YubiKey manufactured by Yubico AB classifiable under HS Code 84718000

In re Yubico AB (CAAR Delhi)

CAAR ruled that rule that the YubiKey (product) manufactured by Yubico AB, is classifiable under HS Code 8471 8000 of the First Schedule to the Customs Tariff Act, 1975 as per the rules and notes under the Customs Tariff, and technical specifications and usage of the product.

FULL TEXT OF ORDER OF CUSTOMS AUTHORITY FOR ADVANCE RULINGS, DELHI

M/s Yubico AB (‘the Applicant) Kungsgatan 44, 2nd floor, I 1 1 35 Stockholm, Sweden is engaged in manufacture of the product which is a hardware authentication security device. It protects against unauthorized access to computers. networks, and online services. The product strengthens the security of access to the device to which it is connected by adding another layer of authentication vide strong hardware-based authentication, in addition to existing passcode.

2. The product works across major operating systems and connects to different devices in following manner: MA3EXGL I S00395830

I. Via USB-A: Certain models of the product are designed with USB-A interface are therefore, meant to be used primarily with computers i.e., laptop and desktop.

II. Via lightning connectors: Certain models are designed with lightning connectors and arc meant to be used primarily with mobile phones and tablets.

III  Through near-field communication (‘NF(“) or via USH-C: Certain models of the product arc equipped ith NFC wireless technology. ‘these models can be connected with multiple types of devices including laptops. desktops and mobile phones by touching / tapping with said devices. Further, certain models arc designed with USH-C intertke and are meant to be used with laptops, tablets and mobile phones supporting such interface.

2.1 Once the product is connected to a device, a three-step verification process is carried out i.e., the product manual ‘141)(7, ‘s NOW nibiKey 5 Series Tochnical Manual’ (`the product manual^.), for reference to the technical specifications and related information of the product. As per the Applicant’s understanding of the technical specifications and usage of the product, relevant explanatory notes, section notes, chapter notes of the Customs Tariff, the product is classifiable under Tariff Item 8471 8000, that is the question before the Authority. In view of above stated facts and information, the Applicant hereby requests the Authority to provide a Ruling, basis the submissions made hereunder.

3. The Applicant has analyzed the classification of the product under the relevant provisions of the Customs Act. 1962 read with Customs Tariff Act, 1975, relevant section and chapter notes, explanatory notes, and judicial pronouncements. The analysis is given below:

I. Evaluation of Tariff Item 8471 8000 in the context of the product under consideration

The relevant tariff entry in the Customs Tariff has been reproduced below for ease of reference:

1.1. It is understood that Heading 8471 of the Customs Tariff covers Automatic Data Processing machines (‘ADPs’) and units thereof. On the basis of review of section notes and chapter notes it is understood that classification of the product under custom tariff heading 8471 would merit consideration of Note 6 to Chapter 84. The said note lays down the conditions for a product to qualify as a unit of an ADP machine. The relevant extract of the note is reproduced below:

“6. (A) …

(B)

(C) Subject to paragraphs (D) and (E), a unit is to be regarded as being part of an automatic data processing system if it meets all of the following conditions:

(i) it is of a kind solely or principally used in an automatic data processing system; (ii) it is connectable to the central processing unit either directly or through one or more other units; and (iii) it is able to accept or deliver data in a form (codes or signals) which can be used by the system. Separately presented units of an automatic data processing machine are to be classified in heading 8471. However. keyboards, co-ordinoic input devices and disk storage units which satisfy the conditions of (it) and (‘III above, are in all eases to he classified as units of heading 8471.

(1)) Heading 8471 does not cover the Miming when presented separately, even if they meet all of the conditions set forth in paragraph (C):

(i) printers, copying machines. .facsimile machines, whether or no! combined; (ii) apparatus for the transmission or reception of voice, images or other data, including apparatus for communication in a wired or wireless network (such as a local or wide area network); (iii) loudspeakers and microphones:

(iv) television cameras, digital cameras and video camera recorders,. (v) monitors and projectors, not incorporating television reception apparatus.

(E) Machines incorporating or working in conjunction with an automatic data processing machine and performing a specific fiinction other than data processing are to be classified in the headings appropriate to their respective functions or, failing that, in residual headings”

1.2. As evident from the above note, evaluation of sub clause (C) along with sub clauses (D) and (E) is required to determine if the product merits classification under Customs tariff heading 8471. The above clauses have been evaluated as below:

I.2.1. Clause (C)(i) – It is of a kind solely or principally used in an automatic data processing system

The Applicant submits that the product can be used with computers (including laptops, desktops), tablets and/or mobile phones. Considering different types of interface configurations installed in these devices, the Company has different models to support each of such devices. Basis the perusal of Customs Tariff, it is understood that computers are ADPs and covered under Heading 8471 of the Customs Tariff. Therefore, the models of the product designed to be used primarily with computers, can be said to be used with an ADP. Further, there are certain models which can be used with tablets and mobile phones. In respect of models, which are primarily designed to work with tablets, the Applicant submits that (in terms of Circular 20/2013 dated 14th May 2013), tablets are also ADPs classifiable under heading 8471. Therefore, the understanding that the product has been designed to be used specifically with an ADP shall apply, even when the product is used with tablets. Further, in respect of usage of product with the smart phones, we understand that smartphones are also designed to perfonn the functions of an ADP. The relevant extract of chapter notes given in Customs Tariff is reproduced below:

“5… …     the term “smartphones” means telephones for cellular networks, equipped with a mobile operating system designed to perform the functions of an automatic data processing machine such as downloading and running multiple applications simultaneously, including third-party applications, and whether or not integrating other, eatures such as digital cameras and navigational aid systems.”

In view of the above definition, smart phones can be said to have two components, one being the telecom feature (that allows the user to make calls) and the other being the operating system that performs the functions of an ADP. When the product is connected to a mobile phone, it interacts with the ADP functionality of such device and provides hardware-based authentication security to the various applications installed on the ADP. Basis conjoint reading of above definition of smartphones with clause C(i) of Chapter Note 6, it can be construed that all the models of the product have been designed to be used in conjunction with an ADP in different ways. Further, the Applicant also submits that when any equipment is predominantly used with an ADP machine, then also such equipment can be said to be used `solely or principally’ with ADPs. In this regard, reliance is placed on the decision of the Hon’ble Tribunal in the case of CCE Vs. Aveco Viscomm Private Limited. The relevant extract of the decision is reproduced below:

“8.4 Ii is undisputed that the goods imported by the assessee are Projectors. It Is also undisputed taut the said projectors have to be used in conjunction with ADM The only question Is whether  these projectors can be used solely or principally with the ADPS We find that the Adjudication Authority has clearly recorded a categorical finding in his Order-in-Original, that the words solely or principally should mean that the projectors should be predominantly used with ADPS though the possibility of other usage is not ruled out. It is seen from the records that no evidence was produced before the lower authorities to indicate that usage of such goods for any other purpose would disqualify them from being classified under the specific Chapter Heading No. i.e. 8528 61 00. It is also seen that the lower authorities have clearly held that far the goods imported by the assessee, to he classified under Heading 8528 69 00. a needs to he demonstrated that the said goods are not compatible with Automatic Data Processing Systems and otherwise serve the desired purpose. In the absence of any evidence before them, the lower authorities were correct in holding that the assessees have amply demonstrated belbre them that the goods imported would he and con he used in conjunction with ADPS only.”

In the present case, as mentioned earlier, the product is meant to be used predominantly with ADPSs. In such a case. relying on the above decision of the Tribunal, the Applicant understands that it can be reasonably concluded that the product is meant to be used solely or principally with an ADP, thus. satisfying the first condition. Further, the subsequent conditions have been evaluated below.

1.2.2. Clause (C)(ii) – It is connectable to the central processing unit either directly or through one or more other units

As mentioned above, the product is connected to an ADPS via USB interface. Once connected, the Central Processing Unit (‘CPU’) of such ADPS reads the USB and then allows the product to establish a secured channel with the ADP. Therefore, it can be said that the product ultimately gets connected to the CPU. Thus, the product being connectable to the CPU of ADP, it satisfies the second condition in Clause (C).

1.2.3.  Clause (C)(iii) – It is able to accept or deliver data in a form (codes or signals) which can be used by the system

As mentioned in the product manual, the product communicates with an ADPS with the help of the Application Protocol Data Unit (`APDU’) which delivers instructions or data (such as key or certificate) in the form of a command. The product verifies the command, decrypts the command and passes the same. Thus, the product is capable of both accepting and delivering data which is in the form of commands. Basis above, it is observed that the product meets all the conditions under Note 6 (C) and thus. can be considered as a unit of an ADPS. While the product appears to have satisfied all the conditions mentioned in Clause (C) above, it is pertinent to note that it does not fall under the exclusions mentioned in clauses (D) and (E) as well. The same have been evaluated by the Applicant below.

1.3 Clause (D) of the Note 6 reads as below:

“(D) Heading 8471 does not cover the following when presented separately, even if they meet all of the conditions set forth in paragraph (C): (i) printers, copying machines, facsimile machines, whether or not combined: (ii) apparatus for the transmission or reception of voice, images or other data, including apparatus _.for communication in a wired or wireless network (such as a local or wide area network): loudspeakers and microphones: (iv) television cameras, digital cameras and video camera recorders: (v) monitors and projectors, not incorporating television reception apparatus.”

On review of the items enlisted in the above clause, it is revealed that the product in consideration is not covered therein. Lastly, the applicant has analyzed whether the product falls within the exclusion laid down in Clause (E).

Clause (E) — Machines 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

Clause (E) requires that any machine used with an ADP should be performing data processing, otherwise it will not be covered under heading 8471. The Applicant submits that when the product is plugged into an ADP, it establishes a secured channel after processing the request from such ADP. The procedure for establishing connection between the product and an ADP involves verification vide external authentication, decryption of commands and communicating with the ADP. Thus, the product provides authori7ation to access data on an ADP after proper processing of commands in order to avoid any leakage of data. In view of the above. the product satisfies all the conditions laid down in clause (C) and is not covered under exclusions specified in clauses (D) and (E) of Note 6 to Chapter 84 of the Customs Tariff. Therefore. the product is classifiable under Heading 8471, under Tariff Item 8471 8000, as a unit of an ADP.

11. Other rulings and technical opinions

Further, in order to support the classification suggested above, the Applicant is placing reliance on classification rulings given by authorities in other jurisdictions as well as opinions of the Harmonised System Committee (‘HS Committee’) of the World Customs Organisation (‘WCO’).

11 1.1. Opinion of the HS Committee

The Applicant has placed reliance on the opinion of the HS Committee, set up by the WCO for providing classification opinions and advice on the interpretation of the HSN. In the said opinion, the HS Committee has opined on classification of a cryptographic processor (which is similar to the product), which performs data security functions, in order to eliminate the need of having a security software installed in the system, under HS Code 8471.80 of the HSN. The relevant extract is reproduced below: “8471.80 I. “Cryptographic processor containing Data Encryption Standard (DES) encryption algorithm, which is connected as a peripheral device to one or more computers used in networks. It receives commands from that (those) computer(s) instructing it to perform pre-programmed operations. Its function is to provide the necessary data security functions (e.g.. authentication and encryption). which would otherwise have to be performed by software loaded onto the host computer; this eliminates the need for storage of certain security data bases in the computer(s) and thereby reduces the risk of fraud. The functions of the apparatus are controlled by a firmware (a chip containing programme) installed in the product at the manufacturing process. The apparatus has an RS 232C physical inter face to a computer. It can also be used in other value-bearing applications such as issuing stored cards and trading stocks and bonds, but in that case the firmware would have to be modified by the mamifacturer.”

In view of the above opinion, it can be reasonably inferred that the product under consideration in this application, merits classification under Tariff Item 8471 8000. Further, the opinion of the HS Committee holds significant persuasive value while determining classification of a product in India. In this regard, the Applicant places reliance on the decision of the Hon’ble Delhi High Court in the case of Manisha Pharma Plasto Pvt. Ltd. Vs. UOI, wherein it has been held that opinion of the HS Committee is ordinarily considered to have a binding force in classification matters. The relevant extract is reproduced below: “19. We also find force in the submission made on behalf of the petitioner that the opinion of the’ Harmonised Systems Committee has lot of weight and should ordinarily be taken as binding. As its very name suggests. the Committee is meant to harmonise the conflicting interpretations of products and their formulae in the member countries in view of international trade.”

Cross Rulings issued by the Customs and Border Protection (`CBP’) of United States of America The Applicant has also placed reliance on a classification related cross ruling on a similar product, i.e , USB dongle based computer software security key. In this ruling issued in 2005, it is observed that, like the product under consideration, USB dongle/ computer software security key used for protecting software from unauthorized access has been identified as control or adaptor unit classifiable under Sub-Heading 8471 80 1000 of the Harmonized Tariff Schedule of the United States (‘HTSUS’). The relevant extract is reproduced below:

“The merchandise under consideration is a USB Dongle or computer sqliware security key. it protects software, from unauthorized use or copying. It contains non-volatile memory and may also be used to carry passwords, signatures or other data °fa highly sensitive nature. It plugs into a personal computer USB port and is compatible with Windows, Linux, and Macintosh operating systems. When the user logs onto a computer with protected software, the computer searches for the entry lion code or  iassword imbedded in the dongle. The user inserts the dongle into any USB port of the computer, and once the code or password is detected, the software will work. If the software license has expired, the code or password will not be detected and the software will be disabled until the license has been renewed. In your request you suggested that these USB Dongles are classifiable as parts and accessories of the machines of heading 8471 in subheading 8473.30.5000. However, in New York ruling D81850. September 3. 1998, a similar security key was found to be a control or adapter unit and classified in subheading 8471.80.1000. The applicable subheading jbr the USB Dongles will be 8471.80.1000,  Harmonized Tariff Schedule of the United States (HTS), which provides for “Automatic data processing machines and units thereof.. Other units of automatic data processing machines: Control or adapter units.” The rate of duty will be free.”

Further, the Applicant places reliance on another cross ruling issued in 1998, wherein security key, designed to be inserted into a computer’s printer socket to control the use of the software, similar to the product under consideration, has been held to be classifiable under Sub-Heading 8471 80 1000 of the HTSUS. The relevant extract is as below: “The applicable subheading for the connector/controller security key will be 8471.80.10, HTS, which provides for control or adapter units. The rate of duty will be free.” It is pertinent to mention that the tariff of countries signatory to the HS Convention are aligned up to 6 digits. Therefore, classification of the product under 8471 80 in the Indian Customs Tariff derives strength from the rulings issued by Customs authorities in USA. In view of the Cross Rulings discussed above, the Applicant understands that the product is a control or adaptor unit, classifiable under Tariff Item 8471 8000 of the Customs Tariff. Thus, basis the rulings and technical opinion discussed above, the product is classifiable under the Tariff Item 8471 8000 of the Customs Tariff. In the light of above, it is humbly requested that this Hon’ble Authority issues a ruling confirming the classification of the product under Tariff Item 8471 8000 of Customs Tariff of India.

Views of the field Commissionerate, Airport & Air Cargo Complex, Bengaluru

The field Commissionerate confirmed that there is no pending case raising the question sought in the Application for Advance Ruling and the same has not been decided by any court. As far as the merits of the question raised in the application is concerned, the Application has been thoroughly perused, and the basis of the classification proposed by the Applicant under CTH 84718000 analysed on the rationale of the arguments and legal support put forth by the Applicant. The nature of the item – Yubikey has been studied from various resources available on the Internet, the company website and an elaborate description on Wikipedia, at https://en.wikipedia.org/wiki/YubiKey. The Product Catalogue and technical Characteristics of the product have been downloaded from the company website and attached herewith. Basically, the product – Yubikey is a Multi-protocol, Hardware Security Device that provides authentication for users for their devices and prevents phishing attacks. It is akin to Internet Security Devices “in conjunction with” ADPs, as claimed by Applicant themselves and as seen from the technical charactenstics of the product, and not “in^– ADPs takes it out of the ambit of classification under CTI-1 84718000

It is also seen that the Explanatory Notcs for this heading define an ADP with the following mention – ^–However. the heading excludes machines. instruments or apparatus incorporating or working in coTunclion with an automa►ic darn processing machine and performing a specific _.function. Such machines, instruments or apparatus are classified in the headings appropriate to their respective functions or. tailing that, in residual headings (See Part (E) of the General Explanatory Note to this (‘chapter). As the goods appear to be working only “in conjunction with” the ADPs (Computer/Mobile etc.). these arc clearly excluded from the Heading 8471 as per the HSN explanatory notes of Heading 8471. A reading of Chapter Note 6(E) also reinforces that the Yubikcy would not be classifiable under MI 84716000 but in the heading appropriate to the function of Yubikey.

In respect of the opinion of HS Committee and US Cross Ruling placed on record by the Applicant, it is felt that the same were delivered almost 2 decades ago and the technology, as well as the Classification criteria have undergone a sea change over these years. The Smart Phone technology was in a nascent stage in 2005 and the Yubikey finds applications in smart phones also. The USB Dongle, Internet Security. Anti-Virus Security key goods are classified under CTH 8523 and some other tariff headings in India, notwithstanding the said Cross Rulings. The US Cross Ruling of 2005 relies upon another Cross Ruling of the year 1998. without analyzing the issue on merits and hence the same deserves to be discarded. Going by the product description, it is clear that Yubikey could not be stated as a Part or Accessory or a Unit of any ADP, be it a Computer, a Tablet or a Smartphone and since a specific function is associated with the product. it has to be classified according to that function or on the media on which it is carried. In this context, a reference for classification under CTH 85176990/85177990 was considered as Network Firewalls and similar products are classified under this heading. However, the said classification is ruled out since Yubikey is, though functionally like a Firewall/security device/anti-phishing protective device, it is meant for an ADP and not for a Network.

Since classification under CTH 84718000 is distinguished, the Yubikey not being either a Part or an Accessory or a Unit of an ADP. going by the product technical characteristics and functionality, this Commissionerate is of the view that the product shall be rightly classifiable under CTH 85235990, since the Yubikey is a Semiconductor Device, but neither a storage device (85235100) nor a smart card (852352). Anti-virus and Internet Security Devices, similar to a Yubikey are rightly classified under the CTH 8523. It is placed on record that the Yubikey has already been self-assessed and cleared in this Commissionerate. (Port Code: INBLR4) under CTH 85235990 under Bill of Entry – 6949620/ 19.07.2023 by M/s TCS Ltd.

5. Personal Hearing dated 01.11.2023

The Authorized representative Shri Ravi Jain and Ms. Lipi Gupta who appeared on behalf of the applicant, started by giving brief technical explanation of the goods in question. Reiterating the submissions made in the application for advance ruling, AR mentioned that goods in question are plug-in devices which provide additional layer of security. AR further referred to comments of the concerned Commissionerate and stated that they do not agree with the said comments. He also mentioned that they would like to give additional submissions, in light of the said comments. The Authority enquired about technical literature on functuioning of the goods in question, to which AR replied that detailed literature has already been submitted by them. Authority granted them seven days time to make additional submissions and for providing summary of the detailed literature, already submitted by them.

Additional Submission to the advance ruling application filed On 19th May, 2023

Recent advance ruling in the case of M/s Pagaria Infotech Ventures LLP

(i) Customs Authonts for Advance Ruling. Mumbai. recently in the case of 11^,1/s Pagaria Infotech Ventures LLP (the ruling) has ruled on the correct classification of the product, Proxkey (which iv identical infiinctionality and usage as Yubikev, i.e., the product under consideration in this advance niling application), under tariff entry 8471 8000. In this regard, it is submitted that our product ‘Yubikey’ is identical in usage and functionality as Proxkcy. Identical to Proxkcy. our product is also an authentication token which makes use of its cryptographic functionality in order to provide security to the device and / or networks, it is connected with.

(ii) The key aspects equating the two products. YubiKey and Proxkey arc summarized below:

a. Both are small, portable cryptogenic hardware tokens with USB interfaces which look similar to USB pen drives: b. Both am not designed for arbitrary data storage and are not capable of running arbitrary computation: c. Both provide cryptographic functionality using the algorithms RSA, DES, SHA, ECC. HMAC, DRBG. etc.: d. Both have core functions of providing cryptographic key generation and allowing the keys to be used, but not exported, for specific data processing: authentication. encryption, and digital signatures in order to enable the external system access to applications. computer systems, websites, or to perform digital transactions; e. Both use similar connectivity and communication standards such as USB and ISO 7816, and are able to pass rigorous cryptographic validation programs such as FIPS 140; f. Both contain no battery and can only be operated when externally connected to and powered by an external computer or automated data processing system: g. Both are encased devices which contain a PCB, and LED indicator, and one core active component – a crypto processor with its own RAM, CPU, interfaces, and limited memory.

(iii) The two products are identical in form and functionality. As the Honorable Customs Authority for Advance Ruling. Mumbai has already ruled that such products are to be classified under tariff entry 8471 8000. it is requested to consider their submissions and confine the classification of product. Yubikey. under tariff entry 8471 8000.

(2) The port authorities have raised several objections on the classification being proposed by the applicant. the port authorities have failed to provide any reason to support the classification being suggested by them under tariff entry 8523 5990. Also, the objections raised by the port authorities against classification of the product under tariff entry 8471 8000 are baseless and untenable. In this regard, point wise response to each of the objection is provided below:

(i) Non – compliance of condition provided in Chapter Note 6(C)(i) to Chapter 84

(a) The port authorities have stated that the product does not merit consideration under Customs Tariff Heading (`CTI-1′) 8471 as the condition laid down in Chapter Note 6(C)(1) has not been fulfilled. The relevant extract of the condition is reproduced below for reference: “C) Subject to paragraphs (D) and (E), a unit is to be regarded as being part of an automatic data processing system if it meets all of the following conditions: (i) it is of a kind solely or principally used in an automatic data processing system:

..”, (b) The port authorities are of the view that the word ‘in’ should be interpretated differently from the word ‘with’ and since Yubikey is used in conjunction ‘with’ an ADP, it does not meet the above-mentioned condition. The specific comment of the port authorities is reproduced below for reference: “h is jell that the condition V of Chapter Note 6C is not complied with, as the usage of the word “in” and “with’ needs to be interpreted purposely and differently……… For this reason alone, it is felt that the Subject goods being intended to he used “in conjunction with” AM’s, as claimed by Applicant themselves and as seen 1mm the technical characteristics of the product, and not “in” ADPs takes it out of the ambit or elauttionton under 84718000″; (c) In this regard, the Applicant places reliance on chapter note MB) of chapter 84 The chapter note is reproduced below for your reference: “Automatic data processing machines may he 117 the form of kivems consisting of a variable number of separate units. “The Applicant submits that the above note clearly establishes that an ADP machine may be in the form of a system consisting of variable number of separate units. Such units along with the machine together constitute an ADP. Therefore, it is not necessary that for a unit to qualify as a unit of ADP, it has to be in-built in the ADP machine. In other words, separate units of ADP, put together, can form a system which can also be referred to as an ADP machine: (d) Further, the applicant submits that Chapter Note 6(C) itself states that separately presented units of ADP arc also covered under CTH 8471. The relevant extract of the note is reproduced below: . _Separately presented units of an automatic data processing machine are to he classified in CTH 8471: (e) Therefore, a conjoint reading of Chapter Note 6(B) and Chapter Note 6(C). means that the product being used ‘with’ an ADP should also be considered as a part of ADP system. Therefore, the arguments placed by the port authorities to suggest that ‘condition 6C(i) is not met’ is flawed: (f) Additionally, the applicant also places reliance on Chapter Note 6(D), which provides an exhaustive list of separately presented units that are excluded from CTH 8471. Assuming but not admitting that the department’s contention is correct, the mention of Chapter Note 6(d) will have no relevance, making the note redundant: (g) In view of the above submissions, it is clear that even the units which are used ‘with’ ADP i.e. presented separately and not necessarily built inside of a particular ADP machine, get covered under CTH 8471 subject to fulfillment of other conditions. Therefore, port authority’s objection is completely erroneous.

(ii) Condition provided in Chapter Note 6(E) to Chapter 84

(a) The port authorities have stated that the product does not merit consideration under Customs Tariff Heading (‘CTH’) 8471 as the condition laid down in Chapter Note 6(E) is not being met; (b)The port authorities have cited the explanatory note to support the above objection. The explanatory note relied on by the port authorities is reproduced below for reference: “However, the heading excludes machines, instruments or apparatus incorporating or working in conjunction with an automatic data processing machine and performing a specific function. Such machines, instruments or apparatus are classified in the CTHs appropriate to their respective functions or, failing that, in residual CTHs (See Part (E) of the General Explanatory Note to this Chapter)”; (c) The applicant wishes to submit that the port authorities have failed to read the explanatory notes in its completeness and have specifically ignored the words ‘See Part (E) of the General Explanatory Note to this Chapter^.; (d) Part E of the General explanatory notes dearly re-iterate the applicant’s view that only those machines which perform specific functions other than data processing are excluded from the CTH 8471. The relevant extract is reproduced below for reference: “(E) Machines incorporating or working in conjunction with an automatic data processing machine and performing a specific function: In accordance with the provisions of Note 6 (E) to Chapter 84, the following classification principles should be applied in the case of a machine incorporating or working in conjunction with an automatic data processing machine, and performing a specific function :(1) A machine incorporating an automatic data processing machine and performing a specific finction other than data processing is classifiable in the heading corresponding to the function of that machine or, in the absence of a specific heading, in a residual heading, and not in heading 84.71. (2) Machines presented with an automatic data processing machine and intended to work in conjunction therewith to perform a specific function other than data processing, are to be classified as follows : the automatic data processing machine must be classified separately in heading 84.71 and the other machines in the heading corresponding to the function which they perform unless, by application of Note 4 to Section XVI or Note 3 to Chapter 90, the whole is classified in another heading of Chapter 84, Chapter 85 or o/'(‘hapter 90.” The Applicant reiterates that the authorities have failed to read the extract and explanation notes in its completeness The note inter-alia excludes machines performing a specific function other than data processing The Applicant reiterates that one of the primary function of Ytibike‘ is data processing. Once the product is connected to the device, a three-step verification ins mg establishment of a secure channel, processing of data takes place. (e) The Applicant wishes to submit that the product has one core active component i.e. a crypto processor with its own RAM. CPU. interfaces, and limited memory. The core function is to provide cryptographic key generation by making use of the algorithms like RSA, DES, SHA, ECC. HMAC, DRBG for specific data processing i c authentication, encryption. and digital signatures. This enables the external system access to applications. computer systems. websites, or to perform digital transactions. Therefore, as the product Yubikey is perfuming data processing. it does not fall under the exclusionary clause 6(E); (f) In addition to the above, Applicant wishes to submit that even if the product Yubikey carries out other functions in addition to data processing i.e. cryptographic authentication (as also briefly described at Para (e) above and other relevant places in the advance ruling application), the most specific tariff entry for the product remains to be 8471 8000. The applicant submits that there is no specific tariff entry mentioning the cryptographic token throughout the Customs Tariff Schedule; (g) The Applicant wishes to submit that on the basis of HS Schedule read together with HS Explanatory Notes, HS Classification opinion, the relevant classification for the Yubikey is 8471 8000; (h) The Applicant wishes to reiterate that as per WCO Committee opinion (also referred in advance ruling application), the cryptographic processors are classified under CTH 8471 80. (i) Further, the Applicant wishes to submit that as a member of HS Convention, India follows the HS Committee opinions. In this regard, the Applicant refers to “Recommendation on the application of Harmonized System Committee decisions dated 30 June 2001″. wherein it is recommended that the HS Convention Members shall notify the WCO Secretary General as soon as possible if they are not able to apply a Harmonized System Committee decision. On the basis of list of decisions. which the member countries have notified to the WCO Secretary General, India so far has reported only two of such HS Committee opinions which it is unable to apply. Said decisions are quoted below for reference: (i) Decision taken by the Committee at its 64th Session in September 2019 classifying two dissolved gas analysis (DGA) monitors in heading 90.27 (subheading 9027.20). India had classified the two products in subheading 9027.10; (ii) Decision taken by the Committee at its 62nd Session in September 2018 classifying two types of “communication antennae” in heading 85.17 (subheading 8517.70). India had classified the two products in subheading 8517.62; (j) On the basis of the above, the Applicant wishes to submit that India has not notified its inability to apply the decision of HS committee in the case of cryptographic processor. Therefore, the Applicant believes that the said opinion should be relied upon and hence, the product Yubikey being a cryptographic processor, merits classification under tariff entry 8471 8000.

(iii) Objection that HS Committee opinion and the Cross Ruling relied upon in the advance ruling applications are more than two decades old

(a) The applicant wishes to submit that the HS committee opinion still holds relevance and significance in the current times, despite any technological advancement over this period; (b) The applicant places reliance on a recent advance ruling in the case of M/s Pagaria Infotech Ventures LLP issued in May 2023, ruled on an identical product (as also mentioned earlier in their submission) wherein the same HS committee opinion has been relied upon; (c) The applicant wishes to reproduce the relevant extract of the advance ruling wherein authorities have relied upon the same WCO committee opinion to pronounce the order: “On the bases of foregoing I agree with the applicant’s contention…..Moreover, the product has specific character which are in consonance with principles laid to Chapter note 5C of 84. WCO Explanatory notes to 847180 and specific product entry of WCO classification opinion under 8471 80. There is nothing contrary to this opinion in the chapter 84 to the first schedule to the Customs Tariff Act, 1975. HSN/WCO classification opinion has a significant guidance value in deciding the matters of classification under the Customs law.”;  (d) Therefore. the contention of authorities that the committee opinion and cross things are more than two decades old holds no relevance

(iv) Objection that the product is/ similar to an anti-virus device I semi-conductor device

(a) The port authorities. in their comments, have stated that they arc of the view that the product. Yubikey is a semi-conductor device, but neither a storage device (85235100) nor a smart card (852352) The port authorities have stated that anti-virus and Internet security devices, similar to Yubikey arc classified under CTH 8523 Basis this the port authorities ha% e suggested that the Yubikey should be classified as a semi-conductor device. under tariff entry 8523 5990. (b) The Applicant wishes to submit that the port authorities have erred in adjudging the product as a ‘semi-conductor device. (c)The Applicant wishes to submit that a semiconductor eleY ice is an electronic component that relics on the electronic properties of a semiconductor material (primarily silicon. germanium, and gallium arsenide, as well as organic semiconductors) for its function Semiconductor devices arc manufactured both as single discrete devices and as integrated circuit (IC) chips Semiconductor devices arc typically used by electrical and electronic engineers as part of a more complex electronic device. In contrast to the this, the product. Yubikey is comprised of a collection of components attached to a printed circuit board and surrounded by plastic Thus are used by end users to perform hardware based cryptographic functions; (d) Therefore, the Applicant wishes to submit that the product, Yubikey, cannot be categorized as a semiconductor device, (e) Further, the Applicant wishes to submit that semiconductor devices arc specifically covered under tariff headings 8541 and 8542. In this regard, the Applicant wishes to place reliance on Chapter note 12 of Chapter 85. which defines semi-conductor devices as below: “(a)(i) ‘Semiconductor devices^.‘ are semiconductor devices. the operation of which depends on variations in resistivity on the application of an electric field or semiconductor-based trans:deers. Semiconductor devices may also include assembly of plural elements, whether or not equipped with active and passive device ancillary functions.. . For the classification of the articles defined in this Note, headings in 8541 and 8542 shall take precedence over any other heading in this Schedule, except in the case of heading 8523, which might cover them by reference to, in particular, their function.”; (0 The Applicant wishes to submit that basis the above chapter note. semiconductor devices are to be classified only in tariff headings 8541 and 8542; (g) Further. assuming but not admitting that the product Yubikey is a semi-conductor device, and the port authorities are trying to classify it under tariff heading 8523 basis the exception carved out in the above chapter note. the port authorities have still not given any reasoning and / or rationale for classifying the product under tariff entry 8523 5990; (h) Furthermore, the port authorities have failed to evaluate and understand the function of the product, Yubikey, which is a primary requirement of the exception; (i) The port authorities have stated that the product is a semi-conductor device similar to an antivirus / intemet security device. In doing so, the Port authorities have completely erred in their understanding of the functionality of the product, Yubikey, correctly; (j) The anti-virus and intemet security device is known for providing protection to the computer system against potential virus, malware and spam. The function and objective of an anti-virus device is to detect, disrupt and remove any software that performs unwanted malicious actions. thereby making a virus free environment for functioning of the computer system The anti-virus have to keep a continuous surveillance on the viruses, malware and spam, to maintain the computer system virus free; (k) In contrast to the above, Yubikey (when plugged onto the ADP) is known for strengthening the security access to the device to which it is connected by adding another layer of strong hardware based authentication, in addition the existing passcode; (1) The Yubikey device has no role in preventing or eliminating the viruses. It does not perform any actions on or about malicious software. Similarly, anti-virus and intemet security device provides no additional layer of security  i to its users in accessing web / other applications and / or accounts; (m) The Applicant wishes to submit that the product cannot be equated with an antivirus device. By virtue of the function of the product. it merits classification under tariff entry 8471 8000, and cannot be classified under tariff heading 8523; (n) The Applicant wishes to submit that the port authorities are trying to re-characterize the product. without relying upon any commercial and business in formation, (a) The applicant wishes to submit that it is a well settled principle of classification that an item should be classified in a manner it is understood in trade and / or common parlance. (q) In this regard. the Applicant places reliance on the ease of Softsule ltd. Versus Commissioner of Central Excise, Mumbai-11 2002 (146) E L T 418 Mumbai). wherein it was held that. “when such term is not defined, has to he resorted to by the eammon understanding of the term by the persons who deal with the entities in the trade, manufacture at the some  (r) Similarly. the applicant places reliance on various other judicial precedents including Pharm Aromatic Chemicals Vs Municipal Corporation of Greater Bombay (1997 (95) E.L.T 203 (Rom ). Akbar Badruddin Jiwani Vs Collector of Customs (1990 (47) E.L.T. 161 (Sr ) wherein common parlance test has been referred for intcrpretating the meaning of words: (s) Therefore. the applicant submits that the port authorities’ opinion of classifying the product under tariff item 8523 5990, has no grounds and ought to be disregarded.

(v) Objection that another importer, M/s TCS Ltd., has self assessed and cleared the product under CTH 8523 5990

(a) The authorities have stated that Yubikcy has already been self-assessed and cleared by another importer under the Tariff entry 8523 5990 and therefore, is classifiable under the said entry; (b) in this regard. the Applicant highlight that the authority’s contention in incorrect. The Applicant wishes to submit that classification adopted by another importer cannot be the basis of classification of a product: (c)ln this regard. the Applicant places reliance on the case of Aveco Technologies Pvt Ltd Vs Commissioner of Cus, Hyderabad 2018 (362) E.L.T. 624 (Tri. – Hyd.) wherein Tribunal observed that the stand taken by a particular importer should not be considered for determining classification. The relevant extract of the judgement is reproduced below for your reference: In matters of classification. the stand taken by a particular importer cannot he considered to be the sole basis for determining classification. Therefore. in view of this, the classification adopted by another importer is irrelevant for determining the appropriate classification of Yubikcy.

(vi) Difference between Yubikey dongle and solid state storage device (USB dongle)

(i) The applicant, at the cost of repetition, wishes to submit that Yubikey (when plugged onto the ADP) is known for strengthening the security access to the device to which it is connected by adding another layer of strong hardware based authentication, in addition the existing passcode. It is not designed to store any general information, but instead generates and stores only authentication information; (ii) In contrast, a solid state storage device (USB dongle) is known as a device meant for providing external digital storage. It is used to store data persistently, typically using flash memory. It functions as secondary storage in the hierarchy of computer storage; (iii) Further, the product is an encased device which contain a PCB. and LED indicator, and one core active component — a crypto processor with its own RAM, CPU, interfaces, and limited memory. These components distinguish the product, Yubikey, from that of a regular USB dongle meant only for storage; (iv) As referred above, the applicant wishes to submit that in commercial and common parlance the two products are variedly different and cannot be equated: (v) Further, the applicant wishes to submit that Yubikey is not designed for any arbitrary data storage. The product has a firmware which can neither be removed nor altered. The function of the product being an authentication device is very specific and cannot be regarded as data storage. No information / data can be uploaded onto or downloaded from the product to the device it is connected to; (vi) The product does not have any function which can even remotely be related to flash drive as used in general parlance; vii) Further, when a user buys Yubikey, he buys it for its function of authentication and not to use it as a flash drive; (viii) Furthermore, the port authorities have themselves agreed that the product is not a storage device and therefore, it is undisputed that the item cannot be regarded as a USB dongle meant simply for storing the data / information.

The applicant is thus seeking advance ruling on the classification of Yubikey.

8. I have gone through the submissions made both by the Port Commissionerate and as well as the responses by the applicant at length. The most important comments arc as follows:

(i) Pon authorities in their comments have suggested that the product merits classification under tariff entry 8523 5090, how c‘ er. the grounds on which the classification Sub-heading is recommended was not followed up with any factual submission. The explanation quoted from ‘wikipedia’ on ‘Yubikey’ appears to have devoid of any substantial research or conviction.

(ii) On the issue of non-compliance of condition provided in Chapter Note 6(C)(1) to Chapter M, the port authorities have stated that the product does not merit consideration under Customs Tariff Heading (‘CTH’) 8471 as the condition laid down in Chapter Note 6(C)(1) has not been fulfilled. The port authorities arc of the view that the word ‘in’ should be interpretated differently from the word ‘with’ and since Yubikey is used in conjunction ‘with’ an ADP, it does not meet the above-mentioned condition. In this regard, the applicant has placed reliance on chapter note 6(B) of chapter 84 that “Automatic data processing machines may be in the farm of systems consisting of a variable number of separate units. ”. which dearly establishes that an ADP machine may be in the form of a system consisting of variable number of separate units. Such units along with the machine together constitute an ADP. Therefore, it is not necessary that for a unit to qualify as a unit of ADP. it has to be in-built in the ADP machine. Further. the applicant submits that Chapter Note 6(C) itself states that separately presented units of ADP are also covered under CTH 8471. Therefore, a conjoint reading of Chapter Note 6(B) and Chapter Note 6(C), means that the product being used ‘with’ an ADP should also be considered as a part of ADP system. Therefore. the arguments placed by the port authorities to suggest that ‘condition 6C(i) is not met’ could not establish the fact. Also, the condition laid down in Chapter Note 6(E) which has not been met as per the Port. the explanatory notes has not been read in its completeness. The note inter-alia excludes machines performing a specific function other than data processing. The Applicant has reiterated that one of the primary function of Yubikey is data processing. Once the product is connected to the device, a three-step verification involving establishment of a secure channel, processing of data takes place. The Applicant submitted that the product has one core active component i.e. a crypto processor with its own RAM, CPU, interfaces, and limited memory. The core function is to provide cryptographic key generation by making use of the algorithms like RSA, DES, SHA, ECC, HMAC, DRBG for specific data processing i.e. authentication, encryption, and digital signatures. This enables the external system access to applications, computer systems, websites, or to perform digital transactions. Therefore, as the product Yubikey is performing data processing. it does not fall under the exclusionary clause 6(E).

(iii) In addition to the above. the applicant has also submitted that even if the product Yubikey carries out other functions in addition to data processing i.e. cryptographic authentication, the most specific tariff entry for the product remains to be 8471 8000. It has been reiterated that as per WCO Committee opinion (also referred in advance ruling application), the cryptographic processors are classified under CTH 8471 80. Further, the Applicant has submitted that as a member of HS Convention, India follows the HS Committee opinions. In this regard, the Applicant refers to “Recommendation on the application of Harmonized System Committee decisions dated 30 June 2001″, wherein it is recommended that the HS Convention Members shall notify the WCO Secretary General as soon as possible if they are not able to apply a Harmonized System Committee decision. Therefore, the Applicant believes that the said opinion should be relied upon and hence, the product Yubikey being a cryptographic processor. merits classification under tariff entry 8471 8000. The applicant’s contention that the HS committee opinion still holds relevance and significance in the current times, despite any technological advancement over this period holds good. The applicant places reliance on a recent advance ruling in the case of M/s Pagaria Infotech Ventures LLP issued in May 2023, ruled on an identical product (wherein the same HS committee opinion has been relied upon As per the relevant para the order HSN WCO classification opinion has a significant guidance value in deciding the matters of classification under the Customs, law.

(iv) On the Objection that the product is similar to an anti-virus device / semi-conductor device. Yubikey. ac a semi-conductor de% ice, but neither a storage device (85235100) nor a smart card (852352) The port authonnes hair stated that anti-vitas and Internet security devices, similar to Yubikey arc classified under CTH 8523 Basis this the port authorities have suggested that the Yubikey should be classified as a semi-conductor device, under tariff entn^. 8523 5990. However, a semiconductor device is an electronic component that relies on the electronic properties of a semiconductor material (primarily silicon. germanium, and gallium arsenide, as well as organic semiconductors) for its function. Semiconductor deuces am manufactured both as single discrete devices and as integrated circuit (IC) chips. Semiconductor devices am tvpical I% used by electrical and electronic engineers as part of a more complex electronic device. In contrast to this, the product, Yubikey is comprised of a collection of components attached to a printed circuit board and surrounded by plastic. They arc used by end users to perform hardware based cry ptographic functions. Therefore. Yubikey, cannot be categorized as a semiconductor device. Further, the applicant has rightly submitted that semiconductor devices are specifically covered under tariff headings 8541 and 8542. As per Chapter note 12 of Chapter 85. which defines semi­conductor de% ices as below: “(a)(i) “Semiconductor devices” are semiconductor devices, the operation of which depends on variations in resistivity on the application of an electric _.field or semiconductor-based transudcers. Semiconductor devices may also include assembly of plural elements, whether or not equipped with active and passive device ancillary fiinctions. …      the classification of the articles defined in this Note. headings in 8541 and 8542 shall take precedence over any other heading in this .Schedule. except in the case ofheading8523, which might cover them by reference to, in particular, their function

(v) Coming to the next contention that the product is an anti-virus device. the function and objective of an anti-virus device is to detect. disrupt and remove any software that performs unwanted malicious actions, thereby making a virus free environment for functioning of the computer system. The anti-virus have to keep a continuous sun cillancc on the viruses. malware and vain, to maintain the computer system virus free. However. Yubikey (when plugged onto the ADP) is known for strengthening the security access to the device to which it is connected by adding another layer of strong hardware based authentication, in addition the existing passcode: (I) The Yubikey device has no role in preventing or eliminating the viruses. It does not perform any actions on or about malicious software.

(vi) On the objection that another importer, M/s TCS Ltd., has self assessed and cleared the product under CTH 8523 5990. it is observed that classification adopted by another importer cannot be the basis of classification of a product. In this regard. reliance is placed on the case of Aveco Technologies Pvt Ltd Vs Commissioner of Cus, Hyderabad 2018 (362) E.L.T. 624 (Tri. – Hyd.) wherein Tribunal observed that the stand taken by a particular importer should not be considered for determining classification.

(vii) Finally, on the difference between Yubikey dongle and solid state storage device (USB dongle), it is clearly mentioned that Yubikey (when plugged onto the ADP) is known for strengthening the security access to the device to which it is connected by adding another layer of strong hardware based authentication, in addition the existing passcode. It is not designed to store any general information, but instead generates and stores only authentication information; In contrast, a solid state storage device (USB dongle) is known as a device meant for providing external digital storage. It is used to store data persistently, typically using flash memory. It functions as secondary storage in the hierarchy of computer storage. Further. the product is an encased device which contain a PCB, and LED indicator, and one core active component — a crypto processor with its own RAM, CPU, interfaces, and limited memory. These components distinguish the product. Yubikey. from that of a regular USI3 dangle meant only for storage Further, Yubikcy is not designed for ally arbitrary data storage. The product has a firmware which can neither be remo‘ ed nor altered. The function of the product being an authentication device is very specific and cannot be regarded as data storage.

(viii) The Customs Authority for Advance Ruling. Mumbai, recently in the case of M/s Pagaria Infotech Ventures LLP (the ruling) has ruled on the correct classification of the product, Proxkey (which is identical in fiinctionality and usage as Yubikey, i.e., the product under consideration in this advance ruling application), under tariff entry 8471 8000. In this regard. it is submitted that the product ‘Yubikey^. is identical in usage and functionality as Proxkcy, as both provide cryptographic functionality using the algorithms RSA, DES. SHA, ECC, HMAC, DRBG, etc.

(ix) The relevant extract of Chapter Notes of 8471 under Customs Tariff Act is as follows:

6.(A) For the purposes of heading 8471, the expression “automatic data processing machine” means machine capable of:

(i) storing the processing programme or programmes and at least the data immediately necessary for the execution of the programme:

(ii) being_.freely programmed in accordance with the requirements of the user:

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

(iv) without human intervention, a processing programme which requires them to modifi^, their execution, by logical decision during the processing run.

(B) Automatic data processing machines may he in the firm of systems consisting of a variable number of separate units.

(C) Subject to paragraphs (0) and (I). a unit is to be regarded as being part of an automatic dataprocessing system i f ii meets all of the “Mowing conditions:

I. It is of a kind solely or principally used in an automatic data processing system;

II. It is .connectable to the central processing unit either directly or through one or more other units; and

III It is able to accept or deliver data in a form (codes or signals) which can be used by the system Separately presented units of an automatic data processing machine are to be classified in heading 8471.

However, keyboards. X-Y co-ordinate input devices and disk storage units which satisfy the conditions oleo and (iii) above, are in all cases to be classified as units of heading 8471.

(D) Heading 84 71 does not cover the following when presented separately, even if they meet all of the conditions set_. firth in paragraph (C):

I. printers, copying machines, facsimile machines, whether or not combined;

II. apparatus frrr the transmission or reception _of voice, images or other data, including apparatusfbr communication in a wired or wireless network (such as a local or wide area network);

III. loudspeakers and microphones;

IV. television cameras, digital cameras and video camera recorders;

V. Monitors and projectors. not incorporating television reception apparatus.

(E) Machines 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.

(x) In order to examine further details HSN Explanatory Notes are required to be visited. In numerous apex court judgements, the honourable court has admitted importance of HSN Explanatory Notes in deciding the matter of classification under Custom Tariff Act, 1975- R.S’N Explanatory note for C7H 8471 reads as Allows:

In accordance with the last paragraph of Note 6 (C) to this Chapter, keyboards. X-Y coordinate input devices and disc storage units which satisfy the conditions of items (h) (ii) and (iii) above, are In all cases to he classified as constituent units Woo processing systems.

If the unit preforms a specific function other than data processing, it is to he classified in the heading appropriate to that “Unction or. failing that. in a resifual heading (see Note 6(E) to this Chapter). If an apparatus does not meet the criteria set out in Note 6(C) to this Chapter, or is not performing a data processing _.function. it is to he classified according to its characteristic’s by application of General Interpretative Rule I. if necessary in combination with General Interpretative Rule 3(a).

9. On the basis of foregoing. I rule that the YubiKey (‘the product’) manufactured by Yubico AB (`Yubico’ or ‘the Applicant’), is classifiable under HS Code 8471 8000 of the First Schedule to the Customs Tariff Act, 1975 (‘the Customs Tariff) as per the rules and notes under the Customs Tariff, and technical specifications and usage of the product.