CAAR Ruling on SFP Classification: In re Nokia Solutions

In re Nokia Solutions and Networks India Private Ltd. (CAAR Delhi)

SFP Transceiver used in optical communication systems to receive and transmit data over fiber optic cables. An ‘Optical Transceiver’ has electronic components to encodes/decode data into light pulses and then send them to the other end as electrical signals. They typically have an electrical interface on the side that connects to the inside of the system and an optical interface on the side that connects to the outside world through a fiber optic cable. Thus, based on the functioning of SFP Optical Transceivers, they are required to convert the electrical signals to optical signals and vice versa for interconnect-ing two networking equipment functioning with electrical signals or optical signals, as the case may be. Therefore, it is evident that the Optical Transceivers, being capable of converting electrical signal to optical signal and vice versa are equipped to handle and be a part of Opti-cal Transport Network, and therefore would be termed as Optical Transport Equipment / Optical Transport Network products. Hence, the subject item, SFP Transceiver is not eli-gible for the benefit of the Notification no. 57/2017-cus Sl.no. 20. In light of the above, the item SFP Transceiver is appropriately classifiable under the Customs Tariff Item 8517 6290 with rate of BCD A20%.

Looking at the legal interpretations by higher forums, the issue of classi-fication of SFP transceivers has earlier been dealt with by the CESTAT, Mumbai vide its final order no. A/85669-85671/2022 dated 29.07.2022 in the case of Reliance Jio Infocomm Ltd. v/s Commissioner of Customs-Mumbai (Air Cargo Import), wherein, it was held that SFP Transceiver is a part classifiable under CTI 85177090. The Departmental appeal against the Tribunal’s order was dismissed and the Tribunal’s order was upheld by the Hon’ble Supreme Court in the judgment rendered on 27.02.2023 in Civil Appeal No.s 1475- 1477 of 2023.

The subject CESTAT, Mumbai order dated 29.07.2022 was adjudged in favour of the im-porter by stating that the Commissioner (Appeals), Hyderabad vide order dated 25.01.2017 has held that SFPs are classifiable as parts under CTH 8517 70; that the said order of the Commissioner (Appeals), Hyderabad was accepted by the Department and no appeal was preferred; that it was not open to the Department to take a different stand on the same issue in Mumbai and Hyderabad.

However, it is pertinent to note that the Commissioner (Appeals), Hyderabad order was based on facts submitted by the original equipment manufacturer M/s. Cisco Netherlands’ in the appeals case, which was concluded based on the letter dated 03.08.2015 from the original manufacturer of the impugned item, M/s. Cisco Netherlands, wherein it was stated that SFP transceiver was not a stand-alone device and could not work on its on and hence was a part of an ethernet switch. However, on perusal of the website of Cisco, it is seen that Cisco categorizes its Transceivers under the product category ‘Interfaces and Modules’. Furthermore, M/s. Cisco System (India) Private Limited, upon import of SFP Transceivers by themselves, classifies them under the CTI 8517 6290 and pays merit rate of BCD @ 20% without claiming benefit of Notification no. 57/2017-Cus. Further, when the supplier M/s. Cisco Systems Inc., United States, supplies identical goods to other importers in India, in their invoice too have provided the HSN of the SFP Transceiver as 8517 6290, which further con-firms that CTI 8517 6290 is being followed globally for classification of SFP Transceivers.

The classification of SFP Transceiver under the CTI 8517 6290 could further bolstered by the US CROSS Rulings N301401 dated 07.11.2018; N301457 dated 16.11.2018; N301717 dat-ed 04.12.2018; N302251 dated 05.02.2019; and N311051 dated 13.04.2020 wherein it was ruled that the same are classifiable under the subheading 851762.

In conclusion, the SFP Transceivers are appropriately classifiable under the customs tariff item 8517 6290 with BCD @ 20% as the subject goods are not eligible for the benefit of the Notification no. 57/2017-cus dated 30.06.2017.

FULL TEXT OF THE ORDER OF CUSTOMS AUTHORITY OF ADVANCE RULING, DELHI

Nokia Solutions and Networks India Private Limited (also referred to as “the Applicant/NSN”) is a company engaged in the business of manufacturing and trading of telecommunication network equipment both within and outside India. network design. installation and commis-sioning, providing support services to major telecom and Internet service provider and devel-oping software. The Applicant is a major importer and seller of B2B telecom technology across mobile, fixed and cloud networks. The Applicant is servicing major telecom network service providers in India and is providing scalable optical platforms for their back-end core networks. The Applicant providing different technology solutions to the Customers. Amongst the various telecom products imported by the Applicant, Small Form Factor Pluggable (SFP, XFP, QSFP. CFP) (hereinafter together referred as “SFP/subject goods”) is one of the products. The Applicant is importing SFP and selling the same domestically to its Customers. The Applicant is presently importing the subject goods at Chennai port and Delhi port.

1.1 The SFP is a compact, pluggable transceiver module. SFP interface on a networking hard-ware is a modular, plug-and-play, slot, for a variable, media-specific transceiver to connect a fibre optic cable (refer the picture below):

1.2 The SFP modules are used in multiple telecom equipment’s using different technologies to facilitate high-speed connections between switches and networking equipment. Before we proceed to understand in detail on the functioning of the SFP’s, it is important to first provide an overview of the equipment’s, within which such SFPs are used.

1.3 The various telecom equipment’s which the Applicant installs at the customer premises are scalable and modular in architecture. The equipment consists of shelves optimized for varying optical network deployment environments. The equipment can be deployed as a sin-gle-shelf NE, a main shelf, or an expansion shelf as the need arises. There are various cards which are required to be slotted into a shelf to be usable. The shelf provides the electrical power to all slotted cards with different voltage levels and the local controller on each card (when present) interfaces with the equipment controller to enable the correct operation of the card itself.

1.4 All the cards interface with each other via backplane in the shelf of the main equipment. The backplane interface is proprietary of the manufacturer and not universal. The cards form-ing part of the equipment are populated printed circuit boards assembly (“PCBA”) comprising of mechanics, connectors, faceplate and a number of other electronic components, which contribute to the manipulation of optical signals via carrier current systems and/or digital line systems. However, there are some cards which require a SFP module to be inserted into cards to work within the equipment and to provide the required result. The SFP based cards will not function until SFP is not embedded on them. Thus, SFPs are an integral part of the card and card is an integral part of the overall equipment.

1.5 The above equipment’s can be broadly categorised as below on the basis of the network within which they are to used:

a. Gigabit Passive Optical Network (GPON) system (eg: OLT/ONT)

b. Wavelength Division Multiplexing (eg: DWDM and CWDM)

c. Internet protocol (eg: Routers)

d. Mobile Network (eg: Microwave link)

1.6 In the table below we have summarised the functioning of the SFP’s in each of the above network areas and equipment’s installed therein:

1.7 Basis the above submissions, Applicant submits that even though the SFP modules are used by the Applicant in multiple telecom equipment’s using different technologies, whereas the function of the SFP module is same i.e., transmission, conversion and reception.

1.8 The Applicant further submits as below w.r.t the functioning of the SFP modules:

– SFP’s provides interface to connect equipment’s over multi-ple network via optical fiber cable

– SFP’s cannot function on its own and will need to be inserted into the respect card slots so as to provide the necessary functionality o th^–Ftzta smission, reception and conversion.

– Applicant is of a considered opinion that the SFPs are an im-portant element & part of its networking solutions. The different models of SFPs presently being imported (the same is explained in later part) by the Applicant.

1.9 Accordingly, the Applicant have been importing the subject goods under CTH 85176290 and had been discharging BCD @ 20%. Further, the classification is adopted globally by the Applicant. Copy of import documentation including BoE, commercial invoice, packing list etc. in relation to SFPs mentioned above is enclosed herewith and marked as Annexure “B”.

Judgment in the case of Reliance Jio Infocomm and IBM India Private Limited.

1.10 In July 2022, the classification of SFPs and entitlement of exemption under Notification No. 24/2005-Cus dated 1st March 2005 became the subject matter of litigation before the Hon’ble Mumbai CESTAT in the case of Commissioner of Customs — Mumbai (Air Cargo Im-port) Vs. Reliance Jio Infocomm Limited, 2022 (8) TMI 76 – CESTAT Mumbai. The moot question in the appeal was whether the classification of SFP’s under CTH 85177090¹ (hereinafter referred as “85177090/85177990”) was justified. The Department was of the view that SFP cannot be treated as parts but instead are themselves machines and was thus clas-sifiable under CTH 85176290.

1.11 The Hon’ble CESTAT vide order no. A/85669 — 85671/2022 dated 29t^h July 2022 interalia up held Reliance’s classification of SFP as parts of telecom equipment under CTH 85177090 and further, upheld that the appel-lant is thereby entitled to claim benefit of Notification 24/2005 (supra). The Tribunal observed that SFP in themselves were merely parts of the telecom equipment and not an equipment which on its own capable of providing the essential function of transmission and reception of optical data. It is a part of Input/ Output card module used a part of the ethernet switch provid-ing interfaces to inter-connect switches, servers and routers in a data center or campus net-work.

1.12 The order of the Hon’ble Mumbai CESTAT was challenged before the Supreme Court, however, the same was dismissed as the counsel appearing for the Department conceded that the classification of SFP under 85717090 had been followed and not challenged by the customs authorities in subsequent proceedings in a different matter in another jurisdiction. [Copy of the CESTAT ruling and Supreme Court order in the case of Commissioner of Customs — Mumbai (Air Cargo Import) Vs. Reliance Jio Infocomm Limited is attached here-with and marked as Annexure “C” (colly).]

1.13 Thereafter, in April 2024, the classification of SFPs once again became the subject mat-ter of litigation before the Hon’ble Mumbai CESTAT in the case of IBM India Private Limited Vs. Commissioner of Customs (Import) — Mumbai, 2024 (4) TMI 972 — CESTAT Mumbai. At that time the Appellant was classifying SFP under CTH 85176290 and were discharging Custom duty at concessional rate by taking benefit of S. No. 20 of the Notification No. 57/2017-Cus dated 30th June 2017. The moot question in the appeal was whether the appellant was enti-tled for exemption under Notification No. 57/2017-Cus dated 30th June 2017.

1.14 The Department was of the view that SFP falls under the category of ‘Optical transport equipment’. The Department concluded the same by referring to the description of the import-ed item ‘Transceiver’ incorporates transmitter and receiver and thus it is an equipment for op-tical transportation therefore, the benefit of S. No. 20 of exemption notification denied to the appellant.

1.15 The Hon’ble CESTAT vide order no. A/85426/2024 dated 22′ April 2024 held that before reaching to the conclusion whether the concessional duty rate benefit is available or not it is pertinent to check whether the imported goods is classifiable under 85176290 in terms of the First Schedule to the Customs Tariff and then it should be checked whether the imported goods are covered under the inclusion or exclusion category of the exemption entry.

1.16 In this regard, the Hon’ble CESTAT analysed the tariff entry 8517 and held that since the impugned goods are neither telephone sets under (i), nor an apparatus/independent machine for transmission or reception of voice, images or other data, under second group of items mentioned in (ii), and are also not covered as specified part under CTI 85177010 viz., ‘Populat-ed, loaded or stuffed printed circuit boards’, these are specifically covered under the CTI 85177090 as ‘other parts’ and therefore entitled for exemption under serial no. 5(a) of Notifica-tion No. 57/2017 dated 30th June 2017.

1.17 Ruling further refers that the issue of classification of SFP is no more open to dispute as the Tribunal in the case of Reliance Jio Info comm Ltd. (supra) had decided the issue, by hold-ing that the classification adopted under CTI 85177090 by the Commissioner (Appeals), Hy-derabad which have been followed by the Commissioner (Appeals), Mumbai. Thereafter, ap-peal filed against the Tribunal order before the Hon’ble Supreme Court, also got dismissed as the classification has been accepted by the department. The relevant extract of the judge-ment is reproduced below:

“10. In view of the foregoing discussions and analysis, as well as on the basis of the judgement of the Hon’ble Supreme Court, we conclude that the product under consideration i.e., ‘Small Form-factor Pluggable Optical Transceiver’ of various models are classifiable under Customs Tariff Item (CTI) 8517 7090, and not under CTH 8517 62 90, as claimed by Revenue. Accordingly, the impugned goods are eligible for exemption/duty concession under Serial No. 5(a) of Notification No. 57/2017-Customs dated 30.06.2017, as amended.”

[Copy of the CESTAT ruling in the case of IBM India Private Limited Vs. Commissioner of Customs (Import) — Mumbai is attached herewith and marked as Annexure “D”.]

In view of the above CESTAT rulings and the functional understanding of the SFP’s basis which the Applicant has been importing and classifying such goods under CTH 8517 62 90, has led to an ambiguity in the HSN classification of the said goods.

1.18 In the above background, the Applicant intends to obtain clarity on the following:

a. What would be the correct classification of SFP’s?

1.19 The Applicant submits that before adverting to the moot question of classification of SFP, it wishes to briefly re-iterate its submission on the functioning of SFP’s within the network and telecom equipment’s cards within which such SFP’s are to be inserted. As mentioned above, SFP modules are used in multiple telecom equipment using different technologies (explained above) to facilitate high-speed connections between switches and networking equipment. The cards which are inserted within the equipment, have SFP slots, within which such SFPs are to be inserted, which then enables the transmission/reception & conversion of data/voice or images.

1.20 SFP’s thus provides interface to connect equipment’s over multiple networks via optical fiber cable and enables the transmission, conversion and reception of the data/voice/images. The structure of SFP module is just like a pen drive having ports on both the ends, where one end of the SFP is inserted to the card and other end connected with the optic fiber cable/ copper cable.

1.21 On the end where cable is attached, there are two ports in the SFP transceivers one is transmitter (Tx) and other is Receiver (Rx). SFP transceivers receives electric data and con-verts it to optic data which is transferred through the optical fibre/ copper cable attached to the Tx port of the SFP on one end and to the Rx port of the SFP connected to another switch or equipment where receives optical or electrical signals from the network medium and con-verts them back into electrical data signals for the host device.

Certain Key Aspects:

1.22 Cards which are based on SFP, will not be able to complete its function unless an SFP is attached to such cards. Thus, SFP’s are an essential part of such cards. SPF modules as im-ported by the Applicant are specifically installed with the software, which are developed based on the requirement and configuration of the cards/equipment which such SFP’s are to be used. Thus, though the hardware component of the SFP’s is standard, however, the installa-tion of the specific software makes such SFP’s unique/customized to the Applicant’s telecom equipment within which it is to be used.

1.23 And as already mentioned above, SFP’s cannot function on its own and will need to be inserted into the respect card slots so as to provide the necessary functionality of the trans-mission/reception and conversion.

Types of SFP’s Module

1.24 The Applicant uses SFPs of different configurations as per the requirement of the equip-ment. SFP modules can be categorised majorly on two basis as below:

a) Basis of mode of transmission; or

b) Basis of the form factor.

However, the basic function being discharged by the different versions of SFPs are same i.e., reception, conversion and transmission. A Nokia’s technical document on the features and functionality of the SFP is attached herewith and marked as Annexure “E”.

1.25 Different versions of SFP modules basis the mode of transmission:

S. No.	Type of SFP Module	Description
1	Single Mode Fiber SFP	Single-mode SFP is a type of transceiver that works with single-mode fiber. Single-mode fiber uses one fiber optic cable to transmit signals over long distances, with a core diameter of 9 microns and a cladding diameter of 125 microns. Single-mode SFP oper-ates on narrow wavelengths, mainly 1310 nanometers and 1550 nanometers, and has higher bandwidth than multimode SFP. Single-mode SFP can reach up to 120 km in length
2	Multimode Fiber SFP	Multimode SFP is a type of SFP module that works with multimode fiber op-tic cables. Multimode SFP uses wider wavelengths that have high dispersion rates, and it is used for short distance transmission. The common multimode SFPs work in 850nm wave-length and can reach up to 100 m or 500 m depending on the cable type. Multimode SFP is different from single-mode SFP, which works with single-mode fibers and can transmit longer distances
3	Upstream/ uplink SFP	The SFP module which is receiving the data from the equipment is known as upstream or uplink SFP module.
4	Downstream/ downlink SFP	The SFP downlink port is used for connecting to end devices which receives the data through fiber optic cable.
5	Bi-Di (Bi- directional) SFP	Bi-Directional technology means a communication mode that processes data in both directions (send and receive) over optical fiber, which allows transceiver modules to transmit and receive data to/from the interconnected network devices via a single optical fiber.
6	Grey and Color SFP	Grey transceivers are standard transceivers that transmit and receive data at one or two wavelengths, while color transceivers are those that send and receive data at multiple wavelengths.

1.26 Different versions of SFP module based on the Form factor (i.e., size) of the SFP are as follows:

a. Category 1: SFP/SFP+/SFP 28/ SFP 56/etc

SFP modules are compact optical transceivers used primarily for data communication applications. They support multiple data rates and are commonly used in networking equipment such as switches, routers, and network interface cards.

b. Category 2: XFP

This is mainly used for 10gbps and mainly used for routers, switches and network interface cards.

c. Category 3: QSFP/QSFP+/QSFP28/QSFP56/QSFPDD56/etc

QSFP modules support higher data rates as compared to SFP modules, i.e., ranging from 40 Gbps up to 400 Gbps. They are designed to handle multiple lanes of data transmission simultaneously, making them ideal for high-speed networking ap-plications in data centers and cloud computing environments. QSFP modules come in various configurations, including QSFP + QSFP28, QSFP56, and QSFP-DD, etc.

d. Category 4: CFP4/CFP2/CFP/ACO/DCO/ZR/ZR+/Uplink etc

CFP modules are larger and more robust than SFP modules, designed to support higher data rates. They typically operate at multiple data rates, making them suitable for high capacity applications such as long-haul telecommunications and data center interconnects.

A list of all such SFP modules imported by the Applicant are enclosed as Annexure “F”. Having described the function, role and types of SFP’s, we shall now proceed to provide our submissions on the HSN classification of the aforesaid SFP’s.

Classification under Customs Tariff Act, 1975

1.27 The mechanics of determining the classification of any product is as under:

– World Customs Organisation has enunciated the Harmonized Commodity Description and Coding System or Harmonized System of Tariff Nomenclature (HSN), an internationally standardized system which lays the foundation of classification of goods across the globe

– WCO has also issued Explanatory Notes to HSN (“Explanatory Notes”) which provides an insight into the meaning of expressions employed in the HSN and are used for easy interpretation of different commodity groups created under HSN

– In India, classification under the First Schedule to the Cus-toms Tariff Act (also referred to as “CTA”) is governed by the General Rules for the Interpretation of the Schedule (GRI) prescribed therein. The First Schedule and GRI are simply a derivative of the HSN issued by the WCO. Further, the Explanatory Notes provides a safe guide for interpretation of First Schedule and holds a high persuasive value as observed by the Hon’ble Supreme Court in Wood Craft Products Limited [1995 (77) ELT 23 (SC)]²

1.28 In view of the above, it becomes important to analyse the GRI to determine the proper classification under the CTA. Rule 1 of GRI provides that the classification shall be determined in line with the following which needs to be followed in sequential order:

a. terms of the headings and any relative Section or Chapter Notes; and

b. according to the remaining rules of interpretation, provided the headings or notes do not provide otherwise.

The relevant text of Rule 1 of the GRI is extracted below for reference:

“The titles of Sections, Chapters and sub-Chapters are provided for ease of reference only; for legal purposes, classification shall be determined ac-cording to the terms of the headings and any relative Section or Chapter Notes and, provided such headings or Notes do not otherwise require….”

1.29 Further, the Section or Chapter Notes and sub-notes give detailed explanation as to the scope and ambit of the respective Sections and Chapters under the Customs Tariff. The Larger Bench of Tribunal in the matter of Saurashtra Chemical, Porbandar vs. Collector of Customs 1986 (23) ELT 283 (Tr-LB) has held that the Tariffs are to be interpreted in the light of relevant Section and Chapter Notes which are statutorily binding like the headings themselves. Thus, the Section and Chapter Notes have an overriding force on the respective headings. This judgment was approved by the Hon’ble Supreme Court of India reported in 1997 (95) ELT 455 (SC).

1.30 Reference at this stage is drawn to the contesting entries which are also extracted below for reference:

Tariff Entry		Description
8517		Telephone sets, including telephones for cellular networks or for other wire-less networks; other apparatus for the transmission or reception of voice, images or other da-ta, including apparatus for communication in a wired or wireless network (such as local or wide area network)
	–	Other apparatus for 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
8517 62	—	Machines for the reception, conversion and transmission or regen-eration of voice, images or other data, including switching and routing appa-ratus
85176210 to 85176270	—	*******”*
85176290	—	Other
8517 79	–	Parts
8517 79 10	—	Populated, loaded or stuffed printed circuit boards
8517 79 90	—	Other

Applicant’s rationale for adopting classification under CTH 85176290

1.31 The Applicant submits that heading 8517 is divided into the following 3 categories:

i Telephone sets, including telephones for cellular networks or for other wireless networks;

ii Other apparatus for transmission or reception of voice, imag-es or other data including apparatus for communication in a wired or wireless network (such as a local or wide area network); and

iii Parts

Further, at a double dash level, the sub heading 851762 reads “Machines for the recep-tion, conversion and transmission or regeneration of voice, images or other data, including switching and routing apparatus”. A perusal of the same reveals that the sine quo non for classification of any item under second single dash of heading 8517 or double dash 851762 is inter alia that —

a. The product in question should be an apparatus or ma-chine; and

b. The Product in question should be capable of trans-mission, conversion and/or reception of voice, images or other data

1.32 Analysis of the expression “apparatus” and “machine”: The Applicant submits that the meaning of the expression “apparatus” and “machine” as used in the heading has not been defined in the Customs Law. Accordingly, reference needs be made to the judicial and dictionary meanings in this regard. The Hon’ble Supreme Court in Commissioner of Customs, New Delhi vs. C-Net Communication (I) Pvt. Ltd., 2007 (216) ELT337 (S.C.) while deciding the question of whether the ‘Signal Decoder’ would fall under heading 8528 having description as ‘reception apparatus for television’ or not, has analysed the term apparatus.

1.33 The Applicant submits that the ratio decidendi in the above ruling is that an apparatus should have the capability to perform its designated function when the current is passing through and not necessarily in its inmate state.

1.34 In addition to the above, the Applicant also draws reference to the judicial precedents in case of SV. Electricals Ltd. vs Commissioner of Central Ex., Bhopal the CEGAT, New Delhi [2003 (3) TMI 144] & M/s Modern Malleable Ltd., vs Commissioner of Central Excise, Calcutta – II, wherein the Hon’ble Courts have referred following dictionary meanings for the term “apparatus” and “machine”:

McGraw- Hill Dictionary of Scientific and Technical terms, IV Edition, wherein the expression “apparatus” and “machine” has been defined as be-low:

– Apparatus — a compound instrument designed to carry out a specific function;

– Machine – A mechanical, electric or electronic device, a combination of rigid or resistant bodies having definite motion and capable of performing use-ful work

Academic Press Dictionary of Science and Technolo-gy, wherein the expression “apparatus” and machine has been defined as below:

– Machine – Any device that transmits or modifies energy, an assembly of inter­related parts, each with a definite motion and separate func-tion.

Words and Phrases, Permanent Edition – Vol. 7A:

– Apparatus: It means a collection or set of materials, implements or utensils for a given work, a complex device or machine or a set of tools, appli-ances, any complex instrument for a specific action or operation, machinery or mecha-nism.

– Machine: is a mechanical contrivance that modifies, utilizes or applies energy or force for a useful purpose or function. It includes every mechanical device or continuation of mechanical powers and devices used to perform some functions or and produces a certain effect or result.

Webster’s Encyclopaedic Unabridged Dictionary of the English Language which reads as under:-

1. a group or aggregate of instruments, ma-chinery, tools, materials etc., having a particular function or intended for a specific use. 2. any complex instrument or machine for a particular purpose. 3. Any system or systematic organi-zation of activities, functions, processes, etc., directed toward a specific goal: the apparatus of government; espionage apparatus. 4. Physiol, a group of structurally different organs work-ing together in the performance of a particular function: the digestive apparatus.

1.35 The Applicant submits that a perusal of the aforesaid judgements and the dictionary meaning of the term apparatus and machine accentuate the following key parameters of ap-paratus/machines:

– Whether or not the equipment can perform the specific func-tion, is to be considered when current is passing through and not when it is in its inanimate state.

– The functionality of the equipment/apparatus is to be consid-ered once the same is connected with the power cord and the associated other equipment. It is in such a state it needs to be considered that whether the apparatus/equipment can per-form the desired function of receiving the transmission signal or not and not at the time of in-dividual import & standalone basis

– Apparatus means an instrument or device meant for specific function.

– Machine shall mean a mechanical/electrical device capable of performing the specific work/function.

1.36 The Applicant submits that in view of the above, it now becomes important to determine whether the SFP imported by it can be said to be covered within the term “apparatus”! “ma-chine”:

– the primary functionality of SFP is transmis-sion/reception/conversion of data. Thus, SFP has a specific function to perform;

– in view of the Supreme Court judgement discussed above, it is irrelevant to consider whether SFP is capable of performing such function on a standalone basis. Even if the relevant functions are being performed after being connected to the associ-ated equipment & power supply, the same will be regarded as apparatus/machine cov-ered under the heading 8517. The subject goods are capable of performing their designated functionality and actually perform the same when put into their respective slots.

Thus, SFP under consideration meet the key parameters of any “apparatus” or “machine” dis-cussed above. Accordingly, it can appropriately be deduced that the subject goods are “ma-chines” or “apparatus” meant to perform specific functions.

1.37 So far as the condition of transmission, conversion and reception of signals is concerned, the Applicant submits that it has already explained the features and functionalities of SFP in detail above. The subject goods are involved in transmission, conversion and reception of sig-nals over the optical fibres and thus the Applicant has adopted the classification of individual SFP under CTH 851762 and more specifically under CTH 8516290 at an 8-digit level, in the ab-sence of any specific entry to cover SFPs at an 8-digit level from CTH 85176210 to 85176270. Further, the Applicant has been following the same for import of SFP modules into India.

1.38 The classification of SFP under CTH 851762 at a six digit level is followed by the Applicant around the globe which is also supported by the rulings given by custom authorities of other countries.

1.39 In this regard, the Applicant submits the following global rulings with respect to the HSN classification of the SFP modules:

a. Question of QSFP module classification has been raised in front of the US custom authorities (as mentioned above a version of SFP module basis on the form factor), in which the Authority vide ruling no. N284892 dated 17th April 2017 ruled that the applicable classification of QSFP modules is tariff no. 8517.62.0050. The relevant extract of the ruling is reproduced below for your reference,

“The applicable subheading for the Quad Small Form-factor Pluggable (QSFP+) Active Optical Cables (AOC) (Model # FCI QSFP+FDR, 56 Gb/s, and Model # FCI QSFP+QDR, 40 Gb/s) will be 8517.62.0050, Harmonized Tariff Schedule of the United States (HTSUS), which provides for “Telephone sets…; other apparatus for the trans-mission or reception of voice, images or other data…: Other apparatus for transmission or re-ception of voice, images or other data…: Machines for the reception, conversion and trans-mission or regeneration of voice, images or other data…: Other.” The rate of duty will be Free.”

b. Similarly, on the application of Systems the US custom au-thority ruled vide ruling no. N301717 dated 4th December 2018 that the tariff classification of small form-factor pluggable transceivers is 8517.62.0090. The relevant extract of the ruling is extracted below for your reference:

“The applicable subheading for the small form-factor pluggable (SFP) transceiver (part # GLC-SX-MMD) and the direct attach passive SFP+ cable assembly (part # SFP-HIOGB-CU3M) will be 8517.62.0090, HTSUS, which provides for “Tele-phone sets…; other apparatus for the transmission or reception of voice, images or other da-ta…: Other apparatus for transmission or reception of voice, images or other data…: Machines for the reception, conversion and transmission or regeneration of voice, images or other data, including switching and routing apparatus: Other.” The general rate of duty will be Free.”

Ambiguity created by Judgment of Mumbai CESTAT in the case of Reliance Jio Infocomm, IBM India Private Limited and affirmation thereof by the Hon’ble Supreme Court

1.40 As mentioned above, the Hon’ble Mumbai CESTAT in the case of Reliance Jio lnfocomm Limited (supra) and IBM India Private Limited upheld the classification of SFP under CTH 85177090. While doing so, the Hon’ble CESTAT inter alia observed the following:

– The SFPs cannot be said to have an independently identifiable function themselves. Further, SFP can only operate when inserted into the shelf of the equip-ment.

– The SFPs cannot be classifies as Populated Printed Circuit Boards under CTH 8517 79 10

– The Department has not drawn any samples and did not ob-tain technical opinion to support their claim that SFP are complete machine or equipment capable of independent function themselves so as to merit classification under CTH 85176290.

The order of the Hon’ble Mumbai CESTAT in the case of Reliance Jio lnfocomm Limited was challenged before the Supreme Court, however, the same were dismissed as the counsel ap-pearing for the Department conceded that the findings of the Hon’ble CESTAT had been fol-lowed and not challenged by the customs authorities in subsequent proceedings.

1.41 The Applicant submits that with the aforesaid rulings of the Hon’ble Tribunal, CTH 8517 79 90 becomes one of the contentious and tested clas-sification for India. Further, with the order of the Supreme Court and appli-cation of doctrine of merger laid down in the case of Kunhayammed Vs. State of Kera-la [2001(129) ELT 11 (SC)], the order passed by the Mumbai Tribunal gets merged into the order of the higher forum upon affirmation, reversal, dismissal or modification by such higher forum. Further, as per the law enshrined in the Article 141 of the Constitution of India, the orders of the Hon’ble Supreme Court are binding upon all courts in India. Thus, upon dis-missal of the appeals against the Mumbai CESTAT orders on the classification of SFP by the Hon’ble Supreme Court, the orders have become binding on all courts and parties within the territory of India.

1.42 In view of the above, the Applicant submits that the classification of SFPs became a de-batable issue. The Applicant has summarised its submission above on classification of SPFs under CTH 85176290 and have also summarised the ruling of the Mumbai Tribunal on classification of SFP, which has held the classification of SFP’s under CTH 8517 79 90. The aforesaid facts and rulings have led to 2 different HSN of the same products and thus there exist an ambiguity on the HSN classification of the said goods.

1.43 In this regard, the Applicant requests your good office to provide an advance ruling basis the above facts and interpretation to resolve the above issue.

1.44 Lastly, the Applicant has summarized its response to the question raised by the instant application for ready reference:

a. What would be the correct classification of Small Form Factor Pluggable (SFP)?

The aforementioned SFP merit classification under CTH 85176290 inasmuch as the same are apparatus/machine capable of transmission, conversion and reception of signals.

1.45 The Applicant humbly prays this Hon’ble Authority that an advance ruling in the above facts and interpretation is granted to it pursuant to providing a reasonable opportunity of being heard.

2. The application was shared with the Port Commissionerate for their comments. The Port Commissionerate of Chennai-V11 (Air Cargo), Chennai with refer-ence to the application of M/s. Nokia Solutions & Networks India Pvt Ltd for the subject advance ruling, this office comments are furnished as under:

2 . 1 Eligibility in terms of Section 28E(c) of the Customs Act, 1962: Eligible;

2.2 Proviso (1)(a) of Section 281 (2) of the Customs Act, 1962: No applica-tion from the Applicant pending before this office:

2.3 Proviso (1)(b) of Section 281 (2) of the Customs Act, 1962: The issue of classification of SFP transceivers has earlier been dealt with by the CESTAT, Mumbai vide its final order no. A/85669-85671/2022 dated 29.07.2022. The subject CESTAT order in the case of Reliance Jio Infocomm Ltd. v/s Commissioner of Customs-Mumbai (Air Cargo Import) held that SFP Transceiver is a part classifiable under CTI 85177090. The Departmental ap-peal against the Tribunal’s order was dismissed and the Tribunal’s order was upheld by the Hon’ble Supreme Court in the judgment rendered on 27.02.2023 in Civil Appeal No. s 1475- 1477 of 2023.

2.3.1 Claim of the applicant regarding the nature of their activity: Correct.

2.4 Comments on the merits of the question raised: As detailed in the fol-lowing paras: Functions of the Item

2.4.1 Small Form-factor Pluggable (SFP) transceiver is described as a compact hot-pluggable network interface module format used for both telecommunication and data communication applications. The SFP module supports hot-plug, which means the module can be connected or disconnected from the switches without cutting off the power supply. Primary function of SFP transceivers is to enable communication between networking devices, such as switches. routers. and servers. over long distances using fibre optic technology.. SFP transceivers are available with a variety of transmitter and receiver specifications. allowing users to select the appropriate transceiver for each link in the networking equipment to provide the required optical or electrical reach over the available media type (e.g. twisted pair or twin axial copper cables, multi-mode or single-mode fibre cables).

2.4.2 An SFP transceiver can work on different type of media networks such assort a copper cable or fibre-optic cable, and based on their usage, they could be called `SFP transceiver’ or `SFP Optical transceiver’. The copper SFP module is also called the fiber port convert copper port module. It is a module that supports hot plugging and is in the form of SFP. Since the transmission distance of the copper module is 10-30m or 80-100m. the copper SFP module is mainly used for short-distance data transmission. On the other hand. an optical interface module, also known as an optical transceiver or optical module. is a device that converts elec-trical signals into optical signals and vice versa. It is used in optical communication systems to transmit and receive data over fiber optic cables.

2.4.3 Furthermore, whether used in Gigabit Passive Optical Network (GPON), or Wavelength Division Multiplexing (WDM) or Internet Protocol (IP) or Mobile Network, the function of SFP Optical Transceiver is to receive the data in optical form and converts the signal in to electrical signal or vice versa i.e., transmission, conversion and reception. It is an independent element which has definitive function in the networking and is equipment in it-self. The submissions made by the Applicant in the instant application with regard to the defi-nition of an apparatus/machine based on the dictionary meaning and the judicial pronounce-ments referred by the applicant have been perused and in agreement with the applicant, this office is of the view that just because the SFP does not have its own power source and be-cause it depends upon the switch for the same, it cannot be termed as a part. It performs an independent function of receiving /transmitting and converting data from electrical to optical or vice versa and hence it is indeed an independent apparatus.

Classification

2.5 The contending classification of the goods, viz, SFP Optical Transceiver, are either under CTI 8517 6290 or 8517 7990. Thus, it is clear that at the Chapter and Heading level i.e., Chapter 85 and Heading 8517, there is no dispute. The heading 8517, as per the First Schedule to the Customs Tariff Act, 1975, has three single dash (-) entries. For reference, they are repro-duced below.

CTH	Description
8517	Telephone sets, including telephones for cellular networks or for other wire-less networks; other apparatus for the transmission or reception of voice, images or other da-ta, 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 wire-less 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):
–	Parts:

2.5.1 Under the heading 8517, it has to be seen under which single dash the subject item has to be classified. The first single dash covers Telephones, hence the subject item is not cov-ered. The second single dash covers apparatus for transmission in a wired or wireless network. SFP Transceiver is a data conversion equipment that works in a wired or wireless network. To obtain further clarity on this, reference is taken from the HSN Explanatory Notes 2022. Ac-cording to the Explanatory Notes, the ‘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)’ include following groups of goods:

a. Base stations

b. Entry-phone systems

c. Videophones

d. Apparatus for telegraphic communication other than facsimile machines of heading 8443

e. Telephonic or Telegraphic Switching Apparatus

f. Transmitting and receiving apparatus for radio-telephony and radio­telegraphy

g. Other communication apparatus

Further, Explanatory Notes under pars (G), include the following as Other Communication Ap-paratus:

i. Network interface cards (e.g., Ethernet interface cards)

ii. Modems (combined modulators-demodulators)

iii. Routers, bridges, hubs, repeaters and channel to channel adaptors

iv. Multiplexers and related line equipment (e.g., transmitters, receivers or electro-optical converters)

v. Codecs (data compressors/decompressors) which have the capability of transmission and reception of digital information

vi. Pulse to tone converters which convert pulse dialled signals to tone signals.

2.5.2 As discussed in the preceding paras, the function of SFP Optical Transceiver is to receive the data in electrical form and converts the signal in to optical signal or vice versa, and there-fore, the SFP Transceiver would fall under the category of Tlectro-optical converter’. The Explanatory Notes has categorised the electro-optical converter under the de-scription ‘other apparatus for the transmission or reception of voice, images or other da-ta, including apparatus for communication in a wired or wireless network (such as a local or wide area network)’. In the Explanatory Notes, Electro-optical converter is termed as an apparatus and not as a part. Since, the item has found mention at this single dash level, there exists no necessity to go beyond this single dash and the item should be classified under the subheading/tariff items covered under this single dash entry. If the item were to be treated as parts, the explanatory would have covered under the 3^rd single dash (-) entry, which covered the parts. Therefore, the item cannot be classified as parts and would not be covered under CTHSH851779 meant to cover parts.

2.5.3 In such a scenario, the subject goods should be classified under the sub-headings/tariff items available under the second single dash. Under the second single dash, there are three double dash (–) entries available as follows.

Subheading/Tariff Item with Double Dash (–)		Description
8517	6100	Base stations
8517	62	Machines for the reception, conversion and transmission or regeneration of voice, images or other data, including switching and routing apparatus:
851769		Others

The entry at the tariff item 8517 6100 is Base station, which is a fixed transceiver and not a hot pluggable transceiver as is the case with SFP Transceiver. Hence, the subject item is not clas-sifiable here.

2.5.4 The next double dash entry is “Machines for the reception, conversion and trans-mission or regeneration of voice, images or other data, including switching and routing appa-ratus”. It has been concluded in the preceding paragraphs that SFP Transceiver is an ap-paratus for converting data (conversion data from optical to electrical and vice versa). Since, ‘conversion’ is specifically covered under the 2nd double dash, this item would be undisputedly classifiable under the subheading 8517 62.

Further, the items covered under the subheading 8517 62 are given below:

Subheading/ Tariff Item		Dash	Description
8512	62	—	Machines for the reception, conversion and transmission or regeneration of voice, images or other data, including switching and routing appa-ratus
8517	6210	—	PLCC equipment
8517	6220	—	Voice frequency telegraphy
8517	6230	—	Modems (modulators-demodulators) for xDSL based Wireline Telepho-ny
8517	6250	—	Digital loop carrier system (DLC)
8517	6260	—	Synchronous digital hierarchy system (SDH)
8517	6270	—	Multiplexers, statistical multiplexers for PDH based Wireline Telephony
8517	6290	—	Other

2.5.5 The subject item, SFP Transceiver is not specifically covered under any of the tariff items from 8517 6210 to 8517 6270. Therefore, the same has to be classified un-der the residual entry ‘other’ under the tariff item 8517 6290.

Benefit of Notification no. 5712017-Cus

2.6 The Notification no. 57/2017-cus dated 30.06.2017 provides for concessional rate of Basic Customs Duty upon import of certain items. Sl.no 20 of the subject notification provides for exclusion of the benefit of the notification for the following items:

SI. No.	Chapter Heading Sub-heading or tariff item		or or	Description of goods	Standard Rate
20	8517 8517 6990	6290	or	All goods other than following goods, namely:	10%
				a) Wrist wearable devices (commonly known as smart watches) and other smart wearable devices including smart rings, shoulder bands, neck bands or ankle bands
				b) Optical transport equipment
				c) Combination of one or more of Packet Optical Transport Product or Switch (POTP or POTS)
				d) Optical Transport Network products
				e) Internet Protocol (IP) Radios
				f) Soft switches and Voice over Internet Protocol (VoIP) equipment, namely. VolP phones, Media gateways, Gateway controllers and Session border controllers
				g) Carrier Ethernet Switches, Packet Transport Node (PTN) products, Multi-protocol Label Switching Transport Profile (MPLS-TP) products
				h) Multiple Input/Multiple Output (MIMO) and Long-Term Evolution (LTE) products
				g) Long Term Evolution (LTE) products

2.6.1 As discussed in the pars supra, SFP Transceiver is a device that converts electrical sig-nals into optical signals and vice versa. It is used in optical communication systems to re-ceive and transmit data over fiber optic cables. An ‘Optical Transceiver’ has electronic com-ponents to encodes/decode data into light pulses and then send them to the other end as elec-trical signals. They typically have an electrical interface on the side that connects to the in-side of the system and an optical interface on the side that connects to the outside world through a fiber optic cable. Thus, based on the functioning of SFP Optical Transceivers, they are required to convert the electrical signals to optical signals and vice versa for interconnect-ing two networking equipment functioning with electrical signals or optical signals, as the case may be. Therefore, it is evident that the Optical Transceivers, being capable of converting electrical signal to optical signal and vice versa are equipped to handle and be a part of Opti-cal Transport Network, and therefore would be termed as Optical Transport Equipment / Optical Transport Network products. Hence, the subject item, SFP Transceiver is not eli-gible for the benefit of the Notification no. 57/2017-cus SI.no. 20. In light of the above, the item SFP Transceiver is appropriately classifiable under the Customs Tariff Item 8517 6290 with rate of BCD @20%.

Legal controversies:

2.7 The issue of classification of SFP transceivers has earlier been dealt with by the CESTAT, Mumbai vide its final order no. A/85669-85671/2022 dated 29.07.2022. The subject CESTAT order in the case of Reliance Jio Infocomm Ltd. v/s Commissioner of Customs-Mumbai (Air Cargo Import) held that SFP Transceiver is a part classifiable under CTI 85177090. The Departmental appeal against the Tribunal’s order was dismissed and the Tribunal’s order was upheld by the Hon’ble Supreme Court in the judgment rendered on 27.02.2023 in Civil Appeal No. s 1475- 1477 of 2023.

2.7.1 The subject CESTAT, Mumbai order dated 29.07.2022 was adjudged in favour of the im-porter by stating that the Commissioner (Appeals), Hyderabad vide order dated 25.01.2017 has held that SFPs are classifiable as parts under CTH 8517 70; that the said order of the Commissioner (Appeals), Hyderabad was accepted by the Department and no appeal was preferred; that it was not open to the Department to take a different stand on the same issue in Mumbai and Hyderabad.

2.7.2 However, it is to be noted that the genesis to the CESTAT, Mumbai order dated 29.07.2022 is the appeals order dated 25.01.2017 of Commissioner (Appeals), Hyderabad. The subject CESTAT, Mumbai order, without examining the issue on merits, only relied upon the Commissioner (Appeals), Hyderabad order and issued the final order in favour of the importer as the Commissioner (Appeals), Hyderqder was accepted by the Department. It is pertinent to note that the Commissioner (Appeals), Hyderabad order was based on misrepresented facts original equipment manufacturer M/s. Cisco Netherlands’. The appeals order was con-cluded based on the letter dated 03.08.2015 from the original manufacturer of the impugned item, M/s. Cisco Netherlands’, wherein it was stated that SFP transceiver was not a stand-alone device and could not work on its own and hence was a part of an ethernet switch. However, on perusal of the website of Cisco, it is seen that Cisco categorizes its Trans-ceivers under the product category ‘Interfaces and Modules’. Furthermore, M/s. Cisco System (India) Private Limited, upon import of SFP Transceivers by themselves, classifies them under the CTI 8517 6290 and pays merit rate of BCD 20% without claiming ben-efit of Notification no. 57/2017-Cus. (copies enclosed) Further, when the supplier M/s. Cisco Systems Inc., United States, supplies identical goods to other importers in India, in their invoice too have provided the HSN of the SFP Transceiver as 8517 6290 (copies en-closed), which further confirms that CTI 8517 6290 is being followed globally for classifica-tion of SFP Transceivers. It can be inferred that the Commissioner (Appeals), Hyderabad order was pronounced based on misstated facts. Both, the Commissioner (Appeals), Mumbai in his order dated 30.08.2018 and the CESTAT, Mumbai in its order dated 29.07.2022, relied upon the Order of Commissioner (appeals), Hyderabad.

2.7.3 The classification of SFP Transceiver under the CTI 8517 6290 is further bolstered by the US CROSS Rulings N301401 dated 07.11.2018 and N301717 dated 04.12.2018, wherein it was ruled that the same are classifiable under the subheading 851762.

2.7.4 In light of the new emerging facts post the Commissioner (Appeals), Hyderabad’s order dated 25.01.2017 and the fact that principles of res judicata is not applicable in taxation matters, department is contemplating steps to reverse the aforesaid .order of the Hon’ble CESTAT, Mumbai. Currently, in a number of cases, the matter is under adjudication by CESTATs as detailed below:

(i) Departmental Appeal by ACC, Mumbai: Order in Original No. CCGSS/11/2023-24 Adj.(I) ACC dated 14.08.2023 was passed by the Commissioner of Customs, Import, ACC, Mumbai, in the case of M/s Reliance Jio Info-comm Ltd. Vide the said order, adjudicating authority held the SFP classifiable under sub-heading 8517.70 as parts. However, on review, the Committee of Chief Commissioners di-rected the AA to file an appeal against the order. An appeal has accordingly been preferred be-fore CESTAT, Mumbai and the same is pending.

(ii) Party appeal before CESTAT, Chennai: SFP transceiver Modules imported by M/s. Savex Technologies Pvt Ltd vide Bill of Entry no. 6183721 dated 09.11.2021 were self-classified by the importer under CTI 85177090 as parts. The classification declared by the importer was rejected by the Assessing Au-thority and the goods were reclassified under CTI 85176290. The party filed an appeal before the Commissioner (Appeals), Chennai, wherein they agreed with the classification 85176290 but contended that they were eligible for the duty exemption vide serial number 20 of the noti-fication 57/2017 Cus dated 30.06.2017, as amended. Commissioner (Appeals), relying on the order dated 29th July 2022 of CESTAT, Mumbai in case of Reliance Jio Infocomm, ordered clas-sification of the SFP Transceivers under CTI 85177090(now 85177990). Department has filed an appeal against the 01A in CSTAT, Chennai.

2.8 In conclusion, the SFP Transceivers are appropriately classifiable under the customs tariff item 8517 6290 with BCD a 20% as the subject goods are not eligible for the benefit of the Notification no. 57/2017-cus dated 30.06.2017. It is further requested that we may be heard in person/through the authorized representative be-fore the issue is decided. This issues with the approval of pr. Commissioner of Customs, Air Cargo Complex, Chennai VII.

3. Personal Hearing: In the instant matter was held on 23.09.2024 vide hy-brid mode where Authorized Representative (AR) of the applicant attended the hearing physi-cally and the authorized representative of the concerned Commissionerate attended the hearing through virtual mode. During the personal hearing, the AR of the applicant started by giving brief background of the applicant company and explained functioning of the goods in question, in brief. He stated that they had been importing the goods in question under classifi-cation 85176290 and referred to the judgement in the case of M/s Reliance vide which it has been ordered to classify such goods under 85177010 as parts. Thus, now there is a dichoto-mous situation, where there are two competing heads for the said classification of SFP under 85176290 vs 85177010, for which the applicant wants a conclusive ruling on classification of the equipment.

Additional Submissions by the Applicant

4. In respect to the above application, the applicant has submitted its additional submissions basis the discussions made during the course of the personal hearing : –

Our submissions w.r.t functionality of SFP’s

The SFP is a compact, pluggable transceiver module, which once inserted in the telecom equipment enables the equipment to transmit data to network switch connecting the other end through fiber optic cables by converting the electric signal into optic signal. The other end SFP module converts the signal received into electric signal which enable scalability and al-lows network operators to incrementally increase the capacity or modify network configura-tions without replacing entire units. The SFP which is connected with the cable contains two ports, one is transmitter (Tx) and other is Receiver (Rx). SFP transceivers receives electric data and converts it to optic data which is transferred through the optical fibre/ copper cable at-tached to the Tx port of the SFP on one end and to the Rx port of the SFP connected to another switch or equipment where receives optical or electrical signals from the network medium and converts them back into electrical data signals for the host device

4.1 The Applicant further submits as below w.r.t the functionality and features of the SFP mod-ules: (i) SFP’s provides interface to connect equipment’s over multiple networks via optical fiber cable; (ii) SFP’s cannot function on its own and will need to be inserted into the respect card slots so as to provide the necessary functionality of the transmission, reception and con-version; (iii) Cards which are based on SFP, will not be able to complete its function unless an SFP is attached to such cards. Thus, SFP’s are an essential part of such cards; (iv) SFP’s are of different configurations as per the requirement of the equipment; (v) SPF modules as imported by the Applicant are specifically installed with the software, which are developed based on the requirement and configuration of the cards/equipment which such SFP’s are to be used. Thus, though the hardware component of the SFP’s is standard from the mechanical sizing and appearance, however, installation of the specific software and ensuring compliance to Nokia specific technical specification and environmental parameters makes such SFP’s unique/customized to the Applicant’s telecom equipment with which it is to be used.

Our submissions of how the SFP’s used by the Applicant are unique/specific to the Nokia’s Telecom Equipment’s:

A. In this reference, the Applicant wishes to highlight that Nokia has a thorough process for customizing SFPs. This process involves several aspects of Nokia’s design specifications, in-cluding but not limited to, precise operating conditions, critical electrical and optical inter-face characteristics, and Electrically Erasable Programmable Read-Only Memory (EEPROM) customization. The Applicant’s SFPs technical specifications are developed by the R&D team outlining the detail of the comprehensive customization requirements for SFP modules These specifications include customization of EEPROM, as well as precise electrical, optical, and mechanical characteristics necessary for achieving optimal performance. Additionally, these specifications outline the programmable management interfaces needed for seamless integration with Nokia’s Optical Network. This detailed approach ensures that the SPFs’ not only meet but also enhance the functionality of the Nokia Optical Network, aligning with the company’s stringent standards and business requirements.

B. The Applicant provides the technical specifications to SFP’s vendors through the Request for Information (RFI) or Request for Quotation (RFQ) process. In response, the vendors respond in the process of RFI/RFQ with the commitments to Nokia customized design as well as the possible exception list approved by Nokia based on their generic platforms. Upon receiving the customized SFPs from the vendors, the Applicant performs system integration through repro-grammable registers and interfaces of the pluggable modules. Additionally, component-level and system-level Hardware Integration (HVVI)/Final System Verification (FSV) verification tests are conducted. Once these tests are successfully completed, the Nokia-customized op-tical pluggable transceivers are approved at the Customer Pilot (CP) level and are formally re-leased to customers and their networks. The Applicant submits that to meet these custom requirements of the Applicant, vendors must undertake firmware optimization and repro-gramming. The said customisation is a primary requirement to make SFP compatible for in-teractions with Nokia’s Network Element (NE) software to ensure seamless integration with hosting devices and to fulfil the business requirements of Nokia’s Optics BU. Below are some key specifications of the Applicant’s SFPs, which highlight the essential features and customi-zation details that ensure their optimal performance and integration within Nokia’s network systems:

4.2 EEPROM Customization: The Applicant’s SFPs feature customized EEPROMs that contain detailed information specific to Nokia. The Applicant -defined Remote Inventory (RI) is programmed/written inside the EEPROM of the pluggable modules, including Nokia Part Code, Nokia Name, CLEI code, Nokia serial number, Acronym, ICS, together with the Transceiver Codes etc., which allow the hosting products / devices to recognize its Nokia identity and the different types of Nokia certified transceivers in applications.

4.3 Nokia Proprietary requirements: The Applicant provides the proprietary requirements based on the special need of network designs, supporting the unique applications etc. which makes the Applicant’s SFPs unique and different from standard.

4.4 Labelling: The Applicant provides the SFP vendors the product label and box label that are to be applied to the Applicant-specific SFPs.

4.5 Fast Transmission Recovery Time: Our SFPs are engineered to quickly recover from any interruptions in data transmission. This rapid recovery is crucial for maintaining uninterrupted network performance, which is often required in high-demand environments. In contrast, standard SFPs may not be optimized for such swift recovery, potentially leading to longer downtimes.

4.6 Tolerance to Data Frequency Variation: The Applicant’s SFPs are designed with a higher tolerance for variations in data frequency. This customization allows for better identification, tracking, and integration with the Applicant’s systems means they can handle fluctuations in data rates more effectively, ensuring stable and reliable communication.

4.7 Extended Temperature Range: The standard SFPs typically operate within a commercial temperature range of 0 to 70°C, however, the Applicant’s SFPs are built to perform reliably over a wider temperature range. This extended range is crucial for applications in more de-manding or extreme environments, where maintaining performance across varying tempera-tures is essential.

4.8 Beginning of Life (BOL) Margins: The Applicant incorporate specific margins at the begin-ning of the SFP lifecycle to ensure optimal performance throughout its use. These BOL margins are tailored to meet Nokia’s specific requirements and are designed to address potential per-formance variations early in the product’s life. In addition to the previously outlined specifica-tions. the following are additional key details of the Applicant’s SFPs: 16.1 Support for a range of framing formats to accommodate various network requirements; 16.2 Timing requirements for hardware and software signals to ensure precise synchronization and performance; 16.3 Data recovery time for both transmit (Tx) and receive (Rx) paths to maintain high-speed data integrity; 16.4 Alarm and warning thresholds for optical power (Tx/Rx) and supply voltage. aligned with end-of-life (EOL) parameters to monitor and maintain optimal performance: 16.5 Digital Diagnostic Monitoring (DDM) accuracy definitions that enable hosts to detect when specific values fall outside of normal operating limits. SFPs to initially power up in a low power mode as specified by Nokia and remain in this mode until the host system enables a higher power mode, following Nokia’s sequential procedure for full operational capability.

4.9 In reference to the above the Applicant wants to submit that the most compelling proof of these customizations is the Exception Lists (EL). We sign exception lists with each supplier. These documents clearly outline any deviations from standard specifications. including waiv-ers on beginning of life (BOL) margins and adjustments to meet Nokia’s specific needs. Addi-tionally, the designed with the vendors detail the EEPROM customizations. including the EEPROM dumps, which further illustrate how our SFPs are adapted to our requirements. The sample copy of exception list is attached herewith and enclosed as Annexure A. Based on the above information, the Applicant emphasizes that the SFPs are unique and specifically de-signed as per the Nokia’s standard and end telecom hardware. Standard SFPs, when substituted, may perform some functions but will not fully replicate the capabilities and per-formance of the Applicant’s customized SFPs.

4.10 In reference to the above submission, the Applicant further wishes to draw attention of your good office towards the decision of the Hon’ble CESTAT Delhi in the case of M/s Vodafone Idea Limited v. Principal Commissioner of Customs wherein the Hon’ble CESTAT held that the Small Form Factor Pluggable (SFP) transceivers are rightly classifiable CTH 8517 70 9011 W.e.f. 1st January 2022, the HSN have been harmonized and any reference to CTH 85177010 or 85177090 in this application would necessarily mean a reference to 85177910 and 85177990 respectively, since both are pari materia each other. and not under CTH 8517 62 90. At para no. 24 the Hon’ble at para no. 24. the Hon’ble CESTAT has observed as below while holding the above:

In the present case, the subject goods under dispute are not cross compatible with devices of other manufacturers and hence are solely usable for the pre-determined purpose i.e., usage with the main equipment. Thus, the subject goods also have no separable function of their own

4.11 Below is the summary of decisions where the SFPs are held as parts under CTH 8517 79 90 for your good office easy reference:

A copy of the above orders passed are enclosed and marked as Annexure B.

4.12 In all the above judgements, the decisions were based on two key considerations: (i) The absence of a separate identifiable function of its own; (ii) The inability to operate independent-ly of the main machine; (iii) The SPFs are unique to the applicant’s telecom equipment [para 24 above of the Vodafone judgement]

4.13 Applicant submits that the SFPs in question do fulfill all of the above criteria’s, based on which the Hon’ble Courts/CESTAT’S have held that SFPs are rightly classifiable as a part under CTH 8517 79 90 rather than as equipment [CTH 8517 62 90].

4.14 In light of the aforementioned decisions and the coverage of our SFP’s within the same, the Applicant now wishes to classify the SFPs under CTH 8517 79 90 for future clearances & has also made this application before this authority to seek clarification on the appro-priate classification.

4.15 As the Applicant believes that consistent application of these precedents is crucial for ensuring fair and equitable treatment. Furthermore, the Applicant remains committed to fol-low the correct classification and complying with all relevant regulations. In addition to the above, as discussed during the personal hearing, Nokia is classifying the SFPs under CTH HSN 8517 79 [i.e., as parts and not machine/apparatus] in several ASEAN countries. To support this classification, the Applicant has enclosed a copy of the declaration filed by NSN China and relevant invoices as Annexure C.

5. I have gone through the detailed submission by the applicant, the comments made by the Port Commissionerate and examine both the competing heads for classification of SFP. It may be pertinent to mention that both the applicant and the respondent acknowledge the fact that the Small Form-factor Pluggable (SFP) transceiver could adequately be covered under the classification head 85176290. The Port Commissionerate has dealt the issue rationally and logically and laid down the reasons for pointing towards such classification as mentioned above.

5.1 At the cost of repetition, it is reiterated that the function of SFP trans receiver has been to receive the data in optical form and converts the signal into electrical signal or vice versa i.e., transmission, conversion and reception. It is an independent element which has definitive function in the networking and is equipment in itself. It appears that the Port Commissionerate is rightly of the view that because the SFP does not have its own power source and also as it depends upon the switch for the same, it cannot be termed as a part. It performs an independent function of receiving /transmitting and converting data from electri-cal to optical or vice versa and hence it is indeed an independent apparatus.

5.2 Looking at the classification of the goods, viz, SFP Optical Transceiver, are either under CTI 8517 6290 or 8517 7990. Thus, it is clear that at the Chapter and Heading level i.e., Chapter 85 and Heading 8517, there is no dispute. The heading 8517, as per the First Schedule to the Customs Tariff Act, 1975, has three single dash (-) entries. For reference, they are repro-duced below.

CTH	Description
8517	Telephone sets, including telephones for cellular networks or for other wire-less networks; other apparatus for the transmission or reception of voice, images or other da-ta, 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 wire-less 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):
–	Parts:

5.3 Under the heading 8517, the first single dash covers Telephones, hence the subject item is not covered. The second single dash covers apparatus for transmission in a wired or wireless network. SFP Transceiver is a data conversion equipment that works in a wired or wireless network. To obtain further clarity on this, reference is taken from the HSN Explanatory Notes 2022. According to the Explanatory Notes, the ‘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)’ include following groups of goods: Base stations; Entry-phone systems; Videophones; Apparatus for telegraphic commu-nication other than facsimile machines of heading 8443; Telephonic or Telegraphic Switching Apparatus; Transmitting and receiving apparatus for radio-telephony and radio-telegraphy; Other communication apparatus. Further, Explanatory Notes under para (G), include the fol-lowing as Other Communication Apparatus: Network interface cards (e.g., Ethernet interface cards); Modems (combined modulators-demodulators); Routers, bridges, hubs, repeaters and channel to channel adaptors; Multiplexers and related line equipment (e.g., transmitters, re-ceivers or electro-optical converters); Codecs (data compressors/decompressors) which have the capability of transmission and reception of digital information; Pulse to tone converters which convert pulse dialled signals to tone signals.

5.4 As discussed in the preceding paras, the function of SFP Optical Transceiver is to receive the data in electrical form and converts the signal in to optical signal or vice versa, and there-fore, the SFP Transceiver would fall under the category of `Electro-optical converter’. The Explanatory Notes has categorised the electro-optical converter under the de-scription `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)’. In the Explanatory Notes, Electro-optical converter is termed as an apparatus and not as a part. Since, the item has found mention at this single dash level, there exists no necessity to go beyond this single dash and the item should be classified under the subheading/tariff items covered under this single dash entry. If the item were to be treated as parts, the explanatory would have covered under the 3¹d single dash (-) entry, which covered the parts. Therefore, the item cannot be classified as parts and would not be covered under CTHSH851779 meant to cover parts.

5.5 In such a scenario, the subject goods should be classified under the sub-headings/tariff items available under the second single dash. Under the second single dash, there are three double dash (–) entries available as follows.

The entry at the tariff item 8517 6100 is Base station, which is a fixed transceiver and not a hot pluggable transceiver as is the case with SFP Transceiver. Hence, the subject item is not clas-sifiable here.

5.6 The next double dash entry is “Machines for the reception, conversion and transmis-sion or regeneration of voice, images or other data, including switching and routing apparatus”. It has been concluded in the preceding paragraphs that SFP Transceiver is an apparatus for converting data (conversion data from optical to electrical and vice versa). Since, ‘conversion’ is specifically covered under the 2n^d double dash, this item would be undisputedly classifiable under the subheading 8517 62.

Further, the items covered under the subheading 8517 62 are given below:

Subheading/ Tariff Item		Dash	Description
8512	62	—	Machines for the reception, conversion and transmission or regeneration of voice, images or other data, including switching and routing appa-ratus
8517	6210	—	PLCC equipment
8517	6220	—	Voice frequency telegraphy
8517	6230	—	Modems (modulators-demodulators) for xDSL based Wireline Telepho-ny
8517	6250	—	Digital loop carrier system (DLC)
8517	6260	—	Synchronous digital hierarchy system (SDH)
8517	6270	—	Multiplexers, statistical multiplexers for PDH based Wireline Telephony
8517	6290	—	Other

5.7 The subject item, SFP Transceiver is thus not specifically covered under any of the tariff items from 8517 6210 to 8517 6270. Therefore, the same has to be classified under the residual entry ‘other’ under the tariff item 8517 6290.

5.8 Let us also examine whether the benefit of the Notification no. 57/2017-Cus dated 30.06.2017 would be available for the applicant under the current application. The Notifica-tion provides for concessional rate of Basic Customs Duty upon import of certain items. Sl.no 20 of the subject notification provides for exclusion of the benefit of the notification for the fol-lowing items:

SL. No.	Chapter or Heading or Sub-heading or tariff item	Description of goods	Standard Rate
20	8517 6290 or 8517 6990	All goods other than following goods, namely: a) Wrist wearable devices (commonly known as smart watches) and other smart wearable de-vices including smart rings, shoulder bands, neck bands or ankle bands	10%
		b) Optical transport equipment
		c) Combination of one or more of Packet Optical Transport Product or Switch (POTP or POTS)
		d) Optical Transport Network products
		e) Internet Protocol (IP) Radios
		f) Soft switches and Voice over Internet Protocol (VoIP) equipment, namely, VoIP phones, Media gateways, Gateway controllers and Session border controllers
		g) Carrier Ethernet Switches, Packet Transport Node (PTN) products, Multi-protocol Label Switching Transport Profile (MPLS-TP) products
		h) Multiple Input/Multiple Output (MIMO) and Long- Term Evolution (LTE) products
		i) Long Term Evolution (LTE) products

5.8.1 As discussed in the pars supra, SFP Transceiver used in optical communication systems to receive and transmit data over fiber optic cables. An ‘Optical Transceiver’ has electronic components to encodes/decode data into light pulses and then send them to the other end as electrical signals. They typically have an electrical interface on the side that connects to the inside of the system and an optical interface on the side that connects to the outside world through a fiber optic cable. Thus, based on the functioning of SFP Optical Transceivers, they are required to convert the electrical signals to optical signals and vice versa for interconnect-ing two networking equipment functioning with electrical signals or optical signals, as the case may be. Therefore, it is evident that the Optical Transceivers, being capable of converting electrical signal to optical signal and vice versa are equipped to handle and be a part of Opti-cal Transport Network, and therefore would be termed as Optical Transport Equipment / Optical Transport Network products. Hence, the subject item, SFP Transceiver is not eli-gible for the benefit of the Notification no. 57/2017-cus Sl.no. 20. In light of the above, the item SFP Transceiver is appropriately classifiable under the Customs Tariff Item 8517 6290 with rate of BCD A20%.

5.9 Looking at the legal interpretations by higher forums, the issue of classi-fication of SFP transceivers has earlier been dealt with by the CESTAT, Mumbai vide its final order no. A/85669-85671/2022 dated 29.07.2022 in the case of Reliance Jio Infocomm Ltd. v/s Commissioner of Customs-Mumbai (Air Cargo Import), wherein, it was held that SFP Transceiver is a part classifiable under CTI 85177090. The Departmental appeal against the Tribunal’s order was dismissed and the Tribunal’s order was upheld by the Hon’ble Supreme Court in the judgment rendered on 27.02.2023 in Civil Appeal No.s 1475- 1477 of 2023.

5.9.1 The subject CESTAT, Mumbai order dated 29.07.2022 was adjudged in favour of the im-porter by stating that the Commissioner (Appeals), Hyderabad vide order dated 25.01.2017 has held that SFPs are classifiable as parts under CTH 8517 70; that the said order of the Commissioner (Appeals), Hyderabad was accepted by the Department and no appeal was preferred; that it was not open to the Department to take a different stand on the same issue in Mumbai and Hyderabad.

5.9.2 However, it is pertinent to note that the Commissioner (Appeals), Hyderabad order was based on facts submitted by the original equipment manufacturer M/s. Cisco Netherlands’ in the appeals case, which was concluded based on the letter dated 03.08.2015 from the original manufacturer of the impugned item, M/s. Cisco Netherlands, wherein it was stated that SFP transceiver was not a stand-alone device and could not work on its on and hence was a part of an ethernet switch. However, on perusal of the website of Cisco, it is seen that Cisco categorizes its Transceivers under the product category ‘Interfaces and Modules’. Furthermore, M/s. Cisco System (India) Private Limited, upon import of SFP Transceivers by themselves, classifies them under the CTI 8517 6290 and pays merit rate of BCD @ 20% without claiming benefit of Notification no. 57/2017-Cus. Further, when the supplier M/s. Cisco Systems Inc., United States, supplies identical goods to other importers in India, in their invoice too have provided the HSN of the SFP Transceiver as 8517 6290, which further con-firms that CTI 8517 6290 is being followed globally for classification of SFP Transceivers.

5.9.3 The classification of SFP Transceiver under the CTI 8517 6290 could further bolstered by the US CROSS Rulings N301401 dated 07.11.2018; N301457 dated 16.11.2018; N301717 dat-ed 04.12.2018; N302251 dated 05.02.2019; and N311051 dated 13.04.2020 wherein it was ruled that the same are classifiable under the subheading 851762.

6. In conclusion, the SFP Transceivers are appropriately classifiable under the customs tariff item 8517 6290 with BCD @ 20% as the subject goods are not eligible for the benefit of the Notification no. 57/2017-cus dated 30.06.2017.

7. I, rule accordingly.

(SAMAR NANDA)
Customs Authority for Advance Rulings, New Delhi

Notes:-

¹ W.e.f. 1st January 2022, the HSN have been harmonized and any reference to, 85177090 in this application would necessarily mean a reference to 85177910 and 85177990 respectively, since both are pari materia each other

² Collector of Central Excise us. Bakelite Hylam /1997 (91) E.L.T. 13 (S.C.)J Collector of Customs us. Business Forms Ltd. 1(2005) 7 SCC 143J Holostick India Ltd. us. Commissioner of Central Excise 1(2015) 7 SCC 4011