2024 (7) TMI 561 - AT - Customs

Classification of imported goods - Transponder, Muxponder, and Optical splitter cards - to be classified under Customs Tariff Item (CTI) 8517 62 90 or under CTI 8517 70 90 as claimed by the appellant - HELD THAT - A Division Bench of the Tribunal in Vodafone Idea Limited 2022 (9) TMI 1600 - CESTAT NEW DELHI in the matter of the appellant had examined the classification of router line cards imported for use in Cisco Routers. The Tribunal recorded a finding that in contrast to network interface cards, the cards under consideration were router line cards which were essential for the routers to operate. Thus, the Tribunal held that the correct classification of the cards would be under CTI 8517 70 90 as parts and not CTI 8517 69 90 as other communication apparatus . In the present case, the subject goods under dispute are not cross compatible with devices of other manufacturers and hence are solely usable for the pre-determined purpose i.e., usage with the main equipment. Thus, the subject goods also have no separable function of their own. It is also seen that the main equipment has modular chassis i.e., chassis has dedicated slots for the subject goods. Unless the subject goods are slotted in the chassis in their designated slots, the cards do not source power and intelligence and hence cannot operate independently of the main equipment. The subject cards are also not NIC cards as was held in Vodafone. The Principal Commissioner committed an error in holding that the subject cards are nothing but NIC cards as like NIC cards connect computer over a network in telecommunication, these cards connect optical transport network equipment over an optical network - It has been clearly established in Vodafone that NIC cards are distinct and separable from the overall equipment and thus satisfy the twin tests laid down by this Tribunal. Using the analogy laid down in Vodafone, the subject cards which are tailor-made for the main equipment are in contrast to the NIC cards and are very much essential for the main equipment to operate. The subject cards are not similar in nature to NIC Cards and any reliance on the classification of NIC Cards to determine appropriate classification for the subject cards is misplaced - the subject cards deserves classification under CTI 8517 70 90. The impugned order is set aside - appeal allowed.

Issues Involved:

1. Classification of imported goods: Transponder, Muxponder, and Optical Splitter cards.
2. Applicability of Basic Customs Duty, Education Cess, and IGST.
3. Interpretation of relevant tariff items under the Customs Tariff Act.
4. Application of General Rules of Interpretation and Section Notes.
5. Comparison with previous tribunal and court decisions on similar issues.
6. Determination of whether the subject cards are Network Interface Cards (NIC) or parts of the main equipment.

Detailed Analysis:

1. Classification of Imported Goods:

The appellant, Vodafone Idea Limited, contested the classification of Transponder, Muxponder, and Optical Splitter cards under CTI 8517 62 90 by the Principal Commissioner, asserting that they should be classified under CTI 8517 70 90 as parts. The Principal Commissioner had classified them under CTI 8517 62 90, equating them to NIC cards, which connect OTN equipment over an optical network. The tribunal found that these cards are not independent apparatus but parts of the main equipment, thus should be classified under CTI 8517 70 90.

2. Applicability of Basic Customs Duty, Education Cess, and IGST:

The appellant argued that under CTI 8517 70 90, the Basic Customs Duty is NIL, Education Cess is Nil, and IGST is 18%. The department's classification under CTI 8517 62 90 imposed a 10% Basic Customs Duty, 3% Education Cess, and 18% IGST. The tribunal's decision to classify the goods under CTI 8517 70 90 implies the appellant's duty structure is applicable.

3. Interpretation of Relevant Tariff Items:

The tribunal examined the relevant tariff entries and found that the subject cards, used in ZTE ZXONE 8000 optical transport network equipment, are parts of the main equipment. The cards cannot function independently and are designed specifically for the main equipment, thus satisfying the criteria for classification under CTI 8517 70 90.

4. Application of General Rules of Interpretation and Section Notes:

The Principal Commissioner had applied General Rules of Interpretation Rule 1 and Rule 2(a), and Section Note 3 to Section XVI, to classify the cards as complete apparatus under CTI 8517 62 90. The tribunal disagreed, stating that Rule 2(a) and Section Note 3 do not apply as the cards cannot function independently and were not imported collectively. The tribunal emphasized that the cards should be classified as parts under Section Note 2(b) of Section XVI.

5. Comparison with Previous Tribunal and Court Decisions:

The tribunal referenced several decisions, including Ciena Communications India Pvt. Ltd., Reliance Jio Infocomm Ltd., and Vodafone Idea Limited, where similar goods were classified under CTI 8517 70 as parts. These decisions were upheld by the Supreme Court, establishing a precedent for classifying the subject cards under CTI 8517 70 90.

6. Determination of Whether the Subject Cards are NIC Cards or Parts of the Main Equipment:

The tribunal analyzed the definition and function of NIC cards and concluded that the subject cards are distinct from NIC cards. NIC cards are independent and facilitate network connections for computers, whereas the subject cards are integral parts of the main optical transport network equipment and cannot function independently. The tribunal reaffirmed that the subject cards should be classified as parts under CTI 8517 70 90.

Conclusion:

The tribunal set aside the Principal Commissioner's order dated 08.07.2020, classifying the subject cards under CTI 8517 62 90, and ruled that they should be classified under CTI 8517 70 90 as parts. The appeal was allowed, and the impugned order was not sustained. The decision was pronounced on 01.07.2024.

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