Lenovo’s Interactive Large Format Displays merit classification under sub-heading 84714190

In re Lenovo India Private Limited (CAAR Mumbai)

The classification of goods under various headings and sub-headings is crucial for import and taxation purposes. This article delves into the classification of Lenovo’s Interactive Large Format Displays (ILFDs) under Indian Customs Law. Specifically, we focus on the models Think Vision T86, T75, T65 (with camera), and T65 (without camera), following the ruling by the Customs Authority for Advance Rulings (CAAR), Mumbai.

Features of the Products

Lenovo is renowned for its laptops and PCs, and it is now venturing into Interactive Large Format Displays. These displays come in sizes of 86-inch, 75-inch, and 65-inch. Equipped with a 4K resolution, a Quad Core ARM Cortex A.73 CPU, and Android 9.0, these displays are more than just screens. They have multiple ports for connectivity, including HDMI and USB C type slots, and support downloading and installing new programs for customization.

The Controversy Over Classification

The primary issue arises from the classification of these products under customs headings. While Lenovo argued that these ILFDs should come under sub-heading 8471, the Commissioner of Customs, Chennai preferred 8528. The key contention lies in whether these displays are “automatic data processing machines” as per Chapter Note 6(A) of Chapter 84. The commissioner argued that the machines aren’t freely programmable, can’t execute logical functions without human intervention, and serve primarily as display devices.

Relevant Rulings and Judgments

The CAAR in Mumbai referred to previous judgments and rulings, particularly the Final Order by CESTAT, New Delhi, which had classified similar products under heading 8471. They emphasized the word “Interactive” in the name of the products, arguing that it highlights the multiple capabilities of the products, thus making them automatic data processing machines as per Chapter Note 6(A).

Sub-Heading 8471 4190

Based on the advanced ruling, it was concluded that Lenovo’s Interactive Large Format Displays merit classification under sub-heading 8471 4190 according to the Customs Tariff Act, 1975.

Conclusion

The classification of goods for customs purposes is a complex but essential task. In the case of Lenovo’s Interactive Large Format Displays, the Customs Authority for Advance Rulings, Mumbai, deemed them to fit under sub-heading 8471 4190, considering their multiple functionalities. This classification will be influential for taxation and import purposes and sets a precedent for similar future products.

FULL TEXT OF THE ORDER OF CUSTOMS AUTHORITY OF ADVANCE RULING, MUMBAI

M/s. Lenovo India Private Limited (having IBC No. 0705001091 and hereinafter referred to as ‘the applicant’, in short) filed an application (CAAR-1) for advance ruling before the Customs Authority for Advance Rulings, Mumbai (CAAR in short). The said application was received in the secretariat of the CAAR, Mumbai on 29.05.2023 along with its enclosures in terms of Section 28H (1) of the Customs Act, 1962 (hereinafter referred to as the ‘Act’ also). The applicant is seeking advance ruling on the classification of ‘Interactive Large Format Display’ (collectively referred to hereinafter as “Interactive LFDs” and subject goods also).

2. The applicant submitted that they arc engaged in the manufacture and trade of laptops/ personal computers in the Indian market and now proposing to import the following four models of Interactive Large Format Displays from the Supplier namely, Lenovo PC Hong Kong and other Lenovo group entities.

The applicant further submitted that the Interactive LFDs come with display sizes of 86-inch, 75-inch and 65-inch. All the models of Interactive LFDs feature a wide colour gamut for vivid colour accuracy and 400 cd/m2 brightness and come with a 4K resolution. The goods have an in-built CPU (Quad Core ARM Cortex A.73), a 4 GB RAM and Android 9.0 Operating System. In addition, they also have an internal storage capacity of 64GB. They also have I-IDMI/ DP or USB C type slots which permit multiple devices to be connected with these Interactive LFDs. In addition, they are also equipped with an additional port to support a stable, secure internet connection. A user can also load and execute a program through these various ports.

The Interactive LFDs also allow downloading and installing new programmes by the user to customise the system as per their needs. The Interactive LFDs come with pre-installed Smart Whiteboard and Lenovo Projections applications which permit users to collaborate both on-site as well as remotely. The presence of Smart Whiteboard allows users to make notes either using fingers/ stylus and even permits multiple users to write together, compare notes, etc. The Interactive LFDs also have a user-friendly interface which allows the users to organise documents and also customise device settings. These systems also come preloaded with various widget options, screen and voice recorder, calculator, calendar, etc. The Interactive LFDs have various ports available USB Type C, USB Type B, USB 3.0 Type A, IIDMI 2.0, AV In, LAN ports, etc. Through these ports, a user can also connect the Interactive LFDs with other devices. Besides providing connection options through ports, users can also connect wirelessly through a simple USB dongle and share the screen effortlessly and instantaneously.

3. The applicant stated that since the subject goods satisfy the conditions mentioned under Note 6(A) to the Chapter 84 which defines the term “automatic data processing machine”, the goods can be classified under CTIT 8471 as an ADP machine. Further, even as per IISN Notes, the subject goods have an inbuilt CPU along with storage. The inputs arc received by the monitor through a touch sensitive screen. The presence of slots allows the system to also receive inputs through external devices such as mouse, etc. The machine then processes such information and produces the results based on user input action. In the instant case, the controlling system, input system and output system have all been encapsulated within the same device.

The applicant further stated that on application of Rule 1 of the GRI, when the goods satisfy the conditions to be classified as an ADP machine, they must be classified under CTH 8471 notwithstanding the fact that they have large screen. The applicant further stated that they are of the view that the subject goods arc not excluded by the provisions of Note 6(D) and (E) to chapter 84, citing some case laws in the application, the applicant has submitted that when the Interactive LFDs by themselves are covered within the meaning of the term Automatic Data Processing Machine as provided under Note 6(A), reliance cannot be placed on the common parlance understanding of the term Large Fomat Display to classify the subject goods as “Monitors” under CTI-I 8528.

In light of the aforementioned submissions, the Applicant has sought to enter the following question for Advance Ruling-“Whether Interactive Large Format Displays being imported by the Applicant are classifiable under the Tariff Item 8471 41 90 of the Customs Tariff of India?

4. Comments dated 23.06.2023 have been received from the concerned Commissioner of Customs, Chennai on classification of subject goods i.e. ‘Interactive Large Format Display’, wherein, while referring to heading 8471, and Chapter Note 6 to Chapter 84, it has been inter-alia stated in said comments that:-

The Android is a fixed Operating System (OS) and it cannot be re-programmed by the user of the device. Only application which are supported by Android OS can be used/run by the user. The user can choose any application available on Android App Store. Application and Program are two different things. Program, as name suggest, are simply set of instructions that are developed to work in single platform and usually written by computer programmer in programming language, whereas, Application, as name suggests, arc simply apps that arc designed for end user to perform specific task and achieve their purpose as well as they can manipulate text, numbers, graphics, audio, and combination of these elements, etc. As per the catalogue of the imported goods (subject goods), there is nowhere mentioned that it can be re­programmed. Therefore, the goods under import arc not freely programmable, only application which runs on Operating System/Software can be installed by the user. The goods under import does not support to be re-programmed, therefore, user would not be able to run logical program on the device. Chapter note 6(A)(iv) provides that “executing, without human intervention, a processing program which requires them to modify their execution, by logical decision during processing run” and as per the catalogue and function mentioned of the goods, it is evident that these goods cannot execute the logical functions without human intervention.

4.1 Observations of the concerned Commissioner of Customs, Chennai on classification of subject goods i.e. ‘Interactive Large Format Display’ are:-

Interactive Large Format Displays (Interactive LFDs) are nothing but a large-format touch-screen display ideal for meeting rooms and collaborative spaces. It is a replacement for clunky or outdated projector technology with a higher-quality display, enhanced connectivity, and built-in software solutions. These solutions are perfect for business opportunities, educational pursuits, and even at home leisure. In a nutshell on Interactive LFDs are a type of interactive whiteboard (IWB). An IWB is a large electronic display that has a touch-screen and is able to access, manipulate, and interact with electronic files with options for ultra-fine 4IC resolution and the ability to present a surprisingly natural handwriting experience. Interactive LFDs support communication and collaboration in ways never before possible in the meeting room. Most Interactive LFDs have a number of built-in software integrations, like Cast, Chrome etc which come pre-installed on all displays. An interactive flat panel does not require a projector because all hardware is contained in a flat panel display.

There are various types of Interactive Devices and known by various names in the industry i.e., Interactive Whiteboard/ Smartboard, Interactive Flat Panel Display, Interactive Intelligent Panels etc. The Interactive Display Systems can be used to present documents, information and videos to different groups, educational purposes i.e., c-learning for example to a group of students in a classroom or during a meeting in a business environment. As per Note 6(D) to Chapter 84, Heading 8471 does not cover the monitors and projectors not incorporating television reception apparatus when presented separately even if they meet all the conditions mentioned in Para(C) of the said Note. Further, para (E) states that machines, instruments or apparatus incorporating or working in conjunction with an automatic data processing machine and performing a specific function other than data processing are to be classified in the headings appropriate to their respective functions or, failing that, in residual headings.

The primary function of the goods is to display the given input data/ images/pictures/videos etc. Interactive Flat Panels being primarily used as Display System cannot be considered as a simple input or output device and is to be identified with its primary function of display by applying Note 6 (E) of Chapter 84. Cellular Android Phones do incorporate all the functions of an ADP Machine and also works on Android OS, yet the same is classified under cellular phones as the primary function is communication. Applying the same analogy the principle function of the item under import is to interact through display.

As per Rule 1 of the General Rules for the interpretation of the Harmonized System, the titles of Sections, Chapters and sub-chapters are provided for case of reference only, for legal purposes, classification shall be determined according to the terms of the headings and any relative Section or Chapter Notes and, provided such headings or Notes do not otherwise require, according to the provision stipulated therein.

Accordingly, it appears that in the instant case even though, the goods meeting the requirement of Note 6 (A) of Chapter 84, however, as per Note 6 (E) of Chapter 84, the principal function will guide the classification of the impugned goods. Further, Rule 3(a) states that the heading which provides the most specific description shall be preferred to headings providing a more general description. However, when two or more headings each refer to part only of the materials or substances contained in mixed or composite goods or to part only of the items in a set put up for retail sale, those headings arc to be regarded as equally specific in relation to those goods, even if one of them gives a more complete or precise description of the goods.

In the trade parlance too buyers intending to purchase Computer will not select the impugned goods as it is not known in market as such. The principal usage of the impugned goods is display rather than ADP.

4.2  The concerned Commissioner of Customs, Chennai citing some case laws regarding the matter submitted that:-

Hon’ble Supreme Court in the case of Deena Jee Sansthan vs Commissioner of Central Excise, Meerut-2019 (365) ELT 353 (SC) held that the classification of product should be by applying common parlance test that the said product i.e., “Shampoo” is used as cosmetics only and not as ayurvedic medicament even though the product has all the ingredients mentioned in books on Ayurveda listed in Drugs and Cosmetics Act.

In case of Commissioner of Customs (Import & General), New Delhi Vs Integral Computer Ltd 2016 (337) EL.1 580 (Tri-Del) dated 07.04.2016 the Hon’ble Tribunal has held that “Interactive Electronic White Board” is a teaching device mainly used for class room teaching or in conferences and meetings and is to be identified with its primary function of display and has classified the goods under sub- heading 8528 5100 i.e., other monitors (now CTI 8528 5900)”.

4.3 The concerned Commissioner of Customs, Chennai is of the view that the impugned goods are classifiable under sub-heading 8528 5900 which deals with other monitors.

5. Personal hearing in the matter was held on 18.08.2023 through virtual mode wherein the authorized representative of the applicant while explaining the goods in question referred to earlier ruling issued by CAAR, New Delhi and Mumbai, and other judgements, in support of classification claimed by them. He also referred to Chapter Note 6(A) of Chapter 84 and mentioned that all conditions of said note have been satisfied by the goods in question which they intend to import. He also mentioned that though the applicant has imported the samples of the goods in question, commercial import of the same is yet to start. He reiterated the submissions made in the application for advance ruling.

6. Finding that the Customs Authority for Advance Rulings, Mumbai has already issued rulings on the similar item, I draw attention to the second proviso under sub-section (2) of Section 28-I of the Customs Act, 1962 which bars the Authority to allow application where the question raised in the application, is already pending in the applicant’s case before any officer of customs, the Appellate Tribunal or any court, or same as in a matter decided already by the Appellate Tribunal or any court. However, I note that CAAR, Mumbai has issued rulings on similar goods against the application for advance rulings filed by the applicant other than the applicant in the instant application. Thus, finding that the application is valid in terms of the provisions of the Customs Act and the CAAR Regulations, 2021, having gone through the submissions of the applicant, comments of the concerned Commissioner, having heard the applicant, and recognizing that importance of timely pronouncement of rulings, I proceed to examine the question on merits.

7. Since the question under the application for advance ruling relates to classification of goods proposed to be imported, guided of the World Customs Organisation, to which India is a signatory, would be useful. It is noted that the Harmonised System Committee (60th Session) of WCO has examined a similar product, i.e. and electronic interactive whiteboard (“Smart Board”), size 78 inches, consisting of touch-sensitive, dry-erase surface with multi-touch functionality, which accepts touch input from a pen or a finger and features integrated speakers generally delivered complete with two pens, device driver software & a user guide which can serve as a surface to display the screen of an ADP machine, projected by the video projector and it is able to accept or deliver data in a form which can be used by the ADP machine. The HS Committee of WCO decided the classification of this product under sub-heading 8471.60, adopting the classification rationale under General Rules for Interpretation (GRI) vide Rule I read with Note 5 (C) to Chapter 84 and Rule 6 of GRI.

8. I note that extant Tariff under Note 6(A) of Chapter 84 lays down, “For the purposes of heading 8471, the expression- automatic data processing machine means machine capable of

storing the processing programme or programmes and at least the data immediately necessary for the execution of the programme

(i) being freely programmed in accordance with the requirements of the user;

(ii) performing arithmetical computations specified by the user; and

(iii) executing, without human intervention, a processing programme which requires them to modify their execution, by logical decision during the processing run.

9. I find that the concerned Commissioner of Customs, Chennai has preferred classification of subject goods i.e. Interactive Large Format Display under heading 8528 instead of classification claimed by the applicant i.e. 8471 for the reasons that, (i) the goods under import are not freely programmable, only application which is designed for end user to perform specific task and runs on Operating System/Software can be installed by the user, (ii) as per Explanatory Notes to Chapter 84, the machines which operate only on fixed programs, i.e., programs which cannot be modified by the user, are excluded even though the user may be able to choose between a number of such Fixed Programs, (iii) these goods cannot execute the logical functions without human intervention, (iv) an Interactive Large Format Displays (Interactive LFDs) are nothing but a large-format touch-screen display ideal for meeting rooms and collaborative spaces. It is a replacement for clunky or outdated projector technology with a higher-quality display, enhanced connectivity, and built-in software solutions. These solutions are perfect for business opportunities, educational pursuits, and even at home leisure. In a nutshell on Interactive LFDs arc a type of interactive whiteboard (IWB), as per Note 6(D) to Chapter 84, Heading 8471 does not cover the monitors and projectors not incorporating television reception apparatus when presented separately even if they meet all the conditions mentioned in Para(C) of the said Note. Further, para (E) states that machines, instruments or apparatus incorporating or working in conjunction with an automatic data processing machine and performing a specific function other than data processing arc to be classified in the headings appropriate to their respective functions or, failing that, in residual headings, (v) The goods are mainly Display devices incorporating and working in conjunction with an automatic data processing machine i.e., inbuilt CPU. Therefore, the primary function of the goods is to display the given input data/ images/pictures/videos etc. and ADP machines performing specific functions other than Data processing are required to be classified as per their respective functions, even though the functions of an ADP machines are inbuilt, the subject goods viz., Interactive large Format Display being primarily used as Display System cannot be considered as a simple input or output device and is to be identified with its primary function of display by applying Note 6 (E) of Chapter 84 Note as mentioned above.

10, On perusal of the comments of the concerned Commissionerate on the application for advance ruling, it is observed that word ‘Display’ in the description of item ‘Interactive Large Format Display’ has caught their attention and same has been made basis to arrive at essential/principal function of the subject goods however, it appears that importance of the word ‘Interactive’ in the description of the subject goods, has not been discussed much. The word ‘Interactive’, in the description of the subject goods immediately brings to the front various capabilities of the subject goods and on closer examination, the capabilities of the subject goods meet the requirement under Chapter Note 6(A) of Chapter 84 for a machine to mean as ‘automatic data processing machine’. Moreover, once an item has inbuilt input unit, output unit along with processing unit then it is obvious that the item is capable of performing multiple functions, For such an item similar to the subject goods, the issue is to ascertain essential function and terms of the heading read with Section/Chapter Notes for determination of classification of such goods. In light of the foregoing, the issue of classification, in the instant application gets settled in terms of Rule I and Rule 6 of General Rules for Interpretation of Import Tariff (GRI) without inviting reference to Rule 3 of GRI.

11. I also note that a number of rulings and judgements have been quoted by the concerned Commissioner to justify classification under heading 8528 However, it is felt that judgement of CESTAT, New Delhi in the case of M/s Ingram Micro India Private Limited is the most appropriate, giving detailed explanation for classification of goods similar to the subject goods under heading 8471. It is also noted that the Customs Authority for Advance Rulings, Mumbai examined the question of classification of similar goods and ruled for classification of such goods similar to the subject goods in sub-heading 8471 4190, while referring to the Final Order of Hon’ble CESTAT, New Delhi in an appeal filed by Ingram Micro India Private Limited.

12. In view of the foregoing, it is evident that the proposed items of import namely, “Interactive Large Format Display-Model Think Vision T86, T75, T65 (with camera) & T65 (without camera)” merit classification under Sub-heading 8471 4190 of the First Schedule to the Customs Tariff Act, 1975.