2025 (3) TMI 393 - AAR - Customs

Classification of product i.e. Small-Form Factor Pluggable (SFP) Transceiver - classifiable under CTI 85176290 as other machines for the reception conversion and transmission or regeneration of voice images or other data including switching and routing apparatus or otherwise? - eligibility for concessional rate of duty under Sr. No. 20 of Notification No. 57/2017-Cus. Dated 30.06.2017. HELD THAT - The function of Transceiver is to receive the data in electrical form and converts the signal in to optical signal or vice versa and therefore the Transceiver would fall under the category of Electro-optical converter . The Explanatory Notes has categorized the electro-optical converter under the description 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) . In the Explanatory Notes Electro-optical converter is termed as an apparatus and not as a part. Since the item has found mention at the second single dash (-) level under CTH 8517 there exists no necessity to go beyond this single dash and the item should be classified under the subheading/tariff items covered under this single dash entry. If the item were to be treated as parts the item would have covered under the third single dash (-) entry which covered the parts. Therefore the product cannot be classified as parts and would not be covered under CTI 85177990 which cover parts. The entry at the tariff item 8517 6100 is Base station which is a central communication hub that manages signal communication between mobile devices and the network. A base station is much larger and serves as a communication hub that manages many transceivers and devices within its coverage area. Hence the subject item is not classifiable here. The subject item Transceiver is thus not specifically covered under any of the tariff items from 8517 6210 to 8517 6270. Therefore the same has to be classified under the residual entry other under the tariff item 8517 6290. Thus the product i.e. Small Form Factor pluggable (SFP) Transceiver is rightly classifiable under CTI 85176290 (Other) of the First Schedule of the Custom Tariff Act 1975. Whether the product under consideration is eligible for concessional basic customs duty under Serial No. 20 of Notification No. 57/2017-Cus. dated 30.06.2017 as last amended up to 23.07.2024? - HELD THAT - The Optical SFP Transceivers being capable of converting electrical signal to optical signal and vice versa are equipped to handle and be a part of Optical Transport Network and therefore would be termed as Optical Transport Equipment / Optical Transport Network products. Hence the Optical SFP Transceiver falls under the exclusion category specified in Serial No. 20 of Notification No. 57/2017-Cus. dated 30.06.2017. Consequently it is not eligible for the benefit of concessional basic customs duty under this notification. Conclusion - i) SFP Transceivers are classifiable under CTI 85176290. ii) Optical SFP Transceivers are not eligible for concessional duty under Notification No. 57/2017-Cus. while electrical SFP Transceivers are eligible.

Summary

ISSUES PRESENTED and CONSIDERED

The primary issues considered in this legal judgment are:

a) The classification of the Small-Form Factor Pluggable (SFP) Transceiver under the Customs Tariff. Specifically, whether it falls under CTI 85176290 as other machines for the reception, conversion, and transmission or regeneration of voice, images, or other data, including switching and routing apparatus.

b) If the SFP Transceiver is classifiable under CTI 85176290, whether it is eligible for a concessional rate of duty under Serial No. 20 of Notification No. 57/2017-Cus., dated 30.06.2017.

ISSUE-WISE DETAILED ANALYSIS

Classification of SFP Transceiver under CTI 85176290

- Relevant Legal Framework and Precedents: The classification of goods under the Customs Tariff is guided by the Customs Tariff Act, 1975, and the Harmonized System of Nomenclature (HSN) Explanatory Notes. The key legal provision is the classification under Chapter 85, specifically heading 8517, which covers apparatus for the transmission or reception of voice, images, or other data.

- Court's Interpretation and Reasoning: The Court analyzed the function of SFP Transceivers, which are devices that receive, convert, and transmit signals. The judgment emphasized that these transceivers function independently once inserted into networking devices, performing specific tasks without external assistance.

- Key Evidence and Findings: The Court considered the applicant's submission that SFP Transceivers are pluggable modules used in various networking devices and can operate in different network types. The HSN Explanatory Notes categorize such devices under "other communication apparatus," supporting their classification under CTI 85176290.

- Application of Law to Facts: The Court applied the HSN Explanatory Notes and the Customs Tariff provisions, concluding that SFP Transceivers are not parts but independent machines. The classification under CTI 85176290 was supported by international rulings and the specific functional capabilities of the transceivers.

- Treatment of Competing Arguments: The Court addressed the conflicting Tribunal decisions classifying SFP Transceivers under CTI 85177090 as parts. It distinguished these cases by emphasizing the independent functionality of transceivers, which do not fit the definition of parts.

- Conclusions: The Court concluded that SFP Transceivers merit classification under CTI 85176290 due to their independent operational capabilities and alignment with the HSN Explanatory Notes.

Eligibility for Concessional Rate of Duty

- Relevant Legal Framework: Notification No. 57/2017-Cus. provides concessional duty rates for certain goods, excluding specific categories such as Optical Transport Equipment (OTE) and Optical Transport Network (OTN) products.

- Court's Interpretation and Reasoning: The Court differentiated between optical and electrical SFP Transceivers. Optical SFP Transceivers, being part of OTE/OTN products, fall under the exclusion category of the notification, while electrical SFP Transceivers do not.

- Key Evidence and Findings: The Court noted that optical transceivers convert electrical signals to optical signals and vice versa, aligning them with OTE/OTN products. In contrast, electrical transceivers using copper cables do not fit this category.

- Application of Law to Facts: Based on the notification's exclusions, optical SFP Transceivers are not eligible for concessional duty, whereas electrical SFP Transceivers qualify for the concessional rate.

- Treatment of Competing Arguments: The Court considered the applicant's argument that the classification should not be influenced by external power requirements or device insertion, focusing instead on the primary function of the transceivers.

- Conclusions: Optical SFP Transceivers are ineligible for concessional duty under the notification, while electrical SFP Transceivers are eligible.

SIGNIFICANT HOLDINGS

- Core Principles Established: The classification of goods under the Customs Tariff should focus on their independent functionality and alignment with HSN Explanatory Notes. The distinction between parts and complete machines is crucial in determining classification.

- Final Determinations on Each Issue: The Court ruled that SFP Transceivers are classifiable under CTI 85176290. Optical SFP Transceivers are not eligible for concessional duty under Notification No. 57/2017-Cus., while electrical SFP Transceivers are eligible.

- Verbatim Quote: "The product i.e. Small Form-factor Pluggable (SFP) Transceiver merit classification under CTSH 851762 (Machines for the reception, conversion and transmission or regeneration of voice, images or other data, including switching and routing apparatus), more specifically under CTI 85176290 (Other) of the First Schedule of Customs Tariff Act, 1975."