Sennheiser Electronics India Pvt Ltd Vs Principal Commissioner (CESTAT Delhi)
In a significant ruling, the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) Delhi allowed customs duty exemption for imported earphones in the case of Sennheiser Electronics India Pvt Ltd vs. Principal Commissioner. The appellant imported two models of earphones and claimed duty exemption under exemption Notification No. 57/2017-Cus dated 30.06.2017 as amended by Notification No. 22/2018-Cus dated 02.02.2018, which was contested by the customs authorities.
The dispute centered on whether the imported earphones, specifically the CX 275s model with an in-built microphone, qualified as “parts of cellular mobile phones” and “wired headsets” under the exemption notification. The customs authorities argued that the earphones were excluded from the exemption due to being wired headsets.
However, CESTAT Delhi rejected this argument, stating that earphones are standalone products and not integral parts of cellular mobile phones. The tribunal emphasized that earphones add additional utility to various electronic devices, including mobile phones, but are not essential for their functioning. Consequently, the earphones were classified as accessories, making them eligible for the customs duty exemption.
The ruling by CESTAT Delhi provides clarity on the classification of imported earphones and their eligibility for customs duty exemption. Importers of earphones, such as the appellant in this case, can now benefit from the exemption notification, which will have significant implications for the industry.
FULL TEXT OF THE CESTAT DELHI ORDER
1. M/s Sennheiser Electronics India Pvt Ltd 1 filed these two appeals to assail the Orders-in-Original dated 12.02.2020 and 01.06.2020 passed by the Principal Commissioner of Customs (Import) New Delhi. The appellant imported earphones of two models, namely, CX 275s and CX180. Model CX 275s earphones have microphones while CX180 earphones do not. The appellant classified these two goods under customs tariff heading 8518 30 00 which attracted basic customs duty of 15 %. The appellant claimed the benefit of exemption Notification No. 57/2017-Cus dated 30.06.2017 as amended by Notification No. 22/2018-Cus dated 02.02.2018 (S. No. 18). This exemption notification exempted all goods falling under customs tariff heading 8518 except “the following parts of cellular mobile phones, namely, microphone, wired headset, receiver” in excess of 10%.
2. In other words, goods covered by this exemption notification were leviable to basic customs duty of only 10 %. The appellant claimed the benefit of this exemption notification in its self-assessment of duty.
3. During the post audit clearance conducted by the Department, it was felt that the appellant was not entitled to the benefit of this exemption notification because the earphones were “wired headset” and were parts of cellular mobile phones and hence were excluded from S. No. 18 of the Exemption Notification. It was felt that the appellant had to pay duty at the tariff rate of 15%. Show cause notices were issued to the appellant proposing recovery of the differential duty along with interest and imposition of the penalty. In the order dated 12.02.2020 the Principal Commissioner party dropped the demand insofar as it pertained to earphones CX 180 (which do not have microphone) but confirmed the demand on earphones CX 275s (which have microphones) holding that CX 275s is a wired headset and hence is not eligible for the benefit of the exemption notification. He also refrained from imposing any penalty. In the order dated 01.06.2020 also the demand was partly dropped but penalty of Rs. 4,53,744/- was imposed under section 112 of the Customs Act. The details of these two cases are as below:
