2019 (4) TMI 915 - AT - Customs

Classification of imported goods - whether classifiable as ADP machine or as a mobile telephone under CTH 85171290? - Confiscation - labelling of consignments as per N/N. 44 (RE-2000)/1997 2002 dated the 24th November, 2000 issued by DGFT - Held that - The item imported, is more suited for the purpose of working/ reading rather than for the purpose of telephony, specifically as a mobile device - I am unable to make out how convenient it would be to use the device while holding the same against ear as a mobile telephone. Further the imported item admittedly is without an earpiece, which would make it impossible to use the same for conversation. The findings recorded by the Commissioner for ignoring the size of the item imported and trade parlance/ understanding of the same cannot be sustained. The applicability of the circular relied upon by the Commissioner has to be determined after taking into account the size/ dimensions of the imported item and also the trade/ parlance understanding of the same. The order of Commissioner has been passed without application of mind. In the entire order he goes on rejecting the contentions raised by the respondents for claiming classification under CTH 8517 but finally decides the classification as claimed by them. He has failed to consider the manner in which the respondents have positioned themselves in the market vis a vis the imported item. In their own literature, they describe the products stating Tablet with support for GSM voice communication, SMS and MMS . Thus respondents have entered the market describing the product as Tablet with support for GSM voice Communication. In our view this is enough to hold that voice communication is secondary function to the Tablet functions. When the respondents themselves hold that Tablet function is predominant, any finding rendered by the Commissioner to the contrary cannot survive. The order of Commissioner is set aside and the matter is remanded back to the adjudicating authority for fresh consideration of issue of classification and all the other associated issues - appeal allowed by way of remand.

Issues Involved:
1. Classification of the imported device.
2. Applicability of the Customs Tariff and relevant Circulars.
3. Predominant function of the device.
4. Trade parlance and market positioning.
5. Issue estoppel and previous adjudications.
6. Applicability of general rules of interpretation and relevant case laws.

Detailed Analysis:

1. Classification of the imported device:
The primary issue was whether the imported device, described as "Samsung GSM Mobile Phone GT-P1000," should be classified as an Automatic Data Processing (ADP) machine under CTH 8471 or as a mobile telephone under CTH 85171290. The Commissioner initially classified the device as a mobile telephone, emphasizing its telephony functions. However, the Tribunal found that the device's predominant function was akin to that of a tablet PC, performing various functions typical of an ADP machine, such as word processing, calculations, and editing presentations.

2. Applicability of the Customs Tariff and relevant Circulars:
The Tribunal examined the Customs Tariff and relevant Circulars, particularly Board Circular No 17/2007-Cus and CBEC Circular No 20/2013-Cus. The Circulars clarified the distinction between mobile phones and tablet computers. The Tribunal concluded that the device should be classified under heading 8471 as it fulfilled the criteria for an ADP machine, including being freely programmable and performing arithmetic computations specified by the user.

3. Predominant function of the device:
The Tribunal emphasized that the device's primary function was not telephony but rather its capabilities as a tablet PC. The device's size, weight, and features, such as a 7-inch display screen, CPU, and touch screen keyboard, made it more suitable for tasks typically performed on a personal computer. The Tribunal found that the device was marketed and understood in trade as a tablet PC rather than a mobile phone.

4. Trade parlance and market positioning:
The Tribunal considered the trade parlance and market positioning of the device. The device was described in advertisements and product literature as a "Tab" or tablet PC, and not as a mobile phone. The Tribunal noted that the device was sold in the market for its capabilities as a tablet PC, which further supported its classification under heading 8471.

5. Issue estoppel and previous adjudications:
The respondent argued that the issue had already been settled by the Commissioner Customs (Appeal) Delhi, who had classified the device under CTH 8517. The Tribunal, however, held that there is no estoppel in tax matters and that the previous decision did not preclude the revenue from challenging the classification in the present case. The Tribunal also noted that the previous order had not been appealed against by the revenue, but this did not bar the current appeal.

6. Applicability of general rules of interpretation and relevant case laws:
The Tribunal applied the general rules of interpretation of the Customs Tariff, particularly Note 3 to Section XVI and Chapter Note 5(A) to Chapter 84. The Tribunal also referred to various case laws, including decisions by the Bombay High Court and the Supreme Court, which emphasized the importance of trade parlance and the primary function of the device in determining its classification.

Conclusion:
The Tribunal set aside the order of the Commissioner, holding that the device should be classified under heading 8471 as an ADP machine. The matter was remanded back to the adjudicating authority for fresh consideration, with instructions to re-adjudicate the matter within three months following the principles of natural justice. The appeal filed by the revenue was allowed, and the Tribunal emphasized the importance of considering the device's predominant function and market positioning in determining its classification.

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