Custom, Excise & Service Tax Tribunal
M/S. Teracom Private Limited vs Commissioner Of Customs, Goa on 10 August, 2009
IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
WEST ZONAL BENCH AT MUMBAI
COURT NO.1
APPEAL NO.C/282 & 283/07 & E/536 & 537/07
(Arising out of Order-in- Original No. 04/Commissioner/Goa/CX/2007 dtd 23.3.2007 & 03/Commr/Goa/CX/2007 dtd. 23.3.07 passed by the Commissioner of Central Excise & Customs, Goa )
For approval and signature:
Honble Jyoti Balasundaram, Vice President
And
Honble A.K.Srivastava, Member(Technical)
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1. Whether Press Reporters may be allowed to see : No
the Order for publication as per Rule 27 of the
CESTAT (Procedure) Rules, 1982?
2. Whether it should be released under Rule 27 of the : yes
CESTAT (Procedure) Rules, 1982 for publication
in any authoritative report or not?
3. Whether Their Lordships wish to see the fair copy : seen
of the Order?
4. Whether Order is to be circulated to the Departmental : Yes
authorities?
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M/s. Teracom Private Limited
Shri Harshwardhan Pagay
:
Appellant
VS
Commissioner of Customs, Goa
Respondent
`
Appearance
Shri V.Sridharan, advocate for Appellants
Shri K.M.Mondal, Consultant for respondents
CORAM:
Ms. Jyoti Balasundaram, Vice President
And
Mr.A.K. Srivastava, Member(Technical)
Date of hearing. 10.8.07
Date of decision:
ORDER NO.
Per : Jyoti Balasundaram
The above appeals involve common issues and are hence heard together and disposed of by this common order.
2. Appeal No. E/536/07 arises out of the order of the Commissioner of Central Excise confirming excise duty demand of Rs. 36,08,86,597/- on CDMA WLL telephones manufactured and cleared by the appellants and imposing penalty of equal amount under the provisions of 11AC on the manufacturer and penalty of amount equal to duty upon its General Manager Operations, in terms of Rule 26 of the Central Excise Rules 2002, by denying the benefit of exemption as per sr.no.264 of the table to Notification No.6/2002-CE dated 1.3.02 on the ground that the two models of phone in question viz. TI-ETS 2288 and TERA DX -22B are not Cellular phones. The Customs appeals arise against the confirmation of duty of Customs of Rs. 43,84,68,532/- on the following components and parts:-
1. LCD screen;
2. Feeder Cables;
3. Batteries,
4. Printed Circuit Boards;
5. Input Out Cables;
6. Fuse;
7. Chargers Imported by the appellants herein for the manufacture of the two models of CDMA WLL phones, on the ground that the benefit of exemption in terms of Notification No. 21/2002-Cus dtd 1.3.02 (sr.no.320 of the table thereto), and Notification No.21/2005-Cus dtd 1.3.05 is not admissible to such parts and components as CDMA WLL telephones are not Cellular Phones, and against penalty imposed on the manufacturer and its General Manager. In both the cases, extended period of limitation has been applied against the appellants (The excise show cause notice dated 24.11.05 covers the period December, 2003 to September 2005 while the Customs show case notice dated 8.12.05 covers the period December 2003 to October 2005.
3. The case made out by the department in the show cause notices, as can be seen from page 982, para 10(i) to 10(iii) of the SCN is that cellular phone means phones working on GSM technology, whereas the phones in question work on CDMA technology conforming to IS 95A specifications. The show cause notice also relied upon the decision of the Tribunal in Tata Teleservices Ltd. 2004(168) ELT 181, wherein the Tribunal held that CDMA WLL fixed wireless telephones are not cellular phones. In para 11 of the SCN it is observed that the CDMA WLL fixed wireless telephone Model No. T I ETS 2288 is bigger in size as compared to mobile/cell phones and hence, these phones cannot be identified as a cellular phone or mobile phone. Relevant paras from the SCN dated 8.12.05 are extracted below:
10(i) Whereas, it appears that the distinction between WLL fixed wireless terminals and Cellular or Mobile phones appears to be that Wireless in Local Loop (WLL) service is based on radio frequency signals whereas the other mobiles are based on GSM (Group Special Mobile ) Technology. Cellular mobile phones provide access to the telephone network even when the subscriber is moving fast in a vehicle in the entire area of the cellular network. This is done by dividing the service area into manageable cells so that calls could be transferred from one cell to the other when the service receiver is moving. However, in WLL, calls can be made from fixed locations where coverage is available. The fringe areas of the WLL service may e in WLL, calls can be made from fixed locations where coverage is available. The fringe areas of the WLL service may experience a weaker radio signal during the heavy calling periods. An outdoor type aerial is provided in the premises of such type of subscribers, so that the equipment fixed in their premises continues to get strong radio signals for establishing communication.
10(ii) The technology used for providing WLL services is based on radio frequency signals. This is different from the Global System for Mobile Communication (GSM) technology used for cellular mobile communication. Hand Held sets which comply with specification IS 95A can be used in WLL. As such technology a Cellular Mobile Phone cannot be used for the portable WLL service.
10(iii) As discussed by the Honble CESTAT in its decision in the case of Tata Teleservices Ltd Vs/. Commissioner of Customs, Chennai, reported in 2004 (168) ELT 181 (Tri. Del), Cellular Telephone is defined in Work Book Encyclopedia as Cellular Telephone is a movable telephone unit. It allows people to communicate over a wide area by using a combination of radio, telephone and computer technology. This Encyclopedia also explains the manner in which a Cellular telephone functions as under:
A cellular communication system consists of three main parts : (1) a cellular telephone, (2) a net work of low powered radio aerials, and (3) a central switching office. When a call is made on a cellular telephone, radio waves carry the message to an aerial transmitter. This aerial is centrally located in a geographical area called a cell. Cells vary in size and number, according to the area of the network. The transmitter sends the message to a computerized central switching office. The central switching office transmits the message to a local or long distance telephone company, where the call is sent to its destination. As a caller moves across a service area, the call is automatically passed from one transmitter to another without interruption of operation.
11. Whereas the size of the instrument of WLL CDMA 2000 1 X INTEGRATED FWTS (Model No. T 1-ETS 2288) manufactured by Teracom is bigger in size as compared to the Mobile / Cell Phone, which can also be seen from the photograph enclosed (ANNEXURE P COLLY), it appears that it cannot be identified as a Cellular Phone or Mobile Phone in common parlance. Whereas users manual supplied with these Fixed Wireless Terminals ANNEXURE Q COLLY), the packing materials used for packing these Fixed Wireless Terminals, inscription printed on the Fixed Wireless terminals, clearly show that these instruments are referred to as Fixed Wireless Terminals (1) Model TERA DX-22B and (2) Model No. T 1-ETS-2288, which is evident from the photographs (ANNEXURE P COLLY) enclosed with this Notice. (emphasis supplied)
4. The Commissioner has come to the conclusion that CDMA WLL phone does not work on cellular technology and hence, the benefit of various exemption notifications are not available to the appellants. According to the Commissioner, CDMA WLL phones are basic phones without wires and they are not cellular phones. This finding of the Commissioner is not based on any technical material, but based on advertisements of BSNL, website information, orders passed by Telecom Regulatory Authority of India (TRAI) and Telecom Dispute Settlement Appellate Tribunal (TDSAT).
5. We have heard both sides and record our findings hereunder :
6. The relevant tariff entries in Central Excise Tariff and Customs Tariff are as under:
Central Excise Tariff - prior to March, 2005 (4 digit tariff) Heading No. Sub-Heading No. Description of goods 1 2 3 85.25 8525.00 Transmission apparatus for radio telephony, radio telegraphy, radio broadcasting or television, whether or not incorporating reception apparatus or sound recording or reproducing apparatus; television cameras.
Central Excise Tariff - Post March, 2005 (8 digit tariff) Tariff Item Description of goods 1 2 85.25 Transmission Apparatus For Radio Telephony, Radio Telegraphy, Radio Broadcasting Or Television, Whether Or Not Incorporating Reception Apparatus Or Sound Recording Or Reproducing Apparatus; Television Cameras; Still Image Video Cameras And Other Video Camera Recorders; Digital Cameras 8525 20
- Transmission apparatus incorporating reception apparatus:
---Two way radio communication equipment:
8525 20 10
--- Walkie talkie set 8525 20 12
--- Cordless handset 8525 20 13
--- Car telephone 8525 20 14
--- Transportable telephone 8525 20 15
--- Marine radio communication equipment 8525 20 16
--- Amateur radio equipment 8525 20 17
--- Cellular telephone 8525 20 19
--- Other Customs Tariff 85.25 Transmission Apparatus For Radio Telephony, Radio Telegraphy, Radio Broadcasting Or Television, Whether Or Not Incorporating Reception Apparatus Or Sound Recording Or Reproducing Apparatus; Television Cameras; Still Image Video Cameras And Other Video Camera Recorders; Digital Cameras 8525 20
- Transmission apparatus incorporating reception apparatus:
---Two way radio communication equipment:
8525 20 10
--- Walkie talkie set 8525 20 12
--- Cordless handset 8525 20 13
--- Car telephone 8525 20 14
--- Transportable telephone 8525 20 15
--- Marine radio communication equipment 8525 20 16
--- Amateur radio equipment 8525 20 17
--- Cellular telephone 8525 20 19
--- Other
7) The notifications under Central Excise and Customs relevant to the present case are as under:
a) Sl.No. 264 of Notification No. 6/02-CE Sl.
No. Chapter or heading No. or sub-heading No. Description of goods 1 2 3 264 8525.20 Cellular Phones and Radio trunking terminals.
b) Sl.No. 320 of Notification No.21/02-Cus Sl.
No. Chapter or heading No. or sub-heading No. Description of goods 1 2 3
320. 8529.90 or any Chapter Parts, components and accessories of mobile handsets including Cellular Phones The benefit of Sl.No.320 is subject to condition No. 5 namely that the importer has to follow the procedure prescribed in Customs (Import of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods), Rules, 1996. The benefit conferred by Sl.No. 320 of Notification No.21/02-Cus was continued by Notification No.21/05-Cus.
8) Notification No.39/05-Cus granted exemption from payment of SAD levied under Section 3(5) of the Customs Tariff Act, 1975.
9. CDMA is one of the standards in digital cellular communication technology Cellular communication has been in vogue for more than 3 decades. The first generation technology was analog technology. The second generation is digital technology. The third generation, now widely used, supports and transmits speech, audio, text, graphics and videos.
9.1) When the second generation technology was in vogue, the United States of America adopted two different standards known as TDMA (time division multiple access) and CDMA (code division multiple access). However, the European countries followed a uniform standard for the entire continent known as GSM (global system for mobile communication).
9.2) Be it GSM or CDMA or TDMA, all the standards are based on digital cellular technology.
9.3) In the cellular technology of communication, the geographical area is divided into adjacent, non-overlapping, hexagonal shaped cells. However, in practice, they are hexagonal in shape. Each cell has its own transmitter and receiver called base station, to communicate with the phones in that cell. All the calls are routed through the base station. Each base station is equipped with a low power transmitter. A mobile switching station co-ordinates the hand-off of phones crossing the cell boundaries. The advantage is obvious i.e. the communication is uninterrupted even if the person moves from one cell to another cell.
9.4) The following technical books show that CDMA is one of the standards of digital cellular communication technology.
a) Mobile Cellular Telecommunications, Analog and Digital Systems, 2nd Edition, published by McGraw-Hill International Edition at pages 1494, and 1499 onwards;
b) Mobile Communication Satellites, published by McGraw-Hill Inc. pages 1531 to 1542 on cellular phones based on GSM; some models of cellular phones 1545 to 1547 ; cellular phones based on CDMA and TDMA technology page 1552 & 1553
c) Wireless Network Evolution 2G to 3G, published by Pearson Education pages 1559 to 1561 on Market Trends of Digital Wireless Technologies with the table showing worldwide market share for Digital Cellular Wireless Systems
10) The CBEC issued circular No. 57/03-Cus dated 27.6.03 (at page 1461 of compilation), in respect of Sl.No.313 of Notification No.21/02-Cus. which granted exemption to cellular phones and radio trunking terminals imported into India. The Board clarified that Fixed Wireless Terminals are not eligible for exemption under Sl.No.313. This circular has been modified by the Board itself subsequently on 20.4.06 after the decision of the Supreme Court in Tata Teleservices 2006 (194) ELT 11. In para 4, the Board acknowledged the fact and CDMA WLL operated on cellular technology. Relevant portion of the circular is reproduced below:
I am directed to refer to the subject mentioned above and to say that a doubt has been raised whether Fixed Wireless Telephones and Fixed Wireless Terminals which are meant to provide basic telephone services without line telephony, are eligible for benefit of Notification No. 21/2002-Cus. Sl. 313 or not. Unlike the mobile handsets working on cellular technology, the Fixed Wireless Telephones and Fixed Wireless Terminals are fixed or stationary instruments, though the technology used to transmit the signals to and from these terminals is cellular technology.
4. The technology used could either be GSM (Global System for Mobile Communication) used by Airtel, Hutch etc., or FDMA (Frequency Division Multiple Access), or CDMA (Code Division Multiple Access) being used by WLL-Reliance & WLL-Tata. The application of cellular technology for providing basic telephone services through Fixed Wireless Telephones & Fixed Wireless Terminals is a recent development.
The above circular of the Board acknowledged that the CDMA WLL fixed wireless telephones are working on cellular technology. It had also clarified in para 4, that CDMA WLL using CDMA is a recent advancement in cellular technology.
11) The following certificates / opinions categorically state that the phones used in cellular technology using CDMA standard are also cellular phones
a) Certificates dated 7.8.06 of Qualcomm (two certificates) at pages 290 and 291 in Vol.1 of paper book certifying that the phones in question work on cellular technology and are equivalent to LGs LSP 340 model of fixed wireless phone involved in the decision of the Supreme Court in Tata Teleservices;
b) Opinion of IIT, Bombay at pages 292 to 293 of Vol.1 of the paper book explaining what is cellular technology, comparison of cellular technology based on GSM and CDMA and certifying that the two models of the phone in question work on cellular technology and are hence cellular phones;
c) Clarification dated 16.10.06 written by Department Of Telecommunication in the Ministry of Communications and Information Technology of Govt. of India to the Dy. Commissioner of Customs, Goa at page 294, certifying that the two phones in question are cellular phones as they operate on cellular technology. The DOT has also stated that in view of the decision of the Supreme Court in Tata Teleservices, the exemption is available to all telephones including fixed wireless telephones working on cellular technology. This clarification was given by the DOT at the instance of the customs department itself;
d) Clarification dated 5.12.06 written by Telecom Regulatory Authority of India at page 295 to the Dy. Commissioner of Customs, Goa stating that there is no need for giving further opinion since DOT has already clarified that the phones in question cellular phones. In other words, even TRAI has considered these phones as cellular phones.
e) Certificate dated 18.8.06 of BSNL at page 296, certifying that the phones in question, supplied by the appellants are cellular phones and work on the CDMA 2000 1X cellular network of BSNL. It had also stated that other fixed wireless phones supplied by the competitors of the appellants are also fixed wireless.
f) Clarification dated 18.3.03 issued by DOT at page 956 of Vol.III of paper book, to Tariff Unit of Department of Revenue, Ministry of Finance, clarifying in para 2 to the effect that LSP 340 fixed wireless telephone works on cellular technology.
g) Clarification dated 16.4.03 issued by DOT to Commissioner of Customs and Central Excise, Hyderabad with regard to import of fixed wireless phone model LSP 340 imported by M/s Surana Telecom Ltd. at page 957 of Vol.III of paper book, to Tariff Unit of Department of Revenue, Ministry of Finance, clarifying in para 2 to the effect that LSP 340 fixed wireless telephone works on cellular technology.
h) Clarification dated 29.5.03 issued by DOT at page 958 of Vol.III of paper book, to Tariff Unit of Department of Revenue, Ministry of Finance, clarifying in paras 2 and 3 to the effect that LSP 340 fixed wireless telephone works on cellular technology and hence to be classified as cellular phone.
12) Heading 85.25of the Customs and Central Excise Tariffs, inter alia, covers Transmission apparatus for radio-telephony. The cellular phones are transmission apparatus for radio-telephone and therefore fall under heading 85.25, under sub-heading 8525.20 as transmission apparatus incorporating reception apparatus.
12.1) Heading 85.25 covers cellular phones. In HSN Explanatory Notes, 1992 edition cellular phones have not been included by name, in heading 85.25.
12.2) HS Classification Committee in its 20th Meeting (page 1439, Sl.No.412) took a decision to the effect that cellular phones are classifiable under heading 85.25. The Committee considered two competing entries viz. Heading 85.15 and 85.25 and came to the conclusion that cellular phones are classifiable under heading 85.25, by applying General Interpretative Rule 1.
12.3) After the said decision, the HSN Explanatory Notes to Heading 85.15 and Heading 85.25 have been suitably amended (page 1442).
13) The circular dated 27.6.03 of the Board (page 1461), after holding that CDMA phones work on cellular technology, restricted the exemption to hand held mobile phones only.
13.1) The Mumbai Bench of the Tribunal in Bhagyanagar Metals Ltd. vs. CCE, Goa 2005 (180) ELT 370 (Tri) page 1468, held in favour of the assessee and held that CDMA Fixed Wireless Telephone LSP 340E of LG make, is a cellular phone and therefore entitled to exemption under Sl.No.313 of Notification No.21/02-Cus. The Tribunal also held that the circular is not correct in holding that CDMA fixed wireless phones are not cellular phones. The Tribunal also held that so long as the phones operate on cellular technology, they are cellular phones and hence entitled to the exemption. While holding so, the Tribunal did not agree with the decision of a co-ordinate Bench of the Tribunal in Tata Teleservices Ltd. 2004 (168) ELT 181 (Tri). The Bombay Bench of the Tribunal held in para 3(b) as under:-
Term cellular phones cannot be restricted only to hand-held cellular phones as that would be placing an uncalled for restriction on the applicability of the coverage of the term. Phones i.e. brand held or lap top/desk top led so long as they are portable, and based on Cellular Technology would be covered by the term used in the notification. In the present case before us, the entity in question undoubtedly works on cellular technology and is admitted and found to be portable. A perusal of the sample which was demonstrated by both sides before us, confirms that there can be no doubt the portability or and mobility of the phone in question. We therefore find no reason to restrict and exclude the coverage of the benefit of Notification from the benefit of the subject notification, which is using the term simplicitor cellular phone. This term has to be interpreted to mean all kinds of telephones, which would be working on cellular technology and would be portable & cannot be restricted to any specific size or model. 13.2) The Delhi Bench of the Tribunal in Tata Teleservices Ltd. vs. CC 2004 (168) ELT 181 (Tri) page 1464, held in favor of the department holding that fixed wireless telephone operating on CDMA standards is not eligible for exemption under Sl.No.313 of Notification No.21/02-Cus. This decision has been relied upon in the SCNs issued to the appellants, to deny the exemption.
13.3) All the above decisions were challenged before the Supreme Court. The appellants had also filed an application for intervention and were, therefore, party to the dispute before the Supreme Court.
13.4) The Supreme Court delivered the judgment on 13.12.05 (reported as Tata Teleservices Ltd. vs. CC 2006 (194) ELT 11 (SC)) at page 1485, holding that fixed wireless telephones are indeed cellular phones and entitled to the exemption. After holding so, the Supreme Court affirmed the decision of Mumbai Bench of the Tribunal in Bhagyanagar Metals, Andhra High Courts decision in Surana Telecom and set aside the decision of the Delhi Bench of the Tribunal in Tata Teleservices Ltd. The relevant portion of the decisions from Supreme Court reads thus, -
10. We are of? the view that the reasoning of the Bombay Bench of the Tribunal as well as that of the Andhra Pradesh High Court must be affirmed and the decision of the Delhi Tribunal set aside insofar as it relates to the eligibility of the LSP 340 to the benefit of the exemption notification..
...Since there is no dispute that the technology used in LSP 340 and the hand held mobile phone is the same there is no warrant to limit either the tariff entry or the exemption notification to hand held cellular phones. Neither the range nor the size would make any difference. 13.5) The Delhi Bench of the Tribunal in its decision reported in 2004 (174) ELT 66 in Tata Teleservices, followed its earlier decision reported in 2004 (168) ELT 181. The Supreme Court, by its decision reported in 2007 (208) ELT A82, set aside the decision of the Tribunal in 2004 (174) ELT 66.
13.6) The Bangalore Bench of the Tribunal in Icomm Tele Ltd. vs. CCE 2007 (79) RLT 354 (page 1488) has held that CDMA WLL phones are cellular phones and entitled to exemption from payment of Central Excise duty. In para 6.2 it was held as under:
6.2 These handsets which work on CDMA technology have all the features of cellular phones working on GSM technology. The Commissioner has emphasized the difference between the cell phones, which work on GSM technology, and the WLL phones, which have a limited coverage area and holds that the cell phones which work on GSM technology only could be considered as cellular phones. It should be borne in mind that the Apex Court in the case of Tata Teleservices (supra) has made it clear that the phones, which work on cellular technology, are also cellular phones. The Department of Telecommunication itself clarified that Model LSP 340 which also works on WLL technology should be considered as cellular phones. Even in the Bhagyanagar Metals Ltd.s case (supra), the impugned goods were WLL cellular phones. Even though the Notifications involved in those cases are Customs Notification but the relevant entry remains the same as in the Excise Notification. In these circumstances, the ratio of the Bhagyanagar Metals case, which has been upheld by the Supreme Court, is squarely applicable. 13.7) Consequent to the decision of the Supreme Court in Tata Teleservices (supra), the Board vide circular No. 15/06-Cus dated 20.4.06 (page 1463) had modified its earlier circular dated 27.6.03 and clarified that the exemption is available to CDMA WLL fixed wireless phones. In paras 3 and 4, the Board clarified as under:-
3. The order of the Honble Supreme Court has been examined in the Board and it has been decided to accept the order as all relevant issues have been considered by the Apex Court.
4. Consequently, the benefit of Notification No.21/02-Cus (Sl.No. 313) dated 1.3.02 is available to all telephones (including Fixed Wireless Telephones) working on cellular technology.
14. As the phones in question work on cellular technology and since the issue has been settled by the decision of the Supreme Court in Tata Teleservices, the impugned orders are not sustainable The evidence on record clearly shows that the phones in question work on Cellular technology.
14.1) The reason given in the circular dated 27.6.03 to deny the exemption has not been accepted by the Courts and the Courts have held that any phone working on cellular technology is entitled to the exemption. The SCNs did not dispute that the phones in question worked on cellular technology but however, proposed to deny the exemption on the ground that the fixed wireless phones are bigger in size, and that cellular phones mean phones working on GSM technology.
14.2) The Board, DOT and other technical authorities have clarified that the CDMA WLL fixed wireless phones work on cellular technology. The Supreme Court has also held in para 7 of its judgement that the technology used by hand held phones (i.e. GSM) and the fixed wireless phones is same, namely cellular technology. It has been clarified by the DOT and others including BSNL, that the phones in question are cellular phones and compares with the LGs phone model LSP 340. (which was accepted as working on cellular technology on the basis of DOT and Qualcomm opinions.) Since the phones in question work on cellular technology, the appellants are entitled to the exemption.
15. The phone model LSP 340 of LG make and the phones in question are identical to each other and conform to the same specification of Telecom Engineering Centre and are deployed by BSNL in the same network.
The comparison chart at page 959 (Vol. III of paper book) show that the phones in question are identical to the phone model LSP 340 of LG make, considered by the Supreme Court. In fact, the phones in question supplied by the appellants to BSNL were deployed by BSNL in the same network, where they had deployed LSP 340, supplied by the competitors of the appellants to BSNL.
15.1) The tender of BSNL is at page 641 of the paper book (Vol.II). The purchase order of BSNL on the appellants is at page 614. These two documents refer to supply of phones conforming to technical specifications of Telecom Engineering Centre (TEC) No. GR/TML-01/01, May 2001, a department of Ministry of Telecommunication (at page 617). The purchase order of BSNL on M/s Bhagyanagar Metals Ltd. is at page 640. This order of BSNL states that the phones to be supplied should be in conformity with the TECs specification No. GR/TML-01/01, May 2001 (at page 643). The TECs specifications are at page 823, Vol. III of paper book.
15.2) It cannot be held that the CDMA WLL phone model LSP-340 supplied by M/s Bhagyanagar Metal to BSN, conforming to the TECs specification of May, 2001 is a cellular phone, but the phones in question supplied by the appellants to BSNL, conforming to the same specifications of TEC are not cellular phones.
16) On the issue of classification, we note that for the period prior to 1.3.05, there were no sub-headings for heading 85.25. Hence, the Commissioner has determined the classification of the phones manufactured by the appellants under heading 85.25 of the Tariff. However, for the period after 1.3.05, when the Central Excise tariff was fully aligned with Customs Tariff, the Commissioner has determined the classification under tariff item 852520.19, disregarding the specific tariff item 852520.17 covering cellular telephone. This has been done by the Commissioner, perhaps, to overcome the decision of the Supreme Court in Tata Teleservices.
16.1) The technical books, Circulars of the Board and the decisions of Supreme Court and Mumbai Bench of Tribunal are to the effect that CDMA phones are also cellular phones. These books, circulars and the decisions state that any type of telephone working on cellular technology is a cellular phone. Chapter 85 of the Central Excise Tariff as it stood prior to 2005 is fully aligned with the HSN Explanatory Notes, at 4 digit level. HSN Explanatory Notes to Heading 85.25 specifically covers cellular phones by name under heading 85.25. In the absence of any sub-heading for the period prior to 1.3.05, the phones in question will fall under heading 85.25 as transmission apparatus for radio-telephony, whether or not incorporating reception apparatus.
16.2) For the period after 1.3.05, the Commissioner has classified the phones in question under the residuary category Others under tariff item No. 852520.19, disregarding specific tariff item No.852520.17 covering cellular telephone. The Board in its circular dated 27.6.03 has clarified that CMDA WLL is a recent development and clarified that CDMA WLL fixed wireless phones work on cellular technology. It is settled by the following decisions that advancement in technology has to be taken into account, while considering the classification of the goods or extending the exemption:-
i) Porritts & Spencer Vs. State of Haryana 1983 ELT 1607 (SC)
ii) CC Vs. Lekhraj Jessumal & Sons 1996 (82) ELT 162 (SC)
iii) CST Vs. Agarwal & Co.
1983 ELT 116 (Bom.) We therefore hold that, for the period subsequent to 1.3.2005, the phone models in dispute fall for classification under Heading 852520.17.
17. References to Tender of BSNL and purchase order of BSNL placed on the appellants not relevant to the issue involved in the present appeal 17.1) The Commissioner has referred to the tender documents and also the purchase orders of BSNL in paras 16 to 27. These documents show that the two impugned phones are CDMA WLL telephones. Para 61, Section IV (Technical requirements) of the Tender Notice dated 15.07.2004 specifically stipulated that the bidders shall ensure that the proposed WLL services do not interfere with cellular mobile service. BSNL in their website had themselves distinguished and had made it clear that WLL services are basic services, whereas cellular mobile services have roaming features throughout the GSM network. Accordingly, BSNL deployed and operated their CDMA WLL telephony services distinctly and differently from their cellular mobile telephony services. The Telecom Regulatory Authority of India had directed CDMA WLL operators, namely, M/s. Tata Teleservices and M/s. Reliance Infocom in the year 2005 not to advertise the services offered by them to their potential customers as Walky and Unlimited Cordless, since such advertisement conveyed an impression that the facilities provided were similar to mobile services when actually fixed wireless services were being offered. Even in common parlance, these WLL phones are not perceived or understood to be cellular phones. After referring to these documents, the Commissioner has come to the conclusion that the impugned phones are not bought and sold by the parties as cellular telephones. On the other hand, according to the Commissioner, the parties have specifically referred t the phones in question as CDMA WLL phones, by specific design, shape, functional utility etc. 17.2) The Commissioner ought to have sought clarification from BSNL as to whether CDMA WLL phones are cellular phones or not. On the contrary, the BSNL has clarified that CDMA WLL are cellular phones and they work on cellular technology.
17.3 The tender documents extracted in the impugned order refers to hard hand off, soft hand off, Inter-BSC (base station controller) and other terms used in cellular technology only (see page 1499 and 1500 of compilation containing technical books). Hence, the CDMA WLL phones in question are also cellular phones only.
18. The Commissioner has referred to the advertisements inserted by BSNL on their various wireless telephone services (GSM and CDMA), in paras 28 to 46. According to the Commissioner, BSNL has advertised the CDMA WLL phones as wireless phones and not as cellular phones. The Commissioner has also relied upon the decision of Supreme Court in State of Goa v. Colfax Laboratories Ltd. 2003 (158) ELT 18 (SC) to hold that advertisements can be taken into account for deciding the classification. However, it is well settled by large numbers of decisions of Tribunal, High Courts and Supreme Court that advertisements cannot be the basis for classification.
18.1 The ratio of the decision of Supreme Court in Colfax Lab. is that Old Spice manufactured by the assessee is not a medicament but a cosmetic. In that context, the Supreme Court referred to the advertisement issued by the assessee to the Public inviting fixed deposits, wherein the assessee has treated himself as the manufacturer of cosmetics. The ratio of Supreme Court is not that advertisements can be looked into for deciding the classification of the product under the Central Excise tariff.
18.2. Be that as it may, in the present case, the BSNL has not advertised that CDMA WLL phone are not cellular phones. The advertisement refers to the CDMA WLL phones as wireless phones. In the advertisements referred to in the impugned order, BSNL has not stated that CDMA WLL are not cellular phones. Hence, the advertisements are not relevant in the present case. The information provided in the website of BSNL, Calcutta Telephones has been referred to by the Commissioner in para 32. This website compares the WLL phones with GSM service and states that WLL is different. However, it is significant to note that, nowhere in the website has it been stated that CDMA is not a cellular phone. In any event, these documents and references are immaterial since BSNL, the buyer of the phones in question, has categorically clarified that the phones in question are cellular phones. The technical books and other documents show that CDMA is one of the many standards used in cellular technology. Hence, CDMA WLL phone is nothing but a cellular phone. CDMA WLL phone is also a wireless telephone. All wireless telephones are not cellular phones, but the converse is true.
19. Reference to various websites providing information on CDMA and WLL is not conclusive of the issue arising in the present case.
19.1. In para 37 of the order, the Commissioner has referred to article Wireless in Local Loop Some Fundamentals appearing in The TelNET website which is reproduced below:-
The TeNet Research Paper by a group of scientists led by Professor Ashok Jhunjhunwala of the Indian Institute of Technology, Chennai, which pioneered the corDECT WLL technology standards, titled Wireless in Local Loop Some Fundamentals, showed that the requirements of Wireless in Local Loop (WiLL), in contrast to that of a Mobile cellular system needed to be clearly understood, since there is little doubt that wireless access systems deployed now are provided by digital access and connectivity thereunder to subscribers today is provided by mobile communication systems as well as wireless in local loop systems. The paper noted that though these two systems appear to be similar and are often confused with each other; the requirements for the two systems are significantly different. Mobile Telephone system is primarily meant to provide telephony for people on the move and the telephone is meant to keep the person connected while he/ she is away from home and office. The key here is universal coverage. Wireless in Local Loop (WiLL), on the other hand, is meant to serve subscribers at homes or offices, where the telephone provided must be at least as good as wired phone. Therefore, even though the mobile communication systems and wireless in local loop systems may appear to be similar and sometimes even used interchangingly, the requirements are quite distinct. This paper also shows that cell concept is a concept of wireless radio telephony and not limited to cellular telephony, as was stated by Shri Harshwardhan Pagay, during the investigation of this case, as Cell radius is perhaps the most important factor governing the spectrum utilisation in a wireless system and plays the dominant role in determining the subscriber density given a certain frequency spectrum. From the extracts reproduced , it is clear that the author has concluded that WLL phone is not a mobile phone. The author has not addressed the precise issue raised in the present case i.e. whether CDMA WLL phones are cellular phones or not.
19.2 In para 38, the Commissioner has referred to the article appearing in the website of International Engineering Consortium on Wireless in Local Loop which is as under:-
The International Engineering Consortium online tutorial titled Wireless in Local Loop defined the system that connects subscribers to the public switched telephone network (PSTN) using radio signals as a substitute for copper for all or part of the connection between the subscriber and the switch, which uses wireless technology coupled with line interfaces and other circuitry to complete the last mile between the customer premise and the exchange equipment. 19.3 In para 39, the Commissioner has referred to the website of CDMA Development Group on WLL. Which is reproduced below:-
The CDMA Development Group webpage explaining Wireless in Local Loop states that in many developing countries, there is tremendous demand for new business and residential telephone service. More and more operators are looking to wireless technologies to rapidly provide thousands of new subscribers with high quality telephone service at a reasonable price. The unique features and benefits of CDMA, which optimizes use of the radio spectrum, which is an increasingly scarce resource worldwide, make it an excellent technology choice for fixed wireless telephone systems. This page also states that the CDG supports the deployment of CDMA WLL systems worldwide through active teams and interest groups devoted to this technology. The worldwide database maintained by the CDG, on its website, for deployment of this technology also shows that CDMA Cellular telephony system is distinct from the CDMA WLL telephony systems. 19.4. In para 40, the Commissioner has referred to the website of Huawei, the patent right holder of CDMA WLL phones in question which is reproduced below:-
The Huawei, who has designed the impugned IFWT phones of the appellant-assessee herein, in their web write-up titled Huawei WLL solution Fostering a new public network (Wireless Asia) states that fully integrated with the PSTN, yet with no lack of mobility, CDMA-based wireless local loop (WLL) offers fixed-line carriers and new telecom carriers a powerful weapon to fight for market share. In view of the worldwide deployment and growing momentum of CDMA WLL, there is no doubt that CDMA WLL systems, which integrate fixed network infrastructure and radio access, will become the new direction of telecom development following PSTN and Public Land Mobile Network (PLMN). 19.5 In paras 41 and 42, the Commissioner has referred to the website of BSNL relating to engineering instructions on LG make CDMA WLL phones which is reproduced below:-
M/s BSNL, which were the exclusive buyers of these two CDMA WLL phones, in their two Engineering Instructions titled INTRODUCTION TO WLL (CDMA) - LG MAKE and Acceptance Testing of WLL (Rural) LG Make (EI No. Electronic Switching/ WLL/ AT-03) states that CDMA Wireless in Local Loop system is a digital wireless local loop system is a digital wireless local system based on CDMA technology evolved from the existing wired and CDMA digital cellular system. WLL is a wireless local communication network which is capable of providing users access to PSTN Network and associated facilities supporting local loop functionalities to serve users with voice and non - voice services. WLL uses the radio waves to transmit signals over the last mile i.e. the distance between the subscriber premises and the nearest switching point. Also WLL substitute the copper wire upto the subscribers premises or part of the connection and can be accessed by various wireless technologies. It is an application of radio technology and personal communication system. It uses multiple access radio system instead of wires in the distribution/ access network. It is also used in remote areas, where it is uneconomical to lay cables and also for rapid development of telephone services. CDMA WLL is a widely used system around the world. Any one can avail this facility and it is the perfect replacement for land system as it is very cheap and affordable. This is the ultimate answer to the problems faced by the Land system as the physical External Plant items are completely eliminated and also it is cost-wise easy for common man. The use of common frequency, power control and variable bit rate vocoding and soft hand off features of CDMA gives us the benefits of no frequency planning, High capacity, flexibility along with high performance and therefore quality at a minimum cost can be attained. The network components of this system are Base Station Controller (BSC), Base Station Transceiver Sub system (BTS), Fixed Subscriber Unit (FSU) and Base Station Manager (BSM).
19.6 In paras 43 and 44, the Commissioner has referred to the meaning of CDMA/WLL from Wikipedia.org and Freepatentsonline.com. which is reproduced as under:-
The Wikipedia web referencer on Wireless in Local Loop also shows that Wireless local loop (WLL), also called Broadband Wireless Access (BWA), radio in the loop (RITL) or fixed-radio access (FRA) or fixed-wireless access (FWA) or Fixed Wireless Terminal (FWT), is the use of a wireless communication link as the last mile/ first mile connection for delivering plain old telephone service (POTS) and broadband Internet to telecommunications customers. Various types of WLL systems and technologies exist. This referencer also states that Fixed Wireless Terminals or FWT units differ from conventional mobile terminal units operating within cellular networks, such as, GSM, in that a fixed wireless terminal or desk phone will be limited to an almost permanent location with almost no roaming or find-me anywhere facilities. 19.7 The above sites relied upon by the Commissioner refer to WLL as wireless technology. These websites also state that radio waves are used for communication by WLL. However, none of the websites relied upon by the Commissioner state that WLL is not a cellular phone. They are silent on this aspect. Hence, the information provided in these websites cannot be relied upon. They compare the CDMA WLL with GSM network. GSM standard alone is taken as cellular technology by the Commissioner. There is no basis for assuming so and further, as clarified by the Board itself, GSM and CDMA WLL operate on cellular technology.
20. Reliance on the decision of Telecom Dispute Settlement Appellate Tribunal in Tata Teleservices Ltd.
The decision relied upon by the Commissioner in para 47 onwards relates to the advertisement issued by Tata Teleservices to the effect that their CDMA WLL is a walky meaning thereby it is a mobile phone. The said advertisement claimed that the CDMA WLL phone can be taken anywhere. This was objected to by other service providers stating that CDMA WLL cannot be taken out of customers premises. The issue before the Telecom Tribunal was not as to whether CDMA WLL phone is a cellular phone or not. Hence, the decision relied upon by the Commissioner does not advance the case of the Revenue. These decisions related to violation of the licence condition by the operators. A licence is required by the opeartors to provide telecommunication services in India. The licence issued by the Government to the operators stated that the fixed wireless telephones should not be taken outside the customers premises. Contrary to the licence condition, the operators advertised the phones to be walky, giving an impression to the customer that the fixed wireless telephone can be taken outside. This was objected to by the other operators. Hence, these decisions of TDSAT will not help in deciding the classification of the phones in question or their eligibility to exemption notifications.
21. The inference drawn by the Commissioner from the questions answered by the Communication Ministry in Parliament is not correct and does not advance the case of the Department The Commissioner has relied upon the answers given by the Communication Minister in the Parliament, wherein the Minister has described the WLL phone as a basic phone without wires.
21.1) The Minister has not stated that WLL phone is not a cellular phone. They are wireless. Without wire, they communicate through radio waves. The radio waves are transmitted to base stations called cell cites. If the phone is a wireless phone, then communication is possible through radio waves only, that too through cell sites (exception being in the case of cordless phones used within the house).
Similarly, the statistical data given seperately by the Minister about the cellular connection and WLL connection separately is not determinative of the fact that WLL is not a cellular phone.
22. Reasons given in the impugned order for distinguishing the decision of Supreme Court in Tata Teleservices are not sustainable in law The Commissioner has held that there was no dispute before the Supreme Court that the phone considered by the Supreme Court, namely LSP 340 worked on Cellular technology. The Commissioner had also extracted from the order of the Commissioner passed in Bhagayanagar Metals, which was set aside by the Supreme Court. The Commissioner has come to the conclusion that in the present case, the department has adduced enough evidence to show that CDMA WLL phones are not cellular phones and they do not operate on cellular technology and hence the benefit of the decision of Supreme Court in Tata Teleservices is not available to them. For the same reasons, the Commissioner ahs also declined to apply the circular dated 20.4.06 to the present case.
22.1) We note that phone model LSP 340 considered by the Supreme Court was also a CDMA WLL phone. The department has not disputed that the said CDMA WLL phone was a cellular phone. That being so, all CDMA WLL phones are cellular phones. It is not possible to accept that one model of CDMA WLL phone is a cellular phone but other model of the CDMA WLL phone is not a cellular phone. Either the CDMA WLL phone is a cellular phone or it is not. It is not dependent upon the manufacture of the phone and the service provider. Hence, the assumption and the reason that the phones in question are not cellular phone is incorrect on facts and on technology also.
23. Information downloaded from the website of International Engineering Consortium on WLL states that WLL will be implemented across five categories of wireless technology viz. digital cellular, analog cellular, personal communication network, cordless telephones 2nd generation and proprietary implementations. Under the heading digital cellular, CDMA is mentioned which itself shows that CDMA WLL is based upon digital technology. We also note that in the world wide database of CDMA, Tata Teleservices is shown as one of the service providers using CDMA WLL and Supreme Court decision in Tata Teleservices is in respect of import of fixed wireless telephone model LSP 340 in CDMA WLL net work.
24. In the light of the above discussion, we hold that the CDMA WLL telephones in dispute are Cellular Phones eligible to the benefit of exemption in terms of sr.264 of the table to the Notification No.6/2002-CE dated 1.3.02 and Notification No.21/2002-Cus dated 1.3.02 as per sr.no.320 of the Table thereto and Notification No.21/2005-Cus dated 1.3.05, set aside the impugned orders and allow the appeals.
In view of our findings on the merits as above, we do not consider to record any finding on the plea of limitation raised by the appellants.
(Pronounced on )
A.K.Srivastava
Member(Technical)
Ms. Jyoti Balasundaram
Vice President
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