2 Data Center Switch models capable to be used as carrier ethernet switches classifiable under sub-heading 85176290

Case Law Details

Case Name : In re Ingram Micro India Pvt. Ltd (CAAR Mumbai)
Appeal Number : Advance Ruling No. CAAR/Mum/ARC/40/2022
Date of Judgement/Order : 15/11/2022
Related Assessment Year :

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

M/s Ingram Micro India Private Limited filed an application on 17.08.2022 seeking advance rulings on the classification of 18 different series of data centre switch models and applicability of Sr. No. 20 of Notification No. 50/2017-Customs, dated 30.06.2017 on these devices.

2. The applicant is a distributor of information technology and telecommunication products. They intend to import the following models of data centre switches from the U.S.-based manufacturer M/s Arista Networks:

Sr. Series Models
7060X and 7260X Data Center Switches DCS-7260CX-XX-X

DCS-7060CX2-XXX-X DCS-7060CX-XXX-X DCS-7060SX2-XXXX-X

2 750 Series Campus Switches CCS-755-XXX-BND CCS-758-XXX-BND
3 7260X3 Series Data Center Switches DCS-7260CX3-XX-X
4 7060X4 Series Data Center Switches DCS-7060DX4-XX-X-X DCS-7060PX4-XX-X-X
5 7020R Series Data Center Switches DCS-7020SR-XXXX-X DCS-7020TR-XX-X
6 7130 Connect Series Switch DCS-7130-             -X
7 7130L Series FPGA Switch DCS-7130-XXXX-X
8 7150 Series Ultra Low Latency Switch DCS-7150S-XX-XX-X
9 CCS-720 Campus Switches CCS-720XP-XXXXX-XXXX
10 7170 Series Programmable Data Center Switches DCS-7170-XXX-X-X
11 7160 Series Data Center Switch
DCS-7160-XXXXX-X
12 7368X4 Series 100/200/400G Data Center Switches DCS-7368X-XXX-X
13 7320X Series 10/25/40/50/10OG Data Center Switches DCS-7328X-XXX-XX-X DCS-7324X-M-XX-X
14 7300X3 Series Spline Switch DCS-7308X3-XXX-XX-X DCS-7304X3-)CXX-XX-X
15 7300 Series Data Center Switch DCS-7308X-XXX-XX-X DCS-7308XT-XXX-X-X DCS-7304X-XXX-X-X
16 7050QX Series I 0/40G Data Center Switches DCS-7050QX2-XXX-X DCS-7050QX-XXX-X
17 7050SX Series 10/40G Data Center Switches DCS-7050SX-XXX-X DCS-70505X2-XXX-X
18 7050TX Series 10/40G Data Center Switches DCS-7050TX2-XXX-X ECS-7050TX-XXX-X

The aforementioned devices are called data centre switches (hereinafter referred to as DCSs). A network switch connects devices on a computer network by using packet switching to receive and forward data. They connect multiple devices such as computers, wireless access points, printers, and servers. A switch enables connected devices to share information and interact with each other.

2.1. As per the applicant, DCSs under consideration are network switches deployed in a wide range of open networking solutions including large-scale layer 2 and layer 3 cloud designs, overlay networks, and virtualised or traditional enterprise data centre networks. The impugned devices operate between layer-2 (data link layer) and layer-3 (network layer) of the Open System Interconnection Model (OSI Model) of a computer network using a wired network environment. The DCSs are deployed for ethernet switching in both the leaf and spine tiers of 2-layer or 3-layer network topologies. The Gigabit ethernet DCSs can be deployed at the server edge in a 2-layer network topology or as a dedicated management network switch in a 3-layer network topology. These devices employ software-driven cloud networking technologies. They are capable of providing line-rate switching at layer 2 and layer 3. Further, they have advanced traffic control and monitoring features capable of performing automation, data monitoring, precise timing and next-generation virtualisation. DCSs facilitate a user to connect to the ethernet port on the Local Area Network (LAN). The LAN is suited to serve a single organisation, i.e., the same network. These DCSs are mainly used to function as non-carrier ethernet switches within an enterprise network. They establish connections within the network or with other switches/ routers for the transmission or reception of data. They are not capable of connecting two or more separate networks without being connected to a router at the core network through Telecommunication Service Provider (TSP) or Internet Service Provider (ISP). As per the applicant, considering the above features, the above-mentioned devices are classifiable under the sub-heading 85176290..

2.2. As per the applicant, impugned devices are eligible for benefit under Sr. No. 20 of Notification No. 57/2017-Customs, dated 30.06.2017. The said notification provides for the levy of customs duty at the concessional rate of 10%. In the said notification, the goods falling under sub-headings 85176290 or 85176990, except the goods specified therein, are eligible for a concessional rate of duty. Following are the goods for which such concessional rate of basic customs duty is not applicable: (a) Wrist wearable devices (commonly known as smartwatches); (b) Optical transport equipment; (c) a Combination of one or more of Packet Optical Transport Product or Switch (POTP or POTS); (d) Optical Transport Network (OMI) products; (e) IP Radios; 02 Soft switches and Voice over Internet Protocol (VoIP) equipment, namely, VoIP phones, media gateways, gateway controllers and session border controllers; (g) Carrier Ethernet Switch, Packet Transport Node (PTN) products, Multiprotocol Label Switching Transport Profile (MPLS-TP) products; (h) Multiple Input/Multiple Output (MIMO) and Long-Term Evolution (LTE) products.

2.2.1 Applicant stated that the impugned goods are not carrier ethernet switches and the subject notification is applicable to them on the basis of the following:

1) Goods specified in clauses (a) to (f) and (h) are not relevant to the DCSs in question. Clause (g) pertains to the carrier ethernet switch. impugned devices are non-carrier enterprise ethernet switches. The applicant has stated that the impugned products cannot be operated on MPLS-TP; which is a telecommunication-grade packet transport protocol. These devices are not certified by Metro Ethernet Forum (MEF), a global industry association of network, cloud, and technology providers.

2) Vide Notification No. 11/2014-Cus., dated 11.07.2014, the benefit of exemption to goods falling under CTH 8517 in terms of Sr. No.13 of Notification No.24/2005-Cus has been withdrawn only for telecommunication equipment which is evident from the Finance Minister’s budget speech for the year 2014-15. The objective of the legislature was to exclude equipment that is used in the telecommunication industry from the purview of the exemption.

3) The impugned products are LAN/WAN information products and therefore, covered under the Information Technology Agreement (ITA). India is a signatory to ITA, which aims to lower all taxes and tariffs on information technology products to zero. The World Trade Organisation (WTO) has always considered network switches within the scope of the IT products which can avail the benefit of the ITA.

2.2.2 Further, the Department of Telecommunication has issued clarifications regarding the classification of carrier and non-carrier ethernet switches, in the context of customs duty exemption, vide office letter bearing F. No. IEC/IT/TecDisc/2015, dated 03.05.2016 and office memorandum no. 18-33/2013-IP, dated 18.11.2016. It was clarified that there is no definite technical classification between carrier ethernet switches and enterprise ethernet switches based on features or services supported. Classification can only be ascertained based on the purchase order from the ultimate consignee. They can be classified based on the usage of such devices by TSP/ISP or the customer location where these devices will be used. The Ethernet switches used by non-TSP/ISPs for aggregating the traffic in their local network can be treated as enterprise Ethernet switch/ non-carrier Ethernet switches whereas the Ethernet switches which are used by TSP/ISPs to transport/carriage of Ethernet/IP traffic can be treated as Carrier Ethernet switches. In their opinion, the Department of Telecommunication stated that the classification of the Ethernet switch into carrier Ethernet switch and non-carrier Ethernet switch can only be ascertained based on the purchase order from the ultimate consignee.

1. In case the ultimate purchase order is from a non-TSP/ISP then such switch may be treated as Enterprise Ethernet Switch/Non-carrier ethernet switch;

2. In case the purchase order is from TSP/ISP and the TSP/1SP intends to use the switch in their network for the purpose of Transport/Carriage; then the switch may be treated as Carrier Ethernet Switch.

3. In case the purchase order is from TSP/ISP and TSP/ISP intends to use the switch in their customer premises then the switch may be treated as Enterprise Ethernet Switch/Non-Carrier Ethernet Switch. For this, a certificate may also be obtained from the TSP/1SP.

In the above clarification, it was also emphasised that the classification will be based on the findings of the customs authority.

2.3. In relation to the goods mentioned above, the questions on which advance rulings have been sought are as follows:

1. Whether Data Center Switches, proposed to be imported by the applicant, are classifiable under the Tariff Item 8517 62 90 of the Customs Tariff?

2. If the answers to the above question are negative, then what would be the correct classification of the Data Center Switches under the Customs Tariff of India?

3. Whether the duty benefit under SI. No. 20 of Notification No. 57/2021- Customs, dated 30.06.2017 be applicable on the Data Center Switches?

3. In the CAAR – 1 form, the applicant has declared that they would import these products through the Air Cargo Complex, Mumbai. The application was forwarded to the jurisdictional Principal Commissioners of Customs for comments on 18.08.2022 and a reminder was sent on 29.08.2022.

3.1. In their comments vide letter dated 26.10.2022, the jurisdictional commissionerate has stated that the goods are classifiable under subheading 85176290. They have also pointed out that as the applicant has received a ruling from Customs Authority for Advance Rulings, Mumbai on similar devices, the application is non-admissible. In respect of the applicability of Sr. No. 20 of Notification No. 57/2017, they have submitted a letter from the Department of Telecommunication issued vide F. No. TEC/TT/TEC/Disc. 2015 dated 03.05.2016 wherein it was opined that there is not a clear bifurcation between the Carrier Ethernet Switch and Enterprise Ethernet Switch. The jurisdictional commissionerate has also specified that it is not possible to ascertain the past as well as future buyers/consumers of the imported goods to whom the importer will supply these goods after the import and therefore, it appears that the benefit Sr. No. 20 of Notification No. 57/2017 cannot be extended to the imported goods in question since the criterion for extending the notification benefit is to be decided on the basis of end-use and not on the basis of description or technical specification as discussed in the decisions given by CESTAT, CAAR and TEC. Therefore, the notification benefit is to be extended to the importer on the case of case basis after ascertaining the end-use of the imported goods.

3.2 In their CAAR-1 application form, the applicant has stated that the questions raised are not pending in their case before any officer of customs, appellate tribunal or any court of law. In response to whether a similar matter as raised in the question(s) by the applicant has already been decided by the Appellate Tribunal or any Court, the applicant has stated that there is no decision covering products under consideration

4. An opinion on the products under consideration was sought from Telecommunication Engineering Centre (TEC), Department of Telecommunication vide letter dated 13.09.2022. TEC vide their letter dated 23.09.2022 opined that as per data sheets, these products have features which can support carrier ethernet. Accordingly, depending upon its use in the telecom network it may work as a carrier ethernet switch. TEC also mentioned that in some of the products under consideration features supporting MPLS-TP functionality are present and therefore, such products can work as MPLS-TP products. Further, vide letter dated 03.11.2022 TEC submitted that depending upon deployment in telecom network, the products may work as carrier ethernet switches.

4.1 The application was listed for hearing on 21.09.2021. The applicant was represented by Shri Vishwanathan and others. No one appeared on behalf of the jurisdictional commissionerate. The representative of the applicant reiterated submissions made in the CAAR-1 application. They claimed the benefit of Notification No. 57/2017 based on the fact that their products are not covered by the exclusion category of the exemption notification. Hence they requested to issue the ruling as per their claim to the classification. lEC letter dated 23.09.2022 was shared with them seeking their feedback on CAAR applications 60/22 and 61/22.

4.2 In their letter dated 04.11.2022, the applicant made additional submissions. They have stated that a pre-existing ruling in respect of a different model will not act as a bar against a fresh application being filed for a different model. They have reiterated that the products do not have any carrier ethernet features and that these products are intended to be sold to non-carriers i.e. enterprises for use within their offices. The products are imported based on the purchase order received from buyers in India. Therefore, it is already known at the time of import as to whom the product will be finally supplied. The end-m(1- is easily traceable from the import invoices and hence for all the imported products it can be determined whether they are used by an ISP/TSP or any other entity. On the relevance of MEF certification they have stated that the MEF is recognised by the stakeholders in the telecom sector, which is also recognised by TEC as a relevant standard that telecom service providers need to comply with. Therefore, MEF Certification is an important factor to decide whether a Switch is a Carrier Ethernet Switch or a Non-Carrier Ethernet Switch. In respect of the difference between MPLS and MPLS-TP, they have claimed that only Carrier Ethernet Switches can make use of MPLS-TP technology and the product in question cannot. Further, they have submitted that the multi­function devices are entitled to duty exemptions available to any one of the functions covered under such exemption. For the above contention, they have cited case laws of Andhra Patrika, Madras v. Collector of Customs reported in 1983 (13) E.L.T. 1103 (CEGAT), Collector of Customs v. Blue Star Ltd. reported in 1990 (50) El. T. 186, Twenty-First Century Printers v. Collector of Customs Bombay 2003 (162) E.L.T. 1045 (Tri. – Del.). They have further submitted that the undertaking should be considered to determine the nature of the product as is usually done with respect to the products, the determination of whose end use is significant for ascertaining the rate of duty applicable. They have cited case laws of Segal’s Pharmacy v. Collector of Customs 1993 (64) E.L.T. 209 (Tribunal), M/s Healthcare Pvt. Ltd. V. Commissioner of Cus (Imports), Mumbai 2013 (296) E.L.T. 375 (Tri-Mumbai) in support of the above argument. In response to IEC comments, the applicant has stated that the TEC has not deviated from its stance that the end-use of the product- that is whether it is being sold to carrier or non-carrier can help determine whether the same shall be of Carrier Grade or Non-Carrier Grade. Further, the applicant has stated by citing the case law in the case of Pappu sweets and Biscuits v. Commissioner of Trade Tax, UP, Lucknow, 2004 (178) E.L.T 48 (S.C.), that it is a settled law that exclusionary clauses in an exemption notification must be strictly construed and must be given a narrow meaning so as to not frustrate the intention behind the exemption notification. They are eligible for benefit under Sr. No. 20 of Notification No. 57/2021- Customs, dated 30.06.2017

5. I have considered all the materials placed before me for the subject products. I have gone through the submissions made by the applicant during the personal hearing. The issue at hand is to decide the classification of Data Centre Switch models and applicability of Sr. No. 20 of Notification No. 50/2017-Customs, dated 30.06.2017. Before deciding the issues raised in the application, a discussion on the admissibility of the application, as pointed out by the jurisdictional commissioner needs to be examined. The CAAR rulings obtained by the applicant on earlier occasions pertain to different models than those covered under the present CAAR application. The present case is not covered by the circumstances under which the application is non-admissible as specified in S. 28(1)(2) of the Customs Act, 1962. Therefore, the application is admissible for advance ruling. The impugned devices are basically network equipment. Network equipment is a device that is dedicated for use solely or principally to permit the interconnection of automatic data processing machines and units thereof for a network that is used primarily for the sharing of resources such as central processor units, data storage devices and input and output units. This includes the adapters, hubs, in-line repeaters, converters, concentrators, bridges/switches and routers. Rule 1 of the General Interpretation Rules (GIR) 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.

5.1 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. The second one-dash subheading of heading 8517 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). 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. 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 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.

8.2 Sub-heading 851762 covers machines for the reception, conversion and transmission or regeneration of voice, images or other data, including switching and routing apparatus. As per the applicant, a DCS is a multiport network bridge designed to build a network connection in a data centre that allows receiving, processing, and routing of data from one destination to another. Large enterprises and cloud service providers primarily use DCS. From the application and product catalogue, the devices appear to be DCSs. Sub-heading 851762 specifically covers the switching apparatus. Therefore, the impugned devices are classifiable under the above-mentioned subheading. For 8-digit classification, the goods under consideration merit classification under subheading 85176290 (others).

9. As regards the question of eligibility for the benefit under Sr. No. 20 of Notification No. 57/2021- Customs, dated 30.06.2017, as amended; it is available to all goods falling under subheadings 85176290 and 85176990 other than certain goods mentioned under Sr. No. 20 of the said notification. Such excluded goods are already mentioned in paragraph 2.2. Goods specified in clauses (a) and (e) are not relevant. Therefore, we need to examine whether the products can function as a carrier ethernet switch. Carrier Ethernet is an application of ethernet technology that allows network providers to offer ethernet services to their customers and to use ethernet technology. It enables internet access and communication among local area networks (LANs) of business, academic, private and government organizations. The TEC in their technical opinion has stated that these products are capable to be used as carrier ethernet switches. As the goods under consideration can function as carrier-class ethernet switches, they are excluded from the said notification.

9.1 The applicant has stated that the intended use and the undertaking of the applicant for the same should be considered for the notification benefit. The Delhi Tribunal in the case of Guest Keen William 1987 (29)ELT 68 has observed that it is an accepted position that a notification should be interpreted on the basis of the language used therein and not on the basis of intendment or by supplying words or ignoring them. Further, in the case of Commissioner of Cus. (Import), Mumbai Versus Dilip Kumar & Company, 2018 (361) E.L.T. 577 (S.C.), the Hon’ble court observed that indeed, it is well-settled that in a taxation statute, there is no room for any intendment; that regard must be had to the clear meaning of the words and that the matter should be governed wholly by the language of the notification. Equity has no place in the interpretation of a tax statute. Strictly one has to look to the language used; there is no room for searching intendment nor drawing any presumption. Therefore, the indentation or undertaking would not influence the interpretation of the notification.

9.2 The applicant has opined that exclusionary clauses in an exemption notification must be strictly construed and must be given a narrow meaning so as to not frustrate the intention behind the exemption notification. However, it is a settled position of law, as observed in the case of Commissioner Of Cus. (Import), Mumbai Versus Dilip Kumar & Company, 2018 (361) E.L.T. 577 (S.C.), that the notification should be read and construed sti icily. The notification clearly excludes carrier ethernet switches from the purview of the duty benefits. As per the TEC, a technical expert agency of the Government of India, these goods are carrier-grade ethernet switches. Accordingly, the benefit of Sr. No. 20 of Notification No. 57/2021-Customs, dated 30.06.2017. would not be available in the instant case.

10. In view of the foregoing discussions, I rule that the Data Centre Switch models specified in para 2 are classifiable under sub-heading 85176290 of the first schedule to the Customs Tariff Act, 1975 and would not be eligible to avail benefits of Sr. No. 20 of Notification No. 57/2021-Customs, dated 30.06.2017.

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