Emphasising that the correct classification of the goods must be determined by the General Rules of Interpretation (GRI), the New Delhi Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) ruled that the ‘Newland NLS Handheld Barcode Scanners’ imported by the IT Solution Provider cannot be classified as ‘mobile phones’.
Since the mobile phone functionality in the impugned gadget is ancillary and the specific function is that of a scanner, the CESTAT clarified that the imported goods in the present case are to be classified as ‘scanners’ (8471) CTH instead of ‘mobile phone’ (8517) CTH. Accordingly, the CESTAT quashed the differential customs duty liability.
The Division Bench comprising Dr Rachna Gupta (Judicial Member) and P.V. Subba Rao (Technical Member) referred to Note 3 to Section XVI, which stipulates that composite machines designed to perform two or more complementary or alternative functions are to be classified as if consisting only of the component that performs the principal function.
The Tribunal explained that for a device to be classified under CTH 8471, it must satisfy the requirements of an “automatic data processing machine” as laid out in Note 6(A) to Chapter 84. Further, Note 6(E) states that a machine performing a specific function other than data processing is to be classified in the heading appropriate to that function.
The Tribunal noted that the communication abilities of the imported goods are only an ancillary function. It relied on Board Circular No. 20/2013-Cus. dated May 14, 2013, which clarified that if a mobile phone calling function is supplementary and cannot be activated without running the device’s operating system, the device is not intended to be a substitute for a mobile phone.
Applying the Trade Parlance Test, the Tribunal cited the Bombay High Court’s decision in P.M.P Auto Industries Ltd. Vs. Union of India [1987 (31) ELT 369 (Bom.)], which held that the goods are to be classified the way they are known by those who deal with them. Upon examining a sample, the Tribunal observed that the product was comparatively bigger than a mobile phone and had a handle, which are not features of products typically sold as mobile phones.
The Tribunal also noted that documents on record, such as brochures and invoices, describe the imported goods as “Handheld Scanners,” which is how they are known to the trade. Lastly, the Tribunal referred to Chapter Note 8 of Chapter 84, which stipulates that a machine used for more than one purpose is to be treated as if its principal purpose were its sole purpose for classification.
Briefly, the appellant, an IT solutions provider, imported a consignment of ‘Newland NLS Handheld Barcode Scanners’ (specifically models MT9052-GL and MT-9055-GL) and filed a Bill of Entry. The appellant classified the goods under Customs Tariff Heading (CTH) 8471 60 50, claiming exemption from Basic Customs Duty (BCD).
The adjudicating authority re-assessed the goods, alleging they are classifiable under CTH 8517 13 00 as “telephones for cellular network/mobile phones” or “Smartphones”. This re-assessment resulted in a differential customs duty demand of INR 8,47,416, as goods under this CTH are leviable to BCD @ 20%. The Commissioner (Appeals) also upheld the re-assessment order.
Appearances:
Advocates Vishal Nath and S.C. Jain, for the Appellant/ Taxpayer
ARs, Nikhil Mohan Goyal, Girijesh Kumar and Ranjan Prakash, for the Respondent/ Revenue
