Case Law Details

Case Name : In re Ingram Micro India Pvt. Ltd (CAAR Mumbai)
Appeal Number : Advance Ruling No. CAAR/Mum/ARC/41/2022
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 15 models of Data Center Switch Routers belonging to 3 different series and applicability of Sr. No. 13N of Notification No. 24/2005-Customs dated 01.03.2005 and 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. No. Series Models
1 7500R3 DCS-7504R3-XXX-XX


2 7500R DCS-7504R-XXX -BND
3 7280R3 DCS-7280PR3-XX-X

2.1 The aforementioned devices are called data centre switch routers (hereinafter referred to as DCSRs). The Data Centre Switch Routers of models 7500R, 7500R3 and 7280R3 are devices used to deliver to the needs of large-scale data centres/enterprise networks and are equipped with large routing tables allowing for Internet peering, interconnection and inter-Data Center networking. The product is a combination 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.

2.2 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, and 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. Suppose there are two networks namely A and B, using the switch. In that case, 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 networks 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 an ethernet network 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 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.

2.3 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.

2.4 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 disentitle 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 the 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)].

Data Centre Switch Router models lassifiable under sub-heading 85176290

2.5 Sr. No. 20 of Notification No. 57/2017-Customs, dated 30.06.2017, as amended, 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 (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 (MEMO) and Long-Term Evolution (LTE) products.

2.5.1 The applicant stated that the impugned goods are not carrier ethernet switches and the Sr. No. 20 of the Notification No. 57/2017-Customs, dated 30.06.2017 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 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 multi­dwelling, 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.13N 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 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.

2.5.2 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. TECIIT/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 bifurcation between carrier ethernet switches and enterprise ethernet switches based on features or services supported as there could be overlapping features. 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. In the above clarification, it was also emphasised that the classification will be based on the findings of the customs authority.

2.6 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 coned 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?

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 01.11.2022, 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/FEE/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. As far as the issue of the benefit of Sr. No. 13 N of Notification No.24/2005-Customs, dated 01.03.2005 on the import of subject goods is concerned, it appears that the said benefit is applicable only to the Router classifiable under CTH 85176290, whereas, in the instant case, the goods although classifiable under CTH 85176290 are “Ethernet Data Switches” and not “Routers”, hence the benefit of Notification 24/2005 Sr. No. 13N cannot be allowed.

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 stated that from the available information it appears that these products are primarily routers. Further using customized product configurations these products may work as both switches and routers. Depending upon deployment in a telecom network, the products may work as carrier ethernet switches. Based on product configuration & its network use case, the product may work simultaneously as a router and a switch.

4.1 The application was listed for hearing on 21.09.2021. The applicant was represented by Shri Vistiv,anathan and others. No one appeared on behalf of the jurisdictional commissionerate. The representatives reiterated points mentioned in their application and invited attention to CAAR ruling CAAR/Mum/ARC/60/2021 dated 12/10/2021. They claimed the exemption benefit under both Notification No. 57/2017-Customs, dated 30.06.2017 and 24/2005. They specifically stated that the products will not be used in the telecom network. Based on the facts of the case and earlier ruling they requested to classify products under CTH 85176290. On the issue of whether the product has the capacity of working as a Service Access System (SAS), they requested to give them some time to submit an additional reply.

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-user 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 TEC 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 sty icily 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. 57/2017.

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 Router models and applicability of Sr. No. 20 of Notification No. 50/2017-Customs, dated 30.06.2017 and Sr. No. 13N of 24/2005-Customs, dated 01.03.2005. 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. DCSRs are capable of performing functions such as reception, conversion and transmission of data. Further, the subheading specifically covers switching and routing apparatus. Therefore, the DCSRs performing both switching and routing functions are clearly classifiable under sub­heading 851762. As per TEC these devices are capable of performing both routing and switching functions. However, in their technical opinion, TEC has identified these devices primarily as routers. Note 3 to Section XVI states that 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. As the principal function of these devices is routing, they are classifiable as routers under subheading 85176290.

9. As regards the question of eligibility for the benefit under Sr. No. 20 of Notification No. 57/2017- 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 2.5. 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, in the case of Commissioner Of Cus. (Import), Mumbai Versus Dilip Kumar & Company, 2018 (361) E.L.T. 577 (S.C.), Hon’ble SC held that In case of ambiguity in a charging provision, the benefit must necessarily go in favour of the assessee but the same is not true for an exemption notification. 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 notification clearly excludes carrier ethernet switches from the purview of the duty benefits. As per the technical expert TEC these goods can function as carrier-grpde ethernet switches. Accordingly the benefit of Sr. No. 20 of Notification No. 57/2021-Customs would not be available in the instant case.

10. In respect of notification benefit under Sr. No. 13N of Notification No. 24/2005, as amended, the entry exempts routers from 100% BCD. The impugned goods are capable of performing both routing and switching functions. However, as per the TEC, a technical expert agency of the Government of India, the products are primarily routers. Referring to the case law Commissioner of (Import), Mumbai Versus Dilip Kumar & Company, 2018 (361) E.L.T. 577 (S.C.), as already cited in para 9.1 and 9.2, it is further submitted that while holding the said principle, the Honible Court, in the above-mentioned case, also relied upon the Principles of Statutory Interpretation by Justice G.P. Singh wherein a plethora of cases were examined and it was clarified that no words must be added or deleted while construing any legal provision and there is no room for any intendment. In the present case, the entry describes goods as “Routers”. It does not specify indentation, conditions or capacity and capability for such routers. It does not bar the routers used by telecom networks, support service providers and data centres. It does not exclude routers capable of performing secondary functions. The impugned goods, on the application of GIR 1 and Note 3 to Section XVI read with the technical opinion of the TEC merit classification as routers based on their principal function of routing. Therefore, the goods under consideration appear to be covered by the said notification. Accordingly, they are eligible to claim benefits under the above-mentioned notification.

11. In view of the foregoing discussions, I rule that the Data Centre Switch Router models specified in para 2 are classifiable under sub-heading 85176290 of the first schedule to the Customs Tariff Act, 1975 and are eligible to avail the benefit under Sr. No. 13N of Notification No. 24/2005-Customs, as amended. However, they are not eligible to avail benefits of Sr. No. 20 of Notification No. 57/2021-Customs, dated 30.06.2017.

Download Judgment/Order

Join Taxguru’s Network for Latest updates on Income Tax, GST, Company Law, Corporate Laws and other related subjects.

Join us on Whatsapp

taxguru on whatsapp GROUP LINK

Join us on Whatsapp

taxguru on whatsapp GROUP LINK

Join us on Whatsapp

taxguru on whatsapp GROUP LINK

Join us on Whatsapp

taxguru on whatsapp GROUP LINK

Join us on Whatsapp

taxguru on whatsapp GROUP LINK

Join us on Whatsapp

taxguru on whatsapp GROUP LINK

Join us on Whatsapp

taxguru on whatsapp GROUP LINK

Join us on Whatsapp

taxguru on whatsapp GROUP LINK

Join us on Whatsapp

taxguru on whatsapp GROUP LINK

Join us on Whatsapp

taxguru on whatsapp GROUP LINK

Join us on Telegram

taxguru on telegram GROUP LINK

Review us on Google

More Under Custom Duty

Leave a Comment

Your email address will not be published. Required fields are marked *

Search Posts by Date

February 2023