The New Delhi Bench of the Customs, Excise & Service Tax Appellate Tribunal (CESTAT) has clarified that goods which, on their functions, are machines for reception, conversion and transmission of data, are classifiable under CTSH/CTI 8517 62 and cannot be brought under the residual category 8517 69 merely because they may also answer a more descriptive expression such as “subscriber end equipment”.
The CESTAT held that a tariff item under the residual branch can apply only where the goods first qualify for that residual branch, and where denial of exemption depends upon a technical finding that the goods are optical transport equipment/OTN/POTP products, an expert report specifically disputing that position must be considered by the adjudicating authority.
The Tribunal also laid down that a change in classification claimed by the importer, without more, does not amount to collusion, wilful mis-statement or suppression of facts, since classification is a matter of opinion, and therefore extended limitation under section 28(4) and penalties under sections 114A and 114AA cannot be sustained on that basis alone.
The Division Bench comprising Justice Dilip Gupta (President) and P.V. Subba Rao (Technical Member) observed that the real dispute was not whether the goods fell under heading 8517, but whether within that heading they fell under CTSH 8517 62 or the residual category 8517 69. On the material placed by both sides, the Tribunal found that ONT/ONU are installed at the subscriber’s premises, receive broadband internet connectivity through optical fibre from the ISP, and transmit the same to various devices through cables or Wi-Fi. Since their function is reception and transmission of data, they fall within CTSH 8517 62 and not within the residual category of CTSH 8517 69.
The Tribunal rejected the argument that ONT/ONU should be classified under CTI 8517 69 50 merely because they are “subscriber end equipment”, holding that an item can fall under CTI 8517 69 50 only if it first falls within the parent residual category 8517 69. The same reasoning was applied to OLT, which was found to be equipment installed at the ISP end providing the link to subscribers and therefore also a machine for reception and transmission of data classifiable under CTI 8517 62 90.
On the exemption issue, the Tribunal noted that the Commissioner had denied the benefit of Notification No. 24/2005-Cus. and Notification No. 57/2017-Cus. on the footing that the goods were optical transport network products or otherwise fell within the excluded category of optical transport equipment/POTP. However, the appellant had produced the expert report of Shri Ravinder Kumar Mishra, retired Deputy Director General, Department of Telecommunication, stating that the imported GPON ONT/ONU and OLT were part of the access network used for broadband services and did not fall within the category of Optical Transport Network Equipment used in the optical core network. The Tribunal observed that this expert opinion had neither been considered nor tested by the Commissioner.
On limitation, the Tribunal held that although the appellant had earlier classified the goods differently and later changed the classification, that circumstance by itself did not establish collusion, wilful mis-statement or suppression of facts for invoking the extended period under section 28(4). It further held that classification is a matter of opinion and not a matter of fact, and therefore penalties under sections 114A and 114AA were not sustainable on the facts of the case.
Briefly, the appellant, GX India Pvt Ltd., had imported two categories of telecom/networking products, namely Optical Network Terminals/Optical Network Units (ONT/ONU) and Optical Line Terminals (OLT), through ICD Tughlakabad, ACC New Delhi and ICD Patparganj. The appellant classified ONT/ONU under CTI 8517 69 50 as “subscriber end equipment” and claimed exemption under Notification No. 24/2005-Cus., and classified OLT under CTI 8517 69 90 as “other” and claimed exemption under Notification No. 57/2017-Cus.
The DRI investigated the imports and took the view that both ONT/ONU and OLT were correctly classifiable under CTI 8517 62 90, with the consequence that the claimed exemptions were not available. Three show cause notices were issued proposing reclassification, denial of exemptions, recovery of differential duty with interest, confiscation under section 111(m), and penalties under sections 114A and 114AA of the Customs Act, 1962. The Commissioner confirmed the duty demand with interest, imposed penalties on the appellant, and held the goods liable to confiscation, though no redemption fine was imposed as the goods were not available.
