Vodafone Idea Limited Vs Principal Commissioner of Customs (Import) (CESTAT Delhi)
CESTAT Delhi held that sub-units/sub-assemblies of equipments such as modems, routers, hubs, repeaters, multiplexers would not be apparatus and NIC (i.e. a standalone apparatus) cannot be compared with Router Line Cards. Thus, Router Line Cards are classified under CTI 8517 70 90 and not CTI 8517 69 90.
Facts-
The issue that arises for consideration in this appeal relates to classification of the Product imported by the appellant through the three Bills of Entry. The appellant described the Product in the Bills of Entry as MP071025 CISCO BOQ-19 4*10G PRE-AGG 1B Router Line Card (Part of Router) (Non-WPC) (For Cellular Telephony Network) and claimed classification under CTI 8517 70 90. The appellant also claimed exemption from payment of duty under serial no. 5 of the notification no. 57/17-Cus dated 30.06.2017.
A show cause notice dated 04.10.2018 was, however, issued to the appellant inter alia proposing to re-classify the Product under CTI 8517 69 90 and consequently, differential customs duty of Rs.60, 11, 615/- was proposed to be demanded under section 28(1) of the Customs Act. The show cause notice mentions that the imported ‘Product’ is a communication apparatus in itself and, therefore, would not be classifiable as parts of Router under CTI 8517 70 90.
The Principal Commissioner held that the imported Product is classifiable under CTI 8517 69 90.
Conclusion-
Network Interface Cards (NIC) is capable of operating on its own in conjunction with a printer, computer, etc. This is in stark contradiction with Router
Line Cards, which can be only operated with a Cisco ASR router chassis and nowhere else.
The individual Router Cards perform functions inseparable from that of the equipment. For example, a Router requires a line card to operate as much as the line card requires the power and intelligence of the Router to operate. This is distinct from a NIC, which other than drawing power from the Automatic Data Processing (ADP) machine, operates separately and independently of the ADP machine by performing the sole function of translating the output of the ADP machine. NIC would, therefore, qualify as ‘an apparatus’.
NIC referred to under the category of ‘other communication apparatus’ in the HSN Explanatory Notes are those interface cards which can perform on a standalone basis. This is a standard item which can be fitted to any computer, unlike Router Line Cards which are tailor made for Routers and can only perform function when plugged into the predetermined slot of the Router chassis.
Sub-units/sub-assemblies of equipments such as modems, routers, hubs, repeaters, multiplexers would not be apparatus and NIC (i.e. a standalone apparatus) cannot be compared with Router Line Cards.
The aforesaid discussion would led to a conclusion that Router Line Cards imported by the appellant would be classified under CTI 8517 70 90 and not CTI 8517 69 90.
FULL TEXT OF THE CESTAT DELHI ORDER
This appeal seeks the quashing of the order dated 27.03.2019 passed by the Principal Commissioner of Customs (Imports), New Delhi1, by which the product “Router Line Cards”2 imported by the appellant has been directed to be classified under Customs Tariff Item3 8517 69 90 of the Customs Tariff Act, 19654 instead of CTI 8517 70 90, as claimed by the appellant. Accordingly, the demand of Rs. 60,11,615/- under section 28(4) of the Customs Act, 1962 5 for the three Bills of Entry, each dated 22.12.2017, with interest has been directed to be recovered from the appellant.
2. The issue that arises for consideration in this appeal relates to classification of the Product imported by the appellant through the three Bills of Entry. The appellant described the Product in the Bills of Entry as MP071025 CISCO BOQ-19 4*10G PRE-AGG 1B Router Line Card (Part of Router) (Non-WPC) (For Cellular Telephony Network) and claimed classification under CTI 8517 70 90. The appellant also claimed exemption from payment of duty under serial no. 5 of the notification no. 57/17-Cus dated 30.06.20176.
3. A show cause notice dated 04.10.2018 was, however, issued to the appellant inter alia proposing to re-classify the Product under CTI 8517 69 90 and consequently, differential customs duty of Rs.60, 11, 615/- was proposed to be demanded under section 28(1) of the Customs Act. The show cause notice mentions that the imported ‘Product’ is a communication apparatus in itself and, therefore, would not be classifiable as parts of Router under CTI 8517 70 90.
4. The Principal Commissioner held that the imported Product is classifiable under CTI 8517 69 90 for the reason that though the line cards cannot function on their own and infact work as a component to extend the functionality of Router, but as these cards are used for providing network connectivity to the Router, they act as an interface between the network and the Router and, therefore, would be covered under the category of ‘other communication apparatus’ explained in the Harmonized System of Nomenclature 7 Explanatory Notes to Heading 85.17. The Principal Commissioner further held that even if the Product is in the nature of a Populated Print Circuit Board 8 assembly, it would be an essential part of the Router and cannot be classified as ‘parts’ as it would be covered under ‘other apparatus’ and classifiable under CTI 8517 69 90.
5. Shri B.L. Narasimhan, learned counsel for the appellant challenged the findings recorded by the Principal Commissioner and made the following submissions:
(i) Line Cards of Routers are parts/components and not apparatus of HSN Heading 85.17. Therefore, they are correctly classifiable under Sub-Heading 8517.70 which covers ‘parts’;
(ii) HSN Explanatory Note 2 of Section XVI states that an item will not be considered as a ‘part’ if, on a standalone basis, it can be considered as an article classifiable under its own appropriate heading. In this connection reliance has been placed on the decision of the Tribunal in Commissioner of Cus., Bangalore Modicom Network Pvt. Ltd.9;
(iii) Line Cards do not have separate identifiable / individual function from that of a Router and are incapable of operating independently. Therefore, they are only parts / component of a Router;
(iv) Even otherwise, the Product is in the nature of a PCB and, therefore, correctly classifiable under CTI 8517 70 10;
(v) In fact, PCB is specifically mentioned under Sub-Heading 8517.70 which covers Parts. PCB appears in the Customs Tariff at CTI 8473 30 30, 8517 70 10 and 9027 90 20. All the above Tariff Items are entries for parts. Hence, it is clear that PCB is considered as parts;
(vi) Matter of classification of cards/modules is concluded by various decisions in favour of appellant in:
a. Commissioner of Custom0073 N.I. Systems (India) P. Ltd.10;
b. Indcheom Electronics Commissioner of C.Ex., chennai11;
c. Vintron Electronics Commissioner of C.Ex., Delhi12; and
(vii) Analogy drawn in the show cause notice and the impugned order between the aforementioned Router Line cards and Network Interface Cards13 is incorrect and is not supported by the technology driving them.
6. Shri Ajay Jain, learned special counsel appearing for the Department, however, submitted that the contention of the appellant that the line cards should be classified as parts of HSN Sub-Heading 8517.70 is not correct for the reason that they have independent function, more in the nature of an accessory than as a part. Learned special counsel made the following submissions;
(i) The line cards are specifically meant to provide network connectivity to the Router and they act as interface between network and Router. These allow the Router to connect to the network and receive the data packets which are again forwarded to the destination network by the Router using the line cards again for connecting to the network. The contention of the appellant that the cards should be classified as parts in HSN Heading 8517.70 is, therefore, not correct;
(ii) Reliance on Explanatory Notes of a specific HSN Heading 84.79, which covers ‘machines and mechanical appliances having individual functions, not specified or included elsewhere in this Chapter’ to interpret the scope of Heading in a different Chapter i.e. 85 is incorrect;
(iii) Straightway taking recourse to Section Note 2 (b), without exhausting Section Note 2 (a) to claim classification under CTI 8517 70 10 is also not correct;
(iv) In arriving at classification of a particular item, HSN to be followed. HSN Explanatory Notes of Heading 8517 indicate a particular scheme of classifying goods covered under this Heading. The Indian Customs Tariff has essentially followed this scheme in terms of HSN Explanatory Notes. These line cards get covered by the group of cards which result in Network interface. The Ethernet interface card is only a type. All cards which are similar in function to Network interface cards will get covered by the category ‘Other communication apparatus’, which also includes ‘Routers’;
(V) The contention of the appellant that NIC mentioned in HSN Explanatory Notes is different from line cards is not correct. The functions of NIC and that of a line card are almost identical. Both provide a connection between the network and the device (computer or the Router as the case may be). These work at physical layer as well as data link layer. Both are put in expansion slot of the main machine. Bother convert the data received into format understood by the network. Both derive their power and intelligence from the main device;
(Vi) The contention of the appellant that a computer or a printer can work independent of NIC while Router cannot, is again fallacious; and
(Vii) Even if line cards are in the nature of PCB assembly, they cannot be classifiable as parts in as much as these are goods covered by other apparatus and classifiable under CTI 8517 69 90. In the Bills of Entry, the appellant had declared these goods as ‘Router Line Cards or Router Line Cards with Mother Boards (Part of Router)’ and not as populated PCBs.
7. The submissions advanced by the learned counsel for the appellant as also the learned special counsel for the Department have been considered.
8. The appellant claims that the Product deserves classification under CTI 8517 70 90 or in the alternative under CTI 8517 70 10, while the Department claims classification of the Product under 8517 69 90.
9. The relevant tariff entries are reproduced below:
