Tello drones with or without camera would merit classification under heading 9503

In re Ingram Micro India Pvt Ltd. (CAAR Mumbai)

(i) Tello drones with or without camera would merit classification under heading 9503 of the first schedule to the Customs Tariff Act, 1975 and would attract basic customs duty @ 60% adv., IGST @ 18%, Social Welfare Surcharge @ 6%;

(ii) Both AGRAS T16 and Mavic 2 drones would merit classification under heading 8802 of the first schedule to the Customs Tariff Act, 1975 and would attract basic customs duty @ 10%, IGST 5%, and Social Welfare Cess @ 1%. However, if any import is made for personal use, the rate of IGST would be 28% and it would also attract a GST compensation cess @3%.

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

M/s. Ingram Micro India Pvt. Ltd. filed an application for advance ruling before the erstwhile AAR, New Delhi on 27.11.2019. However, no ruling was issued and after the appointment of the CAAR, Murnbai; the secretariat of the erstwhile AAR has transferred the said application. The application was listed for admission on 19.05.2021, and based on the submissions of the applicant, the application was admitted. The application seeks advance rulings on the following questions in respect of three types of drones proposed to be imported: –

• Question No. 1: Whether the drones proposed to be imported are classifiable under the heading 88.02 of the first schedule to the Customs Tariff Act, 1975;
• Question No. 2: If the answer to the above question is in the negative, then what would be the correct classification of the drones;
• Question No. 3: What would be the rate of duty applicable on the import of the drones?

2. The applicant proposes to import three types of drones, as follows: –

• Tello drones with or without camera said to be for entertainment & learning purpose,
• AGRAS TI6 drone stated to be for agricultural spaying,
• Mavic 2 drone for digital video transmission.

The applicant contends that all the above-mentioned types of drones merit classification under tariff entry 88.02 attracting basic customs duty @ 3%, social welfare surcharge @ 10%, IGST @ 5%, and compensation cess @ 3%. The applicant has described in detail as to why the drones proposed to be imported merit classification under tariff entry 88.02 and not under contending entries 85.25 or 95.03. These averments shall be discussed later in this ruling.

3. The applicant indicated that they propose to import the subject goods through the Air Cargo Complexes at Mumbai, Delhi, Chennai and Kolkata. A deficiency memo was raised by the Secretary to the CAAR objecting to the mention of multiple entry ports and this was a subject matter of the admission proceedings also. The applicant’s main contention was that they are not legally barred from doing so, and relied upon the provisions of section 13(2) of the General Clauses Act, 1897. Sub-section (1) of section 28-I of the Act states that, ‘On receipt of an application, the Authority shall cause a copy thereof to be forwarded to the Principal Commissioner of Customs or Commissioner of Customs and, if necessary, call upon him to furnish the relevant records:

Provided that where any records have been called for by the Authority in any case, such records shall, as soon as possible, be returned to the Principal Commissioner of Customs or Commissioner of Customs.’

Further, clause (c) to the sub-section (1) of section 28J of the Act lays down that an advance ruling pronounced under section 28-I would be binding, among others, on the Principal Commissioner of Customs or Commissioner of Customs, and the customs authorities subordinate to him, in respect of the applicant.

Further, section 28KA read with regulation 9 mandates that the Principal Commissioner or the Commissioner is authorised to file an appeal against an advance ruling.

The import of reading all the legal provisions cited above together leads one to the inescapable conclusion that the scheme of advance rulings in customs, as contained in the Chapter VB of the Act, envisages that an applicant would indicate only one port/point of entry for their proposed activity. The use of definite article ‘the’ in all these legal provisions also point to the intention of the legislature to define a specific individual and not indulge in a generic description where a singular can be read as plural and vice versa. The statutory mandate to give a ruling within 3 months of filing an application would also be difficult to comply with if applicants cite multiple ports/points of import/export as corresponding with multiple Principal Commissioners/Commissioners and conveying their comments to the applicant and take in to account the rebuttals/rejoinders of the applicant would he time consuming and would make it difficult to render advance rulings within the time prescribed in the statute. In my view, applicants should avoid such tactics which would only result in delay. However, in the present proceedings, considering the fact that this is a transferred application, I am not pursuing this any further.

4. The matter was listed for final hearing on 08.06.2021. Sri T. Viswanathan and others represented the applicant. The learned counsel explained the features and specifications of each of the three types of drones proposed for import, pointed out that by virtue of Section 104 of the Finance Act, 2021 a new tariff entry 88.06 would be inserted in the customs tariff w.e.f. 01.01.2022 to specifically include drones, which in turn is based on the June, 2019 amendments to the International Convention on the Harmonised Commodity Description and Coding System of World Customs Organisation. The 2018 order on civil aviation requirements for operation of civil remotely piloted aircraft system was also discussed. The purpose of the Id. Counsel was to drive home the point that drones merit classification under heading 88.02 of the customs tariff. The Id. counsel also requested that rulings may also be given keeping in view the changes in tariff which would come into force w.e.f. 01.01.2022. Sri Leo John Ilango, Joint Commissioner, representing the Commissioner of Customs, Chennai – VII (Air Cargo Commissionerate) argued that the principal function of the products should determine the classification. He stated that Tello drones come with an attached camera, and therefore, both Tello as well as Mavic Drones would merit classification under Chapter 85 of the tariff. None of the four Principal Commissioners/Commissioners of the named air cargo complexes have provided their comments to the present advance rulings application, despite a reminder being issued.

5. The three types of drones proposed to be imported and their technical specifications and special characteristics, as stated by the applicant, are as under: –

(a) Tello drone, with/without camera, is primarily aimed at providing an entertaining & learning experience to children and adults alike. The model incorporating camera has the ability to transmit visuals to the user on the remote-controlled device, when in flight. Users can learn the basics of programming while using the product. This drone has 4 rotors and weighs 87 grams. It can achieve a height of 15 metres and travel distances up to 100 metres and remain airborne for 13 minutes. Under the CAR norms, these types of drones are categorised as ‘Nano’.

(b) Agricultural drone is used to carry and spray agricultural products over wide areas. It is equipped with Radar and 3D mapping systems, which help calibrate the device during flight and demarcate the area to be covered. Besides, the Radar and 3D mapping features enable the user to fly the drones in low light or low visibility conditions. AGRAS T16 drones are equipped with six rotors, have an unladen weight of 39.5 kgs., can achieve a height of 30 metres, remain airborne for 10 minutes and cover distances up to 3 kms. These types of drones are covered under the category ‘Medium’ under CAR norms.

(c) Mavic 2 drone is used for capturing images while flying and enables users to shoot visuals from various altitudes end angles. To take advantage of the capability of flight, these drones have significantly longer flight time and speed to capture a wide range of events from the air. These drones have 4 rotors, weigh 905-907 gms., have a flight range of 18 kms., can fly up to 31 minutes, and achieve a flight height of 6000 metres. Under CAR norms, these types of drones are said to be falling under the category of ‘Micro’.

All the aforementioned drones are equipped with re-chargeable batteries and have built in sensors which alert the user about any obstacles which may be present in the flight path. These miniature flying machines can take flight and land vertically and be controlled by smartphones or the remote-control devices.

6. The term ‘Drone’, according to Wikipedia, refers to an unmanned aerial vehicle (UAV) or uncrewed aerial vehicle, which is an aircraft without any human pilot, crew or passengers on board. UAVs are a component of an unmanned aircraft system (UAS), which include additionally, a ground-based controller and a system of communication with the UAV. The flight of UAVs may operate under remote control by a human operator, as remotely-piloted aircraft (RPA), or with various degrees of autonomy, such as autopilot assistance, up to fully autonomous aircraft that have no provision for human intervention. UAVs were originally developed through the twentieth century for military missions too “dull, dirty or dangerous” for humans. As control technologies improved and costs fell, their use in the twenty-first century is rapidly finding many more applications including aerial photography, product deliveries, agriculture, policing and surveillance, infrastructure inspections, science, smuggling, and drone racing. Dictionaries, like Cambridge, Collins, Oxford, Merriam Webster’s variously describe the drones as,

• an aircraft that does not have a pilot but is controlled by someone on the ground, used especially for dropping bombs or for surveillance;
• an aircraft without a pilot that is controlled by someone on the ground, used especially as a hobby;
• a type of aircraft that does not have a pilot and is controlled by someone on the ground;
• an aircraft without a pilot, controlled from the ground, used for taking photographs, dropping bombs, delivering goods, etc.;
• a remote-controlled pilotless aircraft or missile.

Considering the characteristics of drones, e.g., the ability to fly, take off vertically from the ground and land in a similar manner, the ability to hover in the air, presence of rotors for providing lift etc., drones are more akin to helicopters or choppers. In fact, one wouldn’t be too far amiss in saying that drones are nothing but miniature helicopters. Various dictionaries describe helicopters as,

• an aircraft without wings that has large blades on top that go round. It can fly straight up from the ground and can also stay in one position in the air;
• a type of aircraft without wings, that has one or two sets of large blades that go round very fast on top. It can land and take off vertically and can stay in one place in the air;
• an aircraft with long blades on top that go round very fast. It is able to stay still in the air and to move straight upwards or downwards;
• an aircraft whose lift is derived from the aerodynamic forces acting on one or more powered rotors turning about substantially vertical axes.

7. At present, neither Indian customs tariff, nor the HSN, has any specific mention for drones. However, the World Customs Organisation’s International Convention on the Harmonised Commodity Description and Coding System, adopted in Brussels on 14.06.1983 has undergone amendments to the nomenclature and appended as an annex to the convention pursuant to the recommendations of 28.06.2019 of the Customs Co-operation Council and such amendments are expected to come into force w.e.f. 01.01.2022. The accepted changes include a new heading in Chapter 88 of the tariff, i.e., 8806, to specifically include unmanned aircrafts. The new chapter note I to be inserted would read as, Tor the purposes of this chapter, the expression “unmanned aircraft” means any aircraft, other than those of heading 88.01, designed to be flown without a pilot on board. They may be designed to carry a payload or equipped with permanently integrated digital cameras or other equipment which would enable them to perform utilitarian functions during their flight. The expression “unmanned aircraft”, however, does not cover flying toys, designed solely for amusement purposes (heading 95.03).’ India, being a member of the WCO and a signatory to the convention, has carried out the necessary changes vide section 104 of the Finance Act, 2021.

`104. In the Customs Tariff Act, the First Schedule shall, –

(i) be amended in the manner specified in the Second Schedule;

(ii) with effect from the 1st April, 2021, be also amended in the manner specified in the Third Schedule; and

(iii) with effect from the 1st January, 2022, be also amended in the manner specified in the Fourth Schedule.’

The relevant portions of the proposed changes as contained in the said fourth schedule are as under: –

`(64) in Chapter 88, –

(i) for the Note, the following shall be substituted, namely: –

`Note:

1. For the purposes of this Chapter, the expression “unmanned aircraft” means any aircraft, other than those of heading 8801, designed to be flown without a pilot on board. They may be designed to carry a payload or equipped with permanently integrated digital cameras or other equipment which would enable them to perform utilitarian functions during their flight.

The expression “unmanned aircraft”, however, does not cover flying toys, designed solely for amusement purposes (heading 9503).

Sub-heading Notes:

1. For the purposes of sub-headings 8802 11 to 8802 40, the expression “unladen weight” means the weight of the machine in normal flying order, excluding the weight of the crew and of fuel and equipment other than permanently fitted items of equipment.

2. For the purposes of sub-headings 8806 21 to 8806 24 and 8806 91 to 8806 94, the expression “maximum take-off weight” means the maximum weight of the machine in normal flying order, at take­off, including the weight of payload, equipment and fuel.’;

(ii) in heading 8802, in the entry in column (2) occurring against the heading 8802, for the word “AIRCRFT”, the words “AIRCRAFT, EXCEPT UNMANNED AIRCRAFT OF BEADING 8806” shall be substituted;

(iii) heading 8803, tariff items 8803 10 00 to 8803 90 00 and the entries relating thereto shall be omitted;

(iv) after tariff item 8805 29 00 and the entries relating thereto, the following shall be inserted, namely:-

“8806 UNMANNED AIRCRAFT
8806 10 00 – Designed for the carriage of passengers
– Other, for remote-controlled flight only:
8806 21 00 – – With maximum take-off weight not more than 250 g
8806 22 00 – – With maximum take-off weight more than 250 g but not more than 7 kg
8806 23 00 – – With maximum take-off weight more than 7 kg but not more than 25 kg
8806 24 00 – – With maximum take-off weight more than 25 kg but not more than 150 kg
8806 29 00 – – Other
– Other:
8806 91 00 – – With maximum take-off weight not more than 250 g
8806 92 00 – – With maximum take-off weight more than 250 g but not more than 7 kg
8806 93 00 – – With maximum take-off weight more than 7 kg but not more than 25 kg
8806 94 00 – – With maximum take-off weight more than 25 kg but not more than 150 kg
8806 99 00 – – Other

8. The applicant fairly concedes that there are 3 entries in Indian customs tariff where drones can possibly be classified. For ease of reference, the relevant portions of the contending entries are re­produced below: –

(i) 8525 TRANSMISSION APPARATUS FOR RADIO-BROADCASTING OR TELEVISION, WHETHER OR NOT INCORPORATION RECEPTION APPARATUS OR SOUND RECORDING OR REPRODUCING APPARATUS; TELEVISION CAMERAS, DIGITAL CAMERAS AND VIDEO CAMERA RECORDERS

8525 80- Television cameras, digital cameras and video camera recorders:
8525 80 10- Television cameras
8525 80 20— Digital cameras
8525 80 30— video camera recorders
8525 80 90– Other

(ii) 8802 OTHER AIRCRAFT (FOR. EXAMPLE, HELICOPTERS, AEROPLANES); SPACECRAFT (INCLUDING SATELLITES) AND SUBORBITAL AND SPACECRAFT LAUNCH VEHICLES

– Helicopters:
8802 11 00 — Of an unladen weight not exceeding 2,000 kg.
8802 12 00 — Of an unladen weight exceeding 2,000 kg.

(iii) 9503 TRICYCLES, SCOOTERS, PEDAL CARS AND SIMILAR WHEELED TOYS; DOLLS’ CARRIAGES; DOLLS; OTHER TOYS; REDUCED-SIZE (“SCALE”) MODELS AND SIMILAR RECREATIONAL MODELS, WORKING OR NOT; PUZZLES OF ALL KINDS

9503 00 – Tricycles, scooters, pedal cars and similar wheeled toys; dolls’ carriages; dolls; other toys; reduced-size (“scale”) models and similar recreational models, working or not; puzzles of all kinds:
9503 00 10— Of wood
9503 00 20— Of metal
9503 00 30— Of plastics
9503 00 90— Other

The applicant has submitted the product catalogues, the civil aviation requirements for drones, relevant extracts from the HSN, the DGFT notifications of 27.07.2016 and 08.11.2019, relevant extracts from authoritative dictionaries, documents showing drones to be helicopters as held by NASA and EU in the application for advance rulings.

9. I have perused all the material on record, including the written and oral submissions of the applicant. Classification of goods for customs purposes follow a set of general rules. The very first rule of the General Rules for Interpretation lays down that the titles of sections, chapters and sub-chapters are provided for ease of reference only, and that, for legal purposes, classification shall be determined according to the terms of the headings and any relative section or chapter notes provided such headings or notes do not otherwise require. I intend to apply this rule to each of the three drones under consideration in the present proceedings and consider the subsequent rules, only if necessary.

(i) Tello drones, as per the product description, specifications, and the product catalogue, is a lightweight machine with limited flying capability and is clearly intended for amusement and educational purposes. This drone is aimed at amateurs, both children and adults, and therefore, the tariff entry 88021100 meant for helicopters of an unladen weight of 2000 kgs. appears to be clearly inapplicable to such drones. According to the explanatory notes to the Harmonized Commodity Description and Coding System, the heading 88.02 excludes, among others: –

‘Toys or models for recreational purposes (heading 95.03)’

On the other hand, as per the explanatory notes, the heading 9503 covers toys which, inter alia, include: –

`Those intended essentially for the amusement of persons (children or adults), e.g., toy vehicles, trains (whether or not electric), aircraft, boats, etc., and their accessories, as also reduced-size (“scale”) models and similar recreational models. This includes models of a kind mainly used for recreational purposes, for example, working or scale models of boats, aircraft, trains, vehicles, etc.’

In view of the aforesaid position, I hold that the product ‘Tello drone’ is rightly classifiable under the heading 9503 of the first schedule to the Customs Tariff Act, 1975. Even the applicant, in the paragraph 4.32 of their application, concede that Tello drones are rightly classified under heading 9503. The contrary assertion in the very next paragraph of the application, therefore, doesn’t appear to have any merit. Even the new chapter note which would come into force w.e.f. 01.01.2022 also supports this conclusion.

(ii) AGRITAS T16 drones are stated to be used for agricultural operations, namely, spraying. It has an unladen weight of 39.5 kgs. and is equipped with spray nozzle, flow meter etc. According to the explanatory notes, the heading 8802, inter alia, covers: –

‘Heavier-than-air aircraft, which are mechanically propelled. This group includes aero planes (landplanes, seaplanes and amphibians), gyroplanes (equipped with one or more rotors rotating freely on veltical axes), and helicopters (equipped with one or more mechanically driven rotors). Such aircraft may be used for military purposes, the transport of persons or goods or for such activities as training, aerial photography, agricultural work, rescue duties, fire-fighting or for meteorological or other scientific purposes’

Considering the above, it is clear that agricultural drones merit classification under heading 8802 and more specifically, under sub-heading 88021100 of the first schedule to the Customs Tariff act, 1975.

(iii) Mavic 2 drones, as per the product specifications and the product catalogue, are equipped with powerful cameras with zooming capability and are capable of still as well as video recording facilities. It is clear that the main function of this machine is aerial photography/video photography. Therefore, the issue that arise in this case is whether the product merits classification under heading 8525 under the category of ‘television cameras, digital cameras and video camera recorders’ or under heading 8802 as helicopters. The relevant portions of the explanatory notes reproduced above is categorical that helicopters falling under heading 8802 can be intended for use in aerial photography. However, the applicant, in the paragraphs 4.24 and 4.25 of their application, has fairly stated that the Harmonised System Committee of the World Customs Organisation in their 55th Session of the Classification Decisions, opined that a camera mounted on a quadcopter/drone merits classification under tariff entry 8525.80 as a camera on the ground that the essential feature of the product to be photography/videography and not flying. Obviously, in coming to the above conclusion reliance was placed on GIR 3(b)

`Mixtures, composite goods consisting of different materials or made up of different components, and goods put up in sets for retail sale, which cannot be classified by reference to 3(a), shall be classified as if they consisted of the material or component which gives them their essential character, insofar as this criterion is applicable.’

When confronted with the question as to whether an explanatory note has more persuasive value or a WCO classification advice has more persuasive value, I have reached the conclusion that unless otherwise warranted, the mandate of section/chapter/supplementary notes shouldn’t be ignored/discarded and that reference to subsequent rules of GIR, as has obviously been made by the HS Committee, should be made only when the first rule is inapplicable. As already reproduced above, classification, in terms of Rule 1, is to be decided on the basis of the terms of the headings and any relative section or chapter notes. In this case, the heading 8802 includes within its ambit helicopters, and according to the explanatory notes to the HSN such helicopters are used for aerial photography amongst other uses. It is settled law that the explanatory notes have considerable persuasive value. Under such circumstances, the need for resorting to the Rule 3(b) doesn’t seem to arise at all. Therefore, notwithstanding the WCO classification advice to the contrary, it is my considered opinion that Mavic 2 drones merit classification under sub-heading 88021100 of the first schedule to the Customs Tariff Act, 1975. This conclusion is consistent with the new chapter note 1, which would come into force w.e.f. 01.01.2022 as it states that the expression “unmanned aircraft” means any aircraft, other than those of heading 8801, designed to be flown without a pilot on board. They may be designed to carry a payload or equipped with permanently integrated digital cameras (emphasis supplied) or other equipment which would enable them to perform utilitarian functions during their flight.

10. In view of the foregoing, I rule as under: –

(i) Tello drones with or without camera would merit classification under heading 9503 of the first schedule to the Customs Tariff Act, 1975 and would attract basic customs duty @ 60% adv., IGST @ 18%, Social Welfare Surcharge @ 6%;

(ii) Both AGRAS T16 and Mavic 2 drones would merit classification under heading 8802 of the first schedule to the Customs Tariff Act, 1975 and would attract basic customs duty @ 10%, IGST 5%, and Social Welfare Cess @ 1%. However, if any import is made for personal use, the rate of IGST would be 28% and it would also attract a GST compensation cess @3%.

11. A request has been made by the applicant to render a ruling taking into account the changes in tariff which would come into force w.e.f. 01.01.2021. This request of the applicant is required to be rejected as advance rulings can be given on the permitted issues only in respect of the law which is in force and not on the basis of provisions of law which would come into force at a later date in future. Therefore, while I have considered such future changes, and have drawn support from them, I am unable to issue any ruling in respect of such changes which would come into force only on 01.01.2022.

The advance rulings application of M/s. Ingram Micro India Pvt. Ltd. stands disposed of on aforesaid terms.