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of <h1>Pearl Assembly Module Subassembly classified as parts of mobile phones; concessional basic customs duty benefit allowed to manufacturers</h1> Pearl Assembly Module Subassembly lacks essential features to operate independently and fails the twin test for parts (no principal independent function ... Classification of goods as parts of a machine - twin test for parts (no separate identifiable function & incapable of independent operation) - General Rules of Interpretation (GIR) - Section Note 2(b) to Section XVI (parts suitable solely or principally with a particular machine) - Harmonized System of Nomenclature (HSN) Explanatory Notes - Customs Authority for Advance Rulings (CAAR) - applicant under Section 28E(c) and advance ruling under Section 28H - Customs Tariff Heading 8517 - Customs Tariff Sub-heading 8517 79 90 - Notification No. 57/2017 Sr. No. 6J (concessional BCD for goods for use in manufacture of cellular mobile phone) - HELD THAT:- It is clear that the even though the two sub-components work in conjunction with each other, the two carry out separate identifiable functions, one is to allow capturing images / videos from the front end of the mobile phone and the other to allow facial recognition functioning to enable the user to carry out handsfree functionality such as unlocking of phone without the use of hands, or authentication for payment in Apple Pay application, etc. The sub-components of Pearl Assembly Module are bonded onto a metal enclosure and bracket using specialized heat activated glue dispensing and curing process for structural support. Post importation of the Peral Assembly Module Subassembly, the same is integrated into the mobile phone and camera flex is connected to the motherboard to operationalize the Pearl Assembly Module. In the present case, as stated in the facts in Annexure-I, the product under consideration is a Pearl Assembly Module Subassembly which is the subassembly designed not only for capturing images / videos from the front end of the mobile phone but also to assist the user in handsfree applications such as unlocking the phone and authentication for payments via Apple Pay etc. Thus, it can be said that the subassembly provides for an enhanced functionality and user experience of the mobile phone. Since in the present case, the Pearl Assembly Module Subassembly does not have a principal function of its own, that is to say that even though the two sub-components of the assembly work in conjunction with each other, the two carry out separate identifiable functions, one is to allow capturing images / videos from the front end of the mobile phone and the other to allow facial recognition functioning to enable the user to carry out handsfree functionality such as unlocking of phone without the use of hands, or authentication for payment in Apple Pay application, etc. Hence, there is no one particular identifiable function of the Pearl Assembly Module Subassembly. Hence, upon sequential application of the rules provided in Section Note 2 in the present case, since there is no specific entry at four-dash level (as discussed above), under Chapter 84 or Chapter 85 which specifically cover Pearl Assembly Module Subassembly (having two separate identifiable function), the Pearl Assembly Module Subassembly is excluded from the purview of Section Note 2 (a). It is submitted that even though the subassembly has a separate identifiable function of capturing images and videos and face recognition, as the Pearl Assembly Module Subassembly in its as imported condition does not contain essential features such as internal storage, analogue/ digital converter (ADC), output terminal, etc. which are required for a camera module to function independently on its own, it cannot be said to be a standalone device. Further, the images and video captured by the subassembly have to be stored within the mobile phone's internal storage. Similarly, to display the images or video captured by the subassembly, the subassembly has to interact with the display module of the mobile phone. Thus, for the subassembly to function effectively i.e., from capturing images and videos to processing and storing them, it needs to work in conjunction with other components of the mobile phone. Hence, it is submitted that the subassembly is not capable of functioning independently of the complete mobile phone. To this extent, it does not qualify both the conditions of the twin test, and hence Pearl Assembly Module Subassembly shall not merit classification under the separate heading and shall merit classification only as part of the mobile phone. Accordingly, the product will be covered within the single dash entry of 'parts' under CTH 8517. Whether the Pearl Assembly Module Subassembly exported by the Applicant to India merits classification under CTH 8517 79 90 of the First Schedule of the Customs Tariff ? - HELD THAT:- Yes, the Pearl Assembly Module Subassembly exported by the Applicant to India merits classification under CTH 8517 79 90 of the First Schedule of the Customs Tariff. Whether benefit of concessional rate of BCD under Sr. No. 6J of the Notification No. 57/2017 is available for export of such Pearl Assembly Module Subassembly to third-party manufacturers engaged in manufacture of mobile phones in India? - HELD THAT:- Yes, benefit of concessional rate of BCD under Sr. No. 6J of the Notification No. 57/2017 is available for export of such Pearl Assembly Module Subassembly to third-party manufacturers engaged in manufacture of mobile phones in India. Issues: (i) Whether the Pearl Assembly Module Subassembly merits classification under CTH 8517 79 90 of the First Schedule of the Customs Tariff; (ii) Whether concessional basic customs duty under Sr. No. 6J of Notification No. 57/2017 is available for import of such Pearl Assembly Module Subassembly for use in manufacture of cellular mobile phones.Issue (i): Whether the Pearl Assembly Module Subassembly is classifiable under CTH 8517 79 90.Analysis: Apply General Rules of Interpretation and Section/Chapter Notes with reference to HSN Explanatory Notes. The product comprises a front camera subassembly and a face recognition module bonded as a subassembly, which lacks independent features of a digital camera (internal storage, ADC, output terminal, viewfinder/LCD) and requires integration with a mobile phone to function. Section Note 2 to Section XVI must be applied sequentially: no specific four-digit entry applies; the subassembly is suitable solely or principally for mobile phones and is incapable of independent operation; judicial tests for 'parts' and twin test (no separate identifiable function and incapable of independent operation) support classification as part of the mobile phone. Therefore classification under CTH 8517 follows, with no specific eight-digit entry covering the product, leading to the residuary subheading CTH 8517 79 90.Conclusion: The Pearl Assembly Module Subassembly is classifiable under CTH 8517 79 90 (in favour of the assessee).Issue (ii): Whether concessional BCD under Sr. No. 6J of Notification No. 57/2017 applies to the Pearl Assembly Module Subassembly.Analysis: Sr. No. 6J of Notification No. 57/2017 provides concessional BCD for goods for use in manufacture of cellular mobile phones classified under CTH 8517 79 90, subject to IGCR Rules compliance. Given the classification under CTH 8517 79 90 as a part used in manufacture of mobile phones, the subassembly falls within the scope of the entry and may avail the concessional rate subject to procedural compliance under the IGCR Rules.Conclusion: Benefit of concessional BCD under Sr. No. 6J of Notification No. 57/2017 is available for the Pearl Assembly Module Subassembly (in favour of the assessee), subject to compliance with IGCR Rules.Final Conclusion: The product is to be treated as a part of mobile phones and classified under CTH 8517 79 90, and the concessional duty entitlement under Notification No. 57/2017 Sr. No. 6J is applicable, subject to applicable procedural requirements.Ratio Decidendi: A subassembly that is suitable solely or principally for use in a particular machine and incapable of independent operation qualifies as a 'part' under Section Note 2(b) to Section XVI and is classifiable with that machine (here, CTH 8517 79 90), entitling it to any concessional treatment applicable to that heading subject to procedural compliance.
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