2005 (12) TMI 96 - SC - Customs

Whether the telephone LSP 340 imported would be entitled to the benefit of the exemption granted by Customs Circular No. 57/2003 dated June, 2003 to Cellular Telephones classified under Tariff Heading 8525-17 of the Customs Tariff Act? Held that - Since the issue would be ultimately a question of evidence the onus was on the Department to prove by appropriate evidence that the goods were classifiable under 8525-20-19 being the residuary entry. This the Department could have done by negativing the claim of the importers that the goods were classifiable under Tariff Entry 8525-20-17 and by establishing that the imported goods could not reasonably be classified under any other head. In this particular case the onus had not been discharged by the Revenue. The only evidence on record was the opinion sought for by the Ministry of Finance itself and given by the Department of Telecommunications to the effect that the Model LSP 340 was in fact covered by the phrase cellular telephone . Sine there is no dispute that the technology used in LSP 340 and the hand held mobile phone is the same there is no warrant to limit either the tariff entry or the exemption notification to hand held cellular phones. Neither the range nor the size would make any difference.Therefore, Civil Appeal Nos. 3774-3775/05 from the decision of the Andhra Pradesh High Court is dismissed. As far as CA. No. 7939 of 2004 is concerned, the Commissioner, on the issue of valuation, had drawn a distinction between loaded software and detached software. The Commissioner had given certain reasons for including the software in the valuation of the phone. The Tribunal has dealt with the matter in a somewhat perfunctory a manner. We do not express any view on the merits of the valuation. However, we are of the view that the matter requires more consideration by the Tribunal. Therefore, on the question of valuation alone, we remand case back to the Tribunal for redeciding the issue. All questions relating to the valuation of the LSP 340 imported by respondent in that appeal are left open.

Summary

Issues:
1. Interpretation of Customs Circular No. 57/2003 regarding exemption for cellular telephones.
2. Classification of LSP 340 under Customs Tariff Act.
3. Validity of circular in relation to exemption notification.
4. Valuation of imported goods including software.

Issue 1: Interpretation of Customs Circular No. 57/2003 regarding exemption for cellular telephones:
The Supreme Court analyzed the conflicting decisions by different tribunals on whether the telephone LSP 340 qualifies for the exemption granted by Customs Circular No. 57/2003. The circular defined "cellular phones" as only hand-held mobile phones, excluding fixed wireless terminals or fixed telephones working on cellular technology. The Court noted that the circular imposed a limitation not provided in the exemption notification, emphasizing that the technology used should determine classification, not the physical form. The Court affirmed the decisions of the Bombay Tribunal and the Andhra Pradesh High Court, setting aside the Delhi Tribunal's decision and emphasizing the need for evidence to establish classification.

Issue 2: Classification of LSP 340 under Customs Tariff Act:
The Court examined the relevant entries in the Customs Tariff Act, specifically Entry 8525-2017 for "Cellular Phones" and the Revenue's reliance on Tariff Heading 8525-2019 as "Other." The dispute arose due to the interpretation of the term "Cellular Phones" in the exemption notification. The Court emphasized that the onus was on the Revenue to prove the classification under the residuary entry, which was not discharged in this case. The Court highlighted that the technology used in LSP 340 was similar to hand-held mobile phones, and physical attributes like size or range should not limit classification.

Issue 3: Validity of circular in relation to exemption notification:
The Court addressed the validity of the circular issued by the Central Board of Excise and Customs, which led to the rejection of importers' claims for exemption under the notification for LSP 340. The Andhra Pradesh High Court quashed the circular, stating that it interfered with the assessing authorities' powers to determine if a phone qualified as a cellular phone. The Court agreed with the High Court's decision, emphasizing that the circular imposed conditions not present in the exemption notification, and the issue of common parlance should be established through evidence.

Issue 4: Valuation of imported goods including software:
Regarding the valuation of imported goods, including software, the Court reviewed the Commissioner's distinction between loaded and detached software. While not expressing a view on the valuation's merits, the Court found that the matter required further consideration by the Tribunal. As a result, the Court remanded the issue back to the Tribunal for reevaluation, leaving all questions related to the valuation of LSP 340 open for reconsideration. The Court allowed certain appeals and dismissed others based on the specific reasons and conclusions reached in each case.

In conclusion, the Supreme Court's judgment clarified the interpretation of Customs Circular No. 57/2003, the classification of LSP 340 under the Customs Tariff Act, the validity of the circular in relation to the exemption notification, and the valuation of imported goods. The Court emphasized the importance of evidence in determining classification, rejected limitations imposed by the circular, and remanded the valuation issue for further consideration.