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TMI Blog2023 (12) TMI 757X X X X Extracts X X X X X X X X Extracts X X X X ..... with an inbuilt speaker. From the synopsis which was placed by the appellant before the AAR, the common features and functionality attributes of the Echo Family Devices was described as follows: * "Common features of Echo Family Devices: The Echo family devices are communication devices with inbuilt speaker with Alexa Technology built in it. They can perform multiple functions, including answering questions, playing music, reading news/ audiobooks, providing traffic, weather and other real-time information and controlling smart devices. The Subject Echo Devices do not support cellular services. They require an internet connection to perform their functions i.e. they do not have modem incorporated in them. These devices are Bluetooth enabled, which makes it possible to connect such devices with user's phone and/or external speaker. When the devices are connected to the user's phone, they can play audio stored in the user's phone. When they are connected to an external speaker, the audio output is played through the external speaker instead of the internal speaker. (Page No. 13 -14 of AAR No. 5) * Common functioning of Echo Family Devices: These devices respond to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terpretation [GI Rules] for import tariff as well as Note 3 to Section XVI of the Customs Tariff Act, 1975 [Act], the AAR has come to conclude that they are classifiable as 'smart speakers' under CTH 8518 and more particularly Tariff Entry 8518 22 00. 5. Insofar as Echo Show Devices are concerned, the AAR has taken the view that the primary function of these devices is to act as a display or a monitor and thus enabling the playback of videos from web channels, to display video content during video calling as well as for viewing motion pictures. It thus proceeded to hold that those devices are monitor/display not incorporating television reception apparatus and thus liable to be placed under CTH 8528 and more specifically Tariff Entry 8528 59 00. 6. While evaluating the appropriate classification of Echo Flex, the AAR has accepted the stand of the appellant that it is a communication device and thus classifiable under Tariff Entry 8517 62 90. Proceeding then to consider the Echo Studio Device, the AAR has found it to be in a sense a 'smart speaker' akin to the Echo 4th generation devices and thus classifiable under Tariff Entry 8518 22 00. 7. Insofar as Echo Link is concerned, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o. 20 of Notification No. 57/2017-Cus dated 30.6.2017?" 11. Appearing in support of the appeal, Mr. Lakshmikumaran addressed the following submissions. Taking us through the impugned order, Mr. Lakshmikumaran pointed out that the AAR had itself captured the various features of the 11 subject devices and understood them in the following terms: "S.No. Device Particulars/Features 1. Echo 4th generation with Model No. L4S3RE Built-in smart home hub (ZigBee and Halo), temperature sensor and an ultrasonic-based presence and motion detection feature, which can be used to detect when a person enters or exists a room. The device is MIMO enabled. 2. Echo Dot 4th generation with Model No. B7W64E Similar features as that of the Echo 4th generation device. However, Echo Dot 4th generation does not support MIMO and the sound quality is comparatively better. 3. Echo Dot 4th Generation with Clock with Model No. B7W644 Similar features as that of the Echo Dot 4th generation. The additional features are that it has an LED display for viewing time and showcasing daily information such as time, temperature, air quality, alarms etc. The device is not MIMO enabled. 4. Echo Show 5 - Dig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... io playback. The inbuilt speaker of Echo Auto is meant for use only during initial device set up. The device is meant to be used in a vehicle and allows its users to connect their smartphones to the device. The device uses the data services of the smartphone to access the cloud and perform its functions. It does not have a screen or speakers for playing media. The device is also not MIMO enabled. 10. Echo Link - Audio Receiver with Model No. SXP16E Echo Link can be used for streaming music to any stereo system. A user can connect Echo Link to the stereo and other supported Echo devices to play music throughout the home or in a particular room. The said device is MIMO enabled. 11. Echo Link Amp - Audio Receiver and Amplifier with Model No. K9Y29E Echo Link Amp is similar to Echo Link, except that Echo Link Amp has an additional input amplifier. Therefore, external amplifiers would not be required in case a user is using passive speakers as output speakers. The said device is MIMO enabled." 12. Explaining the common features of the subject devices, Mr. Lakshmikumaran contended that they are essentially mediums of communication with built-in Alexa technology. It was pointed o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to suggest its intent to covers all mechanical and electrical appliance/equipment as well as Electrical machinery and equipment falling under Chapters 84 and 85 respectively. Reliance was specifically placed on Note 3 placed in Section XVI which reads as follows: "3. Unless the context otherwise requires, composite machines consisting of two or more machines fitted together to form a whole and other machines designed for the purpose of performing two or more complementary or alternative functions are to be classified as if consisting only of that component or as being that machine which performs the principal function." 15. Mr. Lakshmikumaran laid emphasis on Note 3 as providing guidance for the purposes of classification by stipulating that in the case of multi-functional machines, it is the principal function of the machine which would be determinative. In terms of the synopsis which has been submitted for our consideration Mr. Lakshmikumaran while reiterating the versatility of the devices submitted that they are essentially multifunction machines involving and enabling transmission, reception or conversion of data. While elaborating on the above, Mr. Lakshmikumaran submitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... control reconditioners, locks, lights etc., it is clear that the product in question has multiple facets, and therefore, its classification would depend upon identifying the essential character of the device. The product consists of an Apple designed A8 chip, a six-microphone array, a seven-tweeter array, and a high excursion woofer enclosed in a seamless mesh fabric. The device works wirelessly through Wi-Fi or Bluetooth and as already noted it can play music directly from the internet or from another Apple device through AirPlay 2. Through its digital assistant, Siri, a user can give voice commands not only for obtaining the preferred music, but also information like, weather, news etc. Therefore, unlike a mere speaker, which only reproduces sound, the HomePod is a convergence device which is capable of receiving voice commands and processing such commands internally to receive the desired end result, be it music or information, and regenerate such music or information back to the user via the speakers. The primary mode of interacting with the device is voice commands, though it is possible to play, pause and raise volume by tapping the top of the device. The home automation func ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the Circular of the Central Board of Excise & Customs [Board] dated 05 September 2013 which was called upon to evaluate the classification of Bluetooth Wireless Headsets to be used alongside mobiles and cellular phones. It would appear from a reading of the aforesaid Circular that the Board accepted the position that normal headphones when combined with a microphone would only carry audio signals whereas Bluetooth headsets are an active part of a wireless network and which simultaneously receive or transmit voice or data in a wireless setting. On due consideration of the above features of Bluetooth Wireless headsets as distinguished from ordinary headsets, the Board held that they would be classifiable under CTH 8517. We deem it apposite to extract paras 4 & 5 of the Circular hereinbelow: "4. In the instant case, as "Bluetooth Wireless headset for mobile/cell phone", is presented together with a charger, ear hooks and user documentation and put up in a set for retail sale, therefore besides GRI 1, the legal basis of classification would be the sequential application of Rules 2(a), 2(b), 3(a) and 3(b). It is the headset that confers it the essential character to this set. As se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the name or nomenclature of a product cannot always be accepted to be a valid criterion for classification or for the said test being applied in complete disregard of the functionality of a product. Mr. Lakshmikumaran in this respect sought to draw sustenance from the following decisions: (i) Commissioner of Central Excise Hyderabad v. Sarvotham Care Limited (2015) 13 SCC 498; (ii) Sanghvi Movers Ltd v. Commissioner of Customs 2007 SCC Online CESTAT 79 (as confirmed by the Supreme Court in its order dated 22.04.2016, CA No. 4336/2008). 22. Learned counsel further submitted that the AAR erred in taking the position that if the subject devices were not connected to the internet, they would function as speakers only and this aspect justifying their placement in either CTH 8518 or 8528. According to learned counsel, the view so taken proceeds in ignorance of the indubitable fact that the subject devices are in fact designed, manufactured and intended to be used with an internet connection failing which the various Alexa based features which are embedded in those devices would be rendered otiose. According to learned counsel, the view taken by the AAR in this regard is wholly illog ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the AAR Mumbai's decision relating to Apple Home Pods is of little relevance since as per the scheme of the Customs Act, 1962 [the 1962 Act], advance rulings pronounced by the AAR bind only the concerned applicant and the particular Commissionerate of Customs and therefore no other individual or entity can derive benefit from such expressions of opinion. With respect to the BTI decisions rendered by the competent customs authorities in overseas jurisdictions is concerned, Mr. Kumar submitted that the said decisions do not bind the Indian customs authorities and who are jurisdictionally empowered and obliged to answer the issue of classification independently and bearing in mind our Act as well as the Rules and Regulations framed thereunder. 26. Having noticed the rival submissions addressed, we deem it apposite to briefly notice the conclusions recorded by the AAR and which forms the basis for the passing of the impugned order. Insofar as Echo 4th Generation, Echo Dot 4th generation and Echo Dot 4th generation with Clock were concerned, the AAR on the basis of the product description, the special features of those devices as highlighted by the appellant as well as the advertise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder CTH 8517, it held that they would not be covered by the aforenoted exemption Notification. It, however, accepted the extension of exemption benefits to Echo Auto and Echo Flex since they were not MIMO enabled and more fundamentally since it had already held that they were liable to be placed under CTH 8517. 30. It is pertinent to note that while the AAR did notice the principles of interpretation and which in turn would be guided by the GI Rules, the Chapter Headings and the Notes placed therein, it clearly appears to have failed to test or answer the issue of classification based on the guiding principles as evinced therefrom. The AAR, in our considered opinion, even while attempting to ascertain and discern the principal function of the subject devices appears to have taken an extremely narrow if not myopic view. This, we are constrained to so observe, in light of the following facts. 31. Of the seven devices which were ultimately classified by the AAR as falling under CTH 8518 and 8528, we note that undisputedly those devices were designed to act as communication devices, were voice enabled and had various functionalities including the capability of controlling compatible ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ined from the aforesaid perspective we come to the conclusion that the respondent is correct in submitting that the essential properties of the product are medicinal in nature. It is clear from the following description: "Pharmacodynamics Ketoconazole, a synthetic imidazole dioxolane derivative has a potent anti-fungal activity against dermatophytes, such as Trichophyton sp. Epidermophyton sp. Microsporum sp. and yeasts, such as candida sp. and Malassezia furfur (Pityrosporumovale). Ketoconazole shampoo rapidly relieves scaling and pruritus, which are usually associated with pityriasis versicolor seborrhoeic dermatitis and pityriasis capitis (dandruff). Pharmacokinetics Percutaneous absorption of Ketoconazole shampoo is negligible since blood levels cannot be detected, even after chronic use. Systematic effects, therefore, are not expected. Indications Treatment and prophylaxis of infections in which the yeast pityrosporum is involved, such as pityriasis versicolor (localised), seborrhoeic dermatitis and pityriasis capitis (dandruff). Contra-indications Known hypersensitivity to Ketoconazole or the excipient." 23. The manufacturer has given clear warning and precaut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for you to deal with it. Please read this leaflet carefully to get the best results from this treatment. Remember that it cannot answer all your questions, and that you should check with your doctor for any further information you may require." 27. The use is suggested only on the advice of a doctor and there is a suggestion that doctor should be consulted for any further information. The respondent has also provided the literature/material showing that dandruff is a disorder which affects the hairy scalp. It is generally triggered by a single-celled organism which is a kind of fungus, with scientific name "PityrosporumOvale". For treatment of this disease, Nizral shampoo 2% (i.e. shampoo containing 2% "Ketoconazole") is shown as "a new medicine" use whereof cures and clears a dandruff. It is suggested that it should be used once a week and on other days, normal shampoos may be used which clearly shows that "Nizral shampoo" is to be used like a medicine, unlike other normal shampoos." 34. As would be manifest from the aforesaid extracts of the decision in Sarvotham Care, notwithstanding the product having been branded as a 'shampoo', the Supreme Court observed that for the purpo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mon parlance. However, the quantity of medicament used in a particular product is not a relevant factor because, ordinarily, the extent of use of medical ingredients is very low as a larger use may be harmful for the human body [vide Wockhardt Life Sciences (supra)]. Moreover, as held in Sharma Chemicals (supra), the mere fact that a product is sold across the counters and not under a doctor's prescription, does not by itself lead to a conclusion that it is not a medicament; and in Meghdoot (supra), that a product may be medicinal without having been prescribed by a medical practitioner. It is held by this Court in BPL Pharmaceuticals (supra) and reiterated in Meghdoot (supra) that the items which may be sold under names bearing a cosmetic connotation would nevertheless remain medicines based on the composition. As regards the question as to whether a particular product is classifiable under Chapter 30 as 'medicament' or under Chapter 33 as 'cosmetic', one of the essential features would be as to whether the preparation is essentially for cure or prevention of disease (medicament) or for care (cosmetic); and the preparation having only subsidiary curative or prophylactic value ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... als (supra) to be apposite to the questions before us. Therein, this Court was considering a product sold by the assessee under the brand name "Selsun shampoo". This Court found it to be medicament with reference to a variety of tests applied from different angles and after finding that its active ingredient was selenium sulfide. In that context, this Court also indicated that an individual using such product may not be prepared to say that he or she was using a particular compound to get rid of dandruff or other similar diseases but would not hesitate to state that he or she was using a particular brand of shampoo. The observations in BPL Pharmaceuticals in this regard correlates with ingredient test as also the common parlance test; and in our view, fortify the case of the respondent. xxxx xxxx xxxx 95. The other suggestion on behalf of the Adjudicating Authority and the appellant, relating to the common parlance test with reference to the depiction of a lady with long black flowing hair on its label and thereby treating it as cosmetic, is also stretching the matter to the brink of absurdity. When the product in question is intended to control hair fall as also to prevent dan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... considered opinion, the tests evolved by courts in connection with the issue of classification such as nomenclature, common parlance, principal function, primary and incidental purpose are all aids and rules of guidance liable to be cumulatively borne in consideration in order to ascertain the true character of a product. While none of those tests are accorded preeminence, it is ultimately for the authorities to ascertain which of those rules would merit adoption and represent an accurate understanding of the nature of the product. 38. Regard must also be had to the fact that the general tests as evolved by courts must cede to the rules of interpretation which may have been specifically drawn. It is in such contingencies that our precedents bid us to accord precedence to GI Rules, Chapter Headings and Notes appended thereto. 39. Insofar as the rejection of the claim of the appellant in respect of the seven devices is concerned, we find that the AAR has abjectly failed to answer the question of classification based on the Chapter Headings or the Notes placed in Section XVI and which were clearly of seminal importance. It becomes pertinent to note that Section XVI apart from coveri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urport to deal with apparatus used for transmission or reception of voice, image or other data or a product used for communication in a wired or wireless network. CTH 8528 is also not concerned with the transmission or reception of voice, image or other data or for communication in a wired or wireless network. 43. CTH 8518 was thus confined to loudspeakers per se while CTH 8528 stood basically confined to displays and monitors generally. Those entries cannot be construed as extending their coverage to convergence devices or platforms which were designed and enabled to perform the function of transmission and reception of voice or data or the performance of the varied functions which constituted the special characteristics of the seven devices in question. If one were to test these devices bearing in mind Note 3, it is apparent that the AAR was obliged to approach the issue by seeking to discern the primary function of the devices. Viewed in that light, it is manifest that the devices were not mere speakers. They were essentially designed to act as mediums of communication, transmitting voice, image or data and performing myriad functions in a wired or wireless environment. The pla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wholly incorrect to describe the devices in question to be mere speakers. 47. As is evident from the explanation of the unique features of the products in question, they were principally designed to act as mediums for reception and transmission of data and could additionally and as an aside also be used as a speaker. However, since these were essentially reception and transmission devices which could analyze data and perform the varied functions noticed above, they were rightly described by the appellant as being communication devices and thus answering the requirement of machines for the reception, conversion and transmission or regeneration of voice, images or other data as contemplated under Tariff Entry 8517 62 90. 48. We also find merit in the submission of Mr. Lakshmikumaran who had drawn our attention to the decision rendered by the AAR, Mumbai who had while examining the question of classification of a similar device, namely the "Apple HomePod" correctly come to conclude that it was principally a convergence device. 49. While the precept of principal function is well settled, we deem it apposite to notice the decision of the Supreme Court in Commissioner of Central Exci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iquid. 16. Revenue is classifying the impugned chillers as parts of the air-conditioning system as the same are used in central air-conditioning plants of star hotels, airports, hospitals, large office complexes and large establishments. The use of the chillers in the air-conditioning system would not take away the primary or basic function of the chiller which is to produce chilled water by using a refrigerating circuit. Heading 84.18 covers refrigerators, freezers and other refrigerating or freezing equipment. Accordingly, the chillers in question shall fall under specific Heading 84.18 of the Tariff Act. This view is supported by the explanatory notes of HSN below Heading 84.15. HSN provides that: "If presented as separate elements, the components of air conditioning machines are classified in accordance with the provisions of Note 2(a) to Section 16 (Headings 84.14, 84.18, 84.19, 84.21, 84.79, etc.)...." "Chillers" manufactured by the respondent are cleared as separate elements and not as (sic part of) air conditioning machines, therefore, the same have to be classified under Tariff Entry 84.18 as refrigerating or freezing equipments as the basic function of the chillers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... component or as being that machine which performs the principal function." 17. It is not in dispute that the multifunctional machines in question, Xerox Regal 5799 has about 85% of its total parts and components along with manufacturing cost allocated to printing, as does 74% of the Xerox XD155df model. This clearly shows that the printing function emerges as the principal function and gives the multifunctional machines its essential character. Having such a nature, it also clearly meets the threefold requirement of Chapter Note 5(B), as it is to be used principally in ADPM, it is connectable to the central processing unit, and it is able to accept data in a form (codes or signals) which can be used by the system. Further, there would be no application of Chapter Note 5(E) as correctly pointed out by the learned counsel for the appellants, as the multifunctional machines are presented independently. Moreover, since predominant components are relating to printing function, Chapter Note 5(D) also becomes relevant which includes printers under Heading 84.71. We are also satisfied with the contention of the appellants that based on the nature of the functions they perform, the multif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... September 2013 is a reiteration of the special characteristics of devices which are designed to perform multiple functions in a wired or wireless network including the reception and transmission of voice and data and thus transcending the limits of traditional products which only reproduce or play back content. 53. We also find ourselves unable to accept the contention of Mr. Kumar based on the exemption Notification dated 01 February 2022 issued by the Ministry of Finance classifying portable Bluetooth speakers as 'hearable devices'. We at the outset deem it apposite to observe that the Ministry's decision to extend exemption to a particular category of devices or products cannot possibly be accepted as being relevant for the purposes of classification for the following reasons. The Ministry, bearing in mind various policy objectives, may choose to extend the benefit of exemption to a wide variety of products. When exercising the power to exempt, the competent authority may also choose not to be bound by the CTH and thus extend benefits even to those which may otherwise not strictly fall within the purview of a particular tariff entry. We thus find ourselves unable to accept the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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