Custom, Excise & Service Tax Tribunal
Shri T. Vishwanathan Advocate With vs Shri A.K. Singh , Additional ... on 9 October, 2015
IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
WEST ZONAL BENCH AT MUMBAI
Appeal No. C/688/2008,
(Arising out of Order-in-Appeal No. 165/2008/MCH/AC/VB/07-08 dt. 25.3.2008 Passed Commissioner of Customs (A) Mumbai-I
Commissioner of Customs (Import), Mumbai
Vs.
M/s. Vodafone Essar Gujarat Ltd.
Appeal No. C/48-55/2010,
(Arising out of Order-in-Original No. 154/2009 CC(I), JNCH dtd.21.10.2009 passed by the Commissioner of Customs (Import), Nhava Sheva )
Vodafone Essar Gujarat Ltd.
Vodafone Spacetel Ltd.
Vodafone Essar Celluar Ltd.
Vodafone Essar South Ltd.
Vodafone Essar Digilink Ltd.
Vodafone Essar Ltd.
Vodafone Essar Digilink Ltd.
Vodafone Essar Cellular Ltd.
Vs.
Commissioner of Customs (Import), Nhava Sheva,
Appeal No. C/126/2010,
(Arising out of Order-in-Appeal No. 08/2009-10 CC(I), dtd.20.1.2010 passed by the Commissioner of Customs (Import), Nhava Sheva )
Commissioner of Customs (Import),
Nhava Sheva
Vs.
Vodafone Essar Celluar Ltd.
Appeal No. C/372-378/12
(Arising out of Order-in-Appeal No. 64 to 70 (Gr.VB)/2012 (JNCH) MP-54 to 65 dt. 08/02/2012 passed by the Commissioner of Customs (Import), Mumbai-II )
Vodafone South Ltd.
Vodafone South Ltd.
Vodafone South Ltd.
Vodafone South Ltd.
Vadafone South Ltd.
Vadafone South Ltd.
Vadafone South Ltd.
Vs.
Commissioner of Customs (Import),
Nhava Sheva,
For approval and signature:
Honble Mr. P.S.Pruthi, Member (Technical)
Honble Mr. Ramesh Nair, Member (Judicial)
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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 : No
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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Appearance
Shri T. Vishwanathan Advocate with
Shri Narendra Dave, CA, Advocate for Appellant
Shri A.K. Singh , Additional Commissioner (A.R) for respondent
CORAM:
Mr. P.S.Pruthi, Member (Technical)
Mr. Ramesh Nair, Member (Judicial)
Date of hearing : 9/10/2015
Date of pronouncement : 2/12/2015
ORDER NO.
Per : P.S. Pruthi ;
The issue that arises for our consideration is the classification of Optical Fibre Cables (OFC in short) used in Telecommunication-- whether they would fall under Tariff Item 854470.90 and be eligible for exemption under Notification No. 20/2005 dt. 1.3.2005 or they would fall under Tariff Item 9001000 and be leviable to Basic Customs Duty at 10% under Notification No. 21/2002-Cus dt. 1.3.2002.
2. On the basis of information that M/s. Vodafone Essar Group of Companies (hereinafter referred as VEG) were misclassifying imported OFC and evading duty, 3 consignments totally valued at Rs.4.65 Crore imported by M/s. Vodafone Essar South Ltd. (VES) from M/s. Corning Cable Systems Pvt. Ltd. were placed under seizure. Samples of the 3 consignments were drawn and sent to Telecommunication Engineering Centre (TEC), Ministry of Communication and Information Technology, Department of Communications, Government of India for expert opinion. TEC vide letter dt. 14.1.2009 opined that the cables contain bundles of optical fibres which were not individually sheathed and, therefore, are covered under Customs Tariff Heading 9001. During investigation VEG paid Rs.1.83 Crores towards differential duty liability. Investigations culminated in issuance of show cause notice dt. 17.3.2009. In adjudication, Commissioner of Customs imports confirmed the classification under Tariff Item 90011000 and demanded differential duty amounting to Rs.3,25,19,948/- under Section 28(2) of the Customs Act. Recovery of interest was ordered under Section 28AB. However, the seizure of goods was withdrawn and no penalty was imposed. Appellant are in appeal against this Order.
In Appeal No. C/688/2010 Revenue is in appeal against orders of Commissioner (Appeals) classifying the goods under Heading 8544 In Appeal No. C/126/2010 Revenue is in appeal against the orders of Commissioner holding the goods not liable to confiscation and penalty.
3. During the hearing the Ld. Senior Advocate Shri V. Sridharan and Advocate Shri T. Vishwanathan took us through the respective Tariff Headings 8544 and 9001 as given below:
Heading 8544 Insulated (including enameled or anodized) wire, cable (including co-axial cable) and other insulated electric conductors, whether or not fitted with connectors; optical fibre cables, made up of individually sheathed fibres, whether or not assembled with electric conductors or fitted with connectors.
Heading 9001 Optical fibres and optical fibres bundles; optical fibre cables other than those of Heading 8544; sheets and places of polarizing material; lenses (including contact lenses), prisms, mirrors and other optical elements of any material, unmounted, other than such elements of glass not optically worked.
It was explained that the central issue to be addressed is whether the OFC imported by the appellant consist of fibres individually sheathed to enable classification under CTH 8544. With the help of samples it was explained in detail how, according to them, the OFC imported by them is not a bundle of optical fibres but the fibres in the cables are individually sheathed. In their case the OFC is a tube configuration in which six tubes contain 8 optical fibres each. Each optical fibre consists of -
(i) Core made of glass;
(ii) Cladding of glass;
(iii) Dual Acrylate coating (an Opaque object);
(iv) Colour coating over Dual acrylate coating.
The centre region of the fibre is called core. This region actually carries the light. The optic core ranges in diameter from 8 microns to 62.5 microns in the most commonly used telecom fibres. The diameter of imported cable fibre is 9.2 microns. Surrounding the optical fibre core is called the cladding. The cladding, typically, is also made of silica (glass) and has an outer diameter of 125 microns. The buffer coating over the cladding is made of an UV curable acrylate. It is applied in two layers. The dual acrylate coating protects the fibre against micro-bending and against abrasion. The outer diameter of the primary coating is 245 microns. The primary or buffer coating is easily strippable by means of a mechanical stripping tool to enable splicing of two optical fibres .Each fibre in a cable is coated with colour for identification of the fibre for joining dining installation.
The contention is that each of the strands of optical fibre is individually cladded, coated with dual acrylate coating and colour coated. Therefore it should be treated as a fibre individually sheathed, hence classifiable under CTH 8544 & eligible for exemption. We were taken extensively through Technical Literature in support of this contention.
3.1 The Ld. Counsel relied on the Order-in-Appeal No. 165/2008/MCH/AC./Gr.VB/07-08 dt. 25.3.2008 passed by Commissioner (Appeals) Mumbai-I holding the said goods to be classifiable under CTH 8544.
4. Ld. A.R. appearing for Revenue questioned at the outset whether the importer can file appeal in case of assessment made by themselves or whether Commissioner (Appeals) has rightly rejected the appeals filed by the importers in case of self assessment made by appellant themselves. According to Ld. AR the OFC were being regularly assessed by VEG from 2006 onwards at Chennai and Mumbai under CTH 9001 and thereafter they attempted to clear the goods at Mumbai classifying the same under CTH 8544. He justified the Revenue appeal for confiscating and imposition of penalty on the ground that the appellant were enjoying RMS facility and the status of ACP client and suddenly changed their classification at Mumbai after having classified the goods under Heading 8544 for many years at Chennai.
4.1 He relied heavily on the technical opinion given by TEC, Department of Telecommunications, which stated the correct classification to be 9001. He submitted that VEG voluntarily paid Rs.1.83 Crores during investigation. He further relied on the decision of CESTAT Mumbai in Reliance Communication Infrastructure Ltd. Vs. Commissioner Nhava Sheva 2015 (320) ELT 306 (Tri.-Mum.) and the order of Advance Rulings Authority (ARA) vide Order dt. 28.2.2006 in the application filed by M/s. Alcatel India Ltd. which held that the goods in question are not made up of individually sheathed fibres and hence not classifiable under CTH 8544. He also relied on Optel Telecommunication Vs. Commissioner of C. Ex., Bhopal 2005 (186) E.L.T. 109 (Tri.-Del.). He relied on the Honble Supreme Court judgment in the case of Commissioner of Central Excise Vs. Carrier Aircon Ltd. 2006 (199) ELT 577 (S.C.) holding that end-use is not the criteria for determining classification of a product. It was further submitted that the order of Commissioner (Appeal) Mumbai holding that the goods are classifiable under CTH 8544 is not applicable to Nhava Sheva Custom House.
4.2 The Ld. AR submitted that the adjudicating authority even allowed cross-examination of TEC officials before coming to the conclusion that the goods fall under Heading 9001. He relied on the following case laws to justify Revenues appeal for the confiscation and the imposition of penalty and for remanding the case back to the adjudicating authority as the Order-in-Original No. 150/2009 dt. 14.10.2009 in respect of similar goods imported at Mumbai were held to be liable to confiscation:
(i) Chicago Pneumatic Ind. Ltd. Vs. Commissioner of Customs 2003 (156) ELT 384 (Tri-Mumbai)
(ii) Triveni Engineering Work Ltd. Vs. Commissioner of C. Ex. New Delhi 2001 (129) E.L.T. 170 (Tri.-Del.) It was also submitted that the Order-in-appeal No. 165 dt. 25.3.2008 may be quashed. He submitted that the opinion obtained from Associate Professor, IIT Chennai by the appellant cannot have legal basis as the samples presented before him were not drawn in the presence of a Customs Officer. Further, the Director IIT had refused to give technical opinion. Therefore, the opinion given by the Associate Professor has no evidentiary value.
5. On the 23rd September when the hearing took place before this Bench, the Ld. A.R. objected to the samples produced by the appellant questioning whether they represent the imported goods. Therefore, the Bench decided to examine the samples seized by DRI which were presented on 9th October in the presence of the DRI Officer.
5.1 The OFC cable was cut across its section. It was found to consist of six tubes and within each tube there were eight optical fibres, each fibre being coated with different colour. Each OFC therefore consists of forty eight numbers of optical fibres.
5.2 The appellants submit that this OFC is made up Single Mode fibres with step index, conforming to ITU-T G652D standards of International Telecommunication Union (ITU).
6. We have given careful thought to the contentions of both sides.
The main issue is of classification. However, we would like to first briefly take up some supplementary issues raised by the Ld. AR. These issues pertain to the change in classification practice adopted by the appellant.
7. In the matter of change in classification practice, we may refer to the Honble High Court of Mumbai Order appearing at 2009-TIOL-117-HC-MUM-CUS, in the case of seizure of appellants goods. It would be sufficient to reproduce some paras from the High Court judgment as under-
Having heard the counsel on both sides, we are of the opinion that the action of the D.R.I. officers in the Customs Department in seizing the goods and collecting money from the petitioners is wholly unjustified and uncalled for, because, firstly, the Commissioner of Customs (A) in the petitioner's own case has held on 25-3-2008 that the OFC imported by the petitioners are classifiable under Heading 85.44 and, therefore, no fault can be found with the petitioners in classifying the goods imported after 25/3/2008 under Heading 85.44. Secondly, the decision of Commissioner of Customs (A) is neither stayed by CESTAT nor by any other competent authority, and therefore, the mere fact that the appeal filed by the revenue against the decision of Commissioner of Customs (A) is pending before CESTAT cannot be a ground to hold that the petitioners are guilty of misclassifying the goods under Heading 85.44. Thirdly, the D.R.I. officers are bound by the decision given by Commissioner of Customs (A) and, therefore, so long as the decision of the Commissioner of Customs (A) in classifying the goods under Heading 85.44 holds the field, filing of bills of entry by classifying OFC under Heading 85.44 cannot be faulted. Fourthly, the Bills of Entry filed by the petitioners by classifying the goods under Heading 85.44 have been assessed under Heading 85.44 and the goods have been cleared only on payment of duty as assessed. Therefore, till the assessment is set aside, the customs authorities could not have seized the goods assessed and cleared under Heading 85.44, on the ground that the goods were liable to be assessed under Heading 90.01. Fifthly, in the absence of any reassessment order passed determining the duty liability, there would be no question of recovering differential duty, and therefore, collection of the amount of Rs.1,83,46,210/- towards the differential duty is wholly unjustified ..The fact that the petitioners themselves were classifying the goods in the past under Heading 90.01 would not preclude them from classifying the goods under Heading 85.44 in the light of the order passed by Commissioner of Customs (A), Mumbai .The contention of the revenue that the petitioners have voluntarily paid the amount towards the differential duty is equally unacceptable, because, in the covering letters all dated 19-12-2008 the petitioners have specifically stated that the amount is being paid in view of the threat given by the D.R.I. officers to arrest the directions / employees if the differential duty is not paid. It is seen that the Honble High Court vindicated the stand of the appellant in changing the long standing practice of classification.
8. We may now briefly relate the judgments on this issue referred by both sides to have an idea of the judicial views so far on the issue of classification
(i) In a case of classification of similar goods, the Tribunal in the case of M/s. Bharat Airtel & Others 2008-TIOL-2069-CESTAT-MAD dt. 22.9.2008 held that Commissioner has denied exemption to materials imported by TNTL on a finding that the OFCs manufactured were goods falling under CH 9001 and the exemption was available only if the final products were of CH 8544. Accordingly, he denied exemption under Notification No.24/2005-Cus dated 01.03.05 to materials imported by TNTL. We find that this order of the Commissioner was without jurisdiction as argued by TNTL. The Commissioner of Central Excise (Adjudication) has no powers to decide the classification, let alone revise the classification, of any item manufactured by an assessee which is assessed by the Central Excise authorities. On this ground also the order of the Commissioner deserves to be set asideAll the personal penalties are set aside and the appeals filed by S/Shri.M.V. Venkateswarlu, DGM, M. Sengupta, MD,TNTL and S.P. Singh Head (Materials) Bharti Airtel are allowed. The appeals of the assessees are allowed by way of remand. The classification dispute shall be decided de novo,
(ii) In the case of M/s. Vodafone Essar South Ltd. Vs. Commissioner of Customs, Chennai 2008-TIOL-1931-CESTAT-MAD, the Tribunal held that the Advance Rulings Authority decision in the case of M/s. Alcatel India Ltd. is binding only on the applicant who sought the decision in terms of Section 28 J of the Customs Act. The Tribunal also held that As we have already indicated, nothing contained in the Advance Ruling Authority's order in M/s. Alcatel's case shall be applied to the case on hand, which requires to be considered independently and disposed of in accordance with law. The party shall be given an effective opportunity to demonstrate their case (by producing samples of the goods) as also to be personally heard. The appellants have cited a line of decisions in support of their contention that the burden of classification lies on the Department and therefore there can be no confiscation of imported goods on the ground of misclassification The authority classifying the goods must see whether the cables are made up of individually sheathed fibers, whether or not assembled with electric conductors or fitted with connectors. If the fiber cables are found to be not made up of individually sheathed fibers, they would automatically fall under Heading 9001, which is residuary to Heading 8544. In the nature of this dispute, we have found this case to be unique in that it involves meticulous interpretation of the Tariff entries coupled with the basic question of fact as to whether the cables in question were made up of individually sheathed fibres. In this nature of the case, we are of the view that it will not be just and fair to impose any penalty on the importer even in the event of a decision being taken against them. The learned Commissioner shall have regard to these aspects while taking up the case for de novo adjudication. The impugned order is set aside and the appeal is allowed by way of remand. It is seen that the Tribunal directed that the classification should be decided after examining the goods.
(iii) In the case of Optel Telecommunication Ltd. (supra) the department itself desired the goods to be classified under Heading 8544 instead of Heading 9001. The duty at that time was higher under Heading 85.44. The Tribunal had observed that No material has been brought on record by the Revenue to show that coating of UV cured acrylate amounts to sheathing of optical fiber cables. Explanatory Notes of HSN under Heading No. 90.01 also does not support the findings of the learned Commissioner that the coating of acrylate amounts to sheathing as the Explanatory Notes clearly mentions that the optical fiber cables drawn from glass have a very thin coating of plastics invisible to the naked eyes.
(iv) In the case of Reliance Communication Infra Ltd (supra) and the decision of AAR in the case of Alcatel India it was held that the classification of similar goods is CTH 9001. We would be referring to these decisions in the later part of our Order.
8.1 The classification of the impugned goods has not attained finality as far as the appellant are concerned. We may now examine this issue.
9. As mentioned above we have seen the samples of the goods in question-
The OFC imported consists of six tubes and each tube contains eight optical fibers of different colours. Thus, OFC imported consists of total 48 optical fibers. Each optical fiber, as per the technical books, is stated to consist of following:-
i) Core made of glass;
ii) Cladding of glass;
iii) Dual acrylate coating (an Opaque object); &
iv) Colour coating over Dual acrylate coating.
Core optic fibre is cladded by glass. Refractive index of the core is stated in the technical literature to be lower than that of cladding to ensure total internal reflection of the light passed through the core. Each individual optic fibre is cladded. It is not that a pair of fibers is cladded together.
Dual acrylate coating is an opaque coating of acrylate monomer, two times over core and clad. According to the Technical Books, Dual acrylate coating protects optical fiber from external interference and external abrasion.
A colour coating is done over the dual acrylate coating. This is done for identification of the fibers at both the ends of the cable.
9.1 The appellants have imported OFC from M/s Coming Cable Systems, Australia, and also from M/s Prysmian Wuxi Cable Company Ltd. As explained by M/s Corning The cable design is called loose buffer type cable. The cable contains 48 optical fibres.
The single mode optical fibres used in the imported OFC is in conformity with ITU-T-G.352 Standards. ITU-T-6.352 is a standard applied to single mode optical fibre used for long distance telecommunications.
The cross-section of the cable is given below:
Fibre types - mode and multi mode.
There are two main types of optical fibres with which we are concerned for the present purposes. One is -single mode" fibre and the other is "multi mode" fibre.
Single mode fibre is defined as 'an optical fibre with a small core, propagating only one mode of light above the cut-off wavelength".
Multi mode fibre is defined as " a large core fibre that support more than one propagation mode."
In multi mode fibre, the light can be fed into the fibre at different angles, at the same time. However, in single mode, the light can be fed from one angle.
Fibre Type - Step-index fibre and graded index fibre In step index fibre, the core refractive index is uniform throughout the fibre so that a sharp step in refractive index occurs at the core-to-cladding interface.
Graded index fibre means a fibre in which core is composed of concentric rings of glass where the refractive indices deco as from the centre axis whose purpose is to reduce modal dispersion.
Optical fibre for telecommunications is made of very pure silica. It consists of the following components:
i) core
ii) cladding
iii) buffer coating
iv) colour coating
10. Having seen the structure and design of the OFC, we may look at the Technical references which throw light on the issue at hand The following Technical Books/Articles have been referred by the appellant
(i) The Book Mastering Optics by John Blackwell and Shane Thornton states that the Optical Fibre consists of a core, a clad and a sheath .
(ii) Book Telecommunication System Engineering by Roger L. Freeman depicts (shown below), the structure of optical fiber consisting of a central core, and a peripheral transparent cladding surrounded by protective packaging. The material outside the cladding is described in the picture as opaque sheath.
(iii) An Article downloaded from the website: everything2.com states that The centre fibre is either made of glass or optically pure plastic, about the thickness of a human hair. This fibre is covered by an additional layer of glass that reflects the light back into the centre fibre. A plastic sheath covers the cladding for protection. An outer jacket covers the assembly. And this jacket is sometimes filled with a jel or thin wires to strengthen the cable assembly.
(iv) Article on optical fiber by Pirelli downloaded from www.pirellityre.com states that Current optical fibres for telecommunications are single-mode fibers. Typically, these are characterized by a guiding nucleus of roughly 10mm diameter and an index jump of 0.1%. The diameter of the sheath is standardized at 125mm. Single modality ensures the possibility of achieving attenuation levels close to the intrinsic levels of the material, maximizes the transmission bandwidth of the fibre, and guarantees low junction loss. These characteristics have made the single-mode fibre the chosen physical carrier for modern telecommunication systems.
(v) The Book on Basics of Fiber Optic Gyros by Wolff Data states that an optic fiber consists of two concentric layers of high-purity silica glass which are enclosed by a protective sheath. The light rays modulated into digital pulses with a laser move along the core without penetrating the cladding. The light stays in the core because the cladding has a lower refracting index.
10.1 The technical literature above state an optic fibre has a sheath. And the fibres are individually sheathed. The purpose of the sheath is given to be as a protective layer etc. Therefore there is some merit in the contention of the Ld. Counsel that the Opaque Dual Acrylate coating is nothing but a sheath.
10.2 We find that optical fibres find use in light transmission as well as in telecommuncations. From the literature we notice that the construction and structure for these two end-uses is different. Technical books state that optical fiber bundles consist of thousands of fibers. Mastering Optics by John Blackwell and Shane Thornton states that optical fiber bundles are used for illumination when incoherently bundled and image transmission when coherently bundled. It also states that bundle can contain many hundreds of fibres. The most common applications of incoherent bundles are in endoscopes or in any medical instrument used to obtain an image from within the human body.
Introduction of Fiber Optics by John Crisp says that As the light travels down the fiber, light rays get thoroughly jumbled up. This means that a single fiber can only carry an average value of the light that enters it. To convey a picture along a single fiber is quite impossible. To produce a picture, a large number of optic fibers must be used in the same way that many separate points of light, or pixels, can make an image on a cathode ray tube.
10.3 If we look at the structure of the imported OFC and the cables used in endoscopy as shown by the Counsel we find that the imported cable is not a bundle of optical fibers or cable containing two or more optical fiber bundles. Optical fiber bundle consists of hundreds or thousands of optical fibers as against total 48 fibers in the OFC imported in the present case.
Each optical fiber in the bundle is made up of the following:-
i) Core made of glass or plastic;
ii) Cladding of glass/plastic.
We also note that the Dual acrylate coating is not necessary or required on an optical fiber used in the bundle. It is because only raw light is required to be passed through the bundle. Interference of light from other fiber does not materially affect the image transmission or light transmission.
11. Having seen the product in question we may now decide between the two competing entries in the Tariff, that is, 8544 and 9001. From the Headings of the two entries we find that the only differentiating factor is that to fall under Heading 8544 the cables should be made up of individually sheathed fibres. Although we have seen the cables in question to be composed of individual fibres, which according to Technical Literature reproduced above are sheathed, we may refer to the internationally accepted nomenclature i.e. HSN on which our tariff is based and the Explanatory Notes to the HSN, for more clarity. Under the Explanatory Notes to Heading 8544, the heading also covers optical fibre cables, made up of individually sheathed fibres, whether or not assembled with electrical conductorsThe sheaths are usually of different colours to permit identification of the fibres at both ends of the cable. Such cables are used mainly for telecommunication because their capacity for the transmission of data is greater than that of electrical conductors. Looking at the OFC imported in the present case, we find every sheathed optical fibre is colour coated for identification of each fibre at both ends of a cable and the cables are imported for use in long distance telecommunication. To us it does seem that it satisfies the description of Heading 85.44. However we may also see the HSN Notes under Heading 9001. This Heading covers optical fibres, optical fibre bundles and optical fibre cables.It states that Optical Fibers consist of concentric layers or glass or plastics of different refractive indices. Those drawn from glass have a very thin coating of plastics, invisible to the naked eye, which renders the fibers less prone to fractures.They are used to make optical fiber bundles and optical fiber cables. Optical fiber bundles---- If coherently bundled, they are used for transmission of images, but if randomly bundled they are suitable only for transmission of light for illumination. The optical fibre cables consist of a sheath containing one or more optical fibre bundles, the fibres of which are not individually sheathed. Optical fibre bundles and cables of Heading 9001 are used primarily in optical apparatus, particularly in endoscopes.
11.1 OFC imported has, in all 48 optical fibres (6 tubes X 8 fibre each). They cannot be called as optical fibre bundle as the optical fibre bundle of Heading 90.01 consist of hundreds or thousands of optical fibres. The fibres used in the present case are for transmission of data. The 48 fibres as such, cannot transmit light or image as required by endoscope or an optical apparatus. As per HSN, optical fibre bundles are used only for illumination or image transmission, that too in endoscope etc. Reading the HSN notes, and seeing the construction and use of the product, it appears that Heading 8544 is more appropriate in the present case. Reliance is placed on the Honble Supreme Court decision in the case of CCE v. Woodcraft 1995 (77) ELT 23 (SC) that any dispute regarding tariff classification must, as far as possible, be resolved with reference to the nomenclature indicated by the HSN unless there be an express different intention indicated by the Central Excise Tariff itself.
11.2 We have also been shown the Explanatory Notes to the Combined Nomenclature of the European Communities 2007/C-296/02 which state that This subheading (8544 7000) includes optical fibre cables, designed for example telecommunication use, made up of optical fibres individually coated with a dual layer of acrylate polymer placed in a protective casting. The coating consists of an inner sheath of soft acrylate and outer sheath of hard acrylate, the latter being coated by a layer of various colours. Although the European Ruling is not binding on the Indian authorities, it does give an indication that the word sheath is construed differently there.
12. Appellants have also referred to the following Technical opinion in support of their contention on classification under Heading 85.44.
(i) Letter dated 29.10.2006 by M/s. Prysmian Wuzi Cable Co. Ltd., China stating that Individually sheathed fibres, as provided in our cables, comprise of 4 component parts.
a) The Optical glass core Manufactured from silica, and is used as the transmission medium for digital, optical signals.
b) Cladding layer Is manufactured from doped silica and has a slightly different refractive index from the optical core. Thus operates as a form of "mirror" to reflect and retain the optical signals within the core.
c) Individual sheathing with a UV cured acrylate is used a protection for the primary components of the fibre, i.e. the core and the cladding.
d) Thin UV cured ink layer used to uniquely identify the fibre._ 24 and 48 Fibre Armoured Cables These cables consist of six elements, SZ stranded around a phosphate coated steel, central strength member. The Optical fibres are placed in PBT Plastic tubes (8 fibres / tube) and included in the tube is a jelly to prevent water penetration and to protect the fibres from shock. To obtain a total of 48 fibres, 6 tubes are used and for the 24 fibre cables, 3 tubes are used, and 3 polyethylene fillers of the same diameter as the tubes are included to fill the vacant space. The stranding is retained with two helical binders. This cable uses "dry core" technology to prevent ingress of water. Two water blocking yarns are placed around the central strength member (one longitudinally and one helically) and over the core, is applied a longitudinal water swellable tape.
(ii) Letter from the appellants and Opinion by M/s. Prysmian Wuzi Cable Co. Ltd., China who supply the cables stating that The following features of the cable are highlighted
a) the fibers in the cable are silicon glass fibers
b) the fibers are single mode, step index fibers
c) the fibers are used for long distance telecommunications
d) the fiber is protected by dual acrylate coating
e) the fibers are indentified with colour code, a coat applied on the dual acrylate coating
13) According to us, the dual acrylate coating together with colour coding constitutes a 'sheath'. Thus, each fiber is individually sheathed and hence, the cable in question is made up of individually sheathed fibers.
14) We hereby confirm that the description of the OFC as given in HSN Explanatory Notes is satisfied in the OFC supplied by us. Therefore, in our view, the OFC supplied by us satisfy the tariff description of Heading 85.44 and as such are classifiable under Tariff Item 8544 70 90 of the Customs Tariff of India.
15) As can be seen from the cross-section of optical fiber, over the cladding, there is a protective coating of dual acrylate. It is done in two layers of coating with Acrylic resin (monomer) and then curing (hardening process) with Ultra Violet (UV) light. The way UV curing works is when the resin (monomer) is shone with UV light, cross-linkages between the adjacent molecular chains occur resulting in a complex 3D structure that has greater strength, thereby hardening the resin, i.e. it becomes polymer.
16) The coating also referred to as primary coating or buffer coating or simply buffer, is applied on the fiber "to provide physical and environmental protection for the fiber".
17) The Acrylic resin used as coating in a fiber is a transparent thermoplastic polymer. In this connection, comparison can be made with plastic jackets or sleeves associated with copper wires and it belongs to the same category of thermoplastic. The function of both the coating and jacket is to protect the optical fiber / wire and so both are in fact sheaths.
18) Further proof for it being a sheath and not just part of the fiber can be seen from the fact that this coating "needs" to be stripped away from the cladding to actually connect/couple/terminate the fiber onto the respective end unit. Different stripping tools are available for removing the buffer coating to the fiber. Thus, this coating is Sheath and has no contribution to the actual working of the optical fiber. Only the high refractive index core and a cladding with a lower refractive index is what is needed for the proper functioning of the fiber in transmitting/carrying/ propagating light from one end to other.
19) The application of acrylate coating provides significant protection against abrasion of the optical fibers, enhances tensile strength and reduces the effects of long-term stress, in particular exposure to humid environments which can lead to failure due to a phenomenon called "static fatigue".
20) As a result of technological advances, optical fiber cables is not comprised of optical fibers that are covered with the traditional, thick, protective, removable plastic. Thus, the application of acrylate coating/sheathing applied primarily for providing strength to the optical fibers would constitute a "sheath" for purposes of Heading 85.44, as in the optical fiber trade such coating is considered as a sheath around the optical fiber to form individually sheathed optical fiber. The coating of acrylate itself enhances the structural integrity and provides additional physical protection to the optical fibers and acts as a sheath to the optical fiber and is as such individually sheathed, classifiable under Heading 85.44.
(iii) Certificate dt. 29.3.2009 of the manufacturer M/s. Corning Cable Systems as reproduced below-
To whomsoever it concerns, Corning Cable Systems confirms that we have supplied optical fibre cables to major customers in countries like USA, Canada, Europe (Germany, France, Great Britain, etc.) Middle East, china, Japan, Australia, New Zealand, Thailand, Singapore, Phillippines etc. and in all these countries the customs authorities have classified these cables as tariff codes HSN 8455.70.00. Under this classification, the optical fibers are said to be made up of individually sheathed fibers. The import duty under this classification is free.
(iv) Certificate from the Department of Electrical Communication Engineering, Institute of Science, Bangalore stating that This is to certify that the test sample, supplied by BGR Energy Systems Ltd., Chennai, of OPTIC POWER GROUND WIRE (OPGW) contains 24 optical fibers which are INDIVIDUALLY SHEATHED as per the test conducted in our Applied Photonics Laboratory at ECE Department, Indian Institute of Science, Bangalore. Sample of all the 24 INDIVIDUALLY SHEATHED optical fibers are enclosed in a separate sheet.
All these opinions point to the fact that the OFC fall under Heading 8544.
12.1 The appellants submit that if the departments case that the OFC involved in the present case is not classifiable under Heading 8544, is accepted, there cannot be any optical fibre cable used for telecom purpose which can be classified under Heading 8544. The appellants submit that the department should give at least one example of optical fibre cable used in telecom purpose which can be classified under Heading 8544. The department has referred to CBEC Circular No. 91/25/96-CX dated 27.3.1996 which clarifies that Pigtail/Patchcord containing single fibre sheathed would be classified under Heading 8544. We agree with the contention of the appellant that the product of Heading 8544 is cable consisting of individually sheathed optical fibres. Therefore, cable must consist of more than one fibre each individually sheathed to merit classification under Heading 8544. As the Pigtail/Patchcord consists of only one fibre, it cannot be classified under Heading 8544. However the context in which the circular is issued is different.
13. The CESTAT in Optel Telecommunication Vs. CCE 2005 (186) ELT 109 (T) held that optical fibre cable is classifiable under Heading 9001 in the absence of production of any evidence substantiating that the sheathing was there over core and cladding. In the present case we have seen the goods with reference to the technical literature. CESTAT held that Revenue has not shown that acrylate coating amounts to sheathing. Respectfully we beg to differ. Sheathing has a wide connotation as per the dictionary meaning. Here we are dealing with imported goods whereas in the said case the goods were manufactured in India. We have seen that the imported OFC consists of core, cladding, further coated with dual acrylate coating which is mentioned as sheath in technical literature, and colour coating of different colours. Thus, the decision of the CESTAT in Optel case is not applicable in the present case. Interestingly we note that in the Optel case, Revenue was seeking classification under 8544. Significant to note that the duty under CTH 9001 was more than the duty under CTH 8544 at that time. Revenue has changed its stance from the earlier one.
14. We find from records that another party namely Reliance Communications Infrastructures Ltd. had been classifying their similar goods described as G652 Optical Fiber Cable with 48 Core and Optical Fiber Cable 12F G652 for the period April 2003 to December 2004 at Navi Mumbai and their goods were assessed under Heading 8544. They have produced copies of 25 B/Es as evidence. At the same time the decision of Tribunal in their own case Reliance Communications Infrastructure Ltd. Vs. CC 2015 (320) ELT 306 (T) referred to above arose from reopening of their import classification at Nava Sheva during 2005-2006 and department sought to reclassify their goods i.e OFC under CTH 9001. This shows that Customs were taking a different stand at different times and in different ports.
15. CESTAT in the case of Reliance Communications Infrastructure Ltd. Vs. CC 2015 (320) ELT 306 (T) held that Optical Fibre Cables of a type imported in the present case are classifiable under Heading 9001. The appellants submit that the CESTAT in the said decision did not consider the above technical materials as mentioned above. Apart from this we find that CESTAT in the decision in the case of Reliance, solely and largely relied on the decision of ARA in Alcatel India Ltd. In the Alcatel case, the ARA relied on the dictionary definition of the terms sheath and coating to draw distinction between these terms and assumed that sheathing means drawing of a tube over an object and held that the dual acrylate coating of different colours is coating and not sheathing. The ARA faulted with HSN and held that HSN confuses between sheathing and coating. Accordingly, the ARA held that the HSN erred in describing the dual acrylate coating of different colours (which is a coating) as sheathing.
Before discussing the views of ARA, we may see the dictionary meaning of sheath as below:
Oxford Dictionary Sheath 1. Close-fitting cover, esp. for the blade of a knife or sword. 2 a condom. 3 Bot., Anat., & Zool. An enclosing case or tissue . 4 the protective covering round an electric cable. 5 a womans close-fitting dress.
McGRAW-HILL Dictionary of Scientific & Technology Terms Sheath- A protective outside covering on a cable. (ELECTR) a space charge formed by ions near an electrode in a gas tube.(ELECTROMAG] The metal wall of a waveguide.[SCI TECH] a protective case or cover.
After seeing the above meanings, we have given deep thought to the views of ARA. We respectfully differ with their views because the purpose and method of sheathing may be manifold. We may therefore refer to some points forming the basis of AAR Ruling. It says that the dictionary meaning of sheath is a separate protective cover. And that the technologically improved coating to provide as good a protection as sheath is of no relevance. AAR also states that the claim of party that the individual sheathing is provided using present day technology i.e. resin is not supported by technical literature. Further it says that if coating is to be taken as sheathing then once it gets born as a fibre , the expression individually sheathed would become redundant. AAR says that the nature and depth of coating will not take it out of the realm of goating. It also holds that the the Govt of Indias obligation Information Technology Agreement (ITA) is only restricted to cables classifiable under Heading 8544.
15.1 We may also refer to some main points, other than above, which were advanced by the Commissioner in the impugned Order. He states that the dual acrylate coating is an integral part of the fibre and the coating is removed only at the fibre ends to facilitate proper joins at the terminal end. He also refers to the Explanatory Notes under Heading 9001 which state that the fibres have a thin coating of plastics which render the fibres less prone to fracture. Even the International Telecommunication Union(ITU) technical specifications provided by the supplier M/s Prysmian show the parameters of primary coating which indicates that the the coating is an integral part of the fibre.
15.2 We observe that AAR did not have the benefit of technical books referring to the specific use of the word sheath. We also note from the cross-examination of the TEC officials that their opinion was not based on any technical books. However we have related above various technical books and articles which clearly refer to the word sheath on a fibre, which is over and above the core and the clad. The Ld counsel states that even if the primary coating is not considered as a sheath, the authorities have ignored the existence of a secondary cover/coating. In our view the authorities have taken a restrictive interpretation of the dictionary meaning of sheath. The dictionary meaning only describes it as a protective cover. We view that a cover may have various purposes. As long as it is a protective cover it can fall under the dictionary meaning. In fact, the purpose of the sheath is stated in many places by the authorities themselves, i.e. AAR and the Commissioner, to be for protection from the environment and to prevent stress. Therefore, according to us, the sheath is a cover within the ambit of the dictionary meaning. In our mind the old concept of sheathing to mean covering with a plastic tube or insulation has to change with the tremendous change in technology over time. Sheathing should not be thought of in the same manner as copper wires are sheathed. We may venture to say that with rapid changes in technology, we may even see in the forseeable future invention of a method of coating of copper wires that dispense with the need for a separated plastic tube/ cover for insulation purposes.
With due respect to the AAR, all that we are trying to say is that the change in technology has warranted that thin optic fibres can be sheathed with acrylate coating which gives a protective cover. Further, why should a cover not be called a cover simply because the process of covering is an integral part of the process of manufacture of fibres. In our view we should not be deterred from doing so. The consequent redundancy of a particular wording in the Heading notes also should not deter us from arriving at a more reasonable conclusion. The technological meaning would be equally relevant as the dictionary meaning. The technical literature supports this view.
16. It is also our considered view that the applicability of the ITA agreement should not be rejected for the reason that it would only apply to Heading 8544 and not to 9001 as viewed by the ARA. We are of the opinion that the purpose of the Agreement is to exempt goods of IT industry, which the goods in question certainly are. That is why the European countries and USA have exempted such cables as borne by the Rulings referred to as well as by the manufacturers. However we do agree that this may not be the ultimate determining factor for arriving at the correct classification.
17. Moreover the Ruling of AAR will apply only in respect of the party that applied for such Ruling in terms of Section 28J of the Customs Act.
18. We have seen the opinion of the Telecommunication Engineering Centre (TEC). Without passing any judgement on the authority of the Centre to give opinion on an issue with wide ramifications, we do find that the opinion does not deal with the issue as extensively as it should have. Considering the importance of the issue, we would expect a technical opinion to refer to details of design, features and construction of such cables and the use of modern technology behind the manufacture of such cables. It is significant to note that the cross examination of the official of TEC showed that the officials did not refer to any technical literature on the subject while expressing their opinion. In the face of voluminous technical literature referred by the appellant, it would only be proper to reexamine the issue in detail.
19. We note that the following technical materials and experts opinions considered by us in the present case, were either not considered by or not available before the Honble Bench in the case of Reliance Communications Infra Ltd case or in Optel Telecommunication Ltd case:
Point for consideration Technical Literature Technical material which states that the optical fibre consists of core, clad and sheath of clad/opaque sheath Relevant text on fibre optics in the book Mastering Optics by John Blackwell and Shane Thornton Relevant text on optical fibre in the book Telecommunication System Engineering by Roger L. Freeman Dual Acrylate Coating (an Opaque object) is sheath Article downloaded from the website: everything2.com Relevant extract on optical fibre by Pirelli Relevant text on Basics of Fibre Optic Gyros by Wolff Data Imported OFC is not a bundle of optical fibres as the bundle of optical fibre bundles are used only for illumination when incoherently bundled and image transmission when coherently bundled and also because the bundle of optical fibres consist of hundreds or thousands of optical fibres as mentioned in following technical books on optical fibre bundle: Relevant text of fibre optics from the book Mastering Optics by John Blackwell and Shane Thornton.
Relevant extract on design of Optic fiber and Light from the book Introduction to Fiber Optics by John Crisp Sub Heading 8544 70 00 includes optical fibre cables, designed for example telecommunication use, made up of optical fibres individually coated with a dual layer of acrylate polymer placed in a protective casting. The coating consists of an inner sheath of soft acrylate and outer sheath of hard acrylate, the latter being coated by a layer of various colours. Explanatory Notes to the Combined Nomenclature of the European Communities Technical opinions support the submission on classification under Heading 85.44 Letter dated 29.10.2006 by M/s. Prysmian Wuzi Cable Co. Ltd., China Letter from the appellants and Opinion by M/s. Prysmian Wuzi Cable Co. Ltd., China Letter from the appellant and Opinion by M/s. Corning Cables Systems (world leader in manufacturing and supplying OFC for telecom sector) Certificate from the Department of Electrical Communication Engineering, Institute of Science, Bangalore
20. In our considered view the OFC merit classification under Heading 8544. One of us was a member of the Bench in the case of Reliance Communications Infrastructure Ltd which decided the classification of similar goods to be under Heading 9001. Our differing view is based to a significant extent on the Technical books/Literature, the benefit of which was not available to the bench in the case of Reliance Communications Infra Ltd case or in Optel Telecommunication Ltd. Therefore in our opinion, the matter needs to be referred to a Larger Bench of the CESTAT for resolving the dispute. At this stage we find that other issues such as confiscability and penalties would depend on the decision regarding classification. Therefore we do not propose to take a view on these issues till the larger question of classification is decided.
21. In view of the above, the Registry is directed to place the matter before the Honble President CESTAT for constitution of a Larger Bench to decide the following Question of Law which arises in the present case :
Whether Optical Fibre Cables (OFC in short) imported by Vodafone Group of Companies and used in Telecommunication are classifiable under Customs Tariff Heading 8544 and eligible for exemption under Notification No. 20/2005 dt. 1.3.2005 or they would fall under Customs Tariff Heading 9001 leviable to basic Customs Duty at 10% under Notification No. 21/2002-Cus dt. 1.3.2002 ?
(Pronounced in court on 2/12/2015)
(Ramesh Nair)
Member (Judicial)
(P.S.Pruthi)
Member (Technical)
SM.
17
Appeal No. C/688/2008, C/48-55/2010,
C/126/2010, C/372-378/12