2021 (8) TMI 411 - AAR - Customs

Classification of imported goods - two models of head mounted devices - to be classified under CTH 85176290, or under CTH 84.71? - HELD THAT - The subject goods, namely head mounted tablets, have the following features, i.e., a high-resolution micro display comparable to the display of a 7-inch tablet device, a 2.0 GHz 8-core Qualcomm Snapdragon CPU, a 2 GB RAM, Bluetooth/GPS/GLONASS/A-GPS connectivity, Wi-Fi connectivity, 16 GB internal storage (expandable up to 254 GB with SD cards), 16 MP camera, among others. These devices weigh 380 to 430 grams and runs on 3250 mAh Li-ion rechargeable batteries having a battery life of 9 to 10 hours. These devices can process data, execute programmes, and connect to internet via a wireless network, send/receive e-mails, upload/download files, download software applications, conduct video/VolP (Voice over Internet Protocol) communication, among others. The input method for the device is voice commands, instead of a traditional keyboard. The device converts voice commands into text to execute desired functions. Placing reliance on the relevant Chapter Notes, the WCO's classification advice, the Board circular No. 20/2013-Cus., dated 14.05.2013 on classification of tablet computers, and also considering the fact that the head mounted tablet devices of RealWear incorporate all the features of a tablet computer, except a touch screen, the applicant has argued that these devices are more akin to automatic data processing machines than apparatus for transmission or reception of voices, image, data, including apparatus for communication in a wired or wireless network. It is also emphasised by the applicant that these Android based devices are capable of allowing installation of third-party software products, examples of which, cited by the applicant, are Microsoft Teams, Cisco Expert on Demand etc. These third-party applications are stated to be capable of being stored in the device for use when needed. The HMT device is a hands-free remote collaboration tool. It acts as a virtual assist and can capture videos and photos and share the same with workers at another location for any assistance. One can view documents/workflows. The product catalogues also lay emphasis on the device aiding mentor/expert connection with workers on field from remote location. Hence, it appears that HMT devices are a type of apparatus for the transmission or reception of speech, images and other data between two points. Based on the discussion, HMT devices are rightly classifiable under sub-heading 85176290. Thus, head mounted tablets of M/s. RealWear, namely HMT-I and HMT-1Z1 merit classification under heading 85.17, and more specifically under sub-heading 85176290 of the first schedule to the Customs Tariff Act, 1975 - The rate of customs duty for these devices, as per the tariff in force, is 10% advalorem - IGST is payable on imports @ 18%. The imports would also attract Social Welfare Surcharge @ 1% - The benefit of exemption available to goods of sub-heading 85176290 by virtue of Sr. No. 20 of the table annexed to the Notification No. 57/2017-Cus., dated 30.06.2017, as amended.

Summary

Issues Involved:
1. Classification of head-mounted devices (HMT-I and HMT-1Z1) under the appropriate Customs Tariff Heading.
2. Determination of whether these devices qualify as Automatic Data Processing (ADP) machines.
3. Consideration of alternative classifications proposed by the applicant.
4. Application of relevant chapter notes and explanatory notes.
5. Evaluation of the principal function of the devices.
6. Assessment of applicable customs duty and exemptions.

Issue-wise Detailed Analysis:

1. Classification of head-mounted devices (HMT-I and HMT-1Z1) under the appropriate Customs Tariff Heading:
The applicant, M/s. Ingram Micro India Private Limited, sought to classify two models of head-mounted devices (HMT-I and HMT-1Z1) from M/s. RealWear. These devices are Android-based computers with voice-based operating systems, capable of performing various functions such as data processing, voice commands, and real-time communication.

2. Determination of whether these devices qualify as Automatic Data Processing (ADP) machines:
The applicant argued that the devices should be classified under Heading 84.71 as ADP machines, specifically under tariff Item 84713010. They emphasized that the devices operate on an open-source Android system, support third-party applications, and perform data processing functions similar to a laptop or tablet computer. However, the Customs Authority noted that for a device to qualify as an ADP machine under Note 5(A) to Chapter 84, it must meet four essential conditions:
- Storing processing programs and necessary data.
- Being freely programmable.
- Performing arithmetical computations.
- Executing programs without human intervention.

The Customs Authority found that while the devices could store programs and data, they were not freely programmable, could not perform arithmetical computations independently, and required human intervention for execution. Therefore, the devices did not fully meet the criteria for classification as ADP machines.

3. Consideration of alternative classifications proposed by the applicant:
The applicant proposed alternative classifications under headings such as 851762 (Machines for the reception, conversion, and transmission or regeneration of voice, images, or other data), 851830 (Headphones and earphones), 852550 (Transmission apparatus), and the residuary heading 8543 (Electrical machines and apparatus having individual functions). The Customs Authority considered these alternatives but focused on the primary function of the devices.

4. Application of relevant chapter notes and explanatory notes:
The Customs Authority referred to the HS Committee of the WCO's 50th meeting, which recommended classifying tablet computers under heading 8471.30 based on their features and functionalities. The Board Circular No. 20/2013-Cus. also supported the classification of tablet computers under heading 8471, considering their ability to process data, execute programs, and connect to the internet. However, the Customs Authority noted that the HMT devices did not have the same functionality as tablet computers and were primarily designed for remote collaboration.

5. Evaluation of the principal function of the devices:
The Customs Authority emphasized that the principal function of the HMT devices was remote collaboration, not data processing. The devices acted as hands-free remote collaboration tools, enabling real-time communication and data sharing between workers and mentors. The communication capabilities were deemed essential for the devices' primary function.

6. Assessment of applicable customs duty and exemptions:
Based on the analysis, the Customs Authority concluded that the HMT devices should be classified under sub-heading 85176290 (Machines for the reception, conversion, and transmission or regeneration of voice, images, or other data). The applicable customs duty for these devices was determined to be 10% ad valorem, with an additional IGST of 18% and Social Welfare Surcharge of 1%. The authority also considered the benefit of exemption available under Notification No. 57/2017-Cus., as amended.

Conclusion:
The Customs Authority ruled that the head-mounted tablets (HMT-I and HMT-1Z1) from M/s. RealWear should be classified under heading 85.17, specifically under sub-heading 85176290. The devices did not qualify as ADP machines under heading 84.71 due to their primary function of remote collaboration and communication. The applicable customs duty, IGST, and Social Welfare Surcharge were outlined, along with consideration of relevant exemptions.