Case Law Details

Case Name : In re Ingram Micro India Pvt Ltd. (CAAR Mumbai)
Appeal Number : Ruling No. CAAR/Mum/ARC/58/2021
Date of Judgement/Order : 08/10/2021
Related Assessment Year :

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

Classification of data centre switch models (DCS-7050SX3-96YC8-F and DCS-7010T-48-F) and applicability of Sr. No. 20 of Notification No. 50/2017-Customs, dated 30.06.2017 on these devices.

CAAR ruled that Data Centre Switch models (DCS-7050SX3-96YC8-F and DCS-7010T-48-F) are classifiable under sub-heading 85176290 of the first schedule to the Customs Tariff Act, 1975 and would be eligible to avail benefits of Sr. No. 20 of Notification No. 57/2021-Customs, dated 30.06.2017.

FULL TEXT OF ORDER OF CUSTOMS AUTHORITY FOR ADVANCE RULINGS

M/s Ingram Micro India Private limited filed an application on 02.08.2021 seeking advance rulings on the classification of data centre switch models (DCS-7050SX3-96YC8-F and DCS-7010T-48-F) 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 Arista:

1. DCS-7050SX3-96YC8-F (7050X3 Series) Data Center Switch; and

2. DCS-7010T-48-F (7010T series) Gigabit Ethernet Data Center Switch.

The aforementioned devices are called data centre switches (hereinafter referred to as DSCs). 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.

3 The applicant has described the functioning of the devices as below: –

DSCs 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, virtualised or traditional enterprise data centre networks.

Table 1: Specifications of the devices

SN. Specification 7050X3 Series 7010T Series
1 Ports 96 ports of 25G SFP and 8 ports of 100G QSFP 48 ports of
10/100/1000 and 4
integrated 1/10GbE
SFP+ ports
2 Throughput 6.4 Tbps bi-directional 176 Gbps
3 Packets/second 2 Bpps 132 Mpps
4 CPU Quad-Core x86 Multi-core x86
5 System Memory 8Gb 4Gb

3.1. 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 7050X3 series DCS are deployed for ethernet switching in both the leaf and spine tiers of 2-layer or 3-layer network topologies. The 7010T 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 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.

4. As per the applicant, impugned devices are eligible for benefit under Sr. No. 20 of Notification No. 57/2017-Customs, dated 30.06.2017.

4.1 Sr. No. 20 of the Notification No. 57/2017-Customs, dated 30.06.2017, as amended, provides for 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 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) Combination of one or more of Packet Optical Transport Product or Switch (POTP or POTS); (d) Optical Transport Network (OTN) 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.

4.1.1 Applicant stated that the impugned goods are not carrier ethernet switch and the subject notification is applicable on 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. Applicant has listed characteristics such as MPLS-TP, traffic engineering, E-Line services, E-LAN services, multi-tenancy and multi-dwelling, and MEF certification as essential features of the carrier ethernet. The present DCSs do not possess these features.

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 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

4.1.2 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. TEC/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 switch and enterprise ethernet switch 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 usage of such devices by TSP/ISP or customer location where these devices will be used. In the above clarification, it was also emphasised that the classification will be based on the findings of the customs authority.

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

1. Whether DCSs being imported by the Applicant are classifiable under the Tariff Item 8517 62 90 of the Customs Tariff of India?

2. If the answers to the above questions are negative, then what would be the correct classification of the DCSs under the Customs Tariff of India?

3. Whether the benefit of exemption under Sr. No. 20 of Notification 57/2017-Customs, dated 30.06.2017 be applicable on the DCSs?

6. In the CAAR – I form, the applicant has declared that they would import through the Air Cargo Complexes of New Delhi, Chennai and Kolkata. The application was forwarded to the jurisdictional Principal Commissioners of Customs for comments. However, no reply has been received, though reminders have also been sent.

7. The application was listed for hearing on 21.09.2021. The applicant was represented by S/Shri. T. Vishwanathan, Chandrashekhar Thakur, and Ms. Ashwini Shantaram. The department was represented by M.S. Ananthakrishnan, (AC, ACC, Chennai) and Anurag Hooda (Appraiser, ACC, Chennai). The applicant explained their application in detail and argued that the classification proposed by them is correct and that they are eligible for exemption under both the notifications mentioned in the application. They reiterated that the case law, Ingram Micro India Private Ltd. vs. Commissioner of Customs Chennai reported in 2020 (II) TMI 9, mentioned in the application pertains to similar enterprise-class switches and that it does not pertain to impugned products. Shri. Anurag Ghouda stated that the products are classifiable under sub-heading 85176290 and that they are eligible for benefit under Notification No. 57/2017.

8. 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 classification of Data Centre Switch models (DCS-7050SX3-96YC8-F and DCS-7010T-48-F) and applicability of Sr. No. 20 of Notification No. 50/2017-Customs, dated 30.06.2017. The impugned devices are basically network equipment. Network equipment are devices that are 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 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.

8.1 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.

8.2 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). 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 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.

8.3 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, sub-heading 85176290 (others) appears appropriate.

9. As regards the question regarding the eligibility for Sr. No. 20 of Notification No. 57/2021-Customs, dated 30.06.2017, as amended; it is available to all goods falling under sub-heading 85176290 and 85176990 other than certain goods mentioned under Sr. No. 20 of the said notification. Such excluded goods are already mentioned in paragraph 3. Goods specified in clauses (a) and (e) are not relevant. Therefore, we need to examine whether it 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. From the product catalogues and other averments of the applicant, it is evident that the impugned devices are not capable of functioning as carrier ethernet switches. Accordingly, the benefit of Sr. No. 20 of Notification No. 57/2021-Customs would be available in the instant case.

10. In view of the foregoing discussions, I rule that the Data Centre Switch models (DCS-7050SX3-96YC8-F and DCS-7010T-48-F) are classifiable under sub-heading 85176290 of the first schedule to the Customs Tariff Act, 1975 and would be eligible to avail benefits of Sr. No. 20 of Notification No. 57/2021-Customs, dated 30.06.2017.

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