Case Law Details

Case Name : In re Netlink ICT Private Limited (CAAR Mumbai)
Appeal Number : Ruling Nos. CAAR/Mum/ARC/03/2022
Date of Judgement/Order : 20/01/2022
Related Assessment Year :
Courts : CAAR

In re Netlink ICT Private Limited (CAAR Mumbai)

M/s. Netlink ICT Private Limited filed an application on 30.08.2021 seeking advance rulings on the classification of GPON ONT and applicability of Sr. No. 13P of the Notification No. 24/2005-Customs, dated 01.03.2005 or Sr. No. 421 of Notification No. 50/2017- Customs, dated 30.06.2017 on the said device.

2. The applicant is an importer, manufacturer and trader of Fiber-to-the-Home (FTTH) products. They intend to import Gigabit Passive Optical Networks Optical Network Termination (hereinafter referred to as GPON ONT) for the purpose of trading. The applicant has briefly explained the GPON network and has submitted features of GPON ONTs. GPON is a type of passive optical network system specific to fibre technology that delivers broadband network access to customers. GPON network consists of three important components, namely, Optical Line Terminal (OLT), Optical Network Terminal (ONT) and Optical Distribution Network (ODN). ONT is a broadband telecommunication terminating device installed at the customer premise. It acts as the interface with the end user’s equipment. A terminal and associated equipment located at a subscriber’s premises and connected to a carrier’s telecommunication circuit at the demarcation point are known as subscriber end equipment. As per the applicant, subscriber end equipment is specifically mentioned in subheading 851769050. From the product description given above, the applicant has contested, it may be observed that the item GPON ONT, being a customer premise equipment used for transmission or reception of voice, images or other data, including apparatus for communication in a wired or wireless network, falls within the ambit of subscriber end equipment. Therefore, the impugned product is classifiable under subheading 85176950. Further, they are eligible for a nil rate of duty as per Sr. No. 13P of Notification No. 24/2005-Customs, dated 01.03.2005.

2.1 Alternatively, the applicant has proposed classification of said goods under subheading 85176930, as the functions performed by GPON ONTs are similar to that of a router. Routers are networking devices operating at layer 3 or a network layer of the OSI model. It is submitted that the GPON ONTs are used for converting the standard signals used by a Fiber Optic Services Service Provider (FiOS) to the frequency and framing used by the PASSIVE OPTICAL NETWORK (PON) system and coordinating the multiplexing between the conversion devices on the ONTs located on the customers’ premises. GPON ONTs imported by the applicant are said to be akin to a router and performs the same functions as that of a router and are hence classifiable under subheading 85176930. Further, the applicant claimed that they are eligible for a nil rate of duty as per Sr. No. 421 of Notification No. 50/2017- Customs, dated 30.06.2017, if ONT is classified as a router. The said entry exempts (i) Goods specified in List 16, other than those falling under tariff items 85176100, 85176290, 85176990, required for basic telephone service, cellular mobile telephone service, internet service or closed users’ group 64 KBPS domestic data network via INSAT satellite system service; and (ii) parts, for the manufacture of the goods at (i). One of the items in List 16 is routers listed at Sr. No. 2(c).

2.2 In relation to the above-mentioned device, the questions on which advance rulings have been sought are as follows: –

1. Whether GPON ONT is a subscriber end equipment that merits classification under subheading 85176950 of the Customs Tariff Act, 1975? If yes, whether the applicant is eligible for nil rate of duty as per Sr. No. 13P of the Notification No. 24/2005-Customs, dated 01.03.2005?

2. If the answer to the above question is no, then will GPON ONT merit classification as a router under subheading 85176930 of the Customs Tariff Act, 1975? If yes, whether the applicant is eligible for nil rate of duty as per Sr. No. 421 of the Notification No. 50/2017- Customs, dated 30.06.2017?

3. If the answers to both of the above questions are no, then under which heading will GPON ONT be classified under the Customs Tariff Act, 1975 and what is the rate of duty applicable for the said product?

4. What products are covered under subheading 85176950 Chapter 85 of the Customs Tariff Act, 1975?

3. In their CAAR-1 application, the applicant has stated that they would be importing under the jurisdiction of Principal Commissioner/ Commissioner of Customs, Chennai. The application was forwarded to the jurisdictional Principal Commissioner for Customs for comments. However, no comments have been received from the jurisdictional commissionerate.

4. The application was listed for hearing on 12.10.2021. The applicant was represented by S/Shri Jose Jacob and Antony, advocate. No one appeared on behalf of the jurisdictional Principal Commissioner. The applicant explained the product features. The applicant informed that they have imported these devices in the past through Chennai and Kochi ports. On both occasions, separate classification and rate of duty were applied. Therefore, they are seeking an advance ruling to rule out differential practices. Shri Jacob informed that there was no pending dispute with respect to these devices and that they would submit the copies of the two bills of entry. The applicant was asked to submit a product catalogue along with features, which they submitted on 18.11.21

5. I have considered all the materials placed before me in respect of the subject device. I have gone through the submissions made by the applicant during the personal hearing. In the absence of any comment from the jurisdictional Principal Commissioner/ Commissioner of Customs, on the impugned subject matter, I proceed to render an advance ruling on the basis of information available on record as well as information gathered from other reliable sources. The issue at hand is to decide the classification of GPON ONT and the applicability of Sr. No. 13P of the Notification No. 24/2005- Customs, dated 01.03.2005 or Sr. No. 421 of Notification No. 50/2017- Customs, dated 30.06.2017 on the device. To understand the features of the impugned devices we need to find out the role they play in the network architecture. FTTH is a technology that delivers communication signals from a central point to the individual customer over optical fibre. A gigabit passive optical network (GPON) is a point-to-multipoint FTTH network architecture in which unpowered optical splitters are used to enable a single optical fibre to serve multiple customers. The network topology of GPON is as follows: an optical line terminal (OLT) at the provider’s central office, optical network terminals (ONTs) at the end user’s premises and an optical distribution network (ODN) in between the OLT and ONT to split and distribute the signal travelling along the GPON. Therefore, ONT is the access node in FTTH architecture for network termination installed within user premises. The applicant has proposed subheading 85176950 (Subscriber end equipment) and subheading 85176930 (Routers) for the classification of these devices. However, it is to be noted that the import tariff of Customs Tariff Act, 1975 does not have subheading 85176930 as a router. Routers are covered under subheading 85176290.

5.1 ITU-T G.984.1 describes ONT as a single subscriber device that terminates any one of the distributed (leaf) endpoints of an ODN, implements a PON protocol, and adapts PON PDUs to subscriber service interfaces. Telecommunication Engineering Centre (TEC) functions under the Department of Telecommunications (DOT), Government of India. TEC GENERIC REQUIREMENTS document No.: TEC/GR/TX/PON-001/03/MAR-17 is referred to understand specifications for an ONT. The document describes the generic requirements and specifications for broadband access network architectures based on Fibre-to-the-Home/Building/Curb/Cab (FTTI-I/FTTB/ FTTC/FTTCab) commonly called FTTX architectures, using Gigabit-capable Passive Optical Network (GPON) technology. It is stated that the ONT is a system block to provide access to the users. The access node in FTTH architecture for network termination installed within user premises is termed as ONT. It further mandates that the ONT shall provide 1) User-interfaces (UNI) towards the customers and 2) Uplink (IFPON) interfaces to uplink local traffic towards an OLT. It further lists service support by ONT such as high-speed data/Internet; voice through in-built VoIP gateway; RF video; IP Video; in-built Wi-Fi support as per IEEE 802.11g/n/ac, etc. As per ITU-T G.984.1 (GPON general characteristics), depending upon functionalities and configurations there can be variations in ONT as described below:

a. GPON modem variant: the ONT is made as small and simple as possible. In this case, it resembles a modem that provides Layer 1 and 2 interworking between the GPON optical interface and the data link technology. The data link then carries all service flows to the customer premise equipment (CPE), which does the bulk of the service interworking function.

b. Integrated ONT: It can be considered as the merger of the GPON modem and the service-deriving CPE of the previous variant.

c. Residential gateway ONT: This is a merger of the integrated ONT and the service-deriving CPE in the previous variant. This draws Layer 3 functionality into the ONT, including such items as routing, NAT and firewall functionality.

Residential gateway ONT scenario

In a comparison of general requirements and characteristics mentioned above with the technical specifications submitted by the applicant, it is found that the impugned .device satisfies these requirements. The device appears to be similar to the residential ONT gateway. Therefore, the impugned goods are ONTs.

5.2  The impugned goods are classifiable under heading 8517 of Customs Act, 1975 which covers Telephone sets, including telephones for cellular networks or for other wireless networks: other apparatus for the transmission or reception of voice, images or other data, including apparatus for communication in a wired or wireless network (such as a local or wide area network), other than transmission or reception apparatus of heading 8443, 8525, 8527 or 8528. CTH 8517 is further subdivided into three 1-dash subheadings. The second one dash sub- heading covers 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).

5.3 Rule 1 of the GI Rules lays down that the titles of sections, chapters and sub-chapters are provided for ease of reference only; for legal purposes, classification shall be determined according to the terms of the headings and any relative section or chapter notes. The impugned device performs, inter alia, functions of an optical modem and a wi-fi router. The ONT acts as an optical modem and communicates with the internet service provider (ISP) through a fibre optical cable. The ONT sends user data upstream to the OLT and receives data on the downstream channel. ONT converts optical signal coming from optical fibre cable to digital signal and vice versa. In this capacity, it acts as a fibre optics modem. Modems are covered under subheading 85176230. Further, ONT has 802.11g/n/ac wireless technology along with common features like NAT, firewall, VLAN, IEEE 802.1p QoS, etc. These features help the device perform Wi-Fi routing functions. Routers are covered under subheading 85176290. However, the impinged device is more than a combination of a modem and a router. ONT has a user network interface (UNI) depending on which services are provided by the service operator. It also possesses Uplink (IFPON) interfaces to uplink local traffic towards an OLT. ONT management and control system (OMCI) allows a service provider to provide a diverse number of applications and services utilizing the PON, including voice, video, and data. The impugned device has an integrated OMCI remote configuration and maintenance functionality. It also supports bridging. Therefore, this device cannot be considered as a mere combination of a modem and a router. It is a device performing varied functions and is located at the customer’s premises.

The applicant has proposed a classification of impugned devices as subscriber end equipment. Subscriber end equipment, as covered under subheading 85176950, is any terminal and associated equipment located at a subscriber’s premises and connected with a carrier’s telecommunication circuit at the demarcation point. The below schematic of FTTX architecture clearly shows that the ONT is located at the subscriber’s premises.

Schematic showing various FTTX Architecture

Source: TEC GENERIC REQUIREMENTS No.: TEC/GR/FA/PON-002/02/NOV-18

Further, the Telecom Regulatory Authority of India issued a document dated 22.04.2020 containing recommendations on network testing before the commercial launch of services for wireline access services. The document is referred to find whether ONT falls under the category of subscriber end equipment. Para 2.15 (iii) is reproduced below:

Equipment at subscriber’s end, such as landline telephone set, ONT (Optical Network Terminal), ISDN TA (Terminal Adapter), Broadband modem, PABX, etc., known as CPE (Customer Premises Equipment) are required in wireline access services while in mobile services there is no such requirement.

From the description provided in the above-mentioned document, it is clear that the ONT is included as one of the devices in the category of subscriber end equipment. Subheading 85176950 specifically includes subscriber end equipment. ONT is not specifically mentioned in any other heading. Therefore, the impugned goods are classifiable under the said subheading.

GI Rule 3 states that “When by application of Rule 2 (b) or for any other reason, goods are, prima facie, classifiable under two or more headings, classification shall be effected as follows: (a) The heading which provides the most specific description shall be preferred to headings providing a more general description. However, when two or more headings each refer to part only of the materials or substances contained in mixed or composite goods or to part only of the items in a set put up for retail sale, those headings are to be regarded as equally specific in relation to those goods, even if one of them gives a more complete or precise description of the goods. ” As per GIR 3(a), a classification that specifically names the product over the one that identifies the class. Similarly, a clearer description is preferable to a general description. As the tariff entry 85176950 specifically mentions subscriber end equipment, the impugned goods are classifiable under the said entry.

Further, note 4 of Section XVI states that where a machine (including a combination of machines) consists of individual components (whether separate or interconnected by piping, by transmission devices, by electric cables or by other devices) intended to contribute together to a clearly defined function covered by one of the headings in Chapter 84 or Chapter 85, then the whole falls to be classified in the heading appropriate to that function. This Note applies when a machine (including a combination of machines) consists of separate components which are intended to contribute together to a clearly defined function covered by one of the headings in Chapter 84 or, more frequently, Chapter

85. The whole then falls to be classified in the heading appropriate to that function, whether the various components (for convenience or other reasons) remain separate or are interconnected by piping (carrying air, compressed gas, oil, etc.), by devices used to transmit power, by electric cables or by other devices. As discussed, the impugned good is a combination of devices performing different tasks which are intended to contribute together to a clearly defined function covered by subheading 85176950. Accordingly, the appropriate classification for said goods is under tariff entry 85176950.

5.4 In respect of applicability of the exemption notification, Sr. No. 13P of the Notification No. 24/2005 – Customs as amended exempts the goods specified under subheading 85176950. Accordingly, the impugned goods are eligible for benefits under the said notification.

5.5 In regards to the question of whether the impugned devices are classifiable as routers under subheading 85176930, it is observed that the routers are covered under subheading 85176290. Although the impugned goods are performing routing functions, it also has certain additional functionalities. As discussed, the device is covered under 85176950, therefore, it is not classifiable under subheading 85176290 as routers. In respect of applicability of Sr. No. 421 of Notification No. 50/2017 -Customs, it is observed that the impugned device is not a standalone router. It is a settled position of law that notification should be read and construed strictly. It is apparent that notification benefit is only available to routers. In support of the above, reliance is placed upon the judgment of the Hon’ble Supreme Court of India in the case of Commer. of Customs (Import) vs M/S. Dilip Kumar and Company (2018) 9 SCC 1 (FB)(SC), where it was held that “When there is ambiguity in exemption notification which is subject to strict interpretation, the benefit of such ambiguity cannot be claimed by the subject/assessee and it must be interpreted in favour of the revenue”. Therefore, the said goods are not eligible for the benefit under Sr. No. 13N of Notification No. 24/2005-Customs, dated 01.03.2005, as amended.

5.6 In regards to the question type of products covered under heading 85176950 Chapter 85 of the Customs Tariff Act, 1975, the Telecom Regulatory Authority of India issued a document dated 22.04.2020 containing recommendations on network testing before commercial launch of services for wireline access services is refereed. As per this document, the subscriber end equipment covers, inter alia, customer premises equipment that is required in wireline access services, including landline telephone set, ONT (Optical Network Terminal), ISDN TA (Terminal Adapter), Broadband modem, PABX, etc. Therefore, entry 85176950 covers above mentioned devices, unless there is a specific entry for such device elsewhere.

6. In view of the foregoing discussions, I rule that the imported goods are classifiable under sub­heading 85176950 of the first schedule to the Customs Tariff Act, 1975 and would be eligible to avail benefit of Sr. No. 13P of the Notification No. 24/2005 – Customs as amended. However, benefit under Sr. No. 421 of the Notification No. 50/2017- Customs, dated 30.06.2017 would not be available as a router.

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