Custom, Excise & Service Tax Tribunal
Samsung India Electronics Pvt Ltd vs Principal Commissioner, Customs -New ... on 22 July, 2024
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL
NEW DELHI
PRINCIPAL BENCH - COURT NO. 1
Customs Appeal No. 51172 of 2020
[Arising out of the Order-in-Original No. 32/2020/U.G./Principal Commissioner dated
25.08.2020 passed by the Commissioner of Customs (Import), New Customs House, New
Delhi]
M/s. Samsung India Electronics Pvt. Ltd ......Appellant
B-1, Sector 81, Phase-II,
Noida, Uttar Pradesh-201305
VERSUS
Commissioner of Customs, .....Respondent
Air Cargo Complex (Import)
New Customs House,
Near IGI Airport, New Delhi-110 037
APPEARANCE:
Shri B.L. Narasimhan, Shri Dhruv Matta and Ms. Yashi Srivastava Advocate for
the Appellant
Shri Nagendra Yadav, Authorized Representative of the Department
WITH
Customs Appeal No. 51204 of 2020
[Arising out of the Order-in-Original No. 32/2020/U.G./Principal Commissioner dated
25.08.2020 passed by the Commissioner of Customs (Import), New Customs House, New
Delhi]
Commissioner of Customs ......Appellant
Air Cargo Complex (Import)
New Customs House,
Near IGI Airport, New Delhi-110 037
VERSUS
M/s Samsung India Electronics Pvt. Ltd .....Respondent
B-1, Sector 81, Phase-II,
Noida, Uttar Pradesh-201305
APPEARANCE:
Shri Nagendra Yadav, Authorized Representative of the Department
Shri B.L. Narasimhan, Shri Dhruv Matta and Ms. Yashi Srivastava Advocate for
the Respondent
CORAM: HON'BLE MR. JUSTICE DILIP GUPTA, PRESIDENT
HON'BLE MR. P. V. SUBBA RAO, MEMBER (TECHNICAL)
Date of Hearing: 12.03.2024
Date of Decision: 22.07.2024
FINAL ORDER NO. 56037-56038/2024
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JUSTICE DILIP GUPTA:
Customs Appeal No. 51172 of 2020 has been filed by M/s
Samsung India Electronics Pvt. Ltd.1 for quashing the order dated
25.08.2020 passed by the Principal Commissioner of Customs ACC
(Imports)2 by which the claim of the appellant seeking classification of the
imported goods namely 'IC-Codecs' under Customs Tariff Item3 8542 39
00 of the Customs Tariff Act 19754 has been rejected and the goods have
been directed to be classified under CTI 8517 62 90. Accordingly, the
demand of customs duty and integrated goods and service tax5 to the
extent of Rs. 1,89,05,965/- on the import and clearance of the goods has
been confirmed under section 28 (1) of the Customs Act, 19626. The order
also directs payment of interest under section 28AA of the Customs Act.
However, the Principal Commissioner also held that the goods are not
liable to confiscation under section 111(m) of the Customs Act and also
refrained from imposing any penalty under section 112 (a)(ii) of the
Customs Act.
2. Customs Appeal No. 51204 of 2020 has been filed by the
department to assail that part of the order dated 25.08.2020 passed by
the Principal Commissioner that refrains from confiscating the goods and
imposing penalty.
3. The appellant is engaged in the manufacture and sale of mobile
phones and tablet computers. In connection with its manufacturing
1. the appellant
2. the Principal Commissioner
3. CTI
4. the Tariff Act
5. IGST
6. the Customs Act
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activities, the appellant imports 'Integrated Circuits-Codecs'7 for use in the
manufacture of mobile phones and tablets. It is stated that these goods
are integrated circuits, which function as Codecs, i.e.,
compressor/decompressor and comprise of Digital Signal Processor8,
General Purpose Input/Output9 pins and Inter-Integrated Circuit10
interface. The DSP, GPIO pins and 12C interface are only functional when
the goods are mounted on the Printed Circuit Board11 and power is
supplied within the PCB. The DSP are the main functionality of the goods
which function in data compression or decompression upon inflow of data.
The GPIO pins are digital control pins of the goods which enable
connection with the master such as CPU or FPGA through the PCB. These
masters, in turn, control the operation of the goods and the flow of the
data within the DSPs using GPIO pins and 12C interface, respectively. 12C
interface is the communication protocol which allows to and fro of data
from the communication input.
4. During the relevant period from 05.03.2018 to 07.03.2019, the
appellant imported the goods; classified them under CTI 8542 39 00;
availed the benefit of concessional rate of duty under Serial No. 24 of
Notification dated 01.03.200512; and paid IGST @12% on the import of
the goods.
5. The department conducted an audit scrutiny of the imports of the
goods. It was understood by the audit team that the goods are a kind of
Codec that have the capability of transmission and reception of digital
information and would, therefore, be classifiable under CTI 8517 62 90 as
7. the goods
8. DSP
9. GPIO
10. 12C
11. PCB
12. the Exemption Notification
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'other communication apparatus' and, accordingly, would be subject to
levy of basic customs duty @ 10% and IGST @ 18%.
6. An investigation was, therefore, initiated by the Custom Authorities.
The Commissioner of Customs issued a Pre-Notice Consultation letter
dated 02.07.2019 wherein the appellant was advised to pay the
differential duty of Rs. 1,89,05,965/-. The appellant submitted a reply on
08.07.2019 along with technical write up of the goods.
7. However, a demand cum show cause notice dated 04.03.2020 was
issued to the appellant proposing to re-classify the goods under CTI 8517
62 90. The appellant filed a detailed reply to the show cause notice on
04.08.2020 refuting all the allegations made therein.
8. The Principal Commissioner passed the order dated 25.08.2020
rejecting the classification of the goods claimed by the appellant under
CTI 8543 39 00 and re-classified the goods under CTI 8517 62 90 of the
Tariff Act. The order, therefore, confirms the demand of customs duty and
IGST to the extent of Rs. 1,89,05,965/- with interest under section 28AA
of the Customs Act. The main reasons contained in the order passed by
the Principal Commissioner are as follows:
(i) The appellant admits that the goods function as Codecs. The
appellant has neither given any explanation that the
transmission and reception features are not inbuilt in the
goods nor has the appellant provided any evidence that the
goods are not Codecs;
(ii) Rule 3(a) of General Rules of Interpretation is not applicable
as the appellant has not been able to suggest how the pre-
requisite conditions under the said rule are fulfilled for the
classification of the goods; and
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(iii) Section Note 2(b) to Section XVI is applicable as the goods
are used in the manufacture of mobile phones and the same
would be classifiable as 'parts of mobile phone' and
classifiable under Customs Tariff Heading13 8517.
9. This appeal has been filed to assail the aforesaid order passed by
the Principal Commissioner.
10. Shri B.L. Narasimhan, learned counsel for the appellant assisted by
Shri Dhruv Matta and Ms. Yashi Shrivastava, made the following
submissions:
(i) The order passed by the Principal Commissioner is a non-
speaking order and the burden of proof lies on the
department if the department wishes to classify the goods
under a different heading;
(ii) The goods are correctly classifiable under CTI 8542 29 00
and the goods cannot be classified under CTI 8517 62 90 of
the Customs Tariff;
(iii) The benefit under Serial No. 24 of the Notification dated
01.03.2005 is available to the appellant;
(iv) Even if the goods cannot be classified on the basis of the
said submissions of the appellant, they would merit
classification under a heading which occurs last in numerical
order;
(v) Even if the goods merit classification under CTH 8517, the
demand of duty is revenue neutral;
(vi) IGST and interest on IGST cannot be demanded under
section 28 of Customs Act; and
13. CTH
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(vii) No interest can be demanded when duty demand is not
sustainable.
11. Shri Nagendra Yadav, learned authorised representative appearing
for the department, however, supported the impugned order except to the
extent it refrained from confiscating the goods and imposing penalty
under section 112 (a)(ii) of the Customs Act. The following submissions
have been made by the learned authorised representative for the
department:
(i) Onus was on the appellant to elaborate as to whether the
goods falling under CTH 8542 can also acquire the nature
of Codecs during the course of post importation operations.
However, they have not mentioned or proved that the
goods imported by them are not the kind of Codecs and,
hence, the same go beyond the purview of CTH 8542;
(ii) Since the appellant has neither suggested which are the
two headings under which the goods are prima-facie
classifiable nor placed on record any plausible explanation
regarding the constituents (i.e. more than one material or
substance) contained therein, rule 3 (a) of the General
Rules of Interpretation would not be applicable; and
(iii) Section Note 3 and 4 to Section XVI provides that
classification of sub-part will eventually depend upon the
machine which performs the principal function. In the
instant case, the goods are being put to further use in
those apparatus which have a specific principal function of
transmission/reception capability as well as communication
capability. The goods are one of the components which
when assembled and programmed with other components
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enable communication capability of mobile phones. Thus,
once the main apparatus is classifiable under CTH 8517,
the components used therein will be classifiable in that
Chapter Heading only in line with the provisions of Note 3
and Note 4 to Section XVI of Customs Tariff Act.
12. The submissions advanced by learned counsel for the appellant and
the learned authorised representative appearing for the department have
been considered.
13. The issue that arises for consideration in this appeal is as to whether
the goods imported by the appellant namely "IC-Codecs" deserve
classification under CTI 8542 39 00 as claimed by the appellant or under
CTI 8517 62 90 as determined in the impugned order.
14. It would, therefore, be appropriate to refer to the relevant tariff
items under CTH 8517 and the same are as follows:
Tariff Description of goods Unit Rate of Duty
(1) (2) (3) (2) (4)
8517 Telephone sets, Including telephones for
cellular networks or for other wireless
networks; other apparatus for the
transmission or reception of voice,
images or other data, including
apparatus for communication in a
wired or wireless network (such as a
local or wide area network), other
than transmission or reception apparatus
of heading 8443, 8525,8527 or 8528
- Telephone sets, including telephones for
cellular networks or for other wireless
networks:
8517 11 -- Line telephone sets with cordless
handsets:
8517 11 10--- Push Button type u Free -
8517 11 90--- Other u Free -
8517 12 -- Telephones for cellular networks or for
other wireless networks:
8517 12 10--- Push button type u 10% -
8517 12 90--- Other u 10% -
8517 18 -- Other u Free -
- Other apparatus for transmission or
reception of voice, images or other data
including apparatus for communication in
a wired or wireless network (such as a
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local or wide area network):
8517 61 00-- Base Stations u 10% -
8517 62 -- Machines for the reception, conversion
and transmission or regeneration of
voice, images or other data, including
switching and routing apparatus:
8517 62 10--- PLCC equipment u Free -
8517 62 20--- Voice frequency telegraphy u Free -
8517 62 30--- Modems (modulators-demodulators u Free -
8517 62 40--- High bit rate digital subscriber line u Free -
system (HDSL)
8517 62 50--- Digital loop carrier system (DLC) u Free -
8517 62 60--- Synchronous digital hierarchy u Free -
system(SDH)
8517 62 70--- Multiplexers, statistical multiplexers u Free -
8517 62 90--- Other u 10% -
15. It would also be necessary to reproduce the relevant tariff items
under CTH 8542 and the same are reproduce below:
Tariff Description of goods Unit Rate of Duty
(1) (2) (3) (2) (4)
8542 Electronic Integrated circuits
- Electronic integrated circuits
8542 31 00 - Processors and controllers, u Free -
whether or not combined with memories,
converters, logic circuits, amplifiers,
clock and timing circuits, or other circuits
8542 32 00-- Memories . . . . . . . . . . . . . . . . . u Free -
8542 33 00-- Amplifiers . . . . . . . . . . . . . . . . . u Free -
8542 39 - Other : u Free -
8542 39 00-- Other . . . . . . . . . . . . . . . . . . . . u 7.5% -
8542 90 00- Parts . . . . . . . . . . . . . . . . . . . . kg. Free -
16. The goods are IC-Codecs which are electronic integrated circuits and
are also known as microelectronic circuit, microchip or chip. An 'IC-Codec'
is a semi conductor wafer on which multiple components are fabricated.
According to the appellant, the IC Codec imported by it is an array of
miniaturized and microscopic components consisting of active
components/devices such as transistors and diodes; and passive
components/devices such as capacitors and resistors. The goods are
imported in the form of rolls and after importation, they undergo further
process to make them functional. Thus, it is claimed by the appellant that
at the time of importation the goods do not have the capability of
transmission or reception of data.
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17. The description of goods under CTH 8517, amongst others, is "other
apparatus for transmission or reception of voice, images or other data,
including apparatus for communication under the wired or wireless
network". Customs Tariff sub-heading 8517 62 with double dash is
"Machines for reception, conversion and transmission or regeneration of
voice, images or other data, including switching and routing apparatus".
CTI 8517 62 90 with triple dash is "Other".
18. Rule 1 of the General Rules for the Interpretation of the First
Schedule to the Tariff Act provides that classification of goods shall be
determined in accordance with the terms of the Chapter Heading and any
other relevant Section or Chapter Notes. On a plain reading of the
Headings, it is evident that CTH 8517 covers apparatus and machines.
19. The issue, therefore, that arises for consideration is whether the
imported goods are "apparatus" or "machines". The terms "apparatus" or
"machines" have not been defined in the Tariff Act. It would, therefore, be
necessary to make a reference to the dictionary meanings.
20. The Modern Dictionary of Electronics defines "apparatus" as follows:
"Equipment or instruments used for a specific
purpose."
21. The Modern Dictionary of Electronics defines "equipment" and
"instrument" as:
"Equipment An item having a complete function
apart from being a substructure of a system.
Sometimes called a set."
"Instrument- A device capable of measuring,
recording, and/or controlling."
22. The goods imported are electronic integrated circuits used in the
process of manufacture of mobile phones and tablets. The items covered
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under CTH 8517 constitute a complete machinery or apparatus in itself.
The goods imported would not satisfy any of the description of goods
covered under CTH 8517 as the ICs-Codecs cannot be described either as
a machine or as an apparatus. The goods in the present case i.e. ICs are
merely electronic integrated circuits.
23. The Principal Commissioner held that the goods can be classified
under 8517 as "other communication apparatus". It needs to be noted
that CTH 8517 covers "other apparatus for transmission or reception of
voice, images or other data including apparatus for communication in a
wired or wireless network" (such as a local or wide area network). The
goods imported are not in the nature of stand-alone devices for
communication in a wired or wireless network i.e. Local Area Network14 or
Wide Area Network15. LAN and WAN are communication networks which
connect devices in a limited or broad area, respectively. In fact, they
establish a communication network within a particular geographical area
between stand-alone devices.
24. In the present case, the goods are IC chips which are incapable of
stand-alone function or connection with any other device. The ICs are only
capable of functioning as compressor/decompressor upon connection with
external peripherals like power supply and interface. The goods imported
only interact with components which are mounted on the PCB. No network
like LAN/WAN is established between the impugned goods and other
components of PCB. The imported goods are not in the nature of machines
or apparatus which are deployed in a network like LAN/WAN.
14. LAN
15. WAN
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25. On the other hand, CTH 8542 deals with "electronic integrated
circuits" i.e. ICs. They would, therefore, be specifically covered under CTH
8542.
26. The IC-Codecs imported by the appellant are covered under the
definition of "monolithic integrated circuit" as defined under Chapter Note
9 (b) to Chapter 85 of the Customs Tariff. The relevant portion is
extracted below:
"9. For the purposes of headings 8541 and 8542:
........
(b) "Electronic integrated circuits" are:
(i) Monolithic integrated circuits in which the circuit elements (diodes, transistors, resistors, capacitors, inductances, etc.) are created in the mass (essentially) and on the surface of a semiconductor or compound semiconductor material (for example, doped silicon, gallium arsenide, silicon germanium, indium phosphide) and are inseparably associated;..."
(emphasis supplied)
27. HSN Explanatory Notes to CTH 8542 provides that monolithic ICs may be in the form of un-diced wafers. The IC-Codecs, as imported by the appellant, are in form of rolls i.e., un-diced wafers.
28. It, therefore, clearly follows that the goods imported by the appellant are IC-Codecs and are classifiable under Customs Heading 8542 and more specifically under CTI 8542 39 90.
29. The appellant is, therefore, entitled to the benefit of exemption Notification dated 01.03.2005, which exempts whole of the customs duty leviable on the goods imported into India falling under CTH 8542.
30. The department has not provided any technical literature or material in the impugned order to show that the imported ICs, at the time of import, have any capability of transmission or reception of digital 12 C/51172/2020 & C/51204/2020 information. The allegations made in the show cause notice and confirmed in the impugned order are only based on presumptions.
31. Reliance placed by the learned authorised representative of the department on the decision of the Tribunal in CC (Import), Air Cargo Complex, Mumbai vs. Indelox Services Private Limited16 is misplaced. The goods imported were routers which had the capability of transmission of data at the time of import itself. In the present case, the imported goods do not have the capability of transmission of data at the time of import.
32. The Principal Commissioner also committed an error in referring to rule 2(b) of the General Rules of Interpretation. This governs the classification of mixtures and combinations of materials or substances; and of goods consisting of two or more materials or substances. In the present case, rule 2(b) would have no relevance as the product is not a mixture or combination of materials or substances. The product would be classifiable under CTH 8542 by virtue of rule 1 of the General Rules of Interpretation as an IC is appropriately covered therein.
33. In view of the aforesaid discussion, the order dated 25.08.2020 passed by the Principal Commissioner cannot be sustained.
34. The department has also filed an appeal against that part of the order passed by the Commissioner of Customs that holds that the goods are not liable to be confiscated under section 111(m) of the Customs Act and penalty cannot also be imposed upon the appellant under section 112
(a)(ii) of the Customs Act.
35. As the order on merits cannot sustain, the appeal filed by the department deserved to be dismissed.
16. 2017 (357) E.L.T. 946 (Tri-Mumbai) 13 C/51172/2020 & C/51204/2020
36. In view of aforesaid, it is not necessary to examine the remaining contentions advanced by the learned counsel for the appellant.
37. Customs Appeal No. 51172 of 2020 filed by the appellant to assail that part of the order that has classified the goods imported by the appellant under CTI 8517 62 90 instead of CTI 8542 39 00 as claimed by the appellant is, accordingly, allowed.
38. Customs Appeal No. 51204 of 2020 filed by the department against that part of the order passed by the Principal Commissioner that holds that goods are not liable to confiscation nor penalty can be imposed is dismissed.
(Order Pronounced on 22.07.2024) (JUSTICE DILIP GUPTA) PRESIDENT (P. V. SUBBA RAO) MEMBER (TECHNICAL) Diksha, Shreya