Custom, Excise & Service Tax Tribunal
Commissioner Of Customs, Goa vs D-Link India Pvt Ltd on 28 March, 2014
IN THE CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL WEST ZONAL BENCH AT MUMBAI COURT NO. I Appeal No. C/556/12 And C/CO-108/12 (Arising out of Order-in-Original No. Goa/Cus-2/2011-12 dated 29.02.2012 passed by Commissioner of Customs & Central Excise, Goa.) For approval and signature: Honble Mr.S.S. Kang, Vice President Honble Mr. P.K. Jain, Member (Technical) ==========================================================
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?
========================================================== Commissioner of Customs, Goa Appellant (Represented by: Mr. K.M. Mondal, Consultant) Vs D-Link India Pvt Ltd Respondent (Represented by: Mr. T. Viswanathan, Advocate ) CORAM:
Honble Mr.S.S. Kang, Vice President Honble Mr. P.K. Jain, Member (Technical) Date of Hearing : 13.02.2014 Date of Decision: 28.03.2014 ORDER NO..
Per: S.S. Kang
1. Revenue filed this appeal against Order-in-Original passed by the Commissioner of Customs, Central excise & Service Tax, Goa whereby the Commissioner held that the goods imported by the Respondents are parts and not motherboards, Modems, Fast Ethernet Adapters, Ethernet Cards etc which are in Completely Knocked Down (CKD) Condition.
2. Brief facts of the case are that the Respondents made import of electronics parts/components namely, Resistors, Inductors, Chips, Codecs, Driver CDs, Labels, Heat Sinks, Regulators, Capacitors etc of Motherboards, Modems, Fast Ethernet Adapters, Ethernet Cards, Switches, Hubs etc. Show Cause Notices were issued to the Respondents on the ground that the items imported goods are to be appropriately classifiable as Motherboards, Modems, Fast Ethernet Adapters, etc in unassembled forms by applying Rule 2 (a) of the General Rules for Interpretation. The respondents filed detailed replies and thereafter the adjudicating authority dropped the proceedings.
3. The contention of the Revenue that there is no dispute that the electronic parts/components of PCB, Internet Cards, Modems etc. The parts and components were not subject to further processing. The said parts and components were assembled to make the finished products namely PCBs, Modems etc.
4. The activities undertaken by the Respondents assembling with Screw Driver Technology. In these circumstances, the finding of the Commissioner that the goods in question are parts is not sustainable as the Respondent has imported the complete finished articles, namely Motherboards, Modems, Fast Ethernet Adapters, Ethernet Cards etc in CKD condition. Revenue relied upon Rule 2 of the General Rules for Interpretation to classify the goods as complete Motherboard, Modem, Fast Ethernet Adapters, Ethernet Cards etc.
5. Revenue also challenged the finding of the Commissioner regarding suppression of facts on the part of the Respondent. The contention of Revenue is that the Respondent had mislead the Revenue to believe that the goods were imported for the purpose of manufacturing finished goods whereas in reality they were meant for mere assembling to make the finished article.
6. The contention of the Respondent that the Respondents are having manufacturing facilities and they employ about 700 skilled, semi-skilled and other workers in their facilities. The Respondents after manufacturing the finished goods out of the imported parts are paying excise duty.
7. The Respondents explained the details of manufacturing operation of the finished product as under:
IT products-
(a) Storage and Handling of the imported components and parts-These components and parts received in hermetically sealed packages were stored by them in temperature and humidity control areas in ESD safe environment because of susceptibility of these components and parts to electrostatic discharge. This was achieved with the help of ESD safe flooring and antistatic flooring, antistatic wristbands connected to spare and independent guarded ESD ground having earth resistance of 0.10 ohms. Care was also taken to maintain resistance within tolerance band of +/- 5 by establishing a process of selective moisturizing at the earthling area. Balanced ionizers were used to maintain the entire production floors at low static levels under adverse atmospheric conditions and transportation of the material was handled on specially designed trolleys, which are grounded with the metal chain and copper brands. Pre-heating process is adopted to eliminate any moisture captive in the bags and boxes which wrap the material and sufficient care is also taken at receiving stations where packages are opened to avoid ESTG damage.
(b) Manufacturing process:
(i) Baking- In this process, -PCB is baked at 100C for 2 hours to enable mounting of components on the PCB.
(ii) Screen printing of solder paste- In this process, bare PCB is accurately placed by the machine and metallic solder paste is aligned over it with the help of factual marks on the PCB. The robotic arm moves over the screen and the solder paste is made to adhere to those locations wherein components are to be ultimately mounted. The thickness of applied solder paste is also numerically controlled. This is done with the help of a sophisticated machine.
(iii) Gluing Process- In this process small amount of glue is deposited on the foot of the components for the purpose of their holding on the PCB even passes through the molten solder at 2500C.
(iv) Mounting of individual components on the PCB - The components are available either in reels or in trays, mounted on to the respective feeders/tray mechanism. The machine used for mounting the components is programmed for sequential mounting of these components as per XIY data of the products.
Mounting of Integrated Circuits (ICs) is done very precisely by the mounting head, which has to be accurate within few micron tolerances to avoid fatal damage to the component/product. The machine has necessary mechanism like camera to ensure proper component pick-up, integrity and placement.
(v) Re-flow oven- The solder paste is reflowed (conversion heating at appropriate temperature profile that converts the solder paste into solder joints. The product profile for this purpose is created after a thorough process qualification to get best solder quality. A special device called profiler is employed for this purpose to record temperature at various zones on the PCB.
(vi) Visual inspection- A digital magnifier, having capability to expand the image six hundred times, is deployed to easily identify complicated hairline solder/copper shorts.
(vii) Plated through hole (PTH) process- After mounting of components on the bare PCB's through surface mount technology (SMT), other components are mounted on the PCBs through the PTH process. In this process, the leads (wires) coming out of the components, which are mounted through this Process, are cut to length by cutting the excess wires and bending the Axial and Radial components;. The components leads after being inserted into the PCB are also subjected to a chemical cleaning process by application of no clean flux spray.
(viii) Wave soldering-The PCB is thereafter passed through three pre-heating zones for conditioning and thereafter the PCB is passed through the molten soldering solution (containing 63 tin and 37 lead), which tins the components and forms a solder joining filler. This process is undertaken at 250 C and all the Components are soldered with the PCB to make goods electrical as well as mechanical connection. In the advancement of technology, soldering solution is applied underneath the PCB where leads of the components mounted on the PCB are visible. The excess length of the leads and the excess soldering are thereafter removed manually.
(ix) Inspection and testing - The assembled visually inspected boards are sent through the automated and inspection stages for verification of each fundamental parameter for functionality and performance.
8. The contention is that Revenue is not disputing the above process undertaken by the Respondent in respect of the imported parts.
9. The contention is that as per Rule 2 (a) of the General Rules for Interpretation articles mentioned in any of the headings therein would complete, incomplete or unfinished article either in assembled or disassembled condition. The components in question are imported for the manufacture of Motherboards could not be categories as import of Motherboards in complete or unfinished form. The components as imports cannot be categorized as disassembled Motherboards. The Respondents relied upon the HSN Explanatory Notes (v) and (vii) of Rule 2 (a). The contention of the Respondent is that for classification of unassembled article, the article should have been imported in unassembled condition and should not have been undertaken further processing or working thereon. In the present case as the Respondents were undertaking numerous processes to manufacture the Motherboards etc therefore it cannot be said that the imported PCBs or items in CDK condition.
10. In respect of limitation the contention of the Respondent is that the Respondents gave the actual description of the imported goods in the Bills of Entry and it is the duty of the Revenue to classify the goods in the appropriate Tariff Heading. There is no requirement on the part of the importer to declare the processes to be carried out on the parts imported. In these circumstances the allegation of suppression with intention to evade payment of duty is not sustainable.
11. We find that Revenue wants to classify the parts imported by the Respondent as unassembled or disassembled articles and to classify under their respective headings, namely integrated circuits under Heading 85.42, Diodes resistors etc under Heading 85.41, printed circuit boards under Heading 85.34 by virtue of application of Section Note 2 (a) of the General Rules for Interpretation. Revenue heavily relied upon the provisions of Note 2 (a) of the General Rules for Interpretation of Customs Tariff Act. We find that HSN Explanatory Notes, Rule 2 (a) covers the complete or finished articles presented in unassembled or disassembled condition and the same is to be classified in the same heading as the assembled article. It is usually for reasons such as requirements or convenience for handling, transportation and packing. The rule further provides that articles presented in unassembled or disassembled condition means articles, the components of which are to be assembled either by means of simple fixing devices or by reveting or welding for only simple assembly operations are involved. The Notes further that components shall not be subject to any further working to form complete into finished article.
12. In the present case, the processes undertaken by the Respondent as explained above are not in dispute.
13. We find that the manufacturing processing undertaken by the respondent such as screen printing or solder paste, mounting of individual components on the PCB etc cannot be held to be that the parts imported by the Respondent are not further worked upon.
14. In view of the above, we find no merits in the contention of the Revenue.
15. In respect of time bar also we find the appellant had declared the description of the imported goods in the Bills of Entry and there is no evidence on record to show that the appellant had misdeclared the description of the imported goods. It is only the opinion of Revenue that the parts in question are to be assessed to Customs duty as the product in unassembled form or CKD condition. Hence the allegation of suppression with intent to evade duty is not sustainable.
16. In view of the above, we find no infirmity in the impugned order and the appeal is dismissed. The Cross Objections are also disposed of accordingly.
(Pronounced in Court on 28.03.2014.) (P.K. Jain) Member (Technical) (S.S. Kang) Vice President rk 8