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TMI Blog2020 (12) TMI 870X X X X Extracts X X X X X X X X Extracts X X X X ..... OMMISSIONER OF CENTRAL EXCISE, NAGPUR VERSUS SIMPLEX MILLS CO. LTD. [ 2005 (3) TMI 117 - SUPREME COURT] , the Supreme Court held that rule I gives primacy to the Section and Chapter Notes along with the terms of the Headings and so this rule should be applied first. It is only when a clear picture is not emerging that the subsequent rules have to be applied. The second entry at single dash level starts with the words other apparatus . This clearly indicates that only those goods which are not covered by the first single dash entry will be covered under the second single dash entry. Thus, as the product under consideration is covered by the first single dash entry, it is not necessary to examine the second single dash entry. Learned counsel for the appellant, in the alternative, submitted that even if the product under consideration is prima facie classifiable under two or more Headings, the classification would be effected in the manner prescribed in (a) or (b) or (c) of rule 3 of the General Rules and so the Heading which provides the most specific description shall be preferred to Headings providing a more general description. In such a situation also the product under considerat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er of Customs, New Delhi. The appellant had filed a Bill of Entry dated February 21, 2019 for clearance of goods declared as "Executive IP Phone with 7" colour touch screen, 100 programmable keys, POE and 10/100/100 LAN and PC connections- FON 670i (VoIP Telephone) [the goods] under Customs Tariff Heading [CTH] 8517 18 10 and claimed the benefit of Customs Notification 024/2005 dated March 1, 2005 [Notification dated March 1, 2005] for payment of 0% basic customs duty. The custom authorities, however, by order dated November 19, 2019, classified the goods imported by the appellant under CTH 8517 69 90 and ordered for re-assessment of the goods. 2. The issue, therefore, that is involved in this appeal is regarding classification of the goods under CTH 8517 18 10 (as claimed by the Appellant) or under CTH 8517 69 90 (as contended by the Department). 3. The appellant had imported one consignment of the goods from a manufacturer in Taiwan under a Commercial Invoice dated February 12, 2019. In the said invoice of the manufacturer, the goods were declared classifiable under H.S. Code 8517.18.0020. Goods were imported at the IGI Airport, New Delhi and a Bill of Entry dated February 21, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n type phones systems receive their power from the telephone exchange whereas VoIP phones require external power supply. 3.4 Further, Customs Notification No. 57/2017 dated 30.06.2017 amended as 02/2019 dated 29.01.2019 vide sl. no. 20 classified the VoIP phones under CTH 85176990 without benefit of this notification. ORDER 4. In view of discussion & findings hereinabove, I order re-assessment of goods imported under B/E no. 2146635 dated 21.02.2019 under, CTH 85176990 in terms of provisions contained in subsection (4) of Section 17 of the Customs Act, 1962." [emphasis supplied] 5. Feeling aggrieved by the aforesaid order passed by the Deputy Commissioner, the appellant filed an appeal before the Commissioner (Appeals). The Commissioner (Appeals) also did not accept the submissions made on behalf of the appellant and rejected the appeal. The relevant portion of the order passed by the Commissioner (Appeals) is reproduced below: "5.2 ****** The IP Phone works on voice over Internet protocol. The product catalogue also indicates that the product has various network features like power over Ethernet, network access control etc. and also works over Web management portal. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IP Phone are therefore, covered by CTH 8517 18 10, which falls under the first entry at single dash "-" level; (iii) The second entry at single dash "-" level starts with the words "Other apparatus ………". Use of the words 'Other apparatus' indicates that only those goods which are not covered by the first entry at the single dash "-" level are covered under the second entry at single dash "-" level. Reliance has been placed on the judgement of Supreme Court in Collector of Central Excise vs. Delton Cables Ltd. [2005 (181) E.L.T. 373 (S.C.)] ; (iv) The Commissioner (Appeals) decided classification of the goods by straightaway resorting to rule 3(c) of the General Rules, which is impermissible as it is settled law that they have to be considered sequentially. The goods in question are, therefore, clearly classifiable under CTH 8517 18 10; (v) The findings of the Commissioner (Appeals) are factually incorrect; and (vi) Similar goods have been held to be classifiable under CTH 8517 18 10 by the Commissioner (Appeals) at Chennai. 8. Shri Sunil Kumar learned Authorized Representative of the Department made the following submissions: (i) The first sub-headin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onal utility is more important than name used in trade or common parlance, and hence the former needs also to be considered while determining classification of an item. Reliance has been placed on the judgement of Supreme Court in O.K.Play (India) Ltd vs. Commissioner of Customs Excise, Delhi-III, Gurgaon [2005 (180) E.L.T. 300 (S.C.)] . It is for this reason that the Commissioner (Appeals) applied rule 3(c) of the General Rules and accorded preference to CTI 8517 69 90 over CTI 8517 18 90; and (vii) The contention of the appellant that the Exemption Notification grants exemption to goods and the same cannot be relied upon for the classification of goods is not correct. 9. The contentions advanced by learned counsel for the appellant and the learned Authorized Representative of the Department have been considered. 10. The classification of the goods under CTH 8517 18 10, as contended by the appellant, or under CTH 8517 69 90, as contended by the Department, is the issue in this appeal. 11. It would, therefore, be necessary to first refer to the scheme of classification as contained in Chapter 85 of the Customs Tariff. Heading 8517, contained in Chapter 85, is reproduced below ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - 8517 69 60 --- Set top boxes for gaining access to internet u Free - 8517 69 70 --- Attachments for telephones . u Free - 8517 69 90 --- Other . . . . . . . . . . . u 10% - 8517 70 - Parts : 8517 70 10 -- Populated, loaded or stuffed printed circuit boards u Free - 8517 70 90 -- Other . . . . . . . . . . . Kg 15% - (emphasis supplied) 12. Before proceeding to analyse this Heading, it would also be necessary to refer to section 2 of the Tariff Act. It provides that the rates at which the duties of customs shall be levied under the Customs Act 1962 are specified in the First and Second Schedules. The General Rules with the General Explanatory Notes also need to be examined. They are reproduced below:- "THE FIRST SCHEDULE- IMPORT TARIFF GENERAL RULES FOR THE INTERPRETATION OF THIS SCHEDULE Classification of goods in this Schedule shall be governed by the following principles: 1. The titles of Sections, Chapters and sub-chapters are provided for ease of reference only; for legal purposes, classification shall be determined according to the terms of the headings and any relative Section or Chapter Notes and, provided such h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... PLANATORY NOTES TO IMPORT TARIFF 1. Where in column (2) of this Schedule, the description of an article or group of articles under a heading is preceded by "-", the said article or group of articles shall be taken to be a sub-classification of the article or group of articles covered by the said heading. Where, however, the description of an article or group of articles is preceded by "--", the said article or group of articles shall be taken to be a subclassification of the immediately preceding description of the article or group of articles which has "-". Where the description of an article or group of articles is proceeded by "---" or "----", the said articles or group of articles shall be taken to be a sub-classification of the immediately preceding description of the article or group of articles which has "-" or "--". 2. The abbreviation "0%" in any column of this Schedule in relation to the rate of duty indicates that duty on the goods to which the entry relates shall be charged on the basis of the value of the goods as defined in section 14 of the Customs Act, 1962 (52 of 1962), the duty being equal to such percentage of the value as is indicated in that column. 3. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ogrammable keys, PoE and 10/100/1000 LAN and PC connections 16. It would, therefore, be seen from the aforesaid that Model No. FON 670i imported by the appellant is an executive IP Phone with 7-inch color touchscreen. It works on Voice over Internet Protocol . [VoIP] It does not have a video camera facility as it only FON-675i Executive IP Phone that has this facility. It is these features of Model No. FON-670i that have to be kept in mind for classification of this Executive IP Phone. 17. It needs to be noted that the manufacturer has classified the goods in the invoice under H.S. Code 8517.18. 18. The relevant portion of Heading 8517 to the Explanatory Notes of Harmonized System of Nomenclature [HSN] is reproduced below: Harmonized Commodity Description and Coding System Explanatory Notes 8517- Telephone sets, including telephones for cellular networks or for other wireless networks; 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), other than transmission or reception apparatus of heading 84.43, 85.25, 85.27 or 85.28(+). - Telephon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... porating these devices may also have keys or push-buttons which enable their operation, including a switching key which enables the telephone to be operated without removing the hand-set from the cradle. Many of these devices utilize a microprocessor or digital integrated circuits for operation. The heading covers all kinds of telephone sets including: (i) Cordless telephone sets. ******* (ii) Telephones sets. ******** (B) Telephones for cellular networks or for other wireless networks. This group covers telephones for use on any wireless network. Such telephones receive and emit radio waves which are received and retransmitted, e.g., by base stations or satellites. These include, inter alia: (1) Cellular phones or mobile phones. (2) Satellite phones. 19. Reverting back to the classification under the Customs Tariff, it is seen that perusal of Heading 8517 indicates that it contains three entries at single dash '-' level and they are: (a) Telephone sets, including telephones for cellular networks or for other wireless networks; (b) Other apparatus for transmission or reception of voice, images or other data, including apparatus for communication in a wir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly. But for legal purposes, classification "shall be determined according to the terms of the heading sand any relevant section or Chapter Notes". If neither the heading nor the notes suffice to clarify the scope of a heading, then it must be construed according to the other following provisions contained in the Rules. Rule-I gives primacy to the Section and Chapter Notes along with terms of the headings. They should be first applied. If no clear picture emerges then only can one resort to the subsequent rules. The appellants have relied upon Rule 3. Rule 3 must be understood only in the context of subrule (b) of Rule 2 which says inter alia that the classification of goods consisting of more than one material or substance shall be according to the principles contained in Rule 3. Therefore when goods are prima facie, classifiable under two or more headings, classification shall be effected according to sub-rules (a), (b) and (c) of Rule 3 and in that order. ****** 12. Applying the Rules of Interpretation particularly Rule 1, we are of the opinion that the reasoning of the Tribunal in Jyoti Overseas is unexceptionable and in our opinion the decision in Simplex-I was correctly ov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s apparatus which allows for the connection to a wired or wireless communication network or the transmission or reception of speech or other sounds, images or other data within such a network. Communication networks include, inter alia, carriercurrent line systems, digital-line systems and combinations thereof. They may be configured, for example, as public switched telephone networks, Local Area Networks (LAN), Metropolitan Area Networks (MAN) and Wide Area Networks (WAN), whether proprietary or open architecture. This group includes: (1) Network interface cards (e.g., Ethernet interface cards). (2) Modems (combined modulators-demodulators). (3) Routers, bridges, hubs, repeaters and channel to channel adaptors. (4) Multiplexers and related line equipment (e.g., transmitters, receivers or electro-optical converters). (5) Codecs (data compressors/decompressors) which have the capability of transmission and reception of digital information. (6) Pulse to tone converters which convert pulse dialed signals to tone signals. 27. A perusal of the aforesaid portion of the HSN Explanatory Notes shows that base stations, entry-phone systems, video phones, apparatus for telegr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not based on this reason. The Supreme Court in Mohinder Singh Gill observed that when a statutory functionary makes an order based on certain grounds, the validity of that order has to be judged on the reasons stated in the order and the order cannot be supplemented by fresh reasons. 30. The Gujarat High Court in F.S. Enterprise vs. State of Gujarat [2020 (32) G.S.T.L. 321(Guj.)] , followed the decision of the Supreme Court in Mohinder Singh Gill and observed that it is not permissible to supplement the original order by additional reasons. 31. The aforesaid decision of the Supreme Court in O.K. Play would not help the Department. The submissions made by the learned authorized representative of the Department in regard to (G) of (II) of entry 85.17 of the HSN cannot, therefore, be accepted. 32. What also supports the case of the appellant are the two orders dated February 27, 2020 and March 9, 2020 passed by the Commissioner of Customs (Appeals-II), Chennai, in matters relating to the present appellant, wherein in respect of similar goods, but of different models, the Commissioner (Appeals) classified the goods under CTH 8517 18 10. 33. According to learned counsel for the app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e cannot be classified under CTH 85171110. Therefore, the right classification appears to be CTH 851718 (Other) and sub-classification 85171810 push button type. Going by the HSN explanatory notes for CTH 8517 telephone sets including telephone for cellular networks or other networks, these items are appropriately to be Classified under CTH 851718 only as "others". The relevant portion of the HSN explanatory notes is reproduced; "Telephones sets, may incorporate or have fitted a memory for storing and recalling telephone numbers, a visual display for showing the number dialed, incoming callers number, date and time and duration of the call, an extra loud speaker and microphone to enable communication without using the hand set; devices for automatically answering calls, transmitting a recorded message, recording incoming messages and playing back recorded message on command; devices for holding a connection on line while communicating with the person on another telephone. Telephone sets incorporating these devices may also have keys or push buttons which enable their operation, including a switching key which enables the telephone to be operated without removing the han ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fixed keys and are to be classified under CTH 8517 18 10 as claimed by the appellant M/s. Ingram Micro India Pvt. Ltd." (emphasis supplied) 36. Learned counsel for the appellant submitted that different Collectorates of Customs cannot adopt different standards on a particular issue and in this connection placed reliance upon the decision of the Calcutta High Court in Opal Exports Pvt. Ltd. vs. Collector of Customs [1992 (60) E.L.T. 232 (Cal.)] . 37. The Calcutta High Court held in Opal Exports that Custom Authorities cannot be permitted to practice discrimination and that the Collectorates of the Customs have to adopt a similar stand on a particular issue. The relevant portion of the judgment is reproduced below: "28. The respondent Customs authorities by treating similar imports as imports of spares while adopting a different view in the case of the petitioner (who is placed in similar circumstances as other importers of similar goods) have discriminated against the petitioner in violation of the guarantee of equal protection contained in Article 14 of the Constitution of India. 29. The discriminatory treatment meted out by the Customs Authorities to the petitioner is als ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. The Supreme Court observed that each of the classes are mutually exclusive. What is covered in (a) cannot be classified in (b), and (c) operates when neither (a) or (b) applies. It is like a residuary clause. The observations are as follows: "The primary question, therefore, is whether the goods manufactured by the appellant fall in clause (a) and if it can be classified with reference to (a) then clauses (b) and (c) would not apply. Clause (a) incorporates the common and general principle that the goods which can be classified specifically with reference to any heading should be placed in that category alone. The specific heading of classification has to be preferred over general heading. The clause contemplates goods which may be satisfying more than one description. Or it may be satisfying specific and general description. In either situation the classification which is the most specific has to be preferred over the one which is not specific or is general in nature. In other words, between the two competing entries the one most nearer to the description should be preferred. Where the class of goods manufactured by an assessee falls say in more than one heading one of which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the Appellant. 46. Learned Authorized Representative of the Department also submitted that the Commissioner (Appeals) committed no legality in placing reliance upon the Exemption Notification dated January 29, 2019, which Notification suggests that VoIP phones are classifiable under CTH 8517 69 90 and are not eligible for exemption. 47. This contention of learned the Authorized Representative of the Department cannot also be accepted. The classification of goods has to be done in accordance with the terms of Headings and any relative Section or Chapter Note. The classification is not required to be done in terms of any Exemption Notification. This is what was also observed by the Tribunal in Ruchi Soya Industries Ltd. vs. Commissioner of Customs (Acc& Imp.), Mumbai [2019 (369) E.L.T. 1529 (Tri.-Mumbai)] . The relevant portion of the decision is reproduced below: "5.3 In the present case the benefit of Exemption Notification as claimed by the appellants under Notification No. 21/2002-Cus., dated 1-3-2002 has been allowed by the lower authorities. However, the issue that appellants have raised is two folds- (i) The classification of the goods imported by them should have ..... X X X X Extracts X X X X X X X X Extracts X X X X
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