2023 (12) TMI 757 - HC - Customs

Echo family device classification as communication machines under tariff entry, with select models eligible for exemption

Classification of imported electronic devices focuses on whether devices are goods for reception, conversion and transmission of voice or data rather than ... Principal function test - Note 3 to Section XVI - classification under CTH 8517 62 90 - classification under CTH 8518 and CTH 8528 - machines for the reception, conversion and transmission or regeneration of voice, images or other data - interpretation of Chapter Headings and GI Rules - exemption Notification No. 57/2017-Cus (Sl. No. 20)Principal function test - Note 3 to Section XVI - classification under CTH 8517 62 90 - machines for the reception, conversion and transmission or regeneration of voice, images or other data - interpretation of Chapter Headings and GI Rules - Whether the eleven Amazon Echo family devices are classifiable under CTH 8517, and more particularly under Tariff Entry 8517 62 90. - HELD THAT: - Applying the General Rules for Interpretation, Chapter Headings and Note 3 to Section XVI, the Court held that composite or multifunction devices must be classified according to the component or machine which performs the principal function. The Echo devices possess core capabilities of receiving, converting, transmitting and regenerating voice, images or other data in a wired or wireless network environment (interaction with cloud/AVS, voice-activation, control of smart appliances), and those features constitute their principal function rather than mere playback. CTH 8517 expressly covers apparatus for transmission or reception of voice, images or other data and thereby properly embraces such convergence/communication devices. By contrast, CTH 8518 is confined to loudspeakers/headphones and CTH 8528 to monitors/displays, neither of which contemplates apparatus whose principal function is transmission/reception of data. The AAR's reliance on product nomenclature, advertising or the fact that the devices may operate as speakers/monitors when disconnected from the internet was rejected; end-use or label alone cannot determine classification. The Court also observed that international determinations and the Board's circular on Bluetooth headsets (recognizing networked devices as falling under heading 85.17) are relevant for understanding HSN-based classifications and support treating the Echo devices as convergence/communication apparatus. On these grounds the impugned order was set aside insofar as it classified the seven devices under CTH 8518/8528, and the eleven devices were held classifiable under CTH 8517 62 90. [Paras 42, 43, 44, 55, 57]All eleven Echo family devices are correctly classifiable under CTH 8517, specifically under Tariff Entry 8517 62 90.Exemption Notification No. 57/2017-Cus (Sl. No. 20) - classification under CTH 8517 62 90 - MIMO exclusion criterion - Whether Echo Show 5, Echo Dot 4th Generation and Echo Dot 4th Generation with Clock are eligible for exemption under Sl. No. 20 of Notification No. 57/2017-Cus dated 30.6.2017 as amended. - HELD THAT: - The entitlement to the exemption depends on (i) classification under Tariff Entries 8517 62 90 or 8517 69 90 and (ii) non-inclusion in the list of excluded items (notably non-MIMO enabled). Having held that the Echo Show 5, Echo Dot 4th Generation and Echo Dot 4th Generation with Clock are classifiable under CTH 8517 62 90, the Court found that the AAR's denial of exemption could not be sustained. The Court therefore concluded that those three devices satisfy the classification condition and, subject to the notified exclusion criteria (e.g., MIMO), are eligible to claim exemption under the specified notification. [Paras 56, 57]Echo Show 5, Echo Dot 4th Generation and Echo Dot 4th Generation with Clock are eligible to claim exemptions in accordance with Sl. No. 20 of Notification No. 57/2017-Cus dated 30.6.2017, as amended.Classification under CTH 8517 62 90 - affirmation of AAR finding - Whether the AAR's classification of Echo Flex, Echo Auto, Echo Link and Echo Link Amp should be upheld. - HELD THAT: - The AAR had accepted that Echo Flex, Echo Auto, Echo Link and Echo Link Amp were communication devices falling within CTH 8517 62 90 (or otherwise within the scope of communication apparatus). The Court found no error in the AAR's conclusions in respect of these specific devices and accordingly affirmed the AAR's classification for them. [Paras 6, 7, 27, 57]The AAR's classification of Echo Flex, Echo Auto, Echo Link and Echo Link Amp is affirmed.Final Conclusion: The impugned AAR order dated 20 July 2021 is set aside insofar as it classified seven of the Echo devices under CTH 8518 and CTH 8528; all eleven Echo devices are held classifiable under CTH 8517 (notably Tariff Entry 8517 62 90). Echo Show 5, Echo Dot 4th Generation and Echo Dot 4th Generation with Clock are eligible for exemption under Sl. No. 20 of Notification No. 57/2017-Cus (as amended). The AAR's findings in respect of Echo Flex, Echo Auto, Echo Link and Echo Link Amp are affirmed. Issues Involved:1. Correct classification of the 11 Echo Family Devices under the Customs Tariff Heading (CTH).2. Eligibility for exemption under Notification No. 57/2017-Cus dated 30.6.2017 for specific devices.Summary of Judgment:Issue 1: Classification of Devices1. Principal Question: Whether the subject devices should be classified under CTH 8517, which includes apparatus for transmission or reception of voice, images, or other data, or under CTH 8518 (microphones, loudspeakers) or CTH 8528 (monitors and projectors).2. AAR's Decision: - Echo 4th Generation Devices: Classified as speakers under CTH 8518 due to their principal function of sound reproduction. - Echo Show Devices: Classified under CTH 8528 as monitors/displays. - Echo Flex: Classified under CTH 8517 as a communication device. - Echo Studio: Classified as a smart speaker under CTH 8518. - Echo Link and Echo Link Amp: Classified under CTH 8517 due to their primary function of reception, conversion, and transmission of voice or other data.3. Appellant's Argument: The devices should be classified under CTH 8517 as they are essentially communication devices designed for the transmission, reception, and conversion of data, and not merely as speakers or monitors.4. Court's Analysis: - Principal Function Test: Emphasized that the principal function of the devices should be the determining factor for classification. - Versatility of Devices: Recognized the multifunctional nature of the devices, which include capabilities such as controlling smart home appliances, browsing the internet, and acting as a calling and messaging platform. - Legal Precedents: Referred to the Supreme Court's decisions in similar cases, emphasizing the importance of the principal function over the nomenclature of the product. - Global Classification Practices: Considered international practices and the Harmonized System of Nomenclature (HSN) for consistency in classification.5. Court's Conclusion: The seven devices (Echo 4th Generation, Echo Dot 4th Generation, Echo Dot 4th Generation with Clock, Echo Show 5, Echo Show 8, Echo Show 10, and Echo Studio) should be classified under CTH 8517, specifically under Tariff Entry 8517 62 90, as their principal function is the transmission and reception of data.Issue 2: Eligibility for Exemption1. AAR's Decision on Exemption: Denied exemption benefits to Echo Show 5, Echo Dot 4th Generation, and Echo Dot 4th Generation with Clock, as they were not classified under CTH 8517.2. Court's Conclusion: Since the devices are now classified under CTH 8517, they are eligible for exemption under Notification No. 57/2017-Cus dated 30.6.2017, as amended.Final Judgment:- The order of the AAR dated 20 July 2021 is set aside to the extent it denied classification under CTH 8517 and exemption benefits.- The eleven devices are correctly classifiable under CTH 8517, specifically under Tariff Entry 8517 62 90.- Echo Show 5, Echo Dot 4th Generation, and Echo Dot 4th Generation with Clock are eligible for exemption in accordance with the relevant notification.