Classification of Routers connecting two or more packet-switched networks

In re Ingram Micro India Pvt. Ltd (CAAR Mumbai)

The impugned goods are devices that connect two or more packet-switched networks or subnet works and deliver Wi-Fi network access to all parts of the house. They serve two primary functions: managing traffic between these networks by forwarding data packets to their intended IP addresses, and allowing multiple devices to use the same internet connection. The Wavlink models Quantum D2G, Quantum S2K and WL-WN529E4 are wireless routers, which use an Ethernet cable to connect to a modem. They distribute data by converting packets from binary code into radio signals, and then wirelessly broadcast them using the antennae. However, the Wavlink model HALO Base Pro X2 is a mesh Wi-Fi router. A mesh Wi-Fi system is a home networking solution that opts for a more decentralised approach. Instead of connecting all the devices through the same router, mesh Wi-Fi systems rely on multiple Wi-Fi nodes. One node is the designated primary router and is directly wired into the gateway connection, while the other nodes act as satellites. Collectively, the nodes function as a single network. The device gets connected to the node that is closest to it. As per the applicant, the subject goods are classifiable under Chapter heading 8517 of Customs Tariff Act, 1975 and ought to be specifically classified under subheading 8517 62 90, as they are routing apparatus and arc supported by the HSN Explanatory notes under Heading 85.17. Further they attract eligibility benefit of exemption under Sr. No. 13N of Notification No. 24/2005-Customs, dated 01.03.2005, as amended.

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

M/s. Ingram Micro India Pvt. Ltd. (hereinafter referred to as ‘the applicant’) filed applications for advance ruling before the Customs Authority for Advance Rulings, Mumbai (CAAR). The said applications were received in the secretariat of CAAR, Mumbai, along with enclosures, on 12.12.2022, in terms of Section 281-I (1) of the Customs Act, 1962 (hereinafter referred to as the ‘Act’). The applicant is seeking advance ruling on the classification of `Routers’ (hereinafter referred to as ‘subject goods’). The models of Routers intended for import are as follows:

2. The applicant is a registered private limited company, engaged in the distribution of Information Technology and Telecommunication products. They intend to import aforementioned models of Routers from China and sell it further to their distributors/consumers. The specifications and characteristics of the Models proposed to be imported are as follows:

2.1 As cited by the applicant, the subject goods are devices that connect two or more packet-switched networks or subnetworks and deliver Wi-Fi network access to all parts of the house. They serve two primary functions: managing traffic between these networks by forwarding data packets to their intended IP addresses, and allowing multiple devices to use the same internet connection. The Wavlink models Quantum D2G, Quantum S2K and WL-WN529E4 are wireless routers, which use an Ethernet cable to connect to a modem. They distribute data by converting packets from binary code into radio signals, and then wirelessly broadcasts them using the antennae. Whereas, the Wavlink model HALO Base Pro X2 is a mesh Wi-H router. A mesh Wi-Fi system is a home networking solution that opts for a more decentralised approach. Rather than connecting all the devices through the same router, mesh Wi-Fi systems rely on multiple Wi-Fi nodes. One node is the designated primary router and is directly wired into the gateway connection, while the other nodes act as satellites. Collectively, the nodes function as a single network. The device gets connected to the node that is closest to it. It is stated that the subject goods arc for use as Customer Premises Equipment and not for use by Enterprises, large Organisations etc. As per the applicant, the subject goods, which are used to deliver Wi-Fi network access to all parts of the house by connecting two or more packet-switched networks or subnetworks, are classifiable under Chapter heading 8517 of Customs Tariff Act, 1975 and ought to be specifically classified under subheading 85176290, and attract eligibility benefit of exemption under Sr. No. I3N of Notification No. 24/2005-Customs, dated 01.03.2005, as amended.

2.2 The following relevant portion of Chapter heading 8517 has been reiterated by the applicant:

2.3 Subsequently, the applicant has made reference to the case of Collector of Customs, Bombay v. Business Forms Ltd. Thr. 0.L.,2002(142) ELT 18(S.C., wherein the Supreme Court has held that the HSN Explanatory Notes released by the WCO aid in the interpretation of the Headings of the Tariff and may be used as a safe guide. I agree with this view and find that there are numerous Supreme Court judgments in which similar observations are placed on the record by the honourable Court. Accordingly, relevant portion of the IISN Explanatory Notes to Heading 85.17 has been extracted for reference:

This heading covers apparatus for the transmission or reception of speech or other sounds, images or other data between two points by variation of an electric current or optical wave flowing in a wired network or by electromagnetic waves in a wireless network. The signal may be analogue or digital. The networks, which may be interconnected, include telephony, telegraphy, radio-telephony, radio-telegraphy, local and wide area networks.

* * * *

(G) Other Communication Apparatus

This group includes apparatus which allows for the connection to a wired or wireless communication network or the transmission or reception of speech or other sounds, images or other data within such a network.

Communication networks include within, inter alia, carrier-current line systems, digital-line systems and combinations thereof They may be configured, for example, as public switched telephone networks, Local Area Networks (LAN), Metropolitan Area Networks (MAN) and Wide Area Networks (WAN), whether proprietary or open architecture.

This group includes:

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

(2) Modems (combined modulators-demodulators)

(3) Routers, bridges, hubs, repeaters and channel to channel adaptors

(4) Multiplexers and related line equipment (e.g., transmitters, receivers or electro­optical converters)

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

(6) Pulse to tone converters which convert pulse dialled signals to tone signals

2.4 Further, it has been stated that there is no definition of router in the Notification or under the Customs Tariff and it is settled legal position that if a meaning of a term used is not defined in the statute referring to the term, then the general meaning of the term, as set out in a dictionary and as understood in common/trade parlance can be resorted too. Accordingly, reliance for this understanding has been placed on the following decisions by the applicant:

• Balram Kumawat v Union of India & Others [(2003) 7 SCC 6281.
• Commissioner of Central Excise v Wockhardt Life Sciences Ltd. [2012 (277) E.L.T. 299 (S. C.)]
• Rohn Pulp and Paper Mills Ltd. v Collector of Central Excise 11990 (47) E.L.T. 491 (S. C.)]
• Star Paper Mills Ltd. v Collector of Central Excise [1989 (43) E.L.T. 178 (S. C.)]
• Of C. Ex., New Delhi V. Connaught Plaza Restaurant (P) Ltd., 2012 (286) E.L.T. 321 (S.C.)

Consequently, they have submitted definitions of ‘Routers’ as seen in the Dictionary of Science and Technology, Webster’s New World Dictionary and The Que’s Computer & Internet Dictionary.

2.5 The applicant has been issued 2 Show Cause Notices dated 29.12.2020 and 28.10.2021, proposing to inter-alia demand duty with respect to import of Routers. The demand is pertaining to the period prior to 01.01.2020. The proposals raised in the SCN with respect to Router arc as follows:

i. the classification adopted by the Applicant under Tariff Item 85176930 is incorrect; and;

ii. the goods are rightly classifiable under Tariff Item 85176290 and benefit of Notification No. 24/2005-Cus or Notification No. 57/2017-Cus is not available to the goods concerned.

The Show Cause Notices are pending for adjudication and have been kept in abeyance on account of Canon India Private Limited v Commissioner of Customs /2021 (3) TMI 3841 judgment and the Board Instruction No. 04/2021-Cus dated 17.03.2021. Inter-alia the applicant has clarified that the concerned SCNs do not bar the present application under Section 28 1(2)(a), as they pertain to a period when there was a specific classification for Router in the Customs Tariff (i.e.) 85176930., and thus the dispute therein was whether the Router is classifiable under Tariff Item 85176290 (as proposed by the SCN) or 85176930 (as followed by the Company). The specific Tariff Item pertaining to Router was eliminated with effect from 01.01.2020, thus Tariff Item 85176930 is not under consideration in the present application. There was no exemption for ‘Router’ under SI. No. 13N of Notification No. 24/2005-Cus during the period covered in the above SCNs. This exemption was introduced only with effect from 01.01.2020; that the models of the routers considered in the aforementioned SCNs are for use in Enterprises/offices, whereas the routers concerned in present application are much smaller and are meant for use at the houses of customers.

3. The applicant intends to import the said goods through Air Cargo Complex, Mumbai and Nhava Sheva V Commissione rate, Raigad. Accordingly, comments from the jurisdictional Commissioner of Customs (III), Air Cargo Complex and Nhava Sheva V Commissione rate, Raigad were invited immediately after receipt of applications on 12.12.2022 vide this office letter. However, no response has been received from the jurisdictional Commissioner ates.

4. Personal hearing in the matter was conducted on 17.2.2023 at the behest of the applicant. The applicant was represented by Shri. Hari Radhakrishnan (Advocate). Ile reiterated CAAR-I application by taking recourse to grounds of the application, relevant extracts of the tariff, previous rulings and technical write-up. I-le finally requested to issue ruling in the present case based on the facts on record. No one represented the jurisdictional Commissionerates of Customs in the hearing.

5. I have considered all the materials placed before me in respect of the subject goods for which an advance ruling has been sought. I have gone through the written submissions as well as the case presentation made along with display of product samples during the course of personal hearing. In the absence of comments from the jurisdictional authority on the subject goods, I proceed to pronounce ruling on the issue, on the basis of information available on record. The subject goods for which advance ruling has been sought, its characteristics, functions, utility etc. has been broadly mentioned in the aforesaid paras. Applicant has submitted definitions of ‘Routers’ as seen in the Dictionary of Science and Technology, Webster’s New World Dictionary and The Que’s Computer & Internet Dictionary. Common denominator in all these subject specific dictionaries is that ‘a router is an electronic device that examines each packet of data it receives, and then decides which way to send it onward towards its destination and forwards it’. The issue involved for advance ruling is, if the subject goods namely “Routers”, which are networking device that forward data packets between computer networks., are classifiable under Chapter subheading 8517 62 90 of Customs Tariff Act, 1975 or not, and whether they attract duty exemption benefit under Sr. No. 13N of Notification No. 24/2005-Customs, dated 01.03.2005, as amended or not.

5.1 As submitted by the applicant they have been issued Show Cause Notices dated 29.12.2020 and 28.10.2021, regarding wrong classification of “Router” under Tariff heading 85176930. As per the SCNs, the concerned goods pertaining to period prior to 01.01.2020, are rightly classifiable under Tariff heading 85176290 and are not eligible for the benefit of Notification No. 24/2005-Cus or Notification No. 57/2017-Cus. The cases are pending for adjudication and have been kept in abeyance on account of Canon India Private Limited v Commissioner of Customs [2021 (3) TMI 3841 judgment and the Board Instruction No. 04/2021-Cus dated 17.03.2021.

As per the proviso to Section 28-I(2)(a)

(2) The Authority may, after examining the application and the records called for, by order, either allow or reject the application:

Provided that the Authority shall not allow the application where the question raised in the application is -‑

(a) already pending in the applicant’s case before any officer of customs, the Appellate Tribunal or any Court;

(b) same as in a matter already decided by the Appellate Tribunal or any Court: Provided further that no application shall be rejected under this sub-section unless an opportunity has been given to the applicant of being heard: Provided also that where the application is rejected, reasons for such rejection shall be given in the order.

5.2 It is seen that the concerned SCNs pertain to a period when “Router” was explicitly classified under sub heading 85176930 and the exemption benefit for ‘Router’ under Si. No. 13N of Notification No. 24/2005-Cus hadn’t been introduced. The specific Tariff Item pertaining to Router was eliminated with effect from 01.01.2020, thus Tariff Item 8517 69 30 is not under consideration in the present application. There was no exemption for ‘Router’ under SI. No. 13N of Notification No. 24/2005-Cus during the period covered in the above SCNs.

I agree with the facts put forward by the applicant that this exemption was introduced only with effect from 01.01.2020; that the models of the routers considered in the aforementioned SCNs are for use in Lnterprises /offices, whereas the routers concerned in present application are much smaller and are meant for use at the houses of customers. However, with the elimination of Tariff heading 8517 69 30, the legal framework has changed. Under the new legal frame work, there is no dispute pending in the applicant’s case before any officer of Customs, Appellant Tribunal or any Court of Law and the same has been declared by the applicant in the CAAR-1 form. Since the new legal position w.r.t. both classification and notification benefit has come into existence w.e.f.1.1.2020 and the Show Cause Notices pertain to the legal framework prevailing to period prior 31.12.2019, I allow admission of the applications for advance ruling under Section 28-l(2)(a) of the Customs Act, 1962.

5.3 The impugned goods are devices that connect two or more packet-switched networks or subnet works and deliver Wi-Fi network access to all parts of the house. They serve two primary functions: managing traffic between these networks by forwarding data packets to their intended IP addresses, and allowing multiple devices to use the same internet connection. The Wavlink models Quantum D2G, Quantum S2K and WL-WN529E4 are wireless routers, which use an Ethernet cable to connect to a modem. They distribute data by converting packets from binary code into radio signals, and then wirelessly broadcast them using the antennae. However, the Wavlink model HALO Base Pro X2 is a mesh Wi-Fi router. A mesh Wi-Fi system is a home networking solution that opts for a more decentralised approach. Instead of connecting all the devices through the same router, mesh Wi-Fi systems rely on multiple Wi-Fi nodes. One node is the designated primary router and is directly wired into the gateway connection, while the other nodes act as satellites. Collectively, the nodes function as a single network. The device gets connected to the node that is closest to it. As per the applicant, the subject goods are classifiable under Chapter heading 8517 of Customs Tariff Act, 1975 and ought to be specifically classified under subheading 8517 62 90, as they are routing apparatus and arc supported by the HSN Explanatory notes under Heading 85.17. Further they attract eligibility benefit of exemption under Sr. No. 13N of Notification No. 24/2005-Customs, dated 01.03.2005, as amended.

5.4 It is pertinent to mention that the principles for the classification of goods are governed by the Harmonized Commodity Description and Coding System (Harmonized System or HSN) and the General Rules for Interpretation specified thereunder. In terms of GIR Rule I, “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 applicant has stated that the impugned goods are classifiable under CTI I 8517.

5.5 CTH 8517 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. In terms of the HSN Explanatory Notes to heading 8517, “This heading covers apparatus for the transmission or reception of speech or other sounds, images or other data between two points by variation of an electric current or optical wave flowing in a wired network or by electromagnetic waves in a wireless network. The signal maybe analogue or digital. The networks, which may be interconnected, include telephony, telegraphy, radio-telephony, radio-telegraphy, local and wide area networks”.

5.6 CTH 8517 is further subdivided into three 1-dash sub-headings. The second one-dash subheading 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)’. Elaborating on the other communication apparatus, the explanatory notes state that this group includes apparatus which allows for the connection to a wired or wireless communication network or the transmission or reception of speech or other sounds, images or other data within such a network. Communication networks include within, inter alia, carrier-current line systems, digital-line systems and combinations thereof. They may be configured, for example, as the public switched telephone networks, Local Area Networks (LAN), Metropolitan Area Networks (MAN) and Wide Area Networks (WAN), whether proprietary or open architecture. The group pertaining to ‘Other Communication apparatus’ inter alia includes

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

(2) Modems (combined modulators-demodulators)

(3) Routers, bridges, hubs, repeaters and channel-to-channel adaptors

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

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

(6) Pulse to tone converters which convert pulse dialled signals to tone signals”

Therefore, from the fISN explanatory notes, it is evident that the routers are specifically covered under subheading 851762.

5.7 In order to merit classification under 8517, it is essential that the subject goods under consideration meet the criteria as laid down in the relevant headings, subheading and notes cited above. From the relevant headings and I ISN notes reiterated above, it is apparent that,

(a) Switching and routing apparatus are specifically covered under Sub-heading 851762

(b)Routers arc covered as other communication apparatus in the I-ISN notes under sub-heading 851762

(c) Communication apparatus of sub-heading 851762 including routers, support the reception, conversion and transmission of signals and allow for the connection to a wired or wireless communication network.

As the goods under consideration satisfy all the above conditions, they merit classification under subheading 851762. As the routers are not specifically covered under any tariff entry under said subheading 851762, they are classified under the residual tariff heading 85176290.

6. Further, Sr. No. 13N of Notification No.24/2005-Customs, dated 01.03.2005, as amended, exempts “Routers” falling under heading 85176290 from the whole of the duty of customs leviable As the impugned goods are held as classifiable under sub-heading 8517 62 90 they are entitled to the duty exemption benefit under the notification mentioned above.

7. In view of these facts, I rule that the Routers covered under present application are classifiable under sub-heading 8517 62 90 of the first schedule to the Customs Tariff Act, 1975 and would be eligible to avail benefit of duty exemption under sr. no. 13N of Notification No. 24/2005-Customs, dated 01.03.2005, as amended.