Case Law Details
In re Amazon seller services Pvt Ltd (CAAR Mumbai)
CAAR held that Smart plugs of model no. C2YY3N are rightly classifiable under sub-heading 85371000 of the first schedule to the Customs Tariff Act, 1975 and The said smart plugs would be eligible to claim benefit of serial number 490 of notification no. 50/2017-Cus., dated 30.06.2017.
FULL TEXT OF ORDER OF CUSTOMS AUTHORITY FOR ADVANCE RULINGS
M/s. Amazon Seller Services Private Limited proposes to import a device called smart plug, having model no. C2YY3N. The application of advance ruling, seeking the classification of the said device and eligibility for the benefit of serial number 490 of notification no. 50/2017-Cus., dated 30.06.2017. was received in the secretariat of the erstwhile Authority for Advance Rulings (Central Excise, Customs and Service Tax), New Delhi on 17.08.2020. However, since no ruling was issued by the said authority, the pending application was transferred to the Customs Authority for Advance Rulings, Mumbai in February, 2021. Communications were sent’ to the applicant from the secretariat of the CA AR, Mumbai to inform whether they are still desirous of receiving the advance rulings in respect of the pending application. The applicant, vide their communication dated 25.02.2021 informed that they are still interested in receiving the advance rulings and also that they will submit the application in the revised format in due course. Thereafter, the application was e-mailed by the applicant in July, 2021, which was followed by physical submission of the application in August, 2021.
2. The smart plug is described by the applicant as a handsfree Alexa enabled device that has multiple built-in elements, i.e., a plug, a socket, a switch and a button. The smart plug can be plugged into standard wall sockets. On the other side of it, a normal plug can be plugged into the smart plug. Such normal plug can be for any appliance like a table fan or a table lamp or refrigerator or any other connected appliance. It supports Wi-fi and Bluetooth connectivity. With such connectivity, the smart plug acts in its capacity as a smart switch_ The smart plug gets paired with the Alexa application on the user’s phone. After such pairing, the user can control the flow of electricity to the connected appliances through the smart plug using the Alexa application on his phone, without having to manually reach for the switch. The button on the smart plug enables its users to reset it to manual set up mode or factory setting or to change the network. The user gets a clear, visual indication from the LED that the smart plug has successfully reverted back to the manufacturer’s default state.
3. A user can give a voice command to switch on/off the connected appliance to his phone having the Alexa application/Echo device/any other Alexa Voice Services enabled device. These devices respond to the name `Alexa’, the most commonly used wake word. Other wake words can be like `Amazon’, ‘Computer’ or ‘Echo’ can also be brought into use as per the preference of the user. The phone with Alexa app/Echo device/any other AVS enabled device have microphones to detect the voice command of the user. Once such devices, through microphones, analyse these words, they become operative and start recording user’s voice command. When the user finishes speaking, such devices send this recording over the internet to Amazon. The service that processes this recording is called AVS. AVS analyses the command and sends back the results to the smart plug. As per the command received, the switching circuit inside the smart plug switches on or off the connected appliance.
4. An example cited by the applicant goes as follows, ‘When a user gives a command, “Alexa, turn on the coffee maker”, the phone with Alexa app/ Echo device/any other AVS enabled device become operative on hearing the word –Alexa” and start recording the command. This recorded command is then sent to AVS which analyses this command and sends the command back to the smart plug, which will turn on the coffee maker connected to it by allowing electricity to pass through the smart plug.’ The output direction/command given by the cloud for switching on or switching off the connected appliance is sent directly to the smart plug which in turn allows or stops flow of electricity to the connected appliance. For this, the smart plug is required to be connected to cloud directly through Wi-fi. in this example, the smart plug substituted a switch connected to a socket, wherein the user can give voice command for switching on or off the connected appliance, instead of manually reaching out to the switch. The smart plug also enables a user to set a routine. For example, the user may feed the routine that every morning, lights shall turn on or music player shall turn on at a specified time and the said commands would be carried out. The applicant has provided the technical specifications of the device in a tabular format. The applicant has also clarified that the smart plug does not regulate the voltage of electricity passing through it and only acts to switch on/off the connected appliance remotely by way of controlling the flow of electricity through it.
5. The applicant has indicated that they wish to import the smart plug through the air cargo complexes of Delhi, Mumbai, Chennai, and Bengaluru as well as the sea ports of Chennai and Nhava Sheva. Accordingly, the subject application was forwarded to the concerned Principal Commissioners/Commissioners of Customs for their comments/views. Comments have been received from Mumbai air cargo in which it has been stated that the Customs Authority for Advance Rulings, New Delhi has already passed a ruling on classification of the same device and communication has been sent to Delhi air cargo to ascertain whether the said ruling has been accepted or otherwise, and that response from Delhi air cargo is awaited. Though no written communication has been received from the Chennai air cargo, an official representative appeared during the course of personal hearing and offered their opinion which is discussed in the succeeding paragraph.
6. The applicant was heard on 02.11.2021. Ms. Jyoti Pal, advocate, appearing on behalf of the applicant explained the product features and functions and drew my attention to the relevant section note and FISN explanatory notes. She argued that based on the principal function of the device, the correct classification entry would be heading 8537, as has been held by the CAAR, New Delhi. Shri Prabhakar Nigam, Appraising Officer, representing the Commissioner of Customs, ACC, Chennai, stated that the primary function of the device is transmission/reception of speech, data etc. and therefore, the correct classification would be the tariff entry 851762.
7. I have considered all the relevant information available before me, Section XVI of the Indian Customs Tariff includes in its ambit a multitude of mechanical and electrical appliances/equipment. Note 3 to the section contains the guidelines for classification of composite machines in these terms, ‘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 takeaway from the said guidance would be that devices which perform two or more complementary or alternative functions are to be classified as being the one which performs the principal function. The applicant has represented that a smart plug can perform multiple functions. e.g., act as a plug and a socket by acting as an intermediary between the wall socket and a connected appliance, act as a switch for the connected appliance that can be operated remotely through voice commands and in that capacity, control the flow of electricity; if the user sets a routine, it can control flow of electricity at a specified time or time interval; act as a reception and conversion apparatus in as much as it receives instructions to switch on/off the connected appliance from the Amazon cloud in the form of RF signals and the same are converted to electrical signals for execution of such instructions. The smart plug, it can therefore be seen, is primarily designed to act as a switch that can be operated remotely using Alexa services. This device makes it possible for its users sitting at any location to be able to switch on/off the connected appliance remotely, thereby eliminating the need to do the act of switching on/off manually. To achieve this capability, the smart plug is Bluetooth and Wi-fi compatible, so that instructions can be received remotely, whether from AVS/Amazon cloud. The only data that the device can receives wirelessly is an instruction for switching on/off a connected appliance. From the product information supplied, it does not appear to be designed to receive/process any other data or instruction. Therefore, it can be safely inferred that the ability of the device to receive instructions is only to support its primary functionality of switching on/off the connected appliance. In the aforesaid factual back drop, the contention of the applicant that communicating with the AVS/Amazon cloud is an ancillary function and that the principal function of the smart plug is to act as a switch, carries considerable merit. Under such circumstances, I am unable to concur with the suggestion of Shri Nigam that the subject device would merit classification under tariff entry 851762 which is intended for machines for the reception. conversion and transmission or regeneration of voice, images or other data, including switching and routing apparatus. If the tariff entry 8517 is eliminated, other possible tariff entries would be 8536[Electrical apparatus for switching or protecting electrical circuits, or for making connections to or in electrical circuits (for example, switches, relays, fuses, surge suppressors, plugs, sockets, lamp-holders and other connectors, junction boxes), for a voltage not exceeding 1,000 volts; connectors for optical fibres, optical fibre bundles or cables] or 8537(Boards, panels, consoles, desks, cabinets and other bases, equipped with two or more apparatus of heading 8535 or 8536, for electric control or the distribution of electricity, including those incorporating instruments or apparatus of Chapter 90, and numerical control apparatus, other than switching apparatus of heading 8517). FISN explanatory notes to switches falling under tariff entry 8536 states that the switches of this heading include small switches for use in radio apparatus, electrical instruments, etc., switches of a kind used in domestic electrical wiring (e.g., tumbler switches, lever operated switches, rotary switches, pendant switches, push button switches) and switches for industrial application (such as, limit switches, cam switches, microswitches and proximity switches). Switches operated by the opening or closing of a door and automatic thereto-electric switches (starters) for starting fluorescent lamps are classified here. Other examples classified here include electronic AC switches consisting of optically coupled input and output circuits (insulated thyristor AC switches); electronic switches, including temperature protected electronic switches, consisting of a transistor and a logic chip (chip-on-chip technology) of a voltage not exceeding 1,000 volts; and electromechanical snap-action switches for a current not exceeding 11 amps (toggle switch). Electronic switches which operate by contactless means, using semiconductor components (e.g., for transistors. thyristors, integrated circuits). In respect of apparatus for making connections to or in electrical circuits, the explanatory notes state that this apparatus is used to connect together the various parts of an electrical circuit and includes, (a) plugs, sockets and other contacts for connecting a movable lead or apparatus to an installation which is usually fixed. This category is further explained to include, (i) plugs and sockets (including those for connecting two movable leads). A plug may have one or more pins or side contacts which match corresponding holes or contacts in the socket_ The rim or one of the pins may be used for earthing purposes. According to the explanatory notes, this heading also excludes assemblies (other than simple switch assemblies) which then would fall under heading 85.37.
8. From the HSN explanatory notes, reproduced above, it can be seen that all the elements of the smart plug, i.e., electronic switches that can be operated without contact, plugs and sockets, are covered within the scope of heading 8536. However, exclusions to that heading are assemblies of apparatuses of heading 8536, except simple switch assemblies, which would be classifiable under heading 8537. Smart plugs proposed to be imported by the applicant for which the present advance ruling application has been filed does not appear to be merely a simple switch assembly. From the product description, its specifications, and functionality, it comes across as a complex system having a plug, a socket, an LED indicator and switching circuitry allowing flow of electricity on the basis of instructions received from the cloud. It is also capable of executing routines created by users for starting/stopping the flow of electricity at a particular time on set days. Thus, by virtue of this exclusion, smart plug does not appear to be correctly classifiable under heading 8536.
9. HSN explanatory notes to heading 8537 provides that they consist of an assembly of switches and fuses on a board, panel, console, etc., or mounted in a cabinet, desk, etc. They usually also incorporate meters, and sometimes also subsidiary apparatus such as transformers, valves, voltage regulators, rheostats or luminous circuit diagrams. The goods of this heading vary from small switchboards with only a few switches, fuses, etc. to complex control panels for machine-tools, rolling mills, power stations, radio stations, etc. In so far as a smart plug has a plastic housing containing a plug, a socket, a button for manual start/reset, and switching circuitry, all falling under heading 8536, it fulfils the requirement of having two or more apparatus of heading 8536. The main function of the smart plug is to control the flow of electricity to the connected appliance, thereby switching it on/off, as per its user’s instructions. Therefore, the smart plug fulfils the requirements of heading 8537.
10. The Customs Advance Rulings Authority, New Delhi also had an occasion to examine and decide the classification of smart plug having model number C2YY3N. In the paragraph 12.3 of the advance Ruling no. CAAR/Del/Amazon/13/21, dated 24.06.2021; observing that the smart plug is designed to primarily function as an electrical switch but is significantly more than a simple switch, it was held that the device stands excluded from the heading 8536; and would be correctly classifiable under heading 8537, and more specifically sub-heading 85371000. My conclusions in the preceding paragraph are also on similar lines. The applicant has also placed reliance on the following US customs cross rulings nos. I IQ H283180, dated 21.02.2020 and N273912 dated 13.04.2016 in support of their contentions.
11. Having taken a view on the issue of classification of smart plugs, the next issue is whether smart plugs are eligible for the benefit of serial no. 490 of the notification no. 50/2017-Cus., dated 30.06.2017. The relevant entry in the said notification provides for concessional rate of basic customs duty of 7.5% for all goods other than those suitable for use in, motor vehicles falling under heading 8702 or 8704, motor cars falling under heading 8703, or motor cycles falling under heading 8711. Since, smart plugs have been held classifiable under heading 8537 and do not fall under listed exculsions, they would be eligible for the concessional rate of duty under the said notification. I find that my learned brother, the CAAR, New Delhi has also taken the same view.
In view of the aforesaid discussions, I rule as under: –
- Smart plugs of model no. C2YY3N are rightly classifiable under sub-heading 85371000 of the first schedule to the Customs Tariff Act, 1975,
- The said smart plugs would be eligible to claim benefit of serial number 490 of notification no. 50/2017-Cus., dated 30.06.2017.
