ACD Communication Pvt. Ltd. Vs Commissioner of Customs (Port-Import) (CESTAT Chennai)
Conclusion: The goods imported such as main PCB, lightning protector, DC/AC cables, fuse holders are neither parts nor accessories of Integrated Fixed Wireless Telephones ( IFWT )could not be considered as accessory as these parts were not used to increase the effectiveness or convenience of IFWT. Therefore, the goods imported were neither parts nor accessories of IFWT and therefore could not avail the benefit of notification for Customs duty exemption.
Held: Assessee-company imported and cleared goods declared as “12V SMPS consisting of Main PCB, lightening protector, DC/AC cables, fuse/fuse holders and others” vide Bill of Entry. At the stage of scrutiny in the Post Clearance Audit (PCA), it was noticed that the goods had been classified under CTH 85299090 as parts of IFWTs operating on cellular technology and claiming the benefit of Customs Notification No.21/2005-Cus. dt. 1.3.2005 and Notification No.6/2006-CE dt. 1.3.2006 at ‘Nil’ rate of duty. As per Notification No.21/2005-Cus. dt. 1.3.2005, parts, components and accessories of mobile handsets including cellular phones were exempted from Customs duty. The Department was of the view that the imported goods were nothing but parts of the Switch Mode Power System (SMPS) classifiable under CTH 85049090. Show cause notice was issued proposing to reclassify the goods under Section 85049090 and for demanding the differential duty along with interest. It was held that the goods imported were parts of SMPS. SMPS (Switch Mode Power System ) was not a part of IFWT. The goods imported could not be considered as accessory as these parts were not used to increase the effectiveness or convenience of IFWT. Therefore, the goods imported were neither parts nor accessories of IFWT and therefore could not avail the benefit of notification.
FULL TEXT OF THE CESTAT CHENNAI ORDER
Brief facts of the case are that appellant M/s.ACD Communications Pvt. Ltd. imported and cleared goods declared as “12V SMPS consisting of Main PCB, lightening protector, DC/AC cables, fuse/fuse holders and others” vide Bill of Entry dated 03.03.2007. The goods were sold on High Sea Sale basis by ICOMM Tele Ltd. to the appellant herein. At the stage of scrutiny in the Post Clearance Audit (PCA), it was noticed that the goods had been classified under CTH 85299090 as parts of IFWTs operating on cellular technology and claiming benefit of Customs Notification No.21/2005-Cus. dt. 1.3.2005 and Notification No.6/2006-CE dt. 1.3.2006 at ‘Nil’ rate of duty. As per Notification No.21/2005-Cus. dt. 1.3.2005, parts, components and accessories of mobile handsets including cellular phones are exempted from Customs duty. The Department was of the view that the imported goods are nothing but parts of Switch Mode Power System (SMPS) classifiable under CTH 85049090 which is a specific tariff heading for parts of electrical transformers, converters, inverters, uninterrupted power supply system (UPS), voltage stabilizers, regulators and inductors. The imported goods did not appear to be complete unit of SMPS. Batteries, metal casting etc. was required to make a complete unit of SMPS. In Notification No.25/2005-Cus. dt. 01.03.2005, the entry under CTH 85299090 against Sl.No.16 refers to ‘Parts’. Again in respect of Central Excise Notification No.6/2006-CE dt. 1.3.2006, the entry under Chapter 85 or any other Chapter against Sl.No.31 refers to “Parts, components and accessories of mobile handsets including cellular phones”. It appeared that the goods imported are parts of “Switch Mode Power System (SMPS)” and not “parts of mobile handsets and cellular phones/fixed wireless phones. Show cause notice was issued proposing to reclassify the goods under Section 85049090 and for demanding the differential duty along with interest. After due process of law, the original authority determined the goods to be classified under CTH 85049090 and thereby denied benefit of Customs Notification No.21/2005-Cus. dt. 1.3.2005 and Central Excise Notification No.6/2006-CE dt. 1.3.2006. The proposal for demand of differential duty of Rs.55,87,185/- was confirmed. The appellant filed appeal against the said order and vide impugned order herein, the Commissioner (Appeals) upheld the same. Hence this appeal.
2. Learned Counsel Shri Raghavan Ramabhadran appeared and argued on behalf of appellant. He submitted that appellant is engaged in the manufacture of telecommunication Instruments. The appellants obtained a contract for supply of 11,05,636 Nos. of 2000 1x WLL CDMA Integrated Fixed Wireless Telephones (IFWT) from BSNL. The scope of the supply included IFWT subscriber terminals along with SMPS Power system, RF Feeder Cables, antenna, connectors, Patch panel antenna, accessories (without internal battery). In order to make network connectivity more accessible for rural areas and considering the lack of private players in the said segment, the Department of Telecommunications introduced the New Telecom Policy of 1999 to encourage the development of telecom in rural areas in order to make it more suitable by making suitable tariff structure changed. In order to execute the aforesaid objective, Bharat Sanchar Nigam Limited was corporatized with effect from 01.10.2000. To implement the telecom policy of enhancing rural telephony, BSNL placed a Purchase Order for IFWTs on the Appellant. As per the purchase Order, the IFWT shall include subscriber terminals, SMPS power system, RF Feeder Cable, antenna, etc. as per the Bill of Materials.
3. Ld. Counsel submitted that the IFWTs work on wireless technology (CDMA)and were not connected by telecom cables to the telephone exchanges. They were designed to work on 12V DC power. The SMPS integrated with the IFWT ensured that the power supplied to IFWT was constantly regulated and would not exceed 12V in order to ensure continued functioning of the IFWT.
4. It is explained that to manufacture and supply these IFWTs, the Appellant imported various components of the IFWTs including the components of the 12V SMPS such as Main PCB, lightening protector, DC/AC cables, fuse/fuse holders and others vide Bills of Entry No. 409113 dated 03.03.2007. The goods imported were clearly described as ‘Parts of Integrated Fixed Wireless Phone Operating on Cellular Technology (Model No. ACP 606) 12V’ SMPS consisting of Main PCB, lightning protection, DC/AC cables, fuse/fuse holder and others’ (subject goods).
5. The Appellant classified the subject goods under Tariff Item 85299090 and claimed the benefit of exemption from Basic Customs Duty (BCD) under the Notification No. 21/2005–Cus. and from Countervailing Duty (CVD) under the Notification No.6/2006-CE dt. 1.3.2006. The exemption was subject to the importers following the procedure prescribed under the Customs (Import of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods) Rules, 1996 (‘1996 Rules’). Though the Appellants had claimed the CVD exemption under Notification No.6/2006-CE dt. 1.3.2006, the exemption was also available under Notification 21/2005-Cus.
6. Vide the Impugned Order-in-Appeal dated 13.09.2011 (Impugned Order), the Ld. Commissioner has held that the subject goods are ineligible for the exemption under the above Notifications on the ground that though the subject goods are parts of SMPS, these are not directly parts of IFWT. The view of the department is that since benefit under the Notification is available only to parts, components and accessories of mobile handsets including cellular phones, the benefit cannot be extended to parts of SMPS which are not directly parts of IFWT. On the basis of the above conclusions, the Ld. Commissioner has confirmed the differential duty to the tune of Rs. 55,87,175/- in respect of the subject goods.
7. The Ld. Counsel explained the working and function of SMPS to argue that SMPS is integral to function of IFWT. The SMPS is designed for use solely with the IFWT. The IFWT requires 12V DC for its functioning. The SMPS provides the 12V DC power after conversion of the alternating current (AC) from the main power line to direct current (DC) and also at the same time, stepping down the voltage to 12V. A Float charger in the SMPS also charges a 12V – VRLA battery placed inside SMPS cabinet. When there is a disruption in the main power supply, the battery will take over and supply the DC power to the IFWT. As soon as the main power line is restored, the float charger will take over and supply regulated power to the IFWT. Thus, the 12V SMPS is an integral component of the IFWT without which the IFWT will not function nor is the IFWT complete without the 12V SMPS.
8. Ld. Counsel urged that in this context, it is pertinent to note that the final product manufactured and sold by the Appellant to BSNL was an IFWT consisting of fixed landline, SMPS and other goods for operation of telephone which is also evident from the perusal of sample copies of excise invoices. Since the combination of all machines (SMPS, IFWT, etc.) contributed towards a single defined function, i.e., to function as telephones, the goods were classified as a cellular phone under Central Excise Tariff Entry 8517 11 90. The classification of final product (IFWT) has also not been disputed by the Department. Thus, it is submitted that the SMPS which continuously regulates the power supplied to the IFWT is an integral constituent part of the IFWT without which the IFWT is incomplete.
9. Resultantly, the Appellant submits that the subject goods which are used in the manufacture of SMPS must be considered as parts of cellular telephone. It is pertinent to note here that the benefit of Notification No. 21/2005-Cus., is available to all parts, components and accessories, regardless of the classification. Thus, the test to be adopted is to determine whether the subject goods are parts of IFWT.
10. In the instant case, the SMPS manufactured by the Appellant are made in accordance with GR No. GR/SMP-02/01 JAN 2004 (“GR”) which specifically provides that requirements must be met for the manufacture of a 12V SMPS intended for use with CDMA FWTs. The said GR exhaustively covers the general technical requirements including the system configuration to which the SMPS must adhere to. The subject goods imported in the instant case, correspond to these system configurations mentioned in the Generic Requirement (GR). It is asserted by the Ld. Counsel that in para 9, the Impugned Order accepts that the subject goods are parts of SMPS.
11. Thus, it is submitted that the subject goods intended for manufacture of SMPS must be held to be eligible for exemption since the benefit under the Notification is available to all parts, components and accessories whether or not these are used directly in the manufacture of IFWT.
12. The Ld. Counsel submitted that the Jurisdictional Excise Authorities have not questioned the classification. The Appellant had registered with the Central Excise for the purpose of the 1996 Rules. The jurisdictional Assistant Commissioner of Central Excise accepted the impugned components as parts or components required for the manufacture of CDMA 2000 1x IFWT for voice and two-way SMS, patch panel antenna, 12V SMPS power system, RF Feeder Cables Antenna, connectors and accessories, provided the Annexure – III to the 1996 Rules and has also accepted the bond executed by the Appellant.
13. The Jurisdictional Assistant Commissioner had also issued end use certificate certifying the fact that the subject goods were used for the purpose of manufacture of CDMA 2000 1x IFWT supports voice, two-way SMS, patch panel antenna, 12V SMPS power system, RF Feeder Cables Antenna, connectors and accessories. It is also pertinent to note that the Appellants classified the assembled CDMA 2000 1x IFWT supports voice, two-way SMS, patch panel antenna, 12V SMPS power system, RF Feeder Cables Antenna, connectors and accessories when they removed from their factory to BSNL under CETH 8517. The jurisdictional Central Excise Authorities did not raise any question on the classification adopted while clearing the goods from the factory.
14. The question is as to whether Part of a part is also a part of the whole is well settled that the part of a part is a part of a whole. Therefore, the components of the SMPS imported by the appellants such as Main PCB, lightening protector, DC/AC cables, fuse/fuse holder and others would be eligible for the exemption under Notification No.21/2005-Cus. dt. 1.3.2005, that covered parts/components of mobile handsets including cellular phones.
15. It is submitted that even if the goods were not classifiable under the Heading 85299090, but classifiable under the CTH 8504 as confirmed by the Commissioner of Customs (Appeals), the appellants are eligible for the benefit of notification claimed as the notification is not restricted to the parts falling under any specific heading.
16. Without prejudice to the above argument, the Ld. Counsel urged that the subject goods are eligible for benefit of exemption as ‘accessories’. The impugned goods can qualify as accessories to the IFWT. In this regard, few dictionary definitions were referred by the appellant which are as below:-
