been sought are as follows: –

1. Whether the drones classifiable under the heading 88.06 or 95.03 of the first schedule of the Customs Tariff Act, 1975?

2. If the answer to the above question is in the negative, then what would be the correct classification of the drones under the customs tariff.

3. What is the applicable rate of duty for the drones?

4. What is the applicable rate of IGST for the drones?

3. The applicant indicated that they propose to import the subject goods through the Air Cargo Complexes (ACC) in Mumbai, Delhi, Chennai and Kolkata. Their application therefor, was forwarded to the jurisdictional Principal Commissioners of Customs/Commissioner of Customs for comments. Comment from ACC, Mumbai was received on 04.05.2022. They have opined that the devices under consideration are unmanned aircraft and that they are rightly classifiable under heading 8806. However, no reply has been received from ACCs in Delhi, Chennai and Kolkata, though reminders have also been sent.

4. The application was listed for hearing on 12.04.2022. The applicant was represented by S/Shri. T. Vishwanathan and others. No one appeared on behalf of jurisdictional commissioners. Sh. Vishwanathan and others explained the features of the drones to be imported. They explained that the earlier advance rulings need to be updated in view of the changed tariff. It was stated that the Tello drone and Diji mini 2 drones can be classified under Chapter 95.

5. I have considered all the materials placed before me for the subject products. I have gone through the submissions made by the applicant during the personal hearing. The issue at hand is to decide the classification of the Tello drone, AGRAS T16 drone, Mavic 2 drone, Diji mini 2 drones and Phantom 4 Pro drone along with the rate of applicable customs duty and IGST. The Ministry of Civil Aviation, vide notification dated 25.08.2021, has notified Drone Rules, 2021 laying down the regulation and requirements for Operations of Civil Unmanned Aircraft System. Rule 3(i) of the Drone Rules, 2021 defines ‘drone’ as an unmanned aircraft system. The ‘unmanned aircraft system’ is defined to be an aircraft that can operate autonomously and can be operated remotely. The first schedule of the Customs Tariff Act, 1975 has been amended by virtue of section 104(iii) read with the fourth schedule of the Finance Act 2021, with effect from 01.01.2022. The amendment introduced a new heading 88.06 for unmanned aircraft and the same has been excluded from heading 88.02. Owing to this amendment, the classification of drones needs to be reexamined. Heading 8806 covers unmanned aircraft. GRI 1 provides that the classification of goods shall be “determined according to the terms of the headings and any relative section or chapter notes.” In the event that the goods cannot be classified solely on the basis of GRI 1, and if the headings and legal notes do not otherwise require, GRIs 2 through 6 may be applied in order. Note 1 to Chapter 88 states “For the purposes of this Chapter, the expression “unmanned aircraft” means any aircraft, other than those of heading 8801, designed to be flown without a pilot on board They may be designed to carry a payload or equipped with permanently integrated digital cameras or other equipment which would enable them to perform utilitarian functions during their flight. The expression “unmanned aircraft”, however, does not cover flying toys, designed solely for amusement purposes (heading 9503).” Accordingly, the rival tariff entries for the impugned devices are headings 8806 or 9503. As per Explanatory notes to heading 8806, the heading covers unmanned aircraft, designed to be flown without a pilot on board, other than those specified in heading 88.01. Unmanned aircraft may be capable of remote-controlled flight only which is operated by an operator from another place (for example, ground, ship, another aircraft, or space) at all times during the flight operation, or capable of flight which is programmed to be performed without the intervention by an operator. Although unmanned aircraft may have various shapes and sizes, they are commonly equipped with one or more propellers or rotors driven by motors, or fixed wings, and communication systems for command and control by a remote operator. They may also incorporate Global Navigation Satellite System (GNSS) receivers, (e.g., GPS, GLONASS or BEIDOU) for stable hovering and flying back to the take-off point and systems for obstacle avoidance, object recognition and tracking function. Unmanned aircraft may be designed to carry a payload or equipped with permanently integrated digital cameras or other equipment to be used for utilitarian functions such as the carriage of cargo or passengers, aerial photography, agricultural or scientific work, rescue duties, fire-fighting, surveillance, or for military purposes. As seen from the aforesaid extracts, heading 88.06 of the tariff covers all kinds of unmanned aircraft which are remote controlled and capable of any of the below actions:

a. designed to carry payload;

b. equipped with permanently integrated digital cameras;

c. equipped with other equipment which would enable them to perform utilitarian functions during their flight.

5.1 Unmanned aircrafts under heading 8806 are further classified according to maximum take-off weight. According to the subheading notes, the expression “maximum take-off weight” means the maximum weight of the machine in normal flying order, at take-off, including the weight of payload, equipment and fuel.

5.2 The heading 8806, however, excludes flying toys, designed solely for amusement purposes. As per explanatory notes to heading 8806, the heading excludes flying toys or models designed solely for recreational or amusement purposes, and that are not designed to perform utilitarian functions. They can be distinguished, for example by their low weight, limited height, distance or time they can fly, maximum speed, inability to fly autonomously or inability to carry a load/cargo, or because they are not equipped with sophisticated electronic apparatus (e.g., Global Positioning Systems, night flight requirements or nocturnal visibility). Therefore, the heading excludes devices that are for amusement purposes and which do not perform utilitarian functions. These devices have limited capabilities and are not equipped with sophisticated equipment. Utilitarian goods are ones whose consumption is more cognitively driven, instrumental, and goal-oriented and accomplishes a functional or practical task These devices have limited capabilities and are not equipped with sophisticated equipment. I intend to examine the product by applying GIR 1 along with relevant chapters and explanatory notes.

5.3 Tello drones, as per the product description, specifications, and the product catalogue, is a lightweight machine with limited flying capability and is clearly intended for amusement and educational purposes. This device does not have any utilitarian function. From the advertisement (https://www.ryzerobotics.comitello) of the product, it appears that the device is used for amusement purposes. Tello drone weighs only 80gm and can achieve an elevation of only 15 m. It can fly for 13 mins and a maximum distance of 100 m. As compared to other machines under consideration, the Tello drone appears to have limited capabilities. It is also not fitted with any sophisticated equipment. Therefore, the machine is not classifiable under heading 8806, as it is a flying toy designed solely for amusement purposes (heading 9503). As per the explanatory notes, the heading 9503 covers toys which, inter alia, include those intended essentially for the amusement of persons (children or adults), e.g., toy vehicles, trains (whether or not electric), aircraft., boats, etc., and their accessories, as also reduced-size (“scale”) models and similar recreational models. This includes models of a kind mainly used for recreational purposes, for example, working or scale models of boats, aircraft, trains, vehicles, etc. In view of the aforesaid position, I hold that the product Tello drone is rightly classifiable under the heading 9503 and more specifically under subheading 95030010 of the first schedule to the Customs Tariff Act 1975 as an electronic flying toy. Even the applicant, in paragraph 4.12 of their application and during the personal hearing, concede that the Tello drone is rightly classifiable under heading 9503.

5.4 AGRITAS T16 drones are stated to be used for agricultural operations. It can carry a payload of fertilizer and performs the utilitarian function of spraying fertilizer while flying. It has a maximum take-off weight of 42 kgs. and is equipped with a spray nozzle, flow meter etc. Considering the above, it is clear that agricultural drones merit classification under heading 8806 and more specifically, under subheading 88062400 of the first schedule to the Customs Tariff Act,1975.

5.5 Remaining three drones, i.e., Mavic air 2, Dji mini 2 and Phantom 4 Pro, as per the product specifications and the product catalogue, are equipped with permanently integrated digital cameras with zooming capability and are capable of still photography as well as video recording. The main utilitarian function of these machines is aerial photography/video photography. All the three above drones incorporate sophisticated equipment like Global Navigation Satellite System (GNSS) receivers for stable hovering and flying back to the take-off point and systems for obstacle avoidance, object recognition and tracking function. Applicant, in paragraph 4.12 of their application and during the personal hearing, mentioned that Dji mini 2 drone is classifiable under heading 9503. However, on examination of specifications like flying height, distance and time of flight etc., as specified in para 2, it appears that Dji mini 2 has comparable characteristics with that of Mavic air 2 and Phantom 4 Pro drones. Therefore, owing to its utilitarian functionality, the presence of a sophisticated instrument and comparable characteristics with other drones, Dji mini 2 despite being a nano drone, is classifiable under 8806 and not under 9503 as a toy. Considering the above, it is clear that all above mentioned three drones merit classification under heading 8806 and more specifically, Mavic air 2 and Phantom 4 pro under subheading 88062200 and Dji mini 2 under subheading 88062100 of the first schedule to the Customs Tariff Act,1975.

6. Tello drones would attract basic customs duty at 60% and IGST at 18%. Sr. No. 545 of Notification No. 50/2017-Cus., dated 30.06.2017, as amended, covers all goods of Chapter 8806 except unmanned aircraft used as a television camera, digital camera or video camera recorder. The standard rate of customs duty for goods specified in the above mentioned-mentioned entry of notification attracts a duty of 2.5% which would be applicable to AGRAS T16 drone. Accordingly, IGST at 5% would be leviable on AGRAS T16. The remaining drones, i.e., Mavic air 2, Dji mini 2 and Phantom 4 Pro would attract customs duty at 10%. As these three unmanned aircrafts are intended for aerial photography/ videography, and hence, would attract IGST at 18%.

7. In view of my aforesaid discussions, I rule that the: –

a) Tello drone merits classification under subheading 95030010 of the first schedule to the Customs Tariff Act, 1975 and would attract basic customs duty @60% adv. and [email protected] 18%;

b) AGRAS T16 drone merits classification under subheading 88062400 of the first schedule to the Customs Tariff Act, 1975 and would attract basic customs duty @2.5% adv. and [email protected] 5%;

c) Mavic Air 2 drone merits classification under subheading 88062200 of the first schedule to the Customs Tariff Act, 1975 and would attract basic customs duty @10% adv. and [email protected] 18%;

d) Dji Mini 2 drone merits classification under subheading 88062100 of the first schedule to the Customs Tariff Act, 1975 and would attract basic customs duty @10% adv. and [email protected] 18%;

e) Phantom 4 Pro drone merits classification under subheading 88062200 of the first schedule to the Customs Tariff Act, 1975 and would attract basic customs duty @10% adv. and [email protected] 18%.

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