Case Law Details

Case Name : In re Ingram Micro India Pvt Ltd. (CAAR)
Appeal Number : Ruling No. CAAR/Mum/ARC/60/2021
Date of Judgement/Order : 12/10/2021
Related Assessment Year :

In re Ingram Micro India Pvt Ltd. (CAAR)

Classification of data centre switch router models (DCS-7280CR2K-60-FApplication No. CAAR/CUS/APPL/45/2021 and DCS-7816R3-BND Series) and applicability of Sr. No. 13N of Notification No. 24/2005-Customs, dated 01.03.2005 and Sr. No. 20 of Notification No. 57/2017-Customs, dated 30.06.2017 on these devices Classification of (i) Networking device with Model No. N3XU6S (Outdoor Unit)

CAAR ruled that goods are classifiable under sub-heading 85176290 of the first schedule to the Customs Tariff Act, 1975 and would be eligible to avail benefit of Sr. No. 20 of Notification No. 57/2021-Customs, dated 30.06.2017, however, benefit under Sr. No. 13N of Notification No. 24/2005-Customs, dated 01.03.2005 is not available.

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 router models (DCS-7280CR2K-60-F and DCS-7816R3-BND Series) and applicability of Sr. No. 13N of Notification No. 24/2005-Customs dated 01.03.2005 and Sr. No. 20 of Notification No. 57/2017-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 switch routers from Arista:

1) DCS-7280CR2K-60-F

2) DCS-7816R3-BND

3. The aforementioned devices are called data centre switch routers (hereinafter referred to as DSCRs). DCSRs are devices capable of performing the functions of a network switch and a router. 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. A router is a device that connects computers and other devices to the internet. While a switch connects various devices in a network, a router connects devices across multiple networks. DCSRs perform the function of a network switch and a router. In other words, it is capable of connecting the devices within the network as well as across multiple networks. Thus, the need for a separate switch and a router for performing switching and routing functions can be overcome with the installation of the DCSR.

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

Table 1: Specifications of the devices

SN. Specification 7280R Series EDCS-
7280CR2K-60-1]
7800 Series [DCS-7816R3-BND]
1 Ports 25G SFP, 100G. QSFP and 40G QSFP 10 GbE, 25G SFP, 100G QSFP, 40G QSFP, 400G OSFP, and QSFP DD
2 Throughput 12 Tbps 460 Tbps
3 Packets/second 5.02 Bpps Upto 6 Bpps
4 CPU Multi-Core x86 Multi-core Hyper-threaded x86
5 System Memory 8Gb 64Gb

3.2 As per the applicant, these devices are deployed in a wide range of open networking solutions including large scale layer 2 and layer 3 cloud designs, overlay networks, virtualized or traditional enterprise data centre networks. They deliver advanced features for network monitoring, precision timing and network virtualization. The devices have deep packet buffers and large routing tables, which allow for internet peering and complete deployment flexibility. If there are two networks namely A and B, using the switch, the devices can exchange information among themselves within network A. However, they will require a router to exchange information with network B. As the DCSRs are capable of functioning as a router also, devices from both A and B network can exchange information through DCSRs, without any need for installation of additional switches. DCSRs are capable of connecting devices between networks. The applicant has further stated that they can connect over ethernet networks or Local Area Network (LAN) only. They do not enable users to connect to a wider area such as Metropolitan Area Networks (MANs), etc. For a switch to be able to connect to a wider area such as the MANs, they must be equipped with additional capabilities. Such switches with additional capabilities are known as carrier ethernet switches, whereas the devices performing functions like the DCSRs, i.e., enabling users to connect to LAN/Ethernet networks are known as non-carrier ethernet switches. Considering the aforesaid features, the DCSRs can be classified either as ‘routers’ or ‘switches’ and the relevant tariff sub­heading applicable would be 851762. The applicant further stated that in DCSRs the switching fabric and the routing component together make up the composite platform/system. However, the said product is principally used as a non-carrier ethernet switch as evidenced by the product catalogue and its non-carrier ethernet characteristic.

4. As per the applicant, impugned devices are eligible for benefits under Sr. No. 13N of Notification No. 24/2005-Customs, dated 01.03.2005 or Sr. No. 20 of Notification No. 57/2017-Customs, dated 30.06.2017.

4.1 Sr. No. 13N of Notification No. 24/2005-Customs, dated 01.03.2005 exempts routers of sub-heading 85176290. The applicant submits that the above exemption is based on the functionality of the goods. This can be seen from the fact that the CTH 85176290 includes a routing apparatus. Thus, any apparatus that performs the function of routing will be covered under the said tariff item. DCSRs under consideration in the present application are capable of performing routing functions. The fact that the DCSRs can also perform the function of switches would not dis-entitle them from the exemption granted. The applicant further stated that it is a settled legal position that when an exemption is granted for a machine performing a function, it cannot be denied merely because the machine is capable of performing other functions also. In support of above, they have submitted decisions in Twenty-First Century Printers v. CC [2003 (162) E.L.T. 1045 (Tri. – Del.)” Escorts Tractors Ltd v. CC [1998 (98) E.L.T. 717 (Tribunal)] and Escorts Limited v. CC [1996 (88) E.L.T. 379 (Tribunal)].

4.2 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 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) 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 (Vo1P) 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 (M.PLS-TP) products; (Ix) Multiple Input/Multiple Output (MJMO) and Long-Term Evolution (LTE) products.

4.2.1 The applicant stated that the impugned goods are not carrier ethernet switches and the Sr. No. 20 of the Notification No. 57/2017-Customs 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 DCSRs in question. Clause (g) pertains to the carrier ethernet switch. Impugned devices are non-carrier enterprise ethernet switches. The 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 DCSRs do not possess these features.

2) Vide Notification No. 11/2014-Customs, dated 11.07.2014, the benefit of exemption to goods falling under CTH 8517 in terms of Sr. No.1 3N of Notification No.24/2005-Customs 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 types of equipment that are 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.

4.2.2 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. 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 rulings have been sought are as follows: –

1) Whether DCSRs 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 question are negative, then what would be the correct classification of the DCSRs under the Customs Tariff of India?

3) Whether DCSRs are eligible for claiming the benefit under Sr No. 13N of Notification No. 24/2005-Customs, dated 01.03.2005?

4) Whether the DCSRs are eligible to claim the benefit under Sr. No. 20 of Notification 57/2017-Customs, dated 30.06.2017?

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. I have received the comments only from Principal Commissioner, Air Cargo Complex, New Delhi, which are summarised below:

1) Classification: CTH 851762 covers equipment for the transmission or reception of voice, images or other data. The impugned products are equipped with these functions. Therefore, they appear to be classifiable under CTH 85176290 by applying Rule 1 of GRI and by referring to Note 3 to Section XVI, relevant chapter note and explanatory note.

2) Notification No. 57/2017: The goods do not fall under the exclusion list provided in Sr. No. 20 of Notification No. 57/2017. Therefore, the benefit is available under the above notification.

3) Notification No. 24/2005: 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. However, the goods in question are basically switches that have an additional function as routers. Therefore, the benefit of the above notification is not available.

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 Shantaraman. The department was represented by Anantha Krishnan (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 pertaining to similar enterprise-class switches similar, but not identical to the product under consideration. Shri. Anurag Hooda stated that the devices are classifiable under sub-heading 85176290 and since the main function of the devices is that of switches, exemption benefit as a router is not available. However, 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 and reply received from the jurisdictional Principal Commissioner/ Commissioner and the submissions of the departmental officers at the time of the hearing. The issue at hand is to decide the classification of Data Centre Switch Router models (CS-7280CR2K-60-F and DCS-7816R3-BND Series) and the applicability of Sr. No. 13N of Notification No. 24/2005-Customs, dated 01.03.2005 and Sr. No. 20 of Notification 57/2017-Customs, dated 30.06.2017 to these devices. 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. A network switch is another term for a device that connects different parts of a computer network together. Switches enable several users to send information over a network at the same time without collisions. A router is a combination of hardware and software that forwards packets among networks based on information in the packet headers and routing tables. Routers are fundamental to the operation of the internet and other complex networks. 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 dialed 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. DCSRs are capable of performing functions such as reception, conversion and transmission of data. Further, the sub-heading specifically covers switching and routing apparatus. Therefore, the DCSRs performing both switching and routing functions are clearly classifiable under sub-heading 851762. As per the applicant, the instant DCSRs are predominantly used as switches in an ethernet network. Considering the above, DCSRs merit classification under sub-heading 851762 as a switching apparatus. For the 8-digit classification sub-heading, 85176290 appears appropriate.

9. As regards the question regarding the eligibility for Sr. No. 13N of Notification No. 24/2005-Customs, dated 01.03.2005, as amended; it is available to the goods of the description `routers’ falling under sub-heading 85176290. Routers are among items under the Information Technology Agreement (ITA)-lof WTO on which signatories, including India, have pledged to eliminate customs duties. As per the applicant’s submission, even if the DCSRs have routing capability, they function pre-dominantly as a non-carrier ethernet switch within the confines of a small/medium enterprise. Further, the product datasheet of DCS-7280CR2K-60-F and DCS-7816R3-BND was referred to. Relevant excerpts are reproduced below:

DCS-7280CR2K-60-F: The Arista 7280R Series of fixed systems, including the 7280R, 7280RA, 7280R2, 7280R2A and the 7280R2K, are key components of the Arista 7000 Series portfolio of data centre switches.

DCS-7816R3-BND: The Arista 7800R3 Series of purpose-built modular switches deliver the industry’s highest performance scaling to 460 Tbps of system throughput to meet the needs of the largest scale data centres.

As per both the product catalogue, the devices are predominantly identified as switching apparatuses that are used in a data centre.

9.1 Switching fabric and the routing component together make up the composite platform/ system. Section Note 3 to Section XVI provides guidance for the classification of ‘composite machines/multifunction machines’; the said Section Note 3 states, “Unless the context otherwise requires, composite machines consisting of two or more machines fitted together to form a whole and other machines designed .for the purpose of performing two or more complementary or alternative functions are to be classified as if consisting only of that component or as being that machine which performs the principal function”. The said products are principally used as a non-carrier ethernet switch as evident from the product catalogue. Therefore, the said products are classifiable as switches. In support of the above, reliance is also placed upon the judgment of Delhi CESTAT in the case of Twenty First Century Printers vs CC [2003 (162) E.L.T. 1045 (TrL -Del.)], where it was observed that “… The principal function of the machine is of printing. The mere fact that it is a composite machine, it cannot be taken out from the heading of the printing.. Since principal function of the machine is printing and as such, the item is correctly classifiable under Heading 84.43…. “. Therefore, impugned devices are classified as switches based on principal function.

9.2 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 Commnr. 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” . The present goods are principally switches having ancillary routing capacity. Therefore, the said goods are not eligible for the benefit under Sr. No. 13N of Nod fication No. 24/2005-Customs, dated 01.03.2005, as amended.

10. 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-headings 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) to (f) and (h) are not relevant. Clause (g) specifies goods such as Carrier Ethernet Switch, Packet Transport Node (PTN) products, Multiprotocol Label Switching Transport Profile (MPLS-TP) products. The impugned devices cannot be classified as MPLS-TP or PTN products. Therefore, we need to examine whether it can function as a carrier ethernet switch, which is excluded from the ITA agreement.

10.1 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 services and standards of carrier ethernet have been defined by the Metro Ethernet Forum (MEF). From the product catalogue, it is clear that the instant products lack some essential features such as MPLS-TP, E-LAN services, MEF certification, etc. Carrier-class ethernet switches are generally used in telecommunication networks while non-carrier ethernet switches are used at homes/enterprises. From the product catalogue, it appears that the impugned devices lack most of these essential features.

10.2 As per the Department of Telecommunication, classification of ethernet switches into carrier ethernet switch and enterprise ethernet switch would be difficult as thcrc may be overlapping features and that they may be classified based on the ultimate user. Therefore, if the impugned products are intended to be used as enterprise switches, then they are eligible for benefit under Sr. No. 20 of Notification No. 57/2021-Customs. The applicant has stated in their CAAR-1 application that these products are intended to be used as enterprise-class switches. In view of the above, I concur with the views expressed by the Principal Commissioner of Customs, Delhi that the impugned products do not appear to be falling under the exclusion list specified in Sr. No. 20 of Notification No. 57/2021-Customs and they are eligible for benefit under the said notification.

11. In view of the foregoing discussions, I rule that the imported goods are classifiable under sub-heading 85176290 of the first schedule to the Customs Tariff Act, 1975 and would be eligible to avail benefit of Sr. No. 20 of Notification No. 57/2021-Customs, dated 30.06.2017, however, benefit under Sr. No. 13N of Notification No. 24/2005-Customs, dated 01.03.2005 is not available.

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