2022 (9) TMI 1600 - AT - Customs

Classification of imported goods - Router Line Cards - to be classified under Customs Tariff Item (CTI) 8517 69 90 of the Customs Tariff Act, 1965 or CTI 8517 70 90, as claimed by the appellant - whether line cards of Router are parts/components of a Router or apparatus of Heading 85.17? - HELD THAT - An item will not be considered as a part if, on a standalone basis, it can be considered as an article classifiable under its own appropriate heading. It would, therefore, have to be seen whether a Router Line Card can be considered to constitute an article covered by Heading 85.17. To appreciate this, reference can be made to HSN Explanatory Notes to Heading 84.79 which deals with machines having individual functions. The inference that can be drawn from the above is that HSN itself considers an article which has an individual function as an independent machine and not as a part . This is clear from the examples provided therein. In the case of a carburetor for an internal combustion engine, it is explained that the function performed by carburetor is distinct from that of the engine. A perusal of the catalogue of Router Line Cards shows that these cards/modules are only parts of the existing Routers which have already been imported or installed by the appellants. The Router chassis has dedicated slots marked for these line cards, switch cards and router processor cards. The line cards are simply inserted in these slots in the existing Routers. These line cards become functional only when plugged into the said slots in the Router chassis. The line cards source intelligence from control and processor module of the Router. These line cards cannot perform its function on a stand-alone basis in the imported condition - The line cards are proprietary of the Original Equipment Manufacturer. These line cards are, therefore, not cross compatible with devices of other manufacturers but are only usable for the purpose for which they are designed for e.g., a line card manufactured by Cisco would be usable only in a Cisco Router and nowhere else. Router Line Cards are Populated PCBs as they are printed circuit boards mounted with various active and passive electronic elements. Therefore, these cards can be classified under CTI 8517 70 10, which covers populated, loaded or stuffed printed circuit boards . It would attract NIL rate of duty. Even from the HSN Explanatory Notes to Heading 85.17, Category II (G), NICs have been clubbed in the same category/class of equipments such as modems, routers, hubs, repeaters, multiplexers, etc. These equipments are clearly standalone apparatus which are independently capable of performing their functionality. Thus, sub- units/sub-assemblies of equipments such as modems, routers, hubs, repeaters, multiplexers would not be apparatus and NIC (i.e. a standalone apparatus) cannot be compared with Router Line Cards - thus, Router Line Cards imported by the appellant would be classified under CTI 8517 70 90 and not CTI 8517 69 90. The impugned order dated 27.03.2019 passed by the Principal Commissioner, therefore, cannot be sustained and is set aside - appeal allowed.

Summary

Issues Involved:
1. Classification of the imported product "Router Line Cards."
2. Applicability of exemption from duty under notification no. 57/17-Cus dated 30.06.2017.

Detailed Analysis:

1. Classification of the Imported Product "Router Line Cards":

The primary issue in this appeal is the classification of the imported product "Router Line Cards." The appellant claims classification under Customs Tariff Item (CTI) 8517 70 90, arguing that the line cards are parts/components of a router and not an independent apparatus. The Department, however, contends that the product should be classified under CTI 8517 69 90, considering it as "other communication apparatus."

The appellant described the product in the Bills of Entry as "Router Line Card (Part of Router)" and claimed exemption from duty under serial no. 5 of notification no. 57/17-Cus dated 30.06.2017. A show cause notice was issued proposing re-classification under CTI 8517 69 90, asserting that the product is a communication apparatus in itself.

The Principal Commissioner held that the line cards, while not functioning independently, act as an interface between the network and the router, thus falling under "other communication apparatus" as per the Harmonized System of Nomenclature (HSN) Explanatory Notes to Heading 85.17.

Appellant's Arguments:

- Line cards are parts/components and not apparatus of HSN Heading 85.17, thus correctly classifiable under Sub-Heading 8517.70.
- HSN Explanatory Note 2 of Section XVI states that an item will not be considered a "part" if it can be classified under its own heading.
- Line cards do not have separate identifiable functions from a router and cannot operate independently.
- The product is in the nature of a PCB and should be classified under CTI 8517 70 10.
- Previous decisions support classification of similar cards/modules as parts.

Department's Arguments:

- Line cards provide network connectivity to the router, acting as an interface, and should be classified under "other communication apparatus."
- Reliance on HSN Explanatory Notes of Heading 84.79 to interpret Heading 85 is incorrect.
- The function of NIC and line cards are almost identical, both providing connection between the network and the device.
- Even if line cards are PCBs, they cannot be classified as parts but as goods covered by other apparatus under CTI 8517 69 90.

Tribunal's Analysis:

The tribunal examined the nature and function of routers and their components, including routing processors, line cards, switch processor boards, and transceivers. It concluded that line cards are integral and inseparable parts of a router, operating and communicating in a proprietary format and dependent on the router's control and processor module for functionality. Therefore, line cards cannot perform independently and are classifiable as parts under CTI 8517 70 90.

The tribunal referred to Note 2 of Section XVI of the Tariff Act, which provides rules for classifying "parts of machines" under Chapters 84 and 85. It emphasized that an item will not be considered a "part" if it can be classified under its own appropriate heading. Since line cards do not have an independent function and are not capable of operating independently, they are classified as parts under CTI 8517 70 90.

2. Applicability of Exemption from Duty:

The appellant also claimed that the imported Router Line Cards are in the nature of a PCB and should be classified under CTI 8517 70 10, attracting a NIL rate of duty. The tribunal noted that Router Line Cards are populated PCBs with various electronic elements, thus classifiable under CTI 8517 70 10.

Conclusion:

The tribunal concluded that Router Line Cards imported by the appellant are classifiable under CTI 8517 70 90 and not CTI 8517 69 90. The impugned order dated 27.03.2019 by the Principal Commissioner was set aside, and the appeal was allowed.

Order Pronounced on 20.09.2022.